Federal Acquisition Regulation; Contract Closeout, 31402-31410 [2011-12852]

Download as PDF 31402 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations (iv) Best management practices for energy-efficient management of servers and Federal data centers. * * * * * (vii) 52.223–5, Pollution Prevention and Right-to-Know Information (May 2011) (E.O. 13423) (Applies to services performed on Federal facilities). PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES ■ 36. Revise section 52.204–4 to read as follows: ■ 52.204–4 Printed or Copied Double-Sided on Postconsumer Fiber Content Paper. As prescribed in 4.303, insert the following clause: Printed or Copied Double-Sided on Postconsumer Fiber Content Paper (May 2011) (a) Definitions. As used in this clause— Postconsumer fiber means—(1) Paper, paperboard, and fibrous materials from retail stores, office buildings, homes, and so forth, after they have passed through their endusage as a consumer item, including: used corrugated boxes; old newspapers; old magazines; mixed waste paper; tabulating cards; and used cordage; or (2) All paper, paperboard, and fibrous materials that enter and are collected from municipal solid waste; but not (3) Fiber derived from printers’ over-runs, converters’ scrap, and over-issue publications. (b) The Contractor is required to submit paper documents, such as offers, letters, or reports that are printed or copied doublesided on paper containing at least 30 percent postconsumer fiber, whenever practicable, when not using electronic commerce methods to submit information or data to the Government. (End of clause) 37. Amend section 52.204–8 by revising the date of the provision; removing paragraph (c)(2)(vi); and redesignating paragraphs (c)(2)(vii) and (viii) as paragraphs (c)(2)(vi) and (vii), respectively. The revised text reads as follows: ■ * * * * * * * 39. Amend section 52.223–5 by— a. Revising the date of the clause; ■ b. Removing from paragraph (a) the definition ‘‘Priority chemical’’; ■ c. Revising paragraphs (b) and (c)(6); ■ d. Revising the date of Alternate I and paragraph (c)(7); and ■ e. Revising the date of Alternate II and paragraph (c)(7). The revised text reads as follows: ■ 52.223–5 Pollution Prevention and Rightto-Know Information. * * * * * Pollution Prevention and Right-to-Know Information (May 2011) * * * * * (b) Federal facilities are required to comply with the provisions of the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA) (42 U.S.C. 11001–11050), and the Pollution Prevention Act of 1990 (PPA) (42 U.S.C. 13101–13109). (c) * * * (6) The toxic chemical and hazardous substance release and use reduction goals of section 2(e) of Executive Order 13423 and of Executive Order 13514. * * * * * Alternate I (May 2011). * * * (c)(7) The environmental management system as described in section 3(b) of E.O. 13423 and 2(j) of E.O. 13514. Alternate II (May 2011). * * * (c)(7) The facility compliance audits as described in section 3(c) of E.O. 13423. 40. Amend section 52.223–10 by revising the introductory paragraph, the date of the clause, and the first sentence of paragraph (b) to read as follows: ■ 52.223–10 52.204–8 Annual Representations and Certifications. * * Waste Reduction Program. As prescribed in 23.705(a), insert the following clause: * Annual Representations and Certifications (May 2011) Waste Reduction Program (May 2011) * (b) Consistent with the requirements of section 3(e) of Executive Order 13423, the Contractor shall establish a program to promote cost-effective waste reduction in all operations and facilities covered by this contract. * * * srobinson on DSK4SPTVN1PROD with RULES2 * * * * ■ 38. Amend section 52.213–4 by revising the date of the clause and paragraph (b)(1)(vii) to read as follows: 52.213–4 Terms and Conditions— Simplified Acquisitions (Other Than Commercial Items). * * * * * * * * * (b) * * * (1) * * * VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 * * * * 52.223–13 and 52.223–14 Reserved] Terms and Conditions—Simplified Acquisitions (Other Than Commercial Items) (May 2011) * * [Removed and 41. Remove and reserve sections 52.223–13 and 52.223–14. ■ 42. Amend section 52.223–16 by revising the introductory paragraph, and the introductory paragraph of Alternate I to read as follows: ■ PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 52.223–16 IEEE 1680 Standard for the Environmental Assessment of Personal Computer Products. As prescribed in 23.705(b)(1), insert the following clause: * * * * * Alternate I (Dec 2007). As prescribed in 23.705(b)(2), substitute the following paragraph (b) for paragraph (b) of the basic clause: * * * * * 43. Add section 52.223–19 to read as follows: ■ 52.223–19 Compliance with Environmental Management Systems. As prescribed in 23.903, insert the following clause: Compliance With Environmental Management Systems (May 2011) The Contractor’s work under this contract shall conform with all operational controls identified in the applicable agency or facility Environmental Management Systems and provide monitoring and measurement information necessary for the Government to address environmental performance relative to the goals of the Environmental Management Systems. (End of clause) [FR Doc. 2011–12851 Filed 5–27–11; 8:45 am] BILLING CODE 6820–EP–P DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 4, 42, and 52 [FAC 2005–52; FAR Case 2008–020; Item II; Docket 2009–0031, Sequence 1] RIN 9000–AL43 Federal Acquisition Regulation; Contract Closeout Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCY: DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) procedures for closing out contract files. This case revises procedures for clearing final patent reports and quick-closeout procedure, and sets forth a description of an adequate final indirect cost rate proposal and supporting data. DATES: Effective Date: June 30, 2011. FOR FURTHER INFORMATION CONTACT: Ms. Clare McFadden, Procurement Analyst, SUMMARY: E:\FR\FM\31MYR2.SGM 31MYR2 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations at (202) 501–0044, for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at (202) 501– 4755. Please cite FAC 2005–52, FAR Case 2008–020. SUPPLEMENTARY INFORMATION: I. Background DoD, GSA, and NASA published a proposed rule in the Federal Register at 74 FR 42044 on August 20, 2009. Sixteen respondents provided comments. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the comments in development of the final rule. II. Discussion and Analysis of the Public Comments Comments received were grouped under 13 general topics. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows: A. ‘‘Adequacy’’ Definition The final rule implements the changes published in the proposed rule, without further amendments in response to comments in this category. Comment: One respondent recommends a new definition for ‘‘adequacy’’ at FAR 42.705–1. The respondent states that guidelines for determining adequacy should be established in order to provide a baseline against which the contracting officer can resolve differences of opinion on adequacy between the auditor and the contractor. Response: A new definition is not necessary, as specific information has been provided in the clause to ensure uniformity, consistency, and fairness for all contractors. This assures that contractors are fully informed in advance of the Government’s parameters for the content of an adequate final indirect cost rate proposal. srobinson on DSK4SPTVN1PROD with RULES2 B. Adequacy Determination The final rule implements the changes published in the proposed rule, without further amendments in response to comments in this category. Comment: One respondent recommends the term ‘‘adequate’’ be replaced with ‘‘complete’’ or ‘‘detailed’’ at FAR 42.705–1(b). The respondent states that the phrase ‘‘the contractor shall submit * * * an adequate indirect cost rate proposal’’ is inappropriate, as the Defense Contract Audit Agency (DCAA) has historically interpreted the term ‘‘adequate’’ to mean identical to DCAA’s incurred cost model. VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 Response: Use of the term ‘‘adequate’’ for describing the Government’s requirements for submission of costs is more appropriate than utilizing the terms ‘‘complete’’ or ‘‘detailed’’. The FAR already required the submission of an adequate final indirect cost rate proposal (FAR 42.705–1(b)). This final rule establishes the content of an adequate submission. C. Adequacy Determination and Roles The final rule includes amendments to FAR 42.705–1(b) and 42.705–2(b) in response to comments in this category. Comment: One respondent recommends that the granting of an extension to the contractor for submitting its indirect cost rate proposal by the contracting officer be made in writing at FAR 42.705–1(b)(1)(i). Response: The language at FAR 42.705–1(b)(1)(ii) is revised accordingly. Comments: Five respondents question whether it is appropriate for DCAA to have sole responsibility to determine the adequacy of indirect cost rate proposals. One respondent believes a determination from the auditor exceeds the auditor’s authority under law. Three respondents state that any final determination regarding adequacy should be the responsibility of the contracting officer. One respondent states that the contracting officer/ auditor relationship that is provided for in the audit process should be followed. Response: The term ‘‘determination’’ in this case was not intended to shift the authority to make determinations from the contracting officer to the auditor; rather, the intent was for the auditor to offer advice to the contracting officer regarding adequacy of the proposal. The language in 42.705–1(b)(1)(iii), 42.705– 1(b)(2), and 42.705–2(b) has been revised to remove the term ‘‘determination’’ and to clarify that the auditor reviews the proposal for adequacy and provides the findings of inadequacy to the contracting officer and contractor. Comment: One respondent states that the proposed rule creates a review process within which there is little latitude for a contracting officer to resolve administrative disagreements between auditors and contractors. Response: The rule does not diminish the latitude or the authority that contracting officers have to resolve any and all matters arising under the contract with respect to an indirect cost rate proposal. The current FAR already allows flexibility for the content based on the situation, e.g., complexity and size of the contractor. Comment: One respondent states that the proposed changes at FAR 42.705– PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 31403 1(b)(1)(iv) and FAR 52.216–7(d) contradict FAR 42.705–1(b)(1)(i), which requires the parties to work together to make the proposal, audit, and negotiation process as efficient as possible. The proposed default choice requiring data in FAR 52.216–7(d)(2)(iii) will result in contractors trying to provide unrelated data to avoid an auditor’s automatic ‘‘checklist’’ determination of inadequate proposals. Such rigid requirements will lead to an increase in disagreements about the adequacy of final indirect cost rate proposals. Response: The process of reviewing the proposal for adequacy, performing the audit, and conducting negotiations has not changed. Also, no new requirement is imposed on contractors by this rule. The list of data (schedules) now included in FAR 52.216–7(d) requires the same information previously cited in FAR 42.705–1(b). D. Adequacy of Indirect Cost Rate Proposal The final rule includes amendments to FAR 52.216–7(d)(2)(iv) in response to comments in this category. Comment: One respondent agrees with the proposed language at FAR 42.705–1 as positive changes. Comment: One respondent states that the proposed rule was not clear as to whether the list of required data in FAR 52.216–7(d)(2)(iv) that ‘‘may’’ be submitted with the proposal will be considered in making a determination of the adequacy of the contractor’s proposal. The respondent recommends clarification. Response: The language at FAR 52.216–7(d)(2)(iv) has been revised by replacing ‘‘will’’ with ‘‘may’’; however, clarification of FAR 42.705–1(b)(1)(ii) is not necessary. The supplemental information listed in FAR 52.216– 7(d)(2)(iv) is not required for a determination on the adequacy for the contractor’s proposal for audit. Comment: One respondent states that the proposed statement at FAR 42.705– 1(b)(1)(iii) ‘‘The proposal must be supported with adequate supporting data, which may be required subsequent to proposal submission’’ is repetitious of FAR 52.216–7(d)(iv) and unnecessary. The respondent further states that the statement adds a level of subjectivity as contractors guess at what information ‘‘may be required’’ subsequent to submission. Response: The contractor’s requirements are located in the clause at FAR 52.216–7(d)(2)(iv). The FAR 42.705–1(b)(1)(iv) text is directed to the contracting officer, explaining the supplemental information that is E:\FR\FM\31MYR2.SGM 31MYR2 31404 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations srobinson on DSK4SPTVN1PROD with RULES2 required by contract clause, FAR clause 52.216–7, Allowable Cost and Payment. The language directed to the contracting officer and the contract clause serve different purposes; therefore, both are necessary. Comment: One respondent recommends rescinding the proposed rule and revising the approach to determining adequacy. The respondent states that the approach taken to set forth a description of an adequate final indirect cost rate proposal and supporting data fails to improve the process and unnecessarily creates additional and very significant process and administrative problems. Response: The rule will provide uniformity and consistency. Further, the information is not new and should be readily available from the contractor’s books, records, and systems. E. Data Requirements The final rule includes amendments to FAR 52.216–7(d)(2)(iv) in response to the comments in this category. Many respondents submitted comments regarding data requirements. Comments: Three respondents submitted comments objecting to the volume of data required for determination of an adequate indirect cost rate proposal. Response: The revisions to FAR 42.705–1 and FAR 52.216–7 are necessary to clarify the submission of an adequate indirect cost rate proposal. While the information required may be considered lengthy, it is not new, and it is essential information necessary for an adequate claim for cost. Comments: Four respondents believe the proposed rule is overly prescriptive. One respondent specifically suggests the rule is a regulation to legitimize DCAA’s longstanding insistence that an adequate final indirect cost rate proposal be inclusive of several mandatory schedules and supplemental information as represented by DCAA within its Model Incurred Cost Proposal rate as stipulated in DCAA Pamphlet No. 7641.90. This respondent further takes the position that use of the DCAA model schedule information eliminates any opportunity for further variation in proposal content. Response: The information required from the contractor for an adequate indirect cost rate proposal is not new. No specific format is prescribed for the submission. This information is readily available in the contractor’s books, records, and systems. DCAA has been the primary provider of information necessary for contracting officers to adequately perform their functions as stewards of public trust. Furthermore, VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 the revised language ‘‘shall include the following data, unless otherwise specified by the cognizant Federal agency official’’ allows flexibility, depending on the circumstances of the contract (e.g., size, complexity). Comments: Four respondents submitted four comments objecting to the inclusion of one or more schedule items and stated that some of the information proposed to be required for an adequate submission is not necessary for an adequate contractor rate submission. Response: The information required in the schedules is the minimum standard for an adequate indirect cost rate proposal. For example, the information in FAR 52.216–7(d)(2)(iii) item G, reconciliation of books of account and claimed direct costs, is necessary for an adequate submission and different from the information requested for item H, which is a schedule of direct costs by contract/ subcontract and indirect expenses applied. The rule language does not require the reconciliation to be presented in a single schedule. An updated schedule (as specified in FAR 52.216–7(d)(2)(v)) is necessary to ensure timely adjustments to amounts claimed and billed by a contractor for the period covered by the final indirect cost rate determination. Comment: One respondent states that ‘‘a requirement for the adequacy of an indirect cost rate submission that final direct costs must be submitted for audit is out of the scope of this clause’’ at FAR 52.216–7(g). Response: This rule does not amend paragraph (g) of the clause at FAR 52.216–7, which has no bearing on the adequacy of an indirect cost rate submission as required by FAR 52.216– 7(d)(2)(iii). The Government has the right to audit any invoice or voucher and statements of cost prior to final payment pursuant to FAR 52.216–7. Comments: Two respondents submitted comments in regard to formatting. One respondent states that DCAA’s insistence that data be converted into other formats (such as spreadsheets using DCAA’s ICE Model) is in direct contradiction of FAR 52.215–2(d)(2) that access to records ‘‘may not be construed to require the contractor or subcontractor to create or maintain any record that the contractor or subcontractor does not maintain in the ordinary course of business or pursuant to a provision of law.’’ The other respondent suggests that the proposed revision at FAR 42.705–1(b)(1) eliminates the suggestion in the current rule that contractors can use the DCAA model incurred cost rate proposal and PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 supporting data for guidance on what constitutes an adequate final indirect cost rate proposal. According to the respondent, this proposed revision also refers the definition of adequacy to the revised clause at FAR 52.216–7(d)(2), which makes mandatory specific schedules and data requirements taken almost verbatim from the DCAA ICE Model. Response: The information required from the contractor for an adequate indirect cost rate proposal is not new. No specific format is prescribed for the submission. This information should be readily available in the contractor’s books, records, and systems. Comment: One respondent states that the list of requirements proposed at FAR 52.216–7(d)(2) is contradictory to the definition of supporting documentation for final indirect cost rate proposals in the current FAR. According to FAR 31.201–2(d), supporting documentation means records necessary to demonstrate the costs claimed in the proposal have been incurred, are allocable to the contract, and comply with applicable cost principles. This makes clear the meaning of the current FAR 52.216– 7(d), ‘‘The contractor shall support its proposal with adequate supporting documentation.’’ Response: The cost principles are not intended to set forth the submission requirements of an adequate indirect cost rate proposal. Comment: One respondent states he does not believe that the proposed rule is in line with the FAR objective of achieving a timely settlement of final indirect rates. The rule delineates extensive requirements and supplemental data related to the description of an adequate final indirect cost rate proposal that are unnecessarily burdensome and largely irrelevant to indirect cost rate proposals. Levying requirements for the creation of new books and records as supporting documentation for costs is contradictory to existing provisions of FAR 52.215–2. The respondent is concerned that many of the proposed data requirements under the proposed rule have no connection to the indirect cost rates and may result in the unnecessary disclosure of proprietary information, e.g., schedules O and L. Response: The revisions to FAR 42.705–1 and FAR 52.216–7 are necessary to clarify the submission of an adequate indirect cost rate proposal. The information required is necessary for an adequate claim for cost. The supplemental information, if applicable, is what auditors expect to review in support of an adequate claim for cost. The proposed language ‘‘shall include E:\FR\FM\31MYR2.SGM 31MYR2 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations the following data, unless otherwise specified by the cognizant Federal agency official’’ allows flexibility depending on the circumstances of the contract (e.g. size, complexity). The information being requested should be readily available from the contractor’s accounting system. The information is not new and the format of the information has not been designated for the contractor. The Government treats all audit information from contractors as confidential and protects it against all unauthorized disclosure. Comment: One respondent states that the list of data required by FAR 52.216– 7 (regardless of type of business, sector, or accounting system) is inconsistent and contradictory to FAR 42.705– 1(b)(1)(i), which states that the ‘‘required content of the proposal and supporting data will vary depending on such factors as business type, size, and accounting system capabilities.’’ The final rule should afford contractors the flexibility to provide only that information necessary to support an indirect cost rate proposal. Response: The information required from the contractor for an adequate indirect cost rate proposal is not new. No specific format is prescribed for the submission. This information is readily available in the contractor’s books, records, and systems. DCAA has been the primary provider for information necessary for contracting officers to adequately perform their functions as stewards of the public trust. Comment: One respondent takes exception to the statement in FAR 52.216–7(d)(2)(iv) that ‘‘The following supplemental information which will be required during the audit process * * *’’ and suggests it should be restated ‘‘the following supplemental information may be required * * *.’’ Response: The language has been revised to read ‘‘the following supplemental information is not required to determine if a proposal is adequate, but may be required during the audit process.’’ srobinson on DSK4SPTVN1PROD with RULES2 F. Indirect Cost Rate Proposal The final rule implements the changes published in the proposed rule, without further amendments in response to the comments in this category. Comment: One respondent states that the indirect cost rate proposal mandates at FAR 52.216–7 will result in an increase in proposal rejections, administrative costs and burden, and will significantly delay contract closeout. Response: The information will provide uniformity, consistency, VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 timeliness, and reduce the number of proposals being returned as inadequate. Comment: One respondent agrees with the language to require a completion invoice to be submitted within 120 days after all rates have been settled for all years during a contract’s period of performance and require inclusion of settled subcontract amounts and rates at FAR 52.216–7(d)(5) may assist in more timely completion of indirect cost audits and facilitate closeout. The respondent further agrees with the list set forth for an adequate indirect cost rate proposal. Response: No response required. Comment: One respondent states that timely closeout of subcontracts issued under a Government prime contract should be addressed and that contracting officers should be empowered and encouraged to unilaterally close out the prime contract, even if subcontracts have not been settled. Response: The prime contractor is responsible for resolution of subcontract costs and rates prior to submission of final vouchers. FAR 52.216–7(d)(6)(i) allows the contracting officer to unilaterally close out a prime contract, when the contractor fails to submit a final voucher within 120 days. 31405 the patent report may be cleared whether an invention is disclosed or not. Comment: Two respondents concur with the proposed procedures for clearing final patent reports. Response: Comment noted. H. Payment Withhold The final rule implements the changes published in the proposed rule, without further amendments in response to the comments in this category. Comment: One respondent states that the rule, in regard to payment withholds, should allow the contracting officer to use their discretion regarding whether to withhold payment so that the provision is applied only when necessary. Response: The institution of a uniform policy is more appropriate because the contracting officer will know what is required, as a minimum, for fee withholds for all contract types. This uniform policy will help to facilitate contract closeout by encouraging timely submission of final indirect cost rate proposals and final vouchers. Comment: One respondent states that the retainage of a maximum of $100,000 is a good start, but for large contractors it is not much of a disincentive for the G. Final Patent Report untimely submission of New The final rule implements the changes Technology/Patent Reports and published in the proposed rule, without recommends the retainage be changed to 15 percent of the fee. This respondent further amendments in response to the also states that changes in the proposed comments in this category. Comment: One respondent states that rule may facilitate closeout; however, withholding of $100,000 in fee is if clearance by the contracting officer is insufficient to influence the actions of not received within 60 days of receipt larger contractors. of the final patent report, the contract Another respondent does not believe can be closed (FAR 4.804–5(a)(2)). that the withhold changes in FAR Two respondents recommend timelines be established (FAR 4.804–5). 52.216–8, 52.216–9, and 52.216–10 are necessary; the changes should be One respondent states that patent rescinded; and, the current clauses reports are seldom, if ever, cleared remain in their current form. within 60 days and recommends Response: The intent of this FAR case timelines be established for both the is not to change the amount of the contractor and legal community with withholdings. The intent is to make the finite time constraints to respond. The other respondent suggests establishing a fee withholds mandatory, not optional, and to define an adequate indirect cost time period for responding to the rate proposal. contracting officer’s notification. Comments: Two respondents object to Response: The final rule provides for the allegedly arbitrary fee withholds 60 days for the clearance of patent that will negatively impact cash flow, reports and allows for flexibility on a harm the industrial base, and increase case-by-case basis. Any further the amount of cancelled funds. Also, the clarification, if needed, should be other respondent states that the provided in agency guidance. prescribed withholding of fee will result Comment: One respondent suggests in contracting officers experiencing revising FAR 4.804–5(a)(2)(i) to read significant ongoing contract ‘‘Final Patent Reports, where no contractor invention is disclosed should administration issues with expiring funds with no clear benefit. be cleared within 60 days of receipt.’’ Response: The intent of this FAR case Response: The inclusion of the language ‘‘where no contractor invention is not to change the amount of the fee withholdings. The intent is to make the is disclosed’’ is not necessary because PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:\FR\FM\31MYR2.SGM 31MYR2 31406 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations srobinson on DSK4SPTVN1PROD with RULES2 fee withholds mandatory, not optional, and to define an adequate indirect cost rate proposal. The proposed rule does not change the current procedures in regard to expiring funds. Comment: One respondent objects to making the proposed fee withholds mandatory because there are existing FAR provisions that already provide for fee withholds so no change is necessary. The combined effect of adding an exhaustive, ill fitting list of requirements for an adequate indirect cost rate proposal with mandatory fee withholds for inadequacy means that inevitable differences in interpreting the new rule will punish contractors unfairly and unilaterally. It is contrary to FAR 42.705–1(b) and could result in increases in the amount of cancelled funds. Response: It is in the Government’s best interest to set a uniform policy to establish mandatory fee withholds and define an adequate indirect cost rate proposal. I. Quick-Closeout The final rule includes amendments to FAR 42.708(a), in response to comments in this category. Five respondents provided comments in this category. Comment: One respondent welcomes the change at FAR 42.708(a) through (d) but requests clarification of direct costs to be allocated to a cost contract as direct costs are normally assigned/ charged rather than allocated to contracts. Response: The language is revised in FAR 42.708(a)(2) to read ‘‘unsettled direct costs and indirect costs to be allocated to the contract.’’ Comment: One respondent states that setting the limitation at FAR 42.708(a)(2)(i) to 20 percent is inconsistent with the historical intent of the provision to settle only an ‘‘insignificant’’ portion of the costs in advance of determination of final costs and rates. The respondent recommends a percentage of 10 or less. Response: This rule changes the criteria for use of quick-closeout procedures from unsettled indirect rates on the contract as a percentage of total unsettled indirect costs, to both unsettled direct and indirect contract costs as a percentage of total claimed contract costs. The Councils believe this change expands the number of contracting actions, which will meet the criteria for quick-closeout. The limitation has been lowered from the proposed 20 percent to 10 percent of the total unsettled direct and indirect costs to be allocated to any one contract. The coverage is also revised in FAR VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 42.708(a)(2) to state that ‘‘Cost amounts will be considered relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order, or delivery order, do not exceed the lesser of (i) $1,000,000; or (ii) 10 percent of the total contract, task order, or delivery order amount.’’ The Councils believe the percentage and monetary threshold should be lower because the lower percentage and dollar threshold will provide increased oversight and reduced risk to the government. The $1,000,000 threshold aligns with current inventories of physically-complete contracts that are amenable to use of quick-closeout procedures. Comments: Three respondents comment that the proposed revisions limiting the use of quick-closeout procedures are counter-productive and will decrease their use. One respondent recommends adopting the Defense Contract Management Agency (DCMA) Class Deviation in FAR 42.703–1(b), 42.703–1(c)(2), and 42.708(a)(2) entitled ‘‘use of quick-closeout procedures for cost-reimbursement, fixed-price incentive, fixed-price redeterminable, and time-and-material contracts.’’ Another respondent recommends deletion of the phrase ‘‘other concerns of the cognizant auditor’’ at FAR 42.708(a)(2)(i) in the risk assessment verbiage. The respondent also recommends that unsettled direct costs be defined. Response: Previously, the FAR limited the use of quick-closeout procedures to instances where only indirect cost rates remain unsettled. This final rule allows the contracting officer to close contracts with unaudited direct costs and unsettled indirect cost rates. The intent of the rule is to increase the use of quick-closeout procedures for instances involving relatively insignificant amounts of unaudited costs under certain circumstances. DCMA’s deviation does not allow the contracting officer to close out contracts without audit of all direct costs. The contracting officer’s risk assessment plan includes coordination with the cognizant auditor. There is no need for a definition of ‘‘unsettled direct costs’’ because unsettled direct costs are identified on a case-by-case basis. J. Timelines for the Government The final rule implements the changes published in the proposed rule, without further amendments in response to the comments in this category. Comment: One respondent states that the ‘‘provision at FAR 42.705–1(b)(ii) does not state a time limitation for the auditor to make a written determination PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 of adequacy.’’ Also, according to the respondent, time limitations should be established for completing audits. Another respondent states that the Government needs to emphasize its role, including timely finalization of indirect rates, which includes DCAA completing audits of indirect costs proposals and administrative contracting officer’s settling rates, signing off on reports, doing plant clearances, etc. Another respondent states that the rule does not define time requirements which all parties, not just contractors, must meet. Response: Timelines should not be instituted for auditors to make a written determination of adequacy or for completion of audits, and for administrative contracting officers to settle rates, sign off on reports, do plant clearances, etc., in order to ensure quality and allow flexibility, based on the size and complexity of each contract. Comment: One respondent does not believe that the proposed rule will achieve any predictable reduction of time or resources associated with contract closeout. Response: This rule clarifies the contract closeout process. K. Regulatory Flexibility Act Comments: One respondent questions the statement within the Regulatory Flexibility Act section of the preamble to the proposed rule that the rule is intended to ‘‘clarify and streamline’’ closeout procedures. The respondent further suggests that adoption of the DCAA Model Incurred Cost Proposal rate is not justified. Another respondent does not agree that the rule will not have a significant impact on a substantial number of small entities. The respondent believes that the numbers of schedules and the imposition of a six-month time constraint will have significant impact on small businesses. The third respondent also strongly disagrees with the conclusion that the proposed rule will not have a significant economic impact on a substantial number of small entities. Requiring preparation and submittal of DCAA’s Model Indirect Cost Proposal rate and withholding fees, the proposed rule will have a significant economic impact on a substantial number of small entities. The respondent encourages the Councils to prepare and make available for public comment an initial regulatory flexibility analysis. Response: Contractors are already required to support their indirect cost rate proposals with adequate supporting data. (See FAR 42.705–1(b).) No new requirement is imposed on contractors E:\FR\FM\31MYR2.SGM 31MYR2 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations by this rule. The changes to FAR parts 4 and 42 clarify and streamline closeout procedures. The model for an adequate indirect cost rate proposal is contained in the DCAA Model Incurred Cost Proposal rate. The data required in this model is not new to contractors nor is there evidence of any effect on small businesses when this information is required. In fact, because the information required is not new and the format of the information has not been designated for the contractor, this should be helpful to small businesses. The information being requested should be readily available from the contractor’s accounting system. The inclusion of this information list should improve consistency, efficiency, and timeliness in contractor submissions. The clauses at FAR 52.216–8, 52.216–9, and 52.216–10 are being changed to make the reserve mandatory. However, the reserve amount set aside in the proposed rule has not changed. No small businesses commented on the changes to the clauses at FAR 52.216– 8, 52.216–9, and 52.216–10 as published in the proposed rule. Therefore, the Councils conclude that this change will not have a significant impact on small businesses. srobinson on DSK4SPTVN1PROD with RULES2 L. Paperwork Reduction Act Comments: Several respondents disagree with the preamble to the proposed rule, which stated that the proposed changes to the FAR would not impose additional information collection requirements to the paperwork burden previously approved by the Office of Management and Budget (OMB). According to one respondent, mandating preparation and submittal of DCAA’s model indirect cost rate proposal for every contract that requires an indirect cost rate proposal will significantly increase the paperwork burdens. Response: No new requirement is imposed on contractors by this proposed rule. The schedules now contained in FAR 52.216–7(d) require the same information previously cited in FAR 42.705–1(b). FAR 42.705–1(b) requires contractors to submit an adequate final indirect cost rate proposal to the contracting officer and auditor within the 6-month period following the expiration of each of its fiscal years. This requirement is contained in OMB Clearance 9000– 0013. The clause at FAR 52.216–7, Allowable Cost and Payment, is covered by OMB Clearance 9000–0069. The clause at FAR 52.216–10, Incentive Fee, is covered by OMB Clearance 9000– 0067. VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 M. General There are no revisions to the FAR based on this comment category. Comment: One respondent inquires as to why the FAR case and new clause are limited to DoD, GSA, and NASA and that other civilian agencies would benefit from the new streamlined procedures as well. Response: By law, 41 U.S.C. 1302 (formerly 41 U.S.C. 421(b)), DoD, GSA, and NASA are the signatories of the FAR. GSA signs on behalf of all the other civilian agencies that are subject to the FAR except NASA. The final rule is applicable Government-wide to those executive agencies under the Federal Acquisition Regulations System. Comment: One respondent recommends that ‘‘contracting officers should be encouraged to unilaterally deobligate cancelling funds as an administrative action without fear of violating anti-deficiency or other contracting protocols.’’ Another respondent recommends that a timeframe should be targeted for the replacement of cancelled funds. Response: These comments on funding are outside the scope of this case. Comments: Two respondents question the application of this rule to the FAR guiding principles in FAR 1.102. Response: This guidance helps to clarify the requirements of an adequate submission of an indirect cost rate proposal. The guidance for the proper submission of an adequate indirect cost rate proposal is provided to contractors in the clause at FAR 52.216–7. The inclusion of this list of information should help to provide consistency, efficiency, and more timely submission. N. Summary of Changes The Councils made the following changes to the FAR as a result of the public comments: 1. Revised FAR 42.705–1(b)(1) to be consistent with language at FAR 52.216–7(d)(2). 2. Revised FAR 42.705–1(b) and 42.705–2(b)(2) to clarify the role of the auditor. • The term ‘‘determination’’ was removed from proposed 42.705– 1(b)(1)(ii); • FAR 42.705–1(b)(1)(iii), 42.705– 1(b)(2), and 42.705–2(b) clarify that the auditor— Æ Reviews the proposal for adequacy and provides the findings of inadequacy to the contractor and contracting officer; and Æ Prepares an advisory audit report, after the proposal has been determined to be adequate for audit. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 31407 3. Revised FAR 42.708(a)(2) to lower the percentage limitation in the existing quick-closeout criteria. FAR 42.708 (a)(2)(i) dollar limitation reverts to $1,000,000, instead of $4,000,000 in the proposed rule. Renumbered FAR 42.708(a)(3) as FAR 42.708(a)(4) and added a new paragraph FAR 42.708(a)(3). Provided examples of other pertinent information at new paragraph FAR 42.708(a)(3)(iii). 4. Revised FAR 52.216–7(d)(2)(iii) to further illustrate the data. 5. Revised FAR 52.216–7(d)(2)(iv) to clarify that the supplemental information listed, although it may not be required for a determination on the adequacy of the contractor’s proposal, may be required during the audit process. 6. Revised FAR 52.216–7(d)(2)(iii) and (d)(2)(iv) to clarify items provided for adequate final indirect cost rate proposal at FAR 52.216–7(d)(2)(i). III. Executive Orders 12866 and 13563 Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804. IV. 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 the rule does not impose any additional requirements on small businesses. The changes to FAR parts 4 and 42 clarify and streamline closeout procedures. The changes to the clauses at FAR 52.216– 8, 52.216–9, and 52.216–10 allow for a reserve to be set-aside to protect the Government’s interest. Contracting Officers already may set aside a reserve under current FAR procedures. E:\FR\FM\31MYR2.SGM 31MYR2 31408 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations V. Paperwork Reduction Act The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply; however these changes to the FAR do not impose additional information collection requirements to the paperwork burden previously approved under the following: • OMB Control Number 9000–0013, titled: Cost or Pricing Data Requirements Information Other Than Cost or Pricing Data; • OMB Control Number 9000–0067, titled: Incentive Contract; and • OMB Control Number 9000–0069, titled: Indirect Cost Rates. List of Subjects in 48 CFR Parts 4, 42, and 52 Government procurement. Dated: May 18, 2011. Millisa Gary, Acting Director, Office of Governmentwide Acquisition Policy. Therefore, DoD, GSA, and NASA amend 48 CFR parts 4, 42, and 52 as set forth below: 1. The authority citation for 48 CFR parts 4, 42, 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 4—ADMINISTRATIVE MATTERS 2. Amend section 4.804–5 by revising paragraph (a)(2) to read as follows. ■ srobinson on DSK4SPTVN1PROD with RULES2 4.804–5 Procedures for closing out contract files. (a) * * * (2) Final patent report is cleared. If a final patent report is required, the contracting officer may proceed with contract closeout in accordance with the following procedures, or as otherwise prescribed by agency procedures: (i) Final patent reports should be cleared within 60 days of receipt. (ii) If the final patent report is not received, the contracting officer shall notify the contractor of the contractor’s obligations and the Government’s rights under the applicable patent rights clause, in accordance with 27.303. If the contractor fails to respond to this notification, the contracting officer may proceed with contract closeout upon consultation with the agency legal counsel responsible for patent matters regarding the contractor’s failure to respond. * * * * * VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 agreements or restrictive terms of specific contracts. * * * * * ■ 4. Amend section 42.705–2 by— ■ 3. Amend section 42.705–1 by ■ a. Revising the introductory text of revising paragraphs (b)(1) and (b)(2) to paragraph (b)(2) and (b)(2)(i); and read as follows: ■ b. Redesignating paragraphs (b)(2)(ii) 42.705–1 Contracting officer determination through (iv) as paragraphs (b)(2)(iii) procedure. through (v), respectively; and adding a new paragraph (b)(2)(ii) to read as * * * * * (b) Procedures. (1) In accordance with follows: the Allowable Cost and Payment clause 42.705–2 Auditor determination at 52.216–7, the contractor is required to procedure. submit an adequate final indirect cost * * * * * rate proposal to the contracting officer (b) * * * (or cognizant Federal agency official) (2) Once a proposal has been and to the cognizant auditor. determined to be adequate for audit in (i) The required content of the support of negotiating final indirect cost proposal and supporting data will vary rates, the auditor shall— depending on such factors as business (i) Audit the proposal and prepare an type, size, and accounting system advisory audit report, including a listing capabilities. The contractor, contracting of any relevant advance agreements or officer, and auditor must work together restrictive terms of specific contracts; to make the proposal, audit, and (ii) Seek agreement on indirect costs negotiation process as efficient as with the contractor; possible. * * * * * (ii) Each contractor is required to submit the final indirect cost rate ■ 5. Amend section 42.708 by revising proposal within the six-month period paragraph (a) to read as follows: following the expiration of each of its fiscal years. The contracting officer may 42.708 Quick-closeout procedure. (a) The contracting officer responsible grant, in writing, reasonable extensions, for contract closeout shall negotiate the for exceptional circumstances only, settlement of direct and indirect costs when requested in writing by the for a specific contract, task order, or contractor. delivery order to be closed, in advance (iii) Upon receipt of the proposal— (A) The cognizant auditor will review of the determination of final direct costs and indirect rates set forth in 42.705, the adequacy of the contractor’s if— proposal for audit in support of (1) The contract, task order, or negotiating final indirect cost rates and will provide a written description of any delivery order is physically complete; (2) The amount of unsettled direct inadequacies to the contractor and costs and indirect costs to be allocated contracting officer. to the contract, task order, or delivery (B) If the auditor and contractor are order is relatively insignificant. Cost unable to resolve the proposal’s amounts will be considered relatively inadequacies identified by the auditor, insignificant when the total unsettled the auditor will elevate the issue to the direct costs and indirect costs to be contracting office to resolve the allocated to any one contract, task order, inadequacies. or delivery order does not exceed the (iv) The proposal must be supported lesser of— with adequate supporting data, some of (i) $1,000,000; or which may be required subsequent to (ii) 10 percent of the total contract, finding that the proposal is adequate for task order, or delivery order amount; audit in support of negotiating final (3) The contracting officer performs a indirect cost rates (e.g., during the risk assessment and determines that the course of the performance of the use of the quick-closeout procedure is advisory audit). See the clause at appropriate. The risk assessment shall 52.216–7(d)(2) for the description of an include— adequate final indirect cost rate (i) Consideration of the contractor’s proposal and supporting data. accounting, estimating, and purchasing (2) Once a proposal has been systems; determined to be adequate for audit in (ii) Other concerns of the cognizant support of negotiating final indirect cost rates, the auditor will audit the proposal contract auditors; and (iii) Any other pertinent information, and prepare an advisory audit report to such as, documented history of Federal the contracting officer (or cognizant Government approved indirect cost rate Federal agency official), including a agreements, changes to contractor’s rate listing of any relevant advance PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 E:\FR\FM\31MYR2.SGM 31MYR2 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations structure, volatility of rate fluctuations during affected periods, mergers or acquisitions, special contract provisions limiting contractor’s recovery of otherwise allowable indirect costs under cost reimbursement or time-andmaterials contracts; and (4) Agreement can be reached on a reasonable estimate of allocable dollars. * * * * * PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 6. Amend section 52.216–7 by— a. Revising the date of the clause; b. Adding paragraphs (d)(2)(iii) through (d)(2)(v); and ■ c. Adding two sentences to the end of paragraph (d)(5) to read as follows: ■ ■ ■ 52.216–7 * * Allowable Cost and Payment. * * * Allowable Cost and Payment (JUN 2011) srobinson on DSK4SPTVN1PROD with RULES2 * * * * * (d) * * * (2) * * * (iii) An adequate indirect cost rate proposal shall include the following data unless otherwise specified by the cognizant Federal agency official: (A) Summary of all claimed indirect expense rates, including pool, base, and calculated indirect rate. (B) General and Administrative expenses (final indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts). (C) Overhead expenses (final indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts) for each final indirect cost pool. (D) Occupancy expenses (intermediate indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts) and expense reallocation to final indirect cost pools. (E) Claimed allocation bases, by element of cost, used to distribute indirect costs. (F) Facilities capital cost of money factors computation. (G) Reconciliation of books of account (i.e., General Ledger) and claimed direct costs by major cost element. (H) Schedule of direct costs by contract and subcontract and indirect expense applied at claimed rates, as well as a subsidiary schedule of Government participation percentages in each of the allocation base amounts. (I) Schedule of cumulative direct and indirect costs claimed and billed by contract and subcontract. (J) Subcontract information. Listing of subcontracts awarded to companies for which the contractor is the prime or uppertier contractor (include prime and subcontract numbers; subcontract value and award type; amount claimed during the fiscal year; and the subcontractor name, address, and point of contact information). VerDate Mar<15>2010 17:35 May 27, 2011 Jkt 223001 (K) Summary of each time-and-materials and labor-hour contract information, including labor categories, labor rates, hours, and amounts; direct materials; other direct costs; and, indirect expense applied at claimed rates. (L) Reconciliation of total payroll per IRS form 941 to total labor costs distribution. (M) Listing of decisions/agreements/ approvals and description of accounting/ organizational changes. (N) Certificate of final indirect costs (see 52.242–4, Certification of Final Indirect Costs). (O) Contract closing information for contracts physically completed in this fiscal year (include contract number, period of performance, contract ceiling amounts, contract fee computations, level of effort, and indicate if the contract is ready to close). (iv) The following supplemental information is not required to determine if a proposal is adequate, but may be required during the audit process: (A) Comparative analysis of indirect expense pools detailed by account to prior fiscal year and budgetary data. (B) General Organizational information and Executive compensation for the five most highly compensated executives. See 31.205– 6(p). Additional salary reference information is available at http://www.whitehouse.gov/ omb/procurement_index_exec_comp/. (C) Identification of prime contracts under which the contractor performs as a subcontractor. (D) Description of accounting system (excludes contractors required to submit a CAS Disclosure Statement or contractors where the description of the accounting system has not changed from the previous year’s submission). (E) Procedures for identifying and excluding unallowable costs from the costs claimed and billed (excludes contractors where the procedures have not changed from the previous year’s submission). (F) Certified financial statements and other financial data (e.g., trial balance, compilation, review, etc.). (G) Management letter from outside CPAs concerning any internal control weaknesses. (H) Actions that have been and/or will be implemented to correct the weaknesses described in the management letter from subparagraph (G) of this section. (I) List of all internal audit reports issued since the last disclosure of internal audit reports to the Government. (J) Annual internal audit plan of scheduled audits to be performed in the fiscal year when the final indirect cost rate submission is made. (K) Federal and State income tax returns. (L) Securities and Exchange Commission 10–K annual report. (M) Minutes from board of directors meetings. (N) Listing of delay claims and termination claims submitted which contain costs relating to the subject fiscal year. (O) Contract briefings, which generally include a synopsis of all pertinent contract provisions, such as: Contract type, contract amount, product or service(s) to be provided, contract performance period, rate ceilings, PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 31409 advance approval requirements, pre-contract cost allowability limitations, and billing limitations. (v) The Contractor shall update the billings on all contracts to reflect the final settled rates and update the schedule of cumulative direct and indirect costs claimed and billed, as required in paragraph (d)(2)(iii)(I) of this section, within 60 days after settlement of final indirect cost rates. * * * * * (5) * * * The completion invoice or voucher shall include settled subcontract amounts and rates. The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request. * * * * * 7. Amend section 52.216–8 by revising the date of the clause and paragraph (b) to read as follows: ■ 52.216–8 * * Fixed Fee. * * * Fixed Fee (JUN 2011) * * * * * (b) Payment of the fixed fee shall be made as specified in the Schedule; provided that the Contracting Officer withholds a reserve not to exceed 15 percent of the total fixed fee or $100,000, whichever is less, to protect the Government’s interest. The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90 percent of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals. * * * * * 8. Amend section 52.216–9 by revising the date of the clause and paragraph (c) to read as follows: ■ 52.216–9 * * Fixed Fee—Construction. * * * Fixed Fee—Construction (JUN 2011) * * * * * (c) The Contracting Officer shall withhold a reserve not to exceed 15 percent of the total fixed fee or $100,000, whichever is less, to protect the Government’s interest. The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent E:\FR\FM\31MYR2.SGM 31MYR2 31410 Federal Register / Vol. 76, No. 104 / Tuesday, May 31, 2011 / Rules and Regulations and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90 percent of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals. DEPARTMENT OF DEFENSE * 48 CFR Parts 4, 9, and 52 * * * * * * * Federal Acquisition Regulation; Prohibition on Contracting With Inverted Domestic Corporations * Incentive Fee (JUN 2011) * * * * * * * * [FR Doc. 2011–12852 Filed 5–27–11; 8:45 am] srobinson on DSK4SPTVN1PROD with RULES2 BILLING CODE 6820–EP–P VerDate Mar<15>2010 17:35 May 27, 2011 Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCY: * (c) Withholding of payment. (1) Normally, the Government shall pay the fee to the Contractor as specified in the Schedule. However, when the Contracting Officer considers that performance or cost indicates that the Contractor will not achieve target, the Government shall pay on the basis of an appropriate lesser fee. When the Contractor demonstrates that performance or cost clearly indicates that the Contractor will earn a fee significantly above the target fee, the Government may, at the sole discretion of the Contracting Officer, pay on the basis of an appropriate higher fee. (2) Payment of the incentive fee shall be made as specified in the Schedule; provided that the Contracting Officer withholds a reserve not to exceed 15 percent of the total incentive fee or $100,000, whichever is less, to protect the Government’s interest. The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90 percent of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals. * NATIONAL AERONAUTICS AND SPACE ADMINISTRATION RIN 9000–AL28 Incentive Fee. * GENERAL SERVICES ADMINISTRATION [FAC 2005–52; FAR Case 2008–009; Item III; Docket 2009–0020, Sequence 1] 9. Amend section 52.216–10 by revising the date of the clause and paragraph (c) to read as follows: ■ 52.216–10 appropriated funds for FY 2010. Eight respondents submitted comments on the interim rule. Jkt 223001 DoD, GSA, and NASA have adopted as final, with changes, the interim rule amending the Federal Acquisition Regulation (FAR) to implement section 743 of Division D of the Omnibus Appropriations Act, 2009. Section 743 of Division D of this Act prohibits the award of contracts using appropriated funds to any foreign incorporated entity that is treated as an inverted domestic corporation or to any subsidiary of one. For Fiscal Year (FY) 2010, the same restrictions were continued under section 740 of Division C of the Consolidated Appropriations Act, 2010. DATES: Effective Date: May 31, 2011. FOR FURTHER INFORMATION CONTACT: Ms. Cecelia L. Davis, Procurement Analyst, at (202) 219–0202, for clarification of content. Please cite FAC 2005–52, FAR Case 2008–009. For information pertaining to status or publication schedules, contact the FAR Secretariat at (202) 501–4755. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background DoD, GSA, and NASA published an interim rule in the Federal Register at 74 FR 31561 on July 1, 2009, to implement section 743 of the Division D of the Omnibus Appropriations Act, 2009 (Pub. L. 111–8). Section 743 of Division D of this Act prohibited the use of Federal appropriated funds for FY 2009 to contract with any inverted domestic corporation, as defined at section 835(b) of the Homeland Security Act of 2002 (Pub. L. 107–296, 6 U.S.C. 395(b)), or any subsidiary of such an entity. On December 16, 2009, section 740 of Division C of the Consolidated Appropriations Act, 2010 (Pub. L. 111– 117), also prohibited the use of Federal PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 II. Discussion and Analysis of the Public Comments The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows: A. Applicability to Fiscal Years (FY) 2006 and 2007 Funds Comment: Three respondents commented that the interim rule inaccurately applies the ban on contracting with inverted domestic corporations to funds appropriated in FY 2006 and FY 2007 on a Governmentwide basis. Section 743 of Division D of the Omnibus Appropriations Act, 2009, and section 745 of the Consolidated Appropriations Act, 2008, prohibit all Federal agencies from using appropriated funds on contracts with any foreign incorporated entity that is treated as an inverted domestic corporation or the subsidiary of such a corporation. In FY 2006 and FY 2007, the statutory prohibition was limited to agencies funded under the Treasury, Transportation and Housing Appropriation (Pub. L. 109–115, Pub. L. 109–289, Pub. L. 109–369, Pub. L. 109– 383, and Pub. L. 110–5). Response: The Councils agree with the respondents that the prohibition in the FY 2006 and FY 2007 appropriations bills only covers a limited number of agencies, whereas the FY 2008 and FY 2009 prohibition applies Governmentwide. The Councils therefore have revised FAR 9.108–3 to apply the prohibition to the use of FY 2008 and FY 2009 appropriated funds. The Councils recommend that each covered agency continue with its implementation of the FY 2006 and FY 2007 prohibitions because the required implementation has probably already occurred within the covered agencies. B. Applicability to Task Orders Comment: One respondent commented that the interim rule fails to reflect a statutory exception for funds expended on task orders issued under contracts entered into before December 26, 2007. Section 743(c) of Division D of the Omnibus Appropriations Act, 2009, and section 745(c) of Division D of Public Law 110–161 (the Consolidated Appropriations Act, 2008) each provide that ‘‘This section shall not apply to any E:\FR\FM\31MYR2.SGM 31MYR2

Agencies

[Federal Register Volume 76, Number 104 (Tuesday, May 31, 2011)]
[Rules and Regulations]
[Pages 31402-31410]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-12852]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 42, and 52

[FAC 2005-52; FAR Case 2008-020; Item II; Docket 2009-0031, Sequence 1]
RIN 9000-AL43


Federal Acquisition Regulation; Contract Closeout

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) procedures for closing out 
contract files. This case revises procedures for clearing final patent 
reports and quick-closeout procedure, and sets forth a description of 
an adequate final indirect cost rate proposal and supporting data.

DATES: Effective Date: June 30, 2011.

FOR FURTHER INFORMATION CONTACT: Ms. Clare McFadden, Procurement 
Analyst,

[[Page 31403]]

at (202) 501-0044, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at (202) 501-4755. Please cite FAC 2005-52, FAR Case 2008-
020.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 74 FR 42044 on August 20, 2009. Sixteen respondents 
provided comments. The Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council (the Councils) reviewed the 
comments in development of the final rule.

II. Discussion and Analysis of the Public Comments

    Comments received were grouped under 13 general topics. A 
discussion of the comments and the changes made to the rule as a result 
of those comments are provided as follows:

A. ``Adequacy'' Definition

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to comments in this 
category.
    Comment: One respondent recommends a new definition for 
``adequacy'' at FAR 42.705-1. The respondent states that guidelines for 
determining adequacy should be established in order to provide a 
baseline against which the contracting officer can resolve differences 
of opinion on adequacy between the auditor and the contractor.
    Response: A new definition is not necessary, as specific 
information has been provided in the clause to ensure uniformity, 
consistency, and fairness for all contractors. This assures that 
contractors are fully informed in advance of the Government's 
parameters for the content of an adequate final indirect cost rate 
proposal.

B. Adequacy Determination

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to comments in this 
category.
    Comment: One respondent recommends the term ``adequate'' be 
replaced with ``complete'' or ``detailed'' at FAR 42.705-1(b). The 
respondent states that the phrase ``the contractor shall submit * * * 
an adequate indirect cost rate proposal'' is inappropriate, as the 
Defense Contract Audit Agency (DCAA) has historically interpreted the 
term ``adequate'' to mean identical to DCAA's incurred cost model.
    Response: Use of the term ``adequate'' for describing the 
Government's requirements for submission of costs is more appropriate 
than utilizing the terms ``complete'' or ``detailed''. The FAR already 
required the submission of an adequate final indirect cost rate 
proposal (FAR 42.705-1(b)). This final rule establishes the content of 
an adequate submission.

C. Adequacy Determination and Roles

    The final rule includes amendments to FAR 42.705-1(b) and 42.705-
2(b) in response to comments in this category.
    Comment: One respondent recommends that the granting of an 
extension to the contractor for submitting its indirect cost rate 
proposal by the contracting officer be made in writing at FAR 42.705-
1(b)(1)(i).
    Response: The language at FAR 42.705-1(b)(1)(ii) is revised 
accordingly.
    Comments: Five respondents question whether it is appropriate for 
DCAA to have sole responsibility to determine the adequacy of indirect 
cost rate proposals. One respondent believes a determination from the 
auditor exceeds the auditor's authority under law.
    Three respondents state that any final determination regarding 
adequacy should be the responsibility of the contracting officer. One 
respondent states that the contracting officer/auditor relationship 
that is provided for in the audit process should be followed.
    Response: The term ``determination'' in this case was not intended 
to shift the authority to make determinations from the contracting 
officer to the auditor; rather, the intent was for the auditor to offer 
advice to the contracting officer regarding adequacy of the proposal. 
The language in 42.705-1(b)(1)(iii), 42.705-1(b)(2), and 42.705-2(b) 
has been revised to remove the term ``determination'' and to clarify 
that the auditor reviews the proposal for adequacy and provides the 
findings of inadequacy to the contracting officer and contractor.
    Comment: One respondent states that the proposed rule creates a 
review process within which there is little latitude for a contracting 
officer to resolve administrative disagreements between auditors and 
contractors.
    Response: The rule does not diminish the latitude or the authority 
that contracting officers have to resolve any and all matters arising 
under the contract with respect to an indirect cost rate proposal. The 
current FAR already allows flexibility for the content based on the 
situation, e.g., complexity and size of the contractor.
    Comment: One respondent states that the proposed changes at FAR 
42.705-1(b)(1)(iv) and FAR 52.216-7(d) contradict FAR 42.705-
1(b)(1)(i), which requires the parties to work together to make the 
proposal, audit, and negotiation process as efficient as possible. The 
proposed default choice requiring data in FAR 52.216-7(d)(2)(iii) will 
result in contractors trying to provide unrelated data to avoid an 
auditor's automatic ``checklist'' determination of inadequate 
proposals. Such rigid requirements will lead to an increase in 
disagreements about the adequacy of final indirect cost rate proposals.
    Response: The process of reviewing the proposal for adequacy, 
performing the audit, and conducting negotiations has not changed. 
Also, no new requirement is imposed on contractors by this rule. The 
list of data (schedules) now included in FAR 52.216-7(d) requires the 
same information previously cited in FAR 42.705-1(b).

D. Adequacy of Indirect Cost Rate Proposal

    The final rule includes amendments to FAR 52.216-7(d)(2)(iv) in 
response to comments in this category.
    Comment: One respondent agrees with the proposed language at FAR 
42.705-1 as positive changes.
    Comment: One respondent states that the proposed rule was not clear 
as to whether the list of required data in FAR 52.216-7(d)(2)(iv) that 
``may'' be submitted with the proposal will be considered in making a 
determination of the adequacy of the contractor's proposal. The 
respondent recommends clarification.
    Response: The language at FAR 52.216-7(d)(2)(iv) has been revised 
by replacing ``will'' with ``may''; however, clarification of FAR 
42.705-1(b)(1)(ii) is not necessary. The supplemental information 
listed in FAR 52.216-7(d)(2)(iv) is not required for a determination on 
the adequacy for the contractor's proposal for audit.
    Comment: One respondent states that the proposed statement at FAR 
42.705-1(b)(1)(iii) ``The proposal must be supported with adequate 
supporting data, which may be required subsequent to proposal 
submission'' is repetitious of FAR 52.216-7(d)(iv) and unnecessary. The 
respondent further states that the statement adds a level of 
subjectivity as contractors guess at what information ``may be 
required'' subsequent to submission.
    Response: The contractor's requirements are located in the clause 
at FAR 52.216-7(d)(2)(iv). The FAR 42.705-1(b)(1)(iv) text is directed 
to the contracting officer, explaining the supplemental information 
that is

[[Page 31404]]

required by contract clause, FAR clause 52.216-7, Allowable Cost and 
Payment. The language directed to the contracting officer and the 
contract clause serve different purposes; therefore, both are 
necessary.
    Comment: One respondent recommends rescinding the proposed rule and 
revising the approach to determining adequacy. The respondent states 
that the approach taken to set forth a description of an adequate final 
indirect cost rate proposal and supporting data fails to improve the 
process and unnecessarily creates additional and very significant 
process and administrative problems.
    Response: The rule will provide uniformity and consistency. 
Further, the information is not new and should be readily available 
from the contractor's books, records, and systems.

E. Data Requirements

    The final rule includes amendments to FAR 52.216-7(d)(2)(iv) in 
response to the comments in this category. Many respondents submitted 
comments regarding data requirements.
    Comments: Three respondents submitted comments objecting to the 
volume of data required for determination of an adequate indirect cost 
rate proposal.
    Response: The revisions to FAR 42.705-1 and FAR 52.216-7 are 
necessary to clarify the submission of an adequate indirect cost rate 
proposal. While the information required may be considered lengthy, it 
is not new, and it is essential information necessary for an adequate 
claim for cost.
    Comments: Four respondents believe the proposed rule is overly 
prescriptive. One respondent specifically suggests the rule is a 
regulation to legitimize DCAA's longstanding insistence that an 
adequate final indirect cost rate proposal be inclusive of several 
mandatory schedules and supplemental information as represented by DCAA 
within its Model Incurred Cost Proposal rate as stipulated in DCAA 
Pamphlet No. 7641.90. This respondent further takes the position that 
use of the DCAA model schedule information eliminates any opportunity 
for further variation in proposal content.
    Response: The information required from the contractor for an 
adequate indirect cost rate proposal is not new. No specific format is 
prescribed for the submission. This information is readily available in 
the contractor's books, records, and systems. DCAA has been the primary 
provider of information necessary for contracting officers to 
adequately perform their functions as stewards of public trust. 
Furthermore, the revised language ``shall include the following data, 
unless otherwise specified by the cognizant Federal agency official'' 
allows flexibility, depending on the circumstances of the contract 
(e.g., size, complexity).
    Comments: Four respondents submitted four comments objecting to the 
inclusion of one or more schedule items and stated that some of the 
information proposed to be required for an adequate submission is not 
necessary for an adequate contractor rate submission.
    Response: The information required in the schedules is the minimum 
standard for an adequate indirect cost rate proposal. For example, the 
information in FAR 52.216-7(d)(2)(iii) item G, reconciliation of books 
of account and claimed direct costs, is necessary for an adequate 
submission and different from the information requested for item H, 
which is a schedule of direct costs by contract/subcontract and 
indirect expenses applied. The rule language does not require the 
reconciliation to be presented in a single schedule. An updated 
schedule (as specified in FAR 52.216-7(d)(2)(v)) is necessary to ensure 
timely adjustments to amounts claimed and billed by a contractor for 
the period covered by the final indirect cost rate determination.
    Comment: One respondent states that ``a requirement for the 
adequacy of an indirect cost rate submission that final direct costs 
must be submitted for audit is out of the scope of this clause'' at FAR 
52.216-7(g).
    Response: This rule does not amend paragraph (g) of the clause at 
FAR 52.216-7, which has no bearing on the adequacy of an indirect cost 
rate submission as required by FAR 52.216-7(d)(2)(iii). The Government 
has the right to audit any invoice or voucher and statements of cost 
prior to final payment pursuant to FAR 52.216-7.
    Comments: Two respondents submitted comments in regard to 
formatting. One respondent states that DCAA's insistence that data be 
converted into other formats (such as spreadsheets using DCAA's ICE 
Model) is in direct contradiction of FAR 52.215-2(d)(2) that access to 
records ``may not be construed to require the contractor or 
subcontractor to create or maintain any record that the contractor or 
subcontractor does not maintain in the ordinary course of business or 
pursuant to a provision of law.'' The other respondent suggests that 
the proposed revision at FAR 42.705-1(b)(1) eliminates the suggestion 
in the current rule that contractors can use the DCAA model incurred 
cost rate proposal and supporting data for guidance on what constitutes 
an adequate final indirect cost rate proposal. According to the 
respondent, this proposed revision also refers the definition of 
adequacy to the revised clause at FAR 52.216-7(d)(2), which makes 
mandatory specific schedules and data requirements taken almost 
verbatim from the DCAA ICE Model.
    Response: The information required from the contractor for an 
adequate indirect cost rate proposal is not new. No specific format is 
prescribed for the submission. This information should be readily 
available in the contractor's books, records, and systems.
    Comment: One respondent states that the list of requirements 
proposed at FAR 52.216-7(d)(2) is contradictory to the definition of 
supporting documentation for final indirect cost rate proposals in the 
current FAR. According to FAR 31.201-2(d), supporting documentation 
means records necessary to demonstrate the costs claimed in the 
proposal have been incurred, are allocable to the contract, and comply 
with applicable cost principles. This makes clear the meaning of the 
current FAR 52.216-7(d), ``The contractor shall support its proposal 
with adequate supporting documentation.''
    Response: The cost principles are not intended to set forth the 
submission requirements of an adequate indirect cost rate proposal.
    Comment: One respondent states he does not believe that the 
proposed rule is in line with the FAR objective of achieving a timely 
settlement of final indirect rates. The rule delineates extensive 
requirements and supplemental data related to the description of an 
adequate final indirect cost rate proposal that are unnecessarily 
burdensome and largely irrelevant to indirect cost rate proposals. 
Levying requirements for the creation of new books and records as 
supporting documentation for costs is contradictory to existing 
provisions of FAR 52.215-2. The respondent is concerned that many of 
the proposed data requirements under the proposed rule have no 
connection to the indirect cost rates and may result in the unnecessary 
disclosure of proprietary information, e.g., schedules O and L.
    Response: The revisions to FAR 42.705-1 and FAR 52.216-7 are 
necessary to clarify the submission of an adequate indirect cost rate 
proposal. The information required is necessary for an adequate claim 
for cost. The supplemental information, if applicable, is what auditors 
expect to review in support of an adequate claim for cost. The proposed 
language ``shall include

[[Page 31405]]

the following data, unless otherwise specified by the cognizant Federal 
agency official'' allows flexibility depending on the circumstances of 
the contract (e.g. size, complexity). The information being requested 
should be readily available from the contractor's accounting system. 
The information is not new and the format of the information has not 
been designated for the contractor. The Government treats all audit 
information from contractors as confidential and protects it against 
all unauthorized disclosure.
    Comment: One respondent states that the list of data required by 
FAR 52.216-7 (regardless of type of business, sector, or accounting 
system) is inconsistent and contradictory to FAR 42.705-1(b)(1)(i), 
which states that the ``required content of the proposal and supporting 
data will vary depending on such factors as business type, size, and 
accounting system capabilities.'' The final rule should afford 
contractors the flexibility to provide only that information necessary 
to support an indirect cost rate proposal.
    Response: The information required from the contractor for an 
adequate indirect cost rate proposal is not new. No specific format is 
prescribed for the submission. This information is readily available in 
the contractor's books, records, and systems. DCAA has been the primary 
provider for information necessary for contracting officers to 
adequately perform their functions as stewards of the public trust.
    Comment: One respondent takes exception to the statement in FAR 
52.216-7(d)(2)(iv) that ``The following supplemental information which 
will be required during the audit process * * *'' and suggests it 
should be restated ``the following supplemental information may be 
required * * *.''
    Response: The language has been revised to read ``the following 
supplemental information is not required to determine if a proposal is 
adequate, but may be required during the audit process.''

F. Indirect Cost Rate Proposal

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to the comments in this 
category.
    Comment: One respondent states that the indirect cost rate proposal 
mandates at FAR 52.216-7 will result in an increase in proposal 
rejections, administrative costs and burden, and will significantly 
delay contract closeout.
    Response: The information will provide uniformity, consistency, 
timeliness, and reduce the number of proposals being returned as 
inadequate.
    Comment: One respondent agrees with the language to require a 
completion invoice to be submitted within 120 days after all rates have 
been settled for all years during a contract's period of performance 
and require inclusion of settled subcontract amounts and rates at FAR 
52.216-7(d)(5) may assist in more timely completion of indirect cost 
audits and facilitate closeout. The respondent further agrees with the 
list set forth for an adequate indirect cost rate proposal.
    Response: No response required.
    Comment: One respondent states that timely closeout of subcontracts 
issued under a Government prime contract should be addressed and that 
contracting officers should be empowered and encouraged to unilaterally 
close out the prime contract, even if subcontracts have not been 
settled.
    Response: The prime contractor is responsible for resolution of 
subcontract costs and rates prior to submission of final vouchers. FAR 
52.216-7(d)(6)(i) allows the contracting officer to unilaterally close 
out a prime contract, when the contractor fails to submit a final 
voucher within 120 days.

G. Final Patent Report

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to the comments in this 
category.
    Comment: One respondent states that if clearance by the contracting 
officer is not received within 60 days of receipt of the final patent 
report, the contract can be closed (FAR 4.804-5(a)(2)).
    Two respondents recommend timelines be established (FAR 4.804-5). 
One respondent states that patent reports are seldom, if ever, cleared 
within 60 days and recommends timelines be established for both the 
contractor and legal community with finite time constraints to respond. 
The other respondent suggests establishing a time period for responding 
to the contracting officer's notification.
    Response: The final rule provides for 60 days for the clearance of 
patent reports and allows for flexibility on a case-by-case basis. Any 
further clarification, if needed, should be provided in agency 
guidance.
    Comment: One respondent suggests revising FAR 4.804-5(a)(2)(i) to 
read ``Final Patent Reports, where no contractor invention is disclosed 
should be cleared within 60 days of receipt.''
    Response: The inclusion of the language ``where no contractor 
invention is disclosed'' is not necessary because the patent report may 
be cleared whether an invention is disclosed or not.
    Comment: Two respondents concur with the proposed procedures for 
clearing final patent reports.
    Response: Comment noted.

H. Payment Withhold

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to the comments in this 
category.
    Comment: One respondent states that the rule, in regard to payment 
withholds, should allow the contracting officer to use their discretion 
regarding whether to withhold payment so that the provision is applied 
only when necessary.
    Response: The institution of a uniform policy is more appropriate 
because the contracting officer will know what is required, as a 
minimum, for fee withholds for all contract types. This uniform policy 
will help to facilitate contract closeout by encouraging timely 
submission of final indirect cost rate proposals and final vouchers.
    Comment: One respondent states that the retainage of a maximum of 
$100,000 is a good start, but for large contractors it is not much of a 
disincentive for the untimely submission of New Technology/Patent 
Reports and recommends the retainage be changed to 15 percent of the 
fee. This respondent also states that changes in the proposed rule may 
facilitate closeout; however, withholding of $100,000 in fee is 
insufficient to influence the actions of larger contractors.
    Another respondent does not believe that the withhold changes in 
FAR 52.216-8, 52.216-9, and 52.216-10 are necessary; the changes should 
be rescinded; and, the current clauses remain in their current form.
    Response: The intent of this FAR case is not to change the amount 
of the withholdings. The intent is to make the fee withholds mandatory, 
not optional, and to define an adequate indirect cost rate proposal.
    Comments: Two respondents object to the allegedly arbitrary fee 
withholds that will negatively impact cash flow, harm the industrial 
base, and increase the amount of cancelled funds. Also, the other 
respondent states that the prescribed withholding of fee will result in 
contracting officers experiencing significant ongoing contract 
administration issues with expiring funds with no clear benefit.
    Response: The intent of this FAR case is not to change the amount 
of the fee withholdings. The intent is to make the

[[Page 31406]]

fee withholds mandatory, not optional, and to define an adequate 
indirect cost rate proposal. The proposed rule does not change the 
current procedures in regard to expiring funds.
    Comment: One respondent objects to making the proposed fee 
withholds mandatory because there are existing FAR provisions that 
already provide for fee withholds so no change is necessary. The 
combined effect of adding an exhaustive, ill fitting list of 
requirements for an adequate indirect cost rate proposal with mandatory 
fee withholds for inadequacy means that inevitable differences in 
interpreting the new rule will punish contractors unfairly and 
unilaterally. It is contrary to FAR 42.705-1(b) and could result in 
increases in the amount of cancelled funds.
    Response: It is in the Government's best interest to set a uniform 
policy to establish mandatory fee withholds and define an adequate 
indirect cost rate proposal.

I. Quick-Closeout

    The final rule includes amendments to FAR 42.708(a), in response to 
comments in this category.
    Five respondents provided comments in this category.
    Comment: One respondent welcomes the change at FAR 42.708(a) 
through (d) but requests clarification of direct costs to be allocated 
to a cost contract as direct costs are normally assigned/charged rather 
than allocated to contracts.
    Response: The language is revised in FAR 42.708(a)(2) to read 
``unsettled direct costs and indirect costs to be allocated to the 
contract.''
    Comment: One respondent states that setting the limitation at FAR 
42.708(a)(2)(i) to 20 percent is inconsistent with the historical 
intent of the provision to settle only an ``insignificant'' portion of 
the costs in advance of determination of final costs and rates. The 
respondent recommends a percentage of 10 or less.
    Response: This rule changes the criteria for use of quick-closeout 
procedures from unsettled indirect rates on the contract as a 
percentage of total unsettled indirect costs, to both unsettled direct 
and indirect contract costs as a percentage of total claimed contract 
costs. The Councils believe this change expands the number of 
contracting actions, which will meet the criteria for quick-closeout. 
The limitation has been lowered from the proposed 20 percent to 10 
percent of the total unsettled direct and indirect costs to be 
allocated to any one contract. The coverage is also revised in FAR 
42.708(a)(2) to state that ``Cost amounts will be considered relatively 
insignificant when the total unsettled direct costs and indirect costs 
to be allocated to any one contract, task order, or delivery order, do 
not exceed the lesser of (i) $1,000,000; or (ii) 10 percent of the 
total contract, task order, or delivery order amount.'' The Councils 
believe the percentage and monetary threshold should be lower because 
the lower percentage and dollar threshold will provide increased 
oversight and reduced risk to the government. The $1,000,000 threshold 
aligns with current inventories of physically-complete contracts that 
are amenable to use of quick-closeout procedures.
    Comments: Three respondents comment that the proposed revisions 
limiting the use of quick-closeout procedures are counter-productive 
and will decrease their use. One respondent recommends adopting the 
Defense Contract Management Agency (DCMA) Class Deviation in FAR 
42.703-1(b), 42.703-1(c)(2), and 42.708(a)(2) entitled ``use of quick-
closeout procedures for cost-reimbursement, fixed-price incentive, 
fixed-price redeterminable, and time-and-material contracts.'' Another 
respondent recommends deletion of the phrase ``other concerns of the 
cognizant auditor'' at FAR 42.708(a)(2)(i) in the risk assessment 
verbiage. The respondent also recommends that unsettled direct costs be 
defined.
    Response: Previously, the FAR limited the use of quick-closeout 
procedures to instances where only indirect cost rates remain 
unsettled. This final rule allows the contracting officer to close 
contracts with unaudited direct costs and unsettled indirect cost 
rates. The intent of the rule is to increase the use of quick-closeout 
procedures for instances involving relatively insignificant amounts of 
unaudited costs under certain circumstances. DCMA's deviation does not 
allow the contracting officer to close out contracts without audit of 
all direct costs. The contracting officer's risk assessment plan 
includes coordination with the cognizant auditor. There is no need for 
a definition of ``unsettled direct costs'' because unsettled direct 
costs are identified on a case-by-case basis.

J. Timelines for the Government

    The final rule implements the changes published in the proposed 
rule, without further amendments in response to the comments in this 
category.
    Comment: One respondent states that the ``provision at FAR 42.705-
1(b)(ii) does not state a time limitation for the auditor to make a 
written determination of adequacy.'' Also, according to the respondent, 
time limitations should be established for completing audits.
    Another respondent states that the Government needs to emphasize 
its role, including timely finalization of indirect rates, which 
includes DCAA completing audits of indirect costs proposals and 
administrative contracting officer's settling rates, signing off on 
reports, doing plant clearances, etc. Another respondent states that 
the rule does not define time requirements which all parties, not just 
contractors, must meet.
    Response: Timelines should not be instituted for auditors to make a 
written determination of adequacy or for completion of audits, and for 
administrative contracting officers to settle rates, sign off on 
reports, do plant clearances, etc., in order to ensure quality and 
allow flexibility, based on the size and complexity of each contract.
    Comment: One respondent does not believe that the proposed rule 
will achieve any predictable reduction of time or resources associated 
with contract closeout.
    Response: This rule clarifies the contract closeout process.

K. Regulatory Flexibility Act

    Comments: One respondent questions the statement within the 
Regulatory Flexibility Act section of the preamble to the proposed rule 
that the rule is intended to ``clarify and streamline'' closeout 
procedures. The respondent further suggests that adoption of the DCAA 
Model Incurred Cost Proposal rate is not justified. Another respondent 
does not agree that the rule will not have a significant impact on a 
substantial number of small entities. The respondent believes that the 
numbers of schedules and the imposition of a six-month time constraint 
will have significant impact on small businesses. The third respondent 
also strongly disagrees with the conclusion that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. Requiring preparation and submittal of DCAA's Model Indirect 
Cost Proposal rate and withholding fees, the proposed rule will have a 
significant economic impact on a substantial number of small entities. 
The respondent encourages the Councils to prepare and make available 
for public comment an initial regulatory flexibility analysis.
    Response: Contractors are already required to support their 
indirect cost rate proposals with adequate supporting data. (See FAR 
42.705-1(b).) No new requirement is imposed on contractors

[[Page 31407]]

by this rule. The changes to FAR parts 4 and 42 clarify and streamline 
closeout procedures. The model for an adequate indirect cost rate 
proposal is contained in the DCAA Model Incurred Cost Proposal rate. 
The data required in this model is not new to contractors nor is there 
evidence of any effect on small businesses when this information is 
required. In fact, because the information required is not new and the 
format of the information has not been designated for the contractor, 
this should be helpful to small businesses. The information being 
requested should be readily available from the contractor's accounting 
system. The inclusion of this information list should improve 
consistency, efficiency, and timeliness in contractor submissions. The 
clauses at FAR 52.216-8, 52.216-9, and 52.216-10 are being changed to 
make the reserve mandatory. However, the reserve amount set aside in 
the proposed rule has not changed. No small businesses commented on the 
changes to the clauses at FAR 52.216-8, 52.216-9, and 52.216-10 as 
published in the proposed rule. Therefore, the Councils conclude that 
this change will not have a significant impact on small businesses.

L. Paperwork Reduction Act

    Comments: Several respondents disagree with the preamble to the 
proposed rule, which stated that the proposed changes to the FAR would 
not impose additional information collection requirements to the 
paperwork burden previously approved by the Office of Management and 
Budget (OMB). According to one respondent, mandating preparation and 
submittal of DCAA's model indirect cost rate proposal for every 
contract that requires an indirect cost rate proposal will 
significantly increase the paperwork burdens.
    Response: No new requirement is imposed on contractors by this 
proposed rule. The schedules now contained in FAR 52.216-7(d) require 
the same information previously cited in FAR 42.705-1(b). FAR 42.705-
1(b) requires contractors to submit an adequate final indirect cost 
rate proposal to the contracting officer and auditor within the 6-month 
period following the expiration of each of its fiscal years. This 
requirement is contained in OMB Clearance 9000-0013. The clause at FAR 
52.216-7, Allowable Cost and Payment, is covered by OMB Clearance 9000-
0069. The clause at FAR 52.216-10, Incentive Fee, is covered by OMB 
Clearance 9000-0067.

M. General

    There are no revisions to the FAR based on this comment category.
    Comment: One respondent inquires as to why the FAR case and new 
clause are limited to DoD, GSA, and NASA and that other civilian 
agencies would benefit from the new streamlined procedures as well.
    Response: By law, 41 U.S.C. 1302 (formerly 41 U.S.C. 421(b)), DoD, 
GSA, and NASA are the signatories of the FAR. GSA signs on behalf of 
all the other civilian agencies that are subject to the FAR except 
NASA. The final rule is applicable Government-wide to those executive 
agencies under the Federal Acquisition Regulations System.
    Comment: One respondent recommends that ``contracting officers 
should be encouraged to unilaterally de-obligate cancelling funds as an 
administrative action without fear of violating anti-deficiency or 
other contracting protocols.''
    Another respondent recommends that a timeframe should be targeted 
for the replacement of cancelled funds.
    Response: These comments on funding are outside the scope of this 
case.
    Comments: Two respondents question the application of this rule to 
the FAR guiding principles in FAR 1.102.
    Response: This guidance helps to clarify the requirements of an 
adequate submission of an indirect cost rate proposal. The guidance for 
the proper submission of an adequate indirect cost rate proposal is 
provided to contractors in the clause at FAR 52.216-7. The inclusion of 
this list of information should help to provide consistency, 
efficiency, and more timely submission.

N. Summary of Changes

    The Councils made the following changes to the FAR as a result of 
the public comments:
    1. Revised FAR 42.705-1(b)(1) to be consistent with language at FAR 
52.216-7(d)(2).
    2. Revised FAR 42.705-1(b) and 42.705-2(b)(2) to clarify the role 
of the auditor.
     The term ``determination'' was removed from proposed 
42.705-1(b)(1)(ii);
     FAR 42.705-1(b)(1)(iii), 42.705-1(b)(2), and 42.705-2(b) 
clarify that the auditor--
    [cir] Reviews the proposal for adequacy and provides the findings 
of inadequacy to the contractor and contracting officer; and
    [cir] Prepares an advisory audit report, after the proposal has 
been determined to be adequate for audit.
    3. Revised FAR 42.708(a)(2) to lower the percentage limitation in 
the existing quick-closeout criteria. FAR 42.708 (a)(2)(i) dollar 
limitation reverts to $1,000,000, instead of $4,000,000 in the proposed 
rule. Renumbered FAR 42.708(a)(3) as FAR 42.708(a)(4) and added a new 
paragraph FAR 42.708(a)(3). Provided examples of other pertinent 
information at new paragraph FAR 42.708(a)(3)(iii).
    4. Revised FAR 52.216-7(d)(2)(iii) to further illustrate the data.
    5. Revised FAR 52.216-7(d)(2)(iv) to clarify that the supplemental 
information listed, although it may not be required for a determination 
on the adequacy of the contractor's proposal, may be required during 
the audit process.
    6. Revised FAR 52.216-7(d)(2)(iii) and (d)(2)(iv) to clarify items 
provided for adequate final indirect cost rate proposal at FAR 52.216-
7(d)(2)(i).

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

IV. 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 the rule does not 
impose any additional requirements on small businesses. The changes to 
FAR parts 4 and 42 clarify and streamline closeout procedures. The 
changes to the clauses at FAR 52.216-8, 52.216-9, and 52.216-10 allow 
for a reserve to be set-aside to protect the Government's interest. 
Contracting Officers already may set aside a reserve under current FAR 
procedures.

[[Page 31408]]

V. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply; 
however these changes to the FAR do not impose additional information 
collection requirements to the paperwork burden previously approved 
under the following:
     OMB Control Number 9000-0013, titled: Cost or Pricing Data 
Requirements Information Other Than Cost or Pricing Data;
     OMB Control Number 9000-0067, titled: Incentive Contract; 
and
     OMB Control Number 9000-0069, titled: Indirect Cost Rates.

List of Subjects in 48 CFR Parts 4, 42, and 52

    Government procurement.

    Dated: May 18, 2011.
Millisa Gary,
Acting Director, Office of Governmentwide Acquisition Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 4, 42, and 52 as 
set forth below:


0
1. The authority citation for 48 CFR parts 4, 42, 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 4--ADMINISTRATIVE MATTERS

0
2. Amend section 4.804-5 by revising paragraph (a)(2) to read as 
follows.


4.804-5  Procedures for closing out contract files.

    (a) * * *
    (2) Final patent report is cleared. If a final patent report is 
required, the contracting officer may proceed with contract closeout in 
accordance with the following procedures, or as otherwise prescribed by 
agency procedures:
    (i) Final patent reports should be cleared within 60 days of 
receipt.
    (ii) If the final patent report is not received, the contracting 
officer shall notify the contractor of the contractor's obligations and 
the Government's rights under the applicable patent rights clause, in 
accordance with 27.303. If the contractor fails to respond to this 
notification, the contracting officer may proceed with contract 
closeout upon consultation with the agency legal counsel responsible 
for patent matters regarding the contractor's failure to respond.
* * * * *

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
3. Amend section 42.705-1 by revising paragraphs (b)(1) and (b)(2) to 
read as follows:


42.705-1  Contracting officer determination procedure.

* * * * *
    (b) Procedures. (1) In accordance with the Allowable Cost and 
Payment clause at 52.216-7, the contractor is required to submit an 
adequate final indirect cost rate proposal to the contracting officer 
(or cognizant Federal agency official) and to the cognizant auditor.
    (i) The required content of the proposal and supporting data will 
vary depending on such factors as business type, size, and accounting 
system capabilities. The contractor, contracting officer, and auditor 
must work together to make the proposal, audit, and negotiation process 
as efficient as possible.
    (ii) Each contractor is required to submit the final indirect cost 
rate proposal within the six-month period following the expiration of 
each of its fiscal years. The contracting officer may grant, in 
writing, reasonable extensions, for exceptional circumstances only, 
when requested in writing by the contractor.
    (iii) Upon receipt of the proposal--
    (A) The cognizant auditor will review the adequacy of the 
contractor's proposal for audit in support of negotiating final 
indirect cost rates and will provide a written description of any 
inadequacies to the contractor and contracting officer.
    (B) If the auditor and contractor are unable to resolve the 
proposal's inadequacies identified by the auditor, the auditor will 
elevate the issue to the contracting office to resolve the 
inadequacies.
    (iv) The proposal must be supported with adequate supporting data, 
some of which may be required subsequent to finding that the proposal 
is adequate for audit in support of negotiating final indirect cost 
rates (e.g., during the course of the performance of the advisory 
audit). See the clause at 52.216-7(d)(2) for the description of an 
adequate final indirect cost rate proposal and supporting data.
    (2) Once a proposal has been determined to be adequate for audit in 
support of negotiating final indirect cost rates, the auditor will 
audit the proposal and prepare an advisory audit report to the 
contracting officer (or cognizant Federal agency official), including a 
listing of any relevant advance agreements or restrictive terms of 
specific contracts.
* * * * *

0
4. Amend section 42.705-2 by--
0
a. Revising the introductory text of paragraph (b)(2) and (b)(2)(i); 
and
0
b. Redesignating paragraphs (b)(2)(ii) through (iv) as paragraphs 
(b)(2)(iii) through (v), respectively; and adding a new paragraph 
(b)(2)(ii) to read as follows:


42.705-2  Auditor determination procedure.

* * * * *
    (b) * * *
    (2) Once a proposal has been determined to be adequate for audit in 
support of negotiating final indirect cost rates, the auditor shall--
    (i) Audit the proposal and prepare an advisory audit report, 
including a listing of any relevant advance agreements or restrictive 
terms of specific contracts;
    (ii) Seek agreement on indirect costs with the contractor;
* * * * *

0
5. Amend section 42.708 by revising paragraph (a) to read as follows:


42.708  Quick-closeout procedure.

    (a) The contracting officer responsible for contract closeout shall 
negotiate the settlement of direct and indirect costs for a specific 
contract, task order, or delivery order to be closed, in advance of the 
determination of final direct costs and indirect rates set forth in 
42.705, if--
    (1) The contract, task order, or delivery order is physically 
complete;
    (2) The amount of unsettled direct costs and indirect costs to be 
allocated to the contract, task order, or delivery order is relatively 
insignificant. Cost amounts will be considered relatively insignificant 
when the total unsettled direct costs and indirect costs to be 
allocated to any one contract, task order, or delivery order does not 
exceed the lesser of--
    (i) $1,000,000; or
    (ii) 10 percent of the total contract, task order, or delivery 
order amount;
    (3) The contracting officer performs a risk assessment and 
determines that the use of the quick-closeout procedure is appropriate. 
The risk assessment shall include--
    (i) Consideration of the contractor's accounting, estimating, and 
purchasing systems;
    (ii) Other concerns of the cognizant contract auditors; and
    (iii) Any other pertinent information, such as, documented history 
of Federal Government approved indirect cost rate agreements, changes 
to contractor's rate

[[Page 31409]]

structure, volatility of rate fluctuations during affected periods, 
mergers or acquisitions, special contract provisions limiting 
contractor's recovery of otherwise allowable indirect costs under cost 
reimbursement or time-and-materials contracts; and
    (4) Agreement can be reached on a reasonable estimate of allocable 
dollars.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Amend section 52.216-7 by--
0
a. Revising the date of the clause;
0
b. Adding paragraphs (d)(2)(iii) through (d)(2)(v); and
0
c. Adding two sentences to the end of paragraph (d)(5) to read as 
follows:


52.216-7  Allowable Cost and Payment.

* * * * *

Allowable Cost and Payment (JUN 2011)

* * * * *
    (d) * * *
    (2) * * *
    (iii) An adequate indirect cost rate proposal shall include the 
following data unless otherwise specified by the cognizant Federal 
agency official:
    (A) Summary of all claimed indirect expense rates, including 
pool, base, and calculated indirect rate.
    (B) General and Administrative expenses (final indirect cost 
pool). Schedule of claimed expenses by element of cost as identified 
in accounting records (Chart of Accounts).
    (C) Overhead expenses (final indirect cost pool). Schedule of 
claimed expenses by element of cost as identified in accounting 
records (Chart of Accounts) for each final indirect cost pool.
    (D) Occupancy expenses (intermediate indirect cost pool). 
Schedule of claimed expenses by element of cost as identified in 
accounting records (Chart of Accounts) and expense reallocation to 
final indirect cost pools.
    (E) Claimed allocation bases, by element of cost, used to 
distribute indirect costs.
    (F) Facilities capital cost of money factors computation.
    (G) Reconciliation of books of account (i.e., General Ledger) 
and claimed direct costs by major cost element.
    (H) Schedule of direct costs by contract and subcontract and 
indirect expense applied at claimed rates, as well as a subsidiary 
schedule of Government participation percentages in each of the 
allocation base amounts.
    (I) Schedule of cumulative direct and indirect costs claimed and 
billed by contract and subcontract.
    (J) Subcontract information. Listing of subcontracts awarded to 
companies for which the contractor is the prime or upper-tier 
contractor (include prime and subcontract numbers; subcontract value 
and award type; amount claimed during the fiscal year; and the 
subcontractor name, address, and point of contact information).
    (K) Summary of each time-and-materials and labor-hour contract 
information, including labor categories, labor rates, hours, and 
amounts; direct materials; other direct costs; and, indirect expense 
applied at claimed rates.
    (L) Reconciliation of total payroll per IRS form 941 to total 
labor costs distribution.
    (M) Listing of decisions/agreements/approvals and description of 
accounting/organizational changes.
    (N) Certificate of final indirect costs (see 52.242-4, 
Certification of Final Indirect Costs).
    (O) Contract closing information for contracts physically 
completed in this fiscal year (include contract number, period of 
performance, contract ceiling amounts, contract fee computations, 
level of effort, and indicate if the contract is ready to close).
    (iv) The following supplemental information is not required to 
determine if a proposal is adequate, but may be required during the 
audit process:
    (A) Comparative analysis of indirect expense pools detailed by 
account to prior fiscal year and budgetary data.
    (B) General Organizational information and Executive 
compensation for the five most highly compensated executives. See 
31.205-6(p). Additional salary reference information is available at 
http://www.whitehouse.gov/omb/procurement_index_exec_comp/.
    (C) Identification of prime contracts under which the contractor 
performs as a subcontractor.
    (D) Description of accounting system (excludes contractors 
required to submit a CAS Disclosure Statement or contractors where 
the description of the accounting system has not changed from the 
previous year's submission).
    (E) Procedures for identifying and excluding unallowable costs 
from the costs claimed and billed (excludes contractors where the 
procedures have not changed from the previous year's submission).
    (F) Certified financial statements and other financial data 
(e.g., trial balance, compilation, review, etc.).
    (G) Management letter from outside CPAs concerning any internal 
control weaknesses.
    (H) Actions that have been and/or will be implemented to correct 
the weaknesses described in the management letter from subparagraph 
(G) of this section.
    (I) List of all internal audit reports issued since the last 
disclosure of internal audit reports to the Government.
    (J) Annual internal audit plan of scheduled audits to be 
performed in the fiscal year when the final indirect cost rate 
submission is made.
    (K) Federal and State income tax returns.
    (L) Securities and Exchange Commission 10-K annual report.
    (M) Minutes from board of directors meetings.
    (N) Listing of delay claims and termination claims submitted 
which contain costs relating to the subject fiscal year.
    (O) Contract briefings, which generally include a synopsis of 
all pertinent contract provisions, such as: Contract type, contract 
amount, product or service(s) to be provided, contract performance 
period, rate ceilings, advance approval requirements, pre-contract 
cost allowability limitations, and billing limitations.
    (v) The Contractor shall update the billings on all contracts to 
reflect the final settled rates and update the schedule of 
cumulative direct and indirect costs claimed and billed, as required 
in paragraph (d)(2)(iii)(I) of this section, within 60 days after 
settlement of final indirect cost rates.
* * * * *
    (5) * * * The completion invoice or voucher shall include 
settled subcontract amounts and rates. The prime contractor is 
responsible for settling subcontractor amounts and rates included in 
the completion invoice or voucher and providing status of 
subcontractor audits to the contracting officer upon request.
* * * * *


0
7. Amend section 52.216-8 by revising the date of the clause and 
paragraph (b) to read as follows:


52.216-8   Fixed Fee.

* * * * *

Fixed Fee (JUN 2011)

* * * * *
    (b) Payment of the fixed fee shall be made as specified in the 
Schedule; provided that the Contracting Officer withholds a reserve 
not to exceed 15 percent of the total fixed fee or $100,000, 
whichever is less, to protect the Government's interest. The 
Contracting Officer shall release 75 percent of all fee withholds 
under this contract after receipt of an adequate certified final 
indirect cost rate proposal covering the year of physical completion 
of this contract, provided the Contractor has satisfied all other 
contract terms and conditions, including the submission of the final 
patent and royalty reports, and is not delinquent in submitting 
final vouchers on prior years' settlements. The Contracting Officer 
may release up to 90 percent of the fee withholds under this 
contract based on the Contractor's past performance related to the 
submission and settlement of final indirect cost rate proposals.
* * * * *


0
8. Amend section 52.216-9 by revising the date of the clause and 
paragraph (c) to read as follows:


52.216-9   Fixed Fee--Construction.

* * * * *

Fixed Fee--Construction (JUN 2011)

* * * * *
    (c) The Contracting Officer shall withhold a reserve not to 
exceed 15 percent of the total fixed fee or $100,000, whichever is 
less, to protect the Government's interest. The Contracting Officer 
shall release 75 percent of all fee withholds under this contract 
after receipt of an adequate certified final indirect cost rate 
proposal covering the year of physical completion of this contract, 
provided the Contractor has satisfied all other contract terms and 
conditions, including the submission of the final patent

[[Page 31410]]

and royalty reports, and is not delinquent in submitting final 
vouchers on prior years' settlements. The Contracting Officer may 
release up to 90 percent of the fee withholds under this contract 
based on the Contractor's past performance related to the submission 
and settlement of final indirect cost rate proposals.
* * * * *


0
9. Amend section 52.216-10 by revising the date of the clause and 
paragraph (c) to read as follows:


52.216-10   Incentive Fee.

* * * * *

Incentive Fee (JUN 2011)

* * * * *
    (c) Withholding of payment. (1) Normally, the Government shall 
pay the fee to the Contractor as specified in the Schedule. However, 
when the Contracting Officer considers that performance or cost 
indicates that the Contractor will not achieve target, the 
Government shall pay on the basis of an appropriate lesser fee. When 
the Contractor demonstrates that performance or cost clearly 
indicates that the Contractor will earn a fee significantly above 
the target fee, the Government may, at the sole discretion of the 
Contracting Officer, pay on the basis of an appropriate higher fee.
    (2) Payment of the incentive fee shall be made as specified in 
the Schedule; provided that the Contracting Officer withholds a 
reserve not to exceed 15 percent of the total incentive fee or 
$100,000, whichever is less, to protect the Government's interest. 
The Contracting Officer shall release 75 percent of all fee 
withholds under this contract after receipt of an adequate certified 
final indirect cost rate proposal covering the year of physical 
completion of this contract, provided the Contractor has satisfied 
all other contract terms and conditions, including the submission of 
the final patent and royalty reports, and is not delinquent in 
submitting final vouchers on prior years' settlements. The 
Contracting Officer may release up to 90 percent of the fee 
withholds under this contract based on the Contractor's past 
performance related to the submission and settlement of final 
indirect cost rate proposals.
* * * * *
[FR Doc. 2011-12852 Filed 5-27-11; 8:45 am]
BILLING CODE 6820-EP-P