[Federal Register Volume 74, Number 160 (Thursday, August 20, 2009)]
[Proposed Rules]
[Pages 42044-42046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19937]



[[Page 42044]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 42, and 52

[FAR Case 2008-020; Docket 2009-0031; Sequence 1]
RIN 9000-AL43


Federal Acquisition Regulation; FAR Case 2008-020, Contract 
Closeout

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to revise procedures for closing 
out contract files. This case revises procedures for clearing final 
patent reports and quick-closeout procedure, and sets forth a 
description of an adequate final indirect cost rate proposal and 
supporting data.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat on or before October 19, 2009 to be considered 
in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAR case 2008-020 by any of 
the following methods:
    <bullet> Regulations.gov: http://www.regulations.gov.
    Submit comments via the Federal eRulemaking portal by inputting 
``FAR Case 2008-020'' into the field ``Keyword''. Select the link that 
corresponds with FAR Case 2008-020. Follow the instructions provided to 
submit your comment. Please include your name, company name (if any), 
and ``FAR Case 2008-020'' on your attached document.
    <bullet> Fax: 202-501-4067.
    <bullet> Mail: General Services Administration, Regulatory 
Secretariat (VPR), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2008-
020 in all correspondence related to this case. All comments received 
will be posted without change to http://www.regulations.gov, including 
any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: Ms. Jeritta A. Parnell, Procurement 
Analyst, at (202) 501-4082 for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAR case 2008-
020.

SUPPLEMENTARY INFORMATION:

A. Background

    In May 2007, the Director of Defense Procurement and Acquisition 
Policy (DPAP) completed an assessment of public input on systemic 
issues related to contract closeout (72 FR 28654, dated May 22, 2007). 
As a result, changes were proposed to the Defense Federal Acquisition 
Regulation Supplement (DFARS) and the FAR to improve contract closeout.
    The Councils are proposing the following FAR revisions--
    (1) Addition of language in FAR 4.804-5 setting forth the timeframe 
for clearing a required final patent report after receipt and 
procedures allowing the contracting officer to proceed with contract 
closeout when a required final patent report is not received;
    (2) Addition of language in FAR 42.705-1 for the cognizant auditor 
to determine adequacy of the contractor's proposal for audit and 
language referencing the clause at FAR 52.216-7(d)(2);
    (3) Addition of language in FAR 42.708 increasing the dollar 
threshold and revising the percentage limitation in the existing quick-
closeout criteria;
    (4) Addition of language in FAR 52.216-7 setting forth a 
description of what data shall be submitted in an adequate final 
indirect cost rate proposal, (contractors may refer to the Model 
Incurred Cost Proposal in Chapter 6 of the Defense Contract Audit 
Agency Pamphlet No. 7641.90, Information for Contractors, available at 
http://www.dcaa.mil), what supplemental data, required for audit, may 
also be submitted with the proposal, and a requirement for the 
contractor to update cumulative costs claimed and billed within 60 days 
of rate settlement;
    (5) Addition of language in FAR 52.216-8 for the contracting 
officer to withhold fixed fee to protect the Government's interest and 
to encourage the timely submission of an adequate final indirect cost 
rate proposal;
    (6) Addition of language in FAR 52.216-9 for the contracting 
officer to withhold fixed fee-construction to protect the Government's 
interest and to encourage the timely submission of an adequate final 
indirect cost rate proposal; and
    (7) Addition of language in FAR 52.216-10 for the contracting 
officer to withhold incentive fee to protect the Government's interest 
and to encourage the timely submission of an adequate final indirect 
cost rate proposal.
    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 Councils do not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule does not impose any additional requirements on small 
businesses. The changes to FAR Parts 4 and 42 clarify and streamline 
closeout procedures. The changes to the clauses at 52.216-8, 52.216-9, 
and 52.216-10 allow for a reserve to be set-aside to protect the 
Government's interest. Contracting officers already may set aside a 
reserve under current FAR procedures. An Initial Regulatory Flexibility 
Analysis has, therefore, not been performed. We invite comments from 
small businesses and other interested parties. The Councils will 
consider comments from small entities concerning the affected FAR Parts 
4, 42, and 52 in accordance with 5 U.S.C. 610. Interested parties must 
submit such comments separately and should cite 5 U.S.C. 601, et seq. 
(FAR case 2008-020), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does apply; however, these changes to 
the FAR do not impose additional information collection requirements to 
the paperwork burden previously approved under OMB Control Numbers 
9000-0067 and 9000-0069.

List of Subjects in 48 CFR Parts 4, 42, and 52

    Government procurement.

    Dated: August 14, 2009.
Al Matera,
Director, Office of Acquisition Policy.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 4, 42, 
and 52 as set forth below:
    1. The authority citation for 48 CFR parts 4, 42, and 52 continues 
to read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

[[Page 42045]]

PART 4--ADMINISTRATIVE MATTERS

    2. Amend section 4.804-5 by revising paragraph (a)(2) to read as 
follows:


4.804-5  Procedures for closing out contract files.

    (a) * * *
    (2) Final patent report is cleared. If a final patent report is 
required, the contracting officer may proceed with contract closeout in 
accordance with the following procedures, or as otherwise prescribed by 
agency procedures:
    (i) Final patent reports should be cleared within 60 days of 
receipt.
    (ii) If the final patent report is not received, the contracting 
officer shall notify the contractor of the contractor's obligations and 
the Government's rights under the applicable patent rights clause. If 
the contractor fails to respond to this notification, the contracting 
officer may proceed with contract closeout upon consultation with the 
agency legal counsel responsible for patent matters regarding the 
contractor's failure to respond.
* * * * *

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

    3. Amend section 42.705-1 by revising paragraph (b)(1) to read as 
follows:


42.705-1  Contracting officer determination procedure.

* * * * *
    (b) Procedures. (1) In accordance with the Allowable Cost and 
Payment clause at 52.216-7, the contractor shall submit to the 
contracting officer (or cognizant Federal agency official) and to the 
cognizant auditor an adequate final indirect cost rate proposal.
    (i) The required content of the proposal and supporting data will 
vary depending on such factors as business type, size, and accounting 
system capabilities. The contractor, contracting officer, and auditor 
must work together to make the proposal, audit, and negotiation process 
as efficient as possible. Accordingly, each contractor shall submit an 
adequate proposal to the contracting officer (or cognizant Federal 
agency official) and auditor within the 6-month period following the 
expiration of each of its fiscal years. The contracting officer may 
grant reasonable extensions, for exceptional circumstances only, if 
requested in writing by the contractor.
    (ii) The cognizant auditor will make a written determination on the 
adequacy of the contractor's proposal for audit.
    (iii) The proposal must be supported with adequate supporting data, 
which may be required subsequent to proposal submission.
    (iv) See the clause at FAR 52.216-7(d)(2) for the description of an 
adequate final indirect cost rate proposal and supporting data).
* * * * *
    4. Amend section 42.708 by revising the introductory text of 
paragraph (a), (a)(1), and (a)(2) to read as follows:


42.708  Quick-closeout procedure.

    (a) The contracting officer responsible for contract closeout shall 
negotiate the settlement of indirect and direct costs for a specific 
contract, task order, or delivery order to be closed, in advance of the 
determination of final direct costs and indirect rates, if--
    (1) The contract, task order, or delivery order is physically 
complete;
    (2) The amount of unsettled costs to be allocated to the contract, 
task order, or delivery order is relatively insignificant. Cost amounts 
will be considered relatively insignificant when--
    (i) The total unsettled indirect and direct costs to be allocated 
to any one contract do not exceed $4,000,000 and do not exceed 20 
percent of the total contract, task order, or delivery order amount; 
and
    (ii) The contracting officer performs a risk assessment and 
determines that the use of the quick-closeout procedure is appropriate. 
The risk assessment shall include consideration of the contractor's 
accounting, estimating, and purchasing systems; direct and indirect 
costs; other concerns of the cognizant contract auditors; and any other 
pertinent information.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    5. Amend section 52.216-7 by revising the date of the clause; 
adding a sentence to the end of paragraph (d)(2)(i); adding paragraphs 
(d)(2)(iii) through (d)(2)(v); and adding two sentences to the end of 
paragraph (d)(5) to read as follows:


52.216-7  Allowable Cost and Payment.

* * * * *
    ALLOWABLE COST AND PAYMENT (DATE)
* * * * *
    (d) * * *
    (2)(i) * * * See 42.705-1(b)(1).
* * * * *
    (iii) An adequate indirect cost rate proposal shall include the 
following data unless otherwise specified by the cognizant Federal 
agency official (CFAO):
    (A) Summary of claimed indirect expense rates.
    (B) General and Administrative (G&A) expenses (final indirect 
cost pool).
    (C) Overhead expenses (final indirect cost pool).
    (D) Occupancy expenses (intermediate indirect cost pool).
    (E) Claimed allocation bases.
    (F) Facilities capital cost of money factors computation.
    (G) Reconciliation of books of account and claimed direct costs.
    (H) Schedule of direct costs by contract/subcontract and 
indirect expense applied at claimed rates, as well as Schedule H-1, 
Government participation percentages.
    (I) Schedule of cumulative direct and indirect costs claimed and 
billed.
    (J) Subcontract information.
    (K) Summary of hours and amounts on T&M/labor hour contracts.
    (L) Reconciliation of total payroll to total labor distribution.
    (M) Listing of decisions/agreements/approvals and description of 
accounting/organizational changes.
    (N) Certificate of final indirect costs.
    (O) Contract closing information for contracts completed in this 
fiscal year.
    (iv) The following supplemental information, which will be 
required during the audit process, may also be submitted with the 
contractor's final indirect cost rate proposal:
    (A) Comparative analysis of indirect expense pools detailed by 
account with prior fiscal year and budgetary data.
    (B) General Organization and Executive compensation information 
for top five executives.
    (C) List of ACOs and PCOs for each flexibly priced contract.
    (D) Identification of and information on prime contracts under 
which the contractor performs flexibly priced effort as a 
subcontractor.
    (E) List of work sites and the number of employees assigned to 
each site (identify the number of direct and indirect employees).
    (F) Description of accounting system.
    (G) Procedures for identifying and handling unallowable costs.
    (H) Certified financial statements or other financial data 
(e.g., trial balance, compilation, review, etc.).
    (I) Management letter from outside CPAs concerning any internal 
control weaknesses.
    (J) Actions that have been and/or will be implemented to correct 
the weaknesses described in paragraph (d)(2)(iv)(I) of this section.
    (K) List of internal audit reports issued in this fiscal year.
    (L) Annual internal audit plan of scheduled audits to be 
performed in this fiscal year.
    (M) Federal and state income tax returns.
    (N) Securities and Exchange Commission 10-K annual report.
    (O) Minutes from board of directors meetings.
    (P) Listing of delay and disruptions and termination claims 
submitted which contain costs relating to the subject fiscal year.
    (Q) Contract briefings. Contract briefings generally include a 
synopsis of all pertinent

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contract provisions, such as: contract type, contract amount, 
product or service(s) to be provided, applicable Cost Principles, 
contract performance period, rate ceilings, advance approval 
requirements, pre-contract cost allowability limitations, and 
billing limitations. A typical format for the briefings is shown at 
the end of this model. A contractor need not use the example form if 
the information is already generated and available within its 
automated accounting or billing systems.
    (v) The Contractor shall update the schedule of cumulative 
direct and indirect costs claimed and billed, as required in 
paragraph (d) above, within 60 days after settlement of final 
indirect cost rates.
* * * * *
    (5) * * * The completion invoice or voucher shall include 
settled subcontract amounts and rates. The prime contractor is 
responsible for settling subcontractor amounts and rates included in 
the completion invoice or voucher and providing status of 
subcontractor audits to the contracting officer upon request.
* * * * *
    6. Amend section 52.216-8 by revising the introductory paragraph, 
the date of the clause, and paragraph (b) to read as follows:


52.216-8  Fixed Fee.

    As prescribed in 16.307(b), insert the following clause:
    FIXED FEE (DATE)
* * * * *
    (b) Payment of the fixed fee shall be made as specified in the 
Schedule; provided that the Contracting Officer withholds a reserve 
not to exceed 15 percent of the total fixed fee or $100,000, 
whichever is less, to protect the Government's interest. The 
Contracting Officer shall release 75 percent of all fee withholds 
under this contract after receipt of an adequate certified final 
indirect cost rate proposal covering the year of physical completion 
of this contract, provided the Contractor has satisfied all other 
contract terms and conditions, including the submission of the final 
patent and royalty reports, and is not delinquent in submitting 
final vouchers on prior years' settlements. The Contracting Officer 
may release up to 90 percent of the fee withholds under this 
contract based on the Contractor's past performance related to the 
submission and settlement of final indirect cost rate proposals.
    (End of clause)
    7. Amend section 52.216-9 by revising the introductory paragraph, 
the date of the clause, and paragraph (c) to read as follows:


52.216-9  Fixed Fee--Construction.

    As prescribed in 16.307(c), insert the following clause:
    FIXED FEE--CONSTRUCTION (DATE)
* * * * *
    (c) The Contracting Officer shall withhold a reserve not to 
exceed 15 percent of the total fixed fee or $100,000, whichever is 
less, to protect the Government's interest. The Contracting Officer 
shall release 75 percent of all fee withholds under this contract 
after receipt of an adequate certified final indirect cost rate 
proposal covering the year of physical completion of this contract, 
provided the Contractor has satisfied all other contract terms and 
conditions, including the submission of the final patent and royalty 
reports, and is not delinquent in submitting final vouchers on prior 
years' settlements. The Contracting Officer may release up to 90 
percent of the fee withholds under this contract based on the 
Contractor's past performance related to the submission and 
settlement of final indirect cost rate proposals.
    (End of clause)
    8. Amend section 52.216-10 by revising the introductory paragraph, 
the date of the clause, and paragraph (c) to read as follows:


52.216-10  Incentive Fee.

    As prescribed in 16.307(d), insert the following clause:
    INCENTIVE FEE (DATE)
* * * * *
    (c) Withholding of payment. (1) Normally, the Government shall 
pay the fee to the Contractor as specified in the Schedule. However, 
when the Contracting Officer considers that performance or cost 
indicates that the Contractor will not achieve target, the 
Government shall pay on the basis of an appropriate lesser fee. When 
the Contractor demonstrates that performance or cost clearly 
indicates that the Contractor will earn a fee significantly above 
the target fee, the Government may, at the sole discretion of the 
Contracting Officer, pay on the basis of an appropriate higher fee.
    (2) Payment of the incentive fee shall be made as specified in 
the Schedule; provided that the Contracting Officer withholds a 
reserve not to exceed 15 percent of the total incentive fee or 
$100,000, whichever is less, to protect the Government's interest. 
The Contracting Officer shall release 75 percent of all fee 
withholds under this contract after receipt of an adequate certified 
final indirect cost rate proposal covering the year of physical 
completion of this contract, provided the Contractor has satisfied 
all other contract terms and conditions, including the submission of 
the final patent and royalty reports, and is not delinquent in 
submitting final vouchers on prior years' settlements. The 
Contracting Officer may release up to 90 percent of the fee 
withholds under this contract based on the Contractor's past 
performance related to the submission and settlement of final 
indirect cost rate proposals.
* * * * *
[FR Doc. E9-19937 Filed 8-19-09; 8:45 am]
BILLING CODE 6820-EP-S