37470 Federal Register / Vol. 65, No. 115 / Wednesday, June 14, 2000 / Rules and Regulations

OFFICE OF MANAGEMENT AND

BUDGET

Office of Federal Procurement Policy

48 CFR Part 9903

Cost Accounting Standards Board;

Changes In Cost Accounting Practices.

AGENCY: Cost Accounting Standards

Board, Office of Federal Procurement

Policy, OMB.

ACTION: Final rule.

SUMMARY: The Office of Federal

Procurement Policy, Cost Accounting

Standards Board (CASB), is amending

the Board’s regulations pertaining to

actions the cognizant Federal agency

official can take when a contractor

makes a compliant change to an

established cost accounting practice that

is used to estimate, accumulate and

report the costs of covered negotiated

government contracts or does not

comply with applicable Cost

Accounting Standards (CAS). The

amendments provide that accounting

changes directly associated with

external restructuring activities that are

subject to and meet certain statutory

requirements are not subject to the

CASB’s contract price and cost

adjustment requirements, and

establishes new coverage for processing

compliant cost accounting practice

changes and noncompliant cost

accounting practice conditions in

accordance with CAS contract clause

requirements. The existing CAS contract

clause interest rate citation is also

amended to make explicit the specific

interest rate to be applied when

increased costs paid are recovered by

the Government. This rulemaking is

authorized pursuant to Section 26 of the

Office of Federal Procurement Policy

Act.

The Board is taking these actions after

having given careful consideration to

the comments it received regarding the

Supplemental Notice of Proposed

Rulemaking issued August 20, 1999 on

this topic (SNPRM-II).

DATES: The effective date of this final

rule is June 14, 2000.

FOR FURTHER INFORMATION CONTACT:

Rudolph J. Schuhbauer, Project Director,

Cost Accounting Standards Board

(telephone: 202–395–1052).

SUPPLEMENTARY INFORMATION:

A. Regulatory Process

The CASB’s rules, regulations and

Cost Accounting Standards (CAS) are

codified at 48 CFR Chapter 99. Section

26(g)(1) of the Office of Federal

Procurement Policy Act, 41 U.S.C.

§ 422(g), requires that the Board, prior to

the establishment of any new or revised

Standard, complete a prescribed

rulemaking process. The process

generally consists of the following four

steps:

(1) Consult with interested persons

concerning the advantages,

disadvantages and improvements

anticipated in the pricing and

administration of Government contracts

as a result of the adoption of a proposed

Standard (e.g., promulgation of a Staff

Discussion Paper (SDP)).

(2) Issue an Advance Notice of

Proposed Rulemaking (ANPRM).

(3) Issue a Notice of Proposed

Rulemaking (NPRM).

(4) Promulgate a Final Rule.

This Notice is step four of the fourstep process.

B. Background

Prior Promulgations.

Many commenters identified the

Board’s regulatory coverage on ‘‘changes

in cost accounting practice’’ as a matter

requiring clarification and/or further

coverage. The CASB requested public

comments from interested parties on

this topic in an SDP published in the

Federal Register on April 9, 1993 (58 FR

18428), in an ANPRM published on

April 25, 1995 (60 FR 20252) and in an

NPRM published on September 18, 1996

(61 FR 49196). The CASB requested

additional comments in two

Supplemental NPRM’s that were

published on July 14, 1997 (62 FR

37654) and August 20, 1999 (64 FR

45700).

The various Notices proposed to

amend the Board’s current coverage

governing what constitutes a change to

a cost accounting practice. The

previously proposed revisions included

amendments to conform the language

contained in the contract clauses for

‘‘Full’’ and ‘‘Modified’’ coverage, to

address certain Federal agency

responsibilities, to expand the criteria

for desirable change determinations and

to exempt certain changes in a

contractor’s cost accounting practices

from the Board’s contract price and cost

adjustment requirements. A new

subpart was also proposed to delineate

the actions to be taken by the

contracting parties when a contractor

makes a compliant change to a cost

accounting practice or follows a

noncompliant practice.

Public Comments

Fifty-three sets of public comments

were received in response to the

SNPRM-II. The public comments were

received from contractors, educational

institutions, professional associations,

Federal agencies, accounting

organizations, and individuals. An open

public meeting was held on December 6,

1999, regarding the Board’s SNPRM-II.

On January 7, 2000, the Department of

Defense replaced its initial comments

submitted on November 22, 1999, with

an alternative proposal for the Board’s

consideration. Twelve public

commenters from the contractor

community subsequently withdrew

their formally submitted comments and

advised the Board that they preferred

the alternate proposal submitted by the

Department of Defense. On February 29,

2000, the Department of Defense

submitted a revised alternative

proposal. The two alternative proposals

were developed in an open forum

hosted by the National Contract

Management Association. The February

29, 2000, proposal contained alternative

language for what constitutes a change

to a cost accounting practice, for

exempting certain accounting changes

from the cost impact process and for

determining when a change to an

accounting practice may be determined

to be a ‘‘desirable’’ change. Three of the

twelve commenters referred to above,

further expressed their preference for

the February 29, 2000, proposal.

On February 7, 2000, the CASB

published an interim rule in the Federal

Register (65 FR 5990), to adjust CAS

applicability requirements and dollar

thresholds in accordance with the

provisions of the National Defense

Authorization Act for Fiscal Year 2000,

Pub. L. 106–65. This action is expected

to reduce the number of CAS-covered

contracts and the number of contractor

business units performing CAS-covered

contracts.

On April 18, 2000, the Civilian

Agency Acquisition Council and the

Defense Acquisition Regulations

Council (Councils) proposed to amend

the Federal Acquisition Regulation

(FAR) to delineate the process for

determining and resolving the cost

impact on contracts and subcontracts

when a contractor makes a compliant

change to a cost accounting practice or

follows a noncompliant practice. The

FAR proposal was in response to an

initiative by the Administrator, Office of

Federal Procurement Policy. The

proposed FAR coverage addresses many

aspects of the fundamental CAS

administration process that the Board’s

above referenced proposals also

addressed. The Board encourages the

Councils to finalize the proposed

rulemaking.

In view of the circumstances that now

prevail, a projected decline in CAScovered contracts and the expected

Federal Register / Vol. 65, No. 115 / Wednesday, June 14, 2000 / Rules and Regulations 37471

issuance of more explicit FAR guidance

regarding the CAS cost impact process,

the Board believes that issuance of any

amendments to its regulations, in

addition to those included in this final

rule, is not presently warranted.

Summary of Amendments

In subpart 9903.2, CAS Program

Requirements, of Part 9903, Contract

Coverage, subsection 9903.201–4 is

amended to clarify, in certain prescribed

CAS contract clauses, that the

applicable interest rate cited for use

when recovering increased cost paid

due to a contractor’s failure to comply

with an applicable CAS or to follow any

cost accounting practice consistently is

the underpayment rate established

under section 6621(a)(2) of the Internal

Revenue Code of 1986 (26 U.S.C.

6621(a)(2)).

Subsection 9903.201–6 is amended to

provide guidance for determining:

— For a required change, that a change

to an established cost accounting

practice is required to comply with

applicable CAS;

— For a unilateral practice change that

a contractor makes, that the

contemplated contract price and cost

adjustments will protect the United

States from payment of increased

costs, in the aggregate; and that the

net effect of the adjustments being

made does not result in the recovery

of more than the estimated amount of

such increased costs;

— When a compliant change in cost

accounting practice may be

determined to be desirable and not

detrimental to the Government’s

interests; and,

— For a noncompliant cost accounting

practice, that the contemplated

contract price and cost adjustments

will protect the United States from

payment of increased costs, in the

aggregate; and that the net effect of the

adjustments being made does not

result in the recovery of more than the

estimated amount of such increased

costs.

Subsection 9903.201–8 is added to

establish that the CASB’s contract price

and cost adjustment requirements are

not applicable to compliant cost

accounting practice changes directly

associated with external restructuring

activities that are subject to and meet

the requirements of 10 U.S.C. § 2325.

C. Paperwork Reduction Act

The Paperwork Reduction Act, Public

Law 96–511, does not apply to this rule,

because this rule imposes no paperwork

burden on offerors, affected contractors

and subcontractors, or members of the

public which requires the approval of

OMB under 44 U.S.C. 3501, et seq.

D. Executive Order 12866 and the

Regulatory Flexibility Act

The economic impact of this rule on

contractors and subcontractors is

expected to be minor. As a result, the

Board has determined that this is not a

‘‘major rule’’ under the provisions of

Executive Order 12866, and that a

regulatory impact analysis is not

required. Furthermore, this rule will not

have a significant effect on a substantial

number of small entities because small

businesses are exempt from the

application of the Cost Accounting

Standards. Therefore, this rule does not

require a regulatory flexibility analysis

under the Regulatory Flexibility Act of

1980.

List of Subjects in 48 CFR Part 9903

Cost accounting standards,

government procurement.

Nelson F. Gibbs,

Executive Director, Cost Accounting

Standards Board.

For the reasons set forth in this

preamble, chapter 99 of title 48 of the

Code of Federal Regulations is amended

as set forth below:

1. The authority citation for part 9903

continues to read as follows:

Authority: Pub. L. 100–679, 102 Stat. 4056,

41 U.S.C. 422.

2. Section 9903.201–4 is amended as

follows:

a. The contract clause heading

immediately following paragraph (a) is

revised, and in that contract clause the

second sentence of paragraph (a)(5) is

revised;

b. The contract clause heading

immediately following paragraph (c) is

revised, and in that contract clause the

first sentence of paragraph (a)(3)(ii) and

the second sentence of paragraph (a)(4)

are revised;

c. The contract clause heading

immediately following paragraph (e) is

revsied, and in that contract clause the

second sentence of paragraph (a)(5) is

revised.

The revisions read as follows:

9903.201–4 Contract clauses.

(a) * * *

* * * * *

Cost Accounting Standards (June 2000)

(a) * * *

(5) * * * Such adjustment shall

provide for recovery of the increased

costs to the United States, together with

interest thereon computed at the annual

rate established under section 6621(a)(2)

of the Internal Revenue Code of 1986

(26 U.S.C. 6621(a)(2)) for such period,

from the time the payment by the

United States was made to the time the

adjustment is effected.***

* * * * *

(c) * * *

* * * * *

Disclosure and Consistency of Cost

Accounting Practices (June 2000)

(a) * * *

(3)(i) * * *

(ii) The Contractor shall, when the

parties agree to a change to a cost

accounting practice and the Contracting

Officer has made the finding required in

9903.201–6(c) that the change is

desirable and not detrimental to the

interests of the Government, negotiate

an equitable adjustment as provided in

the Changes clause of this contract.

***

(4) * * * Such adjustment shall

provide for recovery of the increased

costs to the United States, together with

interest thereon computed at the annual

rate established under section 6621(a)(2)

of the Internal Revenue Code of 1986

(26 U.S.C. 6621(a)(2)) for such period,

from the time the payment by the

United States was made to the time the

adjustment is effected. * * *

* * * * *

(e) * * *

* * * * *

Cost Accounting Standards—

Educational Institutions (June 2000)

(a) * * *

(5) * * * Such adjustment shall

provide for recovery of the increased

costs to the United States, together with

interest thereon computed at the annual

rate established under section 6621(a)(2)

of the Internal Revenue Code of 1986

(26 U.S.C. 6621(a)(2)) for such period,

from the time the payment by the

United States was made to the time the

adjustment is effected. * * *

* * * * *

3. Section 9903.201–6 is revised to

read as follows:

9903.201–6 Findings.

(a) Required change. (1) Finding. Prior

to making any equitable adjustment

under the provisions of paragraph

(a)(4)(i) of the contract clause set forth

in 9903.201–4(a) or 9903.201–4(e), or

paragraph (a)(3)(i) of the contract clause

set forth in 9903.201–4(c), the

Contracting Officer shall make a finding

that the practice change was required to

comply with a CAS, modification or

interpretation thereof, that subsequently

became applicable to the contract; or,

for planned changes being made in

order to remain CAS compliant, that the

37472 Federal Register / Vol. 65, No. 115 / Wednesday, June 14, 2000 / Rules and Regulations

former practice was in compliance with

applicable CAS and the planned change

is necessary for the contractor to remain

in compliance.

(2) Required change means a change

in cost accounting practice that a

contractor is required to make in order

to comply with applicable Standards,

modifications, or interpretations thereto,

that subsequently become applicable to

an existing CAS-covered contract due to

the receipt of another CAS-covered

contract or subcontract. It also includes

a prospective change to a disclosed or

established cost accounting practice

when the cognizant Federal agency

official determines that the former

practice was in compliance with

applicable CAS and the change is

necessary for the contractor to remain in

compliance.

(b) Unilateral change. (1) Findings.

Prior to making any contract price or

cost adjustment(s) under the change

provisions of paragraph (a)(4)(ii) of the

contract clause set forth in 9903.201–

4(a) or 9903.201–4(e), or paragraph

(a)(3)(ii) of the contract clause set forth

in 9903.201–4(c), the Contracting

Officer shall make a finding that the

contemplated contract price and cost

adjustments will protect the United

States from payment of increased costs,

in the aggregate; and that the net effect

of the adjustments being made does not

result in the recovery of more than the

estimated amount of such increased

costs.

(2) Unilateral change by a contractor

means a change in cost accounting

practice from one compliant practice to

another compliant practice that a

contractor with a CAS-covered

contract(s) elects to make that has not

been deemed desirable by the cognizant

Federal agency official and for which

the Government will pay no aggregate

increased costs.

(3) Action to preclude the payment of

aggregate increased costs by the

Government. In the absence of a finding

pursuant to paragraph (c) of this

subsection that a compliant change is

desirable, no agreement may be made

with regard to a change to a cost

accounting practice that will result in

the payment of aggregate increased costs

by the United States. For these changes,

the cognizant Federal agency official

shall limit upward contract price

adjustments to affected contracts to the

amount of downward contract price

adjustments of other affected contracts,

i.e., no net upward contract price

adjustment shall be permitted.

(c) Desirable change. (1) Finding. Prior

to making any equitable adjustment

under the provisions of paragraph

(a)(4)(iii) of the contract clause set forth

in 9903.201–4(a) or 9903.201–4(e), or

paragraph (a)(3)(ii) of the contract clause

set forth in 9903.201–4(c), the cognizant

Federal agency official shall make a

finding that the change to a cost

accounting practice is desirable and not

detrimental to the interests of the

Government.

(2) Desirable change means a

compliant change to a contractor’s

established or disclosed cost accounting

practices that the cognizant Federal

agency official finds is desirable and not

detrimental to the Government and is

therefore not subject to the no increased

cost prohibition provisions of CAScovered contracts affected by the

change. The cognizant Federal agency

official’s finding need not be based

solely on the cost impact that a

proposed practice change will have on

a contractor’s or subcontractor’s current

CAS-covered contracts. The change to a

cost accounting practice may be

determined to be desirable even though

existing contract prices and/or cost

allowances may increase. The

determination that the change to a cost

accounting practice is desirable, should

be made on a case-by-case basis.

(3) Once a determination has been

made that a compliant change to a cost

accounting practice is a desirable

change, associated management actions

that also have an impact on contract

costs should be considered when

negotiating contract price or cost

adjustments that may be needed to

equitably resolve the overall cost impact

of the aggregated actions.

(4) Until the cognizant Federal agency

official has determined that a change to

a cost accounting practice is deemed to

be a desirable change, the change shall

be considered to be a change for which

the Government will not pay increased

costs, in the aggregate.

(d) Noncompliant cost accounting

practices. (1) Findings. Prior to making

any contract price or cost adjustment(s)

under the provisions of paragraph (a)(5)

of the contract clause set forth in

9903.201–4(a) or 9903.201–4(e), or

paragraph (a)(4) of the contract clause

set forth in 9903.201–4(c), the

Contracting Officer shall make a finding

that the contemplated contract price and

cost adjustments will protect the United

States from payment of increased costs,

in the aggregate; and that the net effect

of the adjustments being made does not

result in the recovery of more than the

estimated amount of such increased

costs. While individual contract prices,

including cost ceilings or target costs, as

applicable, may be increased as well as

decreased to resolve an estimating

noncompliance, the aggregate value of

all contracts affected by the estimating

noncompliance shall not be increased.

4. Section 9903.201–8 is added to

read as follows:

9903.201–8 Compliant accounting

changes due to external restructuring

activities

The contract price and cost

adjustment requirements of this part

9903 are not applicable to compliant

cost accounting practice changes

directly associated with external

restructuring activities that are subject

to and meet the requirements of 10

U.S.C. 2325.

[FR Doc. 00–14243 Filed 6–13–00; 8:45 am]

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