[Federal Register: January 4, 2006 (Volume 71, Number 2)]
[Proposed Rules]
[Page 313-315]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja06-34]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards Board; T&M Contracts for Commercial
Items
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, OMB.
ACTION: Proposed rule with request for comment.
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SUMMARY: The Cost Accounting Standards (CAS) Board is proposing to
revise the CAS by providing an exemption for time-and-materials (T&M)
and labor-hour (LH) contracts for the acquisition of commercial items.
DATES: Comments upon this proposed rule must be in writing and must be
received by March 6, 2006.
ADDRESSES: Due to delays in OMB's receipt and processing of mail,
respondents are strongly encouraged to submit comments electronically
to ensure timely receipt. Electronic comments may be submitted to
casb2@omb.eop.gov. Please put the full body of your comments in the
text of the electronic message and also as an attachment readable in
either MS Word or Corel WordPerfect. Please include your name, title,
organization, postal address, telephone number, and e-mail address in
the text of the message. Comments may also be submitted via facsimile
to (202) 395-5105.
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FOR FURTHER INFORMATION CONTACT: Rein Abel, Director of Research, Cost
Accounting Standards Board (telephone: 202-395-1062).
SUPPLEMENTARY INFORMATION:
A. Background
On July 29, 1996, the Board implemented the Federal Acquisition
Reform Act (FARA) by promulgating an interim rule providing an
exemption from CAS for contracts for the acquisition of commercial
items that are firm fixed price and fixed price with economic price
adjustment (except when the adjustment is made on the basis of actual
costs). The Board's final rule was implemented on June 6, 1997. At the
time the CAS Board implemented this exemption, FAR limited the
permissible contract types for the acquisition of commercial items to
firm fixed price and fixed price with economic price adjustment.
Section 1432 of the National Defense Authorization Act for Fiscal
Year 2004 (Pub. L. 108-136, referred to as SARA) amended the Federal
Acquisition Streamlining Act (FASA) to expressly authorize the use of
time-and-materials (T&M) and labor-hour (LH) contracts for the
acquisition of certain categories of commercial services under
specified conditions. As part of the process to implement this
amendment, the Federal Acquisition Regulation (FAR) Council published
an Advance Notice of Proposed Rulemaking (ANRPM) in the Federal
Register on September 20, 2004 (69 FR 56316) to amend the FAR. The
ANPRM requested comments on the impact of applying CAS. Public comments
were received from 23 respondents. Eight of those respondents provided
comments on the impact of applying CAS. The comments focused on whether
the statute requires an exemption from CAS and the value of applying
CAS to T&M/LH contracts for commercial items.
The FAR Council reviewed the public comments and drafted a proposed
rule to amend the FAR. Based on the methodology in the draft proposed
FAR rule that will be used to price and reimburse T&M and LH contracts
(summarized below), the CAS Board has determined that an exemption from
CAS is appropriate:
Pricing. Under the provisions of SARA and the requirements of the
draft proposed FAR rule, T&M and LH contracts for commercial items must
be awarded on a competitive basis. In addition, the contracting officer
is precluded from obtaining cost or pricing data in accordance with FAR
15.403-1(c)(3). Therefore, the application of CAS, from a pricing
standpoint, is similar to a firm fixed-price contract awarded on the
basis of competition without submission of certified cost or pricing
data. Such firm-fixed price contracts are exempt from CAS under 48 CFR
9903.201-1(b)(6).
Reimbursement. In regards to cost reimbursement, the draft proposed
FAR rule provides for the following:
Reimbursement of direct labor will be on the basis of
fixed labor rates in the contract schedule. The fixed labor rates will
be established based on competition, since SARA requires award on a
competitive basis.
Reimbursement of indirect costs will be at a fixed amount
established at the time of contract award. This fixed amount will be
part of the price evaluation, and thus is part of the competitive award
process.
Materials. If the materials are a commercial item,
reimbursement will be at price. If the materials are not a commercial
item, reimbursement will be at actual cost.
Other Direct Costs will be reimbursed on the basis of
actual costs incurred. Reimbursement is limited to the specific cost
elements listed in the contract.
Subcontracts will be reimbursed at either (a) cost (to the
extent the costs are incurred in accordance with the terms and
conditions of the subcontract agreement and evidenced by actual
payment) or (b) the fixed labor rates in the contract schedule (if
specifically provided for in the contract).
Under the draft proposed FAR rule, direct labor and indirect costs
are reimbursed on a fixed price basis. Thus, for LH contracts, all
reimbursement is on a fixed price basis (based on the number of labor
hours expended).
For T&M contracts, materials, other direct costs, and subcontract
costs may be reimbursed at cost. The preamble to the draft proposed FAR
rule indicates that (a) Most of the material costs are anticipated to
be for commercial items reimbursed at price, (b) the material and other
direct costs should be a minor portion of the total contract costs, and
(c) subcontract costs are either reimbursed at cost or at the fixed
labor rates in the contract schedule.
The Board has concluded that a CAS exemption is appropriate for
both T&M and LH contracts for the following reasons:
(a) The pricing is based on adequate competition without the
submission of cost data;
(b) For other than subcontracts, reimbursement based on actual cost
is anticipated to be very limited;
(c) Reimbursement of subcontracts based on actual costs requires
that the costs be (i) incurred in accordance with the terms and
conditions of the subcontract agreement, and (ii) evidenced by actual
payment; and
(d) Reimbursement of subcontracts on other than actual costs will
be on a fixed price basis (based on the fixed labor rates in the
contract schedule).
B. Paperwork Reduction Act
The Paperwork Reduction Act, Public Law 96-511, does not apply to
this rulemaking, because this rule imposes no paperwork burden on
offerors, affected contractors and subcontractors, or members of the
public which requires the approval of OMB under 44 U.S.C. 3501, et seq.
C. Executive Order 12866 and the Regulatory Flexibility Act
The economic impact of this rule on contractors and subcontractors
is expected to be minor. As a result, the Board has determined this
rule is not significant under the provisions of Executive Order 12866,
and that a regulatory impact analysis will not be required.
Furthermore, this rule will not have a significant impact on a
substantial number of small businesses because small businesses are
exempt from the application of the Cost Accounting Standards.
Therefore, this rule does not require a regulatory flexibility analysis
under the Regulatory Flexibility Act of 1980.
D. Public Comments
Interested persons are invited to participate by submitting data,
views or arguments with respect to this proposed rule. All comments
must be in writing and submitted to the address indicated in the
Addresses section.
List of Subjects in 48 CFR Part 9903
Accounting, Government procurement.
Joshua B. Bolten,
Director.
For the reasons set forth in this preamble, chapter 99 of title 48
of the Code of Federal Regulations is proposed to be amended as set
forth below:
PART 9903--CONTRACT COVERAGE
1. The authority citation for part 9903 is revised to read as
follows
Authority: Public Law 100-679, 102 Stat 4056, 41 U.S.C. 422.
Subpart 9903.2--CAS Program Requirements
2. Section 9903.201-1(b)(6) is revised to read as follows:
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Sec. 9903.201-1 CAS Applicability.
* * * * *
(b) * * *
(6) Firm fixed-priced, fixed-priced with economic price adjustment
(provided that price adjustment is not based on actual costs incurred),
time-and-materials, and labor-hour contracts and subcontracts for the
acquisition of commercial items.
* * * * *
[FR Doc. E5-8237 Filed 1-3-06; 8:45 am]
BILLING CODE 3110-01-P