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[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Proposed Rules]
[Pages 27516-27521]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11070]

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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 243

[Docket ID: DOD-2013-OS-0130]
RIN 0790-AJ08

Ratemaking Procedures for Civil Reserve Air Fleet Contracts

AGENCY: USTRANSCOM, DoD.

ACTION: Proposed rule.

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SUMMARY: Section 366 of the National Defense Authorization Act for 
Fiscal Year 2012 directs the Secretary of Defense to determine a fair 
and reasonable rate of payment for airlift services provided to the 
Department of Defense by air carriers who are participants in the Civil 
Reserve Air Fleet Program. The Department of Defense (the Department or 
DoD) proposes to promulgate regulations to establish ratemaking 
procedures for civil reserve air fleet contracts as required by Section 
366(a) in order to determine a fair and reasonable rate of payment.

DATES: Comments must be received no later than July 14, 2014.

ADDRESSES: You may submit comments, identified by docket number and or 
Regulatory Information Number and title, by any of the following 
methods;
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Federal Docket Management System Office, 4800 Mark 
Center Drive, 2nd Floor, East Tower, Suite 02G09, Alexandria, VA 22350-
3100.
    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at http://www.regulations.gov as they are received without 
change, including any personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Mr. Dwight Moore, Chief, Fiscal and 
Civil Law, USTRANSCOM/TCJA, (618) 220-3982 or Mr. Jeff Beyer, Chief, 
Business Support and Policy Division, USTRANSCOM/TCAQ, (618) 220-7021.

SUPPLEMENTARY INFORMATION: 

Background

    The Civil Reserve Air Fleet (CRAF) is a wartime readiness program, 
based on the Defense Production Act of 1950, as amended, (50 U.S.C. 
App. 2601 et seq.), and Executive Order 13603 (National Defense 
Resource Preparedness), March 16, 2012, to ensure quantifiable, 
accessible, and reliable commercial airlift capability to augment DoD 
airlift and to assure a mobilization base of aircraft available to the 
Department of Defense for use in the event of any level of national 
emergency or defense-orientated situations. As a readiness program, 
CRAF quantifies the number of passenger and cargo commercial assets 
required to support various levels of wartime requirements and thus 
allows DoD to account for their use when developing and executing 
contingency operations and war plans. In addition, the CRAF program 
identifies how DoD gains access to these commercial assets for 
operations by defining the authorities and procedures for CRAF 
activation. Finally, the program helps ensure that the DoD has reliable 
lines of communication and a common understanding of procedures with 
the carriers.
    The United States Transportation Command (USTRANSCOM) negotiates 
and structures award of aircraft service contracts with certificated 
civilian air carriers willing to participate in the CRAF program in 
order to ensure that a mobilization base of aircraft is capable of 
responding to any level of defense-orientated situations.
    The ability to set rates maintains the CRAF program's great 
flexibility to have any air carrier in the program able to provide 
aircraft within 24 hours of activation to fly personnel and cargo to 
any location in the world at a set rate per passenger or ton mile, 
regardless of where the air carrier normally operates. It also provides 
the Secretary of Defense the ability to respond rapidly to assist in 
emergencies and approved humanitarian operations, both in the United 
States and overseas where delay could result in more than monetary 
losses. The Government-set rate allows contracts to any location, 
sometimes awarded within less than an hour, and provides substantial 
commercial capability on short notice.
    During the initial CRAF program years (between 1955 and 1962), 
ratemaking to price DoD airlift service relied upon price competition 
to meet its commercial airlift needs. This procurement method resulted 
in predatory pricing issues and failed to provide service meeting 
safety and performance requirements. Congressional Subcommittee 
hearings held at the time determined price competition to be non-
compensatory and destructive to the industry. As a result, the 
ratemaking process was implemented under the regulatory authority of 
the Civil Aeronautics Board (CAB). Ratemaking continued under the CAB 
until deregulation in 1980. At that time, civil air carriers and DoD's 
contracting agency for long-term international airlift, the Military 
Airlift Command (MAC), agreed by a memorandum of understanding (MOU) 
that CAB methodologies by which rates for DoD airlift were established 
produced fair and reasonable rates and furthered the objectives of the 
CRAF program; and therefore, the parties agreed to continue to use CAB 
methodologies for establishing MAC uniform negotiated rates under an 
MOU renewed every five years. MAC became Air Mobility Command (AMC) on 
June 1, 1992. Ratemaking continued under AMC until January 1, 2007, 
when DoD's contracting authority for long-term international airlift 
was transferred from AMC to USTRANSCOM. On December 31, 2011, the 
National Defense Authorization Act for Fiscal Year 2012 (FY12 NDAA) was 
signed into law. Section 366 of the FY12 NDAA, codified at 10 U.S.C. 
Sec.  9511a, authorized and directed the Secretary of Defense to 
determine a fair and reasonable rate of payment made to participants in 
the CRAF program. This proposed rulemaking effectuates Section 366.
    This proposed rulemaking broadly tracks the longstanding ratemaking 
procedures for CRAF contracts in all substantial elements and the 
ratemaking methodologies supporting the pricing of airlift services as 
described in previous and current MOUs between certificated civilian 
air carriers willing to participate in the CRAF program and USTRANSCOM 
and USTRANSCOM predecessor entities.
    In addition to compliance with this rule, CRAF participants, 
consistent with past practice, will be expected to enter into a MOU 
with USTRANSCOM where they will be expected to furnish USTRANSCOM, as a 
condition of its continued participation in the CRAF program, with the 
financial and operational information required by USTRANSCOM to 
adequately make a determination of fairness and reasonableness of 
price. This rulemaking will have no impact on air operators or 
certificated air carriers not

[[Page 27517]]

participating in the CRAF program. Nor does it impact non-CRAF services 
provided by CRAF participants.
    Section 366, Ratemaking Procedures for Civil Reserve Air Fleet, 
provides in pertinent part:
    In General. Chapter 931 of Title 10, United States Code, is amended 
by inserting after section 9511 the following new section:

``Sec.  9511(a) Civil Reserve Air Fleet Contracts: Payment Rate

    (a) Authority--The Secretary of Defense shall determine a fair and 
reasonable rate of payment for airlift services provided to the 
Department of Defense by air carriers who are participants in the Civil 
Reserve Air Fleet program.
    (b) Regulations--The Secretary of Defense shall prescribe 
regulations for purposes of subsection (a). The Secretary may exclude 
from the applicability of those regulations any airlift services 
contract made through the use of competitive procedures.
    (c) Commitment of Aircraft as a Business Factor.--The Secretary 
may, in determining the quantity of business to be received under an 
airlift services contract for which the rate of payment is determined 
in accordance with subsection (a), use as a factor the relative amount 
of airlift capability committed by each air carrier to the Civil 
Reserve Air Fleet.
    (d) Inapplicable Provisions of Law.--An airlift services contract 
for which the rate of payment is determined in accordance with 
subsection (a) shall not be subject to the provisions of Section 2306a 
of this title or the provisions of subsections (a) and (b) of Section 
1502 of Title 41.''
    Description of the Regulation, by Section:
    Sections 243.1 through 243.3. Purpose, Applicability, and 
Definitions. No further descriptions are provided in this section. 
These sections of the regulation are self explanatory.
    Section 243.4(a). In establishing fair and reasonable rate of 
payments for airlift service contracts in support of CRAF, USTRANSCOM 
may utilize the principles contained in the Federal Acquisition 
Regulation, as supplemented. Specific differences are as noted at Sec.  
243.8 of the regulation.
    Sections 243.4(c) and (d) Analysis and Rates. Details for the 
current ratemaking cycle can be located on FedBizOps under the Proposed 
Uniform Rates and Rules and Final Uniform Rates and Rules, which can be 
located at https://www.fbo.gov/index?s=opportunity&mode=form&id=3ae87338a903f3e6e43a2627941dbb1c&tab=core&_cview=1.
    Sections 243.4(e)(1) through (e)(6) Components of the Rate. 
Additional insight in this area is included in the current Memorandum 
of Understanding (FY13 through FY17), which can be found at https://www.fbo.gov/index?s=opportunity&mode=form&id=3ae87338a903f3e6e43a2627941dbb1c&tab=core&_cview=1.
    Section 243.4(f) Contingency Rates. Authority is reserved to the 
Commander, USTRANSCOM, to implement a higher temporary rate if 
USTRANSCOM determines that the established rate of payment is 
insufficient to allow successful mission operations. These temporary 
contingency rates are used at the Commander, USTRANSCOM's discretion 
during conditions such as outbreak of war, armed conflict, 
insurrection, civil or military strife, emergencies, or similar 
conditions and are adjusted to reflect possible limited backhaul 
opportunities. These rates would continue until it is determined by the 
Commander, USTRANSCOM that such rates are no longer needed to ensure 
mission accomplishment or sufficient data has been obtained to 
establish a new rate, after which the contingency rates would cease.
    Section 243.5 Commitment of Aircraft as a Business Factor. For the 
purpose of rate making, the average fleet cost of aircraft proposed by 
the carriers for the forecast year is used. Actual awards to CRAF 
carriers are based upon the aircraft accepted into the CRAF program. 
Aircraft are assigned to stages in a manner designed to spread the risk 
among all carriers proportionate to the airline total commitment and 
capability; as an example, all air carriers are required to have a 
minimum of one aircraft in Stage I but each carrier's total aircraft in 
Stage I cannot exceed ~15% of the passenger or cargo requirement.
    Section 243.6. Exclusions from the uniform negotiated rate. No 
further description is provided in this section. This section of the 
regulation is self explanatory.
    Section 243.7 Inapplicable provisions of law. Consistent with the 
requirements of Section 366, this section provides that determining the 
rate of payment for an airlift service contract will not be subject to 
the provisions of Section 2306a of Title 10, United States Code, 
entitled Cost or Pricing Data: Truth in Negotiations Act or subsections 
(a) and (b) of Section 1502 of Title 41, United States Code, entitled 
Cost Accounting Standards.
    Section 243.8 Application of FAR cost principles. Some FAR cost 
principles contained in FAR Part 31 and DFARS 231 are modified for use 
in the ratemaking process. There are two primary reasons for this:
    First, compliance with certain principles is not possible for 
airline carriers. Airline accounting systems are established to report 
costs in accordance with the Department of Transportation requirements 
found at 14 CFR Part 241. These requirements generally do not allow 
carriers to assign costs directly to a final cost objective, or 
contract. Contractors who do not assign costs directly to a contract 
cannot comply with FAR 31.202. Additionally, 14 CFR Part 241 directs an 
air carrier to financially account for property taxes in General and 
Administrative expense, whereas FAR 31.205-41(c) directs contractors to 
account for these taxes directly to a final cost objective. Therefore, 
simply by complying with requirements of 14 CFR Part 241 (required by 
the Department of Transportation), CRAF carriers cannot be in 
compliance with certain principles at FAR 31 and DFARS 231 due to the 
difference in financial accounting practices for these taxes.
    Secondly, selected cost principles must be modified in order to 
maintain uniformity across the industry when developing a uniform rate 
of payment. An example of this can be found at FAR 31.205-11, 
Depreciation. This principle requires contractors limit depreciation to 
the amount used for financial accounting purposes and in a manner 
consistent with depreciation policies and procedures followed in the 
same segment of non-Government business. Under the Department's 
ratemaking process, all depreciation values are pre-established in 
order to maintain uniformity within the rate. These depreciation values 
are as indicated in the MOU. Therefore, the FAR cost principle 
outlining depreciation requirements cannot be applicable to the 
ratemaking process.
    Section 243.9. Carrier site visits. No further description is 
provided in this section. This section of the regulation is self 
explanatory.
    Sections 243.10 and 243.11 Disputes and Appeals of USTRANSCOM 
Contracting Officer Decisions regarding rates. The disputes and appeals 
provision of the proposed ratemaking procedures follows long 
established protocol that was previously reflected in MOUs executed 
between CRAF air carrier participants and the government. In sum, 
carriers with ratemaking concerns are required to first present their 
concerns to the USTRANSCOM ratemaking team for resolution. If the 
matter is not resolved by the ratemaking

[[Page 27518]]

team, the carrier can in turn request resolution by the USTRANSCOM 
contracting officer. If satisfactory resolution does not result, the 
carrier should address their matter to the USTRANSCOM Ombudsman who is 
appointed to hear and facilitate resolution of such issues. If 
requested by the carrier, the Director of Acquisition, USTRANSCOM, will 
issue a final agency decision on matters unresolved by the USTRANSCOM 
Ombudsman.

Regulatory Procedures

Executive Order 12866 ``Regulatory Planning and Review'' and Executive 
Order 13563 ``Improving Regulation and Regulatory Review''

    Executive Orders (E.O.s) 12866 and 13563 directs agencies to assess 
all costs and benefits of available regulatory alternatives, and if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
It has been determined that 32 CFR part 243 is not an economically 
significant regulatory action and is also not a major rule under 5 
U.S.C. Sec.  804. The rule does not:
    (1) Have an annual affect to the economy in excess of $100 million 
or more or adversely affect in a material way the economy; a section of 
the economy; productivity; competition; jobs; the environment; public 
health or safety; or State, local or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another Agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
these Executive Orders.
    Additionally, participation in the CRAF program is voluntary. All 
willing carriers meeting the technical requirements of CRAF will 
receive a contract for transportation services. The proposed rule does 
not add additional requirements to those that have been historically 
required by the CRAF carrier's contract and ratemaking process. The 
proposed rule clarifies existing and historical procedures utilized by 
USTRANSCOM for carriers participating in the CRAF program.

Unfunded Mandates Reform Act of 1995 (Sec. 202, Pub. L. 104-4)

    It has been certified that this rule does not contain a Federal 
mandate that may result in the expenditure by State, local and tribal 
governments, in aggregate, or by the private sector, of $100 million or 
more in any one year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601 et 
seq.)

    DoD certifies this proposed rule will not 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 the rule does not change or add any policies or procedures. 
This rule implements Section 366 of the National Defense Authorization 
Act for Fiscal Year 2012 (Pub. L. 112-81) using historically 
established ratemaking methodologies and procedures. According to the 
most recent records, there are 28 certified civilian air carriers 
willing to participate in the CRAF program for FY2013, of which 12 
qualify as small businesses. Because the rule does not change or add 
any policies or procedures there is not a significant economic impact 
on a substantial number of small entities and a regulatory flexibility 
analysis was not performed. Furthermore, any airline meeting the CRAF 
technical requirements, regardless of business size, will be awarded a 
contract with rates of payment prescribed by this rule.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    The proposed rule does not impose any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.

Executive Order 13132 Federalism

    Executive Order 13132 requires that Executive departments and 
agencies identify regulatory actions that have significant federalism 
implications. A regulation has federalism implications if it has 
substantial direct effects on the States, on the relationship or 
distribution of power between the Federal Government and the States, or 
on the distribution of power and responsibilities among various levels 
of government.
    The provisions of this part, as required by 10 U.S.C. Sec.  9511a, 
have no substantial direct effect on the States, on the relationship or 
distribution of power between the Federal Government and the States, or 
on the distribution of power and responsibilities among various levels 
of government. Therefore, the Department has determined that the 
proposed part has no federalism implications that warrant the 
preparation of a Federalism Assessment in accordance with Executive 
Order 13132.

List of Subjects in 32 CFR Part 243

    Air fleet, Armed forces reserves, Contracts.

0
For the reasons set forth in the preamble, Title 32, Code of Federal 
Regulations is proposed to be amended by adding part 243 to read as 
follows:

PART 243--DEPARTMENT OF DEFENSE RATEMAKING PROCEDURES FOR CIVIL 
RESERVE AIR FLEET CONTRACTS

Sec.
243.1 Purpose.
243.2 Applicability.
243.3 Definitions.
243.4 Ratemaking procedures for Civil Reserve Air Fleet contracts.
243.5 Commitment of aircraft as a business factor.
243.6 Exclusions from the uniform negotiated rate.
243.7 Inapplicable provisions of law.
243.8 Application of FAR cost principles.
243.9 Carrier site visits.
243.10 Disputes.
243.11 Appeals of USTRANSCOM Contracting Officer Decisions regarding 
rates.
243.12 Required Records Retention.

    Authority:  Section 366 National Defense Authorization Act for 
FY12 (Pub. L. 112-81) 10 U.S.C. Chap 931, Section 9511a.

Sec.  243.1  Purpose.

    The Secretary of Defense (Secretary) is required to determine a 
fair and reasonable rate of payment for airlift services provided to 
the Department of Defense (DoD) by civil air carriers and operators 
(hereinafter collectively referred to as ``air carriers'') who are 
participants in the Civil Reserve Air Fleet program (CRAF). This 
regulation provides the authority and methodology for such ratemaking 
and designates the United Stated Transportation Command (USTRANSCOM) as 
the rate setter for negotiated uniform rates for DoD airlift service 
contracts in support of the CRAF. This methodology supports a viable 
CRAF mobilization base that ensures sufficient capacity in time of war, 
contingency and humanitarian relief efforts.

Sec.  243.2  Applicability.

    This section governs all contracts with the Department of Defense 
where awards to the air carriers, either through individual contracts 
or teaming arrangements, are commensurate with the relative amount of 
airlift capability

[[Page 27519]]

committed to the Civil Reserve Air Fleet (CRAF).

Sec.  243.3  Definitions.

    The following definitions apply to this part:
    Air carrier. ``Air carrier'' is defined in 49 U.S.C. Sec.  
40102(a)(2) as ``a citizen of the United States undertaking by any 
means, directly or indirectly, to provide air transportation.'' 
Specifically to this ratemaking procedure, individuals or entities that 
operate commercial fixed and rotary wing aircraft in accordance with 
the Federal Aviation Regulations (14 CFR Chapter I) or equivalent 
regulations issued by a country's Civil Aviation Authority (CAA) and 
which provide air transportation services are included. Commercial air 
carriers under contract with, or operating on behalf of, the DoD shall 
have a Federal Aviation Administration (FAA) or CAA certificate. The 
policy contained in this directive applies only to air carriers 
operating fixed wing aircraft under CRAF international airlift 
services.
    Aircraft class. Distinct categories of aircraft with similar broad 
characteristics established for ratemaking purposes. These categories 
include aircraft such as large passenger, medium passenger, large 
cargo, etc. They are determined by USTRANSCOM and identified in 
Published Uniform Rates and Rules for International Service Appendix A 
(Published in FedBizOps).
    Civil Reserve Air Fleet International Airlift Services. Those 
services provided in support of the Civil Reserve Air Fleet contract, 
whereby contractors provide personnel, training, supervision, 
equipment, facilities, supplies and any items and services necessary to 
perform international long-range and short-range airlift services 
during peacetime and during CRAF activation in support of the 
Department of Defense (DoD). Implements the Fly CRAF Act. See 49 U.S.C. 
41106.
    Civil Reserve Air Fleet (CRAF) Assured Business Guarantees. See 10 
U.S.C. 9515.
    Civil Reserve Air Fleet (CRAF) Program. The Civil Reserve Air Fleet 
(CRAF) is a wartime readiness program, based on the Defense Production 
Act of 1950, as amended, (50 U.S.C. App. 2601 et seq.), and Executive 
Order 13603 (National Defense Resource Preparedness), March 16, 2012, 
to ensure quantifiable, accessible, and reliable commercial airlift 
capability to augment DoD airlift and to assure a mobilization base of 
aircraft available to the Department of Defense for use in the event of 
any level of national emergency or defense-orientated situations. As a 
readiness program, CRAF quantifies the number of passenger and cargo 
commercial assets required to support various levels of wartime 
requirements and thus allows DoD to account for their use when 
developing and executing contingency operations/war plans.
    The CRAF is composed of U.S. registered aircraft owned or 
controlled by U.S. air carriers specifically allocated (by FAA 
registration number) for this purpose by the Department of 
Transportation. As used herein, CRAF aircraft are those allocated 
aircraft, which the carrier owning or otherwise controlling them, has 
contractually committed to the DoD, under stated conditions, to meet 
varying emergency needs for civil airlift augmentation of the military 
airlift capability. The contractual commitment of the aircraft includes 
the supporting resources required to provide the contract airlift. In 
return for a commitment to the CRAF program, airlines are afforded 
access to day-to-day business under various DoD contracts.
    Historical Costs. Those allowable costs for airlift services for a 
12 month period, gathered from Department of Transportation (DOT) 
Uniform System of Accounts and Reports (USAR) (hereinafter referred to 
as ``Form 41'') reporting (required by 14 CFR parts 217 and 241).
    Long-range aircraft. Aircraft equipped with navigation, 
communication, and life support systems/emergency equipment required to 
operate in trans-oceanic airspace, and on international routes, for a 
minimum distance of 3,500 nautical miles, while carrying a productive 
payload (75 percent of the maximum payload it is capable of carrying.) 
Additionally aircraft must be equipped and able to operate worldwide 
(e.g. in EUROCONTROL and North Atlantic Minimum Navigation Performance 
Specification airspace and possess the applicable VHF, Mode-S, RNP, and 
RVSM communication and navigation capabilities.)
    Memorandum of Understanding with attachment (MOU). A written 
agreement between certificated air carriers willing to participate in 
the CRAF program and USTRANSCOM with the purpose of establishing 
guidelines to facilitate establishment of rates for airlift services 
(e.g. passenger, cargo, combi, and aeromedical evacuation.)
    Operational Data. Those statistics that are gathered from DOT Form 
41 reporting, USTRANSCOM reported monthly round trip (S-1) and one-way 
(S-2) mileage reports, monthly fuel reports or other data deemed 
necessary by the USTRANSCOM contracting officer.
    Participating Carriers. Any properly certified and DoD approved air 
carrier in the CRAF program which complies with the conditions of the 
MOU and executes a USTRANSCOM contract.
    Projected Rates. The estimated rates proposed by carriers based 
upon historical cost and operational data as further described in Sec.  
243.4(a)-(g).
    Ratemaking Methodologies. The methodologies agreed to by USTRANSCOM 
and air carriers in the MOU for the treatment of certain cost elements 
to determine the estimated price for the DoD for airlift services.
    Short-range aircraft. Aircraft equipped for extended over-water 
operations and capable of flying a minimum distance of 1,500 nautical 
miles while carrying a productive payload (75 percent of the maximum 
payload it is capable of carrying).

Sec.  243.4  Ratemaking procedures for Civil Reserve Air Fleet 
contracts.

    The ratemaking procedures contained within this section apply only 
to Airlift Service contracts awarded based on CRAF commitment. 
Competitively awarded contracts may be used by the Department of 
Defense when it considers such contracts to be in the best interest of 
the government. See Sec.  243.5(b) and Sec.  243.6 for exclusions to 
ratemaking.
    (a) USTRANSCOM may utilize the principles contained in the Federal 
Acquisition Regulation (FAR), as supplemented, in establishing fair and 
reasonable rate of payments for airlift service contracts in support of 
CRAF. Specific exceptions to FAR are noted in Sec.  243.8 of this rule. 
To facilitate uniformity within the ratemaking process, USTRANSCOM will 
execute a MOU with air carriers to institute the basis for methods upon 
which the rates will be established. An updated MOU will be executed as 
warranted and published for public comment on FedBizOps. Under the MOU, 
air carriers agree to furnish historical cost and operational data, as 
well as their projected rates for the ensuing fiscal year. USTRANSCOM 
will conduct a review of air carriers' historical and projected costs 
and negotiate with the carriers to establish rates using ratemaking 
methodologies contained in the attachment to the MOU.
    (b) Obtaining data from Participating Carriers. USTRANSCOM will 
annually notify those participating carriers to provide data using the 
USTRANSCOM cost package and related instructions. The data provided 
includes pricing data, cost data, and judgmental information necessary 
for the USTRANSCOM contracting officer to

[[Page 27520]]

determine a fair and reasonable price or to determine cost realism. 
Carriers will be provided 60 calendar days to act upon the request.
    (c) Analysis.
    (1) USTRANSCOM will consider carrier reported DOT Form 41 costs as 
well as other applicable costs directly assigned to performance in 
USTRANSCOM service. These costs will be reviewed and analyzed by 
USTRANSCOM for allowability, allocability, and reasonableness. Costs 
may also be audited by the Defense Contract Audit Agency (DCAA), as 
necessary, in accordance with the DCAA Contract Audit Manual 7640.01.
    (2) To determine allocation of these costs to USTRANSCOM service, 
USTRANSCOM considers carrier reported DOT Form 41 operational data, as 
well as USTRANSCOM S-1, S-2 mileage reports, fuel reports, and other 
relevant information requested by the contracting officer.
    (d) Rates. Rates will be determined by aircraft class (e.g. large 
passenger, medium passenger, large cargo, etc.) based on the average 
efficiency of all participating carriers within the specified class. 
Application of these rates, under varying conditions (e.g. ferry, one-
way, etc), are addressed in the Final Rates published in accordance 
with Sec.  243.4(h).
    (e) Components of the rate.
    (1) Return on Investment (ROI). ROI for USTRANSCOM service is 
intended to adequately compensate carriers for cost of capital. 
USTRANSCOM will apply a minimum return applied to the carrier's total 
operating costs. If a full return on investment applied to a carrier's 
capital investment base is provided in the MOU, the carrier will 
receive whichever is greater.
    (i) Full ROI. The full ROI will be computed using an optimal 
capital structure of 45 percent debt and 55 percent equity. The cost-
of-debt and cost-of-equity are calculated from revenues of major 
carriers as reported to the Department of Transportation.
    (A) Cost-of-Debt (COD). COD will be calculated considering the Risk 
Free Rate (RFR) plus the weighted debt spread, with the formula as 
agreed upon in the MOU.
    (B) Cost-of-Equity (COE). COE will be determined by a formula 
agreed upon in the MOU, which considers RFR, weighted betas, annualized 
equity risk premium and a future expected return premium.
    (C) Owned/Capital/Long-Term Leased Aircraft. New airframes and 
related support parts will receive full ROI on the net book value of 
equipment at mid-point of forecast year. USTRANSCOM will apply the 
economic service life standards to aircraft as indicated in paragraph 
(e)(2) of this section.
    (D) Short-term Leased Aircraft. As a return on annual lease 
payments, short-term leased equipment will receive the Full ROI less 
the cost of money rate per the Secretary of the Treasury under Pub. L. 
92-41 (85 Stat. 97), as provided by the Office of Management and 
Budget, in accordance with the MOU.
    (E) Working Capital. Working capital will be provided in the 
investment base at an established number of days provided in the MOU. 
The investment base will be computed on total operating cash less non 
cash expenses (depreciation) as calculated by USTRANSCOM.
    (ii) Minimum Return. USTRANSCOM will determine minimum return 
utilizing the Weighted Guidelines methodology as set forth in DFARS 
Subpart 215.4, Contract Pricing, or successor and as provided in the 
MOU.
    (2) Depreciation. USTRANSCOM will apply economic life standards for 
new aircraft at 14 years, 2 percent residual (narrowbody) and 16 years 
and 10 percent residual (widebody) aircraft. USTRANSCOM will apply 
economic life standards for used aircraft as indicated in the MOU.
    (3) Utilization. Utilization considers the number of airborne hours 
flown per aircraft per day. USTRANSCOM will calculate aircraft 
utilization in accordance with the DOT Form 41 reporting and the MOU.
    (4) Cost Escalation. Escalation is the percentage increase or 
decrease applied to the historical base year costs to reliably estimate 
the cost of performance in the contract period. Yearly cost escalation 
will be calculated in accordance with the MOU.
    (5) Weighting of Rate. Rates will be weighted based upon the direct 
relationship between contract performance and cost incurred in 
execution of the contract. The specific weighting will be as defined in 
the MOU.
    (6) Obtaining Data From Participating Carriers. Carriers 
participating in USTRANSCOM acquisitions subject to ratemaking shall 
provide, other than certified cost and pricing data for USTRANSCOM, 
rate reviews as required in the MOU.
    (f) Contingency Rate. Authority is reserved to the Commander, 
USTRANSCOM, at his discretion, during conditions such as outbreak of 
war, armed conflict, insurrection, civil or military strife, emergency, 
or similar conditions, to use a temporary contingency rate in order to 
ensure mission accomplishment. Any such temporary rate would terminate 
at the Commander's discretion upon his determination that such rate is 
no longer needed.
    (g) Proposed Rate. Once the data is analyzed and audit findings 
considered, USTRANSCOM will prepare a package setting forth proposed 
airlift rates and supporting data. The proposed rates will be approved 
by the USTRANSCOM contracting officer and posted publicly on FedBizOps 
for comment. The comment period will be as specified in the proposed 
rate package.
    (h) Final Rate. Upon closing of the comment period, comments and 
supporting rationale will be addressed and individual negotiations 
conducted between USTRANSCOM and the air carriers. After negotiations 
have concluded, USTRANSCOM will prepare a rate package setting forth 
final airlift rates for each aircraft class, along with supporting data 
consisting of individual carrier cost elements. Comments and 
disposition of those comments will be included in the final rate 
package. The final rates will be approved by the USTRANSCOM contracting 
officer and publicly posted on FedBizOps for use in the ensuing 
contract.

Sec.  243.5  Commitment of aircraft as a business factor.

    For the purpose of rate making, the average fleet cost of aircraft 
proposed by the carriers for the forecast year is used. Actual awards 
to CRAF carriers are based upon the aircraft accepted into the CRAF 
program. The Secretary may, in determining the quantity of business to 
be received under an airlift services contract for which the rate of 
payment is determined in accordance with subsection (a) of 10 U.S.C. 
9511a, use as a factor the relative amount of airlift capability 
committed by each air carrier to the CRAF.
    (a) Adjustments in commitment to target specific needs of the 
contract period. The amount of business awarded in return for 
commitment to the program under a CRAF contract may be adjusted prior 
to the award of the contract to reflect increased importance of 
identified aircraft categories (e.g., Aeromedical Evacuation) or 
performance factors (e.g., flyer's bonus, superior on-time performers, 
etc.). These adjustments will be identified in the solicitation.
    (b) Exclusions of categories of business from commitment based 
awards. Where adequate competition is available and USTRANSCOM 
determines some part of the business is more appropriate for award 
under competitive procedures, the rate-making will not apply. Changes 
to areas of

[[Page 27521]]

business will be reflected in the solicitation.

Sec.  243.6  Exclusions from the uniform negotiated rate.

    Domestic CRAF is handled differently than international CRAF in 
that aircraft committed does not factor into the amount of business 
awarded during peacetime. If domestic CRAF is activated, carriers will 
be paid in accordance with pre-negotiated prices that have been 
determined fair and reasonable, not a uniform rate.

Sec.  243.7  Inapplicable provisions of law.

    An airlift services contract for which the rate of payment is 
determined in accordance with subsection (a) of 10 U.S.C. 9511a shall 
not be subject to the provisions of 10 U.S.C. 2306a, or to the 
provisions of subsections (a) and (b) of 41 U.S.C. 1502. Specifically, 
contracts establishing rates for services provided by air carriers who 
are participants in the CRAF program are not subject to the cost or 
pricing data provision of the Truth in Negotiations Act (10 U.S.C. 
2306a) or the Cost Accounting Standards (41 U.S.C. 1502). CRAF carriers 
will, however, continue to submit data in accordance with the MOU and 
the DOT, Form 41.

Sec.  243.8  Application of FAR cost principles.

    In establishing fair and reasonable rate of payments for airlift 
service contracts in support of CRAF, USTRANSCOM, in accordance with 10 
U.S.C. 9511a, procedures differ from the following provisions of FAR 
Part 31 and DFARS Part 231, as supplemented:
    (a) FAR 31.202, Direct Costs.
    (b) FAR 31.203, Indirect Costs.
    (c) FAR 31.205-6, Compensation for Personal Services, subparagraphs 
(g), (j), and (k).
    (d) FAR 31.205-10, Cost of Money.
    (e) FAR 31.205-11, Depreciation.
    (f) FAR 31.205-18, Independent Research and Development and Bid and 
Proposal Costs.
    (g) FAR 31.205-19, Insurance and Indemnification.
    (h) FAR 31.205-26, Material Costs.
    (i) FAR 31.205-40, Special Tooling and Special Test Equipment 
Costs.
    (j) FAR 31.205-41, Taxes.
    (k) DFARS 231.205-18, Independent research and development and bid 
and proposal costs.

Sec.  243.9  Carrier site visits.

    USTRANSCOM may participate in carrier site visits, as required to 
determine the reasonableness or verification of cost and pricing data.

Sec.  243.10  Disputes.

    Carriers should first address concerns to the ratemaking team for 
resolution. Ratemaking issues that are not resolved to the carrier's 
satisfaction through discussions with the ratemaking team may be 
directed to the USTRANSCOM contracting officer.

Sec.  243.11  Appeals of USTRANSCOM Contracting Officer Decisions 
regarding rates.

    If resolution of ratemaking issues cannot be made by the USTRANSCOM 
contracting officer, concerned parties shall contact the USTRANSCOM 
Ombudsman appointed to hear and facilitate the resolution of such 
concerns. In the event a ratemaking issue is not resolved through the 
ombudsman process, the carrier may request a final agency decision from 
the Director of Acquisition, USTRANSCOM.

Sec.  243.12  Required records retention.

    The air carrier is required to retain copies of data submitted to 
support rate determination for a period identified in subpart 4.7 of 
the Federal Acquisition Regulation, Contractor Records Retention (48 
CFR 4.7).

    Dated: May 9, 2014.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2014-11070 Filed 5-13-14; 8:45 am]
BILLING CODE 5001-06-P
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