[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

[[Page 33147]]

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]
 BILLING CODE 3110-01-P