Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Rules and Regulations 2635

Acquisition Regulations Council have

agreed on a final rule to amend the

Federal Acquisition Regulation (FAR) to

add two additional examples of when

field pricing support audits of

subcontract proposals may be

appropriate. This regulatory action was

not subject to Office of Management and

Budget review under Executive Order

12866, dated September 30, 1993.

EFFECTIVE DATE: March 26, 1996.

FOR FURTHER INFORMATION CONTACT:

Mr. Jeremy Olson, at (202) 501–3221 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 90–37, FAR case 92–

002.

SUPPLEMENTARY INFORMATION:

A. Background

An amendment to the FAR was

published in the Federal Register at 59

FR 14457, March 28, 1994, as a

proposed rule with a request for

comments. Three responses were

received. Each supported the proposed

rule.

B. 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 under the

Regulatory Flexibility Act, 5 U.S.C. 601,

et seq., because most contracts awarded

to small entities are awarded on a

competitive, fixed-price basis and

certified cost or pricing data and field

pricing support are not required.

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

collections of information from offerors,

contractors, or members of the public

which 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 15

Government procurement.

Dated: January 11, 1996.

Edward C. Loeb,

Acting Director, Office of Federal Acquisition

Policy.

Therefore, 48 CFR Part 15 is amended

as set forth below:

PART 15—CONTRACTING BY

NEGOTIATION

1. The authority citation for 48 CFR

Part 15 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 15.806–3 is amended in

paragraph (a)(3) by removing ‘‘or’’; in

paragraph (a)(4) by removing the period

and inserting a semicolon; and by

adding paragraphs (a) (5) and (6) to read

as follows:

15.806–3 Field pricing reports.

(a) * * *

(5) The contractor or higher tier

subcontractor has been cited for having

significant estimating system

deficiencies in the area of subcontract

pricing, especially the failure to perform

adequate cost analyses of proposed

subcontract costs or to perform

subcontract analyses prior to negotiation

of the prime contract with the

Government; or

(6) A lower tier subcontractor has

been cited as having significant

estimating system deficiencies.

* * * * *

[FR Doc. 96–1021 Filed 1–25–96; 8:45 am]

BILLING CODE 6820–EP–M

DEPARTMENT OF DEFENSE

GENERAL SERVICES

ADMINISTRATION

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

48 CFR Part 15

[FAC 90–37; FAR Case 92–017; Item VIII]

RIN 9000–AF79

Federal Acquisition Regulation;

Overhead Should-Cost Reviews

AGENCIES: Department of Defense (DOD),

General Services Administration (GSA),

and National Aeronautics and Space

Administration (NASA).

ACTION: Final rule.

SUMMARY: The Civilian Agency

Acquisition Council and the Defense

Acquisition Regulations Council have

agreed to amend the Federal Acquisition

Regulation (FAR) to add guidance on

overhead should-cost reviews. This

regulatory action was not subject to

Office of Management and Budget

review under Executive Order 12866,

dated September 30, 1993.

EFFECTIVE DATE: March 26, 1996.

FOR FURTHER INFORMATION CONTACT:

Mr. Jeremy Olson at (202) 501–3221 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 90–37, FAR case 92–

017.

SUPPLEMENTARY INFORMATION:

A. Background

An amendment to FAR 15.810 was

published in the Federal Register at 59

FR 16388, April 6, 1994, as a proposed

rule with a request for comments. Six

responses were received. The Councils’

analysis of those comments did not

result in any revisions to the proposed

rule previously published.

B. 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 under the

Regulatory Flexibility Act, 5 U.S.C. 601,

et seq., because contracts awarded to

small entities rarely are subject to

program or overhead should-cost

reviews.

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

collections of information from offerors,

contractors, or members of the public

which 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 15

Government procurement.

Dated: January 11, 1996.

Edward C. Loeb,

Acting Director, Office of Federal Acquisition

Policy.

Therefore, 48 CFR Part 15 is amended

as set forth below:

PART 15—CONTRACTING BY

NEGOTIATION

1. The authority citation for 48 CFR

Part 15 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 15.810 is revised to read as

follows:

15.810 Should-cost review.

15.810–1 General.

(a) Should-cost reviews are a

specialized form of cost analysis.

Should-cost reviews differ from

traditional evaluation methods. During

traditional reviews, local contract audit
2636 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Rules and Regulations

and contract administration personnel

primarily base their evaluation of

forecasted costs on an analysis of

historical costs and trends. In contrast,

should-cost reviews do not assume that

a contractor’s historical costs reflect

efficient and economical operation.

Instead, these reviews evaluate the

economy and efficiency of the

contractor’s existing work force,

methods, materials, facilities, operating

systems, and management. These

reviews are accomplished by a multifunctional team of Government

contracting, contract administration,

pricing, audit, and engineering

representatives. The objective of shouldcost reviews is to promote both short

and long-range improvements in the

contractor’s economy and efficiency in

order to reduce the cost of performance

of Government contracts. In addition, by

providing rationale for any

recommendations and quantifying their

impact on cost, the Government will be

better able to develop realistic objectives

for negotiation.

(b) There are two types of should-cost

reviews—program should-cost review

(see 15.810–2) and overhead should-cost

review (see 15.810–3). These shouldcost reviews may be performed together

or independently. The scope of a

should-cost review can range from a

large-scale review examining the

contractor’s entire operation (including

plant-wide overhead and selected major

subcontractors) to a small-scale tailored

review examining specific portions of a

contractor’s operation.

15.810–2 Program should-cost review.

(a) Program should-cost review is

used to evaluate significant elements of

direct costs, such as material and labor,

and associated indirect costs, usually

incurred in the production of major

systems. When a program should-cost

review is conducted relative to a

contractor proposal, a separate audit

report on the proposal is required.

(b) A program should-cost review

should be considered, particularly in

the case of a major system acquisition

(see part 34), when—

(1) Some initial production has

already taken place;

(2) The contract will be awarded on

a sole-source basis;

(3) There are future year production

requirements for substantial quantities

of like items;

(4) The items being acquired have a

history of increasing costs;

(5) The work is sufficiently defined to

permit an effective analysis and major

changes are unlikely;

(6) Sufficient time is available to plan

and conduct the should-cost review

adequately; and

(7) Personnel with the required skills

are available or can be assigned for the

duration of the should-cost review.

(c) The contracting officer should

decide which elements of the

contractor’s operation have the greatest

potential for cost savings and assign the

available personnel resources

accordingly. While the particular

elements to be analyzed are a function

of the contract work task, elements such

as manufacturing, pricing and

accounting, management and

organization, and subcontract and

vendor management are normally

reviewed in a should-cost review.

(d) In acquisitions for which a

program should-cost review is

conducted, a separate program shouldcost review team report, prepared in

accordance with agency procedures, is

required. Field pricing reports are

required only to the extent that they

contribute to the combined team

position. The contracting officer shall

consider the findings and

recommendations contained in the

program should-cost review team report

when negotiating the contract price.

After completing the negotiation, the

contracting officer shall provide the

administrative contracting officer (ACO)

a report of any identified uneconomical

or inefficient practices, together with a

report of correction or disposition

agreements reached with the contractor.

The contracting officer shall establish a

follow-up plan to monitor the correction

of the uneconomical or inefficient

practices.

(e) When a program should-cost

review is planned, the contracting

officer should state this fact in the

acquisition plan (see subpart 7.1) and in

the solicitation.

15.810–3 Overhead should-cost review.

(a) An overhead should-cost review is

used to evaluate indirect costs, such as

fringe benefits, shipping and receiving,

facilities and equipment, depreciation,

plant maintenance and security, taxes,

and general and administrative

activities. It is normally used to evaluate

and negotiate a forward pricing rate

agreement (FPRA) with the contractor.

When an overhead should-cost review is

conducted, a separate audit report is

required.

(b) The following factors should be

considered when selecting contractor

sites for overhead should-cost reviews:

(1) Dollar amount of Government

business.

(2) Level of Government participation.

(3) Level of noncompetitive

Government contracts.

(4) Volume of proposal activity.

(5) Major system or program.

(6) Mergers, acquisitions, takeovers.

(7) Other conditions, e.g., changes in

accounting systems, management, or

business activity.

(c) The objective of the overhead

should-cost review is to evaluate

significant indirect cost elements indepth, identify inefficient and

uneconomical practices, and

recommend corrective action. If it is

conducted in conjunction with a

program should-cost review, a separate

overhead should-cost review report is

not required. However, the findings and

recommendations of the overhead

should-cost team, or any separate

overhead should-cost review report,

shall be provided to the ACO. The ACO

should use this information to form the

basis for the Government position in

negotiating a FPRA with the contractor.

The ACO shall establish a follow-up

plan to monitor the correction of the

uneconomical or inefficient practices.

[FR Doc. 96–1022 Filed 1–25–96; 8:45 am]

BILLING CODE 6820–EP–M

DEPARTMENT OF DEFENSE

GENERAL SERVICES

ADMINISTRATION

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

48 CFR Part 19

[FAC 90–37; FAR Case 92–606; Item IX]

RIN 9000–AG78

Federal Acquisition Regulation; SBA

Responsibility, Certificate of

Competency Requests

AGENCY: Department of Defense (DOD),

General Services Administration (GSA),

and National Aeronautics and Space

Administration (NASA).

ACTION: Final rule.

SUMMARY: The Civilian Agency

Acquisition Council and the Defense

Acquisition Regulations Council have

agreed on a final rule to amend the

Federal Acquisition Regulation (FAR) to

reflect approval authority of the Small

Business Administration (SBA) regional

offices to issue Certificate of

Competency (COC) Determinations as

provided in 13 CFR Part 125. This

regulatory action was not subject to

Office of Management and Budget

review under Executive Order 12866,

dated September 30, 1993.