[Federal Register Volume 62, Number 245 (Monday, December 22, 1997)]
[Rules and Regulations]
[Pages 66826-66828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33221]


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DEPARTMENT OF DEFENSE

Department of the Navy

48 CFR Part 5231


Department of the Navy Acquisition Regulations; Shipbuilding 
Capability Preservation Agreements

AGENCY: Department of the Navy, DoD

ACTION: Interim rule with request for comments.

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SUMMARY: The Deputy for Acquisition and Business Management, Office of 
the Assistant Secretary of the Navy (Research, Development and 
Acquisition), has issued an interim rule amending the Navy Acquisition 
Regulations to permit the Department of the Navy (DoN) to enter into a 
shipbuilding capability preservation agreement with a shipbuilder where 
it would facilitate the achievement of the policy objectives set forth 
in section 2501(b) of title 10, United States Code.

DATES: Effective Date: December 22, 1997.
    Comment date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before February 20, 1998, in 
order to be considered in formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to 
Department of the Navy, Office of the Assistant Secretary of the Navy, 
Acquisition and Business Management, Attn: Mr. Clarence Belton, ABM-
P&R, 2211 South

[[Page 66827]]

Clark Place, Arlington, VA 22244-5104. Telefax number (703) 602-2117. 
Please cite ``Shipbuilding Capability Preservation Agreements'' in all 
correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT: Mr. Clarence Belton, (703) 602-2807.

SUPPLEMENTARY INFORMATION:

A. Background

    This interim rule adds part 5231 to the Department of the Navy 
Acquisition Regulations (48 CFR Chapter 52), to implement section 1027 
of the National Defense Authorization Act for Fiscal Year 1998 (Pub. L. 
105-85). Section 1027 permits the DoN to enter into a shipbuilding 
capability preservation agreement with a shipbuilder where it would 
facilitate the achievement of the policy objectives set forth in 10 
U.S.C. 2501(b). Such an agreement would permit the contractor to claim 
certain indirect costs, attributable to its private sector work, on its 
Navy shipbuilding contracts.

B. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of the Navy that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This rule 
implements section 1027 of the National Defense Authorization Act for 
Fiscal Year 1998 (Pub. L. 105-85), which became effective upon 
enactment on November 18, 1997. Congress specifically directed DoN to 
establish application procedures and procedures for expeditious 
consideration of shipbuilding capability preservation agreements within 
30 days of enactment and to submit a report on applications for such 
agreements to Congress not later than February 15, 1998. Given these 
statutory-imposed deadlines, opportunity for public comment prior to 
promulgation of this rule is not possible. However, comments received 
in response to the publication of this interim rule will be considered 
in formulating the final rule.

C. Regulatory Flexibility Act

    The interim rule is not expected 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 most 
contracts awarded to small entities are awarded on a competitive fixed-
price basis and do not require application of the cost principle 
contained in this rule. An initial regulatory flexibility analysis has 
therefore not been performed. Comments are invited from small 
businesses and other interested parties. Comments from small entities 
concerning the affected Navy Acquisition Regulations subpart will also 
be considered in accordance with 5 U.S.C. 610. Such comments must be 
submitted separately and should cite 5 U.S.C. 601, et seq. 
(Shipbuilding Capability Preservation Agreement), in correspondence.

D. Paperwork Reduction Act

    It is anticipated that collection of information requirements will 
not be imposed on ten or more persons within any 12-month period. 
Therefore, this rule contains no information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq., and 5 CFR part 1320.

List of Subjects in 48 CFR Part 5231

    Government procurement.

    For the reasons set forth in the preamble, add 48 CFR part 5231 to 
read as follows:

PART 5231--CONTRACT COST PRINCIPLES AND PROCEDURES

Subpart 5231.2--Contracts with Commercial Organizations

Sec.
5231.205  Selected costs.
5231.205-90  Shipbuilding capability preservation agreements.

    Authority:  5 U.S.C. 301, 10 U.S.C. 2501, 10 U.S.C. 7315, DoD 
Directive 5000.35.

Subpart 5231.2--Contracts With Commercial Organizations


Sec. 5231.205  Selected costs.


Sec. 5231.205-90  Shipbuilding capability preservation agreements.

    (a) Scope and authority. Where it would facilitate the achievement 
of the policy objectives set forth in 10 U.S.C. 2501(b), the Navy may 
enter into a shipbuilding capability preservation agreement with a 
contractor. As authorized by section 1027 of the National Defense 
Authorization Act for Fiscal Year 1998 (Public Law 105-85), such an 
agreement permits the contractor to claim certain indirect costs 
attributable to its private sector work as allowable costs on Navy 
shipbuilding contracts.
    (b) Definition. Incremental indirect cost, as used in this 
subsection, means an additional indirect cost that results from 
performing private sector work described in a shipbuilding capability 
preservation agreement.
    (c) Purpose and guidelines. The purpose of a shipbuilding 
capability preservation agreement is to broaden and strengthen the 
shipbuilding industrial base by providing an incentive for a 
shipbuilder to obtain new private sector work, thereby reducing the 
Navy's cost of doing business. The Navy will use the following 
guidelines to evaluate requests for shipbuilding capability 
preservation agreements:
    (1) The Assistant Secretary of the Navy for Research, Development 
and Acquisition must make a determination that an agreement would 
facilitate the achievement of the policy objectives set forth in 10 
U.S.C. 2501(b). The primary consideration in making this determination 
is whether an agreement would promote future growth in the amount of 
private sector work that a shipbuilder is able to obtain.
    (2) An agreement generally will be considered only for a 
shipbuilder with little or no private sector work.
    (3) The agreement shall apply to prospective private sector work 
only, and shall not extend beyond 5 years.
    (4) The agreement must project an overall benefit to the Navy, 
including net savings. This would be achieved by demonstrating that 
private sector work will absorb costs that otherwise would be absorbed 
by the Navy.
    (d) Cost-reimbursement rules. If the Navy enters into a 
shipbuilding capability preservation agreement with a contractor, the 
following cost-reimbursement rules apply:
    (1) The agreement shall require the contractor to allocate the 
following costs to private sector work:
    (i) The direct costs attributable to the private sector work;
    (ii) The incremental indirect costs attributable to the private 
sector work; and
    (iii) The non-incremental indirect costs to the extent that the 
revenue attributable to the private sector work exceeds the sum of the 
costs specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this 
subsection.
    (2) The agreement shall require that the sum of the costs specified 
in paragraphs (d)(1)(ii) and (d)(1)(iii) of this subsection not exceed 
the amount of indirect costs that would have been allocated to the 
private sector work in accordance with the contractor's established 
accounting practices.
    (3) The Navy may agree to modify the amount calculated in 
accordance with paragraph (d)(1) of this subsection if it determines 
that a modification is appropriate to the particular situation. In so 
doing, the Navy may agree to the allocation of a smaller or larger 
portion of the amount calculated in accordance

[[Page 66828]]

with paragraph (d)(1) of this subsection, to private sector work.
    (i) Any smaller amount shall not be less than the sum of the costs 
specified in paragraphs (d)(1)(i) and (d)(1)(ii) of this subsection.
    (ii) Any larger amount shall not exceed the sum of the costs 
specified in paragraph (d)(1)(i) of this subsection and the amount of 
indirect costs that would have been allocated to the private sector 
work in accordance with the contractor's established accounting 
practices.
    (iii) In determining whether such a modification is appropriate, 
the Navy will consider factors such as the impact of pre-existing firm-
fixed-price Navy contracts on the amount of costs that would be 
reimbursed by the Navy, the impact of pre-existing private sector work 
on the cost benefit that would be received by the contractor, and the 
extent to which allocating a smaller or larger portion of costs to 
private sector work would provide a sufficient incentive for the 
contractor to obtain additional private sector work.
    (e) Procedure. A contractor may submit a request for a shipbuilding 
capability preservation agreement, together with appropriate 
justification, through the Deputy Assistant Secretary of the Navy for 
Ships, to the Assistant Secretary of the Navy for Research, Development 
and Acquisition, who has approval or disapproval authority. The 
contractor should also provide an informational copy of any such 
request to the cognizant administrative contracting officer.

    Dated: December 16, 1997.
Michael I. Quinn,
Lieutenant Commander, Judge Advocate General's Corps, U.S. Navy, 
Alternate Federal Register Officer.
[FR Doc. 97-33221 Filed 12-19-97; 8:45 am]
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