Cost Accounting Standard Board; Time and Material and Labor by b0b59b8a00175297

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									                                                             Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Rules and Regulations                                          36367

                                        of the United States. EPA will submit a                  your notification of compliance status                 Street, NW., Room 9013, Washington,
                                        report containing these final rule                       required by § 63.9(h) must include the                 DC 20503 (telephone: 202–395–3256).
                                        amendments and other required                            information specified in paragraphs                    SUPPLEMENTARY INFORMATION:
                                        information to the U.S. Senate, the U.S.                 (c)(1) through (5) of this section.
                                        House of Representatives, and the                                                                               A. Background
                                                                                                 *      *    *     *     *
                                        Comptroller General of the United                                                                                  On January 4, 2006, the Cost
                                        States prior to publication of the final                 Subpart FFFFFF—[Amended]                               Accounting Standards Board published
                                        rule amendments in the Federal                                                                                  a proposed rule with request for
                                        Register. A major rule cannot take effect                ■ 4. Section 63.11153 is amended by                    comment (71 FR 313) for the purpose of
                                        until 60 days after it is published in the               revising the last sentence in paragraph                providing an exemption for T&M/LH
                                        Federal Register. This action is not a                   (b) to read as follows:                                contracts for commercial items. The
                                        ‘‘major rule’’ as defined by 5 U.S.C.                    § 63.11153       Am I subject to this subpart?         final rule adopts the proposed rule
                                        804(2). This final rule will be effective                                                                       without change, thereby exempting
                                                                                                 *     *     *    *     *
                                        on October 1, 2007.                                                                                             T&M/LH contracts from CAS coverage.
                                                                                                   (b) * * * Your secondary copper
                                                                                                                                                           The Board’s action is consistent with
                                        List of Subjects in 40 CFR Part 63                       smelter is a new affected source if you
                                                                                                                                                        its previous actions to exempt those
                                          Environmental protection, Air                          commenced constructed or
                                                                                                                                                        types of contracts permitted by Congress
                                        pollution control, Hazardous                             reconstruction of the affected source on
                                                                                                                                                        for the acquisition of commercial items.
                                        substances, Reporting and                                or after October 6, 2006.
                                                                                                                                                        For example, on June 6, 1997, 1996, the
                                        Recordkeeping requirements.                              *     *     *    *     *                               Board issued a final rule implementing
                                          Dated: June 27, 2007.                                  ■ 5. Section 63.11157 is amended by                    the Federal Acquisition Reform Act
                                        Stephen L. Johnson,                                      revising paragraph (b)(5) to read as                   (FARA) by providing an exemption from
                                        Administrator.                                           follows:                                               CAS for contracts for the acquisition of
                                        ■  For the reasons stated in the preamble,                                                                      commercial items that are firm fixed
                                                                                                 § 63.11157 What General Provisions apply
                                        title 40, chapter I, part 63 of the Code                 to this subpart?
                                                                                                                                                        price and fixed price with economic
                                        of Federal Regulations is amended as                                                                            price adjustment (except when the
                                                                                                 *      *     *     *     *                             adjustment is made on the basis of
                                        follows:                                                    (b) * * *                                           actual costs). At the time the CAS Board
                                                                                                    (5) This certification of compliance,               implemented this exemption, FAR
                                        PART 63—[AMENDED]                                        signed by a responsible official, for the              limited the permissible contract types
                                        ■ 1. The authority citation for part 63                  work practice standard in § 63.11155(g):               for the acquisition of commercial items
                                        continues to read as follows:                            ‘‘This facility has an approved                        to firm fixed price and fixed price with
                                            Authority: 42 U.S.C. 7401 et seq.                    monitoring plan in accordance with                     economic price adjustment. Effective
                                                                                                 § 63.11155(g).’’                                       February 12, 2007, FAR was amended to
                                        Subpart EEEEEE—[Amended]                                 [FR Doc. E7–12847 Filed 7–2–07; 8:45 am]               add T&M/LH contracts as an acceptable
                                                                                                 BILLING CODE 6560–50–P                                 contract type for acquiring commercial
                                        ■ 2. Section 63.11148 is amended by
                                                                                                                                                        items. This final rule is consistent with
                                        revising paragraph (a)(2)(ii) to read as
                                                                                                                                                        that FAR amendment.
                                        follows:
                                                                                                 OFFICE OF MANAGEMENT AND                               B. Public Comments
                                        § 63.11148 What are the standards and
                                        compliance requirements for existing                     BUDGET                                                   The Board received six sets of public
                                        sources using batch copper converters?                                                                          comments in response to the Proposed
                                                                                                 Office of Federal Procurement Policy                   Rule.
                                          (a) * * *
                                          (2) * * *
                                                                                                 48 CFR Part 9903                                       1. Support Issuance of the Proposed
                                          (ii) During periods when no copper
                                                                                                                                                        Rule
                                        ore concentrate feed is charged to the                   Cost Accounting Standards Board;
                                        smelting vessel but the smelting vessel                                                                            Comment: Three commenters
                                                                                                 Time and Material and Labor Hour                       supported the issuance of the final rule.
                                        remains in operation to temporarily
                                                                                                 (T&M/LH) Contracts for Commercial                         Response: The Board thanks the
                                        hold molten material in the vessel
                                                                                                 Items                                                  commenters for their comments.
                                        before resuming copper production, you
                                        must exhaust the process off gas from                    AGENCY:  Cost Accounting Standards                     2. The Proposed Exemption Is Not
                                        the smelting vessel to an electrostatic                  Board, Office of Federal Procurement                   Required by SARA
                                        precipitator, wet scrubber, or baghouse                  Policy, OMB.
                                        prior to discharge to the atmosphere.                                                                              Comment: One commenter opined
                                                                                                 ACTION: Final rule.
                                                                                                                                                        that the proposed exemption is not
                                        *      *    *     *    *
                                                                                                 SUMMARY: The Office of Federal                         required by SARA and that the CAS
                                        ■ 3. Section 63.11150 is amended as
                                                                                                 Procurement Policy, Cost Accounting                    Board made an ‘‘erroneous leap of logic
                                        follows:                                                                                                        to state that a CAS exemption exists
                                        ■ a. By revising paragraph (c)                           Standards (CAS) Board, has adopted,
                                                                                                 without change, a final rule to provide                when the statute provides that CAS is
                                        introductory text.
                                        ■ b. By redesignating paragraph (c)(4) as                an exemption for T&M/LH contracts for                  not mandatory.’’
                                                                                                 commercial items. This rulemaking is                      Response: The Board believes an
                                        paragraph (c)(5).
                                        ■ c. By redesignating the second                         authorized pursuant to Section 26 of the               exemption is appropriate at this time in
                                        paragraph (c)(3) as paragraph (c)(4).                    Office of Federal Procurement Policy                   light of the recently promulgated final
                                                                                                 Act.                                                   FAR rule that implements Section 1432
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                                        § 63.11150 What General Provisions apply                                                                        of the National Defense Authorization
                                        to this subpart?                                         DATES:   Effective Date: July 3, 2007.                 Act for Fiscal Year 2004 (SARA) (Pub.
                                        *      *     *    *    *                                 FOR FURTHER INFORMATION CONTACT:                       L. 108–136), which expressly authorized
                                           (c) If you own or operate an existing                 Laura Auletta, Manager, Cost                           the use of time-and-materials (T&M) and
                                        affected source subject to § 63.11148,                   Accounting Standards Board, 725 17th                   labor-hour (LH) contracts for the


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                                        36368                Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Rules and Regulations

                                        acquisition of certain categories of                     regard to securing prompt delivery of                 4. CAS Applicability to Large Dollar
                                        commercial services. Based on the                        satisfactory materials) and to give credit            Sole Source T&M/LH Contracts
                                        provisions in the final FAR rule, the                    to the Government for cash and trade                     Comment: One commenter opined
                                        Board believes there is no significant                   discounts, rebates, scrap, commissions,               that the proposed rule should not
                                        benefit to the application of CAS to                     and other amounts that are identifiable               exempt ‘‘very large dollar value T&M/
                                        T&M/LH contracts for commercial                          to the contract. Furthermore, the FAR                 LH task and delivery orders to be
                                        items. The Board’s specific rationale is                 provision limits reimbursement of other               awarded on what is effectively a sole
                                        discussed below.                                         direct costs to those cost elements                   source basis without the protections
                                           Under the FAR provisions, a T&M                       specifically listed in the contract.
                                        contract is composed of a ‘‘time’’                                                                             afforded by CAS.’’
                                        element and a ‘‘materials’’ element,                        Based on the above discussion, the                    Response: The commenter asserts that
                                        while a LH contract is only composed                     Board believes the existing FAR                       this exemption may be used to exempt
                                        of a ‘‘time’’ element. The time element                  provisions provide adequate coverage                  from CAS indefinite delivery/indefinite
                                        in a T&M/LH contract is a fixed hourly                   regarding the reimbursement of direct                 quantity contracts under which very
                                        rate by labor category. Under the FAR                    materials and other direct costs. As                  large dollar value T&M/LH task or
                                        provisions for T&M/LH contracts for                      noted earlier, the remainder of the                   delivery orders are awarded on
                                        commercial items, these fixed hourly                     contract price/cost is based on fixed                 ‘‘effectively a sole source basis.’’ The
                                        rates are determined based on adequate                   hourly rates and/or amounts established               statute and the FAR provisions both
                                        price competition without the                            at the time of award based on adequate                require that awards be made on the
                                        submission of cost or pricing data.                      competition without the submission of                 basis of adequate competition without
                                        These fixed rates apply to both prime                    cost or pricing data. Thus, the Board has             the submission of cost or pricing data.
                                        and subcontractor labor (except                          concluded that it is appropriate to                   As such, the Board does not believe the
                                        subcontracts for incidental services).                   exempt T&M/LH contracts for                           contract could be awarded on a sole
                                        These fixed hourly rates are akin to a                   commercial items from CAS coverage.                   source basis and still comply with the
                                        firm fixed price contract awarded on the                 The Board notes that this position is                 statutory and regulatory requirements.
                                        basis of adequate competition without                    consistent with the Board’s May 1992                  5. T&M/LH Contract Exceeding CAS
                                        submission of cost or pricing data. Such                 Statement of Objectives, Policies and                 Applicability Thresholds Should Be
                                        contracts are currently exempt from                      Concepts (‘‘the cost of an accounting                 Subject to Some Existing Standards
                                        CAS requirements because there is no                     application should not exceed its
                                        discernible benefit from applying CAS.                                                                           Comment: One commenter suggests
                                                                                                 benefit’’).                                           that the Board analyze which of its
                                        The Board believes the same logic
                                        applies to these fixed hourly rates, and                 3. T&M/LH Contracts Should Be                         standards should be made applicable to
                                        thus there is no benefit to applying CAS                 Considered Cost-Reimbursement Type                    T&M/LH contracts for the acquisition of
                                        to the ‘‘time’’ element of a T&M/LH                      Contracts                                             commercial items or services, and take
                                        contract for commercial items.                                                                                 the necessary steps to ensure that these
                                           In regards to the materials element,                     Comment: One commenter asserted                    contracts comply with the selected
                                        the FAR provisions for T&M contracts                     that T&M/LH contracts should be                       standards. The commenter suggests that
                                        for commercial items define materials as                 considered cost-reimbursement type                    such contracts should be subject, at a
                                        including indirect costs, direct                         contracts because the premise that labor              minimum, to the provisions of CAS 401,
                                        materials, and other direct costs. Under                 rates are fixed under a T&M/LH contract               402, 405, 406, 407 and 411.
                                        these FAR provisions, indirect costs are                 is faulty, and T&M/LH contracts ‘‘can                   Response: The Board disagrees with
                                        reimbursed at a fixed amount                             never be subject to adequate price                    the commenter since the application of
                                        established at the time of contract                      competition’’ because there is no price               CAS to T&M/LH contracts for
                                        award, i.e., there is no adjustment for                  established at the time the contract is               commercial items and services would
                                        indirect costs based on actual costs                     awarded. The commenter also opined                    serve no purpose, regardless of the
                                        occurred. Thus, consistent with the                      that the proposed CAS exemption                       dollar value of a particular contract. As
                                        prior discussion regarding the fixed                     removes the protection against a                      discussed in the response to Comment
                                        hourly rate, there is no benefit to                      contractor’s double-counting of costs,                2 above, the ‘‘time’’ element of T&M/LH
                                        applying CAS to these fixed amounts.                     the inclusion of unallowable costs and                contracts is fixed price, not cost
                                           Conversely, the FAR provisions                        the inconsistent application of the                   reimbursable, and the contracts are
                                        provide for reimbursement of direct                      accounting period under fixed T&M/LH                  awarded based on adequate price
                                        materials and other direct costs based                   contacts.                                             competition. In addition, the FAR
                                        on actual costs. However, the FAR also                                                                         provides limitations on the
                                        includes some limitations on such                           Response: As noted in those                        reimbursement of direct materials and
                                        reimbursement. For example, the FAR                      comments, there are some elements of a                other direct costs that the Board believes
                                        provides for reimbursement of the                        T&M contract for commercial items that                adequately protect the Government’s
                                        actual cost of these materials (less any                 are fixed (e.g., fixed hourly rates and               interest. The application of CAS to these
                                        rebates, refunds, or discounts received                  fixed indirect costs) and others that are             T&M/LH contracts would be of no
                                        by the contractor that are identifiable to               based on actual cost (e.g. direct                     benefit to the Government since it
                                        the contract) provided the contractor                    materials and other direct costs). As                 would not affect the contract price (but,
                                        has made payments for the materials in                   such, it is necessary to analyze each                 see last sentence of response to
                                        accordance with the terms and                            aspect of the T&M/LH contract to                      comment 6).
                                        conditions of the agreement or invoice,                  determine if an exemption is
                                        or makes these payments within 30 days                   appropriate, rather than trying to                    6. The Board Is Required To Issue
                                                                                                                                                       Guidance
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                                        of the submission of the Contractor’s                    classify T&M contracts as ‘‘cost
                                        payment request to the Government.                       reimbursement’’ or ‘‘fixed price.’’ The                 Comment: One commenter asserted
                                        The FAR also requires the contractor to                  Board’s rationale in response to                      that the Board failed to implement the
                                        obtain the materials at the most                         Comment 2 provides this necessary                     requirements of the Conference Report
                                        advantageous prices available (with due                  analysis.                                             on Section 4205 of FARA because it did


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                                                             Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Rules and Regulations                                             36369

                                        not issue guidance for the allocation of                 contract should be exempt is moot. The                Flexibility Act, 5 U.S.C. 601, et seq.,
                                        costs to commercial item contracts                       Board will consider commenter’s                       because small businesses are exempt
                                        when other than firm fixed-price and                     recommendation when it formulates its                 from the application of the Cost
                                        fixed price economic price adjustment                    future agenda actions.                                Accounting Standards.
                                        contracts are authorized.                                8. Other Contract Types for Commercial                List of Subjects in 48 CFR Part 9903
                                           Response: The CAS Board recognizes                    Items
                                        the discussion in the Conference Report.                                                                         Accounting, Government
                                        However, the Board does not believe                         Comment: Three commenters, while                   procurement.
                                        that guidance is needed at this time in                  supporting the proposed revision, noted
                                                                                                 the difference between the permissible                Paul A. Denett,
                                        light of the restrictions on the use of                                                                        Administrator, Office of Federal Procurement
                                        T&M and labor-hour contracts in the                      contract types specified at FAR 12.207
                                                                                                 and the proposed CAS exemption. The                   Policy.
                                        FAR. First, the Board believes that it
                                        was envisioned that reimbursable actual                  commenters recommended that the                       ■ For the reasons set forth in this
                                        direct material and other direct costs                   Board adopt their interpretation of the               preamble, chapter 99 of title 48 of the
                                        will be incidental to the overall contract               exemption language contained at                       Code of Federal Regulations is amended
                                        price. Second, the restrictions in the                   Section 4204 of the Clinger-Cohen Act                 as set forth below:
                                        FAR provide the appropriate protections                  (Pub. L. 104–106)—‘‘contracts or
                                                                                                 subcontracts for the acquisition of                   PART 9903—CONTRACT COVERAGE
                                        at this time. However, should the FAR
                                        requirements be revised or should direct                 commercial items.’’
                                                                                                                                                       ■ 1. The authority citation for part 9903
                                                                                                    Response: The Board did not
                                        material/other direct costs become more                                                                        continues to read as follows:
                                                                                                 deliberate this recommendation because
                                        than incidental, the CAS Board will re-                                                                          Authority: Pub. L. 100–679, 102 Stat. 4056,
                                                                                                 it was outside the scope of the proposed
                                        examine this issue.                                                                                            41 U.S.C. 422.
                                                                                                 rule to provide an exemption for T&M/
                                        7. CAS Applicability to Hybrid                           LH contracts. The Board will consider
                                                                                                 this recommendation when it                           Subpart 9903.2—CAS Program
                                        Contracts
                                                                                                 formulates future agenda items.                       Requirements
                                          Comment: One commenter opined
                                        that ‘‘CAS should not be applicable to                   C. Paperwork Reduction Act                            ■ 2. Section 9903.201–1(b)(6) is revised
                                        portions of a contract whose price is not                   The Paperwork Reduction Act, Public                to read as follows:
                                        based on certified cost or pricing data or               Law 96–511, does not apply to this                    9903.201–1       CAS Applicability.
                                        whose payment is not based on actual                     rulemaking, because this rule imposes
                                        costs incurred’’ and urged the Board to                                                                        *     *    *     *     *
                                                                                                 no paperwork burden on offerors,                        (b) * * *
                                        place hybrid contracts on their near-                    affected contractors and subcontractors,
                                        term agenda. The commenter also                                                                                  (6) Firm fixed-priced, fixed-priced
                                                                                                 or members of the public which requires               with economic price adjustment
                                        recommended granting contracting                         the approval of OMB under 44 U.S.C.
                                        officers the authority to determine CAS                                                                        (provided that price adjustment is not
                                                                                                 3501, et seq.                                         based on actual costs incurred), time-
                                        applicability to selected portions of a
                                        contract.                                                D. Executive Order 12866 and the                      and-materials, and labor-hour contracts
                                          Response: Since the Board has                          Regulatory Flexibility Act                            and subcontracts for the acquisition of
                                        determined that it is appropriate to                       The Board certifies that this rule will             commercial items.
                                        exempt all T&M/LH contracts for                          not have a significant effect on a                    *     *    *     *     *     

                                        commercial items from CAS coverage,                      substantial number of small entities                  [FR Doc. E7–12888 Filed 7–2–07; 8:45 am] 

                                        the issue of whether a portion of the                    within the meaning of the Regulatory                  BILLING CODE 3110–01–P
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