These Cost Recovery Regulations were developed to define allowable costs andestablish reimbursement procedures in accordance with section 109(e) ofCommunications Assistance for Law Enforcement Act (CALEA) (Public Law103-414, 108 Stat. 4279, 47 U.S.C. 1001-1010). Reimbursement ofcosts is subject to the availability of funds, the reasonableness of costs, andan agreement by the Attorney General or designee to reimburse costs prior to thecarrier's incurrence of said costs.

Allocable means chargeable to one or more cost objectives andcan be distributed to them in reasonable proportion to the benefits received.

Business unit means any segment of an organization for whichcost data are routinely accumulated by the carrier for tracking and measurementpurposes.

Cooperative agreement means the legal instrument reflecting arelationship between the government and a party when—

(1) The principal purpose of the relationship is to reimburse the carrier tocarry out a public purpose of support or stimulation authorized by a law of theUnited States; and

(2) Substantial involvement is expected between the government and carrierwhen carrying out the activity contemplated in the agreement.

Cost element means a distinct component or category of costs(e.g. materials, direct labor, allocable direct costs, subcontracting costs,other costs) which is assigned to a cost objective.

Cost objective means a function, organizational subdivision,contract, or other work unit for which cost data are desired and for whichprovision is made to accumulate and measure the cost of processes, products,jobs, capitalized projects, etc.

Cost pool means groupings of incurred costs identified with twoor more cost objectives, but not identified specifically with any final costobjective.

Direct supervision means immediate or first-level supervision.

Directly allocable cost means any cost that is directlychargeable to one or more cost objectives and can be distributed to them inreasonable proportion to the benefits received.

Directly assignable cost means any cost that can be whollyattributed to a cost objective.

Directly associated cost means any directly assignable cost ordirectly allocable cost which is generated solely as a result of incurringanother cost, and which would not have been incurred had the said cost not beenincurred.

Final cost objective means a cost objective that has allocatedto it, both assignable and allocable costs and, in the carrier's accumulationsystem, is one of the final accumulation points.

Installed or deployed means that, on a specific switchingsystem, equipment, facilities, or services are operable and available for use bythe carrier's customers.

Labor cost means the sum of the payroll cost, payroll taxes,and directly associated benefits.

Network operations costs means all directly associated costsrelated to the ongoing management and maintenance of a telecommunicationscarrier's network.

Plant costs means the directly associated costs related to themodifications of specific kinds of telecommunications plants, such as switches,intelligent peripherals and other network elements. These costs shall includethe costs of inspecting, testing and reporting on the condition oftelecommunications plant to determine the need for replacements, rearranges andchanges; rearranging and changing the location of plant not retired; inspectingafter modifications have been made; the costs of modifying equipment records,such as administering trunking and circuit layout work; modifying operatingprocedures; property held for future telecommunications use; provisioning costs;network operations costs; and receiving training to perform plant work. Alsoincluded are the costs of direct supervision and office support of this work.

Provisioning costs means all costs directly associated with theresources expended within a telecommunications carrier's network to provide aconnection and/or service to an end user of the telecommunications service.

Trade secrets/proprietary information means information whichis in the possession of a carrier but not generally available to the public,which that carrier desires to protect against unrestricted disclosure orcompetitive use, and which is clearly identified as such at the time of itsdisclosure to the government.

Unit cost means the directly associated cost of a single unitof a good or service which is included in a cost element.

(a) Costs that are eligible for reimbursement under section 109(e) CALEA are:

(1) All reasonable plant costs directly associated with the modificationsperformed by carriers in connection with equipment, facilities, and servicesinstalled or deployed on or before January 1, 1995, to establish thecapabilities necessary to comply with section 103 of CALEA, until the equipment,facility, or service is replaced or significantly upgraded or otherwiseundergoes major modifications;

(2) Additional reasonable plant costs directly associated with making theassistance capability requirements found in section 103 of CALEA reasonablyachievable with respect to equipment, facilities, or services installed ordeployed after January 1, 1995, in accordance with the procedures established inCALEA section 109(b); and

(3) Reasonable plant costs directly associated with modifications to any of acarrier's systems or services, as identified in the Carrier Statement requiredby CALEA section 104(d), that do not have the capacity to accommodatesimultaneously the number of interceptions, pen registers, and trap and tracedevices set forth in the Capacity Notice(s) published in accordance with CALEAsection 104.

(b) Allowable plant costs shall include:

(1) The costs of installation, inspection, and testing of thetelecommunications plant, and inspection after modifications have been made; and

(2) The costs of direct supervision and office support for this work forplant costs.

(c) In the case of any modification that may be used for any purpose otherthan lawfully authorized electronic surveillance by a government law enforcementagency, this part permits recovery of only the incremental cost of making themodification suitable for such law enforcement purposes.

(d) Reasonable costs that are directly associated with the modificationsperformed by a carrier as described in § 100.11(a) are recoverable.These allowable costs are limited to directly assignable and directly allocablecosts incurred by the business units whose efforts are expended on theimplementation of CALEA requirements.

(a) A cost is reasonable if, in its nature and amount, it does not exceedthat which would be incurred by a prudent person in the conduct of competitivebusiness. Reasonableness of specific costs must be examined with particular carein connection with the carrier or its separate divisions that may not be subjectto effective competitive restraints.

(1) No presumption of reasonableness shall be attached to the incurrence ofcosts by a carrier.

(2) The burden of proof shall be upon the carrier to justify that such costis reasonable under this part.

(b) Reasonableness depends upon considerations and circumstances, including,but not limited to:

(1) Whether a cost is of the type generally recognized as ordinary andnecessary for the conduct of the carrier's business or the performance of thisobligation; or

(2) Whether it is a generally accepted sound business practice, arm's-lengthbargaining or the result of Federal or State laws and/or regulations.

(c) It is the carrier's responsibility to inform the Government of anydeviation from the carrier's established practices.

(a) A cost is directly allocable to the CALEA compliance effort:

(1) If it is a plant cost incurred specifically to meet the requirements ofCALEA sections 103 and 104; or

(2) If it benefits both the CALEA compliance effort and other work, and canbe distributed to them in reasonable proportion to the benefits received.

(b) The burden of proof shall be upon the carrier to justify that such costis an allocable cost under this part.

(c) An allocable cost shall not be assigned to the CALEA compliance effort ifother costs incurred for the same purpose in like circumstances have beenincluded as a direct cost of that, or any other, cost objective.

(d) The accumulation of allocable costs shall be as follows:

(1) Allocable costs shall be accumulated by logical cost groupings with dueconsideration of the reasons for incurring such costs.

(i) Each grouping should be determined so as to permit distribution of thegrouping on the basis of the benefits accruing to the multiple cost objectives.

(ii) Similarly, the particular case may require subdivision of thesegroupings (e.g., building occupancy costs might be separable from those ofpersonnel administration within the engineering group).

(2) Such allocation necessitates selecting a distribution base common to allcost objectives to which the grouping is to be allocated. The base should beselected so as to permit allocation of the grouping on the basis of the benefitsaccruing to the multiple cost objectives.

(3) When substantially the same results can be achieved through less precisemethods, the number and composition of cost groupings should be governed bypractical considerations and should not unduly complicate the allocation.

(4) Once a methodology for determining an appropriate base for distributingallocable costs has been agreed to, it shall not be modified without writtenapproval of the FBI, if that modification affects the level of reimbursementfrom the government. All items properly includable in an allocable cost baseshould bear a pro rata share of allocable costs irrespective of their acceptanceas reimbursable under this part.

(5) The carrier's method of allocating allocable costs shall be in accordancewith the accounting principles used by the carrier in the preparation of theirexternally audited financial statements and consistently applied, to the extentthat the expenses are allowable under there regulations. The method may requirefurther examination when:

(i) Substantial differences occur between the cost patterns of work underCALEA compliance effort and the carrier's other work;

(ii) Significant changes occur in the nature of the business, the extent of subcontracting, fixed-asset improvement programs, inventories, the volume ofsales and production, manufacturing processes, the carrier's products, or otherrelevant circumstances; or

(iii) Allocable cost groupings developed for a carrier's primary location areapplied to off-site locations. Separate cost groupings for costs allocable tooff-site locations may be necessary to permit equitable distribution of costs onthe basis of the benefits accruing to the multiple cost objectives.

(6) The base period for allocating allocable costs is the cost accountingperiod during which such costs are incurred and accumulated for distribution towork performed in that period. The base period for allocating allocable costswill normally be the carrier's fiscal year. A shorter period may be appropriatewhen performance involves only a minor portion of the fiscal year, or when it isgeneral practice to use a shorter period. When the compliance effort isperformed over an extended period, as many base periods shall be used as arerequired to accurately represent the period of performance.

(a) General and Administrative (G&A) costs are disallowed. G&A costsinclude, but are not limited to, any management, financial, and otherexpenditures which are incurred by or allocated to a business unit as a whole.These include, but are not limited to:

(1) Accounting and Finance, External Relations, Human Resources, InformationManagement, Legal, Procurement; and

(2) Other general administrative activities such as library services, foodservices, archives, and general security investigation services.

(b) Customer Service costs are disallowed. These costs include, but are notlimited to, any Marketing, Sales, Product Management, and Advertising expenses.

(c) Plant costs that are not directly associated with the modificationsidentified in § 100.11 are disallowed. These include, but are notlimited to, repairing materials for reuse, performing routine work to preventtrouble; expenses related to property held for future telecommunications use;provisioning costs; network operations costs; and depreciation and amortizationexpenses.

(d) Costs that have already been recovered from any governmental ornongovernmental entity are disallowed.

(e) Costs that cannot be either directly assigned or directly allocated aredisallowed.

(f) Additional costs that are incurred due to the carrier's failure tocomplete the CALEA compliance effort in the time frame agreed to by thegovernment and the carrier are disallowed.

(g) Costs associated with modifications of any equipment, facility or serviceinstalled or deployed after January 1, 1995 which are deemed reasonablyachievable by the Federal Communications Commission under section 109(b) ofCALEA are disallowed.

(h) To ensure that the Government does not reimburse carriers for disallowedcosts, the following provisions are included:

(1) Costs that are expressly disallowed or mutually agreed to be disallowed,including mutually agreed to be disallowed directly associated costs, shall beexcluded from any billing, claim, or proposal applicable to reimbursement underCALEA. When a disallowed cost is incurred, its directly associated costs arealso disallowed.

(2) Disallowed costs involved in determining rates used for standard costs,or for allocable cost proposals or billing, need be identified only at the timerates are proposed, established, revised, or adjusted. These requirements may besatisfied by any form of cost identification which is adequate for purposes ofcost determination and verification.

(a) The carrier shall provide sufficient cost data at the time of proposalsubmission to allow adequate analysis and evaluation of the estimated costs. TheFBI reserves the right to request additional cost data from carriers in order toensure compliance with this part.

(b) The requirement for submission of cost data is met if, as determined bythe FBI, all cost data reasonably available to the carrier are either submitted or identified in writing by the date of agreement on the costs.

(c) If cost data and information to explain the estimating process arerequired by the FBI and the carrier refuses to provide necessary data, or theFBI determines that the data provided are so deficient as to preclude adequateanalysis and evaluation, the FBI will attempt to obtain the data and/or elicitcorrective action.

(d) Instructions for submission of the cost data for the estimate are asfollows:

(1) The carrier shall submit to the FBI estimated costs by line item withsupporting information.

(2) A cost element breakdown as described in § 100.16(h) shall beattached for each proposed line item.

(3) Supporting breakdowns shall be furnished for each cost element,consistent with the carrier's cost accounting system.

(4) When more than one line item is proposed, summary total amounts coveringall line items shall be furnished for each cost element.

(5) Depending on the carrier's accounting system, the carrier shall providebreakdowns for the following categories of cost elements, as applicable:

(i) Materials. Provide a consolidated cost summary ofindividual material quantities included in the various tasks, orders, oragreement line items being proposed and the basis upon which they were developed(vendor quotes, invoice prices, etc.). Include raw materials, parts, software,components, and assemblies. For all items proposed, identify the item, source,quantity, and cost.

(ii) Direct labor. Provide a time-phased (e.g., monthly,quarterly) breakdown of labor hours, rates, and costs by appropriate category,and furnish the methodologies used in developing estimates.

(iii) Allocable direct costs. Indicate how allocable costs arecomputed and applied, including cost breakdowns that provide a basis forevaluating the reasonableness of proposed rates.

(iv) Subcontracting costs. For any subcontractor costssubmitted for reimbursement, the carrier is responsible for ensuring thatdocumentation requirements set forth herein are passed on to any and allsubcontractors utilized in the carrier's efforts to meet CALEA requirements.

(v) Other costs. List all other costs not otherwise included inthe categories described above (e.g., special tooling, travel, computer andconsultant services) and provide bases for costs.

(e) As part of the specific information required, the carrier shall submitwith its cost estimate and clearly identify as such, costs that are verifiableand factual. In addition, the carrier shall submit information reasonablyrequired to explain its estimating process, including:

(1) The judgmental factors applied, such as trends or budgetary data, and themathematical or other methods used in the estimate, including those used inprojecting from known data; and

(2) The nature and amount of any contingencies included in the proposedestimate.

(f) There is a clear distinction between submitting cost data and merelymaking available books, records, and other documents without identification. Therequirement for submission of cost data is met when all accurate cost datareasonably available to the carrier have been submitted, either actually or byspecific identification, to the FBI.

(g) In submitting its estimate, the carrier must include an index,appropriately referenced, of all the cost data and information accompanying oridentified in the estimate. In addition, any future additions and/or revisions,up to the date of agreement on the costs, must be annotated in a supplementalindex.

(h) Headings for submission are as follows:

(1) Total Project Cost: Summary.

(i) Cost Elements (Enter appropriate cost elements.)

(ii) Proposed Cost Estimate—Total Cost (Enter those necessary andreasonable costs that in the carrier's judgment will properly be incurred inefficient completion of CALEA requirements. When any of the costs in this havealready been incurred (e.g., under a letter contract), describe them on anattached supporting schedule.)

(iii) Proposed Cost Estimate—Unit Cost (Enter the unit costs for eachcost element.)

(iv) Supporting Material (Identify the attachment in which the informationsupporting the specific cost element may be found.)

(2) Total Project Costs: Detail (at Switch Level or Project Level, asappropriate).

(i) Cost Elements (Enter appropriate cost elements.)

(ii) Proposed Cost Estimate—Total Cost (Enter those necessary andreasonable costs that in the carrier's judgment will properly be incurred inefficient completion of CALEA requirements. When any of the costs in this havealready been incurred (e.g., under a letter contract), describe them on anattached supporting schedule.)

(iii) Proposed Cost Estimate—Unit Cost (Enter the unit costs for eachcost element.)

(iv) Supporting Material (Identify the attachment in which the informationsupporting the specific cost element may be found.)

(a) The carrier shall provide sufficient supporting documentation at the timeof submission of request for payment to allow adequate analysis and evaluationof the incurred costs. The FBI reserves the right to request additional costdata from carriers in order to ensure compliance with this part.

(b) Instructions for submission of the supporting documentation for therequest for payment are as follows:

(1) The carrier shall submit to the FBI incurred costs by line item withsupporting information.

(2) A cost element breakdown as described in § 100.17(f) shall beattached for each agreed upon line item.

(3) Supporting breakdowns shall be furnished for each cost element,consistent with the carrier's cost accounting system.

(c) When more than one line item has been agreed upon, summary total amountscovering all line items shall be furnished for each cost element. Depending onthe carrier's accounting system, breakdowns shall be provided to the FBI for thefollowing categories of cost elements, as applicable:

(1) Materials. Provide a consolidated cost summary ofindividual material quantities included in the various tasks, orders, oragreement line items and the basis upon which they were determined (vendorinvoices, time sheets, payroll records, etc.). Include raw materials, parts,software, components, and assemblies. For all reimbursable items, identify theitem, source, quantity, and cost.

(2) Direct labor. Provide a breakdown of labor hours, rates,and cost by appropriate category, and furnish the methodologies used inidentifying these costs. Have available for audit, in accordance with§ 100.18, time sheet and labor rate calculation justification for alldirect labor charged to the agreement.

(3) Allocable direct costs. Indicate how allocable costs arecomputed and applied, including cost breakdowns, comparing estimates to actualdata as a basis for evaluating the reasonableness of actual costs.

(4) Subcontracting costs. For any subcontractor costs submittedfor reimbursement, along with a copy of the invoice, the carrier must haveavailable for audit in accordance with § 100.18, documentation thatcosts incurred are just and reasonable.

(5) Other costs. List all other costs not otherwise included inthe categories described above (e.g., special tooling, travel, computer andconsultant services) and have available for audit in accordance with§ 100.18, documentation that costs incurred are just and reasonable.

(d) There is a clear distinction between submitting cost data and merelymaking available books, records, and other documents without identification.

(1) The requirement for submission of cost data is met when all accurate costdata reasonably available to the carrier have been submitted, either actually orby specific identification of the data that are available for review in thecarrier's files, to the FBI.

(2) Should later information which affects the level of reimbursement comeinto the carrier's possession, it must be promptly submitted to the FBI.

(3) The requirement for submission of cost data continues up to the time offinal reimbursement.

(e) In submitting its invoice, the carrier must include an index, which crossreferences the actual cost data submitted with the cost estimate.

(f) Headings for submission are as follows:

(1) Total Project Cost: Summary.

(i) Cost Elements (Enter appropriate cost elements.)

(ii) Actual Costs Incurred—Total Cost (Enter those necessary andreasonable costs that were incurred in the efficient completion of CALEArequirements.)

(iii) Actual Costs Incurred—Unit Cost (Enter the unit costs for eachcost element.)

(iv) Supporting Material (Identify the attachment in which the informationsupporting the specific cost element may be found.)

(2) Total Project Costs: Detail (at Switch Level or Project Level, asappropriate.)

(i) Cost Elements (Enter appropriate cost elements.)

(ii) Actual Costs Incurred—Total Cost (Enter those necessary andreasonable costs that were incurred in the efficient completion of CALEArequirements.)

(iii) Actual Costs Incurred—Unit Cost (Enter the unit costs for eachcost element.)

(iv) Supporting Material (Identify the attachment in which the informationsupporting the specific cost element may be found.)

(a) General. In order to evaluate the accuracy, completeness,and timeliness of the cost data, the FBI or other representatives of theGovernment shall have the right to examine and audit all of the carrier'ssupporting materials.

(1) These materials include, but are not limited to books, records,documents, and other data, regardless of form (e.g., machine readable media suchas disk, tape) or type (e.g., data bases, applications software, data basemanagement software, utilities), including computations and projections relatedto proposing, negotiating, costing, or performing CALEA compliance efforts ormodifications.

(2) The right of examination shall extend to all documents necessary topermit adequate evaluation of the cost data submitted, along with thecomputations and projections used.

(b) Audits of request for payment. The carrier shall maintainand the FBI or representatives of the Government shall have the right to examineand audit supporting materials.

(1) These materials include, but are not limited to, books, records,documents, and other evidence and accounting procedures and practices,regardless of form (e.g., machine readable media such as disk, tape) or type(e.g., date bases, applications software, data base management software,utilities), sufficient to reflect properly all costs claimed to have beenincurred, or anticipated to be incurred, in performing the CALEA complianceeffort.

(2) This right of examination shall include inspection at all reasonabletimes of the carrier's plants, or parts of them, engaged in performing theeffort.

(c) Reports. If the carrier is required to furnish cost,funding, or performance reports, the FBI or representatives of the Governmentshall have the right to examine and audit books, records, other documents, andsupporting materials, for the purpose of evaluating the effectiveness of thecarrier's policies and procedures to produce data compatible with the objectivesof these reports and the data reported.

(d) Availability. The carrier shall make available at itsoffice at all reasonable times the costs and support material described herein,for examination, audit, or reproduction, until three (3) years after finalreimbursement payment. In addition,

(1) If the CALEA compliance effort is completely or partially terminated, therecords relating to the work terminated shall be made available for three (3)years after any resulting final termination settlement; and

(2) Records relating to appeals, litigation or the settlement of claimsarising under or relating to the CALEA compliance effort shall be made availableuntil such appeals, litigation, or claims are disposed of.

(e) Subcontractors. The carrier shall ensure that all terms andconditions herein are incorporated in any agreement with a subcontractor thatmay be utilized by the carrier to perform any or all portions of the agreement.

(a) Adjustments prior to the incurrence of a cost. (1) Inaccordance with § 100.17(d)(2), the carrier shall notify the FBI whenany change affecting the level of reimbursement occurs.

(2) Upon such notification, if the adjustment results in an increase in theestimated reimbursement, the FBI will review the submission and determine if

(i) Funds are available;

(ii) The adjustment is justified and necessary to accomplish the goals of theagreement; and

(iii) It is in the best interest of the government to approve theexpenditure.

(3) The FBI will provide the decision as to the acceptability of any increaseto the carrier in writing.

(b) Adjustments after the incurrence of a cost. Any costincurred that exceeds the provision in § 100.16(e)(2) will bereviewed by the FBI to determine reasonability, allowability, and if it is inthe best interest of the government to approve the expenditure forreimbursement.

(c) Reduction for defective cost data. (1) The cost shall bereduced accordingly and the agreement shall be modified to reflect the reductionif any cost estimate negotiated in connection with the CALEA compliance effort,or any cost reimbursable under the effort is increased because:

(i) The carrier or a subcontractor furnished cost data to the government thatwere not complete, accurate, and current;

(ii) A subcontractor or prospective subcontractor furnished the cost data tothe carrier that were not complete, accurate, and current; or

(iii) Any of these parties furnished data of any description that were notaccurate.

(2) Any reduction in the negotiated cost under § 100.19(c)(1) dueto defective data from a prospective subcontractor that was not subsequentlyawarded the subcontract shall be limited to the amount by which either theactual subcontract or the actual cost to the carrier, if there was nosubcontract, was less than the prospective subcontract cost estimate submittedby the carrier, provided that the actual subcontract cost was not itselfaffected by defective cost data.

(3) If the FBI determines under § 100.19(c)(1) that a costreduction should be made, the carrier shall not raise the following matters as adefense:

(i) The carrier or subcontractor was a sole source supplier or otherwise wasin a superior bargaining position and thus the costs of the agreement would nothave been modified even if accurate, complete, and current cost data had beensubmitted;

(ii) The FBI should have known that the cost data at issue were defectiveeven though the carrier or subcontractor took no affirmative action to bring thecharacter of the data to the attention of the FBI;

(iii) The carrier or subcontractor did not submit accurate cost data. Exceptas prohibited, an offset in an amount determined appropriate by the FBI basedupon the facts shall be allowed against the cost reimbursement of an agreementamount reduction if the carrier certifies to the FBI that, to the best of thecarrier's knowledge and belief, the carrier is entitled to the offset in theamount requested and the carrier proves that the cost data were available beforethe date of agreement on the cost of the agreement (or cost of the modification)and that the data were not submitted before such date. An offset shall not beallowed if the understated data were known by the carrier to be understated whenthe agreement was signed; or the Government proves that the facts demonstratethat the agreement amount would not have increased even if the available datahad been submitted before the date of agreement on cost; or

(4) In the event of an overpayment, the carrier shall be liable to and shallpay the United States at that time such overpayment as was made, with simpleinterest on the amount of such overpayment to be computed from the date(s) ofoverpayment to the carrier to the date the Government is repaid by the carrierat the applicable underpayment rate effective for each quarter prescribed by theSecretary of the Treasury under 26 U.S.C. 6621(a)(2).

With respect to any information provided to the FBI under this part that isidentified as company proprietary information, it shall be treated as privilegedand confidential and only shared within the government on a need-to-know basis.It shall not be disclosed outside the government for any reason inclusive ofFreedom of Information requests, without the prior written approval of thecompany. Information provided will be used exclusively for the implementation ofCALEA. This restriction does not limit the government's right to use theinformation provided if obtained from any other source without limitation.

(a) If an impasse arises in negotiations between the FBI and the carrierwhich precludes the execution of a cooperative agreement, the FBI will considerusing mediation with the goal of achieving, in a timely fashion, a consensualresolution of all outstanding issues through facilitated negotiations.

(b) Should the carrier agree to mediation, the costs of that mediationprocess shall be shared equally by the FBI and the carrier.

(c) Each mediation shall be governed by a separate mediation agreementprepared by the FBI and the carrier.