60664 Federal Register / Vol. 62, No. 218 / Wednesday, November 12, 1997 / Rules and Regulations

(Catalog of Federal Domestic Assistance No.

83.100, ‘‘Flood Insurance.’’)

Issued: November 3, 1997.

Michael J. Armstrong,

Associate Director for Mitigation.

[FR Doc. 97–29753 Filed 11–10–97; 8:45 am]

BILLING CODE 6718–05–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Parts 5, 21, 22, 23, 24, 25, 26,

27, 73, 74, 78, 80, 87, 90, 95, 97, and

101

[ET Docket No. 96–2; FCC 97–347]

Arecibo Coordination Zone

AGENCY: Federal Communications

Commission.

ACTION: Final rule; correction.

SUMMARY: This document contains a

correction to one of the final rules

adopted in ‘‘Amendment of the

Commission’s Rules to Establish a Radio

Astronomy Coordination Zone in Puerto

Rico’’, which was published Monday,

October 27, 1997 (62 FR 55525).

EFFECTIVE DATE: December 26, 1997.

FOR FURTHER INFORMATION CONTACT:

Rodney Small, Office of Engineering

and Technology, (202) 418–2452.

SUPPLEMENTARY INFORMATION:

Background

This document corrects Section

101.123(d) of the Commission’s rules, as

modified in ‘‘Amendment of the

Commission’s Rules to Establish a Radio

Astronomy Coordination Zone in Puerto

Rico,’’ ET Docket 96–2, FCC 97–347

(released October 15, 1997), 62 FR

55525 (October 27, 1997). This rule,

which deals with Quiet Zones and

Arecibo Coordination Zone was

published with a clerical error.

Need for Correction

As published, this final rule contains

an error that may be misleading and is

in need of clarification.

Correction of Publications

Accordingly, the publication on

October 27, 1997, of final rules in ET

Docket No. 96–2, which was the subject

of FR Doc. 97–28296, is corrected as

follows:

§ 101.123 [Corrected]

On page 55536, in the third column,

within the regulatory instruction for

§ 101.123, paragraph (d) is correctly

designated as paragraph 101.123(e).

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97–29661 Filed 11–10–97; 8:45 am]

BILLING CODE 6712–01–P

ENVIRONMENTAL PROTECTION

AGENCY

48 CFR Parts 1515 and 1552

[FRL–5919–4]

Acquisition Regulation

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Final rule.

SUMMARY: This document revises the

EPA Acquisition Regulation (EPAAR)

on calculation of profit or fee. Two

unrelated administrative corrections are

also being made.

EFFECTIVE DATE: November 12, 1997.

ADDRESSES: Environmental Protection

Agency, Office of Acquisition

Management (3802R), 401 M Street

S.W., Washington, DC 20460.

FOR FURTHER INFORMATION CONTACT:

Larry Wyborski, Telephone: (202) 564–

4369.

SUPPLEMENTARY INFORMATION:

I. Background Information

The proposed rule was published in

the Federal Register (62 FR 27712–

27715) on May 21, 1997, providing for

a 60-day comment period.

Interested parties were afforded the

opportunity to participate in the making

of this rule. The following is a summary

of each comment and the Agency

disposition of those comments.

1. Comment: EPA should make it

clear that Subpart 1515.970–2(b)(iv)

cannot be interpreted to allow only one

profit or fee determination for both the

general contractor and subcontractor

levels of an acquisition.

Response: Privity of contract is an

established principle in Government

contracting. The Government’s contract

is with the prime (general) contractor.

Duties such as direction and payment of

the subcontractors are solely the

responsibility of the prime contractor.

Therefore, profit or fee determinations

are solely based on the prime

contractor’s effort.

2. Comment: We are concerned about

the soundness of ‘‘structured approach’’

policy. We believe the structured

approach prevents the Government from

receiving best value by adding

unnecessary expense to the negotiation

process. Further, the structure approach

distorts market value in competitive

procurements by substituting private

industry competitive determinations of

cost and profit with Government

notions of what the market ‘‘should be.’’

Response: As stated in EPAAR

1515.902(a)(3), the structured approach

is a basis for negotiations, not a final

determination. Also, EPAAR 1515.903 is

being added by this rule to allow

exemption of cost realism evaluations

from required use of a structured

approach. Cost realism is a factor in best

value procurements. Furthermore,

EPAAR 1515.902(b) specifies numerous

other types of contracts and

circumstances where methods other

than the structured approach set forth in

EPAAR 1515.970 may be used. For

instance, the structured approach is not

required for construction contracts

(EPAAR 1515.902(b)(vi)).

3. Comment: We are concerned that

Subpart 1515.970–2(b)(2)(iii)(C) of the

proposed rule could be misinterpreted

by contracting officers. Each

construction acquisition, regardless of

the contract type or contractor

experience, is a unique project which

can have significant distinguishing

characteristics. Profit or fee weighted

guidelines should therefore be

considered anew for each acquisition.

Response: We agree that the cited

provision may be subject to

misinterpretation. It is also unnecessary,

since it is not a mandatory requirement

and the contracting officer has a certain

amount of flexibility in making

weighted guideline determinations. The

provision at 1515.970–2(b)(2)(iii)(C) will

be deleted.

4. Comment: EPA should emphasize

to contracting officers that weighted

guidelines are prenegotiation

benchmarks, not unchangeable

standards.

Response: See EPAAR 1515.902(a)(3)

and the Agency policy at EPAAR

1515.970–1. Both citations provide for a

structured approach as a basis for

negotiations, rather than as a final

determination.

5. Comment: EPA should review and

update its statement in EPAAR

1515.970–2(a)(3), relating to facilities

capital cost of money.

Response: Based on a review of

approaches taken by other Agencies on

this matter, EPA will reassess EPAAR

1515.970–2, for possible revision in a

future action.

II. Executive Order 12866

This is not a significant regulatory

action under Executive Order 12866;

therefore, no review is required at the

Office of Information and Regulatory

Affairs within OMB.
Federal Register / Vol. 62, No. 218 / Wednesday, November 12, 1997 / Rules and Regulations 60665

III. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because this rule does not

contain information collection

requirements for the approval of the

Office of Management and Budget

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

IV. Regulatory Flexibility Act

The EPA certifies that this rule does

not exert a significant economic impact

on a substantial number of small

entities. There are no requirements for

contractor compliance under the

proposed rule.

V. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (UMRA) Public Law

104–4, establishes requirements for

Federal agencies to assess their

regulatory actions on State, local, and

tribal governments, and the private

sector.

EPA has determined that this rule

does not contain a Federal mandate that

may result in expenditures of $100

million or more for State, local, and

tribal governments, in the aggregate, or

the private sector in any one year. Any

private sector costs for this action relate

to paperwork requirements and

associated expenditures that are far

below the level established for UMRA

applicability. Thus, the rule is not

subject to the requirements of sections

202 and 205 of the UMRA.

VI. Regulated Entities

EPA contractors are entities

potentially regulated by this action.

Category Regulated entity

Industry ........................... EPA Contractors.

List of Subjects in 48 CFR Parts 1515

and 1552

Environmental protection,

Government procurement.

For the reasons set forth in the

preamble, Chapter 15 of Title 48 Code

of Federal Regulations 1515 and 1552 is

amended as follows:

PARTS 1515 AND 1552—[AMENDED]

1. The authority citation for 1515 and

1552 continues to read as follows:

Authority: Sec. 205(c), 63 Stat. 390 as

amended, 40 U.S.C. 486(c).

2. Subpart 1515.9 is revised to read as

follows:

Subpart 1515.9—Profit

Table of Contents

1515.900 Scope of subpart.

1515.902 Policy.

1515.903 Cost realism.

1515.905 Profit-analysis factors.

1515.970 EPA structured approach for

developing profit or fee objectives.

1515.970–1 General.

1515.970–2 EPA structured system.

1515.900 Scope of subpart.

This subpart implements FAR subpart

15.4, and prescribes the EPA structured

approach for determining profit or fee

prenegotiation objectives.

1515.902 Policy.

(a) EPA structured approach. The

purpose of EPA’s structured approach

is:

(1) To provide a standard method of

evaluation;

(2) To ensure consideration of all

relevant factors;

(3) To provide a basis for

documentation and explanation of the

profit or fee negotiation objective;

(4) To allow contractors to earn profits

commensurate with the assumption of

risk; and

(5) To reward contractors who

undertake more difficult work requiring

higher risks.

(b) Other methods.

(1) Contracting officers may use

methods other than those prescribed in

1515.970 for establishing profit or fee

objectives under the following types of

contracts and circumstances:

(i) Architect-engineering contracts;

(ii) Personal service contracts;

(iii) Management contracts, e.g., for

maintenance or operation of

Government facilities;

(iv) Termination settlements;

(v) Services under labor-hour and

time and material contracts which

provide for payment on an hourly,

daily, or monthly basis, and where the

contractor’s contribution constitutes the

furnishing of personnel.

(vi) Construction contracts; and

(vii) Cost-plus-award-fee contracts.

(2) Generally, it is expected that such

methods will:

(i) Provide the contracting officer with

a technique that will ensure

consideration of the relative value of the

appropriate profit factors described

under ‘‘Profit Factors,’’ in 1515.970–2,

and

(ii) Serve as a basis for documentation

of the profit or fee objective.

(c) Under unusual circumstances, the

CCO may specifically waive the

requirement for the use of the

guidelines. Such exceptions shall be

justified in writing, and authorized only

in situations where the guidelines

method is unsuitable. In the event that

any of the methods used would result in

establishing a fee objective in violation

of limitations established by statute (see

FAR 15.404–4(b)(4)(i)), the maximum

fee objective shall be the percentage

allowed pursuant to such limitations.

No administrative ceilings on profits or

fees shall be established.

(d) The contracting officer shall not

consider any known subcontractor

profit/fee as part of the basis for

determining the contractor profit/fee.

1515.903 Cost realism.

The EPA structured approach is not

required when the contracting officer is

evaluating cost realism in a competitive

acquisition.

1515.905 Profit-analysis factors.

Profit-analysis factors prescribed in

the EPA structured approach for

analyzing profit or fee include those

prescribed by FAR 15.404–4(d)(1), and

additional factors authorized by FAR

15.404–4(d)(d) to foster achievement of

program objectives. These profit or fee

factors are prescribed in 1515.970–2.

1515.970 EPA structured approach for

developing profit or fee objectives.

1515.970–1 General.

(a) The Agency’s policy is to utilize

profit to attract contractors who possess

talents and skills necessary to the

accomplishment of the objectives of the

Agency, and to stimulate efficient

contract performance. In negotiating

profit/fee, it is necessary that all

relevant factors be considered, and that

fair and reasonable amounts be

negotiated which give the contractor a

profit objective commensurate with the

nature of the work to be performed, the

contractor’s input to the total

performance, and the risks assumed by

the contractor.

(b) To properly reflect differences

among contracts, and to select an

appropriate relative profit/fee in

consideration of these differences,

weightings have been developed for

application by the contracting officer to

standard measurement bases

representative of the prescribed profit

factors cited in FAR 15.905 and

(EPAAR) 48 CFR 1515.970–2(a)(1). Each

profit factor or subfactor, or its

components, has been assigned weights

relative to their value to the contract’s

overall effort, and the range of weights

to be applied to each profit factor.

1515.970–2 EPA structured system.

(a)(1) Profit/fee factors. The factors set

forth in the following table, and the

weighted ranges listed after each factor,

shall be used in all instances where the

profit/fee is negotiated.
60666 Federal Register / Vol. 62, No. 218 / Wednesday, November 12, 1997 / Rules and Regulations

CONTRACTOR’S INPUT TO TOTAL

PERFORMANCE

Weight

range

(percent)

Direct material .............................. 1 to 5.

Professional/technical labor .......... 8 to 15.

Professional/technical overhead ... 6 to 9.

General labor ................................ 5 to 9.

General overhead ......................... 4 to 7.

Subcontractors .............................. 1 to 4.

Other direct costs ......................... 1 to 3.

General and administrative expenses.5 to 8.

Contractor’s assumption of contract cost risk.0 to 6.

(2) The contracting officer shall first

measure the ‘‘Contractor’s Input to Total

Performance’’ by the assignment of a

profit percentage within the designated

weight ranges to each element of

contract cost. Such costs are multiplied

by the specific percentages to arrive at

a specific dollar profit or fee.

(3) The amount calculated for

facilities capital cost of money (FCCM)

shall not be included as part of the cost

base for computation of profit or fee (see

FAR 15.404–4(c)(3)). The profit or fee

objective shall be reduced by an amount

equal to the amount of facilities capital

cost of money allowed. A complete

discussion of the determination of

facilities capital cost of money and its

application and administration is set

forth in FAR 31.205–10, and the

Appendix to the FAR (see 48 CFR

9904.414).

(4) After computing a total dollar

profit or fee for the Contractor’s Input to

Total Performance, the contracting

officer shall calculate the specific profit

dollars assigned for cost risk and

performance. This is accomplished by

multiplying the total Government cost

objective, exclusive of any FCCM, by the

specific weight assigned to cost risk and

performance. The contracting officer

shall then determine the profit or fee

objective by adding the total profit

dollars for the Contractor’s Input to

Total Performance to the specific dollar

profits assigned to cost risk and

performance. The contracting officer

shall use EPA Form 1900–2 to facilitate

the calculation of the profit or fee

objective.

(5) The weight factors discussed in

this subsection are designed for arriving

at profit or fee objectives for other than

nonprofit and not-for-profit

organizations. Nonprofit and not-forprofit organizations are addressed as

follows:

(i) Nonprofit and not-for-profit

organizations are defined as those

business entities organized and

operated:

(A) Exclusively for charitable,

scientific, or educational purposes;

(B) Where no part of the net earnings

inure to the benefit of any private

shareholder or individual;

(C) Where no substantial part of the

activities is for propaganda or otherwise

attempting to influence legislation or

participating in any political campaign

on behalf of any candidate for public

office; and

(D) Which are exempt from Federal

income taxation under Section 51 of the

Internal Revenue Code (Title 26, United

States Code).

(ii) For contracts with nonprofit and

not-for-profit organizations where fees

are involved, a special factor of –3

percent shall be assigned in all cases.

(b) Assignment of values to specific

factors—

(l) General. In making a judgment on

the value of each factor, the contracting

officer should be governed by the

definition, description, and purpose of

the factors, together with considerations

for evaluation set forth in this

paragraph.

(2) Contractor’s input to total

performance. This factor is a measure of

how much the contractor is expected to

contribute to the overall effort necessary

to meet the contract performance

requirements in an efficient manner.

This factor, which is separate from the

contractor’s responsibility for contract

performance, takes into account what

resources are necessary, and the

creativity and ingenuity needed for the

contractor to perform the statement of

work successfully. This is a recognition

that within a given performance output,

or within a given sales dollar figure,

necessary efforts on the part of

individual contractors can vary widely

in both value, quantity, and quality, and

that the profit or fee objective should

reflect the extent and nature of the

contractor’s contribution to total

performance. Greater profit opportunity

should be provided under contracts

requiring a high degree of professional

and managerial skill and to prospective

contractors whose skills, facilities, and

technical assets can be expected to lead

to efficient and economical contract

performance. The evaluation of this

factor requires an analysis of the cost

content of the proposed contract as

follows:

(i) Direct material (purchased parts

and other material). (A) Analysis of

these cost items shall include an

evaluation of the managerial and

technical effort necessary to obtain the

required material. This evaluation shall

include consideration of the number of

orders and suppliers, and whether

established sources are available or new

sources must be developed. The

contracting officer shall also determine

whether the contractor will, for

example, obtain the materials by routine

orders or readily available supplies

(particularly those of substantial value

in relation to the total contract costs), or

by detailed subcontracts for which the

prime contractor will be required to

develop complex specifications

involving creative design.

(B) Consideration should be given to

the managerial and technical efforts

necessary for the prime contractor to

administer subcontracts, and to select

subcontractors, including efforts to

break out subcontracts from sole

sources, through the introduction of

competition.

(C) Recognized costs proposed as

direct material costs such as scrap

charges shall be treated as material for

profit evaluation.

(D) If intracompany transfers are

accepted at price, in accordance with

FAR 31.205–26(e), they should be

excluded from the profit or fee

computation. Other intracompany

transfers shall be evaluated by

individual components of cost, i.e.,

material, labor, and overhead.

(E) Normally, the lowest weight for

direct material is 2 percent. A weighting

of less than 2 percent would be

appropriate only in unusual

circumstances when there is a minimal

contribution by the contractor in

relation to the total cost of the material.

(ii) Professional/technical and general

labor. Analysis of labor should include

evaluation of the comparative quality

and level of the talents and experience

to be employed. In evaluating labor for

the purpose of assigning profit dollars,

consideration should be given to the

amount of notable scientific talent or

unusual or scarce talent needed, in

contrast to journeyman effort or

supporting personnel. The diversity, or

lack thereof, of scientific and

engineering specialties required for

contract performance, and the

corresponding need for supervision and

coordination, should also be evaluated.

(iii) Overhead and general and

administrative expenses. (A) Where

practicable, analysis of these overhead

items of cost should include the

evaluation of the individual elements of

these expenses, and how much they

contribute to contract performance. This

analysis should include a determination

of the amount of labor within these

overhead pools, and how this labor

would be treated if it were considered

as direct labor under the contract. The

allocable labor elements should be given
Federal Register / Vol. 62, No. 218 / Wednesday, November 12, 1997 / Rules and Regulations 60667

the same profit consideration as if they

were direct labor. The other elements of

indirect cost pools should be evaluated

to determine whether they are routine

expenses such as utilities, depreciation,

and maintenance, and therefore given

less profit consideration.

(B) The contractor’s accounting

system need not break down its

overhead expenses within the

classification of professional/technical

overhead, general overhead and general

and administrative expenses.

(iv) Subcontractors. (A) Subcontract

costs should be analyzed from the

standpoint of the talents and skills of

the subcontractors. The analysis should

consider if the contractor normally

should be expected to have people with

comparable expertise employed as fulltime staff, or if the contract requires

skills not normally available in an

employer-employee relationship. Where

the contractor is using subcontractors to

perform labor which would normally be

expected to be done in-house, the rating

factor should generally be at or near 1

percent. Where exceptional expertise is

retained, or the contractor is

participating in the mentor-prote ́ge ́

program, the assigned weight should be

nearer to the high end of the range.

(B) In accordance with (EPAAR) 48

CFR 1515.902(d), whenever the

subcontractor profit/fee is known to the

contracting officer, that profit/fee shall

not be considered as part of the basis for

determining the contractor profit/fee.

(v) Other direct costs. Items of costs,

such as travel and subsistence, should

generally be assigned a rating of 1 to 3

percent. The analysis of these costs

should be similar to the analysis of

direct material.

(3) Contractor’s assumption of

contract cost risk. (i) The risk of contract

costs should be shifted to the fullest

extent practicable to contractors, and

the Government should assign a rating

that reflects the degree of risk

assumption. Evaluation of this risk

requires a determination of

(A) The degree of cost responsibility

the contractor assumes,

(B) The reliability of the cost

estimates in relation to the task

assumed, and

(C) The chance of the contractor’s

success or failure. This factor is

specifically limited to the risk of

contract costs. Thus, such risks of losing

potential profits in other fields are not

within the scope of this factor.

(ii) The first determination of the

degree of cost responsibility assumed by

the contractor is related to the sharing

of total risk of contract cost by the

Government and the contractor,

depending on selection of contract type.

The extremes are a cost-plus-fixed-fee

contract requiring only that the

contractor use its best efforts to perform

a task, and a firm-fixed-price contract

for a complex item. A cost-plus-fixedfee contract would reflect a minimum

assumption of cost responsibility by the

contractor, whereas a firm-fixed-price

contract would reflect a complete

assumption of cost responsibility by the

contractor. Therefore, in the first step of

determining the value given for the

contractor’s assumption of contract cost

risk, a low rating would be assigned to

a proposed cost-plus-fixed-fee best

efforts contract, and a higher rating

would be assigned to a firm-fixed-price

contract.

(iii) The second determination is that

of the reliability of the cost estimates.

Sound price negotiation requires welldefined contract objectives and reliable

cost estimates. An excessive cost

estimate reduces the possibility that the

cost of performance will exceed the

contract price, thereby reducing the

contractor’s assumption of contract cost

risk.

(iv) The third determination is that of

the difficulty of the contractor’s task.

The contractor’s task may be difficult or

easy, regardless of the type of contract.

(v) Contractors are likely to assume

greater cost risks only if the contracting

officer objectively analyzes the risk

incident to the proposed contract, and is

willing to compensate contractors for it.

Generally, a cost-plus-fixed-fee contract

would not justify a reward for risk in

excess of 1 percent, nor would a firmfixed-price contract normally justify a

reward of less than 4 percent. Where

proper contract type selection has been

made, the reward for risk by contract

type would usually fall into the

following percentage ranges:

Type of contract

Percentage

ranges

Cost-plus-fixed-fee ........................ 0 to 1.

Prospective price determination ... 4 to 5.

Firm-fixed-price ............................. 4 to 6.

(A) These ranges may not be

appropriate for all acquisitions. The

contracting officer might determine that

a basis exists for high confidence in the

reasonableness of the estimate, and that

little opportunity exists for cost

reduction without extraordinary efforts.

The contractor’s willingness to accept

ceilings on their burden rates should be

considered as a risk factor for cost-plusfixed-fee contracts.

(B) In making a contract cost risk

evaluation in an acquisition that

involves definitization of a letter

contract, consideration should be given

to the effect on total contract cost risk

as a result of partial performance under

a letter contract. Under some

circumstances, the total amount of cost

risk may have been effectively reduced

by the existence of a letter contract.

Under other circumstances, it may be

apparent that the contractor’s cost risk

remained substantially as great as

though a letter contract had not been

used. Where a contractor has begun

work under an anticipatory cost letter,

the risk assumed is greater than normal.

To be equitable, the determination of a

profit weight for application to the total

of all recognized costs, both those

incurred and those yet to be expended,

must be made with consideration to all

relevant circumstances, not just to the

portion of costs incurred or percentage

of work completed prior to

definitization.

1552.217–73 [Amended]

3. Section 1552.217–73 is amended by

revising the clause heading as follows:

1552.217–73 Option for Increased

Quantity—Cost Type Contract (JUN

1997)

1552.217–74 [Amended]

4. Section 1552.217–74 is amended by

revising the clause heading as follows:

1552.217–74 Option for Increased

Quantity—Cost Plus Award Fee

Contract (JUN 1997)

Dated: October 27, 1997

John C. Gherardini,

Acting Director, Office of Acquisition

Management.

[FR Doc. 97–29593 Filed 11–10–97; 8:45 am]

BILLING CODE 6560–50–P

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric

Administration

50 CFR Part 679

[Docket No. 970520118–7251–02; I.D.

050197A]

RIN 0648–AJ00

Fisheries of the Exclusive Economic

Zone Off Alaska; Individual Fishing

Quota Program; Standard Allowances

for Ice and Slime

AGENCY: National Marine Fisheries

Service (NMFS), National Oceanic and

Atmospheric Administration (NOAA),

Commerce.

ACTION: Final rule.

SUMMARY: NMFS issues a final rule that

establishes standard allowances for ice