76356 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

enhancing their capabilities to satisfy 

DoD and other contract and subcontract 

requirements. Under the Mentor-Prote ́ge ́

Program, eligible companies approved 

as mentor firms will enter into mentorprote ́ge ́ agreements with eligible prote ́ge ́

firms to provide appropriate 

developmental assistance to enhance 

the capabilities of the prote ́ge ́ firms to 

perform as subcontractors and 

suppliers. DoD may provide the mentor 

firm with either cost reimbursement or 

credit against applicable subcontracting 

goals established under contracts with 

DoD or other Federal agencies.

The Department of Defense, in an 

effort to streamline and transform itself 

in order to more effectively achieve its 

mission and in recognition that the 

Military Departments have the 

necessary expertise to manage programs 

efficiently, is transferring the 

management of the Mentor Prote ́ge ́

program to the Military Departments 

and Defense Agencies. The Office of the 

Secretary of Defense will maintain 

oversight and policy development 

responsibilities.

DoD, GSA, and NASA published a 

proposed rule in the Federal Register at 

69 FR 18244, April 6, 2004, with request 

for comments. One respondent 

submitted a comment that was outside 

the scope of the rule and no action was 

taken. The Councils agreed to convert 

the proposed rule to a final rule.

Accordingly, the FAR is amended to 

state that the Director, Small and 

Disadvantaged Business Utilization of 

the cognizant DoD Military Department 

or Defense Agency, will be the approval 

authority for mentor-prote ́ge ́

agreements.

This is not a significant regulatory 

action and, therefore, was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804.

B. Regulatory Flexibility Act

The Department of Defense, the 

General Services Administration, and 

the National Aeronautics and Space 

Administration certify that this final 

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 removes a restriction, thus allowing 

DoD to make a minor policy change.

C. Paperwork Reduction Act

The Paperwork Reduction Act does 

not apply because the changes to the 

FAR do not impose information 

collection requirements that 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 19

Government procurement.

Dated: December 9, 2004.

Laura Auletta,

Director, Contract Policy Division.

■ Therefore, DoD, GSA, and NASA 

amend 48 CFR part 19 as set forth below:

■ 1. The authority citation for 48 CFR 

part 19 is revised to read as follows:

PART 19—SMALL BUSINESS 

PROGRAMS

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 42 U.S.C. 2473(c).

■ 2. Amend section 19.702 by revising 

paragraph (d) to read as follows:

19.702 Statutory requirements.

* * * * *

(d) As authorized by 15 U.S.C. 

637(d)(11), certain costs incurred by a 

mentor firm in providing developmental 

assistance to a prote ́ge ́ firm under the 

Department of DefensePilot MentorProte ́ge ́ Program, may be credited as if 

they were subcontract awards to a 

prote ́ge ́ firm for the purpose of 

determining whether the mentor firm 

attains the applicable goals under any 

subcontracting plan entered into with 

any executive agency. However, the 

mentor-prote ́ge ́ agreement must have 

been approved by the Director, Small 

and Disadvantaged Business Utilization 

of the cognizant DoD military 

department or defense agency, before 

developmental assistance costs may be 

credited against subcontract goals. A list 

of approved agreements may be 

obtained at http://www.acq.osd.mil/

sadbu/mentorlprotege/ or by calling 

(703) 588–8631.

[FR Doc. 04–27637 Filed 12–17–04; 8:45 am]

BILLING CODE 6820–EP–S

DEPARTMENT OF DEFENSE

GENERAL SERVICES 

ADMINISTRATION

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION

48 CFR Part 42

[FAC 2001–26; FAR Case 2001–018; Item 

VI]

RIN 9000–AJ77

Federal Acquisition Regulation; 

Applicability of the Cost Principles and 

Penalties for Unallowable Costs

AGENCIES: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA).

ACTION: Final rule.

SUMMARY: The Civilian Agency 

Acquisition Council and the Defense 

Acquisition Regulations Council 

(Councils) have agreed on a final rule 

amending the Federal Acquisition 

Regulation (FAR) by increasing the 

contract dollar threshold for assessing a 

penalty if the contractor includes 

expressly unallowable costs in its claim 

for reimbursement.

DATES: Effective Date: January 19, 2005.

FOR FURTHER INFORMATION CONTACT: The 

FAR Secretariat at (202) 501–4755 for 

information pertaining to status or 

publication schedules. For clarification 

of content, contact Mr. Richard C. Loeb 

at (202) 208–3810. Please cite FAC 

2001–26, FAR case 2001–018.

SUPPLEMENTARY INFORMATION:

A. Background

DoD, GSA, and NASA published a 

proposed rule in the Federal Register at 

68 FR 66988 on November 28, 2003, 

with request for comments. The 

Councils proposed to amend the FAR to: 

(1) remove the requirement to apply the 

cost principles and procedures at FAR 

Part 31 when pricing a contract if cost 

or pricing data are not obtained; (2) add 

a definition to FAR Part 31 for fixedprice contracts, subcontracts, and 

modifications; and (3) increase the 

contract dollar threshold for assessing a 

penalty if the contractor includes 

expressly unallowable costs in its claim 

for reimbursement (FAR Part 42). Three 

respondents submitted comments on the 

proposed FAR rule; a discussion of the 

comments are provided below. The 

Councils considered all comments and 

decided not to adopt the proposed 

revisions to FAR Parts 15 and 31, and 

to convert the proposed rule at FAR Part 

42 to a final rule. Differences between 

Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 76357

the proposed rule and final rule are 

discussed in comments 1, 2, and 3, 

below.

This is not a significant regulatory 

action and, therefore, was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804.

Public Comments:

Applicability of FAR Part 31

1. Comment: Two of the three 

respondents believe the change should 

not be made.

The first respondent urged the 

withdrawal of the proposed rule and 

expressed the position that the need for 

the proposed change was not clearly 

and fully disclosed. The respondent 

strongly believes that the Government’s 

prenegotiation objective for cost based 

fixed-price contracts should continue to 

be predicated on the consistent 

application of applicable FAR Part 31 

cost principles. Whether a contractor’s 

submitted cost data is ‘‘certified’’ or 

‘‘uncertified’’ should not alter the basis 

for determining the Government’s 

prenegotiation objective, or a 

determination on whether the 

negotiated fixed-price is fair and 

reasonable.

The respondent noted that FAR Part 

31 has more than just unallowable costs 

within it, e.g., allocability, consistency, 

direct vs. indirect, and accounting 

methods. The respondent also made the 

following points:

• If FAR Subpart 31.2 policies and 

procedures are not consistently applied 

to cost-based fixed-price contracts, what 

are the alternate policies, procedures 

and principles to be applied when 

performing a ‘‘cost analysis’’ of the 

‘‘uncertified’’ information other than 

cost or pricing data?

• What fundamental constructs will 

the proposing contractor have to comply 

with?

• What will guide the cost analyst 

and/or auditor when performing the 

‘‘cost analysis’’ of the contractor’s 

uncertified data?

After referencing the Councils’ stated 

goal ‘‘...to reduce Government unique 

regulations when the risk to the 

Government is low,’’ the respondent 

opined:

When negotiating fixed-price 

contracts based on a prenegotiation 

objective that was predicated on a ‘‘cost 

analysis’’ of contractor submitted 

information other than cost or pricing 

cost data, the respondent believes that 

the risk to the Government is higher, not 

lower, than if ‘‘certified’’ cost or pricing 

data had been obtained. Without 

certified data, there is less assurance 

that contractor submitted data are 

current, complete and accurate.

The respondent concluded that FAR 

Part 31 contract cost principles should 

continue to be applied to pricing 

contracts whenever cost data is 

submitted to support a contract price, 

regardless of whether the contract type 

is fixed-price.

The second respondent believes that 

the Government’s policy objective 

should be clarified, and that the 

mention of cost analysis is potentially 

confusing and unnecessary. The 

respondent characterized the phrasing 

of the proposed rule as terribly awkward 

(due to using the passive voice) and 

suggested alternative language.

The third respondent was concerned 

that the proposed coverage at FAR 

31.000 appears to restrict in some way 

the underlying Truth in Negotiations 

Act (TINA) mandate to obtain cost or 

pricing data in the first place (as to both 

negotiated contracts and negotiated 

modifications).

Councils’ response: Concur that the 

proposed change should not be made. 

The Councils believe that the 

Government needs a consistent playing 

field when dealing with cost data 

whether ‘‘certified’’ or not. The Councils 

are also concerned that the proposed 

language could be construed as limiting 

the Government’s use of FAR Part 31 for 

its prenegotiation positions. This would 

adversely affect any requests for audit 

support made by the contracting officer. 

The General Accepted Government 

Auditing Standards (GAGAS) under 

attestation standards AT 101.23, 

‘‘Suitability of Criteria,’’ require 

auditors to have objective, measurable, 

complete, and relevant criteria to apply 

during their work. The Councils believe 

that the guidance in FAR Part 31 meets 

these requirements, as General Accepted 

Accounting Principles (GAAP) alone 

does not go to the level necessary to 

support contract pricing. Therefore, the 

Councils have withdrawn the proposed 

revisions to FAR Parts 15 and 31.

Definition of fixed-price contracts

2. Comment: Two respondents believe 

the proposed FAR 31.001 definition of 

fixed-price contracts, subcontracts and 

modifications would lead to confusion 

in the area of Time-and-Material (T&M) 

type contracting actions.

The first respondent stated that it 

strongly opposes the proposed 

‘‘redefinition’’ of fixed-price contracts to 

include the fixed hourly portion of a 

T&M and labor-hour (LH) contract, and 

that it flies in the face of law and 

common sense. The respondent cited 

GSBCA decision CACI, Inc.—Federal v. 

General Services Administration, dated 

December 13, 2002, to support its 

position that T&M/LH contracts are not 

fixed-price. The respondent believes 

that the Council’s attempt to rationalize 

a portion a T&M/LH contract as ‘‘fixedprice’’ is a shameful capitulation to 

contractors interests, and an abrogation 

of the Council’s duty to taxpayers.

The second respondent was 

concerned the proposed definition may 

impact T&M orders placed under GSA’s 

Multiple Award Schedule (MAS) 

contracts. The proposed definition 

would include the fixed hourly rate 

portion of the T&M and LH contracts 

and subcontracts in FAR Subpart 16.6. 

The respondent believes this may 

suggest that time-and-material orders 

with a fixed labor hour component are 

fixed-price in nature for any contracting 

or FAR purpose. GSA mandates that all 

T&M orders placed under MAS 

contracts include the contract clause at 

FAR 52.232–7, Payments under Timeand-Materials and Labor-Hour 

Contracts. This clause provides 

contracting officers with an ability to 

require more substantiation of hours 

worked under a time-and-materials 

order. Because such task orders have 

fixed labor components, the respondent 

is concerned that contracting officers 

may—based on this proposed FAR 

change—consider such task orders to be 

fixed price and not invoke the controls 

attendant with this clause or other 

necessary safeguards to the use of such 

vehicles.

Councils’ response: Partially concur. 

The Councils believe there is a limited 

risk that contracting officers could be 

confused by the inclusion of the ‘‘fixed 

rate portion’’ of a T&M contracting 

action in the proposed definition. 

However, due to the Council’s decision 

not to adopt the proposed revisions 

discussed at Comment 1, above, this 

definition is no longer required.

Dollar threshold for assessing 

penalties—FAR 42.709

3. Comment: One respondent stated 

that it had no objection to the proposed 

change in the threshold from the current 

$500,000 to $550,000 to adjust for 

inflation. The other two respondents did 

not address the proposed change.

Councils’ response: Concur. The 

Councils agree that the contract dollar 

threshold for assessing a penalty if the 

contractor includes expressly 

unallowable costs in its claim for 

reimbursement should be increased 

from $500,000 to $550,000, to adjust for 

inflation. This increase is authorized by 

10 U.S.C. 2324(l) and 41 U.S.C. 256(1). 

Therefore, the dollar threshold amounts 

76358 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

in FAR 42.709(b) and FAR 42.709–6 are 

increased from $500,000 to $550,000.

B. Regulatory Flexibility Act

The Department of Defense, the 

General Services Administration, and 

the National Aeronautics and Space 

Administration certify that this final 

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 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 principles discussed in this 

rule.

C. Paperwork Reduction Act

The Paperwork Reduction Act does 

not apply because the changes to the 

FAR do not impose information 

collection requirements that 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 42

Government procurement.

Dated: December 9, 2004.

Laura Auletta,

Director, Contract Policy Division.

■ Therefore, DoD, GSA, and NASA 

amend 48 CFR part 42 as set forth below:

PART 42—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES

■ 1. The authority citation for 48 CFR 

part 42 is revised to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 42 U.S.C. 2473(c).

42.709 and 42.709–6 [Amended]

■ 2. Amend sections 42.709(b) and 

42.709–6 by removing ‘‘$500,000’’ and 

adding ‘‘$550,000’’ in its place.

[FR Doc. 04–27638 Filed 12–17–04; 8:45 am]

BILLING CODE 6820–EP–S

DEPARTMENT OF DEFENSE

GENERAL SERVICES 

ADMINISTRATION

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION

48 CFR Parts 11, 41, 44, 51, and 52

[FAC 2001-26; Item VII]

Federal Acquisition Regulation; 

Technical Amendments

AGENCIES: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA).

ACTION: Final rule.

SUMMARY: This document makes 

amendments to the Federal Acquisition 

Regulation (FAR) in order to make 

editorial changes.

DATE: Effective Date: December 20, 2004.

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. Please 

cite FAC 2001-26, Technical 

Amendments.

List of Subjects in 48 CFR Parts 11, 41, 

44, 51, and 52

Government procurement.

Dated: December 9, 2004.

Laura Auletta,

Director, Contract Policy Division.

■ Therefore, DoD, GSA, and NASA 

amend 48 CFR parts 11, 41, 44, 51, and 

52 as set forth below:

■ 1. The authority citation for 48 CFR 

parts 11, 41, 44, 51, and 52 is revised to 

read as follows:

Authority: Authority: 40 U.S.C. 121(c); 10 

U.S.C. chapter 137; and 42 U.S.C. 2473(c).

PART 11—DESCRIBING AGENCY 

NEEDS

11.201 [Amended]

■ 2. Amend section 11.201 in paragraph 

(d)(2)(i) by removing http://

assist.daps.mil and adding http://

assist.daps.dla.mil in its place.

PART 41—ACQUISITION OF UTILITY 

SERVICES

■ 3. Amend section 41.301 by revising 

the second sentence of paragraph (a) to 

read as follows:

41.301 Requirements.

(a) * * * The names and locations 

of GSA regional offices are available 

from the General Services 

Administration, Energy Center of 

Expertise, 301 7th Street, SW., Room 

4004, Washington, DC 20407.

* * * * *

PART 44—SUBCONTRACTING 

POLICIES AND PROCEDURES

44.203 [Amended]

■ 4. Amend section 44.203 in paragraph 

(b)(1) by removing ‘‘16.301-3’’ and 

adding ‘‘15.404-4(c)(4)(i)’’ in its place.

PART 51—USE OF GOVERNMENT 

SOURCES BY CONTRACTORS

51.102 [Amended]

■ 5. Amend section 51.102 by removing 

‘‘FCSI’’ from paragraph (c)(1) and adding 

‘‘FXS’’ in its place.

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES

52.219–1 [Amended]

■ 6. Amend section 52.219-1 by 

removing ‘‘19.307(a)(1)’’ from the 

introductory text and adding 

‘‘19.308(a)(1)’’ in its place.

[FR Doc. 04–27639 Filed 12–17–04; 8:45 am]

BILLING CODE 6820–EP–S

DEPARTMENT OF DEFENSE

GENERAL SERVICES 

ADMINISTRATION

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION

48 CFR Chapter 1

Federal Acquisition Regulation; Small 

Entity Compliance Guide

AGENCIES: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA).

ACTION: Small Entity Compliance Guide.

SUMMARY: This document is issued 

under the joint authority of the 

Secretary of Defense, the Administrator 

of General Services and the 

Administrator for the National 

Aeronautics and Space Administration. 

This Small Entity Compliance Guide has 

been prepared in accordance with 

Section 212 of the Small Business 

Regulatory Enforcement Fairness Act of 

1996. It consists of a summary of rules 

appearing in Federal Acquisition 

Circular (FAC) 2001–26 which amend 

the FAR. An asterisk (*) next to a rule 

indicates that a regulatory flexibility 

analysis has been prepared. Interested 

parties may obtain further information 

regarding these rules by referring to FAC 

2001–26, which precedes this 

document. These documents are also