Federal Acquisition Regulation; Reimbursement of Relocation Costs on a Lump-Sum Basis, 57467-57470 [05-19477]
Download as PDF
<![CDATA[
Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations
penalty provisions at 42.709, the
amount projected to the sampling
universe from that sampled cost is also
subject to the same penalty provisions.
(4) Use of statistical sampling
methods for identifying and segregating
unallowable costs should be the subject
of an advance agreement under the
provisions of 31.109 between the
contractor and the cognizant
administrative contracting officer or
Federal official. The advance agreement
should specify the basic characteristics
of the sampling process. The cognizant
administrative contracting officer or
Federal official shall request input from
the cognizant auditor before entering
into any such agreements.
(5) In the absence of an advance
agreement, if an initial review of the
facts results in a challenge of the
statistical sampling methods by the
contracting officer or the contracting
officer’s representative, the burden of
proof shall be on the contractor to
establish that such a method meets the
criteria in paragraph (c)(2) of this
subsection.
*
*
*
*
*
(e)(1) * * *
(3) When a selected item of cost under
31.205 provides that directly associated
costs be unallowable, such directly
associated costs are unallowable only if
determined to be material in amount in
accordance with the criteria provided in
paragraphs (e)(1) and (e)(2) of this
subsection, except in those situations
where allowance of any of the directly
associated costs involved would be
considered to be contrary to public
policy.
[FR Doc. 05–19476 Filed 9–29–05; 8:45 am]
BILLING CODE 6820–EP–S
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005–06; FAR Case 2003–002; Item
X]
RIN 9000–AJ81
Federal Acquisition Regulation;
Reimbursement of Relocation Costs
on a Lump-Sum Basis
Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Final rule.
AGENCIES:
VerDate Aug<31>2005
17:16 Sep 29, 2005
Jkt 205001
SUMMARY: The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) have agreed on a final rule
amending the Federal Acquisition
Regulation (FAR) by revising the
relocation cost principle to permit
contractors the option of being
reimbursed on a lump-sum basis for
three types of employee relocation costs:
costs of finding a new home; costs of
travel to the new location; and costs of
temporary lodging. These three types of
costs are in addition to the
miscellaneous relocation costs for
which lump-sum reimbursements are
already permitted.
DATES: Effective Date: October 31, 2005.
FOR FURTHER INFORMATION CONTACT: The
FAR Secretariat at (202) 501–4755 for
information pertaining to status or
publication schedules. For clarification
of content, contact Mr. Jeremy Olson,
Procurement Analyst, at (202) 501–
3221. Please cite FAC 2005–06, FAR
case 2003–002.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils originally considered
expanding the reimbursement of
relocation costs on a lump-sum basis
under FAR case 1997–032, Relocation
Costs. However, the Councils decided to
study this issue further under a separate
case and published a final rule on the
remainder of FAR case 1997–032 in the
Federal Register at 67 FR 43516, June
27, 2002. On October 24, 2002, the
Councils published a Notice of Request
for Comments in the Federal Register
(67 FR 65468) with a list of questions
regarding the use of a lump-sum
approach for reimbursing employee
relocation expenses. After reviewing the
public comments that were submitted in
response to that Federal Register notice,
the Councils held a public meeting on
February 6, 2003, to further explore the
views of interested parties on this issue.
Public comments and the discussions
at the public meeting revealed that, in
addition to the miscellaneous relocation
costs for which lump-sum
reimbursements are already permitted
by FAR 31.205–35(b)(4), it is common
commercial practice to reimburse
relocating employees on a lump-sum
basis for their house-hunting, final
move, and temporary lodging expenses.
A FAR case was opened to expand the
relocation cost principle to permit
lump-sum reimbursements for these
three types of costs.
The Councils published a proposed
FAR rule in the Federal Register at 68
FR 69264, December 11, 2003, with a
request for comments by February 9,
PO 00000
Frm 00021
Fmt 4701
Sfmt 4700
57467
2004. Seven respondents submitted
comments on the proposed FAR rule.
Two respondents supported the
proposed rule, four respondents
opposed it, and one respondent
requested clarification. A discussion of
the comments is provided below. The
Councils considered all comments and
concluded that the proposed rule
should be converted to a final rule, with
changes to the proposed rule.
Differences between the proposed rule
and final rule are discussed in Section
B, Comment 1, and Section C below.
B. Public Comments
No standard for measuring
reasonableness
1. Comment: Four respondents
opposed the proposed rule and
expressed the concern that with
contractors spending significant
amounts on employee relocations, the
Government would have no objective
standard for evaluating the
reasonableness of the new lump-sum
amounts being claimed.
After conducting surveys that suggest
‘‘contractors are incurring hundreds of
millions of dollars of relocation costs
annually,’’ the first respondent
expressed ‘‘significant concern as to
where an auditor, contracting officer, or
contractor could turn to gather adequate
data to make a determination as to the
appropriateness and reasonableness of
the lump-sum method or resulting
amount.’’ The respondent concluded its
letter by stating it ‘‘believes that paying
a lump-sum for such significant
amounts places an unacceptable risk on
the Government and creates an
excessive audit task to establish
allowability of relocation costs.’’
Also citing the above mentioned
survey of the large amounts of
relocation costs allocated to cost
reimbursement contracts each year, the
second respondent stated that ‘‘allowing
lump-sum reimbursement of these costs
without supporting documentation is
not in the best interests of the
Government’’ because ‘‘the proposed
revision would subject millions of
dollars to a subjective test of
reasonableness requiring Government
auditors, contracting officials, attorneys,
and others to expend significantly more
resources to determine the
reasonableness of the claimed costs,
review the determination, and resolve
disputes between the Government and
the contractor involving disallowed
costs.’’ The respondent went on to
suggest ‘‘contractors will also incur
additional expenses in excess of any
administrative costs saved supporting
the reasonableness of the relocation
costs.’’
E:\FR\FM\30SER4.SGM
30SER4
57468
Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations
The third respondent based its
opposition to the proposed rule on ‘‘the
millions of taxpayer dollars that will be
wasted on this special interest
giveaway’’ and suggested that the
Government’s motivation in pursuing it
was ‘‘not wanting to disappoint
contractors.’’ The respondent argued
further that ‘‘contractors favor this
approach, not because of any
administrative burden reduction, but
rather because it leads to higher levels
of reimbursement without any need to
justify costs.’’ Finally, the respondent
expressed its opinion that ‘‘with few
exceptions, these (relocation) costs
should only be reimbursed on an ‘actual
cost’ basis.’’
The fourth respondent did not submit
any original comments, but simply
forwarded the third respondent’s
comments with an accompanying
statement that it ‘‘fully concurs in the
substantive objections expressed’’
therein.
Councils’ response: The Councils
believe that a provision permitting the
expanded use of lump-sum
reimbursements should be added to the
relocation cost principle. Such a
provision is expected to reduce the
accounting and administrative burden
of that cost principle on contractors and
lead to faster relocations.
The Councils are very receptive to the
important concerns expressed by the
respondents. The Councils believe that
the words ‘‘on an appropriate lump-sum
basis to the individual employee’’ in the
proposed rule were intended to
condition the allowability of the new
lump-sum reimbursements on
contractors by providing sufficient
visibility into the component cost
projections used in developing the
lump-sum amounts to permit an audit
determination of their reasonableness.
However, the comments make it
abundantly clear that such a
requirement needs to be more explicit.
The Councils certainly want to
eliminate any possible public
perception of this proposed rule change
as a ‘‘blank check’’ for contractors and
to ensure that the Government only
reimburses reasonable costs.
Accordingly, the Councils have added
language at FAR 31.205–35(b)(6)(i) that
makes the costs of lump-sum payments
to relocating employees for househunting, final move, and temporary
lodging expenses allowable only when
‘‘adequately supported by data on the
individual elements (e.g.,
transportation, lodging, and meals)
comprising the build-up of the lumpsum amount to be paid based on the
circumstances of the particular
employee’s relocation.’’ This
VerDate Aug<31>2005
17:16 Sep 29, 2005
Jkt 205001
requirement should provide essentially
the same audit visibility into the
reasonableness of lump-sum payments
as currently exists for actual relocation
costs.
Relocation lump-sums as a common
commercial practice
2. Comment: In opposing the
proposed rule, one respondent also
asserted that the use of lump-sum
payments for travel and temporary
lodging related relocation costs ‘‘is not
a predominant industry practice at this
time.’’ The respondent explained that it
recently reviewed the current relocation
policies in place at four large contractor
locations and found that three of these
four contractors use a single corporatewide policy for their employee
relocation reimbursement programs.
Even though one of these three
companies claims it is a predominantly
commercial company and the other two
companies also have a substantial
commercial business base, the
respondent pointed out that none of the
three has established a lump-sum option
for its commercial business segments.
In addition, the respondent cited an
August 2003 news release from a
relocation management firm which
stated that only 30 percent of the
companies it had recently surveyed said
they were using lump-sums to cover
travel and temporary lodging expenses.
Finally, the respondent pointed out that
it had recently been advised by a
relocation management firm that,
shortly before Dr. John Hamre left the
Department of Defense, he ‘‘shut down’’
an effort by the relocation management
firm and the Defense Integrated Travel
and Relocation Solutions (DITRS) office
to put together a plan for using lumpsums for DoD civilian relocations.
After reviewing the responses to the
October 24, 2002, Federal Register
Notice of Request for Comments (67 FR
65468), a respondent questioned
‘‘whether the FAR Council has obtained
sufficient information to support its
assertion that it is now common
commercial practice to reimburse
relocating employees on a lump-sum
basis for their house-hunting, final
move, and temporary lodging
expenses.’’ The respondent observed
that of the eight respondents who
responded to that notice, one
respondent’s letter gave no specifics on
the number of companies using lumpsum reimbursements, and another
respondent stated that its 2001 survey
showed that 55 companies out of 109
contacted were using lump-sum
reimbursements.
In supporting the proposed rule, one
respondent agreed ‘‘with the Councils’
statement that the use of lump-sum
PO 00000
Frm 00022
Fmt 4701
Sfmt 4700
payments is a common commercial
practice’’ and expressed the belief ‘‘that
the proposed rule will help align
relocation cost reimbursement policies
with commercial best practices.’’
Another respondent also agreed that the
proposed changes ‘‘are in keeping with
current commercial business practice’’
and explained that ‘‘beginning in 1993
with the Revenue Reconciliation Act,
many companies moved to lump-sum
allowances for what became taxable
reimbursements to the home-finding,
temporary living, and final move
portions of relocation policy.’’ The
respondent concluded with its opinion
that ‘‘the recommended revision will
enable Government contractors to
implement this best practice and take
advantage of a tested and proven
process efficiency that has been an
accepted part of the commercial sector’s
relocation programs for over a decade.’’
Councils’ response: While the use of
lump-sum reimbursements for selected
relocation expenses may not be the
predominant commercial practice at this
time, the Councils believe there is
ample evidence that the use of such
payments is a common and growing
commercial practice. The survey data
cited by the respondents support this
assessment. In addition, a relocation
management firm that has been in
business for more than 70 years stated
at the February 6, 2003, public meeting
and in its subsequent public comments
that lump-sum reimbursement is now a
common commercial practice for househunting, final move, and temporary
lodging costs.
The Councils do not find it surprising
that contractors who wish to maintain a
single, corporate-wide policy for
reimbursing relocation costs continue to
apply a policy which parallels the
current cost principle, even though they
may have significant commercial
business. The revised relocation cost
principle will give such firms an
additional option for the first time on
Government contracts that could well
become their corporate-wide standard in
the future.
Finally, it is the Councils’
understanding that DoD terminated its
two-year initiative to reengineer
relocation policies and procedures and
disbanded the DITRS office which
oversaw that effort due to a lack of
funds and interest from the military
departments. And while the relocation
management firm stated during its
presentation at the February 6, 2003,
public meeting that the Federal Deposit
Insurance Corporation is currently using
lump-sum reimbursements for its
employees’ relocation costs, this
appears to be an exception within the
E:\FR\FM\30SER4.SGM
30SER4
Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations
Federal Government. However, even if
lump-sum reimbursements for Federal
employee relocation expenses are
relatively rare, the purpose of this case
is to recognize a common and growing
commercial best practice in the
relocation cost principle that should
benefit both contractors and the
Government.
Allowability of lump-sum payments
3. Comment: While supporting the
effort to expand the use of lump-sum
reimbursements for contractor employee
relocation costs, one respondent
suggested that the revised paragraph
(b)(4) needs to include ‘‘a clear
affirmative statement that the lump-sum
payments are allowable costs’’ to avoid
any possible confusion. In addition, the
respondent recommended that the
words ‘‘to the individual employee’’ be
deleted from the revised paragraph
(b)(4) because ‘‘contractors should not
have to demonstrate on an individual
basis that the lump-sum payments are
reasonable and appropriate for each
relocating employee.’’ Finally, the
respondent recommended that the
Councils eliminate the current ceilings
on allowable home sale and purchase
costs of 14 percent and 5 percent,
respectively.
Councils’ response: Nonconcur. The
Councils do not agree that any
additional language is necessary to
avoid confusion regarding the
allowability of the specified lump-sum
payments. The Councils believe it is
very clear from the language at FAR
31.205–35(b)(6)(i) that lump-sum
payments to employees for any of these
three types of relocation costs will be
allowable if the requisite criteria are
met. The Councils also believe that the
data provided by the contractor on the
component cost projections used in
developing its lump-sum amounts must
be ‘‘based on the circumstances of the
particular employee’s relocation,’’ such
as family size, city, and number of
vehicles. Otherwise, the lump-sum
amount paid could be excessive, and
therefore unreasonable, for a given
relocation. Finally, the current ceilings
on allowable home sale and purchase
costs are outside the scope of this case.
(Incidentally, the relocation
management firm indicated at the
February 6, 2003, public meeting that
such costs are seldom included in lumpsum relocation payments.)
Add the three types of employee
relocation costs to current lump-sum
cap for miscellaneous expenses
4. Comment: One respondent
suggested that if the proposed rule is not
withdrawn, it ‘‘does not object to adding
the three additional types of employee
relocation costs, i.e., (1) the costs of
VerDate Aug<31>2005
17:16 Sep 29, 2005
Jkt 205001
finding a new home, (2) costs of travel
to the new location, and (3) costs of
temporary lodging, in addition to the
existing ‘miscellaneous expenses’ that
would be subject to a $5,000 lump-sum
reimbursement, per employee move.’’
The respondent offered this alternative
‘‘in the interest of promoting greater
flexibility within the existing relocation
cost principle, but without increasing
overall costs to taxpayers.’’
Councils’ response: Nonconcur.
Under its cost-type contracts, the
Government is obligated to pay the
contractor’s allocable and reasonable
costs of contract performance. Not only
would the respondent’s proposal be
fundamentally unfair to contractors, but
it would also severely undermine the
basic rationale for this proposed rule
change. The current cap on
miscellaneous relocation costs at FAR
31.205–35(b)(4) was increased to $5,000
in June 2002 based on survey data
published by the Employee Relocation
Council regarding the median amount of
such payments in the commercial
sector. There is no logical reason to
arbitrarily add house-hunting, final
travel, and temporary lodging costs to
this separate lump-sum cap. The cost
principles should ensure that
contractors are treated fairly, consistent
with sound public policy.
Proposed rule would make Federal
employees second class citizens
5. Comment: One respondent
expressed concern ‘‘that this proposal
would make Federal employees second
´
class citizens vis-a-vis their contractor
counterparts with respect to relocation
expenses.’’ The respondent concluded
by stating that ‘‘in no case should
increases in lump-sum payments
beyond $5,000 per contractor employee
be considered until ... Federal
employees are afforded the same
advantages as their contractor
counterparts.’’
Councils’ response: Nonconcur. While
the Councils understand that the
respondent is particularly sensitive to
what it perceives to be preferential
treatment of contractor employees, the
Councils do not believe the allowability
of contractor relocation costs must
parallel exactly the treatment afforded
Federal employees. It is now a common
commercial practice to reimburse
relocating employees on a lump-sum
basis for their house-hunting, final
move, and temporary lodging expenses,
and the Councils believe the relocation
cost principle should be revised to
permit contractors the option of using
this methodology. The language added
at FAR 31.205–35(b)(6)(i) will ensure
that, just as when reimbursement is
based on actual expenses, only
PO 00000
Frm 00023
Fmt 4701
Sfmt 4700
57469
reasonable amounts are allowed for
lump-sum reimbursements of these
three types of relocation costs. This
additional flexibility should help
promote increased entry into the
Federal marketplace by firms that have
previously been hesitant to do so,
resulting in increased competition on
future purchases.
Clarification of current lump-sum cap
for miscellaneous expenses
6. Comment: A respondent asked: ‘‘Is
the proposed lump-sum amount of $5K
applicable to both the continental
United States (CONUS) and outside
CONUS relocations?’’
Councils’ response: The $5,000 cap on
allowable lump-sum reimbursements for
miscellaneous relocation expenses is a
current, not proposed, limitation at FAR
31.205–35(b)(4). It applies to all
contractor employee relocations,
regardless of location.
C. Additional Change—No adjustments
The Councils are concerned that
contractors who reimburse employee
relocation costs on a lump-sum basis
could make additional after-the-fact
payments to employees whose actual
costs exceeded the lump-sum amount.
To address this concern, the Councils
added the following limitation at FAR
31.205–35(b)(6)(ii): ‘‘When
reimbursement on a lump-sum basis is
used, any adjustments to reflect actual
costs are unallowable.’’
D. Regulatory Planning and Review
This is not a significant regulatory
action and, therefore, was not subject to
review under Section 6(b) of Executive
Order 12866, Regulatory Planning and
Review, dated September 30, 1993. This
rule is not a major rule under 5 U.S.C.
804.
E. Regulatory Flexibility Act
The Department of Defense, the
General Services Administration, and
the National Aeronautics and Space
Administration certify that this final
rule will not have a significant
economic impact on a substantial
number of small entities within the
meaning of the Regulatory Flexibility
Act, 5 U.S.C. 601, et seq., because most
contracts awarded to small entities use
simplified acquisition procedures or are
awarded on a competitive, fixed-price
basis, and do not require application of
the cost principle discussed in this rule.
For Fiscal Year 2003, only 2.4 percent
of all contract actions were cost
contracts awarded to small businesses.
F. Paperwork Reduction Act
The Paperwork Reduction Act (Pub.
L. 104–13) does not apply because the
E:\FR\FM\30SER4.SGM
30SER4
57470
Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations
changes to the FAR do not impose
information collection requirements that
require the approval of the Office of
Management and Budget under 44
U.S.C. 3501, et seq.
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: September 22, 2005.
Julia B. Wise,
Director, Contract Policy Division.
48 CFR Part 31
Therefore, DoD, GSA, and NASA
amend 48 CFR part 31 as set forth
below:
RIN 9000–AJ38
PART 31—CONTRACT COST
PRINCIPLES AND PROCEDURES
AGENCIES: Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Final rule.
[FAC 2005–06; FAR Case 2001–021; Item
XI]
I
Federal Acquisition Regulation;
Training and Education Cost Principle
1. The authority citation for 48 CFR
part 31 continues to read as follows:
I
Authority: Authority: 40 U.S.C. 121(c); 10
U.S.C. chapter 137; and 42 U.S.C. 2473(c).
2. Amend section 31.205–35 by
revising paragraph (b)(4); and adding
paragraphs (b)(5) and (b)(6) to read as
follows:
I
31.205–35
Relocation costs.
*
*
*
*
*
(b)* * *
(4) Amounts to be reimbursed shall
not exceed the employee’s actual
expenses, except as provided for in
paragraphs (b)(5) and (b)(6) of this
subsection.
(5) For miscellaneous costs of the type
discussed in paragraph (a)(5) of this
subsection, a lump-sum amount, not to
exceed $5,000, may be allowed in lieu
of actual costs.
(6)(i) Reimbursement on a lump-sum
basis may be allowed for any of the
following relocation costs when
adequately supported by data on the
individual elements (e.g.,
transportation, lodging, and meals)
comprising the build-up of the lumpsum amount to be paid based on the
circumstances of the particular
employee’s relocation:
(A) Costs of finding a new home, as
discussed in paragraph (a)(2) of this
subsection.
(B) Costs of travel to the new location,
as discussed in paragraph (a)(1) of this
subsection (but not costs for the
transportation of household goods).
(C) Costs of temporary lodging, as
discussed in paragraph (a)(2) of this
subsection.
(ii) When reimbursement on a lumpsum basis is used, any adjustments to
reflect actual costs are unallowable.
*
*
*
*
*
[FR Doc. 05–19477 Filed 9–29–05; 8:45 am]
BILLING CODE 6820–EP–S
VerDate Aug<31>2005
17:16 Sep 29, 2005
Jkt 205001
SUMMARY: The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) have agreed on a final rule
amending the Federal Acquisition
Regulation (FAR) by revising the
‘‘training and education costs’’ contract
cost principle. The amendment
streamlines the cost principle and
increases clarity by eliminating
restrictive and confusing language, and
by restructuring the rule to list only
specifically unallowable costs. The final
rule eliminates several specific
limitations on the allowability of costs
associated with the various categories of
education, eliminates the disparate
treatment of full-time and part-time
undergraduate education costs, and
limits allowable costs to training and
education related to the field in which
the employee is working or may
reasonably be expected to work. The
rule makes job-related training and
education costs generally allowable,
except for six public policy exceptions
that are retained from the current cost
principle. Except for the six expressly
unallowable cost exceptions, the
reasonableness of specific contractor
training and education costs is assessed
by reference to the FAR section entitled
‘‘Determining reasonableness.’’
DATES: Effective Date: October 31, 2005.
FOR FURTHER INFORMATION CONTACT: The
FAR Secretariat at (202) 501–4755 for
information pertaining to status or
publication schedules. For clarification
of content, contact Mr. Jerry Olson at
(202) 501–3221. Please cite FAC 2005–
06, FAR case 2001–021.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils published a proposed
FAR rule in the Federal Register (67 FR
PO 00000
Frm 00024
Fmt 4701
Sfmt 4700
34810) on May 15, 2002, with a request
for comments by July 15, 2002. On June
11, 2002, an amendment was published
in the Federal Register (67 FR 40136) to
correct an error in the Supplementary
Information section accompanying the
proposed rule. Six respondents
submitted public comments. As a result
of the comments received, the Councils
made significant changes to the
proposed FAR rule and published a
second proposed FAR rule in the
Federal Register (69 FR 4436) on
January 29, 2004, with a request for
comments by March 29, 2004.
Nine respondents submitted
comments in response to the second
proposed FAR rule. A discussion of
these public comments is provided
below. The Councils considered all
comments and concluded that the
proposed rule should be converted to a
final rule, with changes to the proposed
rule. Differences between the second
proposed rule and final rule are
discussed in Section B, Comments 1, 2,
4, and 6, below.
B. Public Comments
Proposed paragraph (a): Education for
sole purpose to obtain academic degree
or qualify for job.
Comment 1: Seven respondents
generally supported the proposed rule;
however, they strongly recommended
that proposed paragraph (a) be deleted
before issuing a final rule. Several of the
respondents pointed out that paragraph
(a) is inconsistent with the Councils’
own Federal Register comments that
they ‘‘support upward mobility, job
retraining, and educational
advancement.’’ In this regard, one
respondent stated its concern that
paragraph (a) would prevent it from
providing ‘‘the educational
opportunities that we have provided for
decades.’’ Some respondents
complained that it had ‘‘no idea how
one is to discern whether the training
and education relates ‘solely’ to
obtaining an academic degree or to a
particular position’’ and that
‘‘implementation of this provision will
be burdensome and lead to contested
costs; hardly a simplification that
increases the clarity of the cost
principle.’’
Several respondents challenged the
fundamental notion that the allowability
of contractor employee training and
education costs must parallel exactly
the treatment afforded Federal
employees. One respondent wrote—
‘‘We believe that utilization of the test of
whether the Federal Government is willing to
reimburse education costs for Federal
employees is an inappropriate basis for
determining cost allowability. The
E:\FR\FM\30SER4.SGM
30SER4
]]>Agencies
[Federal Register Volume 70, Number 189 (Friday, September 30, 2005)]
[Rules and Regulations]
[Pages 57467-57470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-19477]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005-06; FAR Case 2003-002; Item X]
RIN 9000-AJ81
Federal Acquisition Regulation; Reimbursement of Relocation Costs
on a Lump-Sum Basis
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) by revising the
relocation cost principle to permit contractors the option of being
reimbursed on a lump-sum basis for three types of employee relocation
costs: costs of finding a new home; costs of travel to the new
location; and costs of temporary lodging. These three types of costs
are in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted.
DATES: Effective Date: October 31, 2005.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755
for information pertaining to status or publication schedules. For
clarification of content, contact Mr. Jeremy Olson, Procurement
Analyst, at (202) 501-3221. Please cite FAC 2005-06, FAR case 2003-002.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils originally considered expanding the reimbursement of
relocation costs on a lump-sum basis under FAR case 1997-032,
Relocation Costs. However, the Councils decided to study this issue
further under a separate case and published a final rule on the
remainder of FAR case 1997-032 in the Federal Register at 67 FR 43516,
June 27, 2002. On October 24, 2002, the Councils published a Notice of
Request for Comments in the Federal Register (67 FR 65468) with a list
of questions regarding the use of a lump-sum approach for reimbursing
employee relocation expenses. After reviewing the public comments that
were submitted in response to that Federal Register notice, the
Councils held a public meeting on February 6, 2003, to further explore
the views of interested parties on this issue.
Public comments and the discussions at the public meeting revealed
that, in addition to the miscellaneous relocation costs for which lump-
sum reimbursements are already permitted by FAR 31.205-35(b)(4), it is
common commercial practice to reimburse relocating employees on a lump-
sum basis for their house-hunting, final move, and temporary lodging
expenses. A FAR case was opened to expand the relocation cost principle
to permit lump-sum reimbursements for these three types of costs.
The Councils published a proposed FAR rule in the Federal Register
at 68 FR 69264, December 11, 2003, with a request for comments by
February 9, 2004. Seven respondents submitted comments on the proposed
FAR rule. Two respondents supported the proposed rule, four respondents
opposed it, and one respondent requested clarification. A discussion of
the comments is provided below. The Councils considered all comments
and concluded that the proposed rule should be converted to a final
rule, with changes to the proposed rule. Differences between the
proposed rule and final rule are discussed in Section B, Comment 1, and
Section C below.
B. Public Comments
No standard for measuring reasonableness
1. Comment: Four respondents opposed the proposed rule and
expressed the concern that with contractors spending significant
amounts on employee relocations, the Government would have no objective
standard for evaluating the reasonableness of the new lump-sum amounts
being claimed.
After conducting surveys that suggest ``contractors are incurring
hundreds of millions of dollars of relocation costs annually,'' the
first respondent expressed ``significant concern as to where an
auditor, contracting officer, or contractor could turn to gather
adequate data to make a determination as to the appropriateness and
reasonableness of the lump-sum method or resulting amount.'' The
respondent concluded its letter by stating it ``believes that paying a
lump-sum for such significant amounts places an unacceptable risk on
the Government and creates an excessive audit task to establish
allowability of relocation costs.''
Also citing the above mentioned survey of the large amounts of
relocation costs allocated to cost reimbursement contracts each year,
the second respondent stated that ``allowing lump-sum reimbursement of
these costs without supporting documentation is not in the best
interests of the Government'' because ``the proposed revision would
subject millions of dollars to a subjective test of reasonableness
requiring Government auditors, contracting officials, attorneys, and
others to expend significantly more resources to determine the
reasonableness of the claimed costs, review the determination, and
resolve disputes between the Government and the contractor involving
disallowed costs.'' The respondent went on to suggest ``contractors
will also incur additional expenses in excess of any administrative
costs saved supporting the reasonableness of the relocation costs.''
[[Page 57468]]
The third respondent based its opposition to the proposed rule on
``the millions of taxpayer dollars that will be wasted on this special
interest giveaway'' and suggested that the Government's motivation in
pursuing it was ``not wanting to disappoint contractors.'' The
respondent argued further that ``contractors favor this approach, not
because of any administrative burden reduction, but rather because it
leads to higher levels of reimbursement without any need to justify
costs.'' Finally, the respondent expressed its opinion that ``with few
exceptions, these (relocation) costs should only be reimbursed on an
`actual cost' basis.''
The fourth respondent did not submit any original comments, but
simply forwarded the third respondent's comments with an accompanying
statement that it ``fully concurs in the substantive objections
expressed'' therein.
Councils' response: The Councils believe that a provision
permitting the expanded use of lump-sum reimbursements should be added
to the relocation cost principle. Such a provision is expected to
reduce the accounting and administrative burden of that cost principle
on contractors and lead to faster relocations.
The Councils are very receptive to the important concerns expressed
by the respondents. The Councils believe that the words ``on an
appropriate lump-sum basis to the individual employee'' in the proposed
rule were intended to condition the allowability of the new lump-sum
reimbursements on contractors by providing sufficient visibility into
the component cost projections used in developing the lump-sum amounts
to permit an audit determination of their reasonableness. However, the
comments make it abundantly clear that such a requirement needs to be
more explicit. The Councils certainly want to eliminate any possible
public perception of this proposed rule change as a ``blank check'' for
contractors and to ensure that the Government only reimburses
reasonable costs. Accordingly, the Councils have added language at FAR
31.205-35(b)(6)(i) that makes the costs of lump-sum payments to
relocating employees for house-hunting, final move, and temporary
lodging expenses allowable only when ``adequately supported by data on
the individual elements (e.g., transportation, lodging, and meals)
comprising the build-up of the lump-sum amount to be paid based on the
circumstances of the particular employee's relocation.'' This
requirement should provide essentially the same audit visibility into
the reasonableness of lump-sum payments as currently exists for actual
relocation costs.
Relocation lump-sums as a common commercial practice
2. Comment: In opposing the proposed rule, one respondent also
asserted that the use of lump-sum payments for travel and temporary
lodging related relocation costs ``is not a predominant industry
practice at this time.'' The respondent explained that it recently
reviewed the current relocation policies in place at four large
contractor locations and found that three of these four contractors use
a single corporate-wide policy for their employee relocation
reimbursement programs. Even though one of these three companies claims
it is a predominantly commercial company and the other two companies
also have a substantial commercial business base, the respondent
pointed out that none of the three has established a lump-sum option
for its commercial business segments.
In addition, the respondent cited an August 2003 news release from
a relocation management firm which stated that only 30 percent of the
companies it had recently surveyed said they were using lump-sums to
cover travel and temporary lodging expenses. Finally, the respondent
pointed out that it had recently been advised by a relocation
management firm that, shortly before Dr. John Hamre left the Department
of Defense, he ``shut down'' an effort by the relocation management
firm and the Defense Integrated Travel and Relocation Solutions (DITRS)
office to put together a plan for using lump-sums for DoD civilian
relocations.
After reviewing the responses to the October 24, 2002, Federal
Register Notice of Request for Comments (67 FR 65468), a respondent
questioned ``whether the FAR Council has obtained sufficient
information to support its assertion that it is now common commercial
practice to reimburse relocating employees on a lump-sum basis for
their house-hunting, final move, and temporary lodging expenses.'' The
respondent observed that of the eight respondents who responded to that
notice, one respondent's letter gave no specifics on the number of
companies using lump-sum reimbursements, and another respondent stated
that its 2001 survey showed that 55 companies out of 109 contacted were
using lump-sum reimbursements.
In supporting the proposed rule, one respondent agreed ``with the
Councils' statement that the use of lump-sum payments is a common
commercial practice'' and expressed the belief ``that the proposed rule
will help align relocation cost reimbursement policies with commercial
best practices.'' Another respondent also agreed that the proposed
changes ``are in keeping with current commercial business practice''
and explained that ``beginning in 1993 with the Revenue Reconciliation
Act, many companies moved to lump-sum allowances for what became
taxable reimbursements to the home-finding, temporary living, and final
move portions of relocation policy.'' The respondent concluded with its
opinion that ``the recommended revision will enable Government
contractors to implement this best practice and take advantage of a
tested and proven process efficiency that has been an accepted part of
the commercial sector's relocation programs for over a decade.''
Councils' response: While the use of lump-sum reimbursements for
selected relocation expenses may not be the predominant commercial
practice at this time, the Councils believe there is ample evidence
that the use of such payments is a common and growing commercial
practice. The survey data cited by the respondents support this
assessment. In addition, a relocation management firm that has been in
business for more than 70 years stated at the February 6, 2003, public
meeting and in its subsequent public comments that lump-sum
reimbursement is now a common commercial practice for house-hunting,
final move, and temporary lodging costs.
The Councils do not find it surprising that contractors who wish to
maintain a single, corporate-wide policy for reimbursing relocation
costs continue to apply a policy which parallels the current cost
principle, even though they may have significant commercial business.
The revised relocation cost principle will give such firms an
additional option for the first time on Government contracts that could
well become their corporate-wide standard in the future.
Finally, it is the Councils' understanding that DoD terminated its
two-year initiative to reengineer relocation policies and procedures
and disbanded the DITRS office which oversaw that effort due to a lack
of funds and interest from the military departments. And while the
relocation management firm stated during its presentation at the
February 6, 2003, public meeting that the Federal Deposit Insurance
Corporation is currently using lump-sum reimbursements for its
employees' relocation costs, this appears to be an exception within the
[[Page 57469]]
Federal Government. However, even if lump-sum reimbursements for
Federal employee relocation expenses are relatively rare, the purpose
of this case is to recognize a common and growing commercial best
practice in the relocation cost principle that should benefit both
contractors and the Government.
Allowability of lump-sum payments
3. Comment: While supporting the effort to expand the use of lump-
sum reimbursements for contractor employee relocation costs, one
respondent suggested that the revised paragraph (b)(4) needs to include
``a clear affirmative statement that the lump-sum payments are
allowable costs'' to avoid any possible confusion. In addition, the
respondent recommended that the words ``to the individual employee'' be
deleted from the revised paragraph (b)(4) because ``contractors should
not have to demonstrate on an individual basis that the lump-sum
payments are reasonable and appropriate for each relocating employee.''
Finally, the respondent recommended that the Councils eliminate the
current ceilings on allowable home sale and purchase costs of 14
percent and 5 percent, respectively.
Councils' response: Nonconcur. The Councils do not agree that any
additional language is necessary to avoid confusion regarding the
allowability of the specified lump-sum payments. The Councils believe
it is very clear from the language at FAR 31.205-35(b)(6)(i) that lump-
sum payments to employees for any of these three types of relocation
costs will be allowable if the requisite criteria are met. The Councils
also believe that the data provided by the contractor on the component
cost projections used in developing its lump-sum amounts must be
``based on the circumstances of the particular employee's relocation,''
such as family size, city, and number of vehicles. Otherwise, the lump-
sum amount paid could be excessive, and therefore unreasonable, for a
given relocation. Finally, the current ceilings on allowable home sale
and purchase costs are outside the scope of this case. (Incidentally,
the relocation management firm indicated at the February 6, 2003,
public meeting that such costs are seldom included in lump-sum
relocation payments.)
Add the three types of employee relocation costs to current lump-
sum cap for miscellaneous expenses
4. Comment: One respondent suggested that if the proposed rule is
not withdrawn, it ``does not object to adding the three additional
types of employee relocation costs, i.e., (1) the costs of finding a
new home, (2) costs of travel to the new location, and (3) costs of
temporary lodging, in addition to the existing `miscellaneous expenses'
that would be subject to a $5,000 lump-sum reimbursement, per employee
move.'' The respondent offered this alternative ``in the interest of
promoting greater flexibility within the existing relocation cost
principle, but without increasing overall costs to taxpayers.''
Councils' response: Nonconcur. Under its cost-type contracts, the
Government is obligated to pay the contractor's allocable and
reasonable costs of contract performance. Not only would the
respondent's proposal be fundamentally unfair to contractors, but it
would also severely undermine the basic rationale for this proposed
rule change. The current cap on miscellaneous relocation costs at FAR
31.205-35(b)(4) was increased to $5,000 in June 2002 based on survey
data published by the Employee Relocation Council regarding the median
amount of such payments in the commercial sector. There is no logical
reason to arbitrarily add house-hunting, final travel, and temporary
lodging costs to this separate lump-sum cap. The cost principles should
ensure that contractors are treated fairly, consistent with sound
public policy.
Proposed rule would make Federal employees second class citizens
5. Comment: One respondent expressed concern ``that this proposal
would make Federal employees second class citizens vis-[aacute]-vis
their contractor counterparts with respect to relocation expenses.''
The respondent concluded by stating that ``in no case should increases
in lump-sum payments beyond $5,000 per contractor employee be
considered until ... Federal employees are afforded the same advantages
as their contractor counterparts.''
Councils' response: Nonconcur. While the Councils understand that
the respondent is particularly sensitive to what it perceives to be
preferential treatment of contractor employees, the Councils do not
believe the allowability of contractor relocation costs must parallel
exactly the treatment afforded Federal employees. It is now a common
commercial practice to reimburse relocating employees on a lump-sum
basis for their house-hunting, final move, and temporary lodging
expenses, and the Councils believe the relocation cost principle should
be revised to permit contractors the option of using this methodology.
The language added at FAR 31.205-35(b)(6)(i) will ensure that, just as
when reimbursement is based on actual expenses, only reasonable amounts
are allowed for lump-sum reimbursements of these three types of
relocation costs. This additional flexibility should help promote
increased entry into the Federal marketplace by firms that have
previously been hesitant to do so, resulting in increased competition
on future purchases.
Clarification of current lump-sum cap for miscellaneous expenses
6. Comment: A respondent asked: ``Is the proposed lump-sum amount
of $5K applicable to both the continental United States (CONUS) and
outside CONUS relocations?''
Councils' response: The $5,000 cap on allowable lump-sum
reimbursements for miscellaneous relocation expenses is a current, not
proposed, limitation at FAR 31.205-35(b)(4). It applies to all
contractor employee relocations, regardless of location.
C. Additional Change--No adjustments
The Councils are concerned that contractors who reimburse employee
relocation costs on a lump-sum basis could make additional after-the-
fact payments to employees whose actual costs exceeded the lump-sum
amount. To address this concern, the Councils added the following
limitation at FAR 31.205-35(b)(6)(ii): ``When reimbursement on a lump-
sum basis is used, any adjustments to reflect actual costs are
unallowable.''
D. Regulatory Planning and Review
This is not a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
E. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded
to small entities use simplified acquisition procedures or are awarded
on a competitive, fixed-price basis, and do not require application of
the cost principle discussed in this rule. For Fiscal Year 2003, only
2.4 percent of all contract actions were cost contracts awarded to
small businesses.
F. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 104-13) does not apply because
the
[[Page 57470]]
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: September 22, 2005.
Julia B. Wise,
Director, Contract Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137;
and 42 U.S.C. 2473(c).
0
2. Amend section 31.205-35 by revising paragraph (b)(4); and adding
paragraphs (b)(5) and (b)(6) to read as follows:
31.205-35 Relocation costs.
* * * * *
(b)* * *
(4) Amounts to be reimbursed shall not exceed the employee's actual
expenses, except as provided for in paragraphs (b)(5) and (b)(6) of
this subsection.
(5) For miscellaneous costs of the type discussed in paragraph
(a)(5) of this subsection, a lump-sum amount, not to exceed $5,000, may
be allowed in lieu of actual costs.
(6)(i) Reimbursement on a lump-sum basis may be allowed for any of
the following relocation costs when adequately supported by data on the
individual elements (e.g., transportation, lodging, and meals)
comprising the build-up of the lump-sum amount to be paid based on the
circumstances of the particular employee's relocation:
(A) Costs of finding a new home, as discussed in paragraph (a)(2)
of this subsection.
(B) Costs of travel to the new location, as discussed in paragraph
(a)(1) of this subsection (but not costs for the transportation of
household goods).
(C) Costs of temporary lodging, as discussed in paragraph (a)(2) of
this subsection.
(ii) When reimbursement on a lump-sum basis is used, any
adjustments to reflect actual costs are unallowable.
* * * * *
[FR Doc. 05-19477 Filed 9-29-05; 8:45 am]
BILLING CODE 6820-EP-S
