Department of the Navy Acquisition Regulations; Shipbuilding Capability Preservation Agreements

DEPARTMENT OF DEFENSE

Department of the Navy

48 CFR Part 5231

Department of the Navy Acquisition Regulations; Shipbuilding

Capability Preservation Agreements

AGENCY: Department of the Navy, DoD

ACTION: Interim rule with request for comments.

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SUMMARY: The Deputy for Acquisition and Business Management, Office of

the Assistant Secretary of the Navy (Research, Development and

Acquisition), has issued an interim rule amending the Navy Acquisition

Regulations to permit the Department of the Navy (DoN) to enter into a

shipbuilding capability preservation agreement with a shipbuilder where

it would facilitate the achievement of the policy objectives set forth

in section 2501(b) of title 10, United States Code.

DATES: Effective Date: December 22, 1997.

Comment date: Comments on the interim rule should be submitted in

writing to the address shown below on or before February 20, 1998, in

order to be considered in formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to

Department of the Navy, Office of the Assistant Secretary of the Navy,

Acquisition and Business Management, Attn: Mr. Clarence Belton, ABM-

P&R, 2211 South

[[Page 66827]]

Clark Place, Arlington, VA 22244-5104. Telefax number (703) 602-2117.

Please cite ``Shipbuilding Capability Preservation Agreements'' in all

correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, (703) 602-2807.

SUPPLEMENTARY INFORMATION:

A. Background

This interim rule adds part 5231 to the Department of the Navy

Acquisition Regulations (48 CFR Chapter 52), to implement section 1027

of the National Defense Authorization Act for Fiscal Year 1998 (Pub. L.

105-85). Section 1027 permits the DoN to enter into a shipbuilding

capability preservation agreement with a shipbuilder where it would

facilitate the achievement of the policy objectives set forth in 10

U.S.C. 2501(b). Such an agreement would permit the contractor to claim

certain indirect costs, attributable to its private sector work, on its

Navy shipbuilding contracts.

B. Determination To Issue an Interim Rule

A determination has been made under the authority of the Secretary

of the Navy that urgent and compelling reasons exist to promulgate this

interim rule without prior opportunity for public comment. This rule

implements section 1027 of the National Defense Authorization Act for

Fiscal Year 1998 (Pub. L. 105-85), which became effective upon

enactment on November 18, 1997. Congress specifically directed DoN to

establish application procedures and procedures for expeditious

consideration of shipbuilding capability preservation agreements within

30 days of enactment and to submit a report on applications for such

agreements to Congress not later than February 15, 1998. Given these

statutory-imposed deadlines, opportunity for public comment prior to

promulgation of this rule is not possible. However, comments received

in response to the publication of this interim rule will be considered

in formulating the final rule.

C. Regulatory Flexibility Act

The interim 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 most

contracts awarded to small entities are awarded on a competitive fixed-

price basis and do not require application of the cost principle

contained in this rule. An initial regulatory flexibility analysis has

therefore not been performed. Comments are invited from small

businesses and other interested parties. Comments from small entities

concerning the affected Navy Acquisition Regulations subpart will also

be considered in accordance with 5 U.S.C. 610. Such comments must be

submitted separately and should cite 5 U.S.C. 601, et seq.

(Shipbuilding Capability Preservation Agreement), in correspondence.

D. Paperwork Reduction Act

It is anticipated that collection of information requirements will

not be imposed on ten or more persons within any 12-month period.

Therefore, this rule contains no information collection requirements

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

44 U.S.C. 3501, et seq., and 5 CFR part 1320.

List of Subjects in 48 CFR Part 5231

Government procurement.

For the reasons set forth in the preamble, add 48 CFR part 5231 to

read as follows:

PART 5231--CONTRACT COST PRINCIPLES AND PROCEDURES

Subpart 5231.2--Contracts with Commercial Organizations

Sec.

5231.205 Selected costs.

5231.205-90 Shipbuilding capability preservation agreements.

Authority: 5 U.S.C. 301, 10 U.S.C. 2501, 10 U.S.C. 7315, DoD

Directive 5000.35.

Subpart 5231.2--Contracts With Commercial Organizations

Sec. 5231.205 Selected costs.

Sec. 5231.205-90 Shipbuilding capability preservation agreements.

(a) Scope and authority. Where it would facilitate the achievement

of the policy objectives set forth in 10 U.S.C. 2501(b), the Navy may

enter into a shipbuilding capability preservation agreement with a

contractor. As authorized by section 1027 of the National Defense

Authorization Act for Fiscal Year 1998 (Public Law 105-85), such an

agreement permits the contractor to claim certain indirect costs

attributable to its private sector work as allowable costs on Navy

shipbuilding contracts.

(b) Definition. Incremental indirect cost, as used in this

subsection, means an additional indirect cost that results from

performing private sector work described in a shipbuilding capability

preservation agreement.

(c) Purpose and guidelines. The purpose of a shipbuilding

capability preservation agreement is to broaden and strengthen the

shipbuilding industrial base by providing an incentive for a

shipbuilder to obtain new private sector work, thereby reducing the

Navy's cost of doing business. The Navy will use the following

guidelines to evaluate requests for shipbuilding capability

preservation agreements:

(1) The Assistant Secretary of the Navy for Research, Development

and Acquisition must make a determination that an agreement would

facilitate the achievement of the policy objectives set forth in 10

U.S.C. 2501(b). The primary consideration in making this determination

is whether an agreement would promote future growth in the amount of

private sector work that a shipbuilder is able to obtain.

(2) An agreement generally will be considered only for a

shipbuilder with little or no private sector work.

(3) The agreement shall apply to prospective private sector work

only, and shall not extend beyond 5 years.

(4) The agreement must project an overall benefit to the Navy,

including net savings. This would be achieved by demonstrating that

private sector work will absorb costs that otherwise would be absorbed

by the Navy.

(d) Cost-reimbursement rules. If the Navy enters into a

shipbuilding capability preservation agreement with a contractor, the

following cost-reimbursement rules apply:

(1) The agreement shall require the contractor to allocate the

following costs to private sector work:

(i) The direct costs attributable to the private sector work;

(ii) The incremental indirect costs attributable to the private

sector work; and

(iii) The non-incremental indirect costs to the extent that the

revenue attributable to the private sector work exceeds the sum of the

costs specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this

subsection.

(2) The agreement shall require that the sum of the costs specified

in paragraphs (d)(1)(ii) and (d)(1)(iii) of this subsection not exceed

the amount of indirect costs that would have been allocated to the

private sector work in accordance with the contractor's established

accounting practices.

(3) The Navy may agree to modify the amount calculated in

accordance with paragraph (d)(1) of this subsection if it determines

that a modification is appropriate to the particular situation. In so

doing, the Navy may agree to the allocation of a smaller or larger

portion of the amount calculated in accordance

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with paragraph (d)(1) of this subsection, to private sector work.

(i) Any smaller amount shall not be less than the sum of the costs

specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this subsection.

(ii) Any larger amount shall not exceed the sum of the costs

specified in paragraph (d)(1)(i) of this subsection and the amount of

indirect costs that would have been allocated to the private sector

work in accordance with the contractor's established accounting

practices.

(iii) In determining whether such a modification is appropriate,

the Navy will consider factors such as the impact of pre-existing firm-

fixed-price Navy contracts on the amount of costs that would be

reimbursed by the Navy, the impact of pre-existing private sector work

on the cost benefit that would be received by the contractor, and the

extent to which allocating a smaller or larger portion of costs to

private sector work would provide a sufficient incentive for the

contractor to obtain additional private sector work.

(e) Procedure. A contractor may submit a request for a shipbuilding

capability preservation agreement, together with appropriate

justification, through the Deputy Assistant Secretary of the Navy for

Ships, to the Assistant Secretary of the Navy for Research, Development

and Acquisition, who has approval or disapproval authority. The

contractor should also provide an informational copy of any such

request to the cognizant administrative contracting officer.

Dated: December 16, 1997.

Michael I. Quinn,

Lieutenant Commander, Judge Advocate General's Corps, U.S. Navy,

Alternate Federal Register Officer.

[FR Doc. 97-33221 Filed 12-19-97; 8:45 am]

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