[Federal Register Volume 77, Number 162 (Tuesday, August 21, 2012)]
[Proposed Rules]
[Pages 50449-50454]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20442]


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DEPARTMENT OF HOMELAND SECURITY

48 CFR Parts 3016 and 3052

[Docket No. DHS-2012-0050]
RIN 1601-AA65


Revision of Department of Homeland Security Acquisition 
Regulation; Contractor Billing and Subcontractor Labor Hour Rates Under 
Time and Materials Contracts (HSAR Case 2010-001)

AGENCY: Office of the Chief Procurement Officer, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Homeland Security (DHS) is proposing to 
amend its Homeland Security Acquisition Regulation to require contracts 
for time and material or labor hours to include separate labor hour 
rates for subcontractors and a description of the method that will be 
used to record and bill for labor hours for both contractors and 
subcontractors.

DATES: Comments and related material submitted electronically must be 
submitted to the Federal eRulemaking Portal http://www.regulations.gov 
on or before October 22, 2012. Comments and related material submitted 
by mail must reach the Department of Homeland Security, Office of the 
Chief Procurement Officer, Acquisition Policy and Legislation Branch at 
the address shown below on or before October 22, 2012 to be considered 
in the formation of the final rule.

ADDRESSES: You may submit comments identified by DHS docket number DHS-
2012-0050, using any one of the following methods:
    (1) Via the Internet at the Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments 
and use docket number DHS-2012-0050.
    (2) By mail to the Department of Homeland Security, Office of the 
Chief Procurement Officer, Acquisition Policy and Legislation Branch, 
ATTN: Jeremy Olson, 245 Murray Lane, Bldg. 410 (RDS), Washington, DC 
20528.

FOR FURTHER INFORMATION CONTACT: Jeremy Olson, Department of Homeland 
Security, Office of the Chief Procurement Officer, Acquisition Policy 
and Legislation Branch, (202) 447-5197, or by email at 
Jerry.Olson@dhs.gov.

SUPPLEMENTARY INFORMATION:

I. Request for Comments
II. Background
III. Discussion of Proposed Rule
IV. Regulatory Requirements

[[Page 50450]]

    A. Executive Order 12866 (Regulatory Planning and Review)
    B. Regulatory Flexibility Act
    C. Assistance for Small Entities
    D. Collection of Information

I. Request for Comments

    Interested persons are invited to participate in this rulemaking by 
submitting comments and related materials. Comments and related 
materials should be organized by HSAR Part, and indicate the specific 
section that is being commented on. All comments received will be 
posted without change to http://www.regulations.gov, including any 
personal information provided. See ADDRESSES above for information on 
how to submit comments. If you submit comments by mail, please submit 
them in an unbound format, no larger than 8 \1/2\ by 11 inches, 
suitable for copying and electronic filing. You may submit comments 
either by mail or via the internet as identified in the ADDRESSES 
section above; but to avoid duplication, DHS requests that you submit 
comments and materials by only one method. If you would like DHS to 
acknowledge receipt of comments submitted by mail, please enclose a 
self-addressed, stamped postcard or envelope. DHS will consider all 
comments and material received during the comment period.
    Viewing comments and documents: To view comments and read 
background documents related to this rulemaking, go to http://www.regulations.gov, which contains relevant instructions under the 
FAQs tab on the home page.

II. Background

    This proposed rule augments two existing Federal Acquisition 
Regulation (FAR) policies to create a consistent approach within DHS 
for awarding Time and Materials/Labor Hours (T&M/LH) contracts. Those 
two augmenting policies include the requirement for separate labor hour 
rates for T&M/LH subcontractors and the requirement for consistent 
practices for contractor labor hour records and labor hour billing.
    The first of the two existing FAR policies provides the option to 
require separate labor hour rates for each subcontractor under a T&M/LH 
contract, in addition to the labor hour rates established for the prime 
contractor. See FAR 16.601(e). The current FAR policy authorizes an 
agency either to permit individual contracting officers to decide if 
separate labor hour rates are necessary or to establish an agency 
procedure making separate rates mandatory. This rule proposes to 
establish a DHS-wide procedure to make the FAR option for consistent 
use of separate rates mandatory for DHS T&M/LH contracts.
    Federal Acquisition Regulation (FAR) 16.601(e) further authorizes 
agencies to amend the solicitation provision at FAR 52.216-29, Time-
and-Materials/Labor-Hour (T&M/LH) Proposal Requirements-Non-commercial 
Item Acquisitions With Adequate Price Competition, to require offerors 
to submit offers that include separate labor hour rates for 
subcontractors and affiliates. The purpose of requiring offers to 
include such separate rates is to ensure the resulting contract or 
order will have individual labor hour rate schedules for each 
individual subcontractor and affiliate of the prime contractor and not 
contain only a single set of rates applicable to the prime contractor 
and all subcontractors.
    The second of the two augmenting Homeland Security Acquisition 
Regulation (HSAR) policies that are included in this proposed rule 
refines long-established FAR policies on consistency between contractor 
recordkeeping and contractor proposal and billing practices. The 
proposed rule establishes policies furthering those existing FAR 
policies so that DHS contractors will identify their method of 
accounting for labor hours incurred and agree to a price adjustment if 
their billing practices under a T&M/LH contract they enter into with 
DHS results in overbilling because they had not billed consistently 
with their recordkeeping practices. To minimize the burden of 
identifying the method of recordkeeping used by a contractor, the 
proposed rule includes a solicitation provision in which each offeror 
will check one of two blocks to designate which of the two types of 
methods its recordkeeping system uses, record only the number of hours 
in a standard work period (such as a 40 hour workweek) or record all 
hours worked in a work period. This will apply only to hours incurred 
by employees who are exempt from the Fair Labor Standards Act (FLSA).
    Contractors with a T&M/LH contract would be required to 
substantiate the number of hours billed in order to support payment of 
a voucher. There would be no mandatory requirement that a contractor 
use one method or the other; that would be the contractor's choice. 
However, the contractor must consistently follow its chosen practice.

III. Discussion of Proposed Rule

    The proposed rule would revise 48 CFR part 3016, Types of Contracts 
and part 3052, Solicitation Provisions and Contract Clauses.
    Fixed hourly rates--FAR 16.601(e)(1) allows for three approaches in 
structuring solicitations for T&M/LH contracts and orders and allows 
agencies to make mandatory one of the three approaches identified in 
the solicitation provision at FAR 52.216-29(c). The proposed rule would 
make the procedure at FAR 52.216-29(c)(1), separate rates for each 
labor category, mandatory for DHS T&M/LH contracts and orders. The 
proposed rule provides procedures applicable to solicitations and 
awards for T&M/LH contracts and orders for non-commercial items using 
adequate price competition. The proposed rule would require offerors to 
propose separate, individual labor hour rates for each category of 
labor to be performed by the prime contractor, each subcontractor, and 
other divisions or subsidiaries or affiliates of the prime contractor 
under common control. The procedure would apply only to T&M/LH actions 
for non-commercial items to be awarded using adequate price 
competition.
    The purpose of these procedures is to ensure appropriate labor hour 
rates are paid under T&M/LH contracts and orders. The procedures are 
intended to eliminate unintentional windfall payments to the prime 
contractor that might otherwise result from work performed by lower 
labor rate subcontracts or affiliates that is billed at a higher prime 
contractor labor hour rate.
    Recording and billing hours under T&M/LH contracts and orders--The 
proposed rule would require all offerors seeking a T&M/LH contract or 
order to include a description of their method and their 
subcontractors' methods of accounting for uncompensated overtime 
performed by employees who are exempt from the Fair Labor Standards Act 
(FLSA). It also includes a requirement that billings and payments under 
the resulting contracts or orders be made consistent with that 
description. The procedure would apply to all T&M/LH contracts and 
orders that exceed the Simplified Acquisition Threshold (SAT).
    The purpose of this procedure is to eliminate potential disputes 
regarding the hours that can be billed under T&M/LH contracts by 
clearly stating in the contract whether the contractor and each 
subcontractor will be reimbursed based on recording and billing for 
only the number of hours worked not in excess of a standard number of 
hours in a standard work period (such as a 40 hour workweek) or 
recording all hours worked. This procedure will ensure that billings 
and payments under T&M/LH contracts do not result in an unintended

[[Page 50451]]

windfall to the contractor by ensuring that the contractor does not 
bill the Government for all hours worked when its established practices 
are to record only the number of hours in a standard work period (such 
as a 40 hour workweek).

IV. Regulatory Requirements

A. Executive Order 12866 (Regulatory Planning and Review) and 13563 
(Improving Regulation and Regulatory Review).

    This proposed rule is not a significant regulatory action under 
section 3(f) of Executive Order 12866, as supplemented by Executive 
Order 13563. The Office of Management and Budget has not reviewed it 
under those Orders. This proposed rule is not a major rule under 5 
U.S.C. 804.

B. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), we 
have considered whether this proposed rule would have a significant 
economic impact on a substantial number of small entities. The term 
``small entities'' comprises small businesses, not-for-profit 
organizations that are independently owned and operated and are not 
dominant in their fields, and governmental jurisdictions with 
populations of less than 50,000.
    This proposed rule, if made final, may impact a substantial number 
of small entities within the meaning of the Regulatory Flexibility Act, 
5 U.S.C. 601, et seq., and DHS has thus prepared an initial regulatory 
flexibility analysis consistent with 5 U.S.C. 604 as follows:
1. Description of the Reasons Why the Action Is Being Considered
    This proposed rule augments two existing Federal Acquisition 
Regulation (FAR) policies to create a consistent approach within DHS 
for awarding Time and Materials/Labor Hours (T&M/LH) contracts. Those 
two augmenting policies include the requirement for separate labor hour 
rates for T&M/LH subcontractors and the requirement for consistent 
practices for contractor labor hour records and labor hour billing.
    The first of the two existing FAR policies provides the option to 
require separate labor hour rates for each subcontractor under a T&M/LH 
contract, in addition to the labor hour rates established for the prime 
contractor. See FAR 16.601(e). The current FAR policy authorizes an 
agency either to permit individual contracting officers to decide if 
separate labor hour rates are necessary or to establish an agency 
procedure making separate rates mandatory. This rule proposes to 
establish a DHS-wide procedure to make the FAR option for consistent 
use of separate rates mandatory for DHS T&M/LH contracts.
    Federal Acquisition Regulation (FAR) 16.601(e) further authorizes 
agencies to amend the solicitation provision at FAR 52.216-29, Time-
and-Materials/Labor-Hour (T&M/LH) Proposal Requirements-Non-commercial 
Item Acquisitions With Adequate Price Competition, to require offerors 
to submit offers that include separate labor hour rates for 
subcontractors and affiliates. The purpose of requiring offers to 
include such separate rates is to ensure the resulting contract or 
order will have individual labor hour rate schedules for each 
individual subcontractor and affiliate of the prime contractor and not 
contain only a single set of rates applicable to the prime contractor 
and all subcontractors.
    The second of the two augmenting Homeland Security Acquisition 
Regulation (HSAR) policies that are included in this proposed rule 
refines long-established FAR policies on consistency between contractor 
recordkeeping and contractor proposal and billing practices. The 
proposed rule establishes policies furthering those existing FAR 
policies so that DHS contractors will identify their method of 
accounting for labor hours incurred and agree to a price adjustment if 
their billing practices under a T&M/LH contract they enter into with 
DHS results in overbilling because they had not billed consistently 
with their recordkeeping practices.
2. Succinct Statement of the Objectives of, and Legal Basis for, the 
Proposed Rule
    This proposed rule would establish the DHS procedure to make the 
FAR option for consistent use of separate rates mandatory for DHS T&M/
LH contracts. It would also establish a requirement that a contractor 
must consistently follow its method of record keeping for labor hours 
billed to a DHS contract. The legal bases for this rule are 5 U.S.C. 
301-302, 41 U.S.C. 1707, 41 U.S.C. 1702, 48 CFR part 1, subpart 1.3, 
and DHS Delegation Number 0702.
3. Description of and, Where Feasible, an Estimate of the Number of 
Small Entities To Which the Rule Will Apply
    This proposed rule would apply to all entities seeking a DHS 
contract or order that would be either a Time and Material or a Labor 
Hour type of contract. DHS believes that this proposed rule is not 
likely to have a significant economic impact on a substantial number of 
small entities because the rule does not require contractors or 
subcontractors to make any substantial changes in their normal business 
practices nor take any substantial actions under a contract beyond 
previously existing government requirements.
    Below are tables showing information on FY 2010 DHS awards, based 
on data contained in the Federal Procurement Data System, which would 
have been subject to this proposed rule had it been in effect at the 
time. These tables give a view into the numbers of entities that would 
be impacted by this proposed rule if the amount of contracting done by 
DHS is consistent with the amount performed during FY 2010.

                                       Numbers and Dollar Values of Awards
----------------------------------------------------------------------------------------------------------------
                                        Number of awards to other than small       Number of awards to small
         FY 2010 DHS awards                           entities                              entities
----------------------------------------------------------------------------------------------------------------
Labor Hours.........................  808 $401,098,840                         971 $250,578,045
Time and Materials..................  2507 $1,399,245,624                      1653 $483,677,645
                                     ---------------------------------------------------------------------------
    Grand Total.....................  3315 $1,800,344,464                      2624 $734,255,690
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      FY2010 DHS T&M/LH Awards           Numbers of firms other than small               Small Entities
                                                      entities
----------------------------------------------------------------------------------------------------------------
                                      382 $1,800,344,464                       261 $734,255,690
----------------------------------------------------------------------------------------------------------------


[[Page 50452]]

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Proposed Rule, Including an Estimate of 
the Classes of Small Entities Which Will Be Subject to the Requirement 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record
    The proposed rule contains no new information collection or 
reporting requirements. Offerors are already required to provide 
information in response to DHS solicitations and this is authorized 
under an existing, approved information collection. OMB Control No. 
1600-0005 (Offeror submissions).
5. Identification, to the Extent Practicable, of all Relevant Federal 
Rules Which May Duplicate, Overlap, or Conflict With the Rule
    The proposed rule would not duplicate, overlap, or conflict with 
any other Federal rules.
6. Description of Any Significant Alternatives to the Proposed Rule 
Which Accomplish the Stated Objectives of Applicable Statutes and Which 
Minimize Any Significant Economic Impact of the Rule on Small Entities
    The requirement proposed in this rulemaking is that the prime 
contractor will have to calculate and propose separate rates for each 
such subcontractor or affiliate rather than calculating a single set of 
rates with all labor hours wrapped into a single set of rates covering 
labor provided by the prime contractor as well as labor provided by 
subcontractors and affiliates. The FAR provides the option to make this 
decision in agency procedures or to leave this decision up to the 
offeror or to the contracting officer. DHS has chosen to revise its 
agency-wide procedures and is not aware of an alternative to this 
proposed requirement that would accomplish the goals of the proposed 
requirement.
    Likewise, the new requirements addressing contractors' duties to 
record and bill for hours under T&M/LH contracts and orders imposes no 
new duties or requirements on a contractor other than to identify one 
of two methods of record-keeping described in a solicitation provision, 
use its current system of recordkeeping and billing, and agree to a 
price adjustment if it inappropriately bills for all hours worked when 
it disclosed that its normal practice is to bill only for a fixed 
number of hours per employee per period. The only significant 
alternative options DHS identified were not to issue this portion of 
the rule or to apply the rule to all actions, rather than applying it 
only to actions over the SAT. Not issuing the rule was rejected because 
it would forgo the benefits of the rule. Applying the rule to actions 
under the SAT was rejected because the benefits would likely not be 
substantial enough under those lower value contracts to warrant the 
administrative effort that DHS would have to expend to enforce the 
clause.
    DHS invites comments from small businesses and other interested 
parties. DHS also will consider comments from small entities concerning 
the affected HSAR subparts in accordance with 5 U.S.C. 610. Such 
comments should be submitted separately and should cite HSAR Case 2010-
001.

C. Assistance for Small Entities

    Under Section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small 
entities in understanding the rule so that they can better evaluate its 
effects on them and participate in the rulemaking. Small businesses may 
send comments on the actions of Federal employees who enforce, or 
otherwise determine compliance with, Federal regulations to the Small 
Business and Agriculture Regulatory Enforcement Ombudsman and the 
Regional Small Business Regulatory Fairness Boards. The Ombudsman 
evaluates these actions annually and rates each agency's responsiveness 
to small business. If you wish to comment on actions by DHS employees, 
call 1-888-REG-FAIR (1-888-734-3247). The DHS will not retaliate 
against small entities that question or complain about this interim 
rule or any DHS policy.

D. Collection of Information

    This proposed rule contains no new information collection 
requirements for which OMB approval is necessary under the Paperwork 
Reduction Act of 1995 (Pub. L. 104-13). Offerors are already required 
to provide information in response to DHS solicitations and the burden 
for this is authorized under an existing, approved information 
collection. OMB Control No. 1600-0005 (Offeror submissions).

List of Subjects in 48 CFR Parts 3016 and 3052

    Government procurement.

Daniel L. Clever,
Deputy Chief Procurement Officer, Department of Homeland Security.
    Accordingly, DHS proposes to amend (HSAR) 48 CFR parts 3016 and 
3052 as follows:

    1. The authority citation for parts 3016 and 3052 are revised to 
read as follows:

    Authority:  5 U.S.C. 301-302, 41 U.S.C. 1707, 41 U.S.C. 1702, 48 
CFR part 1, subpart 1.3, and DHS Delegation Number 0702.

PART 3016--TYPES OF CONTRACTS

    2. Add section 3016.601 to subpart 3016.6 to read as follows:


3016.601  Time-and-materials and labor-hour contracts.

    (c)(2)(i) Fixed hourly rates. Each DHS time and materials and labor 
hour contract and order for non-commercial items awarded with adequate 
price competition (FAR 15.403-1(c)(1)) must include individual, 
separate labor hour rates for each category of labor hours for:
    (A) The prime contractor;
    (B) Each subcontractor; and
    (C) Each division, subsidiary and affiliate of the prime 
contractor.
    In order to require each offeror to propose these separate rates 
for each of those labor hour categories, the contracting officer shall 
insert the amended FAR solicitation provision as provided in (e)(1) of 
this subsection. The contracting officer shall also include such 
separate labor hour rates for each such category of labor hours in the 
resulting contract(s) or order(s).
    (d)(3) Limitations regarding recording hours under time-and-
material and labor hour contracts and orders.
    (i) Definitions.
    Overtime means the number of hours worked in excess of the standard 
number of hours in a standard work period (such as a 40 hour workweek) 
by a contractor employee who is exempt from the Fair Labor Standards 
Act (FLSA).
    Standard work period means the minimum number of hours an FLSA 
exempt employee is required to work per week or some other defined 
period (e.g., 40 hours per week) in accordance with the contractor's 
established policies.
    (ii) Policy. A time-and-materials and labor hour contract or order 
exceeding the Simplified Acquisition Threshold may be used only if it 
includes a description of the method that will be used by the prime 
contractor and each subcontractor to record and to bill for hours 
worked by employees exempt from the Fair Labor Standards Act (FLSA) 
under the contract or order, including overtime. The method used to 
record and bill for hours worked must be either to record and bill for 
all hours worked, or to record and bill for only the number of hours 
worked not in

[[Page 50453]]

excess of a standard number of hours in a standard work period (such as 
a 40 hour workweek). The description of the method of recording and 
billing for hours worked must be consistent with one of the two 
descriptions in (HSAR) 48 CFR 3016.601(d)(3)(iii)(A) or (B), and shall 
be incorporated into the contract or order. Whichever method the 
contractor states it will employ, those labor hour recording and 
billing practices must be consistent with the contractor's disclosed or 
established practices at the time of contract award.
    (iii) Descriptions of acceptable and unacceptable labor hour 
recording and billing practices. Paragraphs (A) and (B) of this 
subsection provide descriptions of acceptable practices that may be 
incorporated into a covered action. These paragraphs (A) and (B) 
correspond to paragraphs (b)(i) and (b)(ii) respectively of the clause 
at (HSAR) 48 CFR 3052.216-76, Offeror Selection of Labor Hour Recording 
and Billing Practices for Time-and-Materials/Labor-Hour Contracts. 
Paragraph (C) of this subsection provides a description of an 
unacceptable practice.
    (A) Record and Bill for All Hours Worked. It is an acceptable 
practice for the contractor (subcontractor) providing labor hours of 
employees exempt from the Fair Labor Standards Act (FLSA) to bill the 
hours under its contract (or order) based on recording of all hours 
worked by those employees, including overtime. The contractor must 
state that its established accounting practice is to record all hours 
worked by those employees, including overtime.
    (1) However, if it is found after award that the contractor's 
established accounting practices at the time of award were not based on 
recording all hours worked by employees, the Government shall be 
entitled to a price adjustment on all payments for labor hours under 
the contract or order.
    (2) The amount of the price adjustment for payments shall be the 
difference between the number of hours billed based on recording all 
hours worked and the hours that would have been recorded using the 
contractor's established accounting practices at the time of award, 
multiplied by the applicable fixed hourly rates.
    (B) Record and Bill for a Standard Number of Hours per Standard 
Work Period (e.g., 40 hours per week). It is an acceptable practice for 
the contractor (subcontractor) to bill the hours worked by employees 
exempt from the Fair Labor Standards Act (FLSA) under its contract 
based on recording and billing for only the number of hours worked not 
in excess of a standard number of hours in a standard work period (such 
as a 40 hour workweek). The contractor must state that its established 
accounting practice is to record only the standard number of hours in a 
standard work period. The contractor's (subcontractor's) method of 
recording hours worked must pro-rate the hours among all jobs/functions 
performed by an employee when an employee works overtime. For example, 
under a standard 40 hour work period, if an employee worked 25 hours on 
Contract A and 25 hours on Contract B during a work period, the 
contractor would pro-rate those hours to record 20 hours on Contract A 
and 20 hours on Contract B so that the total number of hours for the 
period did not exceed the number of hours in a standard work period, 40 
hours.
    (C) Unacceptable accounting and billing practices. It is not an 
acceptable practice for a contractor or subcontractor that accounts for 
only a standard number of hours worked in a standard work period for 
employees exempt from the Fair Labor Standards Act (FLSA) (e.g., 40 
hours per week), to account for and bill for only the first 8 hours 
worked each day. All hours worked in excess of the standard number of 
hours in a standard work period, including overtime hours, must be pro-
rated based on the total hours worked for all jobs/functions performed 
by the employee. If an offeror indicates that this is their established 
accounting practice, the Contracting Officer shall not award the 
contract or order, but instead shall notify the Office of the Chief 
Procurement Officer at procurement.support@dhs.gov for guidance on how 
to proceed. If an offeror provides a clarification to the statement it 
checks within the provision at (HSAR) 48 CFR 3016.216-75, and it is not 
clear to the contracting officer that the clarification is consistent 
with the requirements of the HSAR provision, the contracting officer 
shall notify the Office of the Chief Procurement Officer at 
procurement.support@dhs.gov for guidance on how to proceed.
    (e)(1) Solicitations and contracts:
    (i) Insert the provision (HSAR) 48 CFR 3052.216-29, Time-and-
Materials/Labor-Hour Proposal Requirements-Non-Commercial Item 
Acquisition With Adequate Price Competition, in the place of the 
provision at FAR 52.216-29, Time-and-Materials/Labor-Hour Proposal 
Requirements-Non-Commercial Item Acquisition With Adequate Price 
Competition, in all solicitations contemplating use of a time-and-
materials or labor-hour type of contract for noncommercial items, if 
the price is expected to be based on adequate competition (FAR 15.403-
1(c)(1)). This provision is authorized by Federal Acquisition 
Regulation (FAR) 16.601(e)(1) which authorizes agency procedures to 
require modification of the FAR solicitation provision at FAR 52.216-
29, Time and Materials/Labor-Hour Proposal Requirements-Non-Commercial 
Item Acquisitions With Adequate Price Competition. Insert the HSAR 
provision whole text into the solicitation to require separate proposed 
rates for all subcontractors and divisions, subsidiaries, and 
affiliates of the prime contractor.
    (ii) Insert the clause (HSAR) 48 CFR 3052.216-75, Offeror Selection 
of Labor-Hour Recording and Billing Practices for Time-and-Materials/
Labor-Hour Contracts, into each solicitation expected to result in a 
contract or order for (T&M/LH) exceeding the simplified acquisition 
threshold (SAT).
    (iii) Insert the clause (HSAR) 48 CFR 3052.216-76, Time-and-
Materials/Labor-Hour Overtime Recording and Billing Practices, (or a 
clause substantially the same as) into time and material or labor-hour 
solicitations, contracts and orders exceeding the SAT and include the 
mark or other indication made by the contractor which of the two 
methods (recording all hours or prorating the excess over a standard 
work period) it will use during the performance of the contract/order 
to record and bill for hours worked.

PART 3052--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    3. Amend subpart 3052.2 by adding section 3052.216-29 to read as 
follows:


3052.216-29  Time-and-Materials/Labor-Hour Proposal Requirements-Non-
Commercial Item Acquisition With Adequate Price Competition.

    As prescribed in (HSAR) 48 CFR 3016.601(e)(1)(i), insert the 
following provision:

    Time-and-Materials/Labor-Hour Proposal Requirements--Non-
commercial Item Acquisition With Adequate Price Competition
    (a) The Government contemplates award of a Time-and-Materials or 
Labor-Hour type of contract resulting from this solicitation.
    (b) The offeror must specify fixed hourly rates in its offer 
that include wages, overhead, general and administrative expenses, 
and profit. The offeror must specify whether the fixed hourly rate 
for each labor category applies to labor performed by--
    (1) The offeror;
    (2) Subcontractors; and/or
    (3) Divisions, subsidiaries, or affiliates of the offeror under 
a common control;
    (c) The offeror must establish fixed hourly rates using separate 
rates for each category of

[[Page 50454]]

labor to be performed by each subcontractor and for each category of 
labor to be performed by the offeror, and for each category of labor 
to be transferred between divisions, subsidiaries, or affiliates of 
the offeror under a common control.

    (End of provision)

    4. Amend subpart 3052.2 by adding section 3052.216-75 as follows:


3052.216-75.  Offeror Selection of Labor Hour Recording and Billing 
Practices for Time-and-Materials/Labor-Hour Contracts.

    As prescribed in (HSAR) 48 CFR 3016.601(e)(1)(ii), insert the 
following provision:

Labor Hour Recording and Billing Practices for Time-and-Materials/
Labor-Hour Contracts. (XX 2010)

    (a) The offeror must identify the practices it intends to employ 
to record labor hours worked by employees exempt from the Fair Labor 
Standards Act (FLSA) and to bill for those hours under the 
prospective contract or order for which it is submitting its offer. 
The offeror must select one of the two available descriptions of 
acceptable methods as shown in HSAR 3052.216-76, Time-and-Materials/
Labor-Hour Overtime Recording and Billing Practices-Record. The two 
available selections are: (i) Record and Bill For All Hours Worked, 
or (ii) Record and Bill Based on a Standard Number of Hours Per 
Standard Work Period. Whichever of the two descriptions the offeror 
selects will be incorporated into any resulting contract or order 
awarded to the offeror. By making the selection, the offeror is 
indicating to the Government that the selected description of 
recording and billing practices is consistent with the contractor's 
established accounting practices and this same method will be used 
for billing hours under the contract or order.
    (b) The offeror will not be eligible for award if either:
    (1) The offeror fails to indicate in its offer which of the two 
descriptions in paragraphs (c)(i) or (ii) below describe the 
offeror's method of recording and billing for labor hours to be 
performed under the contract or order; or
    (2) The offeror submits a clarification of the clause 3052.216-
76 Time-and-Materials/Labor-Hour Overtime Recording and Billing 
Practices, and the Contracting Officer had not agreed prior to 
submittal of offers that the offeror's clarification of the clause 
substantially meets the requirements of the clause.
    (c) The offeror must select one of the two below descriptions of 
the offeror's system for recording and billing hours to be worked by 
employees exempt from the Fair Labor Standards Act (FLSA) under the 
contract that are included in either paragraph (i) or (ii) of the 
clause at HSAR 3052.216-76, Time-and-Materials/Labor-Hour Overtime 
Recording and Billing Practices. If a contract or order is awarded 
to the offeror, the selected description will be incorporated into 
the contract or order.
    [ ] (Check if the paragraph describes the offeror's system)--
Paragraph (i) Recording and billing Practices--Record and Bill For 
All Hours Worked.
    [ ] (Check if the paragraph describes the offeror's system)--
Paragraph (ii) Record and Bill For a Standard Number of Hours Per 
Standard Work Period.

    (End of provision)

    5. Amend subpart 3052.2 by adding section 3052.216-76 as follows:


3052.216-76.  Time-and-Materials/Labor-Hour Overtime Recording and 
Billing Practices.

    As prescribed in (HSAR) 48 CFR 3016.601(e)(1)(iii), insert the 
following clause and designate either paragraph (i) or (ii), or insert 
a paragraph substantially the same as (i) or (ii), in accordance with 
the successful offeror's selection from (HSAR) 48 CFR 3052.216-75, 
Offeror Selection of Labor Hour Recording and Billing Practices for 
Time-and-Materials/Labor-Hour Contracts.

Time-and-Materials/Labor-Hour Overtime Recording and Billing 
Practices--(Insert Date)

    (a) Definitions:
    Overtime means the number of hours worked in excess of the 
number of hours in a standard work period by a contractor employee 
who is exempt from the Fair Labor Standards Act (FLSA).
    Standard work period means the minimum number of hours a FLSA 
exempt employee is required to work per week or some other defined 
period (e.g., 40 hours per week) in accordance with the contractor's 
established policies.
    (b) Only the designated paragraph (i) or (ii) applies.
    [ ] (i) Recording and Billing Practices--Record and Bill For All 
Hours Worked.
    The contractor (subcontractor) providing labor hours will bill 
the hours worked by employees exempt from the Fair Labor Standards 
Act (FLSA) under its contract (or order) based on recording of all 
hours worked by employees, including overtime. The contractor states 
that its established accounting practices are to record all hours 
worked.
    (1) If it is found after award that the contractor's established 
accounting practices at the time of award were not based on 
recording all hours worked by employees, the Government shall be 
entitled to a price adjustment on all payments for labor hours under 
the contract or order.
    (2) The amount of the price adjustment for payments shall be the 
difference between the number of hours billed based on recording all 
hours worked and the hours that would have been recorded using the 
contractor's established accounting practices at the time of award, 
multiplied by the applicable fixed hourly rates.
    - or -
    [ ] (ii) Record and Bill For a Standard Number of Hours Per 
Standard Work Period. The contractor (subcontractor) will bill the 
hours worked by employees exempt from the Fair Labor Standards Act 
(FLSA) under this contract based on recording and billing for only 
the number of hours worked not in excess of a standard number of 
hours in a standard work period (such as a 40 hour workweek). The 
contractor states that its established accounting practice is to 
record only the number of hours worked by such an employee not in 
excess of a standard number of hours in a standard work period (such 
as a 40 hour workweek). The contractor (subcontractor) further 
states that the accounting practices are based on pro-rating the 
hours among all jobs/functions performed by the employee when the 
employee works overtime. For example, under a standard 40 hour work 
period, if the employee worked 25 hours on Contract A and 25 hours 
on Contract B, the contractor would pro-rate those hours to record 
20 hours on Contract A and 20 hours on Contract B so that the total 
number of hours recorded for the work period does not exceed the 
number of hours in the 40 hour standard work period.
    (c) Flow down to Subcontractors. The contractor and each lower 
tier subcontractor shall incorporate the substance of this clause, 
selecting the pertinent paragraph (i) or (ii), into each subcontract 
that exceeds the Simplified Acquisition Threshold and is either a 
Time and Materials or a Labor Hour contract/order.

    (End of clause)

[FR Doc. 2012-20442 Filed 8-20-12; 8:45 am]
BILLING CODE 9110-10-P