[Federal Register Volume 59, Number 238 (Tuesday, December 13, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-30524] [[Page Unknown]] [Federal Register: December 13, 1994] _______________________________________________________________________ Part IV Department of Defense General Services Administration National Aeronautics and Space Administration _______________________________________________________________________ 48 CFR Parts 31, 37, 42, 52 Federal Acquisition Regulation; Implementation of Various Cost Principle Provisions; Proposed Rules DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 31, 37, 42 and 52 [FAR Case 94-754] RIN 9000-AG21 Federal Acquisition Regulation; Implementation of Various Cost Principle Provisions AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: This proposed rule is issued pursuant to the Federal Acquisition Streamlining Act of 1994 to implement the requirements for unallowable costs and adds to the list of costs to be clarified in the cost principles. This regulatory action was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. DATES: Comments should be submitted on or before February 13, 1995 to be considered in the formulation of a final rule. ADDRESSES: Interested parties should submit written comments to: General Services Administration, FAR Secretariat (VRS), 18th & F Streets, NW, Room 4037, Washington, DC 20405. Please cite FAR case 94-754 in all correspondence related to this case. FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, Cost Principles Team Leader, at (703) 602-2357, in reference to this FAR case. For general information, contact the FAR Secretariat, Room 4037, GS Building, Washington, DC 20405, (202) 501-4755. Please cite FAR case 94-754. SUPPLEMENTARY INFORMATION: A. Background The Federal Acquisition Streamlining Act of 1994 (the Act), Pub. L. 103-355, provides the authority to streamline the acquisition process and minimize burdensome requirements unique to the Federal Government. Major changes that can be expected in the acquisition process as a result of the Act's implementation include changes in the areas of Commercial Item Acquisition, Simplified Acquisition Procedures, the Truth in Negotiations Act, and introduction of the Federal Acquisition Computer Network. This notice announces FAR revisions developed under FAR case 94- 754, based on Section 2101 of the Act that (1) adds to the list of unallowable costs found at 10 U.S.C. 2324(e)(1), the costs of lobbying the legislative body of a political subdivision of a state; (2) adds to the list found at 10 U.S.C. 2324(f)(1) of costs to be clarified in the cost principles, the cost of ``conventions''; and (3) expands the coverage to the Coast Guard and the National Aeronautics and Space Administration. Section 2151 amends 41 U.S.C. 256 to include all the provisions of 10 U.S.C. 2324, as amended by Section 2101. Therefore, the provisions are made generally applicable to all other executive agencies. The new FAR language, with only minor variations, was transferred from the current coverage in the Defense Federal Acquisition Regulations (DFARS). The FAR Council is interested in an exchange of ideas and opinions with respect to the regulatory implementation of the Act. For that reason, the FAR Council is conducting a series of public meetings. However, the FAR Council has not scheduled a public meeting on this rule (FAR case 94-754) because of the clarity and non-controversial nature of the rule. If the public believes such a meeting is needed with respect to this rule, a letter requesting a public meeting and outlining the nature of the requested meeting shall be submitted to and received by the FAR Secretariat (see ADDRESSES caption, above) on or before January 12, 1995. The FAR Council will consider such requests in determining whether a public meeting on this rule should be scheduled. B. Regulatory Flexibility Act This proposed rule is not expected to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded to small businesses are awarded through sealed bidding on a firm fixed price basis. The cost principles apply only to contracts which are not firm fixed price. An Initial Regulatory Flexibility Analysis has, therefore, not been performed. Comments from small entities concerning the affected FAR subpart will be considered in accordance with 5 U.S.C. 610 of the Act. Such comments must be submitted separately and should cite 5 U.S.C. 601, et seq. (FAR case 94-754), in correspondence. C. Paperwork Reduction Act The Paperwork Reduction Act does not apply because the proposed changes to the FAR do not impose recordkeeping or information collection requirements, or collections of information from offerors, contractors, or members of the public which require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq. List of Subjects in 48 CFR Parts 31, 37, 42, and 52 Government procurement. Dated: December 6, 1994. Capt. Barry L. Cohen, SC, USN, Project Manager for the Implementation of the Federal Acquisition Streamlining Act of 1994. Therefore, it is proposed that 48 CFR Parts 31, 37, 42, and 52 be amended as set forth below: 1. The authority citation for 48 CFR Parts 31, 37, 42, and 52 continues to read as follows: Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c). PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-1 [Amended] 2. Section 31.205-1(f)(3) is amended by adding ``conventions,'' after ``meetings,''. 3. Section 31.205-6 is amended in paragraph (g)(2) by adding a sentence at the end of the introductory text and adding paragraph (g)(3) to read as follows: 31.205-6 Compensation for personal services. * * * * * (g) * * * (2) * * * In addition, paragraph (g)(3), of this subsection, applies if the severance cost is for foreign nationals employed outside the United States. * * * * * (3) Notwithstanding the reference to geographical area in 31.205- 6(b)(1), under 10 U.S.C. 2324(e)(1)(M) and 41 U.S.C. 256(e)(1)(M), the costs of severance payments to foreign nationals employed under a service contract or subcontract performed outside the United States are unallowable to the extent that such payments exceed amounts typically paid to employees providing similar services in the same industry in the United States. Further, under 10 U.S.C. 2324(e)(1)(N) and 41 U.S.C. 256(e)(1)(N), all such costs of severance payments which are otherwise allowable are unallowable if the termination of employment of the foreign national is the result of the closing of, or the curtailment of activities at, a United States facility in that country at the request of the government of that country; this does not apply if the closing of a facility or curtailment of activities is made pursuant to a status-of-forces or other country-to-country agreement entered into with the government of that country before November 29, 1989. 10 U.S.C. 2324(e)(3) and 41 U.S.C. 256(e)(2) permit the head of the agency, or designee, to waive these cost allowability limitations under certain circumstances (see 37.113 and the clause at 52.237-XXX). * * * * * 31.205-22 [Amended] 4. Section 31.205-22 is amended in paragraphs (a) (3) and (4) by revising the phrase ``Federal or state'' to read ``Federal, state, or local'' each time it appears. 31.205-43 [Amended] 5. Section 31.205-43 is amended in the introductory text of paragraphs (c) and (c)(3)(ii) by inserting ``convention'' after ``meeting'' and in paragraph (c)(1) by inserting ``conventions'' after ``meetings''. 6. Section 31.603(b) is revised to read as follows: 31.603 Requirements. * * * * * (b) Agencies are not expected to place additional restrictions on individual items of cost. However, under 10 U.S.C. 2324(e) and 41 U.S.C. 256(e), the following costs are unallowable-- (1) Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities). (2) Costs incurred to influence (directly or indirectly) legislative action on any matter pending before Congress, a State legislature, or a legislative body of a political subdivision of a State. (3) Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of any false certification) brought by the United States where the contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification). (4) Payments of fines and penalties resulting from violations of, or failure to comply with, Federal, state, local, or foreign laws and regulations, except when incurred as a result of compliance with specific terms and conditions of the contract or specific written instructions from the contracting officer authorizing in advance such payments in accordance with applicable regulations in the FAR or an executive agency supplement to the FAR. (5) Costs of any membership in any social, dining, or country club or organization. (6) Costs of alcoholic beverages. (7) Contributions or donations, regardless of the recipient. (8) Costs of advertising designed to promote the contractor or its products. (9) Costs of promotional items and memorabilia, including models, gifts, and souvenirs. (10) Costs for travel by commercial aircraft which exceed the amount of the standard commercial fare. (11) Costs incurred in making any payment (commonly known as a ``golden parachute payment'') which is-- (i) In an amount in excess of the normal severance pay paid by the contractor to an employee upon termination of employment; and (ii) Is paid to the employee contingent upon, and following, a change in management control over, or ownership of, the contractor or a substantial portion of the contractor's assets. (12) Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor's own defects in materials or workmanship. (13) Cost of severance pay paid by the contractor to foreign nationals employed by the contractor under a service contract performed outside the United States, to the extent that the amount of the severance pay paid in any case exceeds the amount paid in the industry involved under the customary or prevailing practice for firms in that industry providing similar services in the United States, as determined by regulations in the FAR or in an executive agency supplement to the FAR. (14) Costs of severance pay paid by the contractor to a foreign national employed by the contractor under a service contract performed in a foreign country if the termination of the employment of the foreign national is the result of the closing of, or curtailment of activities at a United States facility in that country at the request of the government of that country. (15) Costs incurred by a contractor in connection with any criminal, civil, or administrative proceedings commenced by the United States or a State, to the extent provided in 10 U.S.C. 2324(k) or 41 U.S.C. 256(k). 7. Section 31.703(b) is revised to read as follows: 31.703 Requirements. * * * * * (b) Agencies are not expected to place additional restrictions on individual items of cost. However, under 10 U.S.C. 2324(e) and 41 U.S.C. 256(e), the costs cited in 31.603(b) are unallowable. PART 37--SERVICE CONTRACTING 8. Section 37.113 and subsections 37.133-1 and 37.113-2 are added to read as follows: 37.113 Severance payments to foreign nationals. 37.113-1 Waiver of cost allowability limitations. (a) The head of any agency, or designee, may waive the 31.205- 6(g)(3) cost allowability limitations on severance payments to foreign nationals for contracts that-- (1) Provide significant support services for (i) members of the armed forces stationed or deployed outside the United States, or (ii) employees of an executive agency posted outside the United States; and (2) Will be performed in whole or in part outside the United States. (b) Waivers can be granted only before contract award. (c) Waivers cannot be granted for-- (1) Military banking contracts, which are covered by 10 U.S.C. 2324(e)(2); or (2) Severance payments made by a contractor to a foreign national employed by the contractor under a DoD service contract in the Republic of the Philippines, if the discontinuation of the foreign national is the result of the termination of basing rights of the United States military in the Republic of the Philippines (section 1351(b) of Public Law 102-484). 37.113-2 Contract clauses. (a) Use the clause at 52.237-XXX, Restriction on Severance Payments to Foreign Nationals, in all solicitations that meet the criteria in 37.113-1(a), except for those excluded by 37.113-1(c). (b) When the head of an agency, or designee, has granted a waiver pursuant to 37.113-1, use the clause at 52.237-YYY, Waiver of Limitation on Severance Payments to Foreign Nationals. PART 42--CONTRACT ADMINISTRATION 9. Section 42.703(c)(2) is revised to read as follows: 42.703 Policy. * * * * * (c) * * * (2) Pursuant to 10 U.S.C. 2324(a) and 41 U.S.C. 256(a), use established final indirect cost rates in negotiating the final price of fixed-price incentive and fixed-price redeterminable contracts and in other situations requiring that indirect costs be settled before contract prices are established. 10. Section 42.705-1 is amended by revising paragraph (b)(4) and adding (b)(5)(v) to read as follows: 42.705-1 Contracting officer determination procedure. * * * * * (b) * * * (4) The Government negotiating team shall develop a negotiation position. Pursuant to 10 U.S.C. 2324(f) and 41 U.S.C. 256(f), the contracting officer shall-- (i) Not resolve any questioned costs until obtaining-- (A) Adequate documentation on the costs; and (B) The contract auditor's opinion on the allowability of the costs. (ii) Whenever possible, invite the contract auditor to serve as an advisor at any negotiation or meeting with the contractor on the determination of the contractor's final indirect cost rates. (5) * * * (v) Notify the contractor of the individual costs which were considered unallowable and the respective amounts of the disallowance. PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES 11. Section 52.237 is amended by adding 52.237-XXX and 52.237-YYY to read as follows: * * * * * 52.237-XXX Restriction on Severance Payments to Foreign Nationals. As prescribed in 37.113-2(a), use the following clause: Restriction on Severance Payments to Foreign Nationals (XXX 1994) (a) The FAR at 31.205-6(g)(3) limits the cost allowability of severance payments to foreign nationals employed under a service contract or subcontract performed outside the United States unless the head of the agency, or designee, grants a waiver pursuant to FAR 37.113-1 before contract award. (b) In making the determination concerning the granting of a waiver, the head of the agency, or designee, will determine that-- (1) The application of the severance pay limitations to the contract would adversely affect the continuation of a program, project, or activity that provides significant support services for (i) members of the armed forces stationed or deployed outside the United States, or (ii) employees of an executive agency posted outside the United States; (2) The contractor has taken (or has established plans to take) appropriate actions within its control to minimize the amount and number of incidents of the payment of severance pay to employees under the contract who are foreign nationals; and (3) The payment of severance pay is necessary in order to comply with a law that is generally applicable to a significant number of businesses in the country in which the foreign national receiving the payment performed services under the contract or is necessary to comply with a collective bargaining agreement. (End of clause) 52.237-YYY Waiver of Limitation on Severance Payments to Foreign Nationals. As prescribed in 37.113-2(b), use the following clause; Waiver of Limitation on Severance Payments to Foreign Nationals (XXX 1994) (a) Pursuant to 10 U.S.C. 2324(e)(3)(A) or 41 U.S.C. 256(e)(2)(A), as applicable, the cost allowability limitations in FAR 31.205-6(g)(3) are waived. (b) This clause may be incorporated into subcontracts issued under this contract, if approved by the Contracting Officer. (End of clause) [FR Doc. 94-30524 Filed 12-12-94; 8:45 am] BILLING CODE 6820-34-M