64684 Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 

published a proposed rule that would 

provide guidance on the applicability 

and enforcement of ERISA section 

4062(e), which provides for reporting of 

and liability for certain substantial 

cessations of operations by employers 

that maintain single-employer plans. 

PBGC is extending the comment period 

until November 12, 2010, in order to 

give the public additional time to 

review and comment on the proposed 

rule. 

Issued in Washington, DC, this 15th day of 

October 2010. 

Vincent K. Snowbarger, 

Deputy Director for Operations, Pension 

Benefit Guaranty Corporation. 

[FR Doc. 2010–26371 Filed 10–19–10; 8:45 am] 

BILLING CODE 7709–01–P 

OFFICE OF MANAGEMENT AND 

BUDGET 

Office of Federal Procurement Policy 

48 CFR Part 9903 

Cost Accounting Standards: 

Elimination of the Exemption From 

Cost Accounting Standards for 

Contracts Executed and Performed 

Entirely Outside the United States, Its 

Territories, and Possessions 

AGENCY: Office of Management and 

Budget (OMB), Office of Federal 

Procurement Policy, Cost Accounting 

Standards Board. 

ACTION: Notice of proposed rule. 

SUMMARY: The Office of Federal 

Procurement Policy (OFPP), Cost 

Accounting Standards (CAS) Board 

(Board), invites public comments 

concerning a Notice of Proposed Rule 

(NPR) to eliminate an exemption from 

the Cost Accounting Standards for 

contracts executed and performed 

entirely outside the United States, its 

territories, and possessions. 

DATES: Comments must be in writing 

and must be received by December 20, 

2010. 

ADDRESSES: All comments to this NPR 

must be in writing. Electronic comments 

may be submitted in any one of three 

ways: 

1. Federal eRulemaking Portal: 

Comments may be directly sent via 

http://www.regulations.gov—a Federal 

E-Government Web site that allows the 

public to find, review, and submit 

comments on documents that agencies 

have published in the Federal Register 

and that are open for comment. Simply 

type ‘‘(b)(14) Overseas Exemption NPR’’ 

(without quotation marks) in the 

Comment or Submission search box, 

click Go, and follow the instructions for 

submitting comments; 

2. E-mail: Comments may be included 

in an e-mail message sent to 

casb2@omb.eop.gov. The comments 

may be submitted in the text of the 

e-mail message or as an attachment; 

3. Facsimile: Comments may also be 

submitted via facsimile to (202) 395– 

5105; or 

4. Mail: If you choose to submit your 

responses via regular mail, please mail 

them to: Office of Federal Procurement 

Policy, 725 17th Street, NW., Room 

9013, Washington, DC 20503, ATTN: 

Raymond J.M. Wong. Due to delays 

caused by the screening and processing 

of mail, respondents are strongly 

encouraged to submit responses 

electronically. 

Be sure to include your name, title, 

organization, postal address, telephone 

number, and e-mail address in the text 

of your public comment and reference 

‘‘(b)(14) Overseas Exemption NPR’’ in 

the subject line irrespective of how you 

submit your comments. Comments 

received by the date specified above 

will be included as part of the official 

record. Comments delayed due to use of 

regular mail may not be considered. 

Please note that all public comments 

received will be available in their 

entirety at http://www.whitehouse.gov/ 

omb/casb_index_public_comments/ and 

http://www.regulations.gov after the 

close of the comment period. Do not 

include any information whose 

disclosure you would object to. 

FOR FURTHER INFORMATION CONTACT: 

Raymond J.M. Wong, Director, Cost 

Accounting Standards Board (telephone: 

202–395–6805; e-mail: 

Raymond_wong@omb.eop.gov). 

SUPPLEMENTARY INFORMATION

A. Regulatory Process 

Rules, Regulations and Standards 

issued by the Cost Accounting 

Standards Board (Board) are codified at 

48 CFR Chapter 99. The Office of 

Federal Procurement Policy (OFPP) Act, 

at 41 U.S.C. 422(g), requires that the 

Board, prior to the establishment of any 

new or revised Cost Accounting 

Standard (CAS or Standard), complete a 

prescribed rulemaking process. The 

process generally consists of the 

following four steps: 

1. Consult with interested persons 

concerning the advantages, 

disadvantages and improvements 

anticipated in the pricing and 

administration of Government contracts 

as a result of the adoption of a proposed 

Standard. 

2. Promulgate an Advance Notice of 

Proposed Rulemaking (ANPRM). 

3. Promulgate a Notice of Proposed 

Rulemaking (NPRM). 

4. Promulgate a Final Rule. 

The Board notes that the (b)(14) 

overseas exemption from CAS at 48 CFR 

9903.201–1(b)(14) is not subject to the 

four-step process required by 41 U.S.C. 

422(g)(1) because it is not a Cost 

Accounting Standard. The Board elects 

to follow those requirements in the 

OFPP Act, at 41 U.S.C. 422(g)(1), to 

consult with interested persons 

concerning the advantages, 

disadvantages, and improvements 

anticipated in the pricing and 

administration of Government contracts 

as a result of the adoption of any new 

or revised rule, prior to its 

promulgation. 

B. Background and Summary 

The Office of Federal Procurement 

Policy (OFPP), Cost Accounting 

Standards Board (Board), is today 

releasing a Notice of Proposed Rule 

(NPR) on a proposal to eliminate the 

exemption from the Cost Accounting 

Standards (CAS) for contracts executed 

and performed entirely outside the 

United States, its territories, and 

possessions as codified at 48 CFR 

9903.201–1(b)(14), the ‘‘(b)(14) overseas 

exemption.’’ The purpose of this NPR is 

to obtain input on whether the (b)(14) 

overseas exemption at 48 CFR 

9903.201–1(b)(14) should be retained, 

eliminated, or revised. 

Statutory Requirement 

Section 823(a) of the Duncan Hunter 

National Defense Authorization Act for 

Fiscal Year 2009 (NDAA FY 2009) 

requires the Board to: ‘‘(1) Review the 

inapplicability of the cost accounting 

standards, in accordance with existing 

exemptions, to any contract and 

subcontract that is executed and 

performed outside the United States 

when such a contract or subcontract is 

performed by a contractor that, but for 

the fact that the contract or subcontract 

is being executed and performed 

entirely outside the United Sates, would 

be required to comply with such 

standards; and (2) determine whether 

the application of the standards to such 

a contract and subcontract (or any 

category of such contracts and 

subcontracts) would benefit the 

Government.’’ A report must be 

provided to the appropriate committees 

of Congress containing: (1) Any revision 

to the cost accounting standards 

proposed as a result of the review 

required by section 823(a) and a copy of 

any proposed rulemaking implementing 

the revision; or (2) if no revision and 

rulemaking are proposed, a detailed 

justification for such decision. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 64685 

History of the (b)(14) Overseas 

Exemption at 48 CFR 9903.201–1(b)(14) 

The subject of this NPR is the (b)(14) 

overseas exemption at 48 CFR 

9903.201–1(b)(14) which exempts from 

CAS ‘‘contracts and subcontracts to be 

executed and performed entirely outside 

the United States, its territories, and 

possessions.’’ This exemption was first 

promulgated in 1973. The Armed 

Services Procurement Regulation 

(ASPR), a predecessor regulation to the 

Federal Acquisition Regulation (FAR), 

provided that the CAS clause in ASPR 

7–104.83 shall not be inserted in 

‘‘contracts which are executed and 

performed in their entirety outside the 

United States, its territories and 

possessions [(the (b)(14) overseas 

exemption)].’’ See ASPR 3–1204, as 

amended by Defense Procurement 

Circular No. 115 (dated September 24, 

1973). The basis for the (b)(14) overseas 

exemption is connected to the scope of 

the law that originally created the 

Board. 

The original Board was established by 

Section 2168 of the Defense Production 

Act (DPA). Section 2163, Territorial 

application of Act, of the DPA provided 

that sections 2061 through 2171 (which 

included the authority for the Board) 

‘‘shall be applicable to the United States, 

its Territories and possessions, and the 

District of Columbia.’’ The (b)(14) 

overseas exemption reflects this same 

limitation of applicability on contracts 

executed and performed overseas. In 

1980, the Board ceased to exist under 

the DPA. Congress reestablished the 

Board in 1988 under section 22 of the 

OFPP Act, 41 U.S.C. 422. Unlike the 

DPA, the OFPP Act is not limited in 

applicability to the United States. 

Additional historical background is 

provided at 70 FR 53977 (September 13, 

2005). 

In 1991, the re-established Board 

reviewed the rules and regulations 

applicable to the administration of CAS. 

FAR 30.201–1(14), the exemption from 

CAS for contracts and subcontracts 

executed and performed entirely outside 

the United States, its territories and 

possessions, was part of that review. 

The Board retained the exemption and 

incorporated it into its current recodified rules and regulations at 48 CFR 

9903.201–1(b)(14), the ‘‘(b)(14) overseas 

exemption,’’ on April 17, 1992 (57 FR 

14148.) No specific explanation was 

provided for retaining the exemption. 

On September 13, 2005, the Board 

published a Staff Discussion Paper 

(SDP) discussing the (b)(14) overseas 

exemption and sought comments on its 

continued appropriateness (70 FR 

53977). The three public comments 

received in response to the SDP offered 

arguments for retaining the exemption; 

none of the comments supported any 

revision to, or an elimination of, the 

(b)(14) overseas exemption. After 

reviewing and discussing the public 

comments, the Board decided to retain 

the exemption. (73 FR 8259, February 

13, 2008.) While the Board did not agree 

with all of the views expressed, it did 

agree with the conclusion not to delete 

or revise the (b)(14) overseas exemption. 

Conclusions 

After considering the comments from 

the public and Government agencies 

(discussed in section C. Public 

Comments to the Notice of Request for 

Information), the Board has proposed to 

eliminate the (b)(14) overseas exemption 

at 48 CFR 9903.201–1(b)(14) for the 

following reasons: 

(1) The statutory basis that was used 

to justify the (b)(14) overseas exemption 

when it was first promulgated no longer 

exists. The (b)(14) overseas exemption 

was initially established because the 

Defense Production Act (DPA), the 

statute that originally created the Board, 

was limited in applicability to the 

United States, its territories and 

possessions, and the District of 

Columbia. Unlike the DPA, the current 

statute from which the Board derives its 

authority, the OFPP Act, does not 

restrict the applicability of CAS to the 

United States. 

(2) There is no accounting basis for 

the (b)(14) overseas exemption. The 

place of contract execution and 

performance—the trigger for the (b)(14) 

overseas exemption—is not germane to 

the fundamental principles and 

methods used to account for the costs of 

contract performance. The exemption 

does not help to achieve consistency 

and uniformity in the cost accounting 

practices used by Government 

contractors in the measurement, 

assignment and allocation of costs to 

Government contracts, the primary 

objective of the CAS. 

(3) Based on the data submitted in 

response to its request for information, 

the Board projects the volume of 

affected contractors and subcontractors 

to be relatively small. Some respondents 

expressed concern that elimination of 

the (b)(14) overseas exemption could 

negatively affect contracting, such as 

through deceased competition, 

increased prices, difficulty of 

enforcement overseas, and potential 

retaliation by foreign governments, but 

did not offer evidence to support these 

assertions. The Board has concluded 

that these concerns are too speculative 

to address. Additionally, the Board has 

concluded that some of the same 

principles, that would be applicable due 

to the imposition of CAS because of the 

elimination of the (b)(14) overseas 

exemption, are already applicable under 

the cost principles found in Part 31 of 

the Federal Acquisition Regulation. 

C. Public Comments to the Notice of 

Request for Information 

On April 23, 2009, as required by 

section 823(b) of the NDAA FY 2009, 

the Board published a Notice of Request 

for Information (74 FR 18491). It 

solicited public comments and 

information with respect to the Board’s 

review of whether the (b)(14) overseas 

exemption at 48 CFR 9903.201–1(b)(14) 

should be retained, eliminated, or 

revised. The Notice posed a series of 

questions, the purpose of which was to 

elicit information and comments for the 

Board’s consideration. The Board also 

solicited comments directly from three 

Federal Government organizations with 

a significant volume of contracts 

performed outside the United States— 

the Department of Defense (DOD), the 

Department of State (DOS), and the 

United States Agency for International 

Development (USAID). The Board 

received seven public comments as well 

as comments from these three 

Government organizations. The 

comments, which were considered by 

the Board in its deliberations, provide a 

variety of views. The full text of the 

public comments to the Notice of 

Request for Information is available at: 

http://www.whitehouse.gov/omb/ 

casb_index_public_comments/ and 

http://www.regulations.gov. They are 

summarized and addressed in this 

section, grouped by the questions posed 

by the Board in its Notice of Request for 

Information, and by common themes 

when the comments were not 

responsive to the questions posed. 

1. What is your experience with the 

[(b)(14)] overseas exemption? 

a. As a procuring entity (e.g., 

procurement office, higher tier 

contractor) awarding contracts/ 

subcontracts; or 

b. As the contractor/subcontractor 

claiming the applicability of the [(b)(14)] 

overseas exemption? 

Comments: Some of the responses 

from Federal agencies reflected their 

experiences with the (b)(14) overseas 

exemption. DOS indicated that there are 

few major contracts both executed and 

performed overseas that are subject to 

CAS. USAID had only two recent 

actions involving the (b)(14) overseas 

exemption. DOD reported very little 

activity with the (b)(14) overseas 

exemption at the prime contractor level, 

and that much of the activity is at the 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
64686 Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 

subcontractor level where the data is not 

readily available. See the Board’s 

responses to question 2 for additional 

details. 

Individual contractors did not 

respond to the Notice of Request for 

Information, and comments from other 

respondents, including trade and 

industry associations, did not address 

this question directly. A public interest 

group respondent took issue with the 

narrow set of questions posed by the 

Board as it felt the questions were posed 

to contractors and contracting officers 

that were unlikely to support increased 

CAS coverage. It noted that the 

questions appeared to be aimed solely at 

contractors and contracting offices of 

the Federal government. A consulting 

firm noted that, for foreign companies 

and foreign owned subsidiaries of U.S. 

companies, the (b)(14) overseas 

exemption appears to be useful; the firm 

stated that the (b)(14) overseas 

exemption made it easier to obtain bids 

from companies willing to bid on US 

Government subcontracts, but 

acknowledged that, in absence of the 

applicability of CAS, the cost 

measurement and allocation rules under 

FAR Part 31 would apply. 

Responses: The Board notes that this 

question was directed to procuring 

entities (i.e., Government, contractor 

and subcontractor) and affected 

contractors and subcontractors because 

the Board was seeking information on 

how the (b)(14) overseas exemption 

directly and specifically impacted the 

affected entities. While some questions 

were addressed to entities directly 

affected by the (b)(14) overseas 

exemption, the public was not 

precluded from providing comments on 

the substance of those questions. Other 

questions were not so narrowly targeted. 

The Board takes note of the 

Government’s experiences with the 

(b)(14) overseas exemption. The Board 

agrees that, in the absence of the 

applicability of CAS, FAR Part 31, 

including its cost measurement, 

assignment, and allocation rules, would 

still apply. The Board sees no benefit to 

a CAS exemption when FAR Part 31 

applies. The Board does not agree that 

the CAS (b)(14) overseas exemption 

relieves the ‘‘burden’’ on foreign 

companies from complying with the 

CAS rules on the measurement, 

assignment, and allocation of cost to 

Federal contracts, since the cost 

measurement, assignment, and 

allocations rules in FAR Part 31 would 

generally apply in the absence of CAS. 

2. How often (number of actions, dollar 

amounts, by fiscal year) has the [(b)(14)] 

overseas exemption been claimed? 

Comments: DOS did not provide the 

number of actions or dollars of 

obligations subject to the (b)(14) 

overseas exemption, but stated that 

eliminating the exemption would have 

minimal impact on State, as DOS had 

few major contracts that are both 

executed and performed overseas that 

are subject to CAS. USAID indicated 

only two recent actions: $23.5 million 

and $1.4 billion for 2006 and 2007, 

respectively. (The $1.4 billion is 34% of 

FY 2007 obligations for USAID.) DOD 

reported very little activity with the 

(b)(14) overseas exemption at the prime 

contractor level. The Navy reported that 

no (b)(14) overseas exemptions have 

been granted. The Air Force (AF) 

reported seventeen (b)(14) overseas 

exemptions with prime contractors in 

the past three years representing only a 

small percentage of its obligations. The 

AF expects the number of (b)(14) 

overseas exemptions to increase in the 

future because of its contingency 

contracting efforts, but cannot predict 

the amount as a percentage of total 

obligations, which may remain very 

small. DOD reported that the Army 

appeared to have the largest number and 

dollar volume of contracts claiming the 

(b)(14) overseas exemption, but did not 

compile any data. DOD’s preliminary 

finding is that most of the activity with 

the (b)(14) overseas exemptions is at the 

subcontractor level where data is not 

readily available. DOD reported that its 

contract administrator, the Defense 

Contract Management Agency (DCMA), 

is not staffed currently to administer 

CAS overseas. DOD stated that the 

Military Services were compiling data 

and would forward the data on specific 

experiences and the number of 

exemptions granted based on the (b)(14) 

overseas exemption. During the 

preparation of the NPR, the Board staff 

contacted DOD on the status of the 

additional information. DOD responded 

that it had no additional information to 

provide and could not develop the 

information to support the use of the 

(b)(14) overseas exemption. 

Responses: Based on the comments 

with usage data received from the three 

Federal Government agencies with the 

highest volume of contracts in foreign 

countries, it appears that the (b)(14) 

overseas exemption has been rarely 

used at the prime contractor level. No 

respondents provided usage data at the 

subcontractor level. Consequently, 

eliminating the (b)(14) overseas 

exemption based on available data 

would not appear to be detrimental to 

the performance of Government 

contracts. 

3. If the [(b)(14)] overseas exemption is 

eliminated, what problems will that 

cause you? 

a. As a procuring entity (e.g., 

procurement office, higher tier 

contractor) awarding contracts/ 

subcontracts? 

Comments: Responses were mixed. 

Both DOS and USAID indicated that the 

elimination of the (b)(14) overseas 

exemption would have minimal to no 

impact on their operations. By contrast, 

DOD anticipates that some host 

governments may object to the 

imposition of CAS on the accounting 

practices of foreign concerns as an 

infringement of their sovereignty. There 

is also concern that some foreign 

entities may elect not to perform work 

for the U.S. Government, causing a 

reduction in the number of entities 

willing to perform work overseas for an 

unknown period of time. DOD 

anticipates an increase in the requests 

for CAS waivers from entities that are 

now using the (b)(14) overseas 

exemption, which could slow the 

contract award process. There may also 

be an increase in proposed prices from 

entities previously exempted by the 

(b)(14) overseas exemption for the costs 

associated with changing accounting 

systems, and to account for the 

additional risks due to the potential cost 

impacts for CAS non-compliances. The 

Defense Contract Audit Agency (DCAA) 

believes that the elimination of the 

(b)(14) overseas exemption will have 

little or no impact on U.S. firms. It 

believes that those firms most affected 

by the elimination of the (b)(14) 

overseas exemption will be foreign 

concerns that are subcontractors to U.S. 

prime contractors. DCAA commented 

that the cost of administering CAS 

requirements to certain foreign 

subcontractors that are currently CAS 

exempt under the (b)(14) overseas 

exemption might outweigh the benefit 

to be derived from making CAS 

applicable to them. 

Two industry association respondents 

echoed the comments made by DOD. 

One industry group respondent noted 

that the Government benefits from sales 

to foreign governments, many of which 

require some form of foreign company 

participation. ‘‘Currently, foreign 

companies are covered by the [(b)(14) 

overseas] exemption in CAS for 

contracts executed and performed 

entirely outside the U.S. Were the 

[(b)(14) overseas] exemption eliminated, 

the opportunities provided through 

these industrial participation programs 

would be significantly reduced, which 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 64687 

would reduce beneficial foreign military 

sales.’’ The situation would be the same, 

even if industrial participation programs 

were not involved, where the U.S. 

Government and local foreign 

government share common foreign 

vendors. The respondent noted that 

‘‘[g]iven the global economy, the effects 

of international reciprocity should be 

considered in avoiding unintended 

consequences. If the U.S. applies CAS to 

foreign contractors, other countries may 

extend their rules to U.S. contractors, 

effectively eliminating U.S. contractors 

from competing globally for foreign 

military sales.’’ Another industry group 

respondent predicts reduced 

competition by foreign concerns if CAS 

is extended to foreign contractors; the 

imposition of CAS would discourage 

foreign participation as contractors and 

subcontractors, especially where the 

industrial base is commercial. This 

industry group respondent believes that 

USAID would be adversely impacted by 

the elimination of the (b)(14) overseas 

exemption. Local foreign vendors may 

elect to cease doing business with the 

U.S. Government rather than incur the 

costs of complying with CAS. This 

industry group respondent notes the 

increased administrative burden and 

costs of compliance for both the 

Government and the contracting 

community resulting in longer 

procurement lead times. The lack of 

local foreign vendors would be 

especially critical in remote locations 

and war zones. Generally, a foreign 

trade association respondent, which 

represents several British trade groups, 

made similar comments. 

Responses: The three Federal 

government organizations with the 

largest dollar volume of contracts 

performed outside the U.S. did not 

provide data demonstrating that 

eliminating the (b)(14) overseas 

exemption would be detrimental to their 

contracting. The Board does not agree 

with comments about the acquisition of 

commercial items from foreign 

companies, as acquisitions of 

commercial items are generally exempt 

under 48 CFR 9903.201–1(b)(6). The 

Board notes that while one respondent 

believes that USAID would be adversely 

affected by the elimination of the (b)(14) 

overseas exemption, USAID itself does 

not believe the elimination of the 

exemption would be problematic. 

Many of the comments and concerns 

appear to reflect the mistaken 

impression that the elimination of the 

(b)(14) overseas exemption would 

impose full CAS upon foreign concerns. 

That may not be true in light of the 

availability of another CAS exemption, 

at 48 CFR 9903.201–1(b)(4), which has 

two distinct parts: The (b)(4) foreign 

government exemption and the (b)(4) 

foreign concern exemption. The (b)(4) 

foreign government exemption provides 

for a complete exemption to CAS for 

‘‘contracts and subcontracts with foreign 

governments or their agents or 

instrumentalities,’’ while the (b)(4) 

foreign concern exemption provides an 

exemption to CAS, other than CAS 401 

and 402, for any ‘‘any contract or 

subcontract awarded to a foreign 

concern.’’ Even if no other CAS 

exemptions were applicable, many of 

the contracts with foreign concerns 

would continue to be subject to the cost 

principles in FAR Part 31 with its 

measurement, assignment, and 

allocation rules, as the FAR does not 

have an exemption or deviation for 

foreign concerns. 

b. As the contractor/subcontractor 

claiming the applicability of the [(b)(14)] 

overseas exemption? 

Comments: Three industry group 

respondents, including a foreign trade 

association respondent, expressed 

concerns that the ability to utilize 

foreign subcontractors would be 

curtailed. They stated that many foreign 

concerns will not be able to comply 

with CAS because of a lack of resources, 

the lack of knowledgeable personnel, as 

well as the costs of implementation. 

Another respondent stated that U.S. 

firms would be at a competitive 

disadvantage with foreign firms 

exempted from all CAS, other than CAS 

401 and 402, if the foreign concern 

qualifies for the (b)(4) foreign concern 

exemption at 48 CFR 9903.201–1(b)(4). 

Responses: See the Board’s responses 

in question 3.a. The Board does not 

believe that U.S. concerns will 

necessarily be at a competitive 

disadvantage with foreign concerns 

exempted from all CAS, other than CAS 

401 and 402, especially since most, if 

not all, of the contracts and subcontracts 

would continue to be subject to the cost 

principles in FAR Part 31, including its 

cost measurement, assignment, and 

allocation rules. The principles of 

consistency articulated by CAS 401 and 

402 are incorporated into FAR Part 31. 

The Board acknowledges that the 

(b)(4) foreign concern exemption, unlike 

the (b)(14) overseas exemption, is not an 

exemption from all of the Standards in 

CAS. Concerns which qualify for the 

(b)(4) foreign concern exemption are 

subject to CAS 401 and 402. Thus, they 

may be required to file a CAS disclosure 

statement. As the (b)(14) overseas 

exemption exempts all of CAS, there is 

not a requirement to file a CAS 

disclosure statement for entities covered 

by the exemption. There will be costs 

associated with filing and administering 

disclosure statements for foreign 

concerns claiming the (b)(4) foreign 

concern exemption for the various 

affected parties, including the 

Government, contractor and 

subcontractor, as applicable. The costs 

for the contractor or subcontractor filing 

the disclosure statement should be 

minimal as the disclosure statement 

merely documents and reports the 

existing established cost accounting 

practices and procedures of the filing 

entity. 

4. How does the [(b)14)] overseas 

exemption help, or not help, to 

implement the Board’s mandate ‘‘to 

achieve uniformity and consistency in 

the cost accounting standards governing 

measurement, assignment, and 

allocation of costs to contracts with the 

United States?’’ 

Comments: DCAA voiced a comment 

echoed by several Government 

respondents. ‘‘The primary objective of 

the Cost Accounting Standards is to 

achieve increased consistency and 

uniformity in the cost accounting 

practices used by Government 

contractors. Exempting contracts from 

the CAS solely based on the fact that 

they are executed and performed 

outside the United States does not 

achieve that primary objective.’’ USAID 

is concerned that the (b)(14) overseas 

exemption provides a mechanism for 

contractors to circumvent the 

consistency principle of accounting. It 

opined that ‘‘whether the contract is 

CAS covered or not the contractors’ 

established practices should result in an 

equitable assignment, measurement, and 

allocation of costs on all cost objectives 

regardless of the place of performance. 

* * * that contracts, regardless of the 

place of performance, receive its 

equitable share of direct and indirect 

costs.’’ The DOD Inspector General 

(DODIG) noted that ‘‘[c]ontractors * * * 

may use the [(b)(14)] overseas 

exemption to hide potential fraudulent 

activities.’’ 

DOD observed that ‘‘[t]he more firms 

covered by the CASB rules, the more 

uniform and consistent the costs 

applied to US Government contracts 

will be.’’ At the same time, DOD noted 

that all CAS exemptions are based on a 

cost benefits analysis of the costs of 

implementation versus the benefits of 

the consistent cost treatment. ‘‘As a 

class, there may be a good case to 

continue to exempt foreign firms 

performing overseas due to the 

administrative costs to both the U.S. 

Government and the contractor 

[/subcontractor] to enforce the rules, 

problems with host governments, and 

contractors[/subcontractors] who may 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
64688 Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 

choose not to bid on U.S. Government 

work.’’ 

In a contrary viewpoint, one nongovernment respondent stated that 

‘‘[a]pplying full CAS to overseas 

contracts would not necessarily enhance 

measurement, assignment or allocation 

of costs to federal government contracts. 

This is because only U.S. firms would 

be subject to full CAS. Being less 

competitive may mean that foreign 

organization would get the work and 

would only have to comply with CAS 

401 and 402. Applying CAS 401 and 

402 may enhance the consistency in the 

assignment and allocation of costs to 

contracts. * * * CAS is also not a 

substitute for sound financial 

accounting practices and internal 

controls. Consistency will be better 

served by all companies adopting the 

financial reporting standards.’’ A foreign 

trade association respondent offered 

that the FAR requires compliance with 

comparable standards. ‘‘[I]n many 

instances the organization will be 

covered by International Accounting 

Standards, which in recent years has 

seen a significant increase in scale and 

coverage.’’ 

Finally, one industry group 

respondent offered that with some 

contracts (those that are transitory, e.g., 

DOD contingency operations, or 

cooperative, e.g., coproduction) the 

expressed objectives of CAS are 

irrelevant ‘‘because CAS cannot be 

reasonable expected to yield the 

intended benefits.’’ 

Responses: The Board agrees that the 

(b)(14) overseas exemption does not 

help to implement consistency and 

uniformity in the cost accounting 

standards governing the measurement, 

assignment, and allocation of costs to 

contracts with the United States. The 

Board agrees that applying CAS 401 and 

402 to foreign entities may enhance 

consistency and will enhance 

transparency with the filing of the 

required disclosure statements. 

The Board does not agree that 

complying only with CAS 401 and 402 

necessarily gives foreign based entities a 

competitive advantage over U.S. based 

entities which must comply with full 

CAS, as discussed in the Board’s 

responses to questions 3.a. and 3.b.. 

5. What are the arguments for, and 

against, the requirement in the [(b)(14)] 

overseas exemption to require execution 

of the contract overseas? 

Comments: One industry group 

resondent noted that the distinguishing 

feature of the (b)(14) overseas exemption 

is the phrase ‘‘executed and performed 

exclusively outside the United States. 

* * * [W]hen the U.S. Government 

extends itself beyond its sovereign 

borders and executes contracts to be 

performed outside the U.S., prospective 

foreign concern contractors should not 

be expected to adopt U.S. Government 

cost accounting rules where future 

utility and benefit cannot be reasonable 

foreseen beyond the immediate 

contract.’’ 

DOD expressed the general consensus 

of the respondents that in an 

environment of global operations, 

electronic commerce, and contractor 

mobility, the place of execution of the 

contract has little to do with contract 

operation. A public interest group 

respondent noted ‘‘that the term 

‘executed’ no longer has much meaning 

in the context of electronic commerce 

and other modern forms of 

communication. Gone are the days 

when a contract was physically 

executed by parties and the location of 

the parties at the time of ‘execution’ was 

easily defined. Today, contracts are 

executed by parties who are often 

remote from one another and even in 

different countries or continents at the 

time of ‘execution.’ ’’ A foreign trade 

association respondent agreed with 

those sentiments stating that the 

‘‘[e]xecution of the contract overseas 

does not seem to be material to the 

contractual obligations and the 

application of the exemption. The 

nature of a contract does not change 

merely because it is executed overseas.’’ 

USAID observed that ‘‘in some 

instances, the contractors’ expend funds 

to transport [their] representatives 

outside of the United States to execute 

(sign) the contracts in order to adhere to 

this requirement.’’ DCAA opined ‘‘that 

from the pure accounting perspective, 

the place of contract execution and 

performance should not have any 

bearing on the fundamental principles 

and methods used to account for costs 

of contract performance.’’ 

A public interest group respondent 

questioned ‘‘why should a contract that 

is executed and performed entirely 

overseas involving the U.S. Government 

and a U.S. company or subsidiary 

thereof enjoy an exemption from CAS 

coverage?’’ However, a consulting firm 

respondent noted that ‘‘[t]he execution 

of the contracts for a U.S. firms for work 

overseas is often done in the U.S. and 

therefore it is not eligible for the 

[(b)(14)] overseas exemption. The [place 

of] execution of the contract should not 

be sufficient enough to prevent the 

[(b)(14)] overseas exemption from being 

claimed. This places many U.S. firms at 

a disadvantage in competing with 

foreign firms for U.S. government 

projects.’’ 

DOD observed that a better indicator 

of the need for the (b)(14) overseas 

exemption is the location of the 

company headquarters and/or the 

location of the normal accounting 

operations. 

Responses: The Board agrees with the 

sentiments expressed by the majority of 

respondents, that the requirement for 

execution overseas has no bearing in the 

context of contract cost accounting, and 

consequently, believes that the (b)(14) 

overseas exemption should be 

eliminated. In a global economy with 

electronic commerce, the adherence to 

the place of execution of a contract has 

little relevance to the underlying 

contractual obligations. The Board 

agrees that it makes little sense for an 

entity subject to U.S. jurisdiction to be 

exempted from CAS merely because its 

contract is executed overseas. 

Fundamentally, the requirement has 

very little to do with contract 

performance. 

6. What are the arguments for, and 

against, the requirement in the [(b)(14)] 

overseas exemption to require 

performance of the contract overseas? 

Comments: A foreign trade 

association respondent observed that 

there is no argument to support the 

requirement for performance overseas in 

the (b)(14) overseas exemption. DCAA 

would agree with that sentiment from 

the pure accounting perspective. ‘‘[T]he 

place of contract execution and 

performance should not have any 

bearing on the fundamental principles 

and methods used to account for costs 

of contract performance.’’ 

To the contrary, a consulting firm 

respondent observed that the 

‘‘exemption for work overseas makes 

logical sense to promote competition 

and to allow U.S. companies to compete 

for such work.’’ The respondent argued 

that U.S. entities working overseas must 

comply with the laws and regulations of 

the country of contract performance. To 

comply with CAS also would increase 

the costs of contract performance 

overseas for U.S. entities and limit 

competition. 

USAID opined that the (b)(14) 

overseas exemption ‘‘should continue to 

require that contracts and subcontracts 

be performed entirely overseas.’’ A 

foreign trade association respondent 

further opined that ‘‘[t]he current 

wording of ‘performed entirely outside’ 

is problematic and too restrictive,’’ and 

should be changed to ‘‘substantially 

performed outside.’’ USAID agreed with 

the assessment that the wording is 

problematic. However, it viewed the 

problem not as restrictive, but as lacking 

in clarity, stating that ‘‘[t]he language in 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 64689 

this exemption should clearly state that 

‘performance’ includes both direct and 

indirect costs up to and including 

General and Administrative expenses 

when incurred within the United States, 

its territories, and its possessions * * * 

[because] the Executive Management 

that oversees the performance or the 

company is located in the U.S. along 

with support functions and backstop 

positions.’’ DOD agreed with USAID’s 

assessment. DCAA offered ‘‘that the 

current [(b)(14)] overseas exemption at 

48 CFR 9903.201–1(b)(14) would not 

exempt the vast majority of U.S. firms 

from the CAS due to the fact that some 

costs would be incurred within the 

United States, thereby failing to meet 

the [(b)(14) overseas] exemption 

criterion.’’ 

DOD went further, stating that the 

performance overseas is not as 

important as other factors such as the 

ownership and control of the company, 

and whether the contractor’s accounting 

activities already encompassed CAS 

covered work performed elsewhere. 

Responses: The Board agrees that the 

place of performance has no bearing on 

the fundamental principles and 

methods used to account for the costs of 

contract performance. The adherence to 

the principles and standards of financial 

and managerial accounting applied 

consistently is the foundation for 

financial reporting and managerial 

decisions. 

The Board believes that there is 

competition overseas. The Board does 

not believe that the imposition of full 

CAS, or the exemption from it, is 

necessarily a major factor in a U.S. 

based entity’s decision to do business 

overseas with the U.S. Government. It is 

only one factor among many in the 

decision to do business outside of the 

U.S. Smaller entities are already 

exempted from CAS under 48 CFR 

9903–201–1(b)(3). Full CAS is only 

initially imposed either upon the award 

of a CAS-covered contract of at least $50 

million, or upon the award of a CAScovered contract if a contractor has 

received $50 million or more in net 

CAS-covered contracts during its 

preceding cost accounting period. 

Modified CAS may be imposed on a 

covered contract of less than $50 

million awarded to a contractor that 

received less than $50 million in net 

CAS-covered awards in the immediately 

preceding cost accounting period. 

7. Other Comments 

The following additional comments 

were offered in response to the Notice 

of Request for Information: 

a. Fraud, Waste and Abuse 

Comment: One industry group 

respondent observed that ‘‘CAS 

compliance does not prevent wasteful 

practices, bribery, or fraudulent 

activities.’’ Other respondents agreed 

with those sentiments. 

Response: The Board agrees that CAS 

compliance, by itself, does not prevent 

wasteful practices or fraudulent 

activities. However, CAS provides a 

framework for the measurement, 

assignment, and allocation of costs to 

government contracts in a 

systematically structured and consistent 

manner, which promotes uniformity 

and consistency in estimating, 

accumulating, and reporting costs in 

connection with the pricing and 

administration of Government contracts. 

b. Prime Contractors’ Responsibility 

Related to CAS 401 and 402 for Foreign 

Subcontractors 

Comment: DCAA commented that the 

prime contractor will need to give 

greater attention to foreign concerns that 

are performing as subcontractors to U.S. 

contractors and will no longer be 

covered by the (b)(14) overseas 

exemption. DCAA observed that if the 

(b)(14) overseas exemption is 

eliminated, the foreign subcontractors 

would be subject to the (b)(4) foreign 

concern exemption and must comply 

with CAS 401 and 402. DCAA noted 

‘‘that these foreign subcontractors’ 

accounting practices are not always 

adequately defined and that the prime 

contractor’s oversight responsibility for 

ensuring its foreign subcontractors’ CAS 

compliance is not clearly understood 

and properly executed.’’ DCAA 

recommended that the prime contractor 

be required to evaluate the CAS 

compliance of its subcontractor, and to 

submit the CAS evaluation report on the 

subcontractor to its Contracting Officer 

(CO). DCAA also recommended that the 

Government be provided the right to 

examine the subcontractor’s records for 

CAS compliance when the prime 

contractor does not submit the CAS 

evaluation report on a subcontractor’s 

compliance with CAS to the CO. To 

mitigate these concerns, DCAA 

recommends that the Board strengthen 

the CAS contract clause to ‘‘* * * 

clearly require the prime contractor to 

enforce CAS compliance by its foreign 

subcontractor.’’ 

Response: The Board does not see a 

need to amend the CAS contract clauses 

because the Board believes it is already 

clear that the prime contractor is 

responsible for assessing the CAS 

compliance of its subcontractors. 

However, the Board is inviting 

comments on the issue. (See F. Public 

Comments to the Notice of Proposed 

Rulemaking, herein.) 

The FAR contract provisions and the 

CAS clauses already state that the prime 

contractor and higher tier subcontractor 

are responsible for their subcontractors. 

The CAS clauses at 48 CFR 9903.201– 

4 require the CAS-covered contractor 

and higher tier subcontractor (who shall 

be required to do so by the contractor) 

to insert the appropriate CAS clauses 

into all their negotiated subcontracts 

unless they are exempted. 48 CFR 

9903.202–8(a) states the contractor or 

higher tier subcontractor is responsible 

for administering the CAS requirements 

in their subcontracts. These 

requirements are applicable whether the 

contracts and subcontracts are 

performed in the U.S. or overseas. 

c. [(b)(14) Overseas Exemption 

Inconsistent With the Application of 

FAR Part 31 

Comment: A public interest group 

respondent argues that there must be 

some type of accounting system in 

foreign entities to ensure that billings 

under cost based contracts are 

reasonable, allowable and allocable. ‘‘If 

the argument is that CAS cannot be used 

for this purpose because foreign 

contractors and subcontractors will not 

have adequate systems in place, then 

how is it that these firms are eligible to 

receive cost-type contracts? * * * 

[C]ontractors cannot have it both ways 

by claiming that a CAS exemption 

should apply to contracts and 

subcontracts executed and performed 

entirely outside the U.S. while still 

being permitted to accept cost-type 

contracts and applying the FAR Part 31 

cost principles to these contracts. * * * 

[Claiming the (b)(14) overseas 

exemption] while asserting that all costs 

submitted in billings to the government 

are reasonable, allowable, and allocable 

is an exercise in false logic.’’ 

Response: The Board agrees with the 

public interest group respondent’s 

comments and has proposed to 

eliminate the (b)(14) overseas 

exemption. 

D. Paperwork Reduction Act 

The Paperwork Reduction Act, Public 

Law 96–511, does not apply to this 

proposed rule because this rule imposes 

no additional paperwork burden on 

offerors, affected contractors and 

subcontractors, or members of the 

public which requires the approval of 

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

records required by this proposed rule 

are those normally maintained by 

contractors and subcontractors who 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
64690 Federal Register / Vol. 75, No. 202 / Wednesday, October 20, 2010 / Proposed Rules 

claim reimbursement of costs under 

government contracts. 

E. Executive Order 12866 and the 

Regulatory Flexibility Act 

Because the affected contractors and 

subcontractors are those who are 

already subject to CAS but for the 

(b)(14) overseas exemption, and those 

who are subject to only CAS 401 and 

402 under the (b)(4) foreign concern 

exemption, the economic impact of this 

proposed rule on contractors and 

subcontractors is expected to be minor. 

As a result, the Board has determined 

that this proposed rule will not result in 

the promulgation of an ‘‘economically 

significant rule’’ under the provisions of 

Executive Order 12866, and that a 

regulatory impact analysis will not be 

required. Furthermore, this proposed 

rule does not have a significant effect on 

a substantial number of small entities 

because small businesses are exempt 

from the application of the Cost 

Accounting Standards. Therefore, this 

proposed rule does not require a 

regulatory flexibility analysis under the 

Regulatory Flexibility Act of 1980. 

F. Public Comments to the Notice of 

Proposed Rulemaking 

Interested persons are invited to 

provide input to this notice of a 

proposed rule to eliminate the (b)(14) 

overseas exemption from CAS at 48 CFR 

9903.201–1(b)(14). Respondents are 

encouraged to identify, comment and 

provide information on any issues that 

they believe are important to the 

subject. This might include comment on 

whether there is a need to strengthen 

the CAS clauses to address the prime 

contractor’s oversight responsibility for 

ensuring its subcontractors are 

compliant with CAS where it is 

applicable. All comments must be in 

writing, and submitted via facsimile, by 

e-mail, or by any other means as 

instructed in the ADDRESSES section. 

To comply with the Congressional 

mandate in Section 823 of the NDAA FY 

2009, the Board must consider the 

applicability of CAS to contracts and 

subcontracts which would be subject to 

CAS but for the (b)(14) overseas 

exemption. As always, the public is 

invited to submit comments on other 

issues regarding CAS exemptions that 

respondents believe the Board should 

consider. Those comments that are 

unrelated to the (b)(14) overseas 

exemption and its directly related issues 

will be separately considered by the 

Board. The staff continues to be 

especially appreciative of comments 

and suggestions that bring forth the 

concerns of all parties for consideration 

in the rulemaking process. 

List of Subjects in 48 CFR 9903 

Government procurement, Cost 

Accounting Standards. 

Daniel I. Gordon, 

Chair, Cost Accounting Standards Board. 

For the reasons set forth in this 

preamble, Chapter 99 of Title 48 of the 

Code of Federal Regulations is proposed 

to be amended as set forth below: 

PART 9903—CONTRACT COVERAGE 

1. The authority citation for Part 9903 

continues to read as follows: 

Authority: Public Law 100–679, 102 Stat. 

4056, 41 U.S.C. 422. 

2. In section 9903.201–1, remove and 

reserve paragraph (b)(14) to read as 

follows: 

9903.201–1 CAS applicability. 

* * * * * 

(b) * * * 

(14) [Reserved] 

* * * * * 

[FR Doc. 2010–26228 Filed 10–19–10; 8:45 am] 

BILLING CODE 3110–01–P 


emcdonald on DSK2BSOYB1PROD with PROPOSALS