Federal Acquisition Regulation; Notification of Ownership Changes

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 15 and 52

[FAC 90-23; FAR Case 91-20; Item XI]

RIN 9000-AE72

Federal Acquisition Regulation; Notification of Ownership Changes

AGENCIES: Department of Defense (DOD), General Services Administration

(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense

Acquisition Regulations Council (DARC) have agreed on a final rule

amending the Federal Acquisition Regulation (FAR) to add the clause,

Notification of Ownership Changes, to require contractors to notify the

Government of changes in contractor ownership and of their effects, and

to emphasize existing recordkeeping requirements. This regulatory

action was not subject to Office of Management and Budget (OMB) review

under Executive Order 12866, dated September 30, 1993.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Jeremy Olson at (202) 501-3221 in

reference to this FAR case. For general information, contact the FAR

Secretariat, room 4037, GS Building, Washington, DC 20405 (202) 501-

4755. Please cite FAC 90-23, FAR case 91-20.

SUPPLEMENTARY INFORMATION:

A. Background

A proposed rule was published in the Federal Register at 56 FR

23762, May 23, 1991, because the CAAC and the DARC determined that the

FAR did not contain sufficient safeguards to assure that, consistent

with FAR 31.205-52, Asset valuations resulting from business

combinations, Government contracts do not absorb increased costs

resulting from changes in contractor ownership. This rule reflects a

resolution agreement between the Director of Defense Procurement and

the DOD Inspector General under Audit Report 89-095 dated July 26,

1989, on the cost impact to contracts as a result of business

combinations.

The rule is intended to facilitate enforcement of the cost

principle at FAR 31.205-52 on allowability of costs resulting from

business combinations by enabling audit determinations that cost

increases related to contractor ownership changes are not charged to

Government contracts. A contract clause is added at 52.215-40,

Notification of Ownership Changes, which requires contractors to

provide timely notice to the Government and to retain and maintain

asset inventory records through successive changes in contractor

ownership. A clause prescription is added at 15.804-8(g) to require use

of the clause in all solicitations and contracts for which certified

cost or pricing data are expected to be required or for which any

preaward or postaward cost determination will be subject to FAR Subpart

31.2.

While several editorial changes were made in the final rule, the

major difference between the final rule and the proposed rule is that

the final rule requires notification in instances of cost decreases as

well as cost increases.

B. Regulatory Flexibility Act

The Department of Defense, the General Services Administration, and

the National Aeronautics and Space Administration certify that this

final rule will not have a significant economic impact on a substantial

number of small entities under the Regulatory Flexibility Act, 5 U.S.C.

601, et seq., because an analysis of data available for fiscal years

1989 through 1991 reveals that, in the Department of Defense, the

number of contract actions awarded to small businesses which required

the submission of certified cost or pricing data averaged less than 1

percent of the total number of small business actions during the 3-year

period. In other words, during the 3-year period, the majority of

actions awarded to small businesses were awarded on a competitive,

fixed-price basis, for which the submission of cost or pricing data is

not required and the cost principles do not apply.

For affected contractors, whenever a change in contractor ownership

occurs or is pending, the rule only requires contractors to retain and

maintain asset inventory records already required to be maintained by

generally accepted accounting principles (GAAP) and rules promulgated

by the Cost Accounting Standards Board. As virtually all contractors'

accounting systems are automated, any incremental effort and cost will

likely be nominal. Similarly, the additional requirement for

contractors to notify the Government, in writing, of a pending or

completed ownership change imposes no significant administrative burden

or complexity. No comments on any aspect of the subject were received

from small entities.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Public Law 96-511) is deemed to apply

because the final rule contains information collection requirements.

Accordingly, a request for extension of an approval of the information

collection requirements concerning Notification of Ownership Changes,

OMB Control Number 9000-0115, was submitted to OMB under 44 U.S.C.

3501, et seq., and approved through September 30, 1997. Public comments

concerning this request were invited through a Federal Register notice

published at 59 FR 36169, July 15, 1994.

List of Subjects in 48 CFR Parts 15 and 52

Government procurement.

Dated: December 7, 1994.

Albert A. Vicchiolla,

Director, Office of Federal Acquisition Policy.

Therefore, 48 CFR parts 15 and 52 are amended as set forth below:

1. The authority citation for 48 CFR parts 15 and 52 continues to

read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 15--CONTRACTING BY NEGOTIATION

2. Section 15.804-8 is amended by adding paragraph (g) to read as

follows:

15.804-8 Contract clauses.

* * * * *

(g) Notification of ownership changes. The contracting officer

shall insert the clause at 52.215-40, Notification of Ownership

Changes, in solicitations and contracts for which it is contemplated

that certified cost or pricing data will be required or for which any

preaward or postaward cost determination will be subject to subpart

31.2.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

3. Section 52.215-40 is added to read as follows:

52.215-40 Notification of ownership changes.

As prescribed in 15.804-8(g), insert the following clause:

Notification of Ownership Changes (Feb. 1995)

(a) The Contractor shall make the following notifications in

writing:

(1) When the Contractor becomes aware that a change in its

ownership has occurred, or is certain to occur, which could result

in changes in the valuation of its capitalized assets in the

accounting records, the Contractor shall notify the Administrative

Contracting Officer (ACO) within 30 days.

(2) The Contractor shall also notify the ACO within 30 days

whenever changes to asset valuations or any other cost changes have

occurred or are certain to occur as a result of a change in

ownership.

(b) The Contractor shall: (1) maintain current, accurate, and

complete inventory records of assets and their costs; (2) provide

the ACO or designated representative ready access to the records

upon request; (3) ensure that all individual and grouped assets,

their capitalized values, accumulated depreciation or amortization,

and remaining useful lives are identified accurately before and

after each of the Contractor's ownership changes; and (4) retain and

continue to maintain depreciation and amortization schedules based

on the asset records maintained before each Contractor ownership

change.

(c) The Contractor shall include the substance of this clause in

all subcontracts under this contract which meet the applicability

requirement of FAR 15.804-8(g).

(End of clause)

[FR Doc. 94-30658 Filed 12-27-94; 8:45 am]

BILLING CODE 6820-34-P