12712 Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Rules and Regulations

addressed to Richard C. Loeb, Executive

Secretary, Cost Accounting Standards

Board, Office of Federal Procurement

Policy, 725 17th Street, NW., Room

9001, Washington, DC 20503. ATTN:

CASB Interpretation 95–01.

FOR FURTHER INFORMATION CONTACT:

Richard C. Loeb, Executive Secretary,

Cost Accounting Standards Board

(telephone: 202–395–3254).

SUPPLEMENTARY INFORMATION:

A. Background

Section 818 of the National Defense

Authorization Act for Fiscal Year 1995,

Pub. L. 103–337, restricts the

Department of Defense from

reimbursing contractor restructuring

costs associated with a business

combination unless certain ‘‘net

savings’’ provisions are met. Questions

have arisen as to the methods to be used

in measuring, assigning and allocating

such restructuring costs. This interim

interpretation is designed to address

these questions. The Board would

appreciate receiving comments

concerning this interpretation.

B. Authority to Issue an Interpretation

Authority for issuance of this

interpretation is provided by 41 U.S.C.

422(f)(1) and 48 CFR 9901.302(b).

Richard C. Loeb,

Executive Secretary, Cost Accounting

Standards Board.

Cost Accounting Standards Board

Interim Interpretation 95–01,

‘‘Allocation of Contractor Restructuring

Costs Under Defense Contracts’’

(a) Questions have arisen as to the

appropriate methodologies to be used

for the allocation and period cost

assignment of contract costs categorized

or classified as ‘‘restructuring costs’’

under certain defense contracts. This

Interpretation applies to the provisions

of several Cost Accounting Standards,

including, but not limited to CAS

9904.403, 9904.404, 9904.406, 9904.409

and 9904.418, as they relate to

‘‘restructuring costs’’ associated with

CAS-covered contracts.

(b) ‘‘Restructuring costs’’ are incurred

after an entity decides to make a

significant nonrecurring change in its

business operations or structure in order

to reduce overall cost levels in future

periods through work force reductions,

the elimination of selected activities,

and/or the combination of ongoing

operations, including plant relocations.

Restructuring activities do not include

ongoing routine changes an entity

makes in its business operations or

organizational structure. Restructuring

costs are comprised both of direct and

indirect costs associated with contractor

restructuring activities taken after a

business combination is effected or after

an internal corporate restructuring

decision is made. Typical categories of

costs that have been included as

restructuring charges include severance

pay, early retirement incentive,

retraining, employee relocation, lease

cancellation, asset disposition and

write-offs, and relocation and

rearrangement of plant and equipment.

Restructuring costs do not include the

cost of such activities when they do not

relate either to business combinations or

significant nonrecurring internal

corporate restructuring decisions.

Generally, activities giving rise to

restructuring charges should normally

be completed within one year.

(c) The costs of betterments or

improvements of capital assets that

result from restructuring activities shall

be capitalized and depreciated in

accordance with the provisions of CAS

9904.404 and 9904.409.

(d) When a procuring agency imposes

a net savings requirement for the

payment of restructuring costs, the

contractor shall submit data specifying

(1) restructuring costs by period, (2)

restructuring savings by period (if

applicable), and (3) the methods by

which such costs shall be allocated.

(e) Under normal circumstances, most

categories of costs that qualify as

restructuring costs are recognized as

current period cost in the period in

which the cost is incurred. However, for

contractor restructuring costs defined

pursuant to this Interpretation, such

costs may be deferred, and subsequently

amortized, over a period during which

the benefits are expected to accrue. A

proposal to expense restructuring costs

in the current period is acceptable when

the Contracting Officer agrees that such

treatment will result in a more equitable

assignment of costs in the

circumstances.

(f) If a contractor incurs restructuring

costs but does not have an established

or disclosed cost accounting practice

covering such costs, the deferral of such

restructuring costs may be treated as the

initial adoption of a cost accounting

practice (see 9903.302–2(a)). If a

contractor incurs restructuring costs but

has an existing established or disclosed

cost accounting practice that does not

provide for deferring such costs, any

resulting change in cost accounting

practice to defer such costs may be

presumed to be desirable and not

detrimental to the interests of the

Government (see 9903.201–6). Changes

in cost accounting practices for

restructuring costs shall be subject to

disclosure statement revision

requirements (see CAS 9903.202–3), if

applicable.

(g) Measurement of cost impact on

existing CAS-covered contracts, shall be

the difference between an estimate to

complete before giving effect to the

restructuring, and, an estimate to

complete considering restructuring. The

estimates to complete shall be based on

the contractor’s compliant cost

accounting practices for the affected

cost accounting periods, from the

applicability date of the restructuring

plan through the end of the period

designated as the benefiting period.

(h) The amortization period for

deferred restructuring costs shall not

exceed five years. Straight line

amortization should normally be used,

unless another method results in a more

appropriate matching of cost to

expected benefits.

(i) Restructuring costs that are

deferred shall not be included in the

allocation based for cost of money

purposes (see CAS 9904.414). Deferred

charges are not tangible or intangible

capital assets and therefore are excluded

from the base for computation of

facilities capital cost of money.

(j) Restructuring costs incurred at a

home office level shall be treated in

accordance with the provisions of CAS

9904.403. Restructuring costs incurred

at the segment level that benefit more

than one segment should be allocated to

the home office and treated as home

office expense pursuant to CAS

9904.403. Restructuring costs incurred

at the segment level that benefit only

that segment shall be treated in

accordance with the provisions of CAS

9904.418. Restructuring costs that are

not considered to meet the homogeneity

requirements of CAS 9904.418 shall be

grouped in indirect cost pools that are

distinct from the contractor’s current

indirect cost pools.

(k) This Interpretation is applicable to

contractor ‘‘restructuring costs’’ paid or

approved on or after August 15, 1994.

[FR Doc. 95–5607 Filed 3–7–95; 8:45 am]

BILLING CODE 3110–01–M

ENVIRONMENTAL PROTECTION

AGENCY

48 CFR Part 1517

[FRL–5168–6]

Acquisition Regulation

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Final rule.

SUMMARY: This document amends the

EPA Acquisition Regulation (EPAAR)
Federal Register / Vol. 60, No. 45 / Wednesday, March 8, 1995 / Rules and Regulations 12713

on the use of options. This rule

eliminates a provision on the use of

options which is more restrictive than

coverage in the Federal Acquisition

Regulation (FAR).

EFFECTIVE DATE: March 8, 1995.

FOR FURTHER INFORMATION CONTACT: Paul

Schaffer at (202) 260–9032,

Environmental Protection Agency, 401

M Street, S.W., Washington, D.C. 20460

(Mail Code 3802F).

SUPPLEMENTARY INFORMATION:

A. Background

Under this rule, EPA Contracting

Officers (COs) will no longer need the

approval of the Chief of the Contracting

Office (CCO) (which includes the Office

of Acquisition Management Division

Directors at Headquarters, Research

Triangle Park, NC, and Cincinnati, OH)

when the use of options for increased

quantities of supplies or services exceed

50% of the base quantity specified in

the contract for a particular period. FAR

coverage, which is less restrictive, is

adequate.

Under this rule, EPA COs will no

longer need the approval of the CCO

when the use of options, combined with

the base contract period, results in a

total contract period of performance

which exceeds thirty-six (36) months.

CCO approval will be required only for

total contract periods in excess of sixty

(60) months, unless otherwise

prohibited by statute.

B. Executive Order 12866

This rule is not a significant

regulatory action as defined in

Executive Order 12866. Therefore no

review is required at the Office of

Information and Regulatory Affairs

within OMB.

C. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because this rule does not

propose any information collection

requirements which would require the

approval of OMB under 44 U.S.C. 3501,

et seq.

D. Regulatory Flexibility Act

The EPA certifies this rule will have

no significant impact on small entities,

since the rule eliminates a procedure

internal to the Government. Therefore,

no regulatory flexibility analysis has

been prepared.

List of Subjects in 48 CFR Part 1517

Special contracting methods.

For the reasons set out in the

preamble, Chapter 15 of Title 48, Code

of Federal Regulations is amended as set

forth below:

1. The authority citation for Part 1517

continues to read as follows:

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

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

§ 1517.202 [Removed]

2. Subpart 1517.2 is amended by

removing section 1517.202.

3. Subpart 1517.2 is amended by

adding section 1517.204 to read as

follows:

1517.204 Contracts.

The CCO may approve a contract with

a base contract period and option

periods which total in excess of five (5)

years, unless otherwise prohibited by

statute.

Dated: February 27, 1995.

Betty L. Bailey,

Director, Office of Acquisition Management.

[FR Doc. 95–5660 Filed 3–7–95; 8:45 am]

BILLING CODE 6560–50–P