[Federal Register: June 14, 2000 (Volume 65, Number 115)]
[Rules and Regulations]
[Page 37469-37472]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn00-18]
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Part II
Office of Management and Budget
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48 CFR 9903
Cost Accounting Standards Board; Changes In Cost Accounting Practices;
Final Rule
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards Board; Changes In Cost Accounting
Practices.
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, OMB.
ACTION: Final rule.
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SUMMARY: The Office of Federal Procurement Policy, Cost Accounting
Standards Board (CASB), is amending the Board's regulations pertaining
to actions the cognizant Federal agency official can take when a
contractor makes a compliant change to an established cost accounting
practice that is used to estimate, accumulate and report the costs of
covered negotiated government contracts or does not comply with
applicable Cost Accounting Standards (CAS). The amendments provide that
accounting changes directly associated with external restructuring
activities that are subject to and meet certain statutory requirements
are not subject to the CASB's contract price and cost adjustment
requirements, and establishes new coverage for processing compliant
cost accounting practice changes and noncompliant cost accounting
practice conditions in accordance with CAS contract clause
requirements. The existing CAS contract clause interest rate citation
is also amended to make explicit the specific interest rate to be
applied when increased costs paid are recovered by the Government. This
rulemaking is authorized pursuant to Section 26 of the Office of
Federal Procurement Policy Act.
The Board is taking these actions after having given careful
consideration to the comments it received regarding the Supplemental
Notice of Proposed Rulemaking issued August 20, 1999 on this topic
(SNPRM-II).
DATES: The effective date of this final rule is June 14, 2000.
FOR FURTHER INFORMATION CONTACT: Rudolph J. Schuhbauer, Project
Director, Cost Accounting Standards Board (telephone: 202-395-1052).
SUPPLEMENTARY INFORMATION:
A. Regulatory Process
The CASB's rules, regulations and Cost Accounting Standards (CAS)
are codified at 48 CFR Chapter 99. Section 26(g)(1) of the Office of
Federal Procurement Policy Act, 41 U.S.C. Sec. 422(g), requires that
the Board, prior to the establishment of any new or revised Standard,
complete a prescribed rulemaking process. The process generally
consists of the following four steps:
(1) Consult with interested persons concerning the advantages,
disadvantages and improvements anticipated in the pricing and
administration of Government contracts as a result of the adoption of a
proposed Standard (e.g., promulgation of a Staff Discussion Paper
(SDP)).
(2) Issue an Advance Notice of Proposed Rulemaking (ANPRM).
(3) Issue a Notice of Proposed Rulemaking (NPRM).
(4) Promulgate a Final Rule.
This Notice is step four of the four-step process.
B. Background
Prior Promulgations.
Many commenters identified the Board's regulatory coverage on
``changes in cost accounting practice'' as a matter requiring
clarification and/or further coverage. The CASB requested public
comments from interested parties on this topic in an SDP published in
the Federal Register on April 9, 1993 (58 FR 18428), in an ANPRM
published on April 25, 1995 (60 FR 20252) and in an NPRM published on
September 18, 1996 (61 FR 49196). The CASB requested additional
comments in two Supplemental NPRM's that were published on July 14,
1997 (62 FR 37654) and August 20, 1999 (64 FR 45700).
The various Notices proposed to amend the Board's current coverage
governing what constitutes a change to a cost accounting practice. The
previously proposed revisions included amendments to conform the
language contained in the contract clauses for ``Full'' and
``Modified'' coverage, to address certain Federal agency
responsibilities, to expand the criteria for desirable change
determinations and to exempt certain changes in a contractor's cost
accounting practices from the Board's contract price and cost
adjustment requirements. A new subpart was also proposed to delineate
the actions to be taken by the contracting parties when a contractor
makes a compliant change to a cost accounting practice or follows a
noncompliant practice.
Public Comments
Fifty-three sets of public comments were received in response to
the SNPRM-II. The public comments were received from contractors,
educational institutions, professional associations, Federal agencies,
accounting organizations, and individuals. An open public meeting was
held on December 6, 1999, regarding the Board's SNPRM-II. On January 7,
2000, the Department of Defense replaced its initial comments submitted
on November 22, 1999, with an alternative proposal for the Board's
consideration. Twelve public commenters from the contractor community
subsequently withdrew their formally submitted comments and advised the
Board that they preferred the alternate proposal submitted by the
Department of Defense. On February 29, 2000, the Department of Defense
submitted a revised alternative proposal. The two alternative proposals
were developed in an open forum hosted by the National Contract
Management Association. The February 29, 2000, proposal contained
alternative language for what constitutes a change to a cost accounting
practice, for exempting certain accounting changes from the cost impact
process and for determining when a change to an accounting practice may
be determined to be a ``desirable'' change. Three of the twelve
commenters referred to above, further expressed their preference for
the February 29, 2000, proposal.
On February 7, 2000, the CASB published an interim rule in the
Federal Register (65 FR 5990), to adjust CAS applicability requirements
and dollar thresholds in accordance with the provisions of the National
Defense Authorization Act for Fiscal Year 2000, Pub. L. 106-65. This
action is expected to reduce the number of CAS-covered contracts and
the number of contractor business units performing CAS-covered
contracts.
On April 18, 2000, the Civilian Agency Acquisition Council and the
Defense Acquisition Regulations Council (Councils) proposed to amend
the Federal Acquisition Regulation (FAR) to delineate the process for
determining and resolving the cost impact on contracts and subcontracts
when a contractor makes a compliant change to a cost accounting
practice or follows a noncompliant practice. The FAR proposal was in
response to an initiative by the Administrator, Office of Federal
Procurement Policy. The proposed FAR coverage addresses many aspects of
the fundamental CAS administration process that the Board's above
referenced proposals also addressed. The Board encourages the Councils
to finalize the proposed rulemaking.
In view of the circumstances that now prevail, a projected decline
in CAS-covered contracts and the expected
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issuance of more explicit FAR guidance regarding the CAS cost impact
process, the Board believes that issuance of any amendments to its
regulations, in addition to those included in this final rule, is not
presently warranted.
Summary of Amendments
In subpart 9903.2, CAS Program Requirements, of Part 9903, Contract
Coverage, subsection 9903.201-4 is amended to clarify, in certain
prescribed CAS contract clauses, that the applicable interest rate
cited for use when recovering increased cost paid due to a contractor's
failure to comply with an applicable CAS or to follow any cost
accounting practice consistently is the underpayment rate established
under section 6621(a)(2) of the Internal Revenue Code of 1986 (26
U.S.C. 6621(a)(2)).
Subsection 9903.201-6 is amended to provide guidance for
determining:
-- For a required change, that a change to an established cost
accounting practice is required to comply with applicable CAS;
-- For a unilateral practice change that a contractor makes, that the
contemplated contract price and cost adjustments will protect the
United States from payment of increased costs, in the aggregate; and
that the net effect of the adjustments being made does not result in
the recovery of more than the estimated amount of such increased costs;
-- When a compliant change in cost accounting practice may be
determined to be desirable and not detrimental to the Government's
interests; and,
-- For a noncompliant cost accounting practice, that the contemplated
contract price and cost adjustments will protect the United States from
payment of increased costs, in the aggregate; and that the net effect
of the adjustments being made does not result in the recovery of more
than the estimated amount of such increased costs.
Subsection 9903.201-8 is added to establish that the CASB's
contract price and cost adjustment requirements are not applicable to
compliant cost accounting practice changes directly associated with
external restructuring activities that are subject to and meet the
requirements of 10 U.S.C. Sec. 2325.
C. Paperwork Reduction Act
The Paperwork Reduction Act, Public Law 96-511, does not apply to
this rule, 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.
D. 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 that
this is not a ``major rule'' under the provisions of Executive Order
12866, and that a regulatory impact analysis is not required.
Furthermore, this rule will not have a significant effect on a
substantial number of small entities 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.
List of Subjects in 48 CFR Part 9903
Cost accounting standards, government procurement.
Nelson F. Gibbs,
Executive Director, Cost Accounting Standards Board.
For the reasons set forth in this preamble, chapter 99 of title 48
of the Code of Federal Regulations is amended as set forth below:
1. The authority citation for part 9903 continues to read as
follows:
Authority: Pub. L. 100-679, 102 Stat. 4056, 41 U.S.C. 422.
2. Section 9903.201-4 is amended as follows:
a. The contract clause heading immediately following paragraph (a)
is revised, and in that contract clause the second sentence of
paragraph (a)(5) is revised;
b. The contract clause heading immediately following paragraph (c)
is revised, and in that contract clause the first sentence of paragraph
(a)(3)(ii) and the second sentence of paragraph (a)(4) are revised;
c. The contract clause heading immediately following paragraph (e)
is revsied, and in that contract clause the second sentence of
paragraph (a)(5) is revised.
The revisions read as follows:
9903.201-4 Contract clauses.
(a) * * *
* * * * *
Cost Accounting Standards (June 2000)
(a) * * *
(5) * * * Such adjustment shall provide for recovery of the
increased costs to the United States, together with interest thereon
computed at the annual rate established under section 6621(a)(2) of the
Internal Revenue Code of 1986 (26 U.S.C. 6621(a)(2)) for such period,
from the time the payment by the United States was made to the time the
adjustment is effected. * * *
* * * * *
(c) * * *
* * * * *
Disclosure and Consistency of Cost Accounting Practices (June 2000)
(a) * * *
(3)(i) * * *
(ii) The Contractor shall, when the parties agree to a change to a
cost accounting practice and the Contracting Officer has made the
finding required in 9903.201-6(c) that the change is desirable and not
detrimental to the interests of the Government, negotiate an equitable
adjustment as provided in the Changes clause of this contract. * * *
(4) * * * Such adjustment shall provide for recovery of the
increased costs to the United States, together with interest thereon
computed at the annual rate established under section 6621(a)(2) of the
Internal Revenue Code of 1986 (26 U.S.C. 6621(a)(2)) for such period,
from the time the payment by the United States was made to the time the
adjustment is effected. * * *
* * * * *
(e) * * *
* * * * *
Cost Accounting Standards--Educational Institutions (June 2000)
(a) * * *
(5) * * * Such adjustment shall provide for recovery of the
increased costs to the United States, together with interest thereon
computed at the annual rate established under section 6621(a)(2) of the
Internal Revenue Code of 1986 (26 U.S.C. 6621(a)(2)) for such period,
from the time the payment by the United States was made to the time the
adjustment is effected. * * *
* * * * *
3. Section 9903.201-6 is revised to read as follows:
9903.201-6 Findings.
(a) Required change. (1) Finding. Prior to making any equitable
adjustment under the provisions of paragraph (a)(4)(i) of the contract
clause set forth in 9903.201-4(a) or 9903.201-4(e), or paragraph
(a)(3)(i) of the contract clause set forth in 9903.201-4(c), the
Contracting Officer shall make a finding that the practice change was
required to comply with a CAS, modification or interpretation thereof,
that subsequently became applicable to the contract; or, for planned
changes being made in order to remain CAS compliant, that the
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former practice was in compliance with applicable CAS and the planned
change is necessary for the contractor to remain in compliance.
(2) Required change means a change in cost accounting practice that
a contractor is required to make in order to comply with applicable
Standards, modifications, or interpretations thereto, that subsequently
become applicable to an existing CAS-covered contract due to the
receipt of another CAS-covered contract or subcontract. It also
includes a prospective change to a disclosed or established cost
accounting practice when the cognizant Federal agency official
determines that the former practice was in compliance with applicable
CAS and the change is necessary for the contractor to remain in
compliance.
(b) Unilateral change. (1) Findings. Prior to making any contract
price or cost adjustment(s) under the change provisions of paragraph
(a)(4)(ii) of the contract clause set forth in 9903.201-4(a) or
9903.201-4(e), or paragraph (a)(3)(ii) of the contract clause set forth
in 9903.201-4(c), the Contracting Officer shall make a finding that the
contemplated contract price and cost adjustments will protect the
United States from payment of increased costs, in the aggregate; and
that the net effect of the adjustments being made does not result in
the recovery of more than the estimated amount of such increased costs.
(2) Unilateral change by a contractor means a change in cost
accounting practice from one compliant practice to another compliant
practice that a contractor with a CAS-covered contract(s) elects to
make that has not been deemed desirable by the cognizant Federal agency
official and for which the Government will pay no aggregate increased
costs.
(3) Action to preclude the payment of aggregate increased costs by
the Government. In the absence of a finding pursuant to paragraph (c)
of this subsection that a compliant change is desirable, no agreement
may be made with regard to a change to a cost accounting practice that
will result in the payment of aggregate increased costs by the United
States. For these changes, the cognizant Federal agency official shall
limit upward contract price adjustments to affected contracts to the
amount of downward contract price adjustments of other affected
contracts, i.e., no net upward contract price adjustment shall be
permitted.
(c) Desirable change. (1) Finding. Prior to making any equitable
adjustment under the provisions of paragraph (a)(4)(iii) of the
contract clause set forth in 9903.201-4(a) or 9903.201-4(e), or
paragraph (a)(3)(ii) of the contract clause set forth in 9903.201-4(c),
the cognizant Federal agency official shall make a finding that the
change to a cost accounting practice is desirable and not detrimental
to the interests of the Government.
(2) Desirable change means a compliant change to a contractor's
established or disclosed cost accounting practices that the cognizant
Federal agency official finds is desirable and not detrimental to the
Government and is therefore not subject to the no increased cost
prohibition provisions of CAS-covered contracts affected by the change.
The cognizant Federal agency official's finding need not be based
solely on the cost impact that a proposed practice change will have on
a contractor's or subcontractor's current CAS-covered contracts. The
change to a cost accounting practice may be determined to be desirable
even though existing contract prices and/or cost allowances may
increase. The determination that the change to a cost accounting
practice is desirable, should be made on a case-by-case basis.
(3) Once a determination has been made that a compliant change to a
cost accounting practice is a desirable change, associated management
actions that also have an impact on contract costs should be considered
when negotiating contract price or cost adjustments that may be needed
to equitably resolve the overall cost impact of the aggregated actions.
(4) Until the cognizant Federal agency official has determined that
a change to a cost accounting practice is deemed to be a desirable
change, the change shall be considered to be a change for which the
Government will not pay increased costs, in the aggregate.
(d) Noncompliant cost accounting practices. (1) Findings. Prior to
making any contract price or cost adjustment(s) under the provisions of
paragraph (a)(5) of the contract clause set forth in 9903.201-4(a) or
9903.201-4(e), or paragraph (a)(4) of the contract clause set forth in
9903.201-4(c), the Contracting Officer shall make a finding that the
contemplated contract price and cost adjustments will protect the
United States from payment of increased costs, in the aggregate; and
that the net effect of the adjustments being made does not result in
the recovery of more than the estimated amount of such increased costs.
While individual contract prices, including cost ceilings or target
costs, as applicable, may be increased as well as decreased to resolve
an estimating noncompliance, the aggregate value of all contracts
affected by the estimating noncompliance shall not be increased.
4. Section 9903.201-8 is added to read as follows:
9903.201-8 Compliant accounting changes due to external restructuring
activities
The contract price and cost adjustment requirements of this part
9903 are not applicable to compliant cost accounting practice changes
directly associated with external restructuring activities that are
subject to and meet the requirements of 10 U.S.C. 2325.
[FR Doc. 00-14243 Filed 6-13-00; 8:45 am]
BILLING CODE 3110-01-P