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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: November 28, 2003

SUBJECT: Federal Acquisition Regulation (FAR); Applicability of the Cost Principles and Penalties for Unallowable Costs

SOURCE: Federal Register, November 28, 2003, Vol. 68, No. 229 page 66987

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

ACTION: Proposed Rule

SYNOPSIS: It is proposed that FAR Part 31, Contract Cost Principles and Procedures, be amend to remove the requirement to apply cost principles and procedures when pricing a contract if cost or pricing data are not obtained, and to increase the contract dollar threshold for assessing a penalty if the contractor includes expressly unallowable costs in its claim for reimbursement.

DATES: Comments should be submitted on or before January 27, 2004.

ADDRESSES: Submit written comments on response the 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.2001-018@gsa.gov. Cite "FAR case 2001-018" when referring to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Edward Loeb, 202-501-0650.

SUPPLEMENTAL INFORMATION: The purpose of this proposed rule is to narrow the scope of FAR Part 31 by indicating that its cost principles and procedures do not apply to the pricing of fixed-price contracts if cost or pricing data are not obtained. Currently, the FAR Part 31 cost principles and procedures apply whenever cost analysis is performed, regardless of whether cost or pricing data are obtained.

To accomplish this, it is proposed that the following changes be made to FAR Part 31:

• Paragraph (a) of FAR 31.000, Scope of Part, would be revised to add the words "except contracts, subcontracts, and modifications issued on a fixed-price basis where cost or pricing data is not obtained," so it states that FAR Part 31 applies to "the pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see [FAR] 15.404-1(c)), except contracts, subcontracts, and modifications issued on a fixed-price basis where cost or pricing data is not obtained..."
  
  
• To FAR 31.001, Definitions, would be added the following definition for "fixed-price contracts, subcontracts, and modifications":
  
  

  	"(1) Fixed-price contracts, subcontracts, and modifications described at [FAR] 16.202 [Firm-Fixed-Price Contracts], 16.203 [Fixed-Price Contracts with Economic Price Adjustment] (except 16.203-1(b) [Description]) and 16.207 [Firm-Fixed-Price, Level-of-Effort Contracts];
  	"(2) Fixed-price incentive contracts, subcontracts, and modifications where the price is not adjusted based on actual costs incurred (Subpart 16.4 [Incentive Contracts]);
  	"(3) The fixed hourly rate portion of time-and-materials and labor-hour contracts, subcontracts, and modifications where the rate is not adjusted based on actual costs incurred (Subpart 16.6 [Time-and-Materials, Labor-Hour, and Letter Contracts]); and
  	"(4) Orders issued under indefinite-delivery contracts (Subpart 16.5 [Indefinite-Delivery Contract]) using one of the contract types in paragraphs (1) through (3) of this definition."

  
  EDITOR'S NOTE: In the introduction to this proposed rule, the FAR Council also asks for comments on the following alternative definition of "fixed-price contracts and subcontracts", which was published on July 3, 2003, as part of a proposed rule for on Cost Accounting Standards Administration (see the July 3, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Cost Accounting Standards Administration"). The comment period on that proposed rule is closed.
  
  

  	"(1) Fixed-price contracts and subcontracts described at 16.202, 16.203, and 16.207;
  	"(2) Fixed-price incentive contracts and subcontracts where the price is not adjusted based on actual costs incurred (Subpart 16.4);
  	"(3) Orders issued under indefinite-delivery contracts and subcontracts where final payment is not based on actual costs incurred (Subpart 16.5); and
  	"(4) The fixed hourly rate portion of the time-and-materials and labor-hours contracts and subcontracts (Subpart 16.6)."

  
  
  
• Paragraph (a) of FAR 31.102, Fixed-Price Contracts; paragraph (a) of FAR 31.103, Contracts with Commercial Organizations; FAR 31.105, Construction and Architect-Engineer Contracts; and FAR 31.106-1, Applicable Cost Principles, would all revised to exempt "contracts, subcontracts, and modifications issued on a fixed-price basis where cost or pricing data is not obtained" from FAR Part 31 requirements.

In addition, to reflect that the cost or pricing data threshold has been increased from $500,000 to $550,000 (see the October 11, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-20, Veterans Entrepreneurship and Truth in Negotiations Act Threshold"), the threshold would be increased in paragraph (b) of FAR 42.709, Scope (which states that the section implements the statutory penalty provisions for claiming expressly unallowable costs), and in FAR 42.709-6, Contract Clause (which requires that FAR 52.242-3, Penalties for Unallowable Costs, be included in solicitations and contracts over the cost or pricing data threshold except fixed-price contracts without cost incentives).

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

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