Acquisition regulations: Cost Accounting Standards Board— Commercial items; exemption for time-and-materials and labor-hour contracts,

[Federal Register: January 4, 2006 (Volume 71, Number 2)]

[Proposed Rules]

[Page 313-315]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr04ja06-34]

OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

48 CFR Part 9903

Cost Accounting Standards Board; T&M Contracts for Commercial Items

AGENCY: Cost Accounting Standards Board, Office of Federal Procurement Policy, OMB.

ACTION: Proposed rule with request for comment.

SUMMARY: The Cost Accounting Standards (CAS) Board is proposing to revise the CAS by providing an exemption for time-and-materials (T&M) and labor-hour (LH) contracts for the acquisition of commercial items.

DATES: Comments upon this proposed rule must be in writing and must be received by March 6, 2006.

ADDRESSES: Due to delays in OMB's receipt and processing of mail, respondents are strongly encouraged to submit comments electronically to ensure timely receipt. Electronic comments may be submitted to casb2@omb.eop.gov. Please put the full body of your comments in the

text of the electronic message and also as an attachment readable in either MS Word or Corel WordPerfect. Please include your name, title, organization, postal address, telephone number, and e-mail address in the text of the message. Comments may also be submitted via facsimile to (202) 395-5105.

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FOR FURTHER INFORMATION CONTACT: Rein Abel, Director of Research, Cost Accounting Standards Board (telephone: 202-395-1062).

SUPPLEMENTARY INFORMATION:

1. Background

   On July 29, 1996, the Board implemented the Federal Acquisition Reform Act (FARA) by promulgating an interim rule providing an exemption from CAS for contracts for the acquisition of commercial items that are firm fixed price and fixed price with economic price adjustment (except when the adjustment is made on the basis of actual costs). The Board's final rule was implemented on June 6, 1997. At the time the CAS Board implemented this exemption, FAR limited the permissible contract types for the acquisition of commercial items to firm fixed price and fixed price with economic price adjustment.

   Section 1432 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136, referred to as SARA) amended the Federal Acquisition Streamlining Act (FASA) to expressly authorize the use of time-and-materials (T&M) and labor-hour (LH) contracts for the acquisition of certain categories of commercial services under specified conditions. As part of the process to implement this amendment, the Federal Acquisition Regulation (FAR) Council published an Advance Notice of Proposed Rulemaking (ANRPM) in the Federal Register on September 20, 2004 (69 FR 56316) to amend the FAR. The ANPRM requested comments on the impact of applying CAS. Public comments were received from 23 respondents. Eight of those respondents provided comments on the impact of applying CAS. The comments focused on whether the statute requires an exemption from CAS and the value of applying CAS to T&M/LH contracts for commercial items.

   The FAR Council reviewed the public comments and drafted a proposed rule to amend the FAR. Based on the methodology in the draft proposed FAR rule that will be used to price and reimburse T&M and LH contracts (summarized below), the CAS Board has determined that an exemption from CAS is appropriate:

   Pricing. Under the provisions of SARA and the requirements of the draft proposed FAR rule, T&M and LH contracts for commercial items must be awarded on a competitive basis. In addition, the contracting officer is precluded from obtaining cost or pricing data in accordance with FAR 15.403-1(c)(3). Therefore, the application of CAS, from a pricing standpoint, is similar to a firm fixed-price contract awarded on the basis of competition without submission of certified cost or pricing data. Such firm-fixed price contracts are exempt from CAS under 48 CFR 9903.201-1(b)(6).

   Reimbursement. In regards to cost reimbursement, the draft proposed FAR rule provides for the following:

   Reimbursement of direct labor will be on the basis of fixed labor rates in the contract schedule. The fixed labor rates will be established based on competition, since SARA requires award on a competitive basis.

   Reimbursement of indirect costs will be at a fixed amount established at the time of contract award. This fixed amount will be part of the price evaluation, and thus is part of the competitive award process.

   Materials. If the materials are a commercial item, reimbursement will be at price. If the materials are not a commercial item, reimbursement will be at actual cost.

   Other Direct Costs will be reimbursed on the basis of actual costs incurred. Reimbursement is limited to the specific cost elements listed in the contract.

   Subcontracts will be reimbursed at either (a) cost (to the extent the costs are incurred in accordance with the terms and conditions of the subcontract agreement and evidenced by actual payment) or (b) the fixed labor rates in the contract schedule (if specifically provided for in the contract).

   Under the draft proposed FAR rule, direct labor and indirect costs are reimbursed on a fixed price basis. Thus, for LH contracts, all reimbursement is on a fixed price basis (based on the number of labor hours expended).

   For T&M contracts, materials, other direct costs, and subcontract costs may be reimbursed at cost. The preamble to the draft proposed FAR rule indicates that (a) Most of the material costs are anticipated to be for commercial items reimbursed at price, (b) the material and other direct costs should be a minor portion of the total contract costs, and (c) subcontract costs are either reimbursed at cost or at the fixed labor rates in the contract schedule.

   The Board has concluded that a CAS exemption is appropriate for both T&M and LH contracts for the following reasons:

   (a) The pricing is based on adequate competition without the submission of cost data;

   (b) For other than subcontracts, reimbursement based on actual cost is anticipated to be very limited;

   (c) Reimbursement of subcontracts based on actual costs requires that the costs be (i) incurred in accordance with the terms and conditions of the subcontract agreement, and (ii) evidenced by actual payment; and

   (d) Reimbursement of subcontracts on other than actual costs will be on a fixed price basis (based on the fixed labor rates in the contract schedule).

2. Paperwork Reduction Act

   The Paperwork Reduction Act, Public Law 96-511, does not apply to this rulemaking, because this rule imposes no paperwork burden on offerors, affected contractors and subcontractors, or members of the public which requires the approval of OMB under 44 U.S.C. 3501, et seq.

3. Executive Order 12866 and the Regulatory Flexibility Act

   The economic impact of this rule on contractors and subcontractors is expected to be minor. As a result, the Board has determined this rule is not significant under the provisions of Executive Order 12866, and that a regulatory impact analysis will not be required. Furthermore, this rule will not have a significant impact on a substantial number of small businesses because small businesses are exempt from the application of the Cost Accounting Standards. Therefore, this rule does not require a regulatory flexibility analysis under the Regulatory Flexibility Act of 1980.

4. Public Comments

   Interested persons are invited to participate by submitting data, views or arguments with respect to this proposed rule. All comments must be in writing and submitted to the address indicated in the Addresses section.

   List of Subjects in 48 CFR Part 9903

   Accounting, Government procurement.

   Joshua B. Bolten, Director.

   For the reasons set forth in this preamble, chapter 99 of title 48 of the Code of Federal Regulations is proposed to be amended as set forth below:

   PART 9903--CONTRACT COVERAGE

   1. The authority citation for part 9903 is revised to read as follows

      Authority: Public Law 100-679, 102 Stat 4056, 41 U.S.C. 422.

      Subpart 9903.2--CAS Program Requirements

   2. Section 9903.201-1(b)(6) is revised to read as follows:

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      Sec. 9903.201-1 CAS Applicability.

      * * * * *

      (b) * * *

      (6) Firm fixed-priced, fixed-priced with economic price adjustment (provided that price adjustment is not based on actual costs incurred), time-and-materials, and labor-hour contracts and subcontracts for the acquisition of commercial items. * * * * *

      [FR Doc. E5-8237 Filed 1-3-06; 8:45 am]

      BILLING CODE 3110-01-P