[Federal Register Volume 70, Number 189 (Friday, September 30, 2005)]
[Rules and Regulations]
[Pages 57467-57470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-19477]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2005-06; FAR Case 2003-002; Item X]
RIN 9000-AJ81


Federal Acquisition Regulation; Reimbursement of Relocation Costs 
on a Lump-Sum Basis

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

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) by revising the 
relocation cost principle to permit contractors the option of being 
reimbursed on a lump-sum basis for three types of employee relocation 
costs: costs of finding a new home; costs of travel to the new 
location; and costs of temporary lodging. These three types of costs 
are in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted.

DATES: Effective Date: October 31, 2005.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Mr. Jeremy Olson, Procurement 
Analyst, at (202) 501-3221. Please cite FAC 2005-06, FAR case 2003-002.

SUPPLEMENTARY INFORMATION:

A. Background

    The Councils originally considered expanding the reimbursement of 
relocation costs on a lump-sum basis under FAR case 1997-032, 
Relocation Costs. However, the Councils decided to study this issue 
further under a separate case and published a final rule on the 
remainder of FAR case 1997-032 in the Federal Register at 67 FR 43516, 
June 27, 2002. On October 24, 2002, the Councils published a Notice of 
Request for Comments in the Federal Register (67 FR 65468) with a list 
of questions regarding the use of a lump-sum approach for reimbursing 
employee relocation expenses. After reviewing the public comments that 
were submitted in response to that Federal Register notice, the 
Councils held a public meeting on February 6, 2003, to further explore 
the views of interested parties on this issue.
    Public comments and the discussions at the public meeting revealed 
that, in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted by FAR 31.205-35(b)(4), it is 
common commercial practice to reimburse relocating employees on a lump-
sum basis for their house-hunting, final move, and temporary lodging 
expenses. A FAR case was opened to expand the relocation cost principle 
to permit lump-sum reimbursements for these three types of costs.
    The Councils published a proposed FAR rule in the Federal Register 
at 68 FR 69264, December 11, 2003, with a request for comments by 
February 9, 2004. Seven respondents submitted comments on the proposed 
FAR rule. Two respondents supported the proposed rule, four respondents 
opposed it, and one respondent requested clarification. A discussion of 
the comments is provided below. The Councils considered all comments 
and concluded that the proposed rule should be converted to a final 
rule, with changes to the proposed rule. Differences between the 
proposed rule and final rule are discussed in Section B, Comment 1, and 
Section C below.

B. Public Comments

    No standard for measuring reasonableness
    1. Comment: Four respondents opposed the proposed rule and 
expressed the concern that with contractors spending significant 
amounts on employee relocations, the Government would have no objective 
standard for evaluating the reasonableness of the new lump-sum amounts 
being claimed.
    After conducting surveys that suggest ``contractors are incurring 
hundreds of millions of dollars of relocation costs annually,'' the 
first respondent expressed ``significant concern as to where an 
auditor, contracting officer, or contractor could turn to gather 
adequate data to make a determination as to the appropriateness and 
reasonableness of the lump-sum method or resulting amount.'' The 
respondent concluded its letter by stating it ``believes that paying a 
lump-sum for such significant amounts places an unacceptable risk on 
the Government and creates an excessive audit task to establish 
allowability of relocation costs.''
    Also citing the above mentioned survey of the large amounts of 
relocation costs allocated to cost reimbursement contracts each year, 
the second respondent stated that ``allowing lump-sum reimbursement of 
these costs without supporting documentation is not in the best 
interests of the Government'' because ``the proposed revision would 
subject millions of dollars to a subjective test of reasonableness 
requiring Government auditors, contracting officials, attorneys, and 
others to expend significantly more resources to determine the 
reasonableness of the claimed costs, review the determination, and 
resolve disputes between the Government and the contractor involving 
disallowed costs.'' The respondent went on to suggest ``contractors 
will also incur additional expenses in excess of any administrative 
costs saved supporting the reasonableness of the relocation costs.''

[[Page 57468]]

    The third respondent based its opposition to the proposed rule on 
``the millions of taxpayer dollars that will be wasted on this special 
interest giveaway'' and suggested that the Government's motivation in 
pursuing it was ``not wanting to disappoint contractors.'' The 
respondent argued further that ``contractors favor this approach, not 
because of any administrative burden reduction, but rather because it 
leads to higher levels of reimbursement without any need to justify 
costs.'' Finally, the respondent expressed its opinion that ``with few 
exceptions, these (relocation) costs should only be reimbursed on an 
`actual cost' basis.''
    The fourth respondent did not submit any original comments, but 
simply forwarded the third respondent's comments with an accompanying 
statement that it ``fully concurs in the substantive objections 
expressed'' therein.
    Councils' response: The Councils believe that a provision 
permitting the expanded use of lump-sum reimbursements should be added 
to the relocation cost principle. Such a provision is expected to 
reduce the accounting and administrative burden of that cost principle 
on contractors and lead to faster relocations.
    The Councils are very receptive to the important concerns expressed 
by the respondents. The Councils believe that the words ``on an 
appropriate lump-sum basis to the individual employee'' in the proposed 
rule were intended to condition the allowability of the new lump-sum 
reimbursements on contractors by providing sufficient visibility into 
the component cost projections used in developing the lump-sum amounts 
to permit an audit determination of their reasonableness. However, the 
comments make it abundantly clear that such a requirement needs to be 
more explicit. The Councils certainly want to eliminate any possible 
public perception of this proposed rule change as a ``blank check'' for 
contractors and to ensure that the Government only reimburses 
reasonable costs. Accordingly, the Councils have added language at FAR 
31.205-35(b)(6)(i) that makes the costs of lump-sum payments to 
relocating employees for house-hunting, final move, and temporary 
lodging expenses allowable only when ``adequately supported by data on 
the individual elements (e.g., transportation, lodging, and meals) 
comprising the build-up of the lump-sum amount to be paid based on the 
circumstances of the particular employee's relocation.'' This 
requirement should provide essentially the same audit visibility into 
the reasonableness of lump-sum payments as currently exists for actual 
relocation costs.
    Relocation lump-sums as a common commercial practice
    2. Comment: In opposing the proposed rule, one respondent also 
asserted that the use of lump-sum payments for travel and temporary 
lodging related relocation costs ``is not a predominant industry 
practice at this time.'' The respondent explained that it recently 
reviewed the current relocation policies in place at four large 
contractor locations and found that three of these four contractors use 
a single corporate-wide policy for their employee relocation 
reimbursement programs. Even though one of these three companies claims 
it is a predominantly commercial company and the other two companies 
also have a substantial commercial business base, the respondent 
pointed out that none of the three has established a lump-sum option 
for its commercial business segments.
    In addition, the respondent cited an August 2003 news release from 
a relocation management firm which stated that only 30 percent of the 
companies it had recently surveyed said they were using lump-sums to 
cover travel and temporary lodging expenses. Finally, the respondent 
pointed out that it had recently been advised by a relocation 
management firm that, shortly before Dr. John Hamre left the Department 
of Defense, he ``shut down'' an effort by the relocation management 
firm and the Defense Integrated Travel and Relocation Solutions (DITRS) 
office to put together a plan for using lump-sums for DoD civilian 
relocations.
    After reviewing the responses to the October 24, 2002, Federal 
Register Notice of Request for Comments (67 FR 65468), a respondent 
questioned ``whether the FAR Council has obtained sufficient 
information to support its assertion that it is now common commercial 
practice to reimburse relocating employees on a lump-sum basis for 
their house-hunting, final move, and temporary lodging expenses.'' The 
respondent observed that of the eight respondents who responded to that 
notice, one respondent's letter gave no specifics on the number of 
companies using lump-sum reimbursements, and another respondent stated 
that its 2001 survey showed that 55 companies out of 109 contacted were 
using lump-sum reimbursements.
    In supporting the proposed rule, one respondent agreed ``with the 
Councils' statement that the use of lump-sum payments is a common 
commercial practice'' and expressed the belief ``that the proposed rule 
will help align relocation cost reimbursement policies with commercial 
best practices.'' Another respondent also agreed that the proposed 
changes ``are in keeping with current commercial business practice'' 
and explained that ``beginning in 1993 with the Revenue Reconciliation 
Act, many companies moved to lump-sum allowances for what became 
taxable reimbursements to the home-finding, temporary living, and final 
move portions of relocation policy.'' The respondent concluded with its 
opinion that ``the recommended revision will enable Government 
contractors to implement this best practice and take advantage of a 
tested and proven process efficiency that has been an accepted part of 
the commercial sector's relocation programs for over a decade.''
    Councils' response: While the use of lump-sum reimbursements for 
selected relocation expenses may not be the predominant commercial 
practice at this time, the Councils believe there is ample evidence 
that the use of such payments is a common and growing commercial 
practice. The survey data cited by the respondents support this 
assessment. In addition, a relocation management firm that has been in 
business for more than 70 years stated at the February 6, 2003, public 
meeting and in its subsequent public comments that lump-sum 
reimbursement is now a common commercial practice for house-hunting, 
final move, and temporary lodging costs.
    The Councils do not find it surprising that contractors who wish to 
maintain a single, corporate-wide policy for reimbursing relocation 
costs continue to apply a policy which parallels the current cost 
principle, even though they may have significant commercial business. 
The revised relocation cost principle will give such firms an 
additional option for the first time on Government contracts that could 
well become their corporate-wide standard in the future.
    Finally, it is the Councils' understanding that DoD terminated its 
two-year initiative to reengineer relocation policies and procedures 
and disbanded the DITRS office which oversaw that effort due to a lack 
of funds and interest from the military departments. And while the 
relocation management firm stated during its presentation at the 
February 6, 2003, public meeting that the Federal Deposit Insurance 
Corporation is currently using lump-sum reimbursements for its 
employees' relocation costs, this appears to be an exception within the

[[Page 57469]]

Federal Government. However, even if lump-sum reimbursements for 
Federal employee relocation expenses are relatively rare, the purpose 
of this case is to recognize a common and growing commercial best 
practice in the relocation cost principle that should benefit both 
contractors and the Government.
    Allowability of lump-sum payments
    3. Comment: While supporting the effort to expand the use of lump-
sum reimbursements for contractor employee relocation costs, one 
respondent suggested that the revised paragraph (b)(4) needs to include 
``a clear affirmative statement that the lump-sum payments are 
allowable costs'' to avoid any possible confusion. In addition, the 
respondent recommended that the words ``to the individual employee'' be 
deleted from the revised paragraph (b)(4) because ``contractors should 
not have to demonstrate on an individual basis that the lump-sum 
payments are reasonable and appropriate for each relocating employee.'' 
Finally, the respondent recommended that the Councils eliminate the 
current ceilings on allowable home sale and purchase costs of 14 
percent and 5 percent, respectively.
    Councils' response: Nonconcur. The Councils do not agree that any 
additional language is necessary to avoid confusion regarding the 
allowability of the specified lump-sum payments. The Councils believe 
it is very clear from the language at FAR 31.205-35(b)(6)(i) that lump-
sum payments to employees for any of these three types of relocation 
costs will be allowable if the requisite criteria are met. The Councils 
also believe that the data provided by the contractor on the component 
cost projections used in developing its lump-sum amounts must be 
``based on the circumstances of the particular employee's relocation,'' 
such as family size, city, and number of vehicles. Otherwise, the lump-
sum amount paid could be excessive, and therefore unreasonable, for a 
given relocation. Finally, the current ceilings on allowable home sale 
and purchase costs are outside the scope of this case. (Incidentally, 
the relocation management firm indicated at the February 6, 2003, 
public meeting that such costs are seldom included in lump-sum 
relocation payments.)
    Add the three types of employee relocation costs to current lump-
sum cap for miscellaneous expenses
    4. Comment: One respondent suggested that if the proposed rule is 
not withdrawn, it ``does not object to adding the three additional 
types of employee relocation costs, i.e., (1) the costs of finding a 
new home, (2) costs of travel to the new location, and (3) costs of 
temporary lodging, in addition to the existing `miscellaneous expenses' 
that would be subject to a $5,000 lump-sum reimbursement, per employee 
move.'' The respondent offered this alternative ``in the interest of 
promoting greater flexibility within the existing relocation cost 
principle, but without increasing overall costs to taxpayers.''
    Councils' response: Nonconcur. Under its cost-type contracts, the 
Government is obligated to pay the contractor's allocable and 
reasonable costs of contract performance. Not only would the 
respondent's proposal be fundamentally unfair to contractors, but it 
would also severely undermine the basic rationale for this proposed 
rule change. The current cap on miscellaneous relocation costs at FAR 
31.205-35(b)(4) was increased to $5,000 in June 2002 based on survey 
data published by the Employee Relocation Council regarding the median 
amount of such payments in the commercial sector. There is no logical 
reason to arbitrarily add house-hunting, final travel, and temporary 
lodging costs to this separate lump-sum cap. The cost principles should 
ensure that contractors are treated fairly, consistent with sound 
public policy.
    Proposed rule would make Federal employees second class citizens
    5. Comment: One respondent expressed concern ``that this proposal 
would make Federal employees second class citizens vis-[aacute]-vis 
their contractor counterparts with respect to relocation expenses.'' 
The respondent concluded by stating that ``in no case should increases 
in lump-sum payments beyond $5,000 per contractor employee be 
considered until ... Federal employees are afforded the same advantages 
as their contractor counterparts.''
    Councils' response: Nonconcur. While the Councils understand that 
the respondent is particularly sensitive to what it perceives to be 
preferential treatment of contractor employees, the Councils do not 
believe the allowability of contractor relocation costs must parallel 
exactly the treatment afforded Federal employees. It is now a common 
commercial practice to reimburse relocating employees on a lump-sum 
basis for their house-hunting, final move, and temporary lodging 
expenses, and the Councils believe the relocation cost principle should 
be revised to permit contractors the option of using this methodology. 
The language added at FAR 31.205-35(b)(6)(i) will ensure that, just as 
when reimbursement is based on actual expenses, only reasonable amounts 
are allowed for lump-sum reimbursements of these three types of 
relocation costs. This additional flexibility should help promote 
increased entry into the Federal marketplace by firms that have 
previously been hesitant to do so, resulting in increased competition 
on future purchases.
    Clarification of current lump-sum cap for miscellaneous expenses
    6. Comment: A respondent asked: ``Is the proposed lump-sum amount 
of $5K applicable to both the continental United States (CONUS) and 
outside CONUS relocations?''
    Councils' response: The $5,000 cap on allowable lump-sum 
reimbursements for miscellaneous relocation expenses is a current, not 
proposed, limitation at FAR 31.205-35(b)(4). It applies to all 
contractor employee relocations, regardless of location.

C. Additional Change--No adjustments

    The Councils are concerned that contractors who reimburse employee 
relocation costs on a lump-sum basis could make additional after-the-
fact payments to employees whose actual costs exceeded the lump-sum 
amount. To address this concern, the Councils added the following 
limitation at FAR 31.205-35(b)(6)(ii): ``When reimbursement on a lump-
sum basis is used, any adjustments to reflect actual costs are 
unallowable.''

D. Regulatory Planning and Review

    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

E. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded 
to small entities use simplified acquisition procedures or are awarded 
on a competitive, fixed-price basis, and do not require application of 
the cost principle discussed in this rule. For Fiscal Year 2003, only 
2.4 percent of all contract actions were cost contracts awarded to 
small businesses.

F. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) does not apply because 
the

[[Page 57470]]

changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: September 22, 2005.
Julia B. Wise,
Director, Contract Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 31 continues to read as 
follows:

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

0
2. Amend section 31.205-35 by revising paragraph (b)(4); and adding 
paragraphs (b)(5) and (b)(6) to read as follows:


31.205-35  Relocation costs.

* * * * *
    (b)* * *
    (4) Amounts to be reimbursed shall not exceed the employee's actual 
expenses, except as provided for in paragraphs (b)(5) and (b)(6) of 
this subsection.
    (5) For miscellaneous costs of the type discussed in paragraph 
(a)(5) of this subsection, a lump-sum amount, not to exceed $5,000, may 
be allowed in lieu of actual costs.
    (6)(i) Reimbursement on a lump-sum basis may be allowed for any of 
the following relocation costs when adequately supported by data on the 
individual elements (e.g., transportation, lodging, and meals) 
comprising the build-up of the lump-sum amount to be paid based on the 
circumstances of the particular employee's relocation:
    (A) Costs of finding a new home, as discussed in paragraph (a)(2) 
of this subsection.
    (B) Costs of travel to the new location, as discussed in paragraph 
(a)(1) of this subsection (but not costs for the transportation of 
household goods).
    (C) Costs of temporary lodging, as discussed in paragraph (a)(2) of 
this subsection.
    (ii) When reimbursement on a lump-sum basis is used, any 
adjustments to reflect actual costs are unallowable.
* * * * *
[FR Doc. 05-19477 Filed 9-29-05; 8:45 am]
BILLING CODE 6820-EP-S