Federal Acquisition Regulation; FAR Case 2008-031, Limitations on Pass-Through Charges, 52853-52856 [E9-24586]
Download as PDF
<![CDATA[
Federal Register / Vol. 74, No. 197 / Wednesday, October 14, 2009 / Rules and Regulations
compelling reasons exist to promulgate
this interim rule without prior
opportunity for public comment. This
action is necessary because the rule
implements section 868 of the Duncan
Hunter National Defense Authorization
Act (Pub. L. 110–417), which was
signed on October 14, 2008, and
requires amending the FAR not later
than 180 days after the date of
enactment of the Act. However,
pursuant to Public Law 98–577 and FAR
1.501, the Councils will consider public
comments received in response to this
interim rule in the formation of the final
rule.
List of Subjects in 48 CFR Part 15
conditions by both Government and
commercial customers; and
(C) If the contracting officer
determines that the information
described in paragraph (c)(3)(ii)(B) of
this section is not sufficient to
determine the reasonableness of price,
other relevant information regarding the
basis for price or cost, including
information on labor costs, material
costs and overhead rates may be
requested.
*
*
*
*
*
■ 3. Amend section 15.403–3 by adding
paragraph (c)(3) to read as follows:
15.403–3 Requiring information other than
cost or pricing data.
*
*
*
*
*
(c) * * *
(3) For services that are not offered
and sold competitively in substantial
quantities in the commercial
marketplace, but are of a type offered
and sold competitively in substantial
quantities in the commercial
marketplace, see 15.403–1(c)(3)(ii).
Government procurement.
Dated: October 5, 2009.
Al Matera,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA
amend 48 CFR part 15 as set forth
below:
■
PART 15—CONTRACTING BY
NEGOTIATION
[FR Doc. E9–24570 Filed 10–13–09; 8:45 am]
BILLING CODE 6820–EP–S
1. The authority citation for 48 CFR
part 15 continues to read as follows:
■
DEPARTMENT OF DEFENSE
Authority: 40 U.S.C. 121(c); 10 U.S.C.
chapter 137; and 42 U.S.C. 2473(c).
2. Amend section 15.403–1 by
redesignating paragraphs (c)(3)(ii) and
(c)(3)(iii) as (c)(3)(iii) and (c)(3)(iv),
respectively, and adding a new
paragraph (c)(3)(ii) to read as follows:
■
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Parts 15, 31, and 52
[FAC 2005–37; FAR Case 2008–031; Item
V; Docket 2009–0034, Sequence 1]
*
mstockstill on DSKH9S0YB1PROD with RULES2
15.403–1 Prohibition on obtaining cost or
pricing data (10 U.S.C. 2306a and 41 U.S.C.
254b).
RIN 9000–AL27
*
*
*
*
(c) * * *
(3) * * *
(ii) In accordance with section 868 of
Pub. L. 110–417:
(A) When purchasing services that are
not offered and sold competitively in
substantial quantities in the commercial
marketplace, but are of a type offered
and sold competitively in substantial
quantities in the commercial
marketplace, they may be considered
commercial items (thus meeting the
purpose of 41 U.S.C 254b and 10 U.S.C.
2306a for truth in negotiations) only if
the contracting officer determines in
writing that the offeror has submitted
sufficient information to evaluate,
through price analysis, the
reasonableness of the price of such
services.
(B) In order to make this
determination, the contracting officer
may request the offeror to submit prices
paid for the same or similar commercial
items under comparable terms and
VerDate Nov<24>2008
17:52 Oct 13, 2009
Jkt 220001
Federal Acquisition Regulation; FAR
Case 2008–031, Limitations on PassThrough Charges
AGENCIES: Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Interim rule with request for
comments.
SUMMARY: The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) are issuing an interim rule
amending the Federal Acquisition
Regulation (FAR) to implement section
866 of the Duncan Hunter National
Defense Authorization Act (NDAA) for
Fiscal Year (FY) 2009 which applies to
Executive Agencies other than DoD. The
DoD is subject to section 852 of the John
Warner NDAA for FY 2007 which is
also being implemented in this interim
rule. Section 866 requires the Councils
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
52853
to amend the FAR and section 852
requires the Secretary of Defense to
prescribe regulations to minimize
excessive pass-through charges by
contractors from subcontractors, or of
tiers of subcontractors, that add no or
negligible value, and to ensure that
neither a contractor nor a subcontractor
receives indirect costs or profit/fee (i.e.,
pass-through charges) on work
performed by a lower-tier subcontractor
to which the higher-tier contractor or
subcontractor adds no, or negligible,
value. Since both statutory provisions
address excessive pass-through charges
and the multiple tiering of
subcontracting, the Councils decided to
combine both provisions in this FAR
rule.
Effective Date: October 14, 2009.
Comment Date: Interested parties
should submit written comments to the
Regulatory Secretariat on or before
December 14, 2009 to be considered in
the formulation of a final rule.
ADDRESSES: Submit comments
identified by FAC 2005–37, FAR case
2008–031, by any of the following
methods:
• Regulations.gov: https://
www.regulations.gov.
Submit comments via the Federal
eRulemaking portal by inputting ‘‘FAR
Case 2008–031’’ under the heading
‘‘Comment or Submission’’. Select the
link ‘‘Send a Comment or Submission’’
that corresponds with FAR Case 2008–
031. Follow the instructions provided to
complete the ‘‘Public Comment and
Submission Form’’. Please include your
name, company name (if any), and
‘‘FAR Case 2008–031’’ on your attached
document.
• Fax: 202–501–4067.
• Mail: General Services
Administration, Regulatory Secretariat
(VPR), 1800 F Street, NW., Room 4041,
ATTN: Hada Flowers, Washington, DC
20405.
Instructions: Please submit comments
only and cite FAC 2005–37, FAR case
2008–031, in all correspondence related
to this case. All comments received will
be posted without change to https://
www.regulations.gov, including any
personal and/or business confidential
information provided.
FOR FURTHER INFORMATION CONTACT: Mr.
Edward Chambers, Procurement
Analyst, at (202) 501–3221 for
clarification of content. For information
pertaining to status or publication
schedules, contact the Regulatory
Secretariat at (202) 501–4755. Please
cite FAC 2005–37, FAR case 2008–031.
SUPPLEMENTARY INFORMATION:
DATES:
E:\FR\FM\14OCR2.SGM
14OCR2
mstockstill on DSKH9S0YB1PROD with RULES2
52854
Federal Register / Vol. 74, No. 197 / Wednesday, October 14, 2009 / Rules and Regulations
A. Background
This interim rule is published to
implement section 866 of the Duncan
Hunter National Defense Authorization
Act for Fiscal Year 2009 (Pub. L. 110–
417) as well as section 852 of the John
Warner National Defense Authorization
Act for Fiscal Year 2007 (Pub. L. 109–
364). Section 866 requires the Councils
to amend the FAR to minimize
excessive pass-through charges by
contractors from subcontractors, or of
tiers of subcontractors, that add no or
negligible value, and to ensure that
neither a contractor nor a subcontractor
receives indirect costs or profit/fee (i.e.,
pass-through charges) on work
performed by a lower-tier subcontractor
to which the higher-tier contractor or
subcontractor adds no, or negligible,
value.
To enable agencies to ensure that
pass-through charges are not excessive,
this interim rule includes a solicitation
provision and a contract clause
requiring offerors and contractors to
identify the percentage of work that will
be subcontracted, and when subcontract
costs will exceed 70 percent of the total
cost of work to be performed, to provide
information on indirect costs and profit/
fee and value added with regard to the
subcontract work. Seventy percent was
selected as the threshold for this
information requirement, because it
represents a substantial amount of
subcontracting.
The rule is intended to protect the
interests of the Government when there
appears to be an agreement with a
contractor to perform the contract scope
of work, including managing
subcontractors, then after award, the
contractor subcontracts substantially all
the effort without providing the
required value-added subcontract
management functions that were
expected. There is no intent in this rule
to disrupt the subcontracting process or
other arrangements for firms that
furnish supplies and services.
To ensure that the Government can
make a determination as to whether or
not pass-through charges are excessive,
the rule incorporates a reporting
threshold that affords the contracting
officer the ability to understand what
functions the contractor will perform
(e.g., consistent with the contractor’s
disclosed practice) and thus will
provide added value, whether it be
before award, or if the contractor
subsequently decides to subcontract
substantially all of the effort. The rule
provides a recovery mechanism for
those situations in which a contractor
subcontracts all, or substantially all, of
the performance of the contract, and
VerDate Nov<24>2008
17:52 Oct 13, 2009
Jkt 220001
does not perform the subcontract
management functions, or other valueadded functions, that were charged to
the Government through indirect costs
and related profit/fee.
The intent of the reporting threshold
is for the contracting officer to make a
determination that pass-through charges
at the time of award are not excessive,
when at least 70 percent of the work
will be subcontracted, based on
contractor demonstrated functions. It
also incorporates a requirement for the
contractor to notify the contracting
officer, in writing, if the contractor
decides after award to subcontract more
than 70 percent of the total cost of the
work to be performed, and to verify in
that document that the contractor will
add value consistent with the definition
in the contract clause. If the contractor
does not perform the demonstrated
functions or does not add value, the rule
makes the excessive pass-through
charges unallowable and provides for
recoupment of the excessive passthrough charges consistent with the
legislation. A further intent of the
reporting threshold is to avoid requiring
the contracting officer to re-address this
determination during contract
performance. To that end, this interim
rule includes an Alternate I to the clause
at FAR 52.215–23 to address those
instances in which the contracting
officer has made a determination prior
to contract award.
The rule is to be applied consistent
with existing Cost Accounting Standard
(CAS) and FAR rules related to
subcontract management, indirect cost
allocation, and profit analysis. While
the definitions in the provisions are
similar, the applicability differs.
For civilian agencies the rule applies
to any cost-reimbursement type
contract, task or delivery order in an
amount greater than the simplified
acquisition threshold (as defined by
section 4 of the Office of Federal
Procurement Policy Act (41 U.S.C.
403)).
For DoD, this rule applies to an
amount greater than the threshold to
obtain cost or pricing data in FAR
15.403–3 and cost-reimbursement type
contracts as well as fixed-price contracts
in accordance with section 852 of the
FY 2007 NDAA.
This is a significant regulatory action
and, therefore, was 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.
B. Regulatory Flexibility Act
This interim rule is not expected to
have a significant economic impact on
PO 00000
Frm 00010
Fmt 4701
Sfmt 4700
a substantial number of small entities
within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq.,
because the Councils do not expect a
significant number of entities to propose
excessive pass-through charges under
contracts or subcontracts, and the
information required from offerors and
contractors regarding pass-through
charges is minimal. Therefore, an Initial
Regulatory Flexibility Analysis has not
been performed. The Councils will
consider comments from small entities
concerning the affected FAR parts 15,
31, and 52 in accordance with 5 U.S.C.
610. Interested parties must submit such
comments separately and should cite 5
U.S.C 601, et seq. (FAC 2005–37, FAR
case 2008–031), in all correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub.
L. 104–13) applies because the interim
rule contains information collection
requirements. Accordingly, the
Regulatory Secretariat has forwarded an
emergency request for approval of a new
information collection requirement
concerning ‘‘Limitations on PassThrough Charges’’ to the Office of
Management and Budget (OMB) under
44 U.S.C. Chapter 35, et seq. The OMB
has preapproved this information
collection under OMB Control Number
9000–0173.
Annual Reporting Burden:
To enable contracting officers to
verify that pass-through charges are not
excessive, this FAR revision will
include a requirement for an offeror
submitting a proposal for a contract,
task order, or delivery order to provide
the following information with its
proposals:
(1) The cost of work the offeror
intends to perform and the cost of work
expected to be performed by each
subcontractor.
(2) If the offeror intends to
subcontract more than 70 percent of the
total cost of work to be performed—
(i) The amount of the offeror’s indirect
costs and profit/fee applicable to the
work to be performed by the
subcontractor(s); and
(ii) A description of the value added
by the offeror as related to the work to
be performed by the subcontractor(s).
(3) If any subcontractor intends to
subcontract to a lower-tier subcontractor
more than 70 percent of the total cost of
work to be performed under its
subcontract—
(i) The amount of the subcontractor’s
indirect costs and profit/fee applicable
to the work to be performed by the
lower-tier subcontractor(s); and
(ii) A description of the added value
provided by the subcontractor as related
E:\FR\FM\14OCR2.SGM
14OCR2
Federal Register / Vol. 74, No. 197 / Wednesday, October 14, 2009 / Rules and Regulations
to the work to be performed by the
lower-tier subcontractor(s).
In addition, if the amount of the effort
to be subcontracted by the contractor or
a subcontractor changes from the
amount identified in the proposal such
that it exceeds 70 percent of the total
cost of work to be performed, the
contractor must provide the revised cost
of effort and verification that the
contractor (or subcontractor) will
provide added value.
The annual reporting burden is
estimated as follows:
Respondents: 25,380.
Responses per respondent: 1.
Total annual responses: 25,760.
Preparation hours per response: .5.
Total response burden hours: 13,260.
mstockstill on DSKH9S0YB1PROD with RULES2
D. Request for Comments Regarding
Paperwork Burden
Submit comments, including
suggestions for reducing this burden,
not later than December 14, 2009 to:
FAR Desk Officer, OMB, Room 10102,
NEOB, Washington, DC 20503, and a
copy to the General Services
Administration, Regulatory Secretariat
(VPR), 1800 F Street, NW., Room 4041,
Washington, DC 20405.
Public comments are particularly
invited on: whether this collection of
information is necessary for the proper
performance of functions of the FAR,
and will have practical utility; whether
our estimate of the public burden of this
collection of information is accurate,
and based on valid assumptions and
methodology; ways to enhance the
quality, utility, and clarity of the
information to be collected; and ways in
which we can minimize the burden of
the collection of information on those
who are to respond, through the use of
appropriate technological collection
techniques or other forms of information
technology.
Requester may obtain a copy of the
justification from the General Services
Administration, Regulatory Secretariat
(VPR), Room 4041, Washington, DC
20405, telephone (202) 501–4755. Please
cite OMB Control Number 9000–0173 in
all correspondence.
E. Determination to Issue an Interim
Rule
A determination has been made under
the authority of the Secretary of Defense
(DoD), the Administrator of General
Services (GSA), and the Administrator
of the National Aeronautics and Space
Administration (NASA) that urgent and
compelling reasons exist to promulgate
this interim rule without prior
opportunity for public comment. This
action is necessary because section 866
of the FY 2009 NDAA, which was
VerDate Nov<24>2008
17:52 Oct 13, 2009
Jkt 220001
enacted October 14, 2008, requires that
the FAR be revised to implement this
provision no later than one year after
the date of enactment. If this change is
not implemented agencies will not be
able to comply with section 866 of the
FY 2009 NDAA. However, pursuant to
Pub. L. 98–577 and FAR 1.501, the
Councils will consider public comments
received in response to this interim rule
in the formation of the final rule.
List of Subjects in 48 CFR Parts 15, 31,
and 52
Government procurement.
Dated: October 5, 2009.
Al Matera,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA
amend 48 CFR parts 15, 31, and 52 as
set forth below:
■ 1. The authority citation for 48 CFR
parts 15, 31, and 52 continues to read
as follows:
■
Authority: 40 U.S.C. 121(c); 10 U.S.C.
chapter 137; and 42 U.S.C. 2473(c).
52855
(i) A firm-fixed-price contract
awarded on the basis of adequate price
competition;
(ii) A fixed-price contract with
economic price adjustment awarded on
the basis of adequate price competition;
(iii) A firm-fixed-price contract for the
acquisition of a commercial item; or
(iv) A fixed-price contract with
economic price adjustment, for the
acquisition of a commercial item.
(ii) The clause may be used when the
total estimated contract or order value is
below the thresholds identified in
15.408(n)(2)(i) and for any contract type,
when the contracting officer determines
that inclusion of the clause is
appropriate.
(iii) Use the clause 52.215–23 with its
Alternate I when the contracting officer
determines that the prospective
contractor has demonstrated that its
functions provide added value to the
contracting effort and there are no
excessive pass-through charges.
*
*
*
*
*
PART 31—CONTRACT COST
PRINCIPLES AND PROCEDURES
PART 15—CONTRACTING BY
NEGOTIATION
■
2. Amend section 15.408 by adding
paragraph (n) to read as follows:
31.203
■
15.408 Solicitation provisions and
contract clauses.
*
*
*
*
*
(n) Limitations on Pass-Through
Charges. (1) The contracting officer shall
insert the provision at 52.215–22,
Limitations on Pass-Through Charges—
Identification of Subcontract Effort, in
solicitations containing the clause at
52.215–23.
(2)(i) Except as provided in paragraph
(n)(2)(ii) of this section, the contracting
officer shall insert the clause 52.215–23,
Limitations on Pass-Through Charges, in
solicitations and contracts including
task or delivery orders as follows:
(A) For civilian agencies, insert the
clause when—
(1) The total estimated contract or
order value exceeds the simplified
acquisition threshold as defined in
section 2.101 and
(2) The contemplated contract type is
expected to be a cost-reimbursement
type contract as defined in Subpart 16.3;
or
(B) For DoD, insert the clause when—
(1) The total estimated contract or
order value exceeds the threshold for
obtaining cost or pricing data in 15.403–
4; and
(2) The contemplated contract type is
expected to be any contract type
except—
PO 00000
Frm 00011
Fmt 4701
Sfmt 4700
3. Amend section 31.203 by adding
paragraph (i) to read as follows:
Indirect costs.
*
*
*
*
*
(i) Indirect costs that meet the
definition of ‘‘excessive pass-through
charge’’ in 52.215–23, are unallowable.
PART 52—SOLICITATION PROVISIONS
AND CONTRACT CLAUSES
4. Add sections 52.215–22 and
52.215–23 to read as follows:
■
52.215–22 Limitations on Pass-Through
Charges—Identification of Subcontract
Effort.
As prescribed in 15.408(n)(1), use the
following provision:
LIMITATIONS ON PASS-THROUGH
CHARGES—IDENTIFICATION OF
SUBCONTRACT EFFORT (OCT 2009)
(a) Definitions. Added value, excessive
pass-through charge, subcontract, and
subcontractor, as used in this provision, are
defined in the clause of this solicitation
entitled ‘‘Limitations on Pass-Through
Charges’’ (FAR 52.215–23).
(b) General. The offeror’s proposal shall
exclude excessive pass-through charges.
(c) Performance of work by the Contractor
or a subcontractor. (1) The offeror shall
identify in its proposal the total cost of the
work to be performed by the offeror, and the
total cost of the work to be performed by each
subcontractor, under the contract, task order,
or delivery order.
(2) If the offeror intends to subcontract
more than 70 percent of the total cost of work
to be performed under the contract, task
order, or delivery order, the offeror shall
identify in its proposal—
E:\FR\FM\14OCR2.SGM
14OCR2
52856
Federal Register / Vol. 74, No. 197 / Wednesday, October 14, 2009 / Rules and Regulations
(i) The amount of the offeror’s indirect
costs and profit/fee applicable to the work to
be performed by the subcontractor(s); and
(ii) A description of the added value
provided by the offeror as related to the work
to be performed by the subcontractor(s).
(3) If any subcontractor proposed under the
contract, task order, or delivery order intends
to subcontract to a lower-tier subcontractor
more than 70 percent of the total cost of work
to be performed under its subcontract, the
offeror shall identify in its proposal—
(i) The amount of the subcontractor’s
indirect costs and profit/fee applicable to the
work to be performed by the lower-tier
subcontractor(s); and
(ii) A description of the added value
provided by the subcontractor as related to
the work to be performed by the lower-tier
subcontractor(s).
(End of provision)
mstockstill on DSKH9S0YB1PROD with RULES2
52.215–23
Charges.
Limitations on Pass-Through
As prescribed in 15.408(n)(2), use the
following clause:
LIMITATIONS ON PASS-THROUGH
CHARGES (OCT 2009)
(a) Definitions. As used in this
clause—
Added value means that the
Contractor performs subcontract
management functions that the
Contracting Officer determines are a
benefit to the Government (e.g.,
processing orders of parts or services,
maintaining inventory, reducing
delivery lead times, managing multiple
sources for contract requirements,
coordinating deliveries, performing
quality assurance functions).
Excessive pass-through charge, with
respect to a Contractor or subcontractor
that adds no or negligible value to a
contract or subcontract, means a charge
to the Government by the Contractor or
subcontractor that is for indirect costs or
profit/fee on work performed by a
subcontractor (other than charges for the
costs of managing subcontracts and any
applicable indirect costs and associated
profit/fee based on such costs).
No or negligible value means the
Contractor or subcontractor cannot
demonstrate to the Contracting Officer
that its effort added value to the contract
or subcontract in accomplishing the
work performed under the contract
(including task or delivery orders).
Subcontract means any contract, as
defined in FAR 2.101, entered into by a
subcontractor to furnish supplies or
services for performance of the contract
or a subcontract. It includes but is not
limited to purchase orders, and changes
and modifications to purchase orders.
Subcontractor, as defined in FAR
44.101, means any supplier, distributor,
vendor, or firm that furnishes supplies
or services to or for a prime Contractor
or another subcontractor.
VerDate Nov<24>2008
18:21 Oct 13, 2009
Jkt 220001
(b) General. The Government will not
pay excessive pass-through charges. The
Contracting Officer shall determine if
excessive pass-through charges exist.
(c) Reporting. Required reporting of
performance of work by the Contractor
or a subcontractor. The Contractor shall
notify the Contracting Officer in writing
if—
(1) The Contractor changes the
amount of subcontract effort after award
such that it exceeds 70 percent of the
total cost of work to be performed under
the contract, task order, or delivery
order. The notification shall identify the
revised cost of the subcontract effort and
shall include verification that the
Contractor will provide added value; or
(2) Any subcontractor changes the
amount of lower-tier subcontractor
effort after award such that it exceeds 70
percent of the total cost of the work to
be performed under its subcontract. The
notification shall identify the revised
cost of the subcontract effort and shall
include verification that the
subcontractor will provide added value
as related to the work to be performed
by the lower-tier subcontractor(s).
(d) Recovery of excessive passthrough charges. If the Contracting
Officer determines that excessive passthrough charges exist;
(1) For other than fixed-price
contracts, the excessive pass-through
charges are unallowable in accordance
with the provisions in FAR subpart
31.2; and
(2) For applicable DoD fixed-price
contracts, as identified in
15.408(n)(2)(i)(B), the Government shall
be entitled to a price reduction for the
amount of excessive pass-through
charges included in the contract price.
(e) Access to records. (1) The
Contracting Officer, or authorized
representative, shall have the right to
examine and audit all the Contractor’s
records (as defined at FAR 52.215–2(a))
necessary to determine whether the
Contractor proposed, billed, or claimed
excessive pass-through charges.
(2) For those subcontracts to which
paragraph (f) of this clause applies, the
Contracting Officer, or authorized
representative, shall have the right to
examine and audit all the
subcontractor’s records (as defined at
FAR 52.215–2(a)) necessary to
determine whether the subcontractor
proposed, billed, or claimed excessive
pass-through charges.
(f) Flowdown. The Contractor shall
insert the substance of this clause,
including this paragraph (f), in all costreimbursement subcontracts under this
contract that exceed the simplified
acquisition threshold, except if the
contract is with DoD, then insert in all
PO 00000
Frm 00012
Fmt 4701
Sfmt 4700
cost-reimbursement subcontracts and
fixed-price subcontracts, except those
identified in 15.408(n)(2)(i)(B)(2), that
exceed the threshold for obtaining cost
or pricing data in accordance with FAR
15.403–4.
(End of clause)
Alternate I (OCT 2009). As prescribed
in 15.408(n)(2)(iii), substitute the
following paragraph (b) for paragraph
(b) of the basic clause:
(b) General. The Government will not
pay excessive pass-through charges. The
Contracting Officer has determined that
there will be no excessive pass-through
charges, provided the Contractor
performs the disclosed value-added
functions.
[FR Doc. E9–24586 Filed 10–13–09; 8:45 am]
BILLING CODE 6820–EP–S
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Part 16
[FAC 2005–37; FAR Case 2008–008; Item
VI; Docket 2009-0036, Sequence 1]
RIN 9000–AL42
Federal Acquisition Regulation; FAR
Case 2008–008, Award Fee Language
Revision
AGENCIES: Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Interim rule with request for
comments.
SUMMARY: The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) are issuing an interim rule
amending the Federal Acquisition
Regulation (FAR) to implement section
814 of the John Warner National
Defense Authorization Act for Fiscal
Year 2007, section 867 of the Duncan
Hunter National Defense Authorization
Act for Fiscal Year 2009, and the Office
of Federal Procurement Policy guidance
memorandum dated December 4, 2007,
entitled Appropriate Use of Incentive
Contracts.
Effective Date: October 14, 2009.
Comment Date: Interested parties
should submit written comments to the
Regulatory Secretariat on or before
December 14, 2009 to be considered in
the formulation of a final rule.
DATES:
E:\FR\FM\14OCR2.SGM
14OCR2
]]>Agencies
[Federal Register Volume 74, Number 197 (Wednesday, October 14, 2009)]
[Rules and Regulations]
[Pages 52853-52856]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24586]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 15, 31, and 52
[FAC 2005-37; FAR Case 2008-031; Item V; Docket 2009-0034, Sequence 1]
RIN 9000-AL27
Federal Acquisition Regulation; FAR Case 2008-031, Limitations on
Pass-Through Charges
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Interim rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are issuing an interim rule
amending the Federal Acquisition Regulation (FAR) to implement section
866 of the Duncan Hunter National Defense Authorization Act (NDAA) for
Fiscal Year (FY) 2009 which applies to Executive Agencies other than
DoD. The DoD is subject to section 852 of the John Warner NDAA for FY
2007 which is also being implemented in this interim rule. Section 866
requires the Councils to amend the FAR and section 852 requires the
Secretary of Defense to prescribe regulations to minimize excessive
pass-through charges by contractors from subcontractors, or of tiers of
subcontractors, that add no or negligible value, and to ensure that
neither a contractor nor a subcontractor receives indirect costs or
profit/fee (i.e., pass-through charges) on work performed by a lower-
tier subcontractor to which the higher-tier contractor or subcontractor
adds no, or negligible, value. Since both statutory provisions address
excessive pass-through charges and the multiple tiering of
subcontracting, the Councils decided to combine both provisions in this
FAR rule.
DATES: Effective Date: October 14, 2009.
Comment Date: Interested parties should submit written comments to
the Regulatory Secretariat on or before December 14, 2009 to be
considered in the formulation of a final rule.
ADDRESSES: Submit comments identified by FAC 2005-37, FAR case 2008-
031, by any of the following methods:
Regulations.gov: https://www.regulations.gov.
Submit comments via the Federal eRulemaking portal by inputting
``FAR Case 2008-031'' under the heading ``Comment or Submission''.
Select the link ``Send a Comment or Submission'' that corresponds with
FAR Case 2008-031. Follow the instructions provided to complete the
``Public Comment and Submission Form''. Please include your name,
company name (if any), and ``FAR Case 2008-031'' on your attached
document.
Fax: 202-501-4067.
Mail: General Services Administration, Regulatory
Secretariat (VPR), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers,
Washington, DC 20405.
Instructions: Please submit comments only and cite FAC 2005-37, FAR
case 2008-031, in all correspondence related to this case. All comments
received will be posted without change to https://www.regulations.gov,
including any personal and/or business confidential information
provided.
FOR FURTHER INFORMATION CONTACT: Mr. Edward Chambers, Procurement
Analyst, at (202) 501-3221 for clarification of content. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-37, FAR
case 2008-031.
SUPPLEMENTARY INFORMATION:
[[Page 52854]]
A. Background
This interim rule is published to implement section 866 of the
Duncan Hunter National Defense Authorization Act for Fiscal Year 2009
(Pub. L. 110-417) as well as section 852 of the John Warner National
Defense Authorization Act for Fiscal Year 2007 (Pub. L. 109-364).
Section 866 requires the Councils to amend the FAR to minimize
excessive pass-through charges by contractors from subcontractors, or
of tiers of subcontractors, that add no or negligible value, and to
ensure that neither a contractor nor a subcontractor receives indirect
costs or profit/fee (i.e., pass-through charges) on work performed by a
lower-tier subcontractor to which the higher-tier contractor or
subcontractor adds no, or negligible, value.
To enable agencies to ensure that pass-through charges are not
excessive, this interim rule includes a solicitation provision and a
contract clause requiring offerors and contractors to identify the
percentage of work that will be subcontracted, and when subcontract
costs will exceed 70 percent of the total cost of work to be performed,
to provide information on indirect costs and profit/fee and value added
with regard to the subcontract work. Seventy percent was selected as
the threshold for this information requirement, because it represents a
substantial amount of subcontracting.
The rule is intended to protect the interests of the Government
when there appears to be an agreement with a contractor to perform the
contract scope of work, including managing subcontractors, then after
award, the contractor subcontracts substantially all the effort without
providing the required value-added subcontract management functions
that were expected. There is no intent in this rule to disrupt the
subcontracting process or other arrangements for firms that furnish
supplies and services.
To ensure that the Government can make a determination as to
whether or not pass-through charges are excessive, the rule
incorporates a reporting threshold that affords the contracting officer
the ability to understand what functions the contractor will perform
(e.g., consistent with the contractor's disclosed practice) and thus
will provide added value, whether it be before award, or if the
contractor subsequently decides to subcontract substantially all of the
effort. The rule provides a recovery mechanism for those situations in
which a contractor subcontracts all, or substantially all, of the
performance of the contract, and does not perform the subcontract
management functions, or other value-added functions, that were charged
to the Government through indirect costs and related profit/fee.
The intent of the reporting threshold is for the contracting
officer to make a determination that pass-through charges at the time
of award are not excessive, when at least 70 percent of the work will
be subcontracted, based on contractor demonstrated functions. It also
incorporates a requirement for the contractor to notify the contracting
officer, in writing, if the contractor decides after award to
subcontract more than 70 percent of the total cost of the work to be
performed, and to verify in that document that the contractor will add
value consistent with the definition in the contract clause. If the
contractor does not perform the demonstrated functions or does not add
value, the rule makes the excessive pass-through charges unallowable
and provides for recoupment of the excessive pass-through charges
consistent with the legislation. A further intent of the reporting
threshold is to avoid requiring the contracting officer to re-address
this determination during contract performance. To that end, this
interim rule includes an Alternate I to the clause at FAR 52.215-23 to
address those instances in which the contracting officer has made a
determination prior to contract award.
The rule is to be applied consistent with existing Cost Accounting
Standard (CAS) and FAR rules related to subcontract management,
indirect cost allocation, and profit analysis. While the definitions in
the provisions are similar, the applicability differs.
For civilian agencies the rule applies to any cost-reimbursement
type contract, task or delivery order in an amount greater than the
simplified acquisition threshold (as defined by section 4 of the Office
of Federal Procurement Policy Act (41 U.S.C. 403)).
For DoD, this rule applies to an amount greater than the threshold
to obtain cost or pricing data in FAR 15.403-3 and cost-reimbursement
type contracts as well as fixed-price contracts in accordance with
section 852 of the FY 2007 NDAA.
This is a significant regulatory action and, therefore, was 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.
B. Regulatory Flexibility Act
This interim rule is not expected to 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 the
Councils do not expect a significant number of entities to propose
excessive pass-through charges under contracts or subcontracts, and the
information required from offerors and contractors regarding pass-
through charges is minimal. Therefore, an Initial Regulatory
Flexibility Analysis has not been performed. The Councils will consider
comments from small entities concerning the affected FAR parts 15, 31,
and 52 in accordance with 5 U.S.C. 610. Interested parties must submit
such comments separately and should cite 5 U.S.C 601, et seq. (FAC
2005-37, FAR case 2008-031), in all correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 104-13) applies because the
interim rule contains information collection requirements. Accordingly,
the Regulatory Secretariat has forwarded an emergency request for
approval of a new information collection requirement concerning
``Limitations on Pass-Through Charges'' to the Office of Management and
Budget (OMB) under 44 U.S.C. Chapter 35, et seq. The OMB has
preapproved this information collection under OMB Control Number 9000-
0173.
Annual Reporting Burden:
To enable contracting officers to verify that pass-through charges
are not excessive, this FAR revision will include a requirement for an
offeror submitting a proposal for a contract, task order, or delivery
order to provide the following information with its proposals:
(1) The cost of work the offeror intends to perform and the cost of
work expected to be performed by each subcontractor.
(2) If the offeror intends to subcontract more than 70 percent of
the total cost of work to be performed--
(i) The amount of the offeror's indirect costs and profit/fee
applicable to the work to be performed by the subcontractor(s); and
(ii) A description of the value added by the offeror as related to
the work to be performed by the subcontractor(s).
(3) If any subcontractor intends to subcontract to a lower-tier
subcontractor more than 70 percent of the total cost of work to be
performed under its subcontract--
(i) The amount of the subcontractor's indirect costs and profit/fee
applicable to the work to be performed by the lower-tier
subcontractor(s); and
(ii) A description of the added value provided by the subcontractor
as related
[[Page 52855]]
to the work to be performed by the lower-tier subcontractor(s).
In addition, if the amount of the effort to be subcontracted by the
contractor or a subcontractor changes from the amount identified in the
proposal such that it exceeds 70 percent of the total cost of work to
be performed, the contractor must provide the revised cost of effort
and verification that the contractor (or subcontractor) will provide
added value.
The annual reporting burden is estimated as follows:
Respondents: 25,380.
Responses per respondent: 1.
Total annual responses: 25,760.
Preparation hours per response: .5.
Total response burden hours: 13,260.
D. Request for Comments Regarding Paperwork Burden
Submit comments, including suggestions for reducing this burden,
not later than December 14, 2009 to: FAR Desk Officer, OMB, Room 10102,
NEOB, Washington, DC 20503, and a copy to the General Services
Administration, Regulatory Secretariat (VPR), 1800 F Street, NW., Room
4041, Washington, DC 20405.
Public comments are particularly invited on: whether this
collection of information is necessary for the proper performance of
functions of the FAR, and will have practical utility; whether our
estimate of the public burden of this collection of information is
accurate, and based on valid assumptions and methodology; ways to
enhance the quality, utility, and clarity of the information to be
collected; and ways in which we can minimize the burden of the
collection of information on those who are to respond, through the use
of appropriate technological collection techniques or other forms of
information technology.
Requester may obtain a copy of the justification from the General
Services Administration, Regulatory Secretariat (VPR), Room 4041,
Washington, DC 20405, telephone (202) 501-4755. Please cite OMB Control
Number 9000-0173 in all correspondence.
E. Determination to Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense (DoD), the Administrator of General Services (GSA), and the
Administrator of the National Aeronautics and Space Administration
(NASA) that urgent and compelling reasons exist to promulgate this
interim rule without prior opportunity for public comment. This action
is necessary because section 866 of the FY 2009 NDAA, which was enacted
October 14, 2008, requires that the FAR be revised to implement this
provision no later than one year after the date of enactment. If this
change is not implemented agencies will not be able to comply with
section 866 of the FY 2009 NDAA. However, pursuant to Pub. L. 98-577
and FAR 1.501, the Councils will consider public comments received in
response to this interim rule in the formation of the final rule.
List of Subjects in 48 CFR Parts 15, 31, and 52
Government procurement.
Dated: October 5, 2009.
Al Matera,
Director, Acquisition Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 15, 31, and 52 as set
forth below:
0
1. The authority citation for 48 CFR parts 15, 31, and 52 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 15--CONTRACTING BY NEGOTIATION
0
2. Amend section 15.408 by adding paragraph (n) to read as follows:
15.408 Solicitation provisions and contract clauses.
* * * * *
(n) Limitations on Pass-Through Charges. (1) The contracting
officer shall insert the provision at 52.215-22, Limitations on Pass-
Through Charges--Identification of Subcontract Effort, in solicitations
containing the clause at 52.215-23.
(2)(i) Except as provided in paragraph (n)(2)(ii) of this section,
the contracting officer shall insert the clause 52.215-23, Limitations
on Pass-Through Charges, in solicitations and contracts including task
or delivery orders as follows:
(A) For civilian agencies, insert the clause when--
(1) The total estimated contract or order value exceeds the
simplified acquisition threshold as defined in section 2.101 and
(2) The contemplated contract type is expected to be a cost-
reimbursement type contract as defined in Subpart 16.3; or
(B) For DoD, insert the clause when--
(1) The total estimated contract or order value exceeds the
threshold for obtaining cost or pricing data in 15.403-4; and
(2) The contemplated contract type is expected to be any contract
type except--
(i) A firm-fixed-price contract awarded on the basis of adequate
price competition;
(ii) A fixed-price contract with economic price adjustment awarded
on the basis of adequate price competition;
(iii) A firm-fixed-price contract for the acquisition of a
commercial item; or
(iv) A fixed-price contract with economic price adjustment, for the
acquisition of a commercial item.
(ii) The clause may be used when the total estimated contract or
order value is below the thresholds identified in 15.408(n)(2)(i) and
for any contract type, when the contracting officer determines that
inclusion of the clause is appropriate.
(iii) Use the clause 52.215-23 with its Alternate I when the
contracting officer determines that the prospective contractor has
demonstrated that its functions provide added value to the contracting
effort and there are no excessive pass-through charges.
* * * * *
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
3. Amend section 31.203 by adding paragraph (i) to read as follows:
31.203 Indirect costs.
* * * * *
(i) Indirect costs that meet the definition of ``excessive pass-
through charge'' in 52.215-23, are unallowable.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
4. Add sections 52.215-22 and 52.215-23 to read as follows:
52.215-22 Limitations on Pass-Through Charges--Identification of
Subcontract Effort.
As prescribed in 15.408(n)(1), use the following provision:
LIMITATIONS ON PASS-THROUGH CHARGES--IDENTIFICATION OF SUBCONTRACT
EFFORT (OCT 2009)
(a) Definitions. Added value, excessive pass-through charge,
subcontract, and subcontractor, as used in this provision, are
defined in the clause of this solicitation entitled ``Limitations on
Pass-Through Charges'' (FAR 52.215-23).
(b) General. The offeror's proposal shall exclude excessive
pass-through charges.
(c) Performance of work by the Contractor or a subcontractor.
(1) The offeror shall identify in its proposal the total cost of the
work to be performed by the offeror, and the total cost of the work
to be performed by each subcontractor, under the contract, task
order, or delivery order.
(2) If the offeror intends to subcontract more than 70 percent
of the total cost of work to be performed under the contract, task
order, or delivery order, the offeror shall identify in its
proposal--
[[Page 52856]]
(i) The amount of the offeror's indirect costs and profit/fee
applicable to the work to be performed by the subcontractor(s); and
(ii) A description of the added value provided by the offeror as
related to the work to be performed by the subcontractor(s).
(3) If any subcontractor proposed under the contract, task
order, or delivery order intends to subcontract to a lower-tier
subcontractor more than 70 percent of the total cost of work to be
performed under its subcontract, the offeror shall identify in its
proposal--
(i) The amount of the subcontractor's indirect costs and profit/
fee applicable to the work to be performed by the lower-tier
subcontractor(s); and
(ii) A description of the added value provided by the
subcontractor as related to the work to be performed by the lower-
tier subcontractor(s).
(End of provision)
52.215-23 Limitations on Pass-Through Charges.
As prescribed in 15.408(n)(2), use the following clause:
LIMITATIONS ON PASS-THROUGH CHARGES (OCT 2009)
(a) Definitions. As used in this clause--
Added value means that the Contractor performs subcontract
management functions that the Contracting Officer determines are a
benefit to the Government (e.g., processing orders of parts or
services, maintaining inventory, reducing delivery lead times, managing
multiple sources for contract requirements, coordinating deliveries,
performing quality assurance functions).
Excessive pass-through charge, with respect to a Contractor or
subcontractor that adds no or negligible value to a contract or
subcontract, means a charge to the Government by the Contractor or
subcontractor that is for indirect costs or profit/fee on work
performed by a subcontractor (other than charges for the costs of
managing subcontracts and any applicable indirect costs and associated
profit/fee based on such costs).
No or negligible value means the Contractor or subcontractor cannot
demonstrate to the Contracting Officer that its effort added value to
the contract or subcontract in accomplishing the work performed under
the contract (including task or delivery orders).
Subcontract means any contract, as defined in FAR 2.101, entered
into by a subcontractor to furnish supplies or services for performance
of the contract or a subcontract. It includes but is not limited to
purchase orders, and changes and modifications to purchase orders.
Subcontractor, as defined in FAR 44.101, means any supplier,
distributor, vendor, or firm that furnishes supplies or services to or
for a prime Contractor or another subcontractor.
(b) General. The Government will not pay excessive pass-through
charges. The Contracting Officer shall determine if excessive pass-
through charges exist.
(c) Reporting. Required reporting of performance of work by the
Contractor or a subcontractor. The Contractor shall notify the
Contracting Officer in writing if--
(1) The Contractor changes the amount of subcontract effort after
award such that it exceeds 70 percent of the total cost of work to be
performed under the contract, task order, or delivery order. The
notification shall identify the revised cost of the subcontract effort
and shall include verification that the Contractor will provide added
value; or
(2) Any subcontractor changes the amount of lower-tier
subcontractor effort after award such that it exceeds 70 percent of the
total cost of the work to be performed under its subcontract. The
notification shall identify the revised cost of the subcontract effort
and shall include verification that the subcontractor will provide
added value as related to the work to be performed by the lower-tier
subcontractor(s).
(d) Recovery of excessive pass-through charges. If the Contracting
Officer determines that excessive pass-through charges exist;
(1) For other than fixed-price contracts, the excessive pass-
through charges are unallowable in accordance with the provisions in
FAR subpart 31.2; and
(2) For applicable DoD fixed-price contracts, as identified in
15.408(n)(2)(i)(B), the Government shall be entitled to a price
reduction for the amount of excessive pass-through charges included in
the contract price.
(e) Access to records. (1) The Contracting Officer, or authorized
representative, shall have the right to examine and audit all the
Contractor's records (as defined at FAR 52.215-2(a)) necessary to
determine whether the Contractor proposed, billed, or claimed excessive
pass-through charges.
(2) For those subcontracts to which paragraph (f) of this clause
applies, the Contracting Officer, or authorized representative, shall
have the right to examine and audit all the subcontractor's records (as
defined at FAR 52.215-2(a)) necessary to determine whether the
subcontractor proposed, billed, or claimed excessive pass-through
charges.
(f) Flowdown. The Contractor shall insert the substance of this
clause, including this paragraph (f), in all cost-reimbursement
subcontracts under this contract that exceed the simplified acquisition
threshold, except if the contract is with DoD, then insert in all cost-
reimbursement subcontracts and fixed-price subcontracts, except those
identified in 15.408(n)(2)(i)(B)(2), that exceed the threshold for
obtaining cost or pricing data in accordance with FAR 15.403-4.
(End of clause)
Alternate I (OCT 2009). As prescribed in 15.408(n)(2)(iii),
substitute the following paragraph (b) for paragraph (b) of the basic
clause:
(b) General. The Government will not pay excessive pass-through
charges. The Contracting Officer has determined that there will be no
excessive pass-through charges, provided the Contractor performs the
disclosed value-added functions.
[FR Doc. E9-24586 Filed 10-13-09; 8:45 am]
BILLING CODE 6820-EP-S
