DATE: April 16, 2002

SUBJECT: Department of Defense; Class Deviation from Federal Acquisition Regulation (FAR) 31.205-20, Interest and Other Financial Costs, for Utilities Privatization Contracts

SOURCE: Department of Defense Memorandum, dated April 15, 2002

AGENCIES: Department of Defense (DOD)

ACTION: Federal Acquisition Regulation (FAR) Deviation

SUMMARY: On April 15, 2002, Director of Defense Procurement Deidre Lee issued a class deviation from FAR 31.205-20 for utilities privatization contracts under which previously government-owned utility systems are conveyed by a military department or defense agency to a contractor.

EFFECTIVE DATE: This deviation is effective from May 1, 2002, through April 30, 2007.

FOR MORE INFORMATION CONTACT: Christopher Werner, 703-695-9764; e-mail: christopher.werner@osd.mil. Refer to DAR Tracking Number 2002-O0003 when referring to this FAR deviation.

SUPPLEMENTAL INFORMATION: FAR 31.205-20 states that interest on borrowings, bond discounts, costs of financing and refinancing capital, and related fees are unallowable. With this FAR class deviation, the utilities privatization contractor will be permitted to recover its interest costs associated with capital expenditures to acquire, renovate, replace, upgrade, and/or expand utility systems. However, the contractor will not be permitted to receive facilities capital cost of money as a contract cost under FAR 31.205-10, Cost of Money.

Interest rates used to calculate allowable interest costs under this class deviation will be limited to 600 basis points above the Contract Disputes Act interest rate in effect at the time the contractor makes the capital expenditure (currently 5.5% -- see the December 28, 2001, FEDERAL CONTRACTS DISPATCH "Renegotiation Board Interest Rate, Prompt Payment Interest Rate, Contract Disputes Act" for more on the Renegotiation Board/Prompt Payment/Contract Disputes Act interest rate).

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

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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