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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: February 4, 2003

SUBJECT: Federal Acquisition Regulation (FAR); General Provisions of the Cost Principles

SOURCE: Federal Register, February 4, 2003, Vol. 68, No. 23, page 5773

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed that the general provisions of the cost principles in the FAR Part 31, Contract Cost Principles and Procedures, be amended to clarify and expand on the concepts involved.

DATES: Comments are due on or before April 7, 2003.

ADDRESSES: Submit written comments on proposed rule to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405. Submit e-mail comments to: farcase.2001-034@gsa.gov. Cite "FAR case 2001-034" when referring to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Ralph De Stefano, 202-501-1758.

SUPPLEMENTAL INFORMATION: The Civilian Agency Acquisition Council (CAAC) and the Defense Acquisition Regulations Council (DARC) have performed an analysis of the general provisions of the cost principles applicable to commercial organizations and are proposing that the following FAR sections be amended:

• FAR 31.106-2, Exceptions to General Rule on Allowability and Allocability: When the contractor's usual method of allocating indirect costs to a facilities contract will yield inequitable results, paragraph (b) currently requires the contractor to vary its usual method and make appropriate adjustments to the indirect cost pool and base. This requirement is intended to provide the special treatment needed to produce an equitable allocation of cost to applicable facilities contracts. However, paragraph (b) does not provide sufficient detail as to how the contractor must make the adjustment.
  
  It is proposed that FAR 31.106-2 be renamed "Special Allocations," and that paragraphs (b) through (e) be amended to explicitly recognize the concept of special allocations for application to facilities contracts that are not subject to full Cost Accounting Standards (CAS) coverage. (EDITOR'S NOTE: The CAS are Title 48 of the Code of Federal Regulations, Chapter 99, and are available on the Internet at http://www.acqnet.gov/far/97/html/appendix.html.) The CAS provide for special allocations in CAS 403, Allocation of Home Office Expenses in Segments (48 CFR 9904.403); CAS 410, Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives; CAS 418, Allocation of Direct and Indirect Costs (48 CFR 9904.418); and CAS 420, Accounting for Independent Research and Development Costs and Bid and Proposal Costs (48 CFR 9904.420). The proposed special allocation provisions would specify the treatment that the contractor must use to produce an equitable allocation to applicable facilities contracts.
  
  In addition, proposed language would be added to paragraph (b) to provide the specific methodology to be used when employing the concept of a special allocation.
  
  
• FAR 31.201-1, Composition of Total Cost: This would be amended to delete "See [FAR] 31.201-2(b) and (c) for Cost Accounting Standards (CAS) requirements." because it is unnecessary.
  
  
• FAR 31.201-2, Determining Allowability: Paragraph (a) would be revised to clarify that costs must meet all five requirements in order to be reimbursable by the government ("A cost is allowable only when all of the following requirements are met" would replace "The factors to be considered in determining whether a cost is allowable include the following").
  
  
• FAR 31.202, Direct Costs: Paragraph (a) would be revised to remove language that duplicates the language in the new definition of "direct costs" in FAR 2.101, Definitions. The new definition is virtually identical to the definition in CAS 418 at 48 CFR 9904.418-30(a)(2).
  
  
• FAR 31.203, Indirect Costs: References to CAS and generally acceptable accounting practices (GAAP) would be removed since the subject matter is adequately addressed in FAR 31.201-2. In addition, paragraph (e) (which would become new paragraph (g)) would be revised to recognize that a transition period longer or shorter than 12 months may be appropriate in special circumstances. Also, paragraph (f) would be revised to include the concept of a special allocation contained in CAS 403, 410, 418, and 420, since the Councils recognize there are other special situations, in addition to government-owned contractor-operated (GOCO) facilities, in which the contractor's established accounting practices may not yield an equitable allocation to a particular intermediate or final cost objective. The proposed special allocation provisions provide the treatment that the contractor must use to produce an equitable allocation in these special situations, including the specific methodology for adjusting the indirect cost pool and its applicable allocation base.

The proposed rule would make other editorial changes, including revising the definition of "indirect cost" in FAR 2.101 ("with at least one intermediate cost objective" would replace "an intermediate cost objective"); changing the term "distributing" to "allocating"; and changing the phrase "several cost objectives" to "intermediate or final cost objectives" to be consistent with the terminology used in CAS and FAR Part 31.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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