Federal Acquisition Regulation; Final Overhead Settlement

SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council are proposing to amend the Federal

Acquisition Regulation to improve the process of final settlement of

contractor overhead rates. This regulatory action was not subject to

Office of Management and Budget review under Executive Order 12866,

dated September 30, 1993. This is not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before September 27, 1996 to

be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (VRS), 18th & F

Streets, NW, Room 4037, Washington, DC 20405.

Please cite FAR case 95-017 in all correspondence related to this

case.

FOR FURTHER INFORMATION CONTACT: Ms. Linda Klein at (202) 501-3775 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 FAR case 95-017.

SUPPLEMENTARY INFORMATION:

A. Background

This proposed rule amends FAR parts 4, 42 and 52 to improve the

process of final settlement of contractor overhead rates. Cost

reimbursement and fixed-price incentive contracts require that

contractors' overhead rates be settled prior to establishment of final

contract prices. At present, the contractor is required to submit a

certified indirect cost rate proposal within 90 days after the end of

its fiscal year, and a final audit is required of the contractor's

proposed rates. However, late proposal submissions and incomplete

supporting cost data are contributing to greatly extended cycle times

on overhead settlements. As a result, the 90-day timeframe currently

provided for submissions could be considered less than adequate time

for contractors to complete their year-end closing and prepare an

adequate proposal. In addition, there is currently no sanction or

penalty for late submissions.

Improvement of this process by extending the submission date from

90 days to 6 months and identifying the minimum supporting cost data

required to be submitted with the proposal can achieve a substantial,

overall reduction in cycle time. This proposed rule implements

recommendations of the Contract Administration Services Reform Process

Action Team by (1) stating that failure to comply with the revised due

date for submission of proposed final indirect cost rates may be

considered as an indication of an inadequate accounting system and

controls; (2) specifying the minimum data which is needed with the

contractor's proposal in order to proceed efficiently with the audit;

and (3) changing ``final indirect cost rate proposal'' to ``final

incurred cost proposal'' to more closely reflect the terminology used

by the Defense Contract Audit Agency.

B. Regulatory Flexibility Act

This proposed rule is not expected to have a significant economic

impact on a substantial number of small entities within the meaning of

the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because,

generally, large businesses provide the types of supplies and services

that are procured using cost-reimbursement and fixed-price incentive

contracts which require final overhead settlement. An Initial

Regulatory Flexibility Analysis has, therefore, not been performed.

Comments from small entities concerning the affected FAR subpart will

be considered in accordance with 5 U.S.C. 610 of the Act. Such comments

must be submitted separately and should cite 5 U.S.C. 601 et seq. (FAR

case 95-017), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the proposed

changes to the FAR do not impose any substantial change in

recordkeeping or information collection requirements, or collections of

information from offerors, contractors, or members of the public which

require the approval of the Office of Management and Budget under 44

U.S.C. 3051 et seq.

List of Subject in 48 CFR Parts 4, 42 and 52

Government procurement.

Dated: July 18, 1996.

Edward C. Loeb,

Director, Office of Federal Acquisition Policy.

Therefore, it is proposed that 48 CFR Parts 4, 42 and 52 be amended

as set forth below:

1. The authority citation for 48 CFR Parts 4, 42 and 52 continues

to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. 2301 to 2331; and 42

U.S.C. 2473(c).

PART 4--ADMINISTRATIVE MATTERS

2. Section 4.703 is amended by revising paragraph (b)(3) to read as

follows:

4.703 Policy.

* * * * *

(b) * * *

(3) The contractor does not meet the original due date for

submission of final incurred cost proposals specified in subparagraph

(d)(2)(i) of the clause at 52.216-7, Allowable Cost and Payment, and

subparagraph (c)(2)(i) of the clause at 52.216-13, Allowable Cost and

Payment--Facilities. Under these circumstances, the retention periods

in 4.705 shall be automatically extended one day for each day the

proposal is not submitted after the original due date.

* * * * *

PART 42--CONTRACT ADMINISTRATION

3. Section 42.705-1 is amended by revising paragraph (b)(1) to read

as follows:

42.705-1 Contracting officer determination procedure.

* * * * *

(b) * * *

(1) In accordance with the Allowable Cost and Payment clause at FAR

52.216-7 or FAR 52.216-13, the contractor shall submit to the

contracting officer and, if required by agency procedures, to the

cognizant auditor a final incurred cost proposal together with the

supporting cost data specified in paragraphs (b)(1) (i) through (viii)

of this subsection. Contractors who are delinquent in the submittal of

final incurred cost proposals may be considered to have an inadequate

accounting system and controls.

(i) Schedule of proposed rates for each expense pool.

(ii) Statement of pool and base costs for each proposed indirect

expense rate, listing the proposed amount by account with unallowable

costs specifically

[[Page 39519]]

identified and excluded from the proposed pool.

(iii) Schedule of allowable direct costs for each cost-

reimbursement and fixed-price incentive contract (or reference to

applicable accounting records if data is too voluminous).

(iv) Schedule of allocation base amounts for each cost-

reimbursement and fixed-price incentive contract (if not otherwise

covered by paragraph (b)(1)(iii) of the subsection).

(v) Schedule of hours and costs proposed on time-and-materials and

labor-hour contracts (if applicable).

(vi) Schedule of Government contract participation in the indirect

expense pools.

(vii) Schedule of facilities capital cost of money factors

computation (if applicable).

(viii) Schedule or computation of allocable independent research

and development and bid and proposal costs (if applicable).

Note to paragraph (b)(1): These items represent the minimum data

necessary to begin the required audit, and compliance with this

requirement does not limit the contracting officer's right to require,

on a case-by-case basis, submission of additional data considered

necessary to support the proposal.

* * * * *

4. Section 42.705-2 is amended by revising paragraph (b)(1) to read

as follows:

42.705-2 Auditor determination procedures.

* * * * *

(b) * * * (1) The contractor shall submit to the cognizant

contracting officer and auditor a final incurred cost proposal

reflecting actual cost experience during the covered period, together

with supporting cost data in accordance with 42.705-1(b)(1).

* * * * *

PART 5--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

5. Section 52.216-7 is amended by revising the date of the clause

and paragraph (d)(2) to read as follows:

52.216-7 Allowable Cost and Payment.

* * * * *

ALLOWABLE COST AND PAYMENT (DATE)

* * * * *

(d) * * *

(2) (i) The Contractor shall, within six months after the

expiration of each of its fiscal years, or by a later date approved

by the Contracting Officer in exceptional circumstances, submit to

the cognizant Contracting Officer responsible for negotiating its

final indirect rates and, if required by agency procedures, to the

cognizant audit activity proposed final indirect cost rates for that

period and the following supporting cost data:

(A) Schedule of proposed rates for each expense pool.

(B) Statement of pool and base costs for each proposed indirect

expense rate, listing the proposed amount by account with

unallowable costs specifically identified and excluded from the

proposed pool.

(C) Schedule of allowable direct costs for each cost-

reimbursement and fixed-price incentive contract (or reference to

applicable accounting records if data is too voluminous).

(D) Schedule of allocation base amounts for each cost-

reimbursement and fixed-price incentive contract (if not otherwise

covered by paragraph (d)(2)(i)(C) of this clause).

(E) Schedule of hours and costs proposed on time-and-materials

and labor-hour contracts (if applicable).

(F) Schedule of Government contract participation in the

indirect expense pools.

(G) Schedule of facilities capital cost of money factors

computation (if applicable).

(H) Schedule or computation of allowable independent research

and development and bid and proposal costs (if applicable).

(ii) Paragraphs (d)(2)(i) (A) through (H) of this clause specify

the minimum data necessary to begin the required audit, and

compliance with this requirement does not limit the Contracting

Officer's right to require, on a case-by-case basis, submission of

additional data considered necessary to support the proposal.

(iii) The proposed rates shall be based on the Contractor's

actual cost experience for that period. The appropriate Government

representative and Contractor shall establish the final indirect

cost rates as promptly as practical after receipt of the

Contractor's proposal. Contractors who are delinquent in the

submittal of final incurred cost proposals may be considered to have

an inadequate accounting system and controls.

* * * * *

6. Section 52.216-13 is amended by revising the date of the clause

and paragraph (c)(2) to read as follows:

52.216-13 Allowable Cost and Payment--Facilities.

* * * * *

ALLOWABLE COST AND PAYMENT--FACILITIES (DATE)

* * * * *

(c) * * *

(2) (i) The Contractor shall within six months after the

expiration of each of its fiscal years, or by a later date approved

by the Contracting Officer in exceptional circumstances, submit to

the Contracting Officer and to the cognizant audit activity proposed

final indirect cost rates for that period and the following

supporting cost data:

(A) Schedule of proposed rates for each expense pool.

(B) Statement of pool and base costs for each proposed indirect

expense rate, listing the proposed amount by account with

unallowable costs specifically identified and excluded from the

proposed pool.

(C) Schedule of allowable direct costs for each cost-

reimbursement and fixed-price incentive contract (or reference to

applicable accounting records if data is too voluminous).

(D) Schedule of allocation base amounts for each cost-

reimbursement and fixed-price incentive contract (if not otherwise

covered by paragraph (c)(2)(i)(C) of this clause).

(E) Schedule of hours and costs proposed on time-and-materials

and labor-hour contracts (if applicable).

(F) Schedule of Government contract participation in the

indirect expense pools.

(G) Schedule of facilities capital cost of money factors

computation (if applicable).

(H) Schedule or computation of allocable independent research

and development and bid and proposal costs (if applicable).

(ii) Paragraphs (c)(2)(i)(A) through (H) of this clause specify

the minimum data necessary to begin the required audit, and

compliance with this requirement does not limit the Contracting

Officer's right to require, on a case-by-case basis, submission of

additional data considered necessary to support the proposal.

(iii) The proposed rates shall be based on the Contractor's

actual cost experience for that period. The appropriate Government

representative and Contractor shall establish the final indirect

cost rates as promptly as practical after receipt of the

Contractor's proposal. Contractors who are delinquent in the

submittal of final incurred cost proposals may be considered to have

an inadequate accounting system and controls.

* * * * *

7. Section 52.216-15 is amended by revising the date of the clause

and paragraph (b) to read as follows:

52.216-15 Predetermined Indirect Cost Rates.

* * * * *

PREDETERMINED INDIRECT COST RATES (DATE)

* * * * *

(b) (1) Not later than six months after the expiration of the

Contractor's fiscal year, the Contractor shall submit to the

cognizant Contracting Officer under Subpart 42.7 of the Federal

Acquisition Regulation (FAR) and, if required by agency procedures

to, to the cognizant Government audit activity, proposed

predetermined indirect cost rates and the following supporting cost

data:

(i) Schedule of proposed rates for each expense pool.

(ii) Statement of pool and base costs for each proposed indirect

expense rate, listing the proposed amount by account with

unallowable costs specifically identified and excluded from the

proposed pool.

(iii) Schedule of allowable direct costs for each cost-

reimbursement and fixed-price incentive contract (or reference to

applicable accounting records if data is too voluminous).

(iv) Schedule of allocation base amounts for each cost-

reimbursement and fixed-price incentive contract (if not otherwise

covered by paragraph (b)(1)(iii) of this clause).

[[Page 39520]]

(v) Schedule of hours and costs proposed on time-and-materials

and labor-hour contracts (if applicable).

(vi) Schedule of Government contract participation in the

indirect expense pools.

(vii) Schedule of facilities capital cost of money factors

computation (if applicable).

(viii) Schedule of computation of allocable independent research

and develop and bid and proposal costs (if applicable).

(2) Paragraphs (b)(1) (i) through (viii) of this clause specify

the minimum data necessary to begin the required audit, and

compliance with this requirement does not limit the Contracting

Officer's right to require, on a case-by-case basis, submission of

additional data considered necessary to support the proposal.

(3) The proposed rates shall be based on the Contractor's actual

cost experience during that fiscal year. Negotiations of

predetermined indirect cost rates shall begin as soon as practical

after receipt of the Contractor's proposal. Contractors who are

delinquent in the submittal of final incurred cost proposals may be

considered to have an inadequate accounting system and controls.

* * * * *

[FR Doc. 96-18852 Filed 7-26-96; 8:45 am]

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