Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13307

DEPARTMENT OF JUSTICE

28 CFR Part 100

RIN 1105–AA39

Implementation of Section 109 of the

Communications Assistance for Law

Enforcement Act

AGENCY: Federal Bureau of

Investigation, DOJ.

ACTION: Final rule.

SUMMARY: This rule implements section

109 of the Communications Assistance

for Law Enforcement Act (CALEA),

which requires the Attorney General to

establish regulations which set forth the

procedures that telecommunications

carriers must follow in order to receive

reimbursement under Sections 109 and

104 of CALEA. CALEA requires that this

rule enable carriers to receive payments

in a timely and cost-efficient manner

while minimizing the cost to the Federal

Government. Specifically, this rule sets

forth the means of determining

allowable costs, reasonable costs, and

disallowed costs. Furthermore, it

establishes the requirements carriers

must meet in their submission of cost

estimates and requests for payment to

the Federal Government for the

disbursement of CALEA funds. In

addition, this rule protects the

confidentiality of trade secrets and

proprietary information from

unnecessary disclosure. Finally, it sets

forth the means for alternative dispute

resolution.

EFFECTIVE DATE: April 21, 1997.

FOR FURTHER INFORMATION CONTACT:

Walter V. Meslar, Unit Chief,

Telecommunications Contracts and

Audit Unit, Federal Bureau of

Investigation, P.O. Box 221286,

Chantilly, VA 20153–0450, telephone

number (703) 814–4900.

SUPPLEMENTARY INFORMATION:

A. General Background

Recent and continuing advances in

telecommunications technology and the

introduction of new digitally-based

services and features have impaired the

ability of federal, state, and local law

enforcement agencies to fully and

properly conduct various types of courtauthorized electronic surveillance.

Therefore, on October 25, 1994, the

President signed into law the

Communications Assistance for Law

Enforcement Act (CALEA) [Public Law

103–414, 108 Stat. 4279 (1994) (codified

as amended in scattered sections of 18

U.S.C. and 47 U.S.C.)]. This law requires

telecommunications carriers, as defined

in CALEA, to ensure law enforcement’s

ability, pursuant to court order or other

lawful authorization, to intercept

communications regardless of advances

in telecommunications technology.

Under CALEA, certain

implementation responsibilities are

conferred upon the Attorney General;

the Attorney General has, in turn,

delegated certain responsibilities set

forth in CALEA to the Director, FBI, or

his designee, pursuant to 28 CFR

0.85(o). The Director, FBI, has

designated the Telecommunications

Industry Liaison Unit of the Information

Resources Division and the

Telecommunications Contracts and

Audit Unit of the Finance Division to

carry out these responsibilities.

Definition of ‘‘Telecommunications

Carrier’’

CALEA defines a

‘‘telecommunications carrier’’ as any

‘‘person or entity engaged in the

transmission or switching of wire or

electronic communications as a

common carrier for hire’’ (section

102(8)(A)), and includes any ‘‘person or

entity engaged in providing commercial

mobile service, (as defined in section

332(d) of the Communications Act of

1934, as amended (47 U.S.C. 332(d))’’

(section 102(8)(B)). This definition

includes, but is not limited to, local

exchange and interchange carriers;

competitive access providers; resellers,

cable operators, utilities, and shared

tenant services providers, to the extent

that they offer telecommunications

services as common carriers for hire;

cellular telephone companies; personal

communications services (PCS)

providers; satellite-based mobile

communications providers; specialized

mobile radio services (SMRS) providers

and enhanced SMRS providers; and

paging service providers.

The Federal Communications

Commission (FCC) may determine that

a person or entity who is not a common

carrier is subject to CALEA if that

person or entity provides wire or

electronic communication service and

the FCC concludes that such service is

a replacement for a substantial portion

of the local telephone exchange service

and that it is in the public interest to

deem such a person or entity to be a

telecommunications carrier for purposes

of CALEA.

The definition does not include (1)

persons or entities insofar as they are

engaged in providing information

services such as electronic publishing

and massaging services; and (2) any

class or category of telecommunications

carriers that the FCC exempts by rule

after consultation with the Attorney

General.

Capability Requirement

CALEA requires telecommunications

carriers to ensure that, within four years

of the date of enactment, their systems

have the capability to meet the

Assistance Capability Requirements as

described in Section 103 of CALEA.

These requirements are that a

telecommunications carrier shall ensure

that its equipment, facilities, or services

that provide a customer or subscriber

with the ability to originate, terminate,

or direct communications are capable

of—

(1) expeditiously isolating and

enabling the government, pursuant to a

court order or other lawful

authorization, to intercept, to the

exclusion of any other communications,

all wire and electronic communications

carried by the carrier within a service

area to or from equipment, facilities, or

services of a subscriber of such carrier

concurrently with their transmission to

or from the subscriber’s equipment,

facility, or service, or at such later time

as may be acceptable to the government.

(2) expeditiously isolating and

enabling the government, pursuant to a

court order or other lawful

authorization, to access call-identifying

information that is reasonably available

to the carrier—(A) before, during, or

immediately after the transmission of a

wire or electronic communications (or

at such later time as may be acceptable

to the government); and (B) in a manner

that allows it to be associated with the

communication to which it pertains,

except that, with regard to information

acquired solely pursuant to the

authority for pen registers and trap and

trace devices (as defined in section 3127

of Title 18, United States Code), such

call-identifying information shall not

include any information that may

disclose the physical location of the

subscriber (except to the extent that the

location may be determined from the

telephone number);

(3) delivering intercepted

communications and call-identifying

information to the government,

pursuant to a court order or lawful

authorization, in a format such that they

may be transmitted by means of

equipment, facilities, or services

procured by the government to a

location other than the premises of the

carrier; and

(4) facilitating authorized

communication interceptions and

access to call-identifying information

unobtrusively and with a minimum of

interference with any subscriber’s

telecommunications service and in a

manner that protects—(A) the privacy

and security of communications and
13308 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

1CALEA § 109(e)(2).

call-identifying information not

authorized to be intercepted; and (B)

information regarding the government’s

interception of communications and

access to call-identifying information.

Under section 107(a)(2) of CALEA, a

carrier will be deemed to be in

compliance if it adheres to publicly

available technical requirements or

standards adopted by an industry

association or standard-setting

organization to meet the requirements of

section 103 of CALEA.

Telecommunications carriers may also

adopt their own solutions. In any case,

carriers must meet the requirements set

forth in Section 103 of CALEA. If no

technical requirements or standards are

issued, or if they are challenged as being

deficient, upon petition, the FCC has

authority to develop them through a

rule making.

Capacity Requirements

Section 104 of CALEA requires that

the Attorney General, after seeking

public notice and comment, establish

and publish:

(1) notice of the actual number of

communications interceptions, pen

registers, and trap and trace devices,

representing a portion of the maximum

capacity that the Attorney General

estimates that government agencies

authorized to conduct electronic

surveillance may conduct and use

simultaneously by the date that is 4

years after the date of enactment of

CALEA, and

(2) notice of the maximum capacity

required to accommodate all of the

communication interceptions, pen

registers, and trap and trace devices that

the Attorney General estimates that

government agencies authorized to

conduct electronic surveillance may

conduct and use simultaneously after

the date that is 4 years after the date of

enactment of CALEA.

On October 16, 1995 the FBI proposed

for comment the Initial Notice of

Capacity (60 FR 53643). On November

9, 1995, the comment period for the

Initial Notice of Capacity was extended

until January 16, 1996. In response to

comments received, the FBI restructured

its approach and published a Second

Notice of Capacity for comment in the

Federal Register on January 14, 1997

(62 FR 1902).

Section 104 of CALEA also provides

that within 180 days after the

publication of the Final Notice of

Capacity, a telecommunications carrier

must submit to the Attorney General a

statement (Carrier Statement)

identifying any of the systems or

services that do not have the capacity to

accommodate simultaneously the

number of interceptions, pen registers,

and trap and trace devices set forth in

that notice. On April 10, 1996, the FBI

published an Initial Notice and Request

for Comment in accordance with the

Paperwork Reduction Act of 1995

regarding the proposed information

collection requirements of the Carrier

Statement submission (61 FR 15974). A

Second Notice and Request for

Comment is forthcoming in the Federal

Register. The FBI intends to use these

Carrier Statements as one of the criteria

upon which it will base its decisions to

solicit cooperative agreements to

reimburse carriers pursuant to section

104(e), based upon available funding.

Industry Implementation

Industry’s compliance with the

requirements set forth in section 103 of

CALEA is affected by a number of

interrelated factors, including whether

the Attorney General has agreed to pay

for needed modifications and whether

the equipment, facility, or service was

installed or deployed on or before

January 1, 1995.

In the case of equipment, facilities,

and services installed or deployed after

January 1, 1995, compliance is

dependent upon whether the necessary

modifications are reasonably achievable

as determined by the FCC using criteria

set forth in CALEA. These criteria are as

follows:

(1) The effect on public safety and

national security.

(2) The effect on rates for basic

residential telephone service.

(3) The need to protect the privacy

and security of communications not

authorized to be intercepted.

(4) The need to achieve the capability

assistance requirements of section 103

of CALEA by cost effective methods.

(5) The effect on the nature and cost

of the equipment, facility or service at

issue.

(6) The effect on the operation of the

equipment, facility, or service at issue.

(7) The policy of the United States to

encourage the provision of new

technologies and services to the public.

(8) The financial resources of the

telecommunications carrier.

(9) The effect on competition in the

provision of telecommunications

services.

(10) The extent to which the design

and development of the equipment,

facility, or service was initiated before

January 1, 1995.

(11) Such other factors as the FCC

determines are appropriate.

Telecommunications carriers also

may petition regulatory authorities to

adjust charges, practices, classifications,

and regulations to recover costs

expended for making needed

modifications to equipment, facilities,

or services pursuant to the assistance

capability requirements of CALEA

section 103. CALEA also includes

provisions for exemption, extension of

the compliance date, consultation with

industry, and systems security.

Noncompliance may lead to civil

actions by the Attorney General and the

imposition of civil fines. In addition,

CALEA requires telecommunications

transmission and switching equipment

manufacturers, as well as providers of

the telecommunications support

services, to cooperate with

telecommunications carriers in

achieving the required capabilities and

capacities.

Section 109 of CALEA, Payment of

Costs of Telecommunications Carriers to

Comply with Capability Requirements,

authorizes the Attorney General, subject

to the availability of appropriations, to

agree to pay telecommunications

carriers for: (1) all reasonable costs

directly associated with the

modifications performed by carriers in

connection with equipment, facilities,

and services installed or deployed on or

before January 1, 1995, to establish the

capabilities necessary to comply with

section 103 of CALEA; (2) additional

reasonable costs directly associated with

making the assistance capability

requirements found in section 103 of

CALEA reasonably achievable with

respect to equipment, facilities, or

services installed or deployed January 1,

1995, in accordance with the procedures

established in CALEA section 109(b);

and (3) reasonable costs directly

associated with modifications of any of

a carrier’s systems or services, as

identified in the Carrier Statement

required by CALEA section 104(d),

which do not have the capacity to

accommodate simultaneously the

number of interceptions, pen registers,

and trap and trace devices set forth in

the Capacity Notice(s) published in

accordance with CALEA section 104.

CALEA section 109(e), Cost Control

Regulations, authorizes the Attorney

General, after notice and comment, to

establish regulations necessary to

effectuate timely and cost-efficient

payment to telecommunications carriers

under CALEA, under 18 U.S.C. chapters

119 and 121, and under the Foreign

Intelligence Surveillance Act of 1978

(50 U.S.C. 1801 et seq.). CALEA also

directs the Attorney General to consult

with the FCC prior to the establishment

of these regulations.1

The regulations must minimize the

cost to the Federal Government and
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13309

2The Federal Grant and Cooperative Agreement

Act (31 U.S.C. 6301 et seq.) states that cooperative

agreements are to be used when ‘‘the principal

purpose of the relationship is to transfer a thing of

value to the * * * recipient to carry out a public

purpose of support or stimulation authorized by a

law of the United States,’’ and ‘‘substantial

involvement is expected between the executive

agency and the * * * recipient when carrying out

the activity contemplated in the agreement.’’ (31

U.S.C. 6305).

3 31 U.S.C. 1341, commonly referred to as the

Anti-Deficiency Act, states that an officer or

employee of the United States Government may not

‘‘make or authorize an expenditure or obligation

exceeding an amount available in an appropriation

or fund for the expenditure or obligation [31 U.S.C.

1341(a)(1)(A)].’’

permit recovery by telecommunications

carriers of the direct costs of developing

necessary modifications for CALEA

compliance, including: providing the

capabilities requested; providing

capacities requested, training personnel

in the use of such capabilities and

capacities; and deploying or installing

such capabilities and capacities.

In the case of any modification that

may be used for any purpose other than

lawfully authorized electric surveillance

by a law enforcement agency of a

government, CALEA permits the

recovery of only the incremental cost of

making the modification suitable for

such law enforcement purposes.

B. Establishment of Cost Recovery

Rules and Procedures

Purpose and Intent

As directed by CALEA section

109(e)(1), the FBI has developed and

promulgated this rule to establish the

procedures carriers must use to seek

reimbursement under sections 109(a),

109(b)(2), and 104(e) of CALEA. Cost

recovery payments under section

109(b)(2) of CALEA will be determined

pursuant to the procedures set forth in

section 109(b)(1) of CALEA and in

accordance with this cost recovery rule.

To the extent possible, this rule allows

carriers to use their existing accounting

procedures to record the costs of

bringing equipment, facilities, and

services into compliance with CALEA.

This rule seeks to ensure that each

carrier’s practices used in estimating

costs for CALEA reimbursement

purposes are consistent with the current

cost accumulating and reporting

procedures utilized by the carrier for the

preparation of its financial statements.

Further, it establishes that not all

amounts reportable in accordance with

generally accepted accounting

principles will be eligible for

reimbursement. Consistency in the

application of cost accounting practices

is necessary to enhance the likelihood

that comparable transactions are treated

alike. Consistent application of internal

cost accounting practices will facilitate

the preparation of reliable cost estimates

and allow comparison with the costs of

performance. Such comparisons provide

an important basis for financial control

over costs and aid in establishing

accountability for costs in the manner

agreed to by both parties.

This rule also ensures that each cost

is allocated only once and on only one

basis to a cost group. The criteria for

determining the allocation of costs to a

cost group should be the same for all

similar groupings.

In addition to setting forth the

required accounting principles

regarding reasonableness and

allowability of costs and requirements

for consistency in accounting, this rule

establishes the reporting and record

keeping requirements necessary for

reimbursement. By establishing these

requirements, the FBI ensures that it

will be able to meet the joint mandate

of CALEA section 109(e) to (1) make

timely and cost-efficient payment to

carriers while (2) minimizing the cost to

the Federal Government. Throughout

the development of this rule, the FBI

sought to balance the need to minimize

both the regulatory burden placed upon

carriers and the expenditure of public

funds.

Specific carriers will be selected for

reimbursement based upon law

enforcement priorities determined by

the Attorney General. Several criteria

will be used to determined law

enforcement priorities. These include,

but are not limited to: historical

interceptions, features offered, existing

surveillance techniques, and product

life-cycles of telecommunications

equipment, facilities, and services.

Cooperative Agreement Process

CALEA specifically states that the

Attorney General ‘‘may agree’’ to pay

carriers in the three circumstances

discussed above [§ 109(a), § 109(b)(2),

and § 104(e)]. Therefore, the FBI intends

to enter into cooperative agreements

with carries to accomplish this

reimbursement.2 This rule will be

incorporated in all cooperative

agreements executed under sections 109

and 104 of CALEA and entered into

between the carriers and the FBI.

The FBI will contact the carriers

identifying the equipment, facilities,

and services which will require

modification, and which are eligible for

reimbursement. The FBI will send

requests for proposals to these carriers

regarding the necessary modifications.

These requests for proposals will

identify the specific equipment,

facilities and/or services which are in

need of modification in order to comply

with CALEA. They will also include

instructions for submitting cost

estimates (§ 100.16 of the final rule) and

proposed terms and conditions for the

cooperative agreement. Cost estimate

submission is necessary because: (1)

carrier networks will require varying

levels of modification to achieve

compliance; (2) carriers have great

latitude in developing and

implementing CALEA-compliant

solutions; and (3) CALEA’s

authorization for appropriations is

limited to $500 million3 Therefore, the

FBI must have a clear idea of how much

each modification is expected to cost so

that it may weigh the proposed costs of

each modification against the

anticipated benefits to the public safety

prior to entering into each cooperative

agreement.

Once a carrier has submitted a cost

estimate for the needed modifications,

the FBI will enter into negotiations with

that carrier to arrive at a cooperative

agreement for reimbursement. To the

extent possible, each cooperative

agreement will be tailored to meet the

specific needs of the individual carrier

based upon the carrier’s solution,

existing accounting system, and size.

For example, if a carrier’s solution

requires implementation over several

months, the cooperative agreement with

that carrier might include provisions for

progress or milestone payments. There

are several items which will be common

to all cooperative agreements, including:

the cost recovery rules, the requirements

of CALEA (section 103 and/or section

104); and the protection of carrier patent

rights. Once the carrier and the FBI

reach agreement, a cooperative

agreement will be executed and work

can commence.

It must be noted that carriers are in no

way obligated to expend funds on

modifications eligible for

reimbursement prior to the execution of

a cooperative agreement. However, this

in no way alleviates the carriers’

responsibilities of compliance with

CALEA for equipment, facilities, or

services installed or deployed

subsequent to January 1, 1995.

Proposed Rule

In response to CALEA’s mandate and

in accordance with the Administrative

Procedures Act (5 U.S.C. 551 et seq.),

the FBI published for notice and

comment a proposed rule in the Federal

Register on May 10, 1996 (61 FR 21396).

The proposed rule was developed after

consultation with other government

entities, including the FCC, the Office of
13310 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

4 It should be noted that line costs associated with

delivery of intercepted communications to law

enforcement are not reimbursable under CALEA.

However, it is anticipated that the delivery costs

associated with interceptions will continue to be

borne by the requesting law enforcement agency.

Management and Budget (OMB), and

the General Accounting Office (GAO),

and with representatives of the

telecommunications industry.

In response to the proposed rule, the

FBI received comments from 16

representatives of the

telecommunications industry, including

wireline and wireless carriers and

associations. All comments have been

considered in preparing this final rule.

In developing this final rule, the FBI has

also relied on the input of other

governmental agencies,

telecommunications industry experts,

and the many years of cost accounting

and auditing experience of its staff.

Significant comments received in

response to the proposed rule and any

significant changes are discussed below.

C. Significant Comments or Changes

Comments by Section

1. Proposed § 100.9 (‘‘General’’):

Several commenters expressed

confusion as to the reimbursement

process. Therefore, the FBI has amended

this section to clarify the requirement

that a cooperative agreement must be

executed prior to the incurrence of

costs. This section now makes clear that

reimbursement is subject to: (1) the

availability of funds; (2) the

reasonableness of costs; and (3) the

execution of a cooperative agreement

between the FBI and the carrier. Carriers

are in no way obligated to expend funds

on modifications that are eligible for

reimbursement under sections 109(a),

109(b)(2), and 104(e) prior to the

execution of a cooperative agreement.

2. Proposed § 100.10(a) (Definition of

‘‘allocable’’): One commenter pointed

out that ‘‘allocable’’ traditionally means

chargeable to one or more cost

objectives, rather than to two or more

cost objectives. The FBI accepts this

comment and the final rule is modified

accordingly. In addition, for the

purposes of clarity, the FBI has

expanded the definition to include the

descriptive phrase ‘‘and can be

distributed to them in reasonable

proportion to the benefits received.’’

3. Proposed § 100.10(e) (Definition of

‘‘directly allocable costs’’): One

commenter pointed out that ‘‘allocable’’

traditionally means chargeable to one or

more cost objectives, rather than to two

or more cost objectives; therefore, the

definition of ‘‘directly allocable costs’’

should reflect this. The FBI accepts this

comment and the final rule is modified

accordingly. In addition, for the

purposes of clarity, the FBI has

expanded the definition to include the

descriptive phrase ‘‘and can be

distributed to them in reasonable

proportion to the benefits received.’’

4. Proposed § 100.10(j) and (k)

(Definitions of ‘‘plant non-specific

costs’’ and ‘‘plant specific costs’’):

Several commenters expressed concern

in connection with the allowability of

plant specific and plant non-specific

costs in proposed § 110.11(b)

(‘‘Allowable costs’’; Allowable plant

specific costs) and proposed § 100.15(c)

(‘‘Disallowed costs’’; Plant non-specific

costs). In order to effect the changes

necessary to clarify these issues, the FBI

has removed the definitions of these

terms from § 100.10, Definitions, and

replaced them with an all encompassing

definition of ‘‘plant costs.’’ The specifics

of which costs are allowed and

disallowed with regard to these terms

are addressed below in responses 12

and 28.

5. Proposed § 100.10 (‘‘Definitions’’):

In response to several comments

requesting further clarification of terms,

the following definitions have been

added to this section in the final rule:

cooperative agreement; direct

supervision; labor costs; network

operations costs; and provisioning

costs.4 These definitions have been

inserted in the appropriate alphabetical

order. It should also be noted that the

letter designations have been removed

from § 100.10, Definitions, of the final

rule at the suggestion of the Federal

Register.

6. Proposed § 100.11(a)(1)

(‘‘Allowable costs’’; Pre January 1, 1995

modifications; Plant specific costs): In

conformance with the changes to

proposed § 100.10(k), as discussed

above in response 4, the term ‘‘plant

specific costs’’ has been replaced with

the term ‘‘plant costs.’’

7. Proposed § 100.11(a)(1)

(‘‘Allowable costs’’; Pre January 1, 1995

modifications; General): This subsection

establishes the allowability of all

reasonable plant costs directly

associated with the modifications

performed by carriers in connection

with equipment, facilities, and services

installed or deployed on or before

January 1, 1995, to establish the

capabilities necessary to comply with

section 103 of CALEA, until the

equipment, facility, or service is

replaced or significantly upgraded or

otherwise undergoes major

modifications. Several commenters

asserted that the January 1, 1995 cut-off

date for reimbursable modifications was

inappropriate. In particular, several

commenters from the wireless industry

noted that the dynamic nature of their

industry effectively, and unfairly,

excluded them from the cost

reimbursement pool under this

subsection.

The FBI must comply with CALEA,

which mandates this date in section

109(a). It is, therefore, beyond the scope

of the FBI’s authority to change this

date.

8. Proposed § 100.11(a)(1)

(‘‘Allowable costs’’; Pre January 1, 1995

modifications; Significant upgrade):

This subsection establishes the

allowability of all reasonable plant costs

directly associated with the

modifications performed by carriers in

connection with equipment, facilities,

and services installed or deployed on or

before January 1, 1995, to establish the

capabilities necessary to comply with

section 103 of CALEA, until the

equipment, facility, or service is

replaced or significantly upgraded or

otherwise undergoes major

modifications. Half of the commenters

requested that the FBI define the phrase

‘‘replaced or significantly upgraded or

otherwise undergoes major

modifications’’ (hereafter referred to as

‘‘significant upgrade or major

modification’’). These commenters

pointed out that eligibility for

reimbursement is dependent upon how

the FBI interprets ‘‘significant upgrade

or major modification.’’

Given the dynamic nature of the

telecommunications industry and the

potential impact on eligibility for

reimbursement, the FBI acknowledges

that ‘‘significant upgrade and major

modification’’ must be defined.

However, this issue affects only those

carriers who have made modifications

or upgrades to their equipment,

facilities, and/or services installed or

deployed on or before January 1, 1995.

The reimbursement eligibility of any

equipment, facility, or service which

has undergone no modification or

upgrade since January 1, 1995 is not

affected by this definition. In addition,

‘‘significant upgrade or major

modification’’ does not pertain to cases

of reimbursement for capability

modifications which have been deemed

not reasonably achievable by the FCC

under CALEA section 109(b)(2) or to

reimbursement for capacity

modifications under CALEA section

104(e). Therefore, given that many of the

potential reimbursement scenarios

allowed by CALEA, and, therefore, by

this rule, are not affected by the

definition of ‘‘significant upgrade and

major modification,’’ the FBI has

elected, as noted below, to handle this
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13311

5Public Law 104–208, Item 28: (16)

‘‘Telecommunications Carrier Compliance Fund.’’ 6 § 109(e)(2)(B)

issue separately in order to expedite the

CALEA implementation process. This

decision is in both the best interests of

the government and of the carriers given

that CALEA funds are now available to

begin the reimbursement effort.5

Severing the ‘‘significant upgrade and

major modification’’ issue from this rule

for separate consideration allows the

FBI as soon as possible to begin

reimbursing those carriers who have

made no modifications or upgrades

since January 1, 1995.

On November 19, 1996, the FBI

published an Advanced Notice of

Proposed Rulemaking (ANPRM) in the

Federal Register (61 FR 58799), which

solicited the submission of potential

definitions of ‘‘significant upgrade or

major modification’’ from the

telecommunications industry and the

general public. This ANPRM was also

sent to a large number of associations

representing the interests of the various

telecommunications carriers, both

wireline and wireless. The FBI is

currently considering the comments

received and anticipates making a

determination with regard to this issue

in the near future.

9. Proposed § 100.11(a)(2)

(‘‘Allowable costs’’; Post January 1, 1995

modifications; Plant specific costs): In

conformance with the changes to

proposed § 100.10(k), as discussed

above in response 4, the term ‘‘plant

specific costs’’ has been replaced with

the term ‘‘plant costs.’’

10. Proposed § 100.11(a)(2)

(‘‘Allowable costs’’; Post January 1,

1995, modifications; Additional

reasonable costs): This subsection

establishes the allowability of the

additional reasonable plant costs

directly associated with making the

assistance capability requirements

found in section 103 of CALEA

reasonably achievable with respect to

equipment, facilities, or services

installed or deployed after January 1,

1995, in accordance with the procedures

established in CALEA section 109(b).

Several commenters wanted to know

how the FBI planned to define

‘‘additional reasonable costs.’’ CALEA

section 109(b)(1) places the

responsibility of determining whether

modifications to equipment, facilities,

and services installed or deployed after

January 1, 1995, are ‘‘reasonably

achievable’’ with the FCC, which will

make its rulings based on specific

petitions by carriers. At its most basic

level, additional reasonable costs means

those costs which are above and beyond

what the FCC determines to be

‘‘reasonably achievable’’ in each

instance. The specifics of this issue fall

within the purview of the FCC’s CALEA

implementation responsibilities; it

would, therefore, be inappropriate for

the FBI to address this issue further in

this rule.

11. Proposed § 100.11(a)(3)

(‘‘Allowable costs’’; Capacity

modifications; Plant specific costs): In

conformance with the changes to

proposed § 100.10(k), as discussed

above in response 4, the term ‘‘plant

specific costs’’ has been replaced with

the term ‘‘plant costs.’’

12. Proposed § 100.11(b) (‘‘Allowable

costs’’; Allowable plant specific costs):

Several commenters expressed concern

over the use of plant specific and plant

non-specific as qualifiers for

allowability for reimbursement

purposes under CALEA. These

commenters pointed out that there

could be certain plant non-specific costs

which could be allowable.

The FBI is persuaded by these

arguments and has amended the final

rule as follows.

First, the FBI has removed the

definitions of plant specific and plant

non-specific costs from § 100.10,

Definitions, and has replaced them with

an all-encompassing definition of ‘‘plant

costs.’’ Second, the FBI has amended

§ 100.11(b) to reflect allowable plant

costs, whether plant specific or plant

non-specific. Third, the FBI has

amended § 100.15(c) to reflect

disallowed plant costs, whether plant

specific or plant non-specific.

13. Proposed § 100.11(b)(2)

(‘‘Allowable costs’’; Allowable plant

specific costs; first-line supervision):

One comment was received from a small

wireless carrier which expressed

concern over the nature and definition

of ‘‘first-line supervision.’’ This

commenter interpreted this subsection

as excluding from eligibility for

reimbursement the work of some

individuals who, of necessity, perform

many different functions in a small

business. The FBI has replaced this term

with ‘‘direct supervision’’ and has

provided a definition of ‘‘direct

supervision’’ in § 100.10 of the final rule

to clarify this issue.

The FBI also wishes to note that, for

the purposes of reimbursement, it is not

job title which matters, but rather the

nature of the work performed.

Therefore, if the Chief Executive Officer

(CEO) of a company also happens to be

the engineer responsible for network

engineering, the time that individual

spends coordinating the integration of

the CALEA compliant solution into the

network will be reimbursable, while the

time spent managing the general

business affairs of the company will not

be reimbursable.

14. Proposed § 100.11(c) (‘‘Allowable

costs’’; Incremental costs): Both

CALEA 6 and the proposed rule

establish that ‘‘[i]n the case of any

modification that may be used for any

purpose other than lawfully authorized

electronic surveillance by a government

law enforcement agency, . . . only the

incremental cost of making the

modification suitable for such law

enforcement purposes’’ is recoverable.

Some commenters wished to know the

methodology the FBI intends to use to

determine (1) whether a modification

could be used for any other purpose;

and (2) the nature and amount of these

‘‘incremental costs.’’

The determination of whether or not

a modification could be used for any

purpose other than lawfully authorized

electronic surveillance by a government

law enforcement agency is outside the

scope of this accounting rule.

In the case of any modification that

may be used for any purpose other than

lawfully authorized electronic

surveillance by a government law

enforcement agency, the carrier may

only recover the incremental cost of

making the modification suitable for

such law enforcement purposes. With

regard to the determination of the nature

and amount of the ‘‘incremental costs,’’

this determination will be dependent on

the nature of the proposed solution.

Therefore, the nature and amount of any

‘‘incremental costs’’ will be identified

and proposed by specific carriers as part

of specific cooperative agreements.

15. Proposed § 100.11(d) (‘‘Allowable

costs’’): In the proposed rule, ‘‘direct

cost’’ was used interchangeably with

‘‘directly assignable cost’’ which could

potentially create confusion. Therefore,

in order to maintain consistency within

the document and to clarify the original

intent of this subsection, ‘‘direct and

directly allocable costs’’ has been

amended to read ‘‘directly assignable

and directly allocable costs.’’

16. Proposed § 100.12 (‘‘Reasonable

costs’’; General): In this section, the FBI

has set forth the guidelines for

determining whether a cost is

reasonable for reimbursement purposes.

Several commenters requested that the

FBI clarify how the ‘‘reasonableness’’ of

costs will be determined for the

purposes of reimbursement. While the

guidelines set forth in § 100.12 may

seem somewhat vague and subjective, it

must be noted that they are consistent

with the standard guidelines used in
13312 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

7See, for example, the Federal Acquisition

Regulation (FAR) 31.201–3 for procurement

contracts and OMB Circulars A–122, ‘‘Cost

Principles for Nonprofit Organizations’’ and A–21,

‘‘Principles for Determining Costs Applicable to

Grants, Cooperative Agreements, and Other

Agreements with Educational Institutions’’ for

grants and cooperative agreements.

8See FAR 31.201–3 for procurement contracts. 9 Id. 10See FAR 31.201–3 for procurement contracts.

government contracting.7 It is not the

Government’s intent to ‘‘second guess’’

the carrier’s judgement; the Government

simply requires that the carrier’s

decisions involve the use of reasonable

and prudent judgement. Stated another

way, all the Government requires is that

the carrier treat the taxpayers’ money

with the same prudence and care the

carrier would apply to its own corporate

funds. Therefore, no change has been

made in the final rule.

17. Proposed § 100.12(a)(1) and (a)(2)

(‘‘Reasonable costs’’; Presumption of

reasonableness and burden of proof):

These subsections establish that no

presumption of reasonableness is

attached to the incurrence of costs by a

carrier and that the burden of proof that

a cost is reasonable for the purposes of

CALEA reimbursement rests with the

carrier. Some carriers objected to these

requirements, arguing that the burden of

proof that a cost was not reasonable

ought to rest with the Government.

These subsections follow standard

Government cost principles.8 Therefore,

no change has been made in the final

rule.

For purposes of clarity, however, it

must be noted that the FBI is not

requiring that supplementary

documentation necessary to meet the

burden of proof be submitted with the

initial cost estimate or request for

payment; those submissions require

only the level of supporting

documentation outlined in § 100.16 and

§ 100.17 of the final rule. It is only when

a review of these submissions results in

a question regarding a specific cost that

the carrier will be required to meet the

burden of proof with appropriate

supporting documentation.

In addition, the nature and extent of

the supporting documentation which

might be required will be addressed

during the cooperative agreement

process to allow flexibility (1) for the

various accounting systems in use

throughout the industry and (2) for the

special needs of small entities as

discussed in the Final Regulatory

Flexibility Analysis below.

18. Proposed § 100.13(a)(3) (‘‘Directly

assignable costs’’; Burden of proof): This

subsection establishes that the burden of

proof that a cost is directly assignable to

the CALEA implementation effort rests

with the carrier. Some carriers objected

to these requirements, arguing that the

burden of proof that a cost was not

directly assignable to the CALEA

implementation effort ought to rest with

the Government. This subsection

follows standard Government cost

principles.9 Therefore, no change has

been made in the final rule.

For purposes of clarity, however, it

must be noted that the FBI is not

requiring that supplementary

documentation necessary to meet the

burden of proof be submitted with the

initial cost estimate or request for

payment; those submissions require

only the level of supporting

documentation outlined in § 100.16 and

§ 100.17 of the final rule. It is only when

a review of these submissions results in

a question regarding a specific cost that

the carrier will be required to meet the

burden of proof with appropriate

supporting documentation.

In addition, the nature and extent of

the supporting documentation which

might be required will be addressed

during the cooperative agreement

process to allow flexibility (1) for the

various accounting systems in use

throughout the industry and (2) for the

special needs of small entities as

discussed in the Final Regulatory

Flexibility Analysis below.

19. Proposed § 100.13(b) (‘‘Directly

assignable costs’’; Minor dollar

amounts): The FBI has stricken the

reference to minor dollar amounts in

this subsection as unnecessary.

20. Proposed § 100.13 (‘‘Directly

allocable costs’’; General): This section

sets forth the requirements for treating

costs as directly allocable costs for the

purposes of the CALEA reimbursement

process. One commenter argued that the

definition of and requirements for

‘‘directly allocable costs’’ are largely

meaningless in that they appear to be

inconsistent with the FAR. The FBI has,

as noted above, amended the definition

of ‘‘directly allocable costs’’ in proposed

§ 100.10(e) in the final rule. In addition

to this emendation, the FBI wishes to

point out that it is not possible for this

rule to be completely consistent with

the FAR because CALEA specifically

disallows costs which the FAR treats as

allowable. Furthermore, the treatment of

‘‘directly allocable costs’’ is the direct

result of the FBI’s intent to allow

carriers to use their existing accounting

systems to comply with these rules.

Therefore, no change has been made in

the final rule.

21. Proposed § 100.14(b) (‘‘Directly

allocable costs’’; Burden of proof): This

subsection establishes that burden of

proof that a cost is directly allocable (as

defined in this rule) to the CALEA

implementation effort rests with the

carrier. Some carriers objected to these

requirements, arguing that the burden of

proof that a cost was not directly

allocable to the CALEA implementation

effort ought to rest with the

Government. This subsection follows

standard Government cost principles.10

Therefore, no change has been made in

the final rule.

For purposes of clarity, however, it

must be noted that the FBI is not

requiring that supplementary

documentation necessary to meet the

burden of proof be submitted with the

initial cost estimate or request for

payment; those submissions require

only the level of supporting

documentation outlined in § 100.16 and

§ 100.17 of the final rule. It is only when

a review of these submissions results in

a question regarding specific cost that

the carrier will be required to meet the

burden of proof with appropriate

supporting documentation.

In addition, the nature and extent of

the supporting documentation which

might be required will be addressed

during the cooperative agreement

process to allow flexibility (1) for the

various accounting systems in use

throughout the industry and (2) for the

special needs of small entities as

discussed in the Final Regulatory

Flexibility Analysis below.

22. Proposed § 100.14(d)(4) (‘‘Directly

allocable costs’’; Distribution base):

Some commenters objected to this

subsection because they interpreted it to

mean that the FBI was reserving the

right to approve or disapprove of each

carrier’s entire cost accounting system

based on the phrase ‘‘has been accepted

by the FBI.’’ This was never the intent

of the proposed rule, nor is it the intent

of the final rule. The FBI intended to

ensure the following: (1) that the base

for distributing allocable costs is

definitized in the cooperative agreement

between the carrier and the FBI and (2)

that the carrier makes no significant

changes [i.e. changes which will affect

the level of reimbursement from the

government] to this distribution base

once it has been agreed to without the

written approval of the FBI. Given the

apparent misinterpretation on the part

of some of the commenters, the FBI has

amended the final rule to more clearly

reflect this intent.

23. Proposed § 100.14(d)(5)(i)

(‘‘Directly allocable costs’’; Allocation

methodology; cost patterns): One

commenter asked whether this

subsection required that carriers submit

to the FBI evidence of how the carrier
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13313

11 31 U.S.C. 712 authorizes the Comptroller

General to investigate all matters related to the

receipt, disbursement, and use of public money. 47

U.S.C. 1010(b) (as amended by Public Law 104–316)

requires the Inspector General of the Department of

Justice to report to Congress on the ‘‘reasonableness

and cost-effectiveness of the payments made by the

Attorney General to telecommunications carriers for

modifications necessary to ensure compliance with

[CALEA].’’

allocated common costs on other

projects as a mechanism for checking

the appropriateness of the proposed

allocation methodology for CALEA

reimbursement. The FBI is not requiring

submission of such evidence; however,

such evidence could be used as an

example of the carrier’s typical practices

if a question regarding the allocation

methodology arose.

24. Proposed § 100.14(d)(5)(iii)

(‘‘Directly allocable costs’’; Allocation

methodology; site-specific records): One

commenter asserted that the

requirement of this subsection that

carriers maintain CALEA-specific

records supporting cost allocations that

are site-specific would be burdensome

to carriers with multiple switches

requiring CALEA modifications.

Given that CALEA restricts

reimbursement to directly associated

costs only, it will be necessary for

carriers to maintain CALEA-specific

records. As these records will, of

necessity, need to indicate work done

on specific equipment, facilities, and

services, there is no apparent means of

relieving carriers of the requirement to

maintain site-specific records.

Therefore, no change has been made in

the final rule.

25. Proposed § 100.14(d)(6) (‘‘Directly

allocable costs’’; Base periods): One

commenter asserted that it did not use

‘‘base periods’’ for allocating allocable

costs. However, whether this

commenter calls it a ‘‘base period’’ or

not, the commenter does use a fiscal

year for financial reporting purposes.

Therefore, in the case of this

commenter, the ‘‘base period’’ could be

the fiscal year. The FBI crafted these

rules to allow the carriers as much

flexibility as possible in reporting

requirements in order to minimize the

burden imposed upon them. Hence, the

exact definition of the ‘‘base period’’ is

left up to each carrier.

26. Proposed § 100.15 (‘‘Disallowed

costs’’; General): Many commenters

questioned the restrictions set forth in

this section. All commenters addressing

the issue had specific types of costs

which they believed should not be

disallowed. Of these, most could be

subsumed into the areas of General and

Administrative (G&A) costs and Plant

Non-Specific costs, which are addressed

below. In general, the FBI wishes to

point out that it is the authority to

expend funds found in CALEA which

limits reimbursable costs to directly

associated costs. The FBI would be in

direct violation of law if it were to allow

costs which are, either expressly or

implicitly, disallowed by CALEA.

Therefore, other than as discussed in

response 28, below, with regard to the

clarification as to the definitions of

plant specific and plant non-specific

costs, no costs disallowed in the

proposed rule have been removed from

this section in the final rule.

27. Proposed § 100.15(a) (‘‘Disallowed

costs’’; G&A costs): G&A costs are costs

which are normally considered indirect

(i.e. not directly associated with final

cost objectives). The FBI cannot

disburse funds to a carrier under

CALEA for costs that the carrier would

have incurred (e.g. external relations

and information management costs) had

CALEA not been enacted. However, the

FBI recognizes that certain CALEAspecific expenses, which might

normally be considered G&A costs, may,

in accordance with § 100.11 of these

rules, be charged directly to the CALEA

implementation effort. Section 100.15,

Directly Allocable Costs, was written in

order to provide the carriers with the

ability to recover these costs.

28. Proposed § 100.15(c) (‘‘Disallowed

costs’’; Plant non-specific costs): Several

commenters expressed concern over the

use of plant specific and plant nonspecific as qualifiers for allowability for

reimbursement purposes under CALEA.

These commenters pointed out that

there could be certain plant non-specific

costs which would be allowable. The

FBI is persuaded by these arguments

and has amended the final rule as

follows:

First, the FBI has removed the

definitions of plant specific and plant

non-specific costs from § 100.10,

Definitions, and has replaced them with

an all-encompassing definition of

‘‘plants costs.’’ Second, the FBI has

amended § 100.11(b) to reflect allowable

plants costs, whether plant specific or

plant non-specific. Third, the FBI has

amended § 100.15(c) to reflect

disallowed plant costs, whether plant

specific or plant non-specific.

29. Final § 100.15(f) (‘‘Additional

costs’’; Agreed upon): The FBI has, for

the purposes of clarity, changed ‘‘agreed

upon’’ to ‘‘agreed to by the government

and the carrier.’’

30. Final § 100.15(h), formerly part of

Proposed § 100.20 (‘‘Disallowed costs’’;

Accounting provisions): Some

commenters asserted that Proposed

§ 100.20, Accounting for Unallowable

Costs, was unnecessary and burdensome

because carriers must fully account for

and document allowable expenses.

The original intent of Proposed

§ 100.20 was to ensure that, should a

carrier’s accounting system require that

unallowable costs be used in any way to

calculate the nature and amount of

allowable costs (i.e. to determine the

level of allocable costs), the unallowable

costs were accurately identified as such,

and were properly removed from the

calculation of the reimbursement

amount. However, the FBI

acknowledges that this section appeared

confusing and that it could be

streamlined. Therefore, Proposed

§ 100.20, Accounting for Unallowable

Costs, has been deleted and the

necessary elements have been added as

new subsection (h) to Final § 100.15,

Disallowed Costs.

31. Proposed § 100.16 and § 100.17

(‘‘Cost estimate submission’’ and

‘‘Request for payment’’; General): Many

commenters stated that the reporting

requirements of these sections are

unnecessarily duplicative of each other

and generally require too much detail.

Any expenditure of CALEA funds

must meet minimal recordkeeping

requirements and must be auditable by

the Inspector General of the Department

of Justice and the Comptroller General

of the United States.11 The rule defines

the minimum amount of financial data

and supporting documentation that the

FBI must retain if it is to reimburse

carriers. The FBI has required the least

burdensome reporting level possible

which still allows it to meet its fiscal

accountability requirements.

However, the FBI has also learned

from the comments received that certain

aspects of these sections describing the

requirements could benefit from further

explanation and some emendation for

the purposes of clarity with regard to

the level of detail required to be

submitted. These explanations and

emendations are addressed by

subsection below.

As for the perceived duplicativeness

of § 100.16 and § 100.17, the

commenters appear to have been

confused by the cooperative agreement

process, an explanation of which

appears above in Section B,

Establishment of Cost Recovery Rules

and Procedures, subheading

‘‘Cooperative Agreement Process.’’ In

addition to the explanation of the

cooperative agreement process above,

the FBI presents the following

additional clarification. Estimates are

needed because the FBI must have a

clear idea of how much each proposed

modification is expected to cost so that

it may weigh the proposed costs of each

modification against the anticipated
13314 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

12CALEA § 109(c) states that ‘‘The Attorney

General shall allocate funds appropriated to carry

out this title in accordance with law enforcement

priorities determined by the Attorney General.’’

13CALEA § 109(e)(2)

benefits to the pubic safety.12 Clearly,

the FBI must require that carriers submit

sufficient information for cost-benefit

analyses to be performed. Furthermore,

CALEA specifically requires that the

cost recovery regulations prescribed

must ‘‘seek to minimize the cost to the

Federal Government. . . .‘‘ 13 The FBI

must, therefore, be able to determine

that the solution proposed and its

associated costs are appropriate and

reasonable prior to entering into

cooperative agreements for

reimbursement with carriers.

The need for supporting

documentation at the request for

payment stage is required by CALEA.

While the FBI does not anticipate any

intentional fraud, honest mistakes are

sometimes made and the FBI is required

to ensure that the Federal Government

does not inappropriately expend

taxpayer funds on disallowed costs.

In addition, the similarities between

the cost estimate and the request for

payment remarked upon by several

commenters are intended to simplify the

reporting and recordkeeping done by

carriers and will help ensure that the

request for payment can adequately be

correlated to the cost estimate for review

purposes.

32. Proposed § 100.16 and § 100.17

(‘‘Cost estimate submissions’’ and

‘‘Request for payment’’; General;

Wireless Carrier Concerns): Comments

were received from representatives of

the wireless industry which expressed

concern that the reporting requirements

of § 100.16, Cost Estimate Submission,

and § 100.17, Request for Payment, are

too burdensome for wireless providers

because their accounting systems are

not equipped to generate the level of

detail wireline providers’ systems are.

As long as such carriers are using

accounting systems which generate

financial statements which are in

accordance with generally accepted

accounting principles, the final rule will

allow wireless providers to use their

current accounting systems to meet

these reporting requirements.

33. Proposed § 100.16 and § 100.17

(‘‘Cost estimate submission’’ and

‘‘Request for payment’’; General; Small

Business Concerns): Several

commenters, either classified as small

businesses for regulatory purposes or

representing the interests of such small

businesses, expressed concern that the

reporting requirements of these sections

would place an undue burden on small

businesses. While this issue is

addressed at length in the Final

Regulatory Flexibility Analysis below, a

brief discussion is merited here. The

reporting requirements of these sections

are flexible enough to allow small

carriers to submit cost estimates and

requests for payment from the level of

detail available to their existing

accounting systems. As stated above in

comment response 17, and as will be

made clear by the responses to specific

comments which follow, the FBI only

requires the submission of supporting

data if a question arises regarding

specific items. In addition, a Small

Business Compliance Guide, as required

by Section 212 of the Small Business

Regulatory Enforcement Fairness Act of

1996 (SBREFA) (Title II of Public Law

104–121) will be forthcoming from the

FBI. This Guide, which will be tailored

to the needs of small businesses, will

provide detailed instructions for

complying with all aspects of this final

rule. The FBI has consulted with the

Office of Advocacy of the Small

Business Administration (SBA) and the

Office of Communications Business

Opportunities at the FCC regarding this

final rule and is committed to imposing

the least regulatory burden possible on

small businesses and assisting them in

achieving CALEA-compliance with

respect to this rule.

34. Proposed § 100.16(c) (‘‘Cost

estimate submission’’; Higher authority):

A few commenters pointed out that the

reference to a ‘‘higher authority’’ was

ambiguous. The FBI accepts this

comment and has amended the final

rule accordingly.

35. Proposed § 100.16(d)(1) (‘‘Cost

estimate submission’’; Supporting

documentation): Several commenters

were concerned about the required

submission of what they perceived as an

extremely high level of supporting

documentation of § 100.16(d)(1). The

FBI accepts this comment and has, for

the purposes of clarity, removed the

descriptive phrase ‘‘adequately crossreferenced, suitable for detailed

analysis’’ from this subsection.

36. Proposed § 100.16(d)(2) (‘‘Cost

estimate submission’’; Cost element

breakdown): One commenter was

concerned that this subsection’s

inclusion of the phrase ‘‘and must

reflect any specific requirements

established by the FBI’’ gave the FBI too

much latitude in requiring additional

documentation submission. While this

was not the intent of this phrase, the FBI

accepts that it could be read in such a

manner and has, therefore, stricken it

from the final rule.

37. Proposed § 100.16(d)(5)(iii) (‘‘Cost

estimate submission’’; ‘‘Allocable direct

costs’’): A few commenters found the

phrase ‘‘showing trends and budgetary

data’’ both burdensome and requiring

further explanation. In the interests of

minimizing the reporting burden on

carriers and clarifying the requirements,

the FBI has streamlined this subsection

by removing this phrase and deleting

the requirement to ‘‘indicate the rates

used and provide an appropriate

explanation.’’

38. Proposed § 100.16(e)(1) (‘‘Cost

estimate submission’’; Judgmental

factors): One commenter requested

clarification of the term ‘‘judgmental

factors.’’ The FBI has amended the final

rule to include an example of such

judgmental factors in the text of this

subsection.

39. Proposed § 100.16(f) (‘‘Cost

estimate submission’’; Continuous

submission of cost data): A few

commenters interpreted this

subsection’s requirement that cost data

be submitted as it becomes available up

until the time of final reimbursement as

requiring a continuous submission of

data. This was not the FBI’s intent;

rather, the FBI sought to ensure that, in

the event that information significantly

affecting the cost estimate should

become available, the carrier would

provide that information to the FBI.

However, the FBI has determined that

this requirement is met by § 100.17(d)(2)

of the final rule and has, therefore,

amended Proposed § 100.16(d)(2)

accordingly.

40. Proposed § 100.17(b)(1) (‘‘Request

for Payment’’; Supporting

documentation): Several commenters

were concerned about the required

submission of what they perceived as an

extremely high level of supporting

documentation in § 100.17(b)(1). The

FBI accepts this comment and has, for

the purposes of clarity, removed the

descriptive phrase ‘‘adequately crossreferenced, suitable for detailed

analysis’’ from this subsection.

41. Proposed § 100.17(b)(2) (‘‘Request

for Payment’’; Cost element breakdown):

One commenter was concerned that this

subsection’s inclusion of the phrase

‘‘and must reflect any specific

requirements established by the FBI’’

gave the FBI too much latitude in

requiring additional documentation

submission. While this was not the

intent of this phrase, the FBI accepts

that it could be read in such a manner

and has, therefore, stricken it from the

final rule.

42. Proposed § 100.17(c) (‘‘Request for

Payment’’; Forward costing factors): The

FBI has stricken the reference to forward

costing factors in this subsection as

unnecessary.
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13315

14SEC v. Gulf & Western Industries, Inc., 518 F.

Supp. 675 (D.D.C. 1981). See also Olender v. United

States, 210 F.2d 795 (9th Cir. 1954) (privilege not

applicable to communications with attorney where

he has been ‘‘employed as an accountant solely and

simply’’ in preparing tax returns).

43. Proposed § 100.17(c)(2) (‘‘Request

for Payment’’; Direct labor): A few

commenters found this subsection to be

confusing and requiring a potentially

overburdensome submission of

documentation. The FBI has

streamlined this subsection and

clarified its document submission

requirements such that they impose the

least burden possible. Specifically, the

FBI has added the phrase ‘‘have

available for audit in accordance with

§ 100.18’’ to the text to better define the

documentation requirements. This

phrase has also been added to Proposed

subsections 100.17(c) (3), (4), and (5) for

the same purpose.

44. Proposed § 100.17(d)(1) (‘‘Request

for Payment’’; Specific identification of

cost data): The FBI has amended this

subsection to clarify the phrase ‘‘by

specific identification.’’

45. Proposed § 100.17(d)(2) (‘‘Request

for Payment’’; Continuous submission of

cost data): A few commenters

interpreted this subsection’s

requirement that cost data be submitted

as it becomes available up until the time

of final reimbursement as requiring a

continuous submission of data. This

was not the FBI’s intent; rather, the FBI

sought to ensure that, in the event that

information significantly affecting the

cost estimate should become available,

that the carrier would provide that

information to the FBI. This subsection

has been amended to better reflect that

intent.

46. Proposed § 100.17(e) (‘‘Request for

Payment’’; Index): The FBI has

streamlined this subsection to minimize

the indexing requirements.

47. Proposed § 100.18 (‘‘Audit’’;

General): One commenter questioned

the FBI’s right to audit with regard to

CALEA reimbursements. The right to

audit is implicit in a federal agency’s

stewardship responsibilities with

respect to the disbursement of taxpayer

funds. Furthermore, conducting audits

of CALEA reimbursements is an

important and integral part of the FBI’s

internal financial controls, which are

required under 31 U.S.C. Subtitle III,

Financial Management.

48. Proposed § 100.18 (‘‘Audit’’;

Attorney-Client Privileged Material and

Attorney Work Product): Two

commenters seemed to interpret this

section as granting the FBI the right to

examine attorney-client privileged

material and attorney work product

during the normal course of an audit.

This is not the FBI’s intent. Audit

materials do not include privileged

communications or work product as

protected by law. It must be noted,

however, that the burden proving that

the communication or material is

privileged is on the party claiming the

privilege.14

49. Proposed § 100.18(d) (‘‘Audit’’;

‘‘Availability’’; Reasonable availability):

A few commenters found the

requirement that a carrier ‘‘shall make

available at its office at all reasonable

times the cost and support material

described herein, for examination,

audit, or reproduction . . .’’ to be

burdensome given that many carriers

store such information offsite. These

commenters interpreted this subsection

as requiring carrier to store such

information on-site, thereby requiring

them to alter their existing record

keeping regimes.

The FBI agrees that requiring carriers

to store such records on-site would be

burdensome; however, this was not the

intent of Proposed § 100.18(d). The

pivotal phrase here is ‘‘at all reasonable

times.’’ Given the wide range of

accounting and record keeping methods

in use in the telecommunications

industry, the FBI recognizes that

‘‘reasonable’’ might be 24 hours for one

carrier or 3–5 business days for another

carrier. Therefore, to meet the specific

needs of individual carriers, a

‘‘reasonable’’ time frame will be defined

as part of the cooperative agreement

entered into with each carrier.

50. Proposed § 100.18(d) (‘‘Audit’’;

‘‘Availability’’; Record retention):

Several commenters asserted that the

five (5) year record retention

requirement was too long and

inconsistent with other federal

regulatory record retention

requirements. In the interest of

minimizing the regulatory burden on

private industry, the FBI accepts this

comment. The record retention period

in the final rule is amended to three (3)

years.

51. Proposed § 100.19 (‘‘Reduction for

defective cost data’’): A few commenters

expressed concern that this section

could be interpreted as a penalty clause.

This was not the FBI’s intent; rather,

this section was included to allow for

equitable adjustments to an agreed-to

amount to reflect actual costs. To clarify

this intent, the FBI has expanded

§ 100.19 to include adjustment

procedures for revisions of the agreedto amount: (1) prior to the incurrence of

a cost; (2) subsequent to the incurrence

of a cost; and (3) subsequent to the

discovery that cost data was defective.

52. Proposed § 100.19(c)(1)

(‘‘Reduction for defective cost data’’;

Sole source supplier): Several

commenters, either classified as small

businesses for regulatory purposes or

representing the interests of such small

businesses, expressed concern that

holding small businesses responsible for

the cost data of their sole source

suppliers was unduly burdensome. This

issue is addressed at length in the Final

Regulatory Flexibility Analysis below.

53. Proposed § 100.19(c)(4)

(‘‘Reduction for defective cost data’’;

Interest): A few commenters requested

that a subsection be added requiring the

Government to pay the carrier interest

in the event of an underpayment or late

payment by the Government. The FBI

originally believed that such payments

were mandated by the Prompt Payment

Act (31 U.S.C. 3901 et seq., as

amended), which requires the payment

of interest on the part of the

Government and OMB Circular A–125

(Revised), ‘‘Prompt Payment,’’ which

establishes the procedures for the

payment of interest to parties in the

event of late payment by the

Government. It has since determined,

however, that both the Prompt Payment

Act and OMB Circular A–125 apply

only to procurement contracts. Given

this, the FBI does not derive statutory

authority to pay interest under the

Prompt Payment Act. However, the FBI

may contractually bind itself with such

provisions. Therefore, the FBI can

incorporate such a clause into its

cooperative agreements with carriers.

Rather than develop duplicate

procedures, the FBI intends to

incorporate the procedures for the

payment of interest on late payment of

invoice payments (including progress

payments) set forth in OMB Circular A–

125 into all cooperative agreements with

carriers. Therefore, the FBI has not

amended the final rule.

54. Proposed § 100.20 (‘‘Accounting

for unallowable costs’’): Some

commenters asserted that Proposed

§ 100.20, Accounting for Unallowable

Costs, was unnecessary and burdensome

because carriers must fully account for

and document allowable expenses.

The original intent of Proposed

§ 100.20 was to ensure that, should a

carrier’s accounting system require that

unallowable costs be used in any way to

calculate the nature and amount of

allowable costs (i.e. to determine the

level of allocable costs), the unallowable

costs were accurately identified as such,

and were properly removed from the

calculation of the reimbursement

amount. However, the FBI

acknowledges that this section appeared

confusing and that it could be

streamlined. Therefore, Proposed

§ 100.20, Accounting for Unallowable
13316 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

15CALEA § 109(d) and § 109(b)(1).

Costs, has been deleted and the

necessary elements have been added as

new subsection (h) to Final § 100.15,

Disallowed Costs.

55. Proposed § 100.21

(‘‘Confidentiality of trade secrets/

proprietary information’’): One

commenter requested that the FBI

amend this section to ensure that

company proprietary information is not

indiscriminately disclosed to

Government employees. While this was

not the FBI’s intent, it accepts the

comment and has amended the final

rule accordingly.

General Comments

1. Capacity Requirements: Several

commenters felt that they could not

adequately comment on the proposed

cost recovery rules without knowing

what the final capacity requirements

were. These commenters asserted that

they needed to know the estimated costs

prior to assessing the proposed rule.

These comments are not accepted.

The Cost Recovery Rules are accounting

principles addressing allowability and

reasonableness which will be applied

universally to carriers’ costs, regardless

of amount.

2. Takings: Two commenters asserted

that carrier compliance with CALEA

would require the carriers to expend

funds or lose profits which would

constitute a taking for which the carriers

would be entitled to full compensation

pursuant to the Just Compensation

Clause of the Fifth Amendment of the

Constitution of the United States. One

commenter asserted that this was so

regardless of whether Congress provides

funding for CALEA cost reimbursement.

No set formula exists for identifying

when Government regulatory action

constitutes a ‘‘taking’’ under the

Constitution; the Supreme Court has

instead generally relied on an ad hoc,

factual inquiry into the circumstances of

each particular case. The Supreme Court

has, however, indicated that the

following factors have particular

significance: (1) the severity of the

economic impact of the regulation on

the claimant; (2) the extent to which the

regulation has interfered with distinct

investment-backed expectations; and (3)

the character of the government action.

See Concrete Pipe and Products of

California, Inc. v. Construction Laborers

Pension Trust for So. California, 508

U.S. 602, 113 S.Ct. 2264, 124 L.Ed.2d

539 (1993); Connolly v. Pension Benefit

Guaranty Corp. 475 U.S. 211, 106 S.Ct.

1018, 89 L.Ed.2d 166 (1986); see also

Lucas v. South Carolina Coastal

Commission, 505 U.S. 1003, 112 S.Ct.

2886, 120 L.Ed.2d 798 (1992).

In response to the comments received,

the FBI has analyzed these factors and

has concluded that CALEA’s

requirements do not amount to a

compensable taking. First, the FBI does

not believe that the economic impact of

these CALEA regulations on carriers

will rise to the level of a taking

requiring compensation. These

regulations will not significantly impair

the economically beneficial use of the

carrier’s property, and the value of such

property will not be substantially

reduced. If any such reduction does

occur, these regulations provide that it

may be offset by Congressional funding

available to reimburse carriers.

Moreover, it has been held that ‘‘mere

diminution in the value of property,

however serious, is insufficient to

demonstrate a taking.’’ Concrete Pipe,

508 U.S. at 645. Second, these

regulations will not interfere with

investment-backed expectations of the

carriers. Carriers have cooperated with

the execution of court-ordered

electronic surveillance for some time

now. Carriers could, consequently,

readily anticipate that such wiretapping

would continue and that the

mechanisms of such wiretapping would

evolve as telecommunications

technology advanced. These regulations

do not expand law enforcement

authority but merely maintain the

ability of law enforcement to conduct

court-ordered surveillance. Carriers had

no reasonable expectation that they

would not be required to continue to

provide assistance to law enforcement.

Finally, the character of the government

action involved suggests that these

regulations do not involve a

compensable taking. In carrying out

CALEA, no law enforcement agency will

physically invade any carriers’ property

or appropriate any carriers’ assets for its

own use. The FBI feels that these

CALEA regulations substantially

advance the Nation’s legitimate interests

in preserving public safety and national

security. These interests would

unquestionably be jeopardized without

the ability to conduct court-ordered

electronic surveillance. Such wiretaps

are critical to saving lives and solving

crimes. In sum, the FBI does not believe

that the carriers are being forced to bear

a burden ‘‘which, in all fairness and

justice, should be borne by the public as

a whole.’’ Armstong v. United States,

364 U.S. 40, 49 (1960).

3. Manufacture Date of Equipment:

One commenter seemed to assert that it

was the manufacture date of the

equipment which determined its

eligibility for reimbursement. This

comment is non-germane given that

CALEA specifically addresses

‘‘equipment, facilities, and services

installed or deployed on or before

January 1, 1995’’ [§ 109(a), emphasis

added], and ‘‘equipment, facilit[ies] and

service[s] installed or deployed after

January 1, 1995’’ [§ 109(b)(1), emphasis

added]. Clearly, it is the installation or

deployment date rather than the

manufacture date which determines

eligibility for reimbursement.

4. Dispute Resolution: A few

commenters requested that the FBI

identify a means of dispute resolution

should a disagreement occur between a

carrier and the FBI regarding the

cooperative agreement process. As

discussed above, carriers are in no way

obligated to expend funds on

modifications that are eligible for

reimbursement under sections 109 and

104 prior to the execution of a

cooperative agreement. Furthermore,

should a carrier and the FBI fail to reach

agreement as to the terms of the

cooperative agreement, that carrier will

remain in compliance with CALEA until

such time as the equipment, facility or

service in question is no longer eligible

for reimbursement, either because it has

undergone a ‘‘significant upgrade or

major modification’’ or because the

modification required has been

determined to be reasonably achievable

by the FCC.15 Nevertheless, if a dispute

does arise which has resulted in an

impasse to the negotiations, there may

be benefits to both the FBI and the

carrier that would warrant additional

efforts at resolving the dispute, so that

a cooperative agreement could be agreed

upon. The FBI is also aware of the

Attorney General’s April 6, 1995 Policy

on Alternative Dispute Resolution

(ADR), as well as Executive Order

12988, and the Congressional

endorsement of ADR as found in the

recently reauthorized Administrative

Dispute Resolution Act of 1996. For all

these reasons, the FBI has decided that,

where an impasse in the negotiations

precludes it from executing a

cooperative agreement with a carrier, it

will consider using mediation (where

the carrier agrees) to achieve, in a timely

fashion, a consensual resolution of all

outstanding issues through facilitated

negotiations. The FBI expects that the

costs of mediation would be shared

equally by the parties, and that each

mediation would be governed by a

separate mediation agreement prepared

by the FBI and the carrier. Accordingly,

§ 100.21 ‘‘Alternative Dispute

Resolution’’ has been added to the Final

Rule.
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13317

16Subtitle II of the CWAAA is ‘‘The Small

Business Regulatory Enforcement Fairness Act of

1996’’ (SBREFA), codified at 5 U.S.C. 601 et seq.

17See 5 U.S.C. 601(3) (incorporating by reference

the definition of ‘‘small business concern’’ in 5

U.S.C. 632).

18 15 U.S.C. 632. See, e.g., Brown Transport

Truckload, Inv. V. Southern Wipers, Inc., 176 B.R.

82 (N.D. Ga. 1994).

19 13 CFR 121.201.

5. ESI Document: Two commenters

expressed concern about the FBI’s

Electronic Surveillance Interface (ESI)

document. The commenters asserted

their belief that the requirements in the

ESI exceeded those of CALEA. The ESI

document is not a requirements

document, rather it is law enforcement’s

recommendation for the delivery

interface between carrier systems and

the law enforcement collection

equipment. It relates only to the

delivery of intercepted communications.

It does not dictate interception

solutions. The ESI document is merely

a contribution to the standard setting

process by law enforcement. The FBI

coordinated the development of the ESI

document with the law enforcement

community and the Department of

Justice to ensure that the

recommendations were consistent with

the scope and intent of CALEA and with

existing electronic surveillance laws. As

such, all costs directly associated with

this approach will be eligible for

reimbursement.

6. Safe Harbor. Two commenters

requested a blanket statement that all

costs associated with meeting a ‘‘safe

harbor’’ standard as described in

CALEA § 107(a)(2) are reimbursable.

Once an industry standard has been

established in accordance with CALEA

§ 107, the costs associated with the

implementation of that standard will be

reviewed for allowability and

reasonableness under this rule.

D. Applicable Administrative

Procedures and Executive Orders

Executive Order 12612

This final rule will not have a

substantial direct effect on the States, on

the relationship between the national

Government and the States, or on

distribution of power and

responsibilities among the various

levels of government. Therefore, in

accordance with Executive Order 12612,

it is determined that this rule does not

have sufficient federalism implications

to warrant the preparation of a

Federalism Assessment.

Executive Order 12866

The FBI has completed its

examination of this final rule in light of

Executive Order 12866 and has found

that it constitutes a significant

regulatory action only under section

3(f)(4). In accordance with section 6 of

Executive Order 12866, the FBI has

submitted this rule, and the proposed

rule which preceded it to the Office of

Information and Regulatory Affairs

(OIRA), OMB, for review, and has met

all of the requirements of this section.

Unfunded Mandates Reform Act of 1995

The FBI has completed its

examination of this final rule in light of

the Unfunded Mandates Reform Act of

1995 and has determined, after

consultation with OIRA, that it does not

impose an unfunded mandate as

defined in that Act.

Paperwork Reduction Act of 1995

In accordance with the Paperwork

Reduction Act of 1995, public comment

has twice been solicited on the reporting

and recordkeeping requirements of this

final rule (61 FR 21396 and 61 FR

58592). As noted above, all comments

have been considered in preparing this

final rule, and significant comments

received have been discussed above in

Section C of the Supplementary

Information. These reporting and

recordkeeping requirements have been

assigned OMB Control Number 1110–

0022 which expires on September 30,

1998.

Regulatory Flexibility Act—Final

Regulatory Flexibility Analysis

As required by section 603 of the

Regulatory Flexibility Act (RFA), 5

U.S.C. 603, a summary of the Initial

Regulatory Flexibility Analysis (IRFA)

was incorporated into the NPRM. The

FBI’s Final Regulatory Flexibility

Analysis (FRFA) conforms with the RFA

as amended by the Contract with

America Advancement Act of 1996

(CWAAA), Public Law 104–121, 110

Stat. 847 (1996).16

A. Need for and Objectives of this Final

Rule

This rule implements section 109 of

the Communications Assistance for Law

Enforcement Act (CALEA) which

requires the Attorney General to

establish regulations which set forth the

procedures telecommunications carriers

must follow in order to receive

reimbursement under sections 109 and

104 of CALEA. CALEA requires that this

rule enable carriers to recover costs in

a timely and cost-efficient manner while

minimizing the cost to the Federal

Government. Specifically, this rule sets

forth the means of determining

allowable costs, reasonable costs, and

disallowed costs. Furthermore, it

establishes the requirements carriers

must meet in their submission of cost

estimates and requests for payment to

the Federal Government for the

disbursement of CALEA funds. Finally,

this rule protects the confidentiality of

trade secrets and proprietary

information from unnecessary

disclosure. The FBI seeks to subject all

carriers to the same regulatory policy,

while allowing carriers to use their

existing accounting systems in the

reimbursement process. Pursuant to the

goal of imposing the least burden on

carriers while also fulfilling the

obligation to adhere to Government

fiscal accountability requirements, this

rule specifies reporting objectives rather

than specifying the manner in which

these records must be kept.

B. Description and Estimates of the

Number of Small Entities Affected by

this Final Rule

The RFA defines a ‘‘small business’’

to be the same as a ‘‘small business

concern’’ under the Small Business Act,

15 U.S.C. § 632, unless the regulating

agency has developed or adopted one or

more definitions that are appropriate to

its activities and are approved by the

Small Business Administration.17 Under

the Small Business Act, a ‘‘small

business concern’’ is one that: (1) Is

independently owned and operated; (2)

is not dominant in its field of operation;

and (3) meets any additional criteria

established by the SBA.18 The SBA has

defined a small business for Standard

Industrial Classification (SIC) categories

4812 (Radiotelephone Communications)

and 4813 (Telephone Communications,

Except Radiotelephone) to be small

entities when they have fewer than

1,500 employees.19 The total number of

small telephone companies falling

within both of those SIC categories in

general is discussed first. The number of

small businesses within the two

subcategories an attempt to refine

further those estimates to correspond

with the categories of telephone

companies that are commonly used by

the FCC follows.

1. Telephone Companies (SIC 481)

Total Number of Telephone

Companies Affected. The rules adopted

herein may have a significant effect on

a substantial number of the small

telephone companies identified by the

SBA. The United States Bureau of the

Census (‘‘the Census Bureau’’) reports

that, at the end of 1992, there were

3,497 firms engaged in providing

telephone services, as defined therein,
13318 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

20United States Department of Commerce,

Bureau of Census, 1992 Census of Transportation,

Communications, and Utilities: Establishment and

Firm Size, at Firm Size 1–123 (1995) (1992 Census).

21 15 U.S.C. 632(a)(1).

22 1992 Census, supra, at Firm Size 1–123.

23 13 CFR 121.201, Standard Industrial

Classification (SIC) Code 4812.

24Federal Communications Commission, CCB,

Industry Analysis Division, Telecommunications

Industry Revenue: TRS Fund Worksheet Data, Tbl.

21 (Average Total Telecommunications Revenue

Reported by Class of Carrier) (Feb. 1996) (TRS

Worksheet).

25 Id.

26 Id.

27Federal Communications Commission, CCB,

Industrial Analysis Division, Long Distance Market

Shares, 2nd Quarter, 1996, (September, 1996).

28Federal Communications Commission, CCB,

Industry Analysis Division, Telecommunications

Industry Revenue: TRS Fund Worksheet Data, Tbl.

21 (Average Total Telecommunications Revenue

Reported by Class of Carrier) (Fbe. 1996) (TRS

Worksheet).

for at least one year.20 This number

contains a variety of different categories

of carriers, including local exchange

carriers, interexchange carriers,

competitive access providers, cellular

carriers, mobile service carriers,

operator service providers, pay

telephone operators, PCS providers,

covered SMRS providers, and resellers.

It seems certain that some of those 3,497

telephone service firms may not qualify

as small entities because they are not

‘‘independently owned and

operated.’’ 21 For example, a PCS

provider that is affiliated with an

interexchange carrier having more than

1,500 employees would not meet the

definition of a small business. It seems

reasonable to conclude, therefore, that

fewer than 3,497 telephone service firms

are small entity telephone service firms

that may be affected by this rule.

Wireless Carriers and Service

Providers. The SBA has developed a

definition of small entities for telephone

communications companies other than

radiotelephone (wireless) companies.

The Census Bureau reports that, there

were 2,321 such telephone companies

in operation for at least one year at the

end of 1992.22 According to the SBA’s

definition, a small business telephone

company other than a radiotelephone

company is one employing fewer than

1,500 persons.23 All but 26 of the 2,321

non-radiotelephone companies listed by

the Census Bureau were reported to

have fewer than 1,000 employees. Thus,

even if all 26 of those companies had

more than 1,500 employees, there

would still be 2,295 non-radiotelephone

companies that might qualify as small

entities. Although it seems certain that

some of these carriers are not

independently owned and operated, the

FBI is unable at this time to estimate

with greater precision the number of

wireline carriers and service providers

that would qualify as small business

concerns under the SBA’s definition.

Consequently, the FBI estimates that

there are fewer than 2,295 small entity

telephone communications companies

other than radiotelephone companies

that may be affected by this rule.

Local Exchange Carriers. Neither the

FCC nor the SBA has developed a

definition of small providers of local

exchange services (LECs). The closest

applicable definition under SBA rules is

for telephone communications

companies other than radiotelephone

(wireless) companies. The most reliable

source of information regarding the

number of LECs nationwide of which

the FBI is aware appears to be the data

that the FCC collects annually in

connection with the

Telecommunications Relay Service

(TRS). According to the FCC’s most

recent data, 1,347 companies reported

that they were engaged in the provision

of local exchange services.24 Although it

seems certain that some of these carriers

are not independently owned and

operated, or have more than 1,500

employees, the FBI is unable at this time

to estimate with greater precision the

number of LECs that would qualify as

small business concerns under the

SBA’s definition. Consequently, the FBI

estimates that there are fewer than 1,347

small incumbent LECs that may be

affected by this rule.

Interexchange Carriers and Resellers.

Neither the FCC nor the SBA has

developed a definition of small entities

specifically applicable to providers of

interexchange services (IXCs). The

closest applicable definition under SBA

rules is for telephone communications

companies other than radiotelephone

(wireless) companies.

The most reliable source of

information regarding the number of

IXCs only nationwide of which the FBI

is aware appears to be the data that the

FCC collects annually in connection

with TRS. According to the FCC’s most

recent data, 97 companies reported that

they were engaged in the provision of

interexchange services.25 Although it

seems certain that some of these carriers

are not independently owned and

operated, or have fewer than 1,500

employees, the FBI is unable at this time

to estimate with greater precision the

number of IXCs only that would qualify

as small business concerns under the

SBA’s definition. Consequently, the FBI

estimates that there are fewer than 97

small entity IXCs only that may be

affected by this rule.

Neither the FCC nor the SBA has

developed a definition of small entities

specifically applicable to resellers. The

closest applicable definition under SBA

rules is for all telephone

communications companies. The most

reliable source of information regarding

the number of resellers only nationwide

of which the FBI is aware appears to be

the data that the FCC collects annually

in connection with the TRS. According

to the FCC’s most recent data, 206

companies reported that they were

engaged in the resale of telephone

services.26 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, the

FBI is unable at this time to estimate

with greater precision the number of

resellers only that would qualify as

small business concerns under the

SBA’s definition. Consequently, the FBI

estimates that there are fewer than 206

small entity resellers only that may be

affected by this rule.

However, the FCC does have more

recent data which combines IXCs and

resellers. According to the FCC’s most

recent combined data, 583 companies

were determined to be either IXCs or

resellers.27 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, the

FBI is unable at this time to estimate

with greater precision the combined

number of IXCs and resellers that would

qualify as small business concerns

under the SBA’s definition.

Consequently, the FBI estimates that

there are fewer than 583 small entity

IXCs and resellers that may be affected

by this rule.

Competitive Access Providers. Neither

the FCC nor the SBA has developed a

definition of small entities specifically

applicable to providers of competitive

access services (CAPs). The closest

applicable definition under SBA rules is

for telephone communications

companies other than radiotelephone

(wireless) companies. The most reliable

source of information regarding the

number of CAPs nationwide of which

the FBI is aware appears to be the data

that the FCC collects annually in

connection with the TRS. According to

the FCC’s most recent data, 30

companies reported that they were

engaged in the provision of competitive

access services.28 Although it seems

certain that some of these carriers are

not independently owned and operated,

or have more than 1,500 employees, the

FBI is unable at this time to estimate

with greater precision the number of

CAPs that would qualify as small

business concerns under the SBA’s
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13319

29 Id.

30 Id.

31 1992 Census, supra, at Firm Size 1–123.

32 13 C.F.R. 121.201, SIC Code 4812.

33 Id.

34 Id.

35See Implementation of Section 309(j) of the

Communications Act—Competitive Bidding, PP

Docket No. 93–253, Fifth Report and Order, 9 FCC

Rcd 5532, 5581–84 (1994).

36Amendment of Parts 20 and 24 of the

Commission’s Rules—Broadband PCS Competitive

Bidding and the Commercial Mobile Radio Service

Spectrum Cap, WT Docket No. 96–59, Amendment

of the Commission’s Cellular/PCS Cross-Ownership

Rule, Report and Order, GN Docket No. 90314, FCC

96–278 (rel. June 24, 1996).

definition. Consequently, the FBI

estimates that there are fewer than 30

small entity CAPs that may be affected

by this rule.

Operator Service Providers. Neither

the FCC nor the SBA has developed a

definition of small entities specifically

applicable to providers of operator

services. The closest applicable

definition under SBA rules is for

telephone communications companies

other than radiotelephone (wireless)

companies. The most reliable source of

information regarding the number of

operator service providers nationwide of

which the FBI is aware appears to be the

data that the FCC collects annually in

connection with the TRS. According to

the FCC’s most recent data, 29

companies reported that they were

engaged in the provisions of operator

services.29 Although it seems certain

that some of these companies are not

independently owned and operated, or

have more than 1,500 employees, the

FBI is unable at this time to estimate

with greater precision the number of

operator service providers that would

qualify as small business concerns

under the SBA’s definition.

Consequently, the FBI estimates that

there are fewer than 29 small entity

operator service providers that may be

affected by this rule.

Pay Telephone Operators. Neither the

FCC nor the SBA has developed a

definition of small entities specifically

applicable to pay telephone operators.

The closest applicable definition under

SBA rules is for telephone

communications companies. The most

reliable source of information regarding

the number of pay telephone operators

nationwide of which the FBI is aware

appears to be the data that the FCC

collects annually in connection with the

TRS. According to the FCC’s most

recent data, 197 companies reported

that they were engaged in the provision

of pay telephone services.30 Although it

seems certain that some of these carriers

are not independently owned and

operated, or have more than 1,500

employees, the FBI is unable at this time

to estimate with greater precision the

number of pay telephone operators that

would qualify as small business

concerns under the SBA’s definition.

Consequently, the FBI estimates that

there are fewer than 197 small entity

pay telephone operators that may be

affected by this rule.

Wireless (Radiotelephone) Carriers.

The SBA has developed a definition of

small entities of radiotelephone

(wireless) companies. The Census

Bureau reports that there were 1,176

such companies in operation for at least

one year at the end of 1992.31 According

to the SBA’s definition a small business

radiotelephone company is one

employing fewer than 1,500 persons.32

The Census Bureau also reported that

1,164 of those radiotelephone

companies had fewer than 1,000

employees. Thus, even if all of the

remaining 12 companies had more than

1,500 employees, there would still be

1,164 radiotelephone companies that

might qualify as small entities if they

are independently owned and operated,

the FBI is unable at this time to estimate

with greater precision the number of

radiotelephone carriers and services

providers that would qualify as small

business concerns under the SBA’s

definition. Consequently, the FBI

estimates that there are fewer than 1,164

small entity radiotelephone companies

that may be affected by this rule.

Cellular Service Carriers. Neither the

FCC nor the SBA has developed a

definition of small entities specifically

applicable to providers of cellular

services. The closest applicable

definition under SBA rules is for

radiotelephone (wireless) companies.

The most reliable source of information

regarding the number of cellular service

carriers nationwide of which the FBI is

aware appears to be the data that the

FCC collects annually in connection

with the TRS. According to the FCC’s

most recent data, 789 companies

reported that they were engaged in the

provision of cellular services.33

Although it seems certain that some of

these carriers are not independently

owned and operated, or have more than

1,500 employees, the FBI is unable at

this time to estimate with greater

precision the number of cellular service

carriers that would qualify as small

business concerns under the SBA’s

definition. Consequently, the FBI

estimates that there are fewer than 789

small entity cellular service carriers that

may be affected by this rule.

Mobile Service Carriers. Neither the

FCC nor the SBA has developed a

definition of small entities specifically

applicable to mobile service carriers,

such as paging companies. The closest

applicable definition under SBA rules is

for radiotelephone (wireless)

companies. The most reliable source of

information regarding the number of

mobile service carriers nationwide of

which the FBI is aware appears to be the

data that the FCC collects annually in

connection with the TRS. According to

the FCC’s most recent data, 117

companies reported that they were

engaged in the provision of mobile

services.34 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, the

FBI is unable at this time to estimate

with greater precision the number of

mobile service carriers that would

qualify under the SBA’s definition.

Consequently, the FBI estimates that

there are fewer than 117 small entity

mobile service carriers that may be

affected by this rule.

Broadband PCS Licensees. The

broadband PCS spectrum is divided into

six frequency blocks designated A

through F. As set forth in 47 C.F.R.

§ 24.720(b), the FCC has defined ‘‘small

entity’’ in the auctions for Blocks C and

F as a firm that had average gross

revenues of less than $40 million in the

three previous calendar years. The

FCC’s definition of a ‘‘small entity’’ in

the context of broadband PCS auctions

has been approved by the SBA.35 The

FCC has auctioned broadband PCS

licenses in Blocks A, B, and C. Neither

the FCC nor the FBI has sufficient data

to determine how many small

businesses bid successfully for licenses

in Blocks A and B. There were 90

winning bidders that qualified as small

entities in the Block C auction. Based on

this information, the FBI concludes that

the number of broadband PCS licensees

affected by this rule includes, at a

minimum, 90 winning bidders that

qualified as small entities in the Block

C broadband PCS auction.

At present, no licenses have been

awarded for Blocks D, E, and F of

broadband PCS spectrum. Therefore,

there are no small business currently

providing these services. However, a

total of 1,479 licenses will be awarded

in the D, E, and F Block broadband PCS

auctions, which began on August 26,

1996. Eligibility for the 483 F Block

licenses is limited to entrepreneurs with

average gross revenues of less than $125

million.36 The FBI cannot estimate the

number of licenses that will be won by

small entities under the FCC’s

definition, nor how many small entities

will win D or E Block licenses. Given

that nearly all radiotelephone
13320 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

37 1992 Census, Table 5, Employment Size of

Firms: 1992, SIC Code.

38See Amendment of Parts 2 and 90 of the

Commission’s Rules to Provide for the Use of 200

Channels Outside the Designated Filing Areas in

the 896–901 MHz and the 935–940 MHz Bands

Allotted to the Specialized Mobile Radio Pool, PR

Docket No. 89–583, Second Order on

Reconsideration and Seventh Report and Order, 11

FCC Rcd 2639, 2693–702 (1995); Amendment of

Part 90 of the Commission’s Rules to Facilitate

Future Development of SMRS Systems in the 800

MHz Frequency Band, PR Docket No. 93–144, First

Report and Order, Eighth Report and Order, and

Second Further Notice of Proposed Rulemaking, 11

FCC Rcd 1463 (1995).

39 13 CFR 121.201, Standard Industrial

Classification (SIC) Code 4812.

40EA licenses refer to the 60 channels in the 172

geographic economic areas as defined by the Bureau

of Economic Analysis, Department of Commerce.

See In the Matter of Amendment of Part 90 of the

Commission’s Rules to Provide for the Use of the

220–222 MHz Band by the Private Land Mobile

Radio Service, Second Memorandum Opinion and

Order and Third Notice of Proposed Rule Making,

GN Docket 93–252, 10 FCC Rcd 188 (1995).

41See In the Matter of Amendment of Part 90 of

the Commission’s Rules to Provide for the Use of

the 220–222 MHz Band by the Private Land Mobile

Radio Service, Second Memorandum Opinion and

Order and Third Notice of Proposed Rule Making,

GN Docket 93–252, 10 FCC Rcd 188 (1995).

42See U.S. Bureau of the Census, U.S. Department

of Commerce, 1992 Census of Transportation,

communications, and Utilities, UC92–S–1, Subject

Series, Establishment and Firm Size, Table 5,

Employment Size of Firms; 1992, SIC Code 4812

(issued May 1995).

43 13 CFR 121.201, Standard Industrial

Classification (SIC) Code 4812.

44U.S. Small Business Administration 1992

Economic Census Employment Report, Bureau of

the Census, U.S. Department of Commerce, SIC

Code 4812 (radiotelephone communications

industry data adopted by the SBA Office of

Advocacy).

45 1992 Census, supra, at Firm Size 1–123.

46Amendment of the Commission’s Rules to

Permit Flexible Service Offerings in the Commercial

Mobile Radio Services, First Report and Order and

Further Notice of Proposed Rule Making, WT

Docket No. 96–6, 11 FCC Rcd 8965, 9025 (1996).

companies have fewer than 1,000

employees 37 and that no reliable

estimate of the number of prospective D,

E, and F Block licensees can be made,

the FBI assumes, for the purposes of this

FRFA, that all of the licensees in the D,

E, and F Block Broadband PCS auctions

may be awarded to small entities which

may be affected by this rule.

SMRS Licensees. Pursuant to 47

C.F.R. § 90.814(b)(1), the FCC had

defined ‘‘small entity’’ in auctions for

geographic area 800 MHz and 900 MHz

SMRS licenses as a firm that had

average annual gross revenues of less

than $15 million in the three previous

calendar years. This definition of a

‘‘small entity’’ in the context of 800

MHz and 900 MHz SMRA has been

approved by the SBA.38 This rule may

apply to SMRS providers in the 800

MHz and 900 MHz band that either hold

geographic area licenses or have

obtained extended implementation

authorizations. The FBI does not know

how many firms provide 800 MHz or

900 MHz geographic area SMRS service

pursuant to extended implementation

authorizations, nor how many of these

providers have annual revenues of less

than $15 million. The FBI assumes, for

purpose of this FRFA, that all of the

extended implementation

authorizations may be held by small

entities, which may be affected by this

rule.

The FCC recently held auctions for

geographic area licenses in the 900 MHz

SMRS bands. There were 60 winning

bidders who qualified as small entities

in the 900 MHz auction. Based on this

information, the FBI concludes that the

number of geographic area SMRS

licensees affected by this rule includes

these 60 small entities. No auctions

have been held for the 800 MHz

geographic area SMRS licenses.

Therefore, no small entities currently

hold these licenses. A total of 525

licenses will be awarded for the upper

200 channels in the 800 MHz

geographic area SMRS auction.

However, the FCC has not yet

determined how many licenses will be

awarded for the lower 230 channels in

the 800 MHz geographic area SMRS

auction. There is no basis moreover, on

which to estimate how many small

entities will win these licenses. Given

that nearly all radiotelephone

companies have fewer than 1,000

employees and that no reliable estimate

of the number of prospective 800 MHz

licensees can be made, the FBI assumes,

for purposes of this FRFA, that all of the

licenses may be awarded to small

entities who may be affected by this

rule.

Commerical Paging and Commercial

220 MHz Radio Services. Neither the

FCC nor the SBA has developed a

definition of small entities specifically

applicable to providers of paging

services. The closest applicable

definition under SBA rules is for

radiotelephone (wireless) companies.39

With respect to commercial 220 MHz

services, the FCC has proposed a twotiered definition of small business for

purposes of auctions: (1) for EA

licensees,40 a firm with average annual

gross revenues of not more than $6

million for the preceding three years

and (2) for regional and nationwide

licensees, a firm with average annual

gross revenues of not more than $15

million for the preceding 3 years.41

Since this definition has not yet been

approved by the SBA, the FBI will use

the SBA’s definition applicable to

radiotelephone companies. The FBI

notes that while there are incumbents in

this service, they are not commercial

providers and will not, therefore, be

affected by this rule. Since there have

been no auctions for either service as of

yet and the parameters of the industry

have not been fully defined, any

estimate of the number of small

businesses who will seek to bid in the

future auctions is not yet determined.

Given the fact that nearly all

radiotelephone companies have fewer

than 1,000 employees,42 and that no

reliable estimate of the number of

prospective licensees can be made, the

FBI assumes, for the purposes of its

evaluations and conclusion in this

FRFA, that all of the licenses will be

awarded to small entities, as that term

is defined by the SBA.

Interconnected Business Services.

Neither the FCC nor the SBA has

developed a definition of small entities

specifically applicable to providers of

for-profit interconnected business

services. The closest applicable

definition under SBA rules is for

radiotelephone (wireless) companies.43

The size data provided by the SBA does

not enable the FBI to make a meaningful

estimate of the number of for-profit

interconnected business service

providers which are small entities

because it combines all radiotelephone

companies with 500 or more

employees.44 The Census Bureau

reports that only 12 out of a total of

1,178 radiotelephone firms which

operated during 1992 had 1,000 or more

employees.45 However, the FCC does

not know how many of the 1,178 firms

were for-profit interconnected business

service companies. Although there are

in excess of 13,000 for-profit

interconnected business service

licenses, the FCC is unable to determine

the number of for-profit interconnected

business service licensees because a

single licensee may own several

licenses.46 Given these facts, the FBI

assumes, for purposes of this FRFA, that

all of the current inter-connected

business service licensees are small

entities, as that term is defined by the

SBA.

2. Cable System Operators (SIC 4841)

The SBA has developed a definition

of small entities for cable and other pay

television services, which includes all

such companies generating less than

$11 million in revenue annually. This

definition includes cable systems

operators, closed circuit television

services, direct broadcast satellite

services, multipoint distribution

systems, satellite master antenna

systems and subscription television

services. According to the Census
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13321

47 1992 Census, supra, at Firm Size 1–123.

48 47 CFR § 76.901(e). The Commission developed

this definition based on its determination that a

small cable system operator is one with annual

revenues of $100 million or less. Implementation of

Sections of the 1992 Cable Act: Rate Regulation,

Sixth Report and Order and Eleventh Order and

Reconsideration, 10 FCC Red 7393.

49Paul Kagan Associates, Inc., Cable TV Investor,

Feb. 29, 1996 (based on figures for Dec. 30, 1995).

50 47 U.S.C. 543(m)(2).

51Paul Kagan Associates, Inc., Cable TV Investor,

Feb. 29, 1996 (based on figures for Dec. 30, 1995).

52See 5 U.S.C. § 604(a)(4).

53See 5 U.S.C. § 604(a)(5).

54 31 U.S.C. 701 et seq. specifically, 31 U.S.C. 712

authorizes the Comptroller General to investigate all

matters related to the receipt, disbursement, and

use of public money.

Bureau, there were 1,323 such cable and

other pay television services generating

less and $11 million in revenue that

were in operation for at least one year

at the end of 1992.47

The FCC has developed its own

definition of a small cable system

operator for the purposes of rate

regulation. Under the FCC’s rules, a

‘‘small cable company’’ is one serving

fewer than 400,000 subscribers

nationwide.48 Based on the FCC’s most

recent information, the FBI estimates

that there were 1,439 cable operators

that qualified as small cable system

operators at the end of 1995.49 Since

then, some of those companies may

have grown to serve over 400,000

subscribers, and others may have been

involved in transactions that caused

them to be combined with other cable

operators. In addition, it is unlikely that

many of the ‘‘small cable companies’’

will be engaging in activities as

‘‘telecommunications carriers’’ as

defined by CALEA. Consequently, the

FBI estimates that there are significantly

fewer than 1,439 small entity cable

system operators that may be affected by

this rule.

The Communications Act of 1934, as

amended, also contains a definition of a

small cable system operator, which is ‘‘a

cable operator that, directly or through

an affiliate, serves in the aggregate fewer

than 1 percent of all subscribers in the

United States and is not affiliated with

any entity or entities whose gross

annual revenues in the aggregate exceed

$250,000,000.’’ 50 There were

63,196,310 basic cable subscribers at the

end of 1995, and 1,450 cable system

operators serving fewer than one

percent (631,960) of subscribers.51

Although it seems certain that some of

these cable system operators are

affiliated with entities whose gross

annual revenues exceed $250,000,000,

the FBI is unable at this time to estimate

with greater precision the number of

cable system operators that would

qualify as small cable operators under

the definition of small cable system

operator in the Communications Act of

1934.

C. Reporting, Recordkeeping, and Other

Compliance Requirements and Steps

Taken to Minimize the Significant

Economic Impact of This Report and

Order on Small Entities, Including the

Significant Alternatives Considered and

Rejected

Structure of the Analysis. In this

section of the FRFA, the FBI analyzes

the projected reporting, recordkeeping,

and other compliance requirements that

may apply to small entities as a result

of this rule.52 As a part of this

discussion, the FBI mentions some of

the types of skills that will be needed to

meet the new requirements. The FBI

also describes the steps taken to

minimize the economic impact of this

rule on small entities, including the

significant alternatives considered and

rejected.53

The FBI provides this information to

provide context for its analysis in this

FRFA. To the extent that any statement

contained in this FRFA is perceived as

creating ambiguity with respect to this

rule, the rule shall be controlling.

1. Reporting, Recordkeeping, and Other

Compliance Requirements

This rule requires carriers to submit

cost estimates and requests for payment

to the FBI to receive reimbursement

with CALEA funds. To meet the

reporting requirements for these

submissions, carriers must submit

quantitative cost data, such as labor

rates, estimates, and invoices for

equipment or services procured from

subcontractors. This data is necessary to

evaluate cooperative agreement

proposals and subsequent requests for

reimbursement under CALEA, and will

be used to determine whether agreement

prices are fair and reasonable.

No forms are prescribed for these

submissions; rather, in order to allow

carriers to use their existing accounting

systems, the rule simply prescribes the

types of information and the headings

for submissions. Carriers may then

determine the best means of meeting the

required submission of data in the way

least burdensome for their staffs. The

FBI anticipates that small carriers will

have the least difficulty meeting the

requirements because their accounting

systems are less likely to require

complex calculations or extensive

explanations of such calculations.

The FBI estimates that there are fewer

than 3,497 small carriers, as discussed

above, which could be affected by this

rule over a 5 year period. Given the

difficulty in determining with any

accuracy the number of small carriers,

for purposes of the Paperwork

Reduction Act of 1995, the FBI has

calculated its estimate of the reporting

and recordkeeping requirements on a

per switch basis. There are

approximately 23,000 switches which

may require modification at some point

during the 5 year CALEA

implementation period. Therefore, given

this 5 year time span, the total

maximum number of annual responses

from all carriers is estimated at 4,600.

However, the very nature of small

carriers ensures that the number of

switches affect per year which are

owned and operated by small carriers

will be significantly less than 4,600.

Based on the collection of similar data

under the Federal Acquisition

Regulation (FAR) and on the nature of

the telecommunications industry, the

time to read and prepare the required

information for one switch is estimated

at 4 hours. Therefore, an extremely

small carrier with only one switch

might have only 4 burden hours

imposed whereas a larger carrier with

50 switches might have 200 burden

hours imposed.

The recordkeeping necessitated by

this rule is, for the most part, the same

as that the carriers would do in the

normal course of business. The only

exception might be in the case of

carriers which do not maintain sitespecific records. These carriers would

be required to maintain CALEA-specific

records for audit purposes. This

requirement is as much for the carrier’s

protection as for the needs of the

Government, given that the

development and maintenance of such

records assure that the carrier will be

able to provide the required information

with the least disruption of its business

should its acceptance and use of

appropriated funds be audited by the

Comptroller General.54 Finally, given

that carriers are using their existing

accounting systems, the accounting and

financial management skills of their

current personnel are all that is required

by this rule.

2. Steps taken to Minimize Burdens on

Small Entities

First, the guiding principle in the

development of this rule was to allow

the maximum range of compliance

options to carriers dependent upon their

own accounting systems. The rule was

crafted such that it requires the

minimum level of data submission

possible which still allows the FBI to
13322 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

55 January through September, 1995.

56October, 1995 through April, 1996.

57ECSP meeting held at Telecommunications

Industry Liaison Unit’s facility on November 15,

1995.

58May through July, 1996. ECSP meeting held at

the Telecommunications Industry Liaison Unit’s

facility on June 26, 1996.

59 48 CFR 9901.306 states that ‘‘Cost Accounting

Standards promulgated by the [Cost Accounting

Standards Board] shall be mandatory for use by all

executive agencies and by contractors and

subcontractors in estimating, accumulating, and

reporting costs in connection with pricing and

administration of, and settlement of disputes

concerning, all negotiated prime contract and

subcontract procurements with the United States

Government in excess of $500,000. * * *’’

meet its good stewardship

responsibilities with respect to taxpayer

funds. Furthermore, the dual mandate of

CALEA requiring this rule to permit

timely and cost-effective payment to

carriers of costs directly associated with

the compliance effort while minimizing

the costs to the Government has limited

the FBI’s ability to be flexible in some

areas such as the determination of

allowable costs.

Within this framework, the FBI has

sought industry input at all stages of the

rulemaking process. Initially, the FBI

met with carriers and associations, such

as NECA and PCIA, in order to explain

the requirements of CALEA § 109 and to

solicit questions and comments from the

industry.55 Using the industry input

from these meetings, the FBI drafted the

initial versions of the proposed rule. As

each draft was completed, the FBI

incorporated its outline and sections of

actual text into the presentations the FBI

continued to make to the industry. At

this stage, the FBI met with

representatives of both wireline and

wireless carriers.56 In addition, the FBI

presented to the Electronic

Communications Service Provider

(ECSP) committee both the outline of

the draft proposed rule and an

explanation of how such concepts as

allowability and reasonableness of costs

were being treated. In addition to carrier

representatives, ECSP membership

includes representatives of various

associations, including CTIA, NECA,

PCIA, and USTA. Again the FBI

solicited comments and issued an open

invitation to meet with anyone who

wished to discuss the cost recovery

rules further.57 Once the proposed rule

was published, the FBI met again with

the ECSP committee and with a variety

of individual carriers and associations

to provide supplemental explanations of

the proposed rule and to once again

solicit comments and extend the

invitation to discuss the rule further.58

Finally, the FBI has maintained an ongoing dialogue with the

telecommunications industry with

regard to the CALEA cost recovery rules,

both through meetings and in the

responses to comments in the

Supplementary Information of this

document.

In addition to industry input, the FBI

solicited advice from a number of other

government entities including the

Department of Justice, the FCC, the

General Accounting Office, and the

Office of Management and Budget. With

specific regard to the needs of small

carriers, the FBI has also actively sought

the assistance of both the Office of

Advocacy at the SBA and the Office of

Communications Business

Opportunities at the FCC.

In addition the FBI is currently

drafting a Small Business Compliance

Guide (Guide) in accordance with

SBREFA. This Guide will be provided to

the SBA and the various associations

representing the interests of small

entities in telecommunications industry.

It will also be available upon request

from the FBI. and FBI small business

liaison able to assist small carriers with

the compliance process will also be

identified in the Guide.

3. Significant Alternatives Considered

and Rejected

The FBI considered and rejected a

number of alternatives prior to drafting

its proposed rule. Initially, the FBI

considered whether a new regulation

was actually necessary. That some

procedures were required was obvious

from the mandate of CALEA 109(e)

which directs the Attorney General to

‘‘establish regulations necessary to

effectuate timely and cost-effective

payment to telecommunications

carriers’’ to reimburse carriers for

certain compliance costs. However, it

seemed possible that some existing

regulations might be used for this

purpose.

First, the FBI considered using the

FAR as a vehicle for carrying out

reimbursement. However, it became

readily apparent that this approach was

nonproductive. The FAR was designed

for Federal procurement actions in

which the contractor not only recovers

direct and indirect costs, but also makes

a profit. CALEA specifically restricts

reimbursement to costs directly

associated with the modifications

performed for CALEA compliance. In

addition, the FAR could require that

contractors maintain and use accounting

systems which are compliant with the

Cost Accounting Standards as set forth

in 48 CFR 30, ‘‘Cost Accounting

Standards’’ (Part 30). Given that many of

the telecommunications carriers,

particularly those classified as small

entities, could be required to implement

entirely new accounting systems to meet

this requirement,59 the FBI determined

that using the FAR would impose far too

great a burden. In addition, using the

FAR could also violate the Paperwork

Reduction Act of 1995 by requiring

some carriers already subject to FCC

reporting requirements to maintain

duplicate records. Therefore, the FBI

rejected this alternative.

Second, the FBI considered using the

FCC’s accounting regulations found in

47 CFR 32, ‘‘Uniform System of

Accounts for Telecommunications

Companies’’ (Part 32) as a vehicle for

carrying out reimbursement. However, it

became readily apparent that this

approach was also non-productive.

While large wireline carriers dealt with

these regulations on a regular basis,

many small wireline carriers were

exempt from detailed reporting

requirements. Furthermore, wireless

carriers, a large number of which are

classified as small entities, had never

been bound by these regulations. Given

that many of these small wireline and

wireless carriers would be required to

implement entirely new accounting

systems to meet this requirement, the

FBI determined that using Part 32 of the

FCC’s regulations would impose far too

great a burden. Therefore, the FBI

rejected this alternative.

The FBI could identify no other

existing regulations which might

provide viable alternatives. Ultimately,

the FBI determined that it was necessary

to develop new regulations which were

both industry and CALEA specific; this

rule is the result of that development

effort.

In developing this rule, the FBI

explored two options which might ease

the regulatory burden on small entities.

The FBI considered using a tiered

system similar to those the FCC uses.

The FBI also considered allowing small

carriers to seek waivers of certain

reporting requirements. However, this

rule was crafted to permit

reimbursement for the maximum

amount allowable under CALEA and

requires the minimum level of data

submission possible that allows (1) The

FBI to meet its good stewardship

responsibilities with respect to taxpayer

funds; and (2) the carriers to meet the

requirements of an audit by the

Comptroller General. In addition, the

flexibility of the cooperative agreement

process and the minimal nature of the

reporting requirements obviate the need

for any issuance of waivers. Therefore,

the FBI determined that no special
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13323

exemptions or waivers for small carriers

were viable.

D. Issues Raised and Alternatives

Suggested in Response to the IRFA

No comments were submitted

specifically in response to the IRFA. In

general comments on the proposed rule,

however, some commenters raised

issues that might affect small entities.

Some commenters also proposed

alternatives which they believed might

ease the burden on small carriers.

1. Issues Raised

Reporting and Recordkeeping

Requirements. Several commenters

either classified as small entities for

regulatory purposes or representing

such small entities were concerned

about what they perceived to be the

excessive reporting and recordkeeping

requirements of § 100.16 and § 100.17 of

the proposed rule. These comments

have been addressed at length both in

the discussion of general comments

received (Section C., Significant

Comments and Changes) and in the

discussion of reporting and

recordkeeping requirements in this

FRFA (Section C., 1. Reporting,

Recordkeeping, and Other Compliance

Requirements) above. In Section C.,

Significant Comments and Changes,

small entities are specifically referred to

comment responses 30 through 45, with

emphasis on response 32. The FBI has

considerably clarified and streamlined

the reporting and recordkeeping

requirements and believes that this final

rule reflects the least burdensome

reporting and recordkeeping

requirements possible with regard to

small entities.

Definition of ‘‘First-Line Supervision’’.

One small wireless carrier expressed

concern over the nature and definition

of ‘‘first-line supervision’’ as that phrase

was used in proposed § 100.11(b)(2)

(‘‘Allowable costs’’; Allowable plant

specific costs; first-line supervision).

This commenter interpreted this

subsection as excluding from eligibility

for reimbursement the work of some

individuals who, of necessity, perform

many different functions in a small

business. This was not the FBI’s intent.

For the purposes of reimbursement, it is

not job title which matters, but rather

the nature of the work performed.

Therefore, if the CEO of a company also

happens to be the engineer responsible

for network engineering, the time that

individual spends coordinating the

integration of the CALEA compliant

solution into the network will be

reimbursable, while the time spent

managing the general business affairs of

the company will not be reimbursable.

In addition to this explanation, the FBI

has changed the term ‘‘first-line

supervision’’ to the more commonly

used ‘‘direct supervision’’ and has

provided a definition of ‘‘direct

supervision’’ in § 100.10 of the final rule

to clarify this issue in the rule.

Burden of Proof. A few commenters

either classified as small entities for

regulatory purposes or representing

such small entities were concerned

about the burden of proof requirements

in proposed § 100.12(a)(1),

§ 100.12(a)(2), § 100.13(a)(3), and

§ 100.14(b). These subsections establish

that no presumption of reasonableness

is attached to the incurrence of costs by

a carrier and that burden of proof that

a cost is reasonable for the purposes of

CALEA reimbursement rests with the

carrier. The commenters believed that

the burden of proof might be too

onerous for small entities, particularly

with respect to supporting

documentation submission. These

comments have been specifically

addressed in the discussion of general

comments received (Section C.,

Significant Comments and Changes) and

generally addressed in the discussion of

reporting and recordkeeping

requirements in this FRFA (Section C.,

1. Reporting, Recordkeeping, and Other

Compliance Requirements) above. In

Section C., Significant Comments and

Changes, small entities are specifically

referred to comment responses 17, 18,

and 21.

It must be noted that small entities

will be required to submit

supplementary documentation meeting

the burden of proof only if a question

arises regarding a specific cost on a cost

estimate or request for payment. In

addition, the specifics of what

constitutes adequate documentation to

meet the burden of proof will be

definitized during the cooperative

agreement process. The FBI is cognizant

of the special needs of small carriers

and will make every effort to work with

small carriers to tailor the burden of

proof requirements to meet their needs

during the cooperative agreement

process. Furthermore, the FBI

anticipates that small carriers will have

the least difficulty meeting the

requirements because their accounting

systems are less likely to entail complex

calculations and, therefore, less likely to

require extensive supporting

explanations of such calculations.

Carrier Responsibility for Sole-Source

Suppliers. Several commenters, either

classified as small entities for regulatory

purposes or representing the interests of

such small entities, expressed concern

that holding small carriers responsible

for the cost data of their sole-source suppliers [proposed § 100.19(c)(1)] was

unduly burdensome. Specifically, these

commenters asserted that small entities

have little control over their sole-source

suppliers because of the nature of their

networks and their inability to make

bulk purchases. The FBI is cognizant of

this situation and is prepared to make

accommodations for such situations

during the cooperative agreement

process with small carriers. However,

this provision exists to ensure that all

carriers make a good faith effort to seek

the most cost-effective solutions for

their networks. The FBI requires only

that small carriers negotiate prices with

their sole-source suppliers for CALEArelated work in the same manner that

these small carriers would negotiate if

the work were solely to benefit their

businesses. Therefore, the FBI cannot

relieve small carriers of this

responsibility.

2. Alternatives Suggested

Tiered System. One association

representing the interests of small

carriers suggested that the FBI institute

a tiered system, similar to the FCC’s, for

the reporting requirements of this rule.

In developing this rule, the FBI did

consider using a tiered system as a

means of easing the burden on small

entities. However, this rule permits

reimbursement for the maximum

amount allowable under CALEA and

requires the minimum level of data

submission possible that allows (1) The

FBI to meet its good stewardship

responsibilities with respect to taxpayer

funds; and (2) the carriers to meet the

requirements of an audit by the

Comptroller General. Therefore, the FBI

determined that no exemptions based

upon carrier size were feasible and that

no tiered system could be implemented.

Therefore, this proposed alternative was

rejected.

FCC Collaboration/Rulemaking. One

commenter, which was not a small

entity, suggested that the FBI and DOJ

collaborate with the FCC to determine

the best mechanism for ensuring

compliance with CALEA. The

commenter asserted that this would

yield greater input from industry, allow

for coordination and consistent

application of telecommunications law

and policy, and allow the FBI to use

FCC developed rules and procedures

permitting the use of established

industry cost allocation manuals.

First, the FBI did consult with the

FCC in the development of these rules.

Specifically, the FBI consulted with the

FCC in order to ensure consistent

application of telecommunications law

and policy in the development of this

rule. The FBI also drew on the FCC’s
13324 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

considerable knowledge of the

telecommunications industry during the

development of this rule. Second, the

FBI strove for the maximum industry

input, not only by publishing the

proposed notice in the Federal Register

requesting comment, but also by

meeting with industry representatives

and associations during the

development process and, concurrent

with publication, directly soliciting

input by all parties which had requested

that they be included on the proposed

rule distribution list. Furthermore, the

FBI made every effort to distribute the

proposed rule to the various industryrelated associations in order to reach the

broadest commenter possible. Thus, the

FBI is confident that it did receive input

from the industry. Lastly, using industry

established cost allocation manuals,

which establish fully distributed cost

methodologies, is not a viable option

under CALEA’s mandate to reimburse

only for directly associated costs.

Therefore, this proposed alternative was

rejected.

Keep Cost System. One commenter,

which was not a small entity, suggested

that the FBI allow carriers to use their

existing keep cost system. This system,

which is used by many large carriers, is

a cost accumulation system that allows

the user to identify costs to specific

accumulation points. These rules do not

preclude the use of carriers existing

systems to the extent that the system

can exclude or specifically identify

costs that are not allowable under

CALEA. However, if the FBI were to

prescribe this type of system, many

carriers, especially those classified as

small entities, could be forced to alter

their existing accounting systems.

Therefore, this proposed alternative was

rejected.

Rural Utility Services Loan Proposal

Forms. One association representing the

interest of small carriers suggested that

the FBI use the existing Rural Utility

Services loan proposal form for cost

data submission given that it already

exists and that small carriers understand

the form. The FBI reviewed the form

and its underlying requirements and

found that some of the information

required is similar. However, the form

itself requires unnecessary details and

information not applicable to CALEA.

Use of this form could, therefore, cause

confusion within the industry as to

what is required under CALEA.

Additionally, not all small carriers are

familiar with this form. Therefore, this

potential alternative was rejected.

Separate Rules for the Wireless

Industry. One association representing

the interests of wireless carriers

suggested that the FBI implement

separate rules for wireless carriers

because their accounting systems were

different from those prescribed for

wireline carriers. However, as long as

wireless carriers are using accounting

systems which generate financial

statements which are in accordance

with generally accepted accounting

principles, the final rule will allow

wireless providers to use their current

accounting systems to meet

requirements of this rule. Therefore, this

potential alternative was rejected.

E. Conclusion

The FBI believes this rule is fair to

small entities and is committed to

assisting them in complying with it. The

FBI intends to maintain an on-going

dialogue with the Office of Advocacy at

the SBA and with representatives of

small carriers, both wireline and

wireless, with regard to the

development of the Small Business

Compliance Guide. In addition, the FBI

is in the process of identifying a small

business liaison for CALEA

reimbursement issues to ensure that

small carriers are provided with the

information and assistance they need to

comply with this rule in the least

burdensome manner possible.

Finally, small carriers are reminded

that they are in no way obligated to

expend funds on modifications eligible

for reimbursement pursuant to CALEA

sections 109(a), 109(b)(2) and 104(e)

prior to the execution of a cooperative

agreement. Therefore, in the event they

are selected for reimbursement, they

will have both the direct assistance of

the FBI’s contracting officer and the

opportunity to tailor the cooperative

agreement to meet their special needs.

List of Subjects in 28 CFR Part 100

Accounting, Law enforcement,

Reporting and recordkeeping

requirements, Telecommunications,

Wiretapping and electronic

surveillance.

For the reasons set out in the

preamble, 28 CFR chapter I is amended

by adding part 100 to read as follows:

PART 100—COST RECOVERY

REGULATIONS, COMMUNICATIONS

ASSISTANCE FOR LAW

ENFORCEMENT ACT OF 1994

Sec.

100.9 General.

100.10 Definitions.

100.11 Allowable costs.

100.12 Reasonable costs.

100.13 Directly assignable costs.

100.14 Directly allocable costs.

100.15 Disallowed costs.

100.16 Cost estimate submission.

100.17 Request for payment.

100.18 Audit.

100.19 Adjustments to agreement estimate.

100.20 Confidentiality of trade secrets/

proprietary information.

100.21 Alternative dispute resolution.

Authority: 47 U.S.C. 1001–1010; 28 CFR

0.85(o).

§ 100.9 General.

These Cost Recovery Regulations were

developed to define allowable costs and

establish reimbursement procedures in

accordance with section 109(e) of

Communications Assistance for Law

Enforcement Act (CALEA) (Public Law

103–414, 108 Stat. 4279, 47 U.S.C.

1001–1010). Reimbursement of costs is

subject to the availability of funds, the

reasonableness of costs, and an

agreement by the Attorney General or

designee to reimburse costs prior to the

carrier’s incurrence of said costs.

§ 100.10 Definitions.

Allocable means chargeable to one or

more cost objectives and can be

distributed to them in reasonable

proportion to the benefits received.

Business unit means any segment of

an organization for which cost data are

routinely accumulated by the carrier for

tracking and measurement purposes.

Cooperative agreement means the

legal instrument reflecting a

relationship between the government

and a party when—

(1) The principal purpose of the

relationship is to reimburse the carrier

to carry out a public purpose of support

or stimulation authorized by a law of

the United States; and

(2) Substantial involvement is

expected between the government and

carrier when carrying out the activity

contemplated in the agreement.

Cost element means a distinct

component or category of costs (e.g.

materials, direct labor, allocable direct

costs, subcontracting costs, other costs)

which is assigned to a cost objective.

Cost objective means a function,

organizational subdivision, contract, or

other work unit for which cost data are

desired and for which provision is made

to accumulate and measure the cost of

processes, products, jobs, capitalized

projects, etc.

Cost pool means groupings of

incurred costs identified with two or

more cost objectives, but not identified

specifically with any final cost

objective.

Direct supervision means immediate

or first-level supervision.

Directly allocable cost means any cost

that is directly chargeable to one or

more cost objectives and can be

distributed to them in reasonable

proportion to the benefits received.
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13325

Directly assignable cost means any

cost that can be wholly attributed to a

cost objective.

Directly associated cost means any

directly assignable cost or directly

allocable cost which is generated solely

as a result of incurring another cost, and

which would not have been incurred

had the said cost not been incurred.

Final cost objective means a cost

objective that has allocated to it, both

assignable and allocable costs and, in

the carrier’s accumulation system, is

one of the final accumulation points.

Installed or deployed means that, on

a specific switching system, equipment,

facilities, or services are operable and

available for use by the carrier’s

customers.

Labor cost means the sum of the

payroll cost, payroll taxes, and directly

associated benefits.

Network operations costs means all

directly associated costs related to the

ongoing management and maintenance

of a telecommunications carrier’s

network.

Plant costs means the directly

associated costs related to the

modifications of specific kinds of

telecommunications plants, such as

switches, intelligent peripherals and

other network elements. These costs

shall include the costs of inspecting,

testing and reporting on the condition of

telecommunications plant to determine

the need for replacements, rearranges

and changes; rearranging and changing

the location of plant not retired;

inspecting after modifications have been

made; the costs of modifying equipment

records, such as administering trunking

and circuit layout work; modifying

operating procedures; property held for

future telecommunications use;

provisioning costs; network operations

costs; and receiving training to perform

plant work. Also included are the costs

of direct supervision and office support

of this work.

Provisioning costs means all costs

directly associated with the resources

expended within a telecommunications

carrier’s network to provide a

connection and/or service to an end

user of the telecommunications service.

Trade secrets/proprietary information

means information which is in the

possession of a carrier but not generally

available to the public, which that

carrier desires to protect against

unrestricted disclosure or competitive

use, and which is clearly identified as

such at the time of its disclosure to the

government.

Unit cost means the directly

associated cost of a single unit of a good

or service which is included in a cost

element.

§ 100.11 Allowable costs.

(a) Costs that are eligible for

reimbursement under section 109(e)

CALEA are:

(1) All reasonable plant costs directly

associated with the modifications

performed by carriers in connection

with equipment, facilities, and services

installed or deployed on or before

January 1, 1995, to establish the

capabilities necessary to comply with

section 103 of CALEA, until the

equipment, facility, or service is

replaced or significantly upgraded or

otherwise undergoes major

modifications;

(2) Additional reasonable plant costs

directly associated with making the

assistance capability requirements

found in section 103 of CALEA

reasonably achievable with respect to

equipment, facilities, or services

installed or deployed after January 1,

1995, in accordance with the procedures

established in CALEA section 109(b);

and

(3) Reasonable plant costs directly

associated with modifications to any of

a carrier’s systems or services, as

identified in the Carrier Statement

required by CALEA section 104(d), that

do not have the capacity to

accommodate simultaneously the

number of interceptions, pen registers,

and trap and trace devices set forth in

the Capacity Notice(s) published in

accordance with CALEA section 104.

(b) Allowable plant costs shall

include:

(1) The costs of installation,

inspection, and testing of the

telecommunications plant, and

inspection after modifications have been

made; and

(2) The costs of direct supervision and

office support for this work for plant

costs.

(c) In the case of any modification that

may be used for any purpose other than

lawfully authorized electronic

surveillance by a government law

enforcement agency, this part permits

recovery of only the incremental cost of

making the modification suitable for

such law enforcement purposes.

(d) Reasonable costs that are directly

associated with the modifications

performed by a carrier as described in

§ 100.11(a) are recoverable. These

allowable costs are limited to directly

assignable and directly allocable costs

incurred by the business units whose

efforts are expended on the

implementation of CALEA

requirements.

§ 100.12 Reasonable costs.

(a) A cost is reasonable if, in its nature

and amount, it does not exceed that

which would be incurred by a prudent

person in the conduct of competitive

business. Reasonableness of specific

costs must be examined with particular

care in connection with the carrier or its

separate divisions that may not be

subject to effective competitive

restraints.

(1) No presumption of reasonableness

shall be attached to the incurrence of

costs by a carrier.

(2) The burden of proof shall be upon

the carrier to justify that such cost is

reasonable under this part.

(b) Reasonableness depends upon

considerations and circumstances,

including, but not limited to:

(1) Whether a cost is of the type

generally recognized as ordinary and

necessary for the conduct of the carrier’s

business or the performance of this

obligation; or

(2) Whether it is a generally accepted

sound business practice, arm’s-length

bargaining or the result of Federal or

State laws and/or regulations.

(c) It is the carrier’s responsibility to

inform the Government of any deviation

from the carrier’s established practices.

§ 100.13 Directly assignable costs.

(a) A cost is directly assignable to the

CALEA compliance effort if it is a plant

cost incurred specifically to meet the

requirements of CALEA sections 103

and 104.

(1) A cost which has been incurred for

the same purpose, in like circumstances,

and which has been included in any

allocable cost pool to be assigned to any

final cost objective other than the

CALEA compliance effort, shall not be

assigned to the CALEA compliance

effort (or any portion thereof).

(2) Costs identified specifically with

the work performed are directly

assignable costs to be charged directly to

the CALEA compliance effort. All costs

specifically identified with other

projects, business units, or cost

objectives of the carrier shall not be

charged to the CALEA compliance

effort, directly or indirectly.

(3) The burden of proof shall be upon

the carrier to justify that such cost is an

assignable cost under this part.

(b) For reasons of practicality, any

directly assignable cost may be treated

as a directly allocable cost if the

accounting treatment is consistently

applied within the carrier’s accounting

system and the application produces

substantially the same results as treating

the cost as a directly assignable cost.

§ 100.14 Directly allocable costs.

(a) A cost is directly allocable to the

CALEA compliance effort:
13326 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

(1) If it is a plant cost incurred

specifically to meet the requirements of

CALEA sections 103 and 104; or

(2) If it benefits both the CALEA

compliance effort and other work, and

can be distributed to them in reasonable

proportion to the benefits received.

(b) The burden of proof shall be upon

the carrier to justify that such cost is an

allocable cost under this part.

(c) An allocable cost shall not be

assigned to the CALEA compliance

effort if other costs incurred for the

same purpose in like circumstances

have been included as a direct cost of

that, or any other, cost objective.

(d) The accumulation of allocable

costs shall be as follows:

(1) Allocable costs shall be

accumulated by logical cost groupings

with due consideration of the reasons

for incurring such costs.

(i) Each grouping should be

determined so as to permit distribution

of the grouping on the basis of the

benefits accruing to the multiple cost

objectives.

(ii) Similarly, the particular case may

require subdivision of these groupings

(e.g., building occupancy costs might be

separable from those of personnel

administration within the engineering

group).

(2) Such allocation necessitates

selecting a distribution base common to

all cost objectives to which the grouping

is to be allocated. The base should be

selected so as to permit allocation of the

grouping on the basis of the benefits

accruing to the multiple cost objectives.

(3) When substantially the same

results can be achieved through less

precise methods, the number and

composition of cost groupings should be

governed by practical considerations

and should not unduly complicate the

allocation.

(4) Once a methodology for

determining an appropriate base for

distributing allocable costs has been

agreed to, it shall not be modified

without written approval of the FBI, if

that modification affects the level of

reimbursement from the government.

All items properly includable in an

allocable cost base should bear a pro

rata share of allocable costs irrespective

of their acceptance as reimbursable

under this part.

(5) The carrier’s method of allocating

allocable costs shall be in accordance

with the accounting principles used by

the carrier in the preparation of their

externally audited financial statements

and consistently applied, to the extent

that the expenses are allowable under

there regulations. The method may

require further examination when:

(i) Substantial differences occur

between the cost patterns of work under

CALEA compliance effort and the

carrier’s other work;

(ii) Significant changes occur in the

nature of the business, the extent of

subcontracting, fixed-asset improvement

programs, inventories, the volume of

sales and production, manufacturing

processes, the carrier’s products, or

other relevant circumstances; or

(iii) Allocable cost groupings

developed for a carrier’s primary

location are applied to off-site locations.

Separate cost groupings for costs

allocable to off-site locations may be

necessary to permit equitable

distribution of costs on the basis of the

benefits accruing to the multiple cost

objectives.

(6) The base period for allocating

allocable costs is the cost accounting

period during which such costs are

incurred and accumulated for

distribution to work performed in that

period. The base period for allocating

allocable costs will normally be the

carrier’s fiscal year. A shorter period

may be appropriate when performance

involves only a minor portion of the

fiscal year, or when it is general practice

to use a shorter period. When the

compliance effort is performed over an

extended period, as many base periods

shall be used as are required to

accurately represent the period of

performance.

§ 100.15 Disallowed costs.

(a) General and Administrative (G&A)

costs are disallowed. G&A costs include,

but are not limited to, any management,

financial, and other expenditures which

are incurred by or allocated to a

business unit as a whole. These include,

but are not limited to:

(1) Accounting and Finance, External

Relations, Human Resources,

Information Management, Legal,

Procurement; and

(2) Other general administrative

activities such as library services, food

services, archives, and general security

investigation services.

(b) Customer Service costs are

disallowed. These costs include, but are

not limited to, any Marketing, Sales,

Product Management, and Advertising

expenses.

(c) Plant costs that are not directly

associated with the modifications

identified in § 100.11 are disallowed.

These include, but are not limited to,

repairing materials for reuse, performing

routine work to prevent trouble;

expenses related to property held for

future telecommunications use;

provisioning costs; network operations

costs; and depreciation and

amortization expenses.

(d) Costs that have already been

recovered from any governmental or

nongovernmental entity are disallowed.

(e) Costs that cannot be either directly

assigned or directly allocated are

disallowed.

(f) Additional costs that are incurred

due to the carrier’s failure to complete

the CALEA compliance effort in the

time frame agreed to by the government

and the carrier are disallowed.

(g) Costs associated with

modifications of any equipment, facility

or service installed or deployed after

January 1, 1995 which are deemed

reasonably achievable by the Federal

Communications Commission under

section 109(b) of CALEA are disallowed.

(h) To ensure that the Government

does not reimburse carriers for

disallowed costs, the following

provisions are included:

(1) Costs that are expressly disallowed

or mutually agreed to be disallowed,

including mutually agreed to be

disallowed directly associated costs,

shall be excluded from any billing,

claim, or proposal applicable to

reimbursement under CALEA. When a

disallowed cost is incurred, its directly

associated costs are also disallowed.

(2) Disallowed costs involved in

determining rates used for standard

costs, or for allocable cost proposals or

billing, need be identified only at the

time rates are proposed, established,

revised, or adjusted. These requirements

may be satisfied by any form of cost

identification which is adequate for

purposes of cost determination and

verification.

§ 100.16 Cost estimate submission.

(a) The carrier shall provide sufficient

cost data at the time of proposal

submission to allow adequate analysis

and evaluation of the estimated costs.

The FBI reserves the right to request

additional cost data from carriers in

order to ensure compliance with this

part.

(b) The requirement for submission of

cost data is met if, as determined by the

FBI, all cost data reasonably available to

the carrier are either submitted or

identified in writing by the date of

agreement on the costs.

(c) If cost data and information to

explain the estimating process are

required by the FBI and the carrier

refuses to provide necessary data, or the

FBI determines that the data provided

are so deficient as to preclude adequate

analysis and evaluation, the FBI will

attempt to obtain the data and/or elicit

corrective action.
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13327

(d) Instructions for submission of the

cost data for the estimate are as follows:

(1) The carrier shall submit to the FBI

estimated costs by line item with

supporting information.

(2) A cost element breakdown as

described in § 100.16(h) shall be

attached for each proposed line item.

(3) Supporting breakdowns shall be

furnished for each cost element,

consistent with the carrier’s cost

accounting system.

(4) When more than one line item is

proposed, summary total amounts

covering all line items shall be

furnished for each cost element.

(5) Depending on the carrier’s

accounting system, the carrier shall

provide breakdowns for the following

categories of cost elements, as

applicable:

(i) Materials. Provide a consolidated

cost summary of individual material

quantities included in the various tasks,

orders, or agreement line items being

proposed and the basis upon which they

were developed (vendor quotes, invoice

prices, etc.). Include raw materials,

parts, software, components, and

assemblies. For all items proposed,

identify the item, source, quantity, and

cost.

(ii) Direct labor. Provide a timephased (e.g., monthly, quarterly)

breakdown of labor hours, rates, and

costs by appropriate category, and

furnish the methodologies used in

developing estimates.

(iii) Allocable direct costs. Indicate

how allocable costs are computed and

applied, including cost breakdowns that

provide a basis for evaluating the

reasonableness of proposed rates.

(iv) Subcontracting costs. For any

subcontractor costs submitted for

reimbursement, the carrier is

responsible for ensuring that

documentation requirements set forth

herein are passed on to any and all

subcontractors utilized in the carrier’s

efforts to meet CALEA requirements.

(v) Other costs. List all other costs not

otherwise included in the categories

described above (e.g., special tooling,

travel, computer and consultant

services) and provide bases for costs.

(e) As part of the specific information

required, the carrier shall submit with

its cost estimate and clearly identify as

such, costs that are verifiable and

factual. In addition, the carrier shall

submit information reasonably required

to explain its estimating process,

including:

(1) The judgmental factors applied,

such as trends or budgetary data, and

the mathematical or other methods used

in the estimate, including those used in

projecting from known data; and

(2) The nature and amount of any

contingencies included in the proposed

estimate.

(f) There is a clear distinction between

submitting cost data and merely making

available books, records, and other

documents without identification. The

requirement for submission of cost data

is met when all accurate cost data

reasonably available to the carrier have

been submitted, either actually or by

specific identification, to the FBI.

(g) In submitting its estimate, the

carrier must include an index,

appropriately referenced, of all the cost

data and information accompanying or

identified in the estimate. In addition,

any future additions and/or revisions,

up to the date of agreement on the costs,

must be annotated in a supplemental

index.

(h) Headings for submission are as

follows:

(1) Total Project Cost: Summary

(i) Cost Elements (Enter appropriate

cost elements.)

(ii) Proposed Cost Estimate—Total

Cost (Enter those necessary and

reasonable costs that in the carrier’s

judgment will properly be incurred in

efficient completion of CALEA

requirements. When any of the costs in

this have already been incurred (e.g.,

under a letter contract), describe them

on an attached supporting schedule.)

(iii) Proposed Cost Estimate—Unit

Cost (Enter the unit costs for each cost

element.)

(iv) Supporting Material (Identify the

attachment in which the information

supporting the specific cost element

may be found.)

(2) Total Project Costs: Detail (at

Switch Level or Project Level, as

appropriate)

(i) Cost Elements (Enter appropriate

cost elements.)

(ii) Proposed Cost Estimate—Total

Cost (Enter those necessary and

reasonable costs that in the carrier’s

judgment will properly be incurred in

efficient completion of CALEA

requirements. When any of the costs in

this have already been incurred (e.g.,

under a letter contract), describe them

on an attached supporting schedule.)

(iii) Proposed Cost Estimate—Unit

Cost (Enter the unit costs for each cost

element.)

(iv) Supporting Material (Identify the

attachment in which the information

supporting the specific cost element

may be found.)

§ 100.17 Request for payment.

(a) The carrier shall provide sufficient

supporting documentation at the time of

submission of request for payment to

allow adequate analysis and evaluation

of the incurred costs. The FBI reserves

the right to request additional cost data

from carriers in order to ensure

compliance with this part.

(b) Instructions for submission of the

supporting documentation for the

request for payment are as follows:

(1) The carrier shall submit to the FBI

incurred costs by line item with

supporting information.

(2) A cost element breakdown as

described in § 100.17(f) shall be

attached for each agreed upon line item.

(3) Supporting breakdowns shall be

furnished for each cost element,

consistent with the carrier’s cost

accounting system.

(c) When more than one line item has

been agreed upon, summary total

amounts covering all line items shall be

furnished for each cost element.

Depending on the carrier’s accounting

system, breakdowns shall be provided

to the FBI for the following categories of

cost elements, as applicable:

(1) Materials. Provide a consolidated

cost summary of individual material

quantities included in the various tasks,

orders, or agreement line items and the

basis upon which they were determined

(vendor invoices, time sheets, payroll

records, etc.). Include raw materials,

parts, software, components, and

assemblies. For all reimbursable items,

identify the item, source, quantity, and

cost.

(2) Direct labor. Provide a breakdown

of labor hours, rates, and cost by

appropriate category, and furnish the

methodologies used in identifying these

costs. Have available for audit, in

accordance with § 100.18, time sheet

and labor rate calculation justification

for all direct labor charged to the

agreement.

(3) Allocable direct costs. Indicate

how allocable costs are computed and

applied, including cost breakdowns,

comparing estimates to actual data as a

basis for evaluating the reasonableness

of actual costs.

(4) Subcontracting costs. For any

subcontractor costs submitted for

reimbursement, along with a copy of the

invoice, the carrier must have available

for audit in accordance with § 100.18,

documentation that costs incurred are

just and reasonable.

(5) Other costs. List all other costs not

otherwise included in the categories

described above (e.g., special tooling,

travel, computer and consultant

services) and have available for audit in

accordance with § 100.18,

documentation that costs incurred are

just and reasonable.

(d) There is a clear distinction

between submitting cost data and

merely making available books, records,
13328 Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations

and other documents without

identification.

(1) The requirement for submission of

cost data is met when all accurate cost

data reasonably available to the carrier

have been submitted, either actually or

by specific identification of the data that

are available for review in the carrier’s

files, to the FBI.

(2) Should later information which

affects the level of reimbursement come

into the carrier’s possession, it must be

promptly submitted to the FBI.

(3) The requirement for submission of

cost data continues up to the time of

final reimbursement.

(e) In submitting its invoice, the

carrier must include an index, which

cross references the actual cost data

submitted with the cost estimate.

(f) Headings for submission are as

follows:

(1) Total Project Cost: Summary

(i) Cost Elements (Enter appropriate

cost elements.)

(ii) Actual Costs Incurred—Total Cost

(Enter those necessary and reasonable

costs that were incurred in the efficient

completion of CALEA requirements.)

(iii) Actual Costs Incurred—Unit Cost

(Enter the unit costs for each cost

element.)

(iv) Supporting Material (Identify the

attachment in which the information

supporting the specific cost element

may be found.)

(2) Total Project Costs: Detail (at

Switch Level or Project Level, as

appropriate.)

(i) Cost Elements (Enter appropriate

cost elements.)

(ii) Actual Costs Incurred—Total Cost

(Enter those necessary and reasonable

costs that were incurred in the efficient

completion of CALEA requirements.)

(iii) Actual Costs Incurred—Unit Cost

(Enter the unit costs for each cost

element.)

(iv) Supporting Material (Identify the

attachment in which the information

supporting the specific cost element

may be found.)

§ 100.18 Audit.

(a) General. In order to evaluate the

accuracy, completeness, and timeliness

of the cost data, the FBI or other

representatives of the Government shall

have the right to examine and audit all

of the carrier’s supporting materials.

(1) These materials include, but are

not limited to books, records,

documents, and other data, regardless of

form (e.g., machine readable media such

as disk, tape) or type (e.g., data bases,

applications software, data base

management software, utilities),

including computations and projections

related to proposing, negotiating,

costing, or performing CALEA

compliance efforts or modifications.

(2) The right of examination shall

extend to all documents necessary to

permit adequate evaluation of the cost

data submitted, along with the

computations and projections used.

(b) Audits of request for payment. The

carrier shall maintain and the FBI or

representatives of the Government shall

have the right to examine and audit

supporting materials.

(1) These materials include, but are

not limited to, books, records,

documents, and other evidence and

accounting procedures and practices,

regardless of form (e.g., machine

readable media such as disk, tape) or

type (e.g., date bases, applications

software, data base management

software, utilities), sufficient to reflect

properly all costs claimed to have been

incurred, or anticipated to be incurred,

in performing the CALEA compliance

effort.

(2) This right of examination shall

include inspection at all reasonable

times of the carrier’s plants, or parts of

them, engaged in performing the effort.

(c) Reports. If the carrier is required

to furnish cost, funding, or performance

reports, the FBI or representatives of the

Government shall have the right to

examine and audit books, records, other

documents, and supporting materials,

for the purpose of evaluating the

effectiveness of the carrier’s policies and

procedures to produce data compatible

with the objectives of these reports and

the data reported.

(d) Availability. The carrier shall

make available at its office at all

reasonable times the costs and support

material described herein, for

examination, audit, or reproduction,

until three (3) years after final

reimbursement payment. In addition,

(1) If the CALEA compliance effort is

completely or partially terminated, the

records relating to the work terminated

shall be made available for three (3)

years after any resulting final

termination settlement; and

(2) Records relating to appeals,

litigation or the settlement of claims

arising under or relating to the CALEA

compliance effort shall be made

available until such appeals, litigation,

or claims are disposed of.

(e) Subcontractors. The carrier shall

ensure that all terms and conditions

herein are incorporated in any

agreement with a subcontractor that

may be utilized by the carrier to perform

any or all portions of the agreement.

§ 100.19 Adjustments to agreement

estimate.

(a) Adjustments prior to the

incurrence of a cost.

(1) In accordance with § 100.17(d)(2),

the carrier shall notify the FBI when any

change affecting the level of

reimbursement occurs.

(2) Upon such notification, if the

adjustment results in an increase in the

estimated reimbursement, the FBI will

review the submission and determine if

(i) Funds are available;

(ii) The adjustment is justified and

necessary to accomplish the goals of the

agreement; and

(iii) It is in the best interest of the

government to approve the expenditure.

(3) The FBI will provide the decision

as to the acceptability of any increase to

the carrier in writing.

(b) Adjustments after the incurrence

of a cost. Any cost incurred that exceeds

the provision in § 100.16(e)(2) will be

reviewed by the FBI to determine

reasonability, allowability, and if it is in

the best interest of the government to

approve the expenditure for

reimbursement.

(c) Reduction for defective cost data.

(1) The cost shall be reduced

accordingly and the agreement shall be

modified to reflect the reduction if any

cost estimate negotiated in connection

with the CALEA compliance effort, or

any cost reimbursable under the effort is

increased because:

(i) The carrier or a subcontractor

furnished cost data to the government

that were not complete, accurate, and

current;

(ii) A subcontractor or prospective

subcontractor furnished the cost data to

the carrier that were not complete,

accurate, and current; or

(iii) Any of these parties furnished

data of any description that were not

accurate.

(2) Any reduction in the negotiated

cost under § 100.19(c)(1) due to

defective data from a prospective

subcontractor that was not subsequently

awarded the subcontract shall be

limited to the amount by which either

the actual subcontract or the actual cost

to the carrier, if there was no

subcontract, was less than the

prospective subcontract cost estimate

submitted by the carrier, provided that

the actual subcontract cost was not itself

affected by defective cost data.

(3) If the FBI determines under

§ 100.19(c)(1) that a cost reduction

should be made, the carrier shall not

raise the following matters as a defense:

(i) The carrier or subcontractor was a

sole source supplier or otherwise was in

a superior bargaining position and thus

the costs of the agreement would not
Federal Register / Vol. 62, No. 54 / Thursday, March 20, 1997 / Rules and Regulations 13329

have been modified even if accurate,

complete, and current cost data had

been submitted;

(ii) The FBI should have known that

the cost data at issue were defective

even though the carrier or subcontractor

took no affirmative action to bring the

character of the data to the attention of

the FBI;

(iii) The carrier or subcontractor did

not submit accurate cost data. Except as

prohibited, an offset in an amount

determined appropriate by the FBI

based upon the facts shall be allowed

against the cost reimbursement of an

agreement amount reduction if the

carrier certifies to the FBI that, to the

best of the carrier’s knowledge and

belief, the carrier is entitled to the offset

in the amount requested and the carrier

proves that the cost data were available

before the date of agreement on the cost

of the agreement (or cost of the

modification) and that the data were not

submitted before such date. An offset

shall not be allowed if the understated

data were known by the carrier to be

understated when the agreement was

signed; or the Government proves that

the facts demonstrate that the agreement

amount would not have increased even

if the available data had been submitted

before the date of agreement on cost; or

(4) In the event of an overpayment,

the carrier shall be liable to and shall

pay the United States at that time such

overpayment as was made, with simple

interest on the amount of such

overpayment to be computed from the

date(s) of overpayment to the carrier to

the date the Government is repaid by

the carrier at the applicable

underpayment rate effective for each

quarter prescribed by the Secretary of

the Treasury under 26 U.S.C. 6621(a)(2).

§ 100.20 Confidentiality of trade secrets/

proprietary information.

With respect to any information

provided to the FBI under this part that

is identified as company proprietary

information, it shall be treated as

privileged and confidential and only

shared within the government on a

need-to-know basis. It shall not be

disclosed outside the government for

any reason inclusive of Freedom of

Information requests, without the prior

written approval of the company.

Information provided will be used

exclusively for the implementation of

CALEA. This restriction does not limit

the government’s right to use the

information provided if obtained from

any other source without limitation.

§ 100.21 Alternative dispute resolution.

(a) If an impasse arises in negotiations

between the FBI and the carrier which

precludes the execution of a cooperative

agreement, the FBI will consider using

mediation with the goal of achieving, in

a timely fashion, a consensual

resolution of all outstanding issues

through facilitated negotiations.

(b) Should the carrier agree to

mediation, the costs of that mediation

process shall be shared equally by the

FBI and the carrier.

(c) Each mediation shall be governed

by a separate mediation agreement

prepared by the FBI and the carrier.

Dated: February 25, 1997.

Louis Freeh,

Director, Federal Bureau of Investigation,

Department of Justice.

[FR Doc. 97–7035 Filed 3–19–97; 8:45 am]

BILLING CODE 4410–02–M

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[NE 020–1020; FRL–5708–7]

Approval and Promulgation of

Implementation Plans; State of

Nebraska

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Final rule.

SUMMARY: With this document, the EPA

is approving the Omaha lead emission

control plan submitted by the state of

Nebraska on August 28, 1996. This plan

was submitted by the state to satisfy

certain requirements under the Clean

Air Act (the Act) to reduce lead

emissions sufficient to bring portions of

the Omaha area into attainment with the

lead National Ambient Air Quality

Standard (NAAQS).

DATES: This rule is effective on April 21,

1997.

ADDRESSES: Copies of the documents

relevant to this action are available for

public inspection during normal

business hours at the: Environmental

Protection Agency, Air Planning and

Development Branch, 726 Minnesota

Avenue, Kansas City, Kansas 66101; and

the EPA Air & Radiation Docket and

Information Center, 401 M Street, SW.,

Washington, DC 20460.

FOR FURTHER INFORMATION CONTACT:

Joshua A. Tapp at (913) 551–7606.

SUPPLEMENTARY INFORMATION:

I. Background and Purpose

A. Introduction

On January 6, 1992, the EPA

designated portions of Omaha

surrounding the Asarco, Incorporated

primary lead refinery as nonattainment

for the lead NAAQS. Specifically, the

boundaries for the nonattainment area

are: Avenue H and the Iowa-Nebraska

border on the north, the Missouri River

on the east, Eleventh Street on the west,

and Jones Street on the south. Pursuant

to the designation, the Act required the

state of Nebraska to submit an

attainment plan by July 6, 1993, which

would bring the area into attainment by

January 6, 1997.

On August 28, 1996, the state

submitted a plan to the EPA which

consists of Compliance Order (Case

Number) 1520 and associated work

practices. This plan meets the minimum

requirements of sections 110 and 172 of

the Act and in the ‘‘Addendum to the

General Preamble for the

Implementation of Title I of the Clean

Air Act Amendments of 1990’’ (58 FR

67748). The rationale regarding the

EPA’s approval of this plan can be

found in the December 4, 1996, Federal

Register document (61 FR 64304)

proposing the EPA’s action on

Nebraska’s plan and in the technical

support document (TSD) for this action.

B. Response to Comments

The EPA received comments from

only one commentor. On January 3,

1997, the state of Nebraska submitted

the following two comments. The state

identified a typographical error made by

the EPA in its December 4, 1996,

proposal in subsection III.f.,

‘‘Contingency Measures.’’ Specifically,

the EPA’s discussion of Nebraska’s

prohibition on causing a violation of the

lead ambient air quality standard should

have referenced paragraph 19 of

Compliance Order (Case Number) 1520,

instead of paragraph 20.

The EPA agrees with this comment

and wishes to make one additional

correction. The EPA’s discussion of

street sweeping and production cuts in

the same subsection should have

referenced paragraph 18 of Compliance

Order (Case Number) 1520, instead of

paragraph 19.

The EPA has determined that the

proposal notice adequately described

the issues associated with the substance

of the referenced paragraphs. Therefore,

despite the incorrect references to

paragraph numbers in the proposal, the

EPA has determined that the proposal

gives adequate notice of the rationale for

the EPA’s proposed action on the two

paragraphs of the Compliance Order

referenced above.

In its second comment, the state

disagrees with the EPA’s proposed

nonaction on the provisions pertaining

to the direct enforcement of the lead

NAAQS contained in paragraph 19 of