[Federal Register Volume 83, Number 137 (Tuesday, July 17, 2018)]
[Rules and Regulations]
[Pages 33146-33148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15176]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards: Revision of the Exemption From Cost
Accounting Standards for Contracts and Subcontracts for the Acquisition
of Commercial Items
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, Office of Management and Budget.
ACTION: Final rule.
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SUMMARY: The Office of Federal Procurement Policy (OFPP), Cost
Accounting Standards (CAS) Board, is publishing a final rule revising
the exemption for contracts or subcontracts for the acquisition of
commercial items. This final rule clarifies the types of contracts that
are exempt from the application of Cost Accounting Standards when
acquiring commercial items.
DATES: Effective August 16, 2018.
FOR FURTHER INFORMATION CONTACT: Raymond Wong, Staff Director, Cost
Accounting Standards Board (telephone: 202-395-6805; email:
[email protected]).
SUPPLEMENTARY INFORMATION: This final rule revises the exemption 48 CFR
9903.201-1(b)(6) for contracts or subcontracts for the acquisition of
commercial items (hereafter referred to as the ``(b)(6) commercial item
exemption'').
A. Regulatory Process--Changes to 48 CFR Part 9903
The CAS Board's regulations and Standards are codified at 48 CFR
chapter 99. This final rule amends a CAS Board regulation other than a
Standard and, as such, is not subject to the statutorily prescribed
rulemaking process for the promulgation of a Standard at 41 U.S.C.
1502(c) [formerly, 41 U.S.C. 422(g)].
B. Background and Summary
In November 2012, the CAS Board issued a proposed rule to clarify
the exemption from CAS when acquiring commercial items. 77 FR 69422.
The exemption enumerates the contract types that are authorized when
procuring commercial items. Over the years, the CAS Board has issued
several rules addressing the exemption to reflect statutory changes
regarding the types of contracts that may be used in commercial item
acquisitions. See 61 FR 39360 (providing an exemption for firm-fixed-
price contracts and subcontracts for the acquisition of commercial
items as authorized by section 4305 of the Clinger-Cohen Act of 1996
(FARA), Pub. L. 104-106); 62 FR 31294 (adding fixed-price contracts
with economic price adjustments other than those based on actual
incurred costs for labor and materials); and 72 FR 36367 (expanding the
list of exempt contract types to include time-and-material and labor-
hour contracts, in response to changes made by section 1432 of the
Services Acquisition Reform Act of 2003, Pub. L. 108-136, which
authorized these types of contracts for the acquisition of commercial
items).
Since enactment of the Federal Acquisition Streamlining Act in 1994
(Pub. L. 103-355), the Federal Acquisition Regulation (FAR) has
included an enumerated list of contract types authorized for use in
acquiring commercial items. See 48 CFR part 12.207. Similar to the CAS
Board, the Federal Acquisition Regulatory Council has amended FAR
12.207 several times to reflect statutory changes and clarify the
intent of the regulation. An inconsistency has developed between the
list of contract types recognized for use in acquiring commercial items
set forth in paragraph (b)(6) and that commercial item exemption and
contract types reflected in FAR 12.207. For example, FAR 12.207 allows
the use of firmed fixed price contracts in conjunction with award fee
incentives or performance or delivery incentives, known as fixed-price
incentive (FPI) contracts, when the award fee or incentive is based
solely on factors other than cost. However, the (b)(6) exemption does
not expressly recognize FPI contracts on the enumerated list of exempt
contracts. Because of this discrepancy, some commenters on a prior CAS
Board rulemaking expressed concern that these types of FPI contracts
might be excluded under a literal reading of the (b)(6) exemption. See
72 FR 36367.
In its proposed rule, the CAS Board sought to address the
inconsistencies between the lists in the (b)(6) exemption and FAR
12.207 by removing reference to specific contract types in the (b)(6)
exemption and instead making simple reference to ``contracts and
subcontracts for the acquisition of commercial items.'' The CAS Board
explained that this generalized language would ``obviate the continuing
need to update and keep current a detailed listing of permissible
contract types for the acquisition of commercial items, which continues
to evolve with the passage of time.'' 77 FR 69424. The CAS Board
further explained that this language tracks the exemption set forth in
its authorizing statute at 41 U.S.C. 1502(b)(1)(C)(i) as well as the
language in section 4205 of the Clinger-Cohen Act.
The CAS Board received several comments in response to the proposed
rule. A discussion of the comments and the Board's responses are set
forth in section C. Of particular note, some commenters raised concern
that more general language may perpetuate ambiguities regarding what
contract types are covered by the exemption. After review of the public
comments and further deliberation, the CAS Board has concluded that the
desired goal of clarification can be more effectively achieved by
adding language to the exemption that cross references to FAR 12.207
and its enumeration of contract types authorized for the acquisition of
commercial items. The CAS Board
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believes this approach has multiple benefits. This linkage will
eliminate disparities between the FAR and CAS Board rules regarding the
description of contract types authorized for commercial item
acquisitions. In addition, by maintaining reference to an enumerated
list of authorized contract types for commercial item acquisitions,
this formulation will avoid the ambiguity that could have been created
if the more generalized language in proposed rule were adopted. The CAS
Board also hopes that this change will avoid the need for additional
CAS Board rulemakings in the event of future statutory actions
addressing allowable contract types for commercial item procurements.
Accordingly, this final rule amends the language at 9903.201-
1(b)(6) to exempt contracts and subcontracts authorized in 48 CFR
12.207 for the acquisition of commercial items. The CAS Board intends
to monitor the effectiveness of this rule in achieving the intent of
the law regarding CAS exemptions.
C. Public Comments
The CAS Board published a Notice of Proposed Rulemaking (NPR) on
November 19, 2012, proposing to revise the (b)(6) commercial item
exemption to read: ``[c]ontracts and subcontracts for the acquisition
of commercial items,'' (77 FR 69422). In response to the NPR, the CAS
Board received comments from four entities, one of which supported the
proposed rule without change and three of which raised concerns. A
summary of concerns and the CAS Board's response are below.
1. Lack of clarity. Three commenters raised concern that deletion
of the more detailed explanation of what contract types are exempt from
CAS will increase confusion. One commenter stated that the change ``may
be confusing to the inexperienced, including both contractors and
Government representatives'' who may not immediately understand how to
interpret the phrase ``contracts and subcontracts for the acquisition
of commercial items'' without further explanation. This commenter
suggested that the exemption include a specific cross reference to
statute or regulation so that the reader could more easily determine
the exempt contract types. Other commenters warned that a blanket
exemption could lead to overpayment. One of these commenters admonished
the Board on the need to preserve a more tailored exemption that
continues to clarify that the exemption does not apply to specific
contract types that involve reimbursement or pricing based on actual
costs.
Response: The Board agrees that readers need to be made aware of
the specific contracts that are covered by the exemption. This
specificity will help ensure easy, clear, and consistent application.
As explained above, the Board believes that reference to FAR 12.207,
which identifies contract types that may be used to acquire commercial
items should accomplish this objective. In this regard, the CAS Board
notes that amendments to the CAS Board's authorizing statute made by
section 820 of the National Defense Authorization Act for FY 2017 make
clear that the Board bears a responsibility to ``minimize the burden on
contractors while protecting the interests of the Federal Government.''
The Board believes this goal is shared by the FAR Council, especially
in light of direction provided in Executive Order (E.O.) 13771,
Reducing Regulation and Controlling Regulatory Costs, which directs
agencies to ``manage costs associated with the governmental imposition
of private expenditures required to comply with Federal regulations.''
The Board intends to monitor the effectiveness of this final rule
in achieving the intent of the law regarding CAS exemptions and retains
the right to change the approach in the future should any changes to
FAR 12.207 that the Board believes are inconsistent with this objective
occur.
2. Disclosure statements. Two commenters recommended the CAS Board
develop Cost Accounting Standards and Disclosure Statement requirements
for commercial item acquisitions, as Congress had required in the
Clinger-Cohen Act. One of those commenters stated that such steps were
needed before the permissible contract types are expanded to include
certain cost type contracts.
Response: Creating CAS and Disclosure Statements for commercial
item acquisitions would be outside the scope of this rulemaking effort.
The CAS Board is aware of the direction contained in the Conference
Report to the Federal Acquisition Streamlining Act to ``establish
guidance, consistent with commercial accounting systems and practices,
to ensure that contractors appropriately assign costs to contracts
(other than firm, fixed-price contracts) that are covered by the
exemption for contracts or subcontracts where the price negotiated is
based on established catalog or market prices of commercial items sold
in substantial quantities to the general public.'' That assessment was
made by the CAS Board when promulgating the 1997 final rule. However,
since the law currently prohibits the use of cost type contracts for
the acquisition of commercial items, the Board believes there is little
to be gained from developing and imposing Cost Accounting Standards and
Disclosure Statement requirements at this time. However, the CAS Board
continues to reserve the right to issue such cost accounting standards
and disclosure statement requirements should the need arise in the
future.
3. Hybrid and indefinite-delivery-indefinite-quantity (IDIQ)
contracts. One commenter raised the question of how to determine
whether CAS is triggered on a ``hybrid'' contract that contains
contract line item numbers (CLINs) for both commercial items and non-
commercial items where the total value of the contract exceeds the CAS
applicability threshold. The commenter suggested that CAS be clarified
to ensure CLINs for commercial items on a hybrid contract are not
covered by CAS, irrespective of the value of the contract. The
commenter further recommended clarification of the CAS triggers for
IDIQ contracts, which are often used to acquire commercial items--in
particular whether to value the contract based on the size of orders or
the size of the umbrella contract.
Response: While issues related to the applicability of CAS to
hybrid and IDIQ contracts are outside the scope of this rulemaking
effort, the CAS Board takes note of these issues. The Board intends to
review these issues more carefully to determine whether clarification
of its rules is needed to ensure appropriate application of CAS
coverage.
D. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. Chapter 35, Subchapter I)
does not apply to this rulemaking, because this rule will impose 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. The purpose of this rule is to clarify the
application of CAS to contracts for commercial items. In addition, this
rule is consistent with the intent of the objectives of the
``Streamlined Applicability of Cost Accounting Standards'' set forth in
Section 802 of the National Defense Authorization Act for Fiscal Year
2000 (Pub. L. 106-65).
E. Executive Orders 12866 and 13771, the Congressional Review Act, and
the Regulatory Flexibility Act
This rule provides technical clarification on the application of
exemptions from CAS for commercial
[[Page 33148]]
item acquisitions consistent with authorities in the Clinger-Cohen Act.
By cross referencing FAR 12.207 and its enumeration of contract types
authorized for the acquisition of commercial items, the CAS Board
expects to eliminate disparities between the FAR and CAS Board rules
that has created confusion for contractors and subcontractors. The
economic impact on contractors and subcontractors is, therefore,
expected to be minor. As a result, the Board has determined that this
rule will not result in the promulgation of an ``economically
significant rule'' under the provisions of Executive Order 12866, and
that a regulatory impact analysis will not be required, and the
requirements of E.O. 13771, Reducing Regulation and Controlling
Regulatory Costs, do not apply. For the same reason, this final rule is
not a ``major rule'' under the Congressional Review Act, 5 U.S.C.
Chapter 8. Finally, this rule does not have a significant effect on a
substantial number of small entities because small businesses are
exempt from the application of the Cost Accounting Standards.
Therefore, this rule does not require a regulatory flexibility analysis
under the Regulatory Flexibility Act of 1980, 5 U.S.C. Chapter 6.
List of Subjects in 48 CFR Part 9903
Cost Accounting Standards, Government procurement.
Lesley A. Field,
Acting Chair, Cost Accounting Standards Board.
For the reasons set forth in this preamble, 48 CFR part 9903 is
amended as follows:
PART 9903--CONTRACT COVERAGE
0
1. The authority citation for part 9903 continues to read as follows:
Authority: Pub. L. 111-350, 124 Stat. 3677, 41 U.S.C. 1502.
0
2. Section 9903.201-1 is amended by revising paragraph (b)(6) to read
as follows:
9903.201-1 CAS applicability.
* * * * *
(b) * * *
(6) Contracts and subcontracts authorized in 48 CFR 12.207 for the
acquisition of commercial items.
* * * * *
[FR Doc. 2018-15176 Filed 7-16-18; 8:45 am]
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