3314 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Rules and Regulations

DEPARTMENT OF DEFENSE

GENERAL SERVICES

ADMINISTRATION

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

48 CFR Part 31

[FAC 90–25, FAR Case 94–750]

RIN 9000–AG33

Federal Acquisition Regulation;

Entertainment, Gift, and Recreation

Costs for Contractor Employees

AGENCIES: Department of Defense (DOD),

General Services Administration (GSA),

and National Aeronautics and Space

Administration (NASA).

ACTION: Interim rule with request for

comment.

SUMMARY: This interim rule amends the

Federal Acquisition Regulation to revise

the cost principles governing

entertainment, gift and recreation costs

for contractor employees. This

regulatory action was not subject to

Office of Management and Budget

review under Executive Order 12866,

dated September 30, 1993.

DATES: Effective Date: January 13, 1995.

Comment Date: Comments should be

submitted to the FAR Secretariat at the

address shown below on or before

March 14, 1995 to be considered in the

formulation of a final rule.

ADDRESSES: All interested parties

should submit written comments to:

General Services Administration, FAR

Secretariat (VRS), 18th & F Streets, NW,

Room 4035, Attn: Ms. Beverly Fayson,

Washington, DC 20405.

Please cite FAC 90–25, FAR case 94–

750 in all correspondence related to this

case.

FOR FURTHER INFORMATION CONTACT: Mr.

Clarence M. Belton, Team Leader, Cost

Principles Team, at (703) 602–2357, in

reference to this FAR case. For general

information, contact the FAR

Secretariat, Room 4037, GS Building,

Washington, DC 20405 (202) 501–4755.

Please cite FAC 90–25, FAR case 94–

750.

SUPPLEMENTARY INFORMATION:

A. Background

The Federal Acquisition Streamlining

Act of 1994, Pub. L. 103–355, provides

authorities that streamline the

acquisition process and minimize

burdensome government-unique

requirements. Major changes that can be

expected in the acquisition process as a

result of the Act’s implementation

include changes in the areas of

Commercial Item Acquisition,

Simplified Acquisition Procedures, the

Truth in Negotiations Act, and

introduction of the Federal Acquisition

Computer Network.

This notice announces Federal

Acquisition Regulation (FAR) revisions

developed under FAR case 94–750 to

implement Section 2192 of the Act. This

interim rule revises the cost principles

at FAR 31.205–13 and 31.205–14.

To comply with the requirements of

paragraph (a)(1) of Section 2192 of the

Act, the interim rule provides that the

costs of gifts are expressly unallowable

and that the costs of recreation are

expressly unallowable, except for the

costs of employee sports teams. The

allowability of costs for employee sports

teams is further limited to off-duty

activities and to a nominal cost per

participating employee. ‘‘Recreation’’ is

removed from the examples of allowable

costs at 31.205–13, and ‘‘wellness/

fitness centers’’ are added to that listing

to differentiate them from recreation

costs. The entire listing of allowable

costs for morale, health, welfare, food

service, and dormitory costs is further

limited in allowability to reasonable

amounts per employee.

To comply with the requirements of

paragraph (a)(2) of Section 2192 of the

Act, the interim rule revises the cost

principle at 31.205–14 to incorporate

the statutory wording relating to

unallowability of entertainment costs

under any other cost principle.

These revisions specifically disallow

gift, recreation, and entertainment costs

which some may have previously

considered allowable.

Paragraph (c) of Section 2192 of the

Act states that ‘‘[a]ny amendments to

the FAR made pursuant to subsection

(a) shall apply with respect to costs

incurred after the date on which the

amendments made by Section 2101

apply (as provided in Section 10001) or

the date on which the amendments

made by Section 2151 apply (as

provided in Section 10001), whichever

is later.’’ Therefore, this interim rule is

being published now in order to meet

the statutory deadlines imposed by

paragraph (a) of Section 2192 and is

effective immediately. However, the

revised cost principles will apply only

to costs incurred after all of the

proposed rules implementing

requirements of Sections 2101 and 2151

become effective. The proposed rules at

issue are being processed under FAR

cases 94–751, 94–752, and 94–754.

The FAR Council is interested in an

exchange of ideas and opinions with

respect to the regulatory

implementation of the Act. For that

reason, the FAR Council is conducting

a series of public meetings. However,

the FAR Council has not scheduled a

public meeting on this rule (FAR case

94–750). If the public believes such a

meeting is needed with respect to this

rule, a letter requesting a public meeting

and outlining the nature of the

requested meeting shall be submitted to

and received by the FAR Secretariat (see

ADDRESSES caption) on or before

February 13, 1995. The FAR Council

will consider such requests in

determining whether a public meeting

on this rule should be scheduled.

B. Regulatory Flexibility Act

The interim rule is not expected to

have a significant economic impact on

a substantial number of small entities

within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq.,

because most contracts awarded to

small businesses are awarded through

sealed bidding on a firm fixed price

basis. The cost principles apply only

where contracts are based on cost or

pricing data. An Initial Regulatory

Flexibility Analysis has, therefore, not

been performed. Comments from small

entities concerning the affected FAR

subpart will be considered in

accordance with 5 U.S.C. 610. Such

comments must be submitted separately

and cite 5 U.S.C 601, et seq. (FAR Case

94–750), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because the changes to the

FAR do not impose recordkeeping or

information collection requirements, or

collection of information from offerors,

contractors, or members of the public

which require the approval of OMB

under 44 U.S.C. 3501, et seq.

D. Determination To Issue an Interim

Rule

A determination has been made under

the authority of the Secretary of Defense

(DOD), the Administrator of General

Services (GSA), and the Administrator

of the National Aeronautics and Space

Administration (NASA) that compelling

reasons exist to promulgate this interim

rule without prior opportunity for

public comment. This action is

necessary because Section 2192 of the

Federal Acquisition Streamlining Act of

1994 specifically requires that the cost

principle at FAR 31.205–14 be amended

not later than 90 days after enactment of

the Act and that other FAR revisions

addressing contractor costs of gifts or

recreation to improve employee morale

or welfare be made within 120 days of

enactment of the Act. Pubic Law 103–

355 was enacted October 13, 1994.
Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Rules and Regulations 3315

List of Subjects in 48 CFR Part 31

Government procurement.

Dated: January 9, 1995.

Edward Loeb,

Deputy Project Manager for the

Implementation of the Federal Acquisition

Streamlining Act of 1994.

Federal Acquisition Circular

Number 90–25

Federal Acquisition Circular (FAC)

90–25 is issued under the authority of

the Secretary of Defense, the

Administrator of General Services, and

the Administrator for the National

Aeronautics and Space Administration.

Unless otherwise specified, all

Federal Acquisition Regulation (FAR)

and other directive material contained

in FAC 90–25 is effective January 13,

1995.

Dated: January 4, 1995.

Thomas S. Luedtke,

Deputy Associate Administrator for

Procurement, NASA.

Dated: January 9, 1995.

Ida M. Ustad,

Associate Administrator, Office of

Acquisition Policy.

Dated: January 8, 1995.

Eleanor R. Spector,

Director, Defense Procurement.

Therefore, 48 CFR Part 31 is amended

as set forth below:

PART 31—CONTRACT COST

PRINCIPLES AND PROCEDURES

1. The authority citation for 48 CFR

Part 31 continues to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C.

chapter 137; and 42 U.S.C. 2473(c).

2. Section 31.205–13 is revised to read

as follows:

31.205–13 Employee morale, health,

welfare, food service, and dormitory costs

and credits.

(a) This paragraph (a) applies to costs

incurred before the effective date of

implementation in FAR of sections 2101

and 2151 of the Federal Acquisition

Streamlining Act of 1994 (Pub. L. 103–

355).

(1) Aggregate costs incurred on

activities designed to improve working

conditions, employer-employee

relations, employee morale, and

employee performance (less income

generated by these activities) are

allowable, except as limited by

paragraph (a)(2) of this section, and to

the extent that the net amount is

reasonable. Some examples are house

publications, health clinics, recreation,

employee counseling services, and food

and dormitory services, which include

operating or furnishing facilities for

cafeterias, dining rooms, canteens,

lunch wagons, vending machines, living

accommodations, or similar types of

services for the contractor’s employees

at or near the contractor’s facilities.

(2) Losses from operating food and

dormitory services may be included as

costs only if the contractor’s objective is

to operate such services on a break-even

basis. Losses sustained because food

services or lodging accommodations are

furnished without charge or at prices or

rates which obviously would not be

conducive to the accomplishment of the

above objective are not allowable. A loss

may be allowed, however, to the extent

that the contractor can demonstrate that

unusual circumstances exist (e.g., (i)

where the contractor must provide food

or dormitory services at remote

locations where adequate commercial

facilities are not reasonably available, or

(ii) where charged but unproductive

labor costs would be excessive but for

the services provided or where cessation

or reduction of food or dormitory

operations will not otherwise yield net

cost savings) such that even with

efficient management, operating the

services on a break-even basis would

require charging inordinately high

prices, or prices or rates higher than

those charged by commercial

establishments offering the same

services in the same geographical areas.

Costs of food and dormitory services

shall include an allocable share of

indirect expenses pertaining to these

activities.

(3) When the contractor has an

arrangement authorizing an employee

association to provide or operate a

service, such as vending machines in

the contractor’s plant and retain the

profits, such profits shall be treated in

the same manner as if the contractor

were providing the service (but see

paragraph (a)(4) of this section).

(4) Contributions by the contractor to

an employee organization, including

funds from vending machine receipts or

similar sources, may be included as

costs incurred under paragraph (a)(1) of

this section only to the extent that the

contractor demonstrates that an

equivalent amount of the costs incurred

by the employee organization would be

allowable if directly incurred by the

contractor.

(b) This paragraph (b) implements

section 2192 of the Federal Acquisition

Streamlining Act of 1994 (Pub. L. 103–

355). It applies to costs incurred after

the effective date of implementation in

FAR of sections 2101 and 2151 of Pub.

L. 103–355.

(1) Aggregate costs incurred on

activities designed to improve working

conditions, employer-employee

relations, employee morale, and

employee performance (less income

generated by these activities) are

allowable, except as limited by

paragraphs (b)(2), (3), and (4) of this

section, and to the extent that the net

amount per employee is reasonable.

Some examples of allowable activities

are house publications, health clinics,

wellness/fitness centers, employee

counseling services, and food and

dormitory services, which include

operating or furnishing facilities for

cafeterias, dining rooms, canteens,

lunch wagons, vending machines, living

accommodations, or similar types of

services for the contractor’s employees

at or near the contractor’s facilities.

(2) Costs of gifts are unallowable.

(3) Costs of recreation are

unallowable, except for the costs of

contractor employees’ participation in

sports teams designed to improve

company loyalty, team work, or

employee physical fitness, conducted

during off duty hours at a nominal cost

per participating employee.

(4) Losses from operating food and

dormitory services may be included as

costs only if the contractor’s objective is

to operate such services on a break-even

basis. Losses sustained because food

services or lodging accommodations are

furnished without charge or at prices or

rates which obviously would not be

conducive to the accomplishment of the

above objective are not allowable. A loss

may be allowed, however, to the extent

that the contractor can demonstrate that

unusual circumstances exist (e.g., (i)

where the contractor must provide food

or dormitory services at remote

locations where adequate commercial

facilities are not reasonably available, or

(ii) where charged but unproductive

labor costs would be excessive but for

the services provided or where cessation

or reduction of food or dormitory

operations will not otherwise yield net

cost savings) such that even with

efficient management, operating the

services on a break-even basis would

require charging inordinately high

prices, establishments offering the same

services in the same geographical areas.

Costs of food and dormitory services

shall include an allocable share of

indirect expenses pertaining to these

activities.

(5) When the contractor has an

arrangement authorizing an employee

association to provide or operate a

service, such as vending machines in

the contractor’s plant and retain the

profits, such profits shall be treated in

the same manner as if the contractor

were providing the service (but see

paragraph (b)(6) of this section).
3316 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Rules and Regulations

(6) Contributions by the contractor to

an employee organization, including

funds from vending machine receipts or

similar sources, may be included as

costs incurred under paragraph (b)(1) of

this section only to the extent that the

contractor demonstrates that an

equivalent amount of the costs incurred

by the employee organization would be

allowable if directly incurred by the

contractor.

3. Section 31.205–14 is revised to read

as follows:

31.205–14 Entertainment costs.

(a) This paragraph (a) applies to costs

incurred before the effective date of

implementation in FAR of sections 2101

and 2151 of the Federal Acquisition

Streamlining Act of 1994 (Pub. L. 103–

355). Costs of amusement, diversion,

social activities, and any directly

associated costs such as tickets to shows

or sports events, meals, lodging, rentals,

transportation, and gratuities are

unallowable (but see 31.205–1 and

31.205–13). Costs of membership in

social, dining, or country clubs or other

organizations having the same purposes

are also unallowable, regardless of

whether the cost is reported as taxable

income to the employees.

(b) This paragraph (b) implements

section 2192 of the Federal Acquisition

Streamlining Act of 1994 (Pub. L. 103–

355). It applies to costs incurred after

the effective date of implementation in

FAR of sections 2101 and 2151 of Pub.

L. 103–355. Costs of amusement,

diversion, social activities, and any

directly associated costs such as tickets

to shows or sports events, meals,

lodging, rentals, transportation, and

gratuities are unallowable. Costs made

specifically unallowable under this cost

principle are not allowable under any

other cost principle. Costs of

membership in social, dining, or

country clubs or other organizations

having the same purposes are also

unallowable, regardless of whether the

cost is reported as taxable income to the

employees.

[FR Doc. 95–849 Filed 1–12–95; 8:45 am]

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