[Federal Register Volume 82, Number 9 (Friday, January 13, 2017)]
[Rules and Regulations]
[Pages 4732-4734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31499]



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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2005-95; FAR Case 2015-016; Item V; Docket No. 2015-0016; Sequence 
No. 1]
RIN 9000-AM97


Federal Acquisition Regulation; Prohibition on Reimbursement for 
Congressional Investigations and Inquiries

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

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule to amend the 
Federal Acquisition Regulation (FAR) to implement section 857 of the 
Carl Levin and Howard P. `Buck' McKeon National Defense Authorization 
Act for Fiscal Year 2015. This section provides additional requirements 
relative to the allowability of costs incurred by a contractor in 
connection with a Congressional investigation or inquiry.

DATES: Effective: January 13, 2017.

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact 
Ms. Zenaida Delgado, Procurement Analyst, at 202-969-7207. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at 202-501-4755. Please cite FAC 2005-95, FAR 
Case 2015-016.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 81 FR 8031 on February 17, 2016, soliciting public comments 
on implementing section 857 of the Carl Levin and Howard P. `Buck' 
McKeon National Defense Authorization Act (NDAA) for Fiscal Year (FY) 
2015 (Pub. L. 113-291).
    This statute amended 10 U.S.C. 2324(e)(1) to disallow costs 
incurred by a contractor in connection with a Congressional 
investigation or inquiry into an issue that is the subject matter of a 
proceeding resulting in a disposition as described in 10 U.S.C. 
2324(k)(2).
    While section 857 only applies to contracts with DoD, NASA, and the 
Coast Guard, for the purpose of promoting consistency in the accounting 
systems of Federal contractors, it was decided to apply the section's 
requirements to all agencies subject to the FAR.
    Additionally, conforming language on unallowable costs is added to 
FAR 31.603-16 and 31.603-15 (to update language associated with 
whistleblower complaints).
    Two respondents submitted public comments.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule:

A. Summary of Significant Changes

    Several editorial changes are made to the rule as a result of the 
comments received; these were aimed at simplifying sentence structure 
for clarification purposes. There were no comments on the Initial 
Regulatory Flexibility Analysis.

B. Analysis of Public Comments

1. Unfair Withholding of Costs
    Comment: One respondent stressed that contractors should not be 
penalized until guilt is determined by a court of law. Contractors 
should be reimbursed for their costs, as incurred, at the time of their 
participation in a Congressional investigation or inquiry. While 
affirming that it only makes sense that a contractor found guilty of 
defrauding or cheating the Government in association with their work 
should forfeit their reimbursement, the respondent maintained that, 
until guilt is determined by a court of law, the contractor should be 
reimbursed for its costs. Then, if the contractor is found guilty of 
defrauding or cheating the Government, it should pay those costs back 
to the Government.
    Response: The disallowance of costs in accordance with 10 U.S.C. 
2324(e)(1)(Q) (i.e., any costs incurred by a contractor in connection 
with a Congressional investigation or inquiry into an issue that is the 
subject matter of a proceeding resulting in a disposition that meets 
conditions at FAR 31.205-47(b)(1) through (5)) does not constitute a 
penalty. The regulation clearly states that costs are unallowable if 
incurred in connection with a Congressional investigation or inquiry 
into an issue that is the subject matter of a proceeding that results 
in a specified disposition. Absent a specified disposition, no 
disallowance of costs would exist.
    Comment: The same respondent stated that the ``guilty verdict'' 
must come from an impartial court, and must be associated with the 
inquiry.
    Response: The Councils appreciate this concern, but note that it 
extends beyond the scope of this case.
2. Use of Congressional Investigations
    Comment: One respondent suggested fixing ``the real problem'' by 
writing regulations to penalize politicians who use Congressional 
investigations to promote their personal or their affiliated party's 
agenda. The respondent noted that, in many cases, small businesses 
incur hundreds of thousands of dollars in costs associated with the 
inquiry, despite the fact that the only thing they did wrong was work 
for a Government entity that was targeted by a political party.
    Response: The Councils appreciate this concern, but note that it 
extends beyond the scope of this case.
3. Clarify Relationship Among the FAR 31.205-47 Paragraphs
    Comment: One respondent questioned whether FAR 31.205-47(c) or (d) 
would impact the allowability of the cost of a Congressional 
investigation or inquiry. Specifically, the respondent asked if the 
cost of a Congressional investigation or inquiry related to an issue 
that is the subject matter of a FAR 31.205-47(b) proceeding, whose 
result is described in FAR 31.205-47(b)(1) through (5), would be 
unallowable if one of the circumstances described in FAR 31.205-47(c) 
or (d) existed.
    Response: The cost of a Congressional investigation or inquiry 
cannot be treated the same as the cost of a proceeding under FAR 
31.205-47(c) or (d). Although the section 857 language ties the cost of 
the Congressional investigation or inquiry to an issue that is the 
subject matter of a proceeding resulting in a disposition as described 
in 10 U.S.C. 2324(k)(2), Congress did not enact parallel treatment. 10 
U.S.C. 2324(e)(1)(O) disallows ``Costs incurred by a contractor in 
connection with any criminal, civil, or administrative proceeding 
commenced by the United States or a State, to the extent provided in 
subsection (k),'' which includes the exceptions in paragraphs (k)(3) 
and (k)(4), covered in the FAR at 31.205-47(c) and (d). Section 857, as 
implemented in 10 U.S.C. 2324(e)(1)(Q), references only paragraph 
(k)(2) and does not reference paragraph (k) in its entirety; nor does 
it reference paragraphs (k)(3) or (k)(4) specifically. Therefore, the 
statute requires that the costs incurred in connection with a 
Congressional investigation or inquiry be treated differently than the 
costs incurred in connection with other

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criminal, civil, or administrative proceedings in which costs may be 
allowable under certain circumstances.
    Comment: The same respondent questioned whether the limitations at 
FAR 31.205-47(e) would be applicable to the costs incurred in 
connection with a Congressional investigation or inquiry. Specifically, 
the respondent asked if the costs of a Congressional investigation or 
inquiry into a subject matter of a FAR 31.205-47(b) proceeding, whose 
result is not one described in FAR 31.205-47(b)(1) through (5), would 
be subject to the limitations in FAR 31.205-47(e).
    Response: FAR 31.205-47(e) relates to costs not made unallowable by 
paragraph (b), while the new paragraph (f)(9) relates to costs made 
unallowable by paragraphs (b)(1) through (5), which describe the 
outcomes that would deem the costs unallowable. Because there is no 
overlap between the two concepts, there is no need to clarify that 
relationship in the FAR text.
    Comment: The same respondent questioned whether requirements in FAR 
31.205-47(g), regarding costs that may be unallowable under FAR 31.205-
47(b), would be applicable to costs that may be unallowable under FAR 
31.205-47(f)(9).
    Response: FAR 31.205-47(g) pertains to all unallowable costs under 
31.205-47.
4. Clarify the Relationship Between FAR 31.205-47(g) and FAR 
31.603(b)(15) and FAR 31.603(b)(16)
    Comment: One respondent questioned whether the FAR 31.205-47(g) 
segregation of cost requirements are to be imposed regarding costs that 
may be made unallowable based on FAR 31.603(b)(15) or (16). Since the 
proposed rule does not address this issue, there was a question as to 
whether FAR 31.205-47(g) is applicable to costs that may be made 
unallowable based on FAR 31.603(b)(15) or (16). For costs that may be 
made unallowable under FAR 31.205-47, the respondent argued that it 
would be in the Government's best interest for: (1) State, local, and 
federally recognized Indian tribal governments to segregate and account 
separately for costs that may be made unallowable under FAR 
31.603(b)(15) and FAR 31.603(b)(16) during the pendency of a related 
proceeding, and (2) the contracting officer to normally withhold 
payment of such costs. Accordingly, the respondent recommended that FAR 
31.603(b)(15) and (16) be revised to incorporate requirements similar 
to those in FAR 31.205-47(g).
    Response: The Councils appreciate this concern, but note that 
adding this as a requirement would require a separate FAR case. 
Although segregation of potentially unallowable costs (as described at 
FAR 31.205-47(g)) is a prudent business practice for State, local, and 
federally recognized Indian tribal governments, section 857 of the NDAA 
for FY 2016 did not extend this requirement to such entities.
5. Clarification of Regulatory Intent of FAR 31.205-47(f)(9)
    Comment: One respondent focused a question upon Congressional 
inquiry or investigation activities that predate the existence of the 
proceeding, noting that the proposed version of FAR 31.205-47(f)(9) 
makes unallowable costs incurred in connection with a Congressional 
investigation or inquiry into an issue that is the subject matter of a 
proceeding resulting in a disposition as described in FAR 31.205-
47(b)(1) through (5). The respondent interpreted this to mean that, in 
order for the costs of the Congressional investigation or inquiry to be 
unallowable, a proceeding would have to be in process. Therefore, it 
would follow that costs incurred in connection with a Congressional 
investigation or inquiry that predate the existence of a proceeding are 
allowable. Specifically, even if the issue becomes the subject matter 
of a FAR 31.205-47 proceeding at a later date, there is no intention 
under the proposed rule to retroactively make costs incurred in 
connection with a Congressional investigation or inquiry that is the 
subject matter of the proceeding unallowable. If that understanding is 
incorrect and the rule's intent is to make the costs incurred in 
connection with a Congressional investigation or inquiry that pre-date 
the existence of a proceeding unallowable, then the proposed rule 
should be revised to state that requirement in the cost principle.
    Response: The statutory language states: ``. . . congressional 
investigation or inquiry into an issue that is [emphasis added] the 
subject matter of a proceeding.'' Therefore, the proceeding must be a 
known event, whether it has already commenced or is known to be 
commencing on a future date. Preparation (i.e., segregation of costs) 
for a potential disallowance begins when it is known that a proceeding 
will ensue.
    Comment: The same respondent asked about Government Accountability 
Office (GAO) investigations, noting that the proposed version of FAR 
31.205-47(f)(9) makes unallowable the costs incurred in connection with 
a Congressional investigation or inquiry into an issue that is the 
subject matter of a proceeding resulting in a disposition described in 
FAR paragraphs 31.205-47(b)(1) through (5). The respondent stated that 
no specifics are provided in the proposed rule concerning what is 
considered a Congressional investigation or inquiry into an issue that 
is the subject matter of a proceeding, cautioning that this could lead 
to different interpretations concerning costs incurred to facilitate or 
respond to a GAO audit or request, in the event that the project was 
suggested or specifically required by a Congressional committee or 
subcommittee. The respondent posited that some might conclude that the 
proposed rule makes such costs unallowable, and requested confirmation 
that there is, in fact, no intent to make such costs unallowable.
    Response: The Councils believe that Congress intended 10 U.S.C. 
2324(e)(1)(Q) to apply only to investigations and inquiries conducted 
by Congress, per se. Therefore, under FAR 31.205-47(f)(9), the 
potential disallowance and requisite segregation of costs would not be 
triggered by the GAO's efforts, but rather by an actual investigation 
or inquiry conducted by Congress. Further, the language is clear in its 
applicability to a Congressional investigation or inquiry into an 
issue--one that is the subject matter of a proceeding, a known event.

III. 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 has been deemed 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.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act 5 U.S.C. 
601, et seq. The FRFA is summarized as follows:

    DoD, GSA, and NASA do not expect this rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act,

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5 U.S.C. 601, et seq., because the rule will be manifested as a cost 
principle to which only select small businesses are subject. 
Pursuant to FAR 31.000, the cost principles are applicable to 
contracts, subcontracts, and modifications whenever cost analysis is 
performed, or when a contract clause requires the determination or 
negotiation of costs. An analysis of contracts awarded during Fiscal 
Year 2014, the most recent full year for which information was 
available, revealed that fewer than 200 small businesses were 
performing contracts subject to FAR 31.
    Again, the rule merely disallows costs incurred in the extremely 
rare instances when a contractor incurs costs in connection with a 
Congressional investigation or inquiry into an issue resulting in a 
disposition (e.g., conviction, liability, corrective action, etc.), 
as described in 10 U.S.C. 2324(k)(2). Accordingly, given the 
miniscule segment of the small business population that could 
potentially be impacted by the rule, and the low likelihood of the 
conditions being met, the impact on small businesses is 
insignificant.

    There were no significant issues raised by the public in response 
to the Initial Regulatory Flexibility Analysis provided in the proposed 
rule. The final rule applies to all entities, both small and other than 
small, performing as contractors or subcontractors on U.S. Government 
contracts, and who are required to abide by the Cost Principles at FAR 
part 31. However, the rule is not expected to have a significant 
impact.
    There are no reporting, recordkeeping, or other information 
collection requirements of the rule.
    DoD, GSA, and NASA did not identify any significant alternatives 
that would reduce the impact on small entities and still meet the 
objectives of the statute.
    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy 
of the FRFA to the Chief Counsel for Advocacy of the Small Business 
Administration.

V. Paperwork Reduction Act

    This 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 31

    Government procurement.

    Dated: December 21, 2016.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

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

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

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

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

0
2. Amend section 31.205-47 by--
0
 a. In paragraph (a):
0
i. In the definition of ``Fraud'', removing ``Fraudmeans'' and adding 
``Fraud means'' in its place;
0
ii. In the definition of ``Penalty'', removing the comma after the word 
``Penalty'';
0
iii. In the definition of ``Proceeding'', removing the comma after the 
word ``Proceeding'';
0
 b. Revising paragraph (b) introductory text; and
0
 c. Adding paragraph (f)(9).
    The addition reads as follows:


31.205-47   Costs related to legal and other proceedings.

* * * * *
    (b) Costs incurred in connection with any proceeding brought by: A 
Federal, State, local, or foreign government for a violation of, or 
failure to comply with, law or regulation by the contractor (including 
its agents or employees) (41 U.S.C. 4310 and 10 U.S.C. 2324(k)); a 
contractor or subcontractor employee submitting a whistleblower 
complaint of reprisal in accordance with 41 U.S.C. 4712 or 10 U.S.C. 
2409; or a third party in the name of the United States under the False 
Claims Act, 31 U.S.C. 3730, are unallowable if the result is--
* * * * *
    (f) * * *
    (9) A Congressional investigation or inquiry into an issue that is 
the subject matter of a proceeding resulting in a disposition as 
described in paragraphs (b)(1) through (5) of this section (see 10 
U.S.C. 2324(e)(1)(Q)).
* * * * *
0
3. Amend section 31.603 by--
0
a. Revising paragraphs (b) introductory text and (b)(15); and
0
b. Adding paragraph (b)(16).
    The revisions and addition reads as follows:


31.603   Requirements.

* * * * *
    (b) Agencies are not expected to place additional restrictions on 
individual items of cost. However, under 10 U.S.C. 2324, 41 U.S.C. 
4304, 31 U.S.C. 3730, and 41 U.S.C. 4310, the following costs are 
unallowable:
* * * * *
    (15) Unless any of the exceptions at 31.205-47(c) or (d) apply, 
costs incurred by a contractor in connection with any criminal, civil, 
or administrative proceedings that result in dispositions described at 
31.205-47(b)(1) through (5) commenced by: A Federal, State, local, or 
foreign government, for a violation of, or failure to comply with, law 
or regulation by the contractor (including its agents or employees); a 
contractor or subcontractor employee submitting a whistleblower 
complaint of reprisal in accordance with 41 U.S.C. 4712 or 10 U.S.C. 
2409; or a third party in the name of the United States under the False 
Claims Act, 31 U.S.C. 3730. For any such proceeding that does not 
result in a disposition described at 31.205-47(b)(1) through (5), or to 
which 31.205-47(c) exceptions apply, the cost of that proceeding shall 
be subject to the limitations in 31.205-47(e).
    (16) Costs incurred in connection with a Congressional 
investigation or inquiry into an issue that is the subject matter of a 
proceeding resulting in a disposition as described at 31.205-47(b)(1) 
through (5).

[FR Doc. 2016-31499 Filed 1-12-17; 8:45 am]
 BILLING CODE 6820-EP-P