[Federal Register Volume 61, Number 92 (Friday, May 10, 1996)]
[Proposed Rules]
[Pages 21395-21404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11724]



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[[Page 21396]]

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.

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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.

[[Page 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

[[Page 21398]]

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

[[Page 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).


Sec. 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.


Sec. 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.

[[Page 21400]]

    (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.


Sec. 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 Sec. 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.


Sec. 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.


Sec. 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 Sec. 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.


Sec. 100.14  Directly allocable costs.

    (a) A cost is directly allocable to the CALEA compliance effort if:

[[Page 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.


Sec. 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.


Sec. 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 Sec. 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.

[[Page 21402]]

    (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 time-phased (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.).


Sec. 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 Sec. 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.

[[Page 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.).


Sec. 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.


Sec. 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 Sec. 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 Sec. 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

[[Page 21404]]

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).


Sec. 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.


Sec. 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