Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21395

Seminole, at 1119. Since its passage in

1988, more than 140 compacts in more

than 20 States have been successfully

negotiated, entered into by States and

Tribes and approved by the Secretary.

Today, Indian gaming is a successful

industry generating significant

governmental revenue for Indian tribes,

which provides funding for essential

government services such as roads,

schools, and hospitals. Prior to

enactment of IGRA, States generally

were precluded from any regulation of

gaming on Indian reservations. See

California v. Cabazon Band of Mission

Indians, 480 U.S. 202 (1987). IGRA, by

offering States an opportunity to

participate with Indian tribes in

developing regulations for Indian

gaming, ‘‘extends to States a power

withheld from them by the

Constitution.’’ Seminole, at 1124.

IGRA requires an Indian Tribe that

wants to conduct casino type (‘‘Class

III’’) gaming on its Indian lands to

negotiate a ‘‘compact’’ of terms and

conditions for such gaming with the

State in which the Indian lands are

located. IGRA also provides that if the

State fails to bargain, or to do so in good

faith, the Tribe may sue the State in

Federal court to enforce the remedial

provisions provided by the statute.

Under these provisions, if a court found

a State not to be bargaining in good

faith, it would ‘‘order the State and the

Indian Tribe to conclude such a

compact within a 60-day period.’’ 25

U.S.C. Section 2710(d)(7)(B)(iii). If

thereafter a State and Tribe fail to

conclude a compact within this 60-day

period, they ‘‘shall each submit to a

mediator appointed by the court a

proposed compact that represents their

last best offer for a compact.’’ Id. Section

2710(d)(7)(B)(iv). The mediator shall

then ‘‘select from the two proposed

compacts the one which best comports

with the terms of this Act and any other

applicable Federal law and with the

findings and order of the court,’’ id., and

submit his or her selection to the State

and Tribe, id. Section 2710(d)(7)(B)(v).

If, within 60 days from the mediator’s

submission of his or her selection, the

State consents to a proposed compact,

such a compact authorizes Indian

gaming pursuant to IGRA. Id.

Section 2710(d)(7)(B)(vi). If the State

does not consent to a compact within 60

days of the mediator’s submission, the

Secretary of the Interior shall:

prescribe, in consultation with the Indian

tribe, procedures—

(I) which are consistent with the proposed

compact selected by the mediator under [25

U.S.C. Section 2710(d)(7)(B)(iv)], the

provisions of [the Act] and the relevant

provisions of the laws of the State, and

(II) under which class III gaming may be

conducted on the Indian lands over which

the Indian tribe has jurisdiction.

25 U.S.C. Section 2710(d)(7)(B)(vii). In

practice, only a handful of cases have

required resort to IGRA’s judicial

enforcement mechanism.

In Seminole Tribe of Florida v.

Florida, the Supreme Court affirmed a

decision by the Eleventh Circuit Court

of Appeals holding that Congress may

not abrogate State Eleventh Amendment

immunity under the Indian Commerce

Clause. The decision raises questions

about the process now to be followed by

Tribes who cannot secure State

cooperation in the compacting process.

The Supreme Court’s Seminole

decision does not affect the validity of

existing class III gaming compacts, but

it does require the United States to

consider the effect of a State’s refusal to

engage in remedial litigation designed to

oversee the compacting process. In its

decision below, the Eleventh Circuit

suggested that the compacting process

could proceed as prescribed by IGRA

(including litigation) so long as a State

did not assert its Eleventh Amendment

immunity. In light of IGRA’s

severability clause, the Eleventh Circuit

further expressed the view that if a State

pleads an Eleventh Amendment defense

and the suit is dismissed, the Tribe may

then notify the Secretary and the

Secretary may prescribe the terms of the

particular compact. The Supreme Court

expressly declined to consider the

validity of this part of the Eleventh

Circuit’s opinion, and Florida’s crosspetition for review of this issue was

denied by the Supreme Court. By

contrast, the Ninth Circuit, in its preSeminole decision rejecting an Eleventh

Amendment challenge, Spokane Tribe

of Indians v. Washington, 28 F.3d 991

(9th Cir. 1994), expressed disagreement

with the Eleventh Circuit’s views on

that issue. Id. at 997.

In these circumstances, and because

of the importance of the issues to the

Tribes, the States, and the general

public, the Department seeks comments

regarding the manner in which the

compacting provisions of IGRA may

operate following the Supreme Court’s

Seminole Tribe decision.

Subject Matter of Potential Rulemaking

The Department seeks comments on

the following specific issues, and on

other issues directly related to the

subject matter of this notice.

(1) The effect of the Supreme Court’s

decision in Seminole Tribe on the

operation of other provisions in 25

U.S.C. Section 2710(d)(7) when a State

does not waive its Eleventh Amendment

immunity to suit;

(2) Whether, and under what

circumstances, the Secretary of the

Interior is empowered to prescribe

‘‘procedures’’ for the conduct of Class III

gaming when a State interposes an

Eleventh Amendment defense to an

action pursuant to 25 U.S.C. Section

2710(d)(7)(B);

(3) What is an appropriate

administrative process for the

development of Secretarial procedures;

(4) What procedures should be

followed if a State interposes an

Eleventh Amendment defense to an

action filed under 25 U.S.C. Section

2710(d)(7)(B);

(5) What procedures can be, and

should be, utilized for determining legal

issues that may be in dispute, such as

the ‘‘scope of gaming’’ permitted under

State law. The scope of gaming issue

arises when a State takes the position

that it is not required to bargain with a

Tribe with respect to certain Class III

games because IGRA does not authorize

such games on the ground that such

games are not permitted by the State

‘‘for any purpose by any person,’’ see 25

U.S.C. Section 2710(d)(1)(B)1; and

(6) How any procedures promulgated

by the Secretary may, and should,

provide for appropriate regulation of

Indian gaming.

Public Review

Comments on this notice may be

submitted in writing to the address

identified at the beginning of this

rulemaking by July 1, 1996. Comments

received by that date will be considered

in the development of any proposed

rule.

Executive Order 12866

This advance notice of proposed

rulemaking has been reviewed by the

Office of Management and Budget under

Executive Order 12866.

Drafting Information

This Notice was drafted by the Office

of the Solicitor, 1849 C Street, N.W.,

Washington, D.C., 20240.

Dated: April 30, 1996.

Ada E. Deer,

Assistant Secretary, Indian Affairs.

[FR Doc. 96–11287 Filed 5–9–96; 8:45 am]

BILLING CODE 4210–02–P
21396 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

DEPARTMENT OF JUSTICE

Federal Bureau of Investigation

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: Proposed rule.

SUMMARY: This rule establishes the

procedures whereby

telecommunications carriers can recover

the costs associated with complying

with the Communications Assistance for

Law Enforcement Act (CALEA), which

requires telecommunications carriers to

ensure law enforcement’s ability,

pursuant to court order or other lawful

authorization, to intercept

communications notwithstanding

advanced telecommunications

technologies.

DATES: Written comments must be

received on or before July 9, 1996.

ADDRESSES: Comments should be

submitted in triplicate to the

Telecommunications Contracts and

Audit Unit, Federal Bureau of

Investigation, P.O. Box 221286,

Chantilly, VA 22022–1286, Attention:

CALEA FR Representative, telephone

number (703) 814–4900.

FOR FURTHER INFORMATION CONTACT:

Walter V. Meslar, Unit Chief,

Telecommunications Contracts and

Audit Unit, Federal Bureau of

Investigation, P.O. Box 221286,

Chantilly, VA 22022–1286, telephone

number (703) 814–4900.

SUPPLEMENTARY INFORMATION: Recent

and continuing advances in

telecommunications technology and the

introduction of new digitally-based

services and features have, in some

instances, impaired the ability of

federal, state, and local law enforcement

agencies to fully and properly conduct

various types of court-authorized

electronic surveillance. Therefore, on

October 25, 1994, the President signed

into law the Communications

Assistance for Law Enforcement Act

(CALEA) (Public Law 103–414, 47

U.S.C. 1001–1010). 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 notwithstanding

advanced telecommunications

technologies.

Under CALEA, certain

implementation responsibilities are

conferred upon the Attorney General;

the Attorney General has, in turn,

delegated responsibilities set forth in

CALEA to the Director, FBI, or his

designee, pursuant to 28 CFR 0.85(o).

The Director, FBI, has designated

personnel in the Engineering Section of

the Information Resources Division and

the Property Procurement and

Management Section 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 Communication 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 interexchange 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 messaging services; and (2) any

class or category of telecommunications

carriers that the FCC exempts by rule

after consultation with the Attorney

General.

Capability Requirements

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

call-identifying information not

authorized to be intercepted; and (B)

information regarding the government’s

interception of communications and

access to call-identifying information.
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21397

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

carrier will be deemed to be in

compliance if it adheres to publicly

available technical requirements, feature

descriptions, or standards adopted by an

industry association or standard-setting

organization relevant to CALEA.

Telecommunications carriers may also

develop 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 required to accommodate all of

the communication interceptions, pen

registers, and trap and trace devices that

the Attorney General estimates that the

government agencies authorized to

conduct electronic surveillance may

conduct and use simultaneously by the

date 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 the

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 those notices (60 FR

53643), and on November 9, 1995 the

comment period was extended until

January 16, 1996.

Section 104 of CALEA also provides

that within 180 days after the

publication of the final notice of

capacity requirements, a

telecommunications carrier shall submit

to the Attorney General a 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. The FBI intends to use those

statements as a basis from which to

solicit cooperative agreements to

reimburse carriers for reasonable costs

of modifications performed to comply

with CALEA capability and capacity

requirements, based on 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 is required to, and

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

dependant 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, it

requires telecommunications

transmission and switching equipment

manufacturers, as well as providers of

telecommunications support services, to

cooperate with telecommunications

carriers in achieving the required

capacities and capabilities.

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 after

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 directs the Attorney General

to consult with the FCC prior to the

establishment of regulations that will

allow for cost recovery by

telecommunications carriers of

reasonable costs incurred for

compliancy.

Regulations shall minimize the cost to

the Federal Government and permit

recovery by telecommunications carriers

of the direct costs of developing

necessary modifications for CALEA

compliance, including providing the

capabilities requested, providing

capacities requested, the costs of

training personnel in the use of such

capabilities and capacities, and the

direct costs of deploying or installing

such capabilities and capacities.

In the case of any modification that

may be used for any purpose other than

lawfully authorized electronic

surveillance by a law enforcement

agency of a government, CALEA permits
21398 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

the recovery of only the incremental

cost of making the modification suitable

for such law enforcement purposes.

Establishment of Cost Recovery Rules

and Procedures

The regulations proposed herein are

intended to ensure that each carrier’s

practices used in estimating costs are

consistent with the current cost

accumulating and reporting procedures

utilized by the carrier for the

preparation of its financial statements.

Further, these regulations establish that

not all expenses 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 cost in the manner

agreed to by both parties.

These regulations also ensure 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.

The following proposed cost recovery

rules will be incorporated in any

cooperative agreement established

under section 109 of CALEA and

entered into between the carriers and

the FBI. Subsequent to the submission

to the FBI of the Carrier Statements, as

required under section 104(d) of

CALEA, the FBI will directly solicit

cooperative agreements from the carriers

based upon available funding. A

separate Federal Register notice

concerning carrier statements will be

published soon. These rules were

developed to establish the procedures

whereby carriers may seek

reimbursement under section 109(a) and

104(e) of CALEA. Cost recovery under

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

determined pursuant to the procedures

set forth in section 109(b)(1) of CALEA

in accordance with these cost recovery

rules as promulgated. To the extent

possible, these rules will allow carriers

to utilize their existing accounting

procedures to record the costs of

bringing equipment, facilities, and

services into compliance with CALEA.

Applicable Administrative Procedures

and Executive Orders

Regulatory Flexibility Act

As required by section 603 of the

Regulatory Flexibility Act, the FBI has

prepared this Initial Regulatory

Flexibility Analysis (IRFA) section to

ascertain the expected impact on small

entities of the regulations proposed in

this document. The FBI is obligated to

implement the mandate of Congress as

set out in CALEA. Therefore, these

regulations were developed to establish

the mechanism whereby

telecommunications carriers can recover

the costs associated with complying

with CALEA. The FBI seek to subject all

carriers to the same regulatory policy

(proposed herein), while allowing

carriers to utilize 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, the

proposed regulations specify reporting

objectives rather than specifying the

manner in which these records must be

kept. The FBI estimates that

approximately three thousand (3,000)

telecommunications carriers may be

affected by these rules. While most

carriers are not large in terms of

capitalization, most are dominant

within their markets, so they are not

considered ‘‘small’’ for the purposes of

the Regulatory Flexibility Act. Although

it is not anticipated that any small

carriers will be adversely affected, these

proposed rules have been written to

allow any such carriers to seek

reimbursement in an equitable manner.

Therefore, these regulations seek to

allow these carriers to use their current

recordkeeping procedures, along with

the existing skill levels on their staffs.

As mandated by section 603(c) of the

Regulatory Flexibility Act,

consideration was given to alternative

forms of compliance requirements for

the small entities affected by these

proposed rules. However, the FBI

determined that these alternatives were

not viable in that they would require the

carriers to alter their internal accounting

methodologies, would not take into

account carrier individuality with

respect to directly allocable costs or

would violate CALEA’s mandate to

reimburse carriers’ reasonable costs,

while maintaining Government fiscal

accountability requirements. This

Proposed Rule solicits comments on

both the proposed regulations and their

possible impact on small entities. The

FBI will send a copy of these proposed

rules, including this IRFA, to the Chief

Counsel for Advocacy of the Small

Business Administration in accordance

with section 603(a) of the Regulatory

Flexibility Act, Public Law 96–354, 94

Stat. 1164, 5 U.S.C. 601 et seq. There are

no federal rules that overlap, duplicate

or conflict with these rules.

Executive Order 12612

These regulations will not have

substantial direct effects 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 examined these proposed

regulations in light of Executive Order

12866 and has found that they

constitute a significant regulatory action

under sections 3(f)(1) and 3(f)(4).

Pursuant to Executive Order 12866, 28

CFR part 100 is the draft text of the

regulatory actions that are required

under CALEA. These proposed

regulations promulgate procedures

whereby carriers may seek

reimbursement for their efforts to assist

law enforcement in preserving

electronic surveillance capabilities as

mandated by CALEA, which authorizes

appropriations of $500 million for

carrier reimbursement. These

regulations have been developed in

order to effect the least burden on the

administrative staffs of both the carriers

and the Government while maintaining

the Government’s obligation to adhere

to its fiscal accountability requirements.

In order to accomplish this goal, the

proposed regulations specify reporting

objectives rather than specifying the

manner in which these records must be

kept. As mandated by Executive Order

12866, consideration was given to

potentially effective and feasible

alternatives to the proposed regulations.

However, the FBI determined that

alternative requirements were not viable

in that they would require the carriers

to alter their internal accounting

methodologies, would not take into

account carrier individuaity with

respect to directly allocable costs and

violate CALEA’s mandate to maintain

Government fiscal accountability

standards in the reimbursement process.

Unfunded Mandates Reform Act of 1995

As required by Title II of the

Unfunded Mandates Reform Act of

1995, this section assesses the effects of
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21399

the proposed regulations on State, local

and tribal governments and the private

sector. These regulations are required

under section 109(e) of CALEA. No

unfunded mandate is imposed upon

State, and local or tribal governments by

these regulations. Therefore, sections

203 and 204 of the Unfunded Mandates

Reform Act do not apply to these

proposed rules. However, the FBI has

determined that these proposed rules

are subject to sections 201, 202, and 205

of the Unfunded Mandates Reform Act.

While the telecommunications industry

is primarily affected by these proposed

rules, all reasonable costs, as shall be

defined in 28 CFR part 100, incurred by

the private sector will be subject to

reimbursement from the $500 million

authorized to be appropriated by

Congress under CALEA section 110.

Furthermore, CALEA sections 109 and

104 specifically establish the conditions

whereby a telecommunications carrier

may be deemed in compliance with

regard to the equipment, facilities or

services covered in these proposed

regulations should the Government not

agree to reimburse the carrier for the

compliance effort. Accurate estimates of

the effects on the national economy of

this part, which is proposed so that

carriers may seek reimbursement for

their efforts to assist law enforcement in

preserving electronic surveillance

capabilities as mandated by CALEA, are

not feasible. As mandated by section

205 of the Unfunded Mandates Reform

Act, consideration was given to

potentially effective and feasible

alternates to the proposed rules.

However, the FBI determined that

alternative requirements were not viable

in that they would require the carriers

to alter their internal accounting

methodologies, would not take into

account carrier individuality with

respect to directly allocable costs and

violated CALEA’s mandate to maintain

Government fiscal accountability

standards in the reimbursement process.

Information Collection Under Review

The proposed information collection

is published to obtain comments from

the public and affected agencies.

Comments are encouraged and will be

accepted for sixty days from the date

listed at the top of this page in the

Federal Register. This process is

conducted in accordance with the

Paperwork Reduction Act of 1995.

This collection covers:

(1) Type of Information Collection:

NEW COLLECTION: Quantitative and

qualitative data necessary to evaluate

cooperative agreement proposals and

subsequent requests for reimbursement.

(2) The title of the information

collection: ‘‘Telecommunications

Carrier Reimbursement Cost Estimate’’

and ‘‘Telecommunications Carrier

Reimbursement Request for Payment.’’

(3) The agency form number, if any,

and the applicable component of the

Department sponsoring the collections:

No form number; sponsored by the FBI,

United States Department of Justice.

(4) Who will be asked or required to

respond, as well as a brief abstract;

BUSINESS OR OTHER FOR PROFIT:

Telecommunications carriers will

respond. This data collection will be

necessary to evaluate cooperative

agreement proposals and subsequent

requests for reimbursement under

CALEA. This information will be used

to determine whether agreement prices

are fair and reasonable and to make

recommendations to agreement officers

for approval or disapproval of the

carrier’s request.

(5) An estimate of the total number of

respondents and the amount of time

estimated for an average respondent to

respond: The FBI estimates that

approximately three thousand (3,000)

telecommunications carriers, with

approximately twenty-three thousand

(23,000) unique switches, that, over a

five (5) year period, may be affected by

these rules. The time required to read

and prepare information for one switch

is estimated at four (4) hours per

response.

By publication of this notice, written

comments and suggestions from the

public and affected agencies concerning

the proposed collection of information

was requested. Your comments should

address one or more of the following

four points:

(1) Evaluate whether the proposed

collection of information is necessary

for the proper performance of the

functions of the agency, including

whether the information will have

practical utility;

(2) Evaluate the accuracy of the

agencies estimate of the burden of the

proposed collection of information,

including the validity of methodology

and assumptions used;

(3) Enhance the quality, utility, and

clarity of the information to be

collected; and

(4) Minimize the burden of collection

of information on those who are to

respond, including through the use of

appropriate automated, electronic,

mechanical or other technological

collection techniques or other forms of

information technology (i.g., permitting

electronic submission of responses).

Comments or suggestions regarding

the items contained in this information

collections request should be directed to

Mr. Porter F. Dunn,

Telecommunications Contracts and

Audit Unit, Federal Bureau of

Investigation, P.O. Box 221286,

Chantilly, VA 22022–1286, telephone

number (703) 814–4902.

List of Subjects in 28 CFR Part 100

Accounting, Law enforcement—

wiretapping and electronic surveillance,

Reporting and recordkeeping

requirements, Telecommunications.

Dated: May 6, 1996.

Louis Freeh,

Director, Federal Bureau of Investigation,

Department of Justice.

For the reasons set out in the

preamble, 28 CFR part 100 is proposed

to be added 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 Reduction for defective cost data.

100.20 Accounting for unallowable costs.

100.21 Confidentiality of trade secrets/

proprietary information.

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, 47 U.S.C. 1001–1010).

Reimbursement of costs is subject to the

availability of funds and agreement,

prior to the incurrence of costs, by the

Attorney General or designee to

reimburse costs.

§ 100.10 Definitions.

(a) Allocable means chargeable to two

or more costs objectives.

(b) Business unit means any segment

of an organization for which cost data

are routinely accumulated by the carrier

for tracking and measurement purposes.

(c) 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, capitalization

projects, etc.
21400 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

(d) Cost pool means groupings of

incurred costs identified with two or

more cost objectives, but not identified

specifically with any final cost

objective.

(e) Directly allocable costs means any

costs that are directly chargeable to two

or more cost objectives.

(f) Directly assignable cost means any

cost that can wholly be attributed to a

cost objective.

(g) 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.

(h) 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.

(i) 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.

(j) Plant nonspecific costs means costs

related to property held for future

telecommunications use, along with the

associated provisioning expenses,

network operations expenses, and

depreciation and amortization expenses.

These costs shall also include the costs

of supervising and office support of

these activities.

(k) Plant specific costs means costs

related to specific kinds of

telecommunications plants. These costs

shall include the costs of inspecting,

testing and reporting on the condition of

telecommunications plant to determine

the need for repairs, replacements,

rearranges and changes; performing

routine work to prevent trouble except

replacing items of plant other than

retirement units; rearranging and

changing the location of plant not

retired; repairing material for reuse;

restoring the condition of plant

damaged by storms, floods, fire, or other

casualties (other than the cost of

replacing retirement units); inspecting

after repairs have been made; and

receiving training to perform these

kinds of work. Also included are the

costs of direct supervision (immediate

or first-level) and office support of this

work.

(l) 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.

§ 100.11 Allowable costs.

(a) Costs that are eligible for

reimbursement under section 109(e)

CALEA are:

(1) All reasonable plant specific 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

specific 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 specific 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 specific 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 first-line

supervision and office support for this

work for plant specific expenses.

(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 direct 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) An allowable directly assignable

cost is any plant specific cost that can

be definitively linked with the

performance of bringing equipment,

facilities or services into compliance

with CALEA as described in § 100.11(a).

(1) A direct 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 that or any other final cost

objective shall not be assigned to the

CALEA compliance effort (or any

portion thereof).

(2) Costs identified specifically with

the work performed are direct 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 as

direct costs 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 a

direct cost under this part.

(b) For reasons of practicality, any

directly assignable cost of minor dollar

amount 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 if:
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21401

(1) It is plant specific cost incurred

specifically to meet the requirements of

CALEA sections 103 and 104; or

(2) 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 groupings with

due consideration of the reason 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

grouging on the basis of the benefits

accruing to the multiple 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

accepted by the FBI, it shall not be

modified without written approval of

the FBI. 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

these regulations. The method may

require further examination when:

(i) Substantial differences occur

between the cost patterns of work under

CALERA 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 location 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 appropriated 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 and which are for the

general management and administration

of the 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 nonspecific costs are

disallowed. These include, but are not

limited to, expenses related to property

held for future telecommunications use,

provisioning expenses, network

operations expenses, and depreciation

and amortization expenses. Any plant

nonspecific supervision and office

support costs are also disallowed.

(d) Cost 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

agreed upon time frame 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.

§ 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 time of

agreement.

(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 secure the data and/or elicit

corrective action. If the carrier persists

in refusing to provide the needed data

or to take corrective action, the FBI will

refer the action to higher authority,

including details of the attempts made

to resolve the matter, and a statement of

noncompliance with CALEA will be

issued.

(d) Instructions for submission of the

cost data for the estimate are as follows:

(1) The carrier shall submit to the FBI

estimated and/or incurred costs by line

item with supporting information,

adequately cross-referenced, suitable for

detailed analysis.

(2) A cost element breakdown as

described in § 100.16(h) shall be

attached for each proposed line item

and must reflect any specific

requirements established by the FBI.

(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.
21402 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

(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,

and showing trends and budgetary data,

to provide a basis for evaluating the

reasonableness of proposed rates.

Indicate the rates used and provide an

appropriate explanation.

(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

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. As

later information comes into the

carrier’s possession, it must be promptly

submitted to the FBI. The requirement

for submission of cost data continues up

to the time of final reimbursement.

(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 estimated. 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 support 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. Attach separate pages as

necessary.).

(2) Total Project Costs: Detail (at

Switch Level, Research & Development,

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

element.).

(iv) Supporting Material (Identify the

attachment in which the information

supporting the specific cost element

may be found. Attach separate pages as

necessary.).

§ 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, adequately

cross-referenced, suitable for detailed

analysis.

(2) A cost element breakdown

§ 100.17(f) shall be attached for each

agreed upon line item and must reflect

any specific requirements established by

the FBI.

(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. If

agreement has been reached with FBI

representatives on use of forward

costing rates/factors, identify the

agreement, include a copy, and describe

its nature. 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 time sheets

and labor rate justification for all direct

labor charged to this agreement. Include

a breakdown of labor hours, rates, and

cost by appropriate category, and

furnish the methodologies used in

identifying these costs.

(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 provide

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 provide documentation of

these costs.

(d) There is a clear distinction

between submitting cost data and

merely making available books, records,

and other documents without

identification.
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21403

(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, to the FBI.

(2) As later information comes 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,

appropriately referenced, of all the cost

data and information accompanying or

identified in the estimate. With any

future additions and/or revisions to an

estimate, the carrier must provide a

supplemental index, up to the date of

the agreement on the costs.

(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. Attach separate pages as

necessary.).

(2) Total Project Costs: Detail (at

Switch Level, Research & Development,

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. Attach separate pages as

necessary.).

§ 100.18 Audit.

(a) General. In order to evaluate the

accuracy, completeness, and currency 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., data bases, applications

software, data based 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 five (5) 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 five (5) 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 this agreement.

§ 100.19 Reduction for defective cost data.

(a) 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,

or any data modification is increased by

any significant amount because:

(1) The carrier or a subcontractor

furnished cost data that were not

complete, accurate, and current;

(2) A subcontractor or prospective

subcontractor furnished the carrier cost

data that were not complete, accurate,

and current; or

(3) Any of these parties furnished data

of any description that were not

accurate.

(b) Any reduction in the negotiated

cost under § 100.19(a) 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.

(c) If the FBI determines under

§ 100.19(a) that a cost reduction should

be made, the carrier shall not raise the

following matters as a defense:

(1) 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

have been modified even if accurate,

complete, and current cost data had

been submitted;

(2) 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;

(3) 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
21404 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

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 Accounting for unallowable

costs.

To ensure that the Government does

not reimburse carriers for unallowable

costs, the following provisions are

included:

(a) Costs that are expressly

unallowable or mutually agreed to be

unallowable, including mutually agreed

to be unallowable directly associated

costs, shall be identified and excluded

from any billing, claim, or proposal

applicable to reimbursement under

CALEA. When an unallowable cost is

incurred, its directly associated costs are

also unallowable.

(b) The detail and depth of records

required as backup support for cost

estimates, billings, or claims shall be

those which are adequate to establish

and maintain visibility of identified

unallowable costs, including their

directly associated costs. Unallowable

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.

§ 100.21 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. 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.

[FR Doc. 96–11724 Filed 5–9–96; 8:45 am]

BILLING CODE 4410–02–M

POSTAL SERVICE

39 CFR Part 233

Addition of Commercial Espionage to

Mail Cover Regulations

AGENCY: Postal Service.

ACTION: Proposed rule.

SUMMARY: This proposed rule will

amend the United States Postal

Service’s mail cover regulations to add

commercial espionage by foreign

sources as a criminal activity for which

national security mail covers may be

authorized. This change is effected by

expanding the definition of ‘‘protection

of the national security’’ found at 39

CFR 233.3(c)(9) to include commercial

espionage.

DATES: Comments must be received on

or before June 10, 1996.

ADDRESSES: Written comments should

be mailed or delivered to Counsel,

Postal Inspection Service, 475 L’Enfant

Plaza SW, Room 3411, Washington, DC

20260–2181.

FOR FURTHER INFORMATION CONTACT:

Henry J. Bauman, Counsel, Postal

Inspection Service, (202) 268–4415.

SUPPLEMENTARY INFORMATION: Postal

Service regulations on mail covers are

published in Title 39 of the Code of

Federal Regulations (CFR) at § 233.

Paragraph (c)(9) of § 233.3 currently

defines ‘‘protection of the national

security’’ as ‘‘actual or potential threats

to the security of the United States of

America by a foreign power or its

agents.’’ This definition will be

expanded to include commercial

espionage.

Commercial espionage by foreign

sources has become an increasing threat

to the economic well-being and ability

of the United States to compete in the

international market. For the purposes

of this proposed revision, ‘‘commercial

espionage’’ is defined as either

‘‘economic espionage’’ or ‘‘industrial

espionage.’’ According to the Federal

Bureau of Investigation (FBI) white

paper, FBI Strategy to Address the

Problem of Economic Espionage and

Industrial Espionage (Washington, DC:

FBI Headquarters, undated), ‘‘economic

espionage’’ is ‘‘government-directed,

sponsored, or coordinated intelligence

activity, which may or may not

constitute violation of the law,

conducted for the purpose of enhancing

that country’s or another country’s

economic competitiveness by the use of

the information by the foreign

government or by providing it to a

foreign business entity thereby giving

that entity a competitive advantage in

the marketplace.’’ ‘‘Industrial

espionage’’ is defined by the FBI as

‘‘individual or private business entity

sponsorship or coordination of

intelligence activity conducted for the

purpose of enhancing a private business

and its competitive advantage in the

marketplace, which is a violation of

law.’’

Revising the Postal Service’s national

security mail cover regulations to

include commercial espionage will

enhance the ability of law enforcement

to protect national security.

List of Subjects in 39 CFR Part 233

Administrative practice and

procedures, Banks and banking, Credit,

Crime, Law Enforcement, Postal Service,

Privacy, Seizure and forfeiture.

Accordingly, 39 CFR 233 is proposed

to be amended as set forth below.

PART 233—INSPECTION SERVICE/

INSPECTOR GENERAL AUTHORITY

1. The authority citation for part 233

continues to read as follows:

Authority: 39 U.S.C. 101, 401, 402, 403,

404, 406, 410, 411, 3005(e)(1); 12 U.S.C.

3401–3422; 18 U.S.C. 981, 1956, 1957, 2254,

3061; 21 U.S.C. 881; Inspector General Act of

1978, as amended (Pub. L. No. 95–452, as

amended), 5 U.S.C. App.3.

2. Paragraph (c)(9) of § 233.3 is

revised to read as follows:

§ 233.3 Mail covers.

* * * * *

(c) * * *

(9) Protection of the national security

means to protect the United States from

any of the following actual or potential

threats to its security by a foreign power

or its agents:

(i) An attack or other grave, hostile

act;

(ii) Sabotage, or international

terrorism; or

(iii) Clandestine intelligence

activities, including commercial

espionage.

* * * * *

Stanley F. Mires,

Chief Counsel, Legislative.

[FR Doc. 96–11768 Filed 5–9–96; 8:45 am]

BILLING CODE 7710–12–P