Cost Accounting Standards Board; Allocation of Home Office Expenses to Segments, 8260-8262 [E8-2666]
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8260
ACTION:
Federal Register / Vol. 73, No. 30 / Wednesday, February 13, 2008 / Proposed Rules
Notice of Discontinuation of
Case.
SUMMARY: The Office of Federal
Procurement Policy (OFPP), Cost
Accounting Standards (CAS) Board, is
providing public notification of the
decision to discontinue its review of the
exemption for contracts that are
executed and performed outside the
United States, its territories, and
possessions.
FOR FURTHER INFORMATION CONTACT:
Laura Auletta, Manager, Cost
Accounting Standards Board, 725 17th
Street, NW., Room 9013, Washington,
DC 20503 (telephone: 202–395–3256).
SUPPLEMENTARY INFORMATION:
pwalker on PROD1PC71 with PROPOSALS
A. Regulatory Process
The Cost Accounting Standards
Board’s rules, regulations and Standards
are codified at 48 CFR Chapter 99. The
Office of Federal Procurement Policy
Act, 41 U.S.C. 422(g)(1), requires the
Board, prior to the establishment of any
new or revised Cost Accounting
Standard, to 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.
This notice announces the
discontinuation of a case after
completing step one of the four-step
process.
B. Background and Summary
On September 15, 2005, the CAS
Board issued a Staff Discussion Paper
inviting comments regarding whether
the exemption at 48 CFR 9903.201–
1(b)(14) should be revised or eliminated
(70 FR 53977). The SDP discussed the
history of the exemption. In summary,
this discussion stated that the original
CAS Board was established by Section
2168 of the Defense Production Act of
1950 (DPA). Section 2163 of the DPA,
entitled ‘‘Territorial Application of
Act,’’ provided that Sections 2061
through 2170 of the Act ‘‘shall be
applicable to the United States, its
territories and possessions, and the
District of Columbia’’ (United States).
Therefore, because the provisions of the
DPA were applicable only within the
United States, the CAS Board rules,
VerDate Aug<31>2005
16:59 Feb 12, 2008
Jkt 214001
regulations and standards were also
applicable only within the United
States. In 1980, the original CAS Board
ceased to exist under the DPA and
administration of the standards was
undertaken by the Department of
Defense until the CAS Board was reestablished in 1988 under the Office of
Federal Procurement Policy (OFPP) Act.
In 1991, the new CAS Board retained
the exemption when it recodified its
rules and regulations at 48 CFR
9902.201–1(b)(14) on April 17, 1992 (57
FR 14148). The SDP published on
September 15, 2005 invited public
comments on whether the Board should
revisit the exemption.
participation in the U.S. Government
procurement process prohibitive.
Another commenter expressed
concern that eliminating the exemption
would result in applying CAS to foreign
contractors that would otherwise be
small businesses, since the CAS small
business exemption applies only to
firms that have a place of business
located in the United States.
While the CAS Board does not
necessarily share each of the views
expressed in these comments, the Board
agrees with the conclusion not to delete
or revise the exemption, especially with
the absence of any commenter support
for any such revision or elimination.
C. Public Comments
D. Conclusion
Based on the public input and Board
discussions of this issue, the Board
finds that the exemption should be
retained without change.
The Board received three sets of
public comments in response to the staff
discussion paper (available at https://
www.whitehouse.gov/omb/
procurement/casb/
index_public_comments.html). None of
the comments supported the Board
revising or eliminating the exemption.
In fact, all three of the comments offered
arguments for why the CAS Board
should retain the exemption.
One commented that while the OFPP
Act, unlike the DPA, does not
specifically limit CAS to contracts and
subcontracts executed and performed
within the United States, when
Congress intends for laws to have extraterritorial effect, it would expressly state
that intention. Additionally, the
commenter notes that given the
dynamic nature of international
relations and bilateral agreements, the
CAS Board would find it difficult to
insure consistency of its regulations
with international law and trade
agreements. This commenter also
questioned the material impact of the
exemption, stating that, based on
anecdotal evidence, contractors do not
invoke the exception frequently. The
value of the exemption, noted the
commenter, includes putting foreign
and U.S. companies on an equal footing
by applying the same local accounting
requirements; facilitating government
procurements in the context of war
readiness, other military action or
disaster relief.
Another commenter discussed the
impracticality of applying CAS to
contracts and subcontracts performed
entirely outside the United States,
noting, in part, that a contractor would
be expected to follow the accounting
conventions (rules and regulations) of
the country where the contract is being
performed. Requiring contractors and
those in their supply chain to follow
CAS instead would likely make
PO 00000
Frm 00031
Fmt 4702
Sfmt 4702
Paul A. Denett,
Administrator, Office of Federal Procurement
Policy.
[FR Doc. E8–2668 Filed 2–12–08; 8:45 am]
BILLING CODE 3110–01–P
OFFICE OF MANAGEMENT AND
BUDGET
Office of Federal Procurement Policy
48 CFR Part 9904
Cost Accounting Standards Board;
Allocation of Home Office Expenses to
Segments
Cost Accounting Standards
Board, Office of Federal Procurement
Policy, OMB.
ACTION: Staff Discussion Paper (SDP).
AGENCY:
SUMMARY: The Cost Accounting
Standards Board (the Board), Office of
Federal Procurement Policy, invites
public comments on a staff discussion
paper (SDP) addressing potential
revisions to Cost Accounting Standard
(CAS) 403, ‘‘Allocation of Home Office
Expenses to Segments.’’ This SDP
addresses whether the current
thresholds that require use of the three
factor formula for allocating residual
home office expenses require revision.
DATES: Comments must be in writing
and must be received by April 14, 2008.
ADDRESSES: Due to delays in receipt and
processing of mail, respondents are
strongly encouraged to submit
comments electronically to ensure
timely receipt. Electronic comments
may be submitted to
casb2@omb.eop.gov. Please include
your name, title, organization, and
reference case ‘‘CAS–2008–01S.’’
E:\FR\FM\13FEP1.SGM
13FEP1
Federal Register / Vol. 73, No. 30 / Wednesday, February 13, 2008 / Proposed Rules
Comments may also be submitted via
facsimile to (202) 395–5105. Comments
via regular mail should be addressed to
the Office of Federal Procurement
Policy, 725 17th Street, NW., Room
9013, Washington, DC 20503, ATTN:
Laura Auletta. Please note that any
comments received will be posted in
their entirety, including any personal
and/or business confidential
information provided, at https://
www.whitehouse.gov/omb/
procurement/casb.html after the close of
the comment period.
FOR FURTHER INFORMATION CONTACT:
Laura Auletta, Manager, Cost
Accounting Standards Board, 725 17th
Street, NW., Room 9013, Washington,
DC 20503 (telephone: 202–395–3256).
SUPPLEMENTARY INFORMATION:
1. Consumer Price Index: A proposal
from the Aerospace Industries
Association (AIA) recommends that the
operating revenue thresholds be raised
by 400 percent to reflect the changes in
the consumer price index (CPI) from
1973 to 2003.
2. Conduct Staff Study: A proposal
from the Department of Defense (DoD)
recommends that the Board obtain
actual statistics of various companies
and conduct a staff study similar to that
performed by the original Board. This
proposal recommends that the study
update the thresholds to reflect the
impact that economic changes, industry
changes, and the advent of acquisition
reform have had in the years since the
thresholds were established.
A. Regulatory Process
I. Background
• 48 CFR 9904.403–40(c)(2) requires
that home office residual expenses be
allocated to segments using the three
factor formula if the residual expenses
exceed:
Æ 3.35 percent of the first $100
million of operating revenue;
Æ .95 percent of the next $200 million
of operating revenue;
Æ .30 percent of the next $2.7 billion
of operating revenue; and
Æ .20 percent of all amounts over $3
billion of operating revenue.
• The operating revenue thresholds at
48 C.F.R 9904.403–40(c)(2) were
promulgated in December 1972 and
have not been revised in the 35 years
since.
• The Board has decided to initiate a
case to determine if the current
thresholds require revision. This case
will analyze all aspects of this issue. For
example, in addition to the inflation of
the dollar, the last 35 years have also
seen a change in the nature of home
offices. In particular, the number of
home offices have significantly
increased due to the proliferation of
intermediate home offices. In
determining whether to revise the
current thresholds, the Board will need
to analyze if and to what extent such a
proliferation impacts the thresholds. In
addition, the Board will need to
determine if and to what extent a data
call is needed to obtain information
necessary to reach an informed decision
on this issue.
The Board’s rules, regulations and
standards are codified at 48 CFR
Chapter 99. The Office of Federal
Procurement Policy Act, 41 U.S.C.
422(g)(1), requires the Board, prior to
the establishment of any new or revised
Standard, to 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 (i.e., prepare and publish
SDP).
2. Promulgate an Advance Notice of
Proposed Rulemaking (ANPRM).
3. Promulgate a Notice of Proposed
Rulemaking (NPRM).
4. Promulgate a Final Rule.
The SDP published with this notice is
issued by the Board in accordance with
the requirements of 41 U.S.C.
422(g)(1)(B), and is the first of the fourstep process.
The Board has received two
recommendations to revise the CAS 403
operating revenue thresholds used in
determining if a contractor is required to
apply the three factor formula to
allocate residual home office expenses
to segments. The research accomplished
to date by the Board staff is the basis for
the SDP being released today.
pwalker on PROD1PC71 with PROPOSALS
B. Background
Over the past few years, the Board has
received two proposals to revise the
CAS operating revenue thresholds for
determining if a contractor is required to
use the three factor formula to allocate
residual home office expenses to
segments.
VerDate Aug<31>2005
16:59 Feb 12, 2008
Jkt 214001
C. Staff Discussion Paper
II. Staff Research
Comments on Alternatives
1. Use Consumer Price Index (CPI):
On August 26, 2003, AIA sent a letter
to the Board recommending that the
operating revenue thresholds be raised
by 400 percent to reflect the changes in
PO 00000
Frm 00032
Fmt 4702
Sfmt 4702
8261
the CPI from 1973 to 2003. The staff
believes the AIA recommendation offers
the advantage of a simple and quick
revision to the out-of-date thresholds. It
is also an objective measure of the
economic escalation that has occurred
since the thresholds were initially
promulgated. A significant disadvantage
is that the increase in the CPI may not
be a good measure of increases
necessary to the three factor formula.
For example, the number of home
offices have significantly increased due
to the proliferation of intermediate
home offices. The increase in home
offices may warrant a smaller increase
in the three factor formula than the CPI
would provide. A second disadvantage
is that the Board will not be aware of the
exact impact the revision will have on
the number of companies covered by the
three factor formula.
The CPI represents changes in prices
of all goods and services purchased for
consumption by urban households. User
fees (such as water and sewer service)
and sales and excise taxes paid by the
consumer are also included. Income
taxes and investment items (like stocks,
bonds, and life insurance) are not
included. It is an objective measure of
the economic escalation that has
occurred since the thresholds were
initially promulgated.
A potential problem concerning the
use of the CPI is that historical values
are not revised when there are
improvements in the index.
Consequently, past errors in
methodology are only corrected
prospectively (i.e., the historical data is
not corrected). Most of the major
improvements in the CPI have tended to
reduce measured inflation. As a result,
the increase in the CPI since 1972
overstates inflation.
The overstatement in the CPI can be
mitigated by using alternative versions
that incorporate current methodology in
measuring past price movements. From
1972 to 1978, the best alternative
version is the CPI–U–X1, which
provides an adjustment to the CPI that
computes housing costs using rental
equivalents (this method was adopted
for the official CPI in the early 1980s).
However, the CPI–U–X1 does not
include other improvements to the CPI
that were adopted in the early 1980s.
The CPI–U–RS, which was developed
in the late 1990s, incorporates changes
in methodology implemented since
1978. Thus, it can be used to analyze
inflationary trends in the CPI without
interference from changes in
methodology. New values based on
current methods are released each April.
From December 1972 through
December 1977, the CPI–U–X1
E:\FR\FM\13FEP1.SGM
13FEP1
8262
Federal Register / Vol. 73, No. 30 / Wednesday, February 13, 2008 / Proposed Rules
pwalker on PROD1PC71 with PROPOSALS
increased by a factor of 1.43. From
January 1978 through February 2007,
the CPI–U–RS increased by a factor of
3.26. To compute the increase for the
period December 1972 through February
2007, the factor for the CPI–U–X1 is
multiplied by the factor for the CPI–U–
RS (1.43 x 3.26) to obtain an inflation
factor of 4.66.
Applying this factor to the current
thresholds at 48 C.F.R 9904.403–50
yields the following revised thresholds
for application of the three factor
formula:
Æ 3.35 percent of the first $470
million of operating revenue;
Æ .95 percent of the next $930 million
of operating revenue;
Æ .30 percent of the next $12.6 billion
of operating revenue; and
Æ .20 percent of all amounts over
$14.0 billion of operating revenue.
2. Conduct Staff Study: On September
26, 2002, DoD sent a letter to the Board
recommending that, as part of the
comprehensive review, the Board obtain
actual statistics of various companies
and conduct a staff study similar to that
VerDate Aug<31>2005
16:59 Feb 12, 2008
Jkt 214001
performed by the original Board. DoD
recommended that the study update the
thresholds to reflect the impact that
economic changes, industry changes,
and the advent of acquisition reform
have had in the years since the
thresholds were established. The staff
believes that the DoD recommendation
offers the Board an opportunity to
understand the impact that various
revisions would have on the number of
companies subject to the three factor
formula before drafting an ANPRM. The
disadvantage is that the analysis will
require significant time and effort to
accomplish, and it is possible that such
an analysis would not yield useful data
for determining the appropriate
thresholds.
III. Public Input
The Board is requesting public input
on whether the thresholds should be
raised, the potential advantages and
disadvantages of the two alternatives
described above, and any additional
recommended alternatives the
PO 00000
Frm 00033
Fmt 4702
Sfmt 4702
commenters may have. Key questions
for consideration include, but are not
limited to, the following:
1. Should the operating revenue
thresholds be revised? Why or why not?
2. If the threshold should be revised,
what should be the basis of that revision
(e.g., CPI, staff study, other)?
3. What are the advantages and
disadvantages of the two alternatives
described above?
4. What type of data is currently
available for performance of the staff
study?
5. Is the administrative burden of
collecting the data associated with the
staff study commensurate with risk?
6. To what extent does the
proliferation of intermediate home
offices impact any potential revision of
the operating revenue thresholds?
Paul A. Denett,
Administrator, Office of Federal Procurement
Policy.
[FR Doc. E8–2666 Filed 2–12–08; 8:45 am]
BILLING CODE 3110–01–P
E:\FR\FM\13FEP1.SGM
13FEP1
]]>Agencies
[Federal Register Volume 73, Number 30 (Wednesday, February 13, 2008)]
[Proposed Rules]
[Pages 8260-8262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-2666]
-----------------------------------------------------------------------
OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9904
Cost Accounting Standards Board; Allocation of Home Office
Expenses to Segments
AGENCY: Cost Accounting Standards Board, Office of Federal Procurement
Policy, OMB.
ACTION: Staff Discussion Paper (SDP).
-----------------------------------------------------------------------
SUMMARY: The Cost Accounting Standards Board (the Board), Office of
Federal Procurement Policy, invites public comments on a staff
discussion paper (SDP) addressing potential revisions to Cost
Accounting Standard (CAS) 403, ``Allocation of Home Office Expenses to
Segments.'' This SDP addresses whether the current thresholds that
require use of the three factor formula for allocating residual home
office expenses require revision.
DATES: Comments must be in writing and must be received by April 14,
2008.
ADDRESSES: Due to delays in receipt and processing of mail, respondents
are strongly encouraged to submit comments electronically to ensure
timely receipt. Electronic comments may be submitted to
casb2@omb.eop.gov. Please include your name, title, organization, and
reference case ``CAS-2008-01S.''
[[Page 8261]]
Comments may also be submitted via facsimile to (202) 395-5105.
Comments via regular mail should be addressed to the Office of Federal
Procurement Policy, 725 17th Street, NW., Room 9013, Washington, DC
20503, ATTN: Laura Auletta. Please note that any comments received will
be posted in their entirety, including any personal and/or business
confidential information provided, at https://www.whitehouse.gov/omb/
procurement/casb.html after the close of the comment period.
FOR FURTHER INFORMATION CONTACT: Laura Auletta, Manager, Cost
Accounting Standards Board, 725 17th Street, NW., Room 9013,
Washington, DC 20503 (telephone: 202-395-3256).
SUPPLEMENTARY INFORMATION:
A. Regulatory Process
The Board's rules, regulations and standards are codified at 48 CFR
Chapter 99. The Office of Federal Procurement Policy Act, 41 U.S.C.
422(g)(1), requires the Board, prior to the establishment of any new or
revised Standard, to 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 (i.e., prepare and publish SDP).
2. Promulgate an Advance Notice of Proposed Rulemaking (ANPRM).
3. Promulgate a Notice of Proposed Rulemaking (NPRM).
4. Promulgate a Final Rule.
The SDP published with this notice is issued by the Board in
accordance with the requirements of 41 U.S.C. 422(g)(1)(B), and is the
first of the four-step process.
The Board has received two recommendations to revise the CAS 403
operating revenue thresholds used in determining if a contractor is
required to apply the three factor formula to allocate residual home
office expenses to segments. The research accomplished to date by the
Board staff is the basis for the SDP being released today.
B. Background
Over the past few years, the Board has received two proposals to
revise the CAS operating revenue thresholds for determining if a
contractor is required to use the three factor formula to allocate
residual home office expenses to segments.
1. Consumer Price Index: A proposal from the Aerospace Industries
Association (AIA) recommends that the operating revenue thresholds be
raised by 400 percent to reflect the changes in the consumer price
index (CPI) from 1973 to 2003.
2. Conduct Staff Study: A proposal from the Department of Defense
(DoD) recommends that the Board obtain actual statistics of various
companies and conduct a staff study similar to that performed by the
original Board. This proposal recommends that the study update the
thresholds to reflect the impact that economic changes, industry
changes, and the advent of acquisition reform have had in the years
since the thresholds were established.
C. Staff Discussion Paper
I. Background
48 CFR 9904.403-40(c)(2) requires that home office
residual expenses be allocated to segments using the three factor
formula if the residual expenses exceed:
[cir] 3.35 percent of the first $100 million of operating revenue;
[cir] .95 percent of the next $200 million of operating revenue;
[cir] .30 percent of the next $2.7 billion of operating revenue;
and
[cir] .20 percent of all amounts over $3 billion of operating
revenue.
The operating revenue thresholds at 48 C.F.R 9904.403-
40(c)(2) were promulgated in December 1972 and have not been revised in
the 35 years since.
The Board has decided to initiate a case to determine if
the current thresholds require revision. This case will analyze all
aspects of this issue. For example, in addition to the inflation of the
dollar, the last 35 years have also seen a change in the nature of home
offices. In particular, the number of home offices have significantly
increased due to the proliferation of intermediate home offices. In
determining whether to revise the current thresholds, the Board will
need to analyze if and to what extent such a proliferation impacts the
thresholds. In addition, the Board will need to determine if and to
what extent a data call is needed to obtain information necessary to
reach an informed decision on this issue.
II. Staff Research
Comments on Alternatives
1. Use Consumer Price Index (CPI): On August 26, 2003, AIA sent a
letter to the Board recommending that the operating revenue thresholds
be raised by 400 percent to reflect the changes in the CPI from 1973 to
2003. The staff believes the AIA recommendation offers the advantage of
a simple and quick revision to the out-of-date thresholds. It is also
an objective measure of the economic escalation that has occurred since
the thresholds were initially promulgated. A significant disadvantage
is that the increase in the CPI may not be a good measure of increases
necessary to the three factor formula. For example, the number of home
offices have significantly increased due to the proliferation of
intermediate home offices. The increase in home offices may warrant a
smaller increase in the three factor formula than the CPI would
provide. A second disadvantage is that the Board will not be aware of
the exact impact the revision will have on the number of companies
covered by the three factor formula.
The CPI represents changes in prices of all goods and services
purchased for consumption by urban households. User fees (such as water
and sewer service) and sales and excise taxes paid by the consumer are
also included. Income taxes and investment items (like stocks, bonds,
and life insurance) are not included. It is an objective measure of the
economic escalation that has occurred since the thresholds were
initially promulgated.
A potential problem concerning the use of the CPI is that
historical values are not revised when there are improvements in the
index. Consequently, past errors in methodology are only corrected
prospectively (i.e., the historical data is not corrected). Most of the
major improvements in the CPI have tended to reduce measured inflation.
As a result, the increase in the CPI since 1972 overstates inflation.
The overstatement in the CPI can be mitigated by using alternative
versions that incorporate current methodology in measuring past price
movements. From 1972 to 1978, the best alternative version is the CPI-
U-X1, which provides an adjustment to the CPI that computes housing
costs using rental equivalents (this method was adopted for the
official CPI in the early 1980s). However, the CPI-U-X1 does not
include other improvements to the CPI that were adopted in the early
1980s.
The CPI-U-RS, which was developed in the late 1990s, incorporates
changes in methodology implemented since 1978. Thus, it can be used to
analyze inflationary trends in the CPI without interference from
changes in methodology. New values based on current methods are
released each April.
From December 1972 through December 1977, the CPI-U-X1
[[Page 8262]]
increased by a factor of 1.43. From January 1978 through February 2007,
the CPI-U-RS increased by a factor of 3.26. To compute the increase for
the period December 1972 through February 2007, the factor for the CPI-
U-X1 is multiplied by the factor for the CPI-U-RS (1.43 x 3.26) to
obtain an inflation factor of 4.66.
Applying this factor to the current thresholds at 48 C.F.R
9904.403-50 yields the following revised thresholds for application of
the three factor formula:
[cir] 3.35 percent of the first $470 million of operating revenue;
[cir] .95 percent of the next $930 million of operating revenue;
[cir] .30 percent of the next $12.6 billion of operating revenue;
and
[cir] .20 percent of all amounts over $14.0 billion of operating
revenue.
2. Conduct Staff Study: On September 26, 2002, DoD sent a letter to
the Board recommending that, as part of the comprehensive review, the
Board obtain actual statistics of various companies and conduct a staff
study similar to that performed by the original Board. DoD recommended
that the study update the thresholds to reflect the impact that
economic changes, industry changes, and the advent of acquisition
reform have had in the years since the thresholds were established. The
staff believes that the DoD recommendation offers the Board an
opportunity to understand the impact that various revisions would have
on the number of companies subject to the three factor formula before
drafting an ANPRM. The disadvantage is that the analysis will require
significant time and effort to accomplish, and it is possible that such
an analysis would not yield useful data for determining the appropriate
thresholds.
III. Public Input
The Board is requesting public input on whether the thresholds
should be raised, the potential advantages and disadvantages of the two
alternatives described above, and any additional recommended
alternatives the commenters may have. Key questions for consideration
include, but are not limited to, the following:
1. Should the operating revenue thresholds be revised? Why or why
not?
2. If the threshold should be revised, what should be the basis of
that revision (e.g., CPI, staff study, other)?
3. What are the advantages and disadvantages of the two
alternatives described above?
4. What type of data is currently available for performance of the
staff study?
5. Is the administrative burden of collecting the data associated
with the staff study commensurate with risk?
6. To what extent does the proliferation of intermediate home
offices impact any potential revision of the operating revenue
thresholds?
Paul A. Denett,
Administrator, Office of Federal Procurement Policy.
[FR Doc. E8-2666 Filed 2-12-08; 8:45 am]
BILLING CODE 3110-01-P
