Federal Acquisition Regulation; Relocation Costs

Part III

Department of Defense

_______________________________________________________________________

General Services Administration

_______________________________________________________________________

National Aeronautics and Space Administration

_______________________________________________________________________

48 CFR Part 31

Federal Acquisition Regulation; Relocation Costs; Proposed Rule

Proposed Rules

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 97-032]

RIN 9000-AH96

Federal Acquisition Regulation; Relocation Costs

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

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

ACTION: Proposed rule.

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

SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council are proposing to amend the Federal

Acquisition Regulation (FAR) to remove the ceilings imposed on certain

types of relocation costs; to remove specific references to mortgage

interest differential and rental differential payments; to permit

reimbursement of relocation costs on a lump-sum basis in certain

situations; and to make allowable payments for spouse employment

assistance and for increased employee income and Federal Insurance

Contributions Act (FICA) taxes incident to allowable reimbursed

relocation costs.

DATES: Comments should be submitted on or before July 26, 1999, to be

considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVRS), 1800 F Street,

NW, Room 4035, Washington, DC 20405.

E-mail comments submitted over Internet should be addressed to:

[email protected].

Please cite FAR case 97-032 in all correspondence related to this

case.

26, 1999, to be

considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVRS), 1800 F Street,

NW, Room 4035, Washington, DC 20405.

E-mail comments submitted over Internet should be addressed to:

[email protected].

Please cite FAR case 97-032 in all correspondence related to this

case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS

Building, Washington, DC 20405 (202) 501-4755 for information

pertaining to status or publication schedules. For clarification of

content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-

1900. Please cite FAR case 97-032.

SUPPLEMENTARY INFORMATION:

A. Background

The proposed FAR rule revises the cost principle at FAR 31.205-35,

Relocation costs, to remove the numerous ceilings imposed on specific

relocation costs; remove specific references to mortgage interest

differential and rental differential payments; recognize the growing

commercial practice of reimbursing relocation costs on a lump-sum basis

in certain situations; and make allowable payments for employment

assistance for spouses and for increased employee income and FICA taxes

incident to allowable reimbursed relocation costs.

The councils are proposing these revisions for the following

reasons:

Removal of ceilings on individual relocation cost elements. Over

the years, the relocation cost principle has been criticized as

being overly detailed particularly for the many allowability

ceilings it places on individual relocation cost elements (e.g., the

14% limitation at FAR 31.205-35(a) (3) and (4) for closing cost and

continuing costs of ownership of a former residence and the 5%

limitation at FAR 31.205-35(a)(6)(ii) on costs of purchasing a new

residence). These ceilings represent unnecessary micromanagement of

contractor business practices

m methodology for its administrative ease, and because it

results in cheaper and faster relocations, with greater employee

satisfaction, than the actual cost approach. While individual

receipts are not required with the lump-sum approach, contractors

must still demonstrate that amounts paid are reasonable and

appropriate for the circumstances.

Two new categories of allowable relocation costs. The rule makes

allowable two categories of expenses that are currently unallowable:

payments for increased employee income and FICA taxes incident to

allowable reimbursed relocations costs; and payments for spouse

employee assistance. Since contractors incur these type of costs in

a good faith effort to keep transferred employees from being

adversely affected by the relocation, it appears equitable to

reimburse contractors for these types of costs. In addition, this

revision is consistent with a change to the Federal employee travel

regulations that now permits recovery of both of these types of

costs.

The councils anticipate that these changes to the relocation cost

principle will generate savings by reducing administrative costs for

both the contractor and the Government. The Government expects the

administrative cost savings to lessen any increased costs resulting

from this rule change. For example, the removal of the ceilings should

lead to a reduction of the Government's auditing and contract

administrative effort. In addition, the use of advance agreements for

the lump-sum payment methodology should lessen the incidence of post-

award disallowances and disputes. Another example of savings would be

that contractors would no longer need to monitor individual relocation

cost elements to ensure that amounts claimed do not exceed the numerous

ceilings.

However, there is some concern within the Government that removing

ceilings on individual relocation cost elements and permitting lump-sum

payments in lieu of actual costs may result in an increase in costs

nother example of savings would be

that contractors would no longer need to monitor individual relocation

cost elements to ensure that amounts claimed do not exceed the numerous

ceilings.

However, there is some concern within the Government that removing

ceilings on individual relocation cost elements and permitting lump-sum

payments in lieu of actual costs may result in an increase in costs.

Therefore, to help estimate the potential costs and benefits to the

Government from these changes, the councils invite respondents to

provide the following information together with their comments. Note

that public comments provided in response to this notice will be

available in their entirety to any requester, including any requester

under the Freedom of Information Act (5 U.S.C. 552). Therefore, we

caution respondents not to provide proprietary or other business

sensitive information. Under no circumstances should respondents

provide any information unless they do so with a clear understanding

that it will be made available to the public.

1. For industry respondents--

(a) How will your company ensure that relocation costs charged to

the Government are reasonable under the approach set forth in the

proposed rule? (Under no circumstances should respondents provide any

information unless they do so with a clear understanding that it will

be made available to the public.)

(b) If your company has little or no commercial business, how will

you ensure that relocation costs charged to the Government are

reasonable under the approach set forth in the proposed rule? (Under no

circumstances should respondents provide any information unless they do

so with a clear

understanding that it will be made available to the public.)

it will

be made available to the public.)

(b) If your company has little or no commercial business, how will

you ensure that relocation costs charged to the Government are

reasonable under the approach set forth in the proposed rule? (Under no

circumstances should respondents provide any information unless they do

so with a clear

understanding that it will be made available to the public.)

(c) What has been your company's experience in using a lump-sum

approach instead of an actual cost method for all or a portion of

relocation costs? (Under no circumstances should respondents provide

any information unless they do so with a clear understanding that it

will be made available to the public.)

(d) What are the types of savings that your company would expect if

the proposed rule becomes final? (Under no circumstances should

respondents provide any information unless they do so with a clear

understanding that it will be made available to the public.)

(e) Does your company now use commercially available data, such as

that developed by the Employee Relocation Council, in order to

establish limits on relocation costs? If so, what sources of

commercially available data do you use, and how do you use it? (Under

no circumstances should respondents provide any information unless they

do so with a clear understanding that it will be made available to the

public.)

2. For Government respondents, identify the types and amounts of

costs, savings, advantages or disadvantages that you anticipate would

result from implementing the proposed rule.

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.

B. Regulatory Flexibility Act

c.)

2. For Government respondents, identify the types and amounts of

costs, savings, advantages or disadvantages that you anticipate would

result from implementing the proposed rule.

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.

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 most

contracts awarded to small entities use simplified acquisition

procedures or 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 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 97-032), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the proposed

changes to the FAR do not impose 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. 3501, et seq.

List of Subjects in 48 CFR Part 31

Government procurement.

Dated: May 18, 1999.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, it is proposed that 48 CFR Part 31 be amended as set

forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

1. The authority citation for 48 CFR Part 31 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).

31

Government procurement.

Dated: May 18, 1999.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, it is proposed that 48 CFR Part 31 be amended as set

forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

1. The authority citation for 48 CFR Part 31 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).

2. In section 31.205-35, revise paragraphs (a), (b), and (c) to

read as follows:

31.205-35 Relocation costs.

(a) Relocation costs are costs incident to the permanent change of

assigned work location (for an indefinite period or for a stated

period, but in either event for not less than 12 months) of an existing

employee or upon recruitment of a new employee. The following types of

relocation costs are allowable as noted, subject to the limitations in

paragraphs (b) and (f) of this subsection:

(1) Costs of travel of the employee and members of the employee's

immediate family (see 31.205-46) and transportation of the household

and personal effects to the new location.

(2) Costs of finding a new home, such as advance trips by the

employee and spouse to locate living quarters, and temporary lodging

during the transition period for the employee and members of the

employee's immediate family.

(3) Closing costs (i.e., brokerage fees, legal fees, appraisal

fees, points, finance charges, etc.) incident to the disposition of the

actual residence owned by the employee when notified of the transfer.

(4) Continuing costs of ownership of the vacant former actual

residence being sold, such as maintenance of building and grounds

(exclusive of fixing up expenses), utilities, taxes, property

insurance, mortgage interest, after the settlement date or lease date

of a new permanent residence.

incident to the disposition of the

actual residence owned by the employee when notified of the transfer.

(4) Continuing costs of ownership of the vacant former actual

residence being sold, such as maintenance of building and grounds

(exclusive of fixing up expenses), utilities, taxes, property

insurance, mortgage interest, after the settlement date or lease date

of a new permanent residence.

(5) Other necessary and reasonable expenses normally incident to

relocation, such as disconnecting and connecting household appliances;

automobile registration; driver's license and use taxes; cutting and

fitting rugs, draperies, and curtains; forfeited utility fees and

deposits; and purchase of insurance against damage to or loss of

personal property while in transit.

(6) Costs incident to acquiring a home in the new work location,

except that these costs will not be allowable for existing employees or

newly recruited employees who, before the relocation, were not

homeowners.

(7) Costs of canceling an unexpired lease.

(8) Payments for increased employee income or Federal Insurance

Contributions Act taxes incident to allowable reimbursed relocation

costs.

(9) Payments for spouse employment assistance.

(b) The costs described in paragraph (a) of this section must also

meet the following criteria to be considered allowable:

(1) The move must be for the benefit of the employer.

(2) Reimbursement must be in accordance with an established policy

or practice that is consistently followed by the employer and is

designed to motivate employees to relocate promptly and economically.

Reimbursement may be on an actual cost or appropriate lump-sum basis,

or combination thereof. However, use of a lump-sum basis in lieu of an

actual cost basis is limited to those situations in which a contractor

has an advance agreement with the Government.

(3) The costs must not be otherwise unallowable under Subpart 31.2.

designed to motivate employees to relocate promptly and economically.

Reimbursement may be on an actual cost or appropriate lump-sum basis,

or combination thereof. However, use of a lump-sum basis in lieu of an

actual cost basis is limited to those situations in which a contractor

has an advance agreement with the Government.

(3) The costs must not be otherwise unallowable under Subpart 31.2.

(c) The following types of costs are unallowable:

(1) Loss on the sale of a home.

(2) Costs incident to acquiring a home in the new location as

follows:

(i) Real estate brokers fees and commissions.

(ii) Costs of litigation.

(iii) Real and personal property insurance against damage or loss

of property.

(iv) Mortgage life insurance.

(v) Owner's title policy insurance when such insurance was not

previously carried by the employee on the old residence. (However, the

cost of a mortgage title policy is allowable.)

(vi) Property taxes and operating or maintenance costs.

(3) Continuing mortgage principal payments on a residence being

sold.

(4) Costs incident to furnishing equity or nonequity loans to

employees or making arrangements with lenders for employees to obtain

lower-than-market rate mortgage loans.

* * * * *

[FR Doc. 99-13002 Filed 5-24-99; 8:45 am]

BILLING CODE 6820-EP-U