[Federal Register Volume 76, Number 214 (Friday, November 4, 2011)]
[Proposed Rules]
[Pages 68376-68378]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28601]
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DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 165
[DOD-2009-OS-0030/RIN 0790-AI45]
Recoupment of Nonrecurring Costs (NCs) on Sales of U.S. Items
AGENCY: Office of the Under Secretary of Defense (Comptroller)/Chief
Financial Officer, DoD.
ACTION: Proposed rule.
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SUMMARY: This rule updates policy, responsibilities, and procedures to
conform with section 21(e)(1)(B) of Public Law 90-629, as amended, and
section 9701 of title 31, United States Code (U.S.C.), for calculating
and assessing NC recoupment charges on sales of items developed for or
by the Department of Defense to non-U.S. Government customers.
DATES: Comments must be received by January 3, 2012.
ADDRESSES: You may submit comments, identified by docket number and/or
RIN number and title, by any of the following methods:
Federal Rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Federal Docket Management System Office, 1160
Defense Pentagon, Room 3C843, Washington, DC 20301-1160.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
Federal Register document. The general policy for comments and other
submissions from members of the public is to make these submissions
available for public viewing on the Internet at http://www.regulations.gov as they are received without change, including any
personal identifiers or contact information.
FOR FURTHER INFORMATION CONTACT: Claire Nelson, (703) 602-0250.
SUPPLEMENTARY INFORMATION:
Executive Order 12866, ``Regulatory Planning and Review'' and Executive
Order 13563 ``Improving Regulation and Regulatory Review''
It has been certified that 32 CFR part 165 does not:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy; a section of the
economy; productivity; competition; jobs; the environment; public
health or safety; or State, local, or Tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another Agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs, or the rights and obligations of
recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
these Executive Orders.
Sec. 202, Public Law 104-4, ``Unfunded Mandates Reform Act''
It has been certified that 32 CFR part 165 does not contain a
Federal mandate that may result in expenditure by State, local and
Tribal governments, in aggregate, or by the private sector, of $100
million or more in any one year.
Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)
It has been certified that 32 CFR part 165 is not subject to the
Regulatory Flexibility Act (5 U.S.C. 601) because it would not if
promulgated, have a significant economic impact on a substantial number
of small entities.
Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)
It has been certified that 32 CFR part 165 does not impose
reporting or recordkeeping requirements under the Paperwork Reduction
Act of 1995.
Executive Order 13132, ``Federalism''
It has been certified that 32 CFR part 165 does not have federalism
implications, as set forth in Executive Order 13132. This rule does not
have substantial direct effects on:
(1) The States;
(2) The relationship between the National Government and the
States; or
(3) The distribution of power and responsibilities among the
various levels of Government.
List of Subjects in 32 CFR Part 165
Armed forces, Arms and munitions, Government contracts.
Accordingly 32 CFR part 165 is revised to read as follows:
PART 165--RECOUPMENT OF NONRECURRING COSTS (NCS) ON SALES OF U.S.
ITEMS
Sec.
165.1 Purpose.
165.2 Applicability.
165.3 Definitions.
165.4 Policy.
165.5 Responsibilities.
165.6 Procedures.
165.7 Waivers (including reductions).
Authority: 31 U.S.C. 9701; 22 U.S.C. 2761(e).
Sec. 165.1 Purpose.
This part updates policy, responsibilities, and procedures to
conform with section 21(e)(1)(B) of Public Law 90-629, as amended, and
section 9701 of title 31, United States Code (U.S.C.) for calculating
and assessing NC recoupment charges on sales of items developed for or
by the Department of Defense to non-U.S. Government customers.
Sec. 165.2 Applicability.
(a) This part applies to the Office of the Secretary of Defense,
the Military Departments, the Office of the Chairman of the Joint
Chiefs of Staff and the Joint Staff, the Combatant Commands, the Office
of the Inspector General of the Department of Defense, the Defense
Agencies, the DoD Field Activities, and all other organizational
entities within the Department of Defense (hereafter referred to
collectively as the ``DoD Components'').
(b) This part does not apply to sales of excess property when
accountability has been transferred to property disposal activities and
the property is sold in open competition to the highest bidder.
(c) The policies and procedures in this part apply to all sales on
or after the effective date of this part, and supersede application
thresholds and charges previously established. Previous application
thresholds and charges continue to govern sales made prior to the
applicable effective date of this part. Such previously established NC
recoupment thresholds and charges shall be eliminated or revised in
accordance with this part.
Sec. 165.3 Definitions.
Cost pool. Represents the total cost to be distributed across the
specific number of units, normally the number of units produced plus
those planned to be produced. The nonrecurring research, development,
test, and evaluation cost pool comprises the costs described in
definition for nonrecurring research, development, test and
[[Page 68377]]
evaluation costs. The nonrecurring production cost pool comprises costs
described in definition for nonrecurring production costs.
Foreign military sale. A sale by the U.S. Government of defense
items or defense services to a foreign government or international
organization under authority of the Arms Export Control Act (AECA);
section 21(e)(1)(B) of Public Law 90-629, as amended. Except as waived
by Under Secretary of Defense for Policy (USD(P)), foreign military
sales are the only sales subject to NC recoupment charges.
Major defense equipment. Any item of significant military equipment
on the United States Munitions List having a nonrecurring research,
development, test, and evaluation cost of more than 50 million dollars
or a total production cost of more than 200 million dollars. The
determination of whether an item meets the major defense equipment
dollar threshold for research, development, test, and evaluation shall
be based on DoD obligations recorded to the date the equipment is
offered for sale. Production costs shall include costs incurred by the
Department of Defense. Production costs for the foreign military sales
program and known direct commercial sales production are excluded.
Model. A basic alpha-numeric designation in a weapon system series;
e.g., a ship hull series, equipment or system series, an airframe
series, or a vehicle series. For example, the F5A and the F5F are
different models in the same F-5 system series.
Nonrecurring production costs. Those one-time costs incurred in
support of previous production of the model specified and those costs
specifically incurred in support of the total projected production run.
Those NCs include DoD expenditures for preproduction engineering;
special tooling; special test equipment; production engineering;
product improvement; destructive testing; and pilot model production,
testing, and evaluation. That includes costs of any engineering change
proposals initiated before the date of calculations of the NC
recoupment charge. Nonrecurring production costs do not include DoD
expenditures for machine tools, capital equipment, or facilities for
which contractor rental payments are made or waived in accordance with
the Defense Federal Acquisition Regulation Supplement.\1\
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\1\ Available at http://www.acq.osd.mil/dpap/dars/dfarspgi/current/index.html.
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Nonrecurring research, development, test and evaluation costs.
Those costs funded by a research, development, test, and evaluation
appropriation to develop or improve the product or technology under
consideration either through contract or in-house DoD effort. This
includes costs of any engineering change proposal started before the
date of calculation of the NC recoupment charges as well as projections
of such costs, to the extent additional effort applicable to the sale
model or technology is necessary or planned. It does not include costs
funded by either procurement or operation and maintenance
appropriations.
Pro rata recovery of NCs. An equal distribution (proration) of a
pool of NCs to a specific number of units that benefit from the
investment so that a DoD Component shall collect from a customer a fair
(pro rata) share of the investment in the product being sold. The
production quantity base used to determine the pro rata calculation of
major defense equipment includes total production.
Significant change in NCs recoupment charge. A significant change
occurs as follows:
a. A new calculation shows a change of 30 percent of the current
system NC charge.
b. The NC unit charge increases or decreases by 50,000 dollars or
more.
c. Where the potential for a 5 million dollar change in recoupment
exists.
The total collections may be estimated based on the projected sales
quantities. A significant change occurs when potential collections
increase or decrease by 5 million dollars.
``Special'' research, development, test, and evaluation and
nonrecurring production costs. Costs incurred under a foreign military
sale at the request of, or for the benefit of, a foreign customer to
develop a special feature or unique or joint requirement. Those costs
must be paid by the customer as they are incurred.
Sec. 165.4 Policy.
It is DoD policy that:
(a) The NC recoupment charge shall be imposed for sales of major
defense equipment only as required by an Act of Congress (Section
21(e)(1)(B) of Public Law 90-629, as amended). The USD(P) may grant a
waiver to recoupment charges in accordance with Sec. 165.7 of this
part.
(b) The NC charges shall be based on the amount of the Department
of Defense nonrecurring investment in an item.
Sec. 165.5 Responsibilities.
(a) Under Secretary of Defense (Comptroller)/Chief Financial
Officer (USD(C)/CFO)) shall provide necessary financial management
guidance.
(b) The Under Secretary of Defense for Acquisition, Technology, and
Logistics shall take appropriate action to revise the Defense Federal
Acquisition Regulation Supplement in accordance with this part.
(c) The USD(P) shall:
(1) Monitor the application of this part.
(2) Review and approve NC recoupment charges and NC recoupment
charge waiver requests received from foreign countries and
international organizations for foreign military sales.
(3) Ensure publication of a listing of items developed for or by
the Department of Defense to which NC recoupment charges are
applicable.
(4) USD(P) may grant a waiver to recoupment charges in accordance
with Sec. 165.7 of this part.
(d) The Secretaries of the Military Departments and the Directors
of the Defense Agencies shall:
(1) Determine the DoD nonrecurring investment in items developed
for or by the Department of Defense and perform required pro rata
calculations in accordance with this part and financial management
guidance from USD(C)/CFO when a military equipment asset type is
considered a candidate for sale.
(2) Validate and provide recommended charges to USD(P). Supporting
documentation will be retained until the item has been eliminated from
the NC recoupment charge listing.
(3) Review approved NC recoupment charges on a biennial basis to
determine if there has been a change in factors or assumptions used to
compute a NC recoupment charge and, if there is a significant change in
a NC recoupment charge, provide a recommended change to USD(P).
(4) Collect charges on foreign military sales, in accordance with
DoD 7000.14-R.\2\
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\2\ Available at http://www.defenselink.mil/comptroller/fmr/.
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(5) Deposit collections to accounts as prescribed by USD(C)/CFO.
(6) Request guidance from USD(P), within 90 days of issue
identification, if an issue concerning a recoupment charge cannot be
resolved.
Sec. 165.6 Procedures.
(a) The NC recoupment charge to be reimbursed shall be a pro rata
recovery of NCs for the applicable major defense equipment. Recovery of
NC recoupment charges shall cease upon the recovery of total DoD costs.
Such charges shall be
[[Page 68378]]
based on a ``cost pool'' as defined in Sec. 165.3 of this part. For a
system that includes more than one component, a ``building block''
approach (i.e., the sum of NC recoupment charges for individual
components) shall be used to determine the NC recoupment charge for the
sale of the entire system.
(b) The NC recoupment charge shall not apply when a waiver for the
specific customer/case has been approved by USD(P), in accordance with
Sec. 165.7 of this part, or when sales are financed with U.S.
Government funds made available on a non-repayable basis. Approved
revised NC recoupment charges shall not be applied retroactively to
accepted foreign military sales agreements.
(c) When major defense equipment is sold at a reduced price due to
age or condition, the NC recoupment charge shall be reduced by the same
percentage reduction.
(d) The full amount of ``special'' research, development, test, and
evaluation and nonrecurring production costs incurred for the benefit
of particular customers shall be paid by those customers. However, when
a subsequent purchaser requests the same specialized features that
resulted from the added ``special'' research, development, test, and
evaluation and nonrecurring production costs, a pro rata share of those
costs may be paid by the subsequent purchaser and transferred to the
original customer if those special NCs exceed 50 million dollars. The
pro rata share may be a unit charge determined by the DoD Component as
a result of distribution of the total costs divided by the total
production. Such reimbursements shall not be collected after 10 years
have elapsed since acceptance of the ``Letter of Offer and Acceptance''
DoD 5105.38-M,\3\ by the original customer, unless otherwise authorized
by USD(P). The U.S. Government shall not be charged any NC recoupment
charges if it adopts the features for its own use or provides equipment
with such features under a U.S. grant aid or similar program.
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\3\ Available at http://www.dsca.osd.mil/samm/.
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(e) For co-production, co-development and cooperative development,
or cooperative production DoD agreements, the policy in this part shall
determine the allocation basis for recouping from the third-party
purchasers the investment costs of the participants. Such DoD
agreements shall provide for the application of the policies in this
part to sales to third parties by any of the parties to the agreement
and for the distribution of recoupment among the parties to the
agreement.
Sec. 165.7 Waivers (including reductions).
(a) Section 21(e)(10)(B) of Public Law 90-629, as amended, requires
the recoupment of a proportionate amount of NCs of major defense
equipment from foreign military sales customers but Section 21(e)(2)
authorizes consideration of reductions or waivers for particular sales
which, if made, significantly advance U.S. Government interests and the
furtherance of mutual defense treaties between the United States and
certain countries. Waivers may also be authorized if imposition of a NC
recoupment charge likely would result in the loss of the sale; or, in
the case of a sale of major defense equipment that is also being
procured for the use of the Armed Forces, result in savings to the
United States on the cost of the equipment procured for the Armed
Forces, through a resulting increase in the total quantity of equipment
purchased from the source of the equipment causing a reduction in the
unit cost of the equipment, substantially offsetting the revenue
foregone by reason of waiving the charge. Any increase in a NC
recoupment charge previously considered appropriate under Section
21(e)(1)(B) may be waived if the increase results from a correction of
an estimate (reasonable when made) of the production quantity base that
was used for calculating the charge.
(b) Requests for waivers should originate with the foreign
government and shall provide information on the extent of
standardization to be derived as a result of the waiver.
(1) Blanket waiver requests should not be submitted and shall not
be considered. The term ``blanket waiver'' refers to a NC recoupment
charge waiver that is not related to a particular sale; for example,
waivers for all sales to a country or all sales of a weapon system.
(2) A waiver request shall not be considered for a sale that was
accepted without a NC recoupment charge waiver, unless the acceptance
was conditional on consideration of the waiver request.
(3) Requests for waivers shall be processed expeditiously, and a
decision normally made to either approve or disapprove the request
within 60 days after receipt. A waiver in whole or in part of the
recoupment charge or a denial of the request shall be provided in
writing to the appropriate DoD Component.
Dated: October 31, 2011.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2011-28601 Filed 11-3-11; 8:45 am]
BILLING CODE 5001-06-P