Cost Accounting Standards: Elimination of the Exemption From Cost Accounting Standards for Contracts and Subcontracts Executed and Performed Entirely Outside the United States, Its Territories, and Possessions, 49365-49368 [2011-20212]
Download as PDF
<![CDATA[
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Rules and Regulations
List of Subjects in 47 CFR Part 73
Radio, Radio broadcasting.
Federal Communications Commission.
James D. Bradshaw,
Deputy Chief, Audio Division, Media Bureau.
Rule Changes
For the reasons discussed in the
preamble, the Federal Communications
Commission amends 47 CFR part 73 as
follows:
PART 73—RADIO BROADCAST
SERVICES
1. The authority citation for part 73
continues to read as follows:
■
Authority: 47 U.S.C. 154, 303, 334, 336,
and 339.
§ 73.202
[Amended]
2. Section 73.202(b), the Table of FM
Allotments under Oregon, is amended
by adding Gearhart, Channel 227A, by
removing Channel *251C1 at Madras, by
adding Channel *243C1 at Madras, and
by adding Manzanita, Channel 248C3.
■
[FR Doc. 2011–20340 Filed 8–9–11; 8:45 am]
BILLING CODE 6712–01–P
OFFICE OF MANAGEMENT AND
BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards:
Elimination of the Exemption From
Cost Accounting Standards for
Contracts and Subcontracts Executed
and Performed Entirely Outside the
United States, Its Territories, and
Possessions
mstockstill on DSK4VPTVN1PROD with RULES
AGENCY: Office of Management and
Budget (OMB), Office of Federal
Procurement Policy (OFPP), Cost
Accounting Standards Board (Board).
ACTION: Final rule.
SUMMARY: The Office of Federal
Procurement Policy (OFPP), Cost
Accounting Standards (CAS) Board, is
publishing a final rule to eliminate the
exemption from regulations regarding
Cost Accounting Standards for contracts
executed and performed entirely outside
the United States, its territories, and
possessions.
DATES: Effective Date: October 11, 2011.
FOR FURTHER INFORMATION CONTACT:
Raymond J. M. Wong, Director, Cost
Accounting Standards Board (telephone:
202–395–6805; e-mail:
Raymond_wong@omb.eop.gov).
SUPPLEMENTARY INFORMATION:
VerDate Mar<15>2010
16:51 Aug 09, 2011
Jkt 223001
A. Regulatory Process—Changes to 48
CFR Part 9903
The CAS Board’s regulations and
Standards are codified at 48 CFR
chapter 99. This notice concerns the
amendment of a CAS Board regulation
other than a Standard, and as such is
not subject to the statutorily prescribed
rulemaking process for the
promulgation of a Standard at 41 U.S.C.
1502(c) [formerly, 41 U.S.C. 422(g)]. The
document being published today is a
Final Rule.
B. Background and Summary
The Office of Federal Procurement
Policy (OFPP), Cost Accounting
Standards (CAS) Board, is publishing a
final rule to eliminate the exemption at
48 CFR 9903.201–1(b)(14) from the Cost
Accounting Standards for contracts
executed and performed entirely outside
the United States, its territories, and
possessions (hereafter referred to as the
‘‘(b)(14) overseas exemption’’).
The CAS Board is publishing a final
rule which eliminates the (b)(14)
overseas exemption from CAS for
contracts and subcontracts executed and
performed entirely outside the United
States, its territories, and possessions.
Statutory Requirement
Section 823(a) of the Duncan Hunter
National Defense Authorization Act for
Fiscal Year 2009 (NDAA FY 2009)
required the CAS Board to: ‘‘(1) Review
the inapplicability of the cost
accounting standards, in accordance
with existing exemptions, to any
contract and subcontract that is
executed and performed outside the
United States when such a contract or
subcontract is performed by a contractor
that, but for the fact that the contract or
subcontract is being executed and
performed entirely outside the United
States, would be required to comply
with such standards; and (2) determine
whether the application of the standards
to such a contract and subcontract (or
any category of such contracts and
subcontracts) would benefit the
Government.’’ Section 823 further
required the CAS Board to publish a
request for information and to submit to
the appropriate committees of Congress
a report containing: (1) Any proposed
revision to the CAS regulations as a
result of the review and a copy of any
proposed rulemaking implementing the
revision or (2) if no revision and
rulemaking are proposed, a detailed
justification for such decision.
History of the (b)(14) Overseas
Exemption
The (b)(14) overseas exemption was
first promulgated in 1973 at Section 3–
PO 00000
Frm 00087
Fmt 4700
Sfmt 4700
49365
1204 of the Armed Services
Procurement Regulation (ASPR). See
Defense Procurement Circular No. 115
(dated September 24, 1973). The reason
given for promulgation of the (b)(14)
overseas exemption was that the
underlying authority for CAS, Section
2168 of the Defense Production Act
(DPA), was applicable to the United
States, its Territories and possessions,
and the District of Columbia (Section
2163 of the DPA). The (b)(14) overseas
exemption was intended to eliminate
confusion that had existed at that time
over the applicability of CAS outside
the United States.
In 1980, the CAS Board ceased to
exist under the DPA. Congress
reestablished the CAS Board in 1988
under Section 22 of the OFPP Act, 41
U.S.C. 1501 [formerly, 41 U.S.C. 422].
Unlike the DPA, under the OFPP Act,
CAS is not limited in applicability to
the United States. However, in 1991, the
CAS Board, after reviewing the rules
and regulations applicable to the
administration of CAS, opted to retain
the (b)(14) overseas exemption.
The CAS Board later sought to
reevaluate the (b)(14) overseas
exemption. On September 13, 2005, the
CAS Board published a notice seeking
comment on the Staff Discussion Paper
(SDP) discussing the appropriateness of
continuing the exemption (70 FR
53977). Only three public comments
were received, all of which supported
retaining the exemption. The CAS Board
took no further action at that time and
published a notice discontinuing the
review on February 13, 2008 (73 FR
8259).
In response to Section 823(a) of
NDAA FY 2009, the CAS Board
published on April 23, 2009, another
notice requesting information on six
general questions regarding the (b)(14)
overseas exemption (74 FR 18491). In
addition to this notice, the CAS Board
requested assessments directly from
three Federal agencies with significant
volume of contracts performed outside
of the United States—the Department of
Defense (DOD), the Department of State
(DOS) and the United States Agency for
International Development (USAID).
After reviewing the comments received
from the notice and the assessments of
the three Federal agencies, the CAS
Board published a Notice of Proposed
Rule (NPR) on October 20, 2010,
proposing to eliminate the (b)(14)
overseas exemption (75 FR 64684). A
copy of the proposed rule was provided
to the appropriate committees of
Congress in accordance with Section
823.
E:\FR\FM\10AUR1.SGM
10AUR1
mstockstill on DSK4VPTVN1PROD with RULES
49366
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Rules and Regulations
Conclusions
The CAS Board has considered the
comments received in response to the
NPR, which are available to the public
on the CAS Board’s Web site at https://
www.whitehouse.gov/omb/
casb_index_public_comments/ and
https://www.regulations.gov, and has
concluded that the (b)(14) overseas
exemption should be eliminated.
Although the CAS Board’s responses to
specific comments received are
discussed later in this notice, the
principal reasons for eliminating the
exemptions are as follows:
(1) The statutory basis originally used
to justify the (b)(14) overseas exemption
no longer exists. Absent such
justification, the CAS Board must give
deference to the existing CAS
applicability statutes as mandatory for
use by all executive agencies and by
contractors and subcontractors in
estimating, accumulating, and reporting
costs in connection with pricing and
administration of, and settlement of
disputes concerning, all negotiated
prime contract and subcontract
procurements with the United States (41
U.S.C. 1502(b)(1)(B) [formerly, 41 U.S.C.
422(f)(2)(A)]).
(2) There is not an accounting basis
for the (b)(14) overseas exemption. The
place of contract execution and
performance is not germane to the
fundamental requirements and practices
set forth in CAS used to measure,
assign, and allocate the costs of contract
performance.
(3) The CAS Board was not persuaded
that the imposition of CAS in situations
where the (b)(14) overseas had been
applied would create hardships for
Federal agencies, prime contractors, and
subcontractors, particularly in view of
mitigating factors. Foremost among
these factors would be that a contractor
would still have available the
exemption at 48 CFR 9903.201–1(b)(4)
which states ‘‘Contracts and
subcontracts with foreign governments
or their agents or instrumentalities or,
insofar as the requirements of CAS other
than 9904.401 and 9904.402 are
concerned, any contract or subcontract
awarded to a foreign concern.’’ In the
CAS Board’s view, the imposition of
CAS 401, ‘‘Consistency in Estimating,
Accumulating and Reporting Costs,’’
and CAS 402, ‘‘Consistency in
Allocating Costs Incurred for the Same
Purpose,’’ are the minimal requirements
necessary to meet the requirements of
CAS. In the Board’s view, these minimal
requirements are not substantively
different from what is already imposed
under the Federal Acquisition
Regulation (FAR).
VerDate Mar<15>2010
16:51 Aug 09, 2011
Jkt 223001
C. Public Comments to the Notice of
Proposed Rule
In response to the NPR, the CAS
Board received a total of five comments
from a Federal agency, consultant,
public interest group, and industry and
trade associations. The comments,
which were all considered by the Board
in its deliberations, reflected a
difference of views on whether to retain
or eliminate the (b)(14) overseas
exemption. They are summarized and
addressed in this section, grouped by
common themes.
1. Comment: Two respondents
supported the CAS Board’s proposed
rule to eliminate the (b)(14) overseas
exemption.
Response: The CAS Board noted the
agreement.
2. Comment: One respondent believed
that eliminating the (b)(14) overseas
exemption will have a very narrow
impact in terms of the number of foreign
concerns which will become subject to
the consistency requirements of CAS
401 and 402, respectively, consistency
in estimating, accumulating and
reporting costs, and consistency in
allocating costs incurred for the same
purpose. Contract savvy foreign
concerns will attempt to enter into
contracts where another CAS exemption
is applicable. To the contrary, another
respondent opined that there is a
misconception that some other CAS
exemptions are applicable if the (b)(14)
overseas exemption is eliminated. The
respondent opined that the other CAS
exemptions are of limited applicability,
and that even the limited applicability
of CAS 401 and 402 would be a
deterrent to foreign concerns in
accepting subcontracts to satisfy the
U.S. contractors’ offset requirements. A
greater deterrent to foreign concerns are
the requirements to submit a CAS
Disclosure Statement and notifications
of changes in accounting practice with
cost impact analyses.
Response: The imposition of CAS 401
and CAS 402 are not likely to be a
hardship, since they are already
substantively applied by the FAR. The
threshold for submitting a CAS
Disclosure Statement was significantly
increased in 2000 to $50 million in
recognition that this requirement should
be applied to levels of contracting
activity where a more formal disclosure
was appropriate.
3. Comment: One respondent noted
that there is an obvious accounting basis
for retaining the (b)(14) overseas
exemption, specifically, the differences
between the fundamental accounting
principles between U.S. GAAP
(Generally Accepted Accounting
PO 00000
Frm 00088
Fmt 4700
Sfmt 4700
Principles) and IFRS (International
Financial Reporting Standards).
Response: The CAS Board does not
believe differences between GAAP and
IFRS are relevant to the question of
extending the (b)(14) overseas
exemption.
4. Comment: Two respondents noted
that the costs of CAS administration
would exceed any benefits achieved
from requiring CAS. One respondent
noted that essentially no aspect of the
CAS rulemaking during the past 37
years has received any input from
entities otherwise exempt from all CAS
requirements. Another respondent
noted that foreign concerns will have
difficulty understanding and
interpreting the CAS Disclosure
Statement, which is published only in
English. The respondent also noted that
not only foreign concerns will have
administrative costs in implementing
and administering CAS for foreign
concerns; the Government, and higher
tier subcontractors and prime
contractors with foreign concerns as
subcontractors will also have
administrative costs associated with
administering the CAS Disclosure
Statement process, as well as the cost
impacts for cost accounting changes and
CAS non-compliances.
Response: For reasons previously
discussed, the CAS Board does not agree
that the administrative costs of
essentially applying CAS 401 and CAS
402 will exceed the benefits received by
the taxpayers. There presently are
foreign concerns, unable to take
advantage of the (b)(14) overseas
exemption, that are able to comply with
the applicable requirements of CAS.
Moreover, the same requirements are in
the FAR.
5. Comment: Two respondents raised
concerns about an unintended
consequence of imposing CAS on
foreign concerns: the negative impact on
exports which would result. The
expressed concern was that the U.S.
aerospace export sales would be
endangered. The respondents stated that
U.S. aerospace export sales have been
enabled by the purchase of parts
supplied by foreign concern
subcontractors who are currently
exempted from CAS, presumably by the
(b)(14) overseas exemption. The
respondents argued that contractors
must satisfy offset requirements in order
to make the sale to the foreign country.
Offset requirements are host country
industrial participation requirements
imposed by the foreign host country as
a condition of the contract. Contractors
establish relationships with foreign
subcontractors to develop potential
offset placements to position themselves
E:\FR\FM\10AUR1.SGM
10AUR1
mstockstill on DSK4VPTVN1PROD with RULES
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Rules and Regulations
for future contract awards for export
sales. Such relationships are established
and developed with strategic placement
of subcontracts for contracts with the
U.S. in anticipation of new export sales
opportunities and related offset
obligations.
Response: Based on these comments,
the CAS Board sought additional
guidance on the matter of exports.
Aerospace sales to foreign countries are
made through either foreign military
sales (FMS) contracts with the U.S.
Government as the party to the contract
with the contractor or contracts
executed directly between the foreign
host country and the U.S. contractor as
a ‘‘commercial sale.’’ The CAS
requirements are only imposed on sales
to the U.S. Government (in this case, to
the FMS contracts), and not on a
commercial sale made directly with the
foreign host country. U.S. Government
funded FMS contracts do not have offset
requirements, while foreign government
funded FMS contracts may have offset
requirements. In those instances when
there are offset requirements in FMS
contracts, the imposition of CAS 401
and CAS 402, if applicable, are not
likely to be a hardship, since they are
already substantively applied by the
FAR for subcontracts. See the responses
to Comments 2 and 4.
6. Comment: One respondent stated
that the other CAS exemptions or
applicability requirements are not
applicable to foreign concerns,
generally. Sealed bidding would not be
effective for subcontracting to meet
offset requirements where discussions
are likely to be necessary. The CAS
applicability threshold of $650,000
(soon to be adjusted to $700,000) still
leaves many foreign concern
subcontractors subject to it. The small
business exemption from CAS only
applies to U.S. businesses. While
contracts and subcontracts with foreign
governments or their instrumentalities
are exempted from CAS, other foreign
concerns are still subject to CAS 401
and 402, which would be a deterrent to
foreign concerns accepting subcontracts
to satisfy offset for U.S. contractors
when they do not have CAS
requirements for subcontracts with nonU.S. contractors. The larger deterrent for
the larger subcontractors (who exceed
the $50 million CAS Disclosure
Statement filing threshold) is the
Disclosure Statement filing requirement.
The CAS exemption applicable when
the price is set by law or regulation is
irrelevant to foreign concern
subcontracts for aerospace products.
The CAS exemption for firm-fixed price
(FFP) contracts, fixed price contracts
with economic price adjustments, and
VerDate Mar<15>2010
16:51 Aug 09, 2011
Jkt 223001
contracts and subcontracts for
commercial items has limited
applicability. The CAS exemption for
the NATO PHM Ship program has
limited applicability, and is not
germane to foreign concern subcontracts
for aerospace products. The limited
technical capabilities of the industrial
bases of many countries with offset
requirements make competition not
tenable. Even in the most competitive
emerging markets, i.e., India, South
Korea, Saudi Arabia, and Turkey,
competition in the award of
subcontracts will be severely limited by
the industrial base, limiting the
applicability of the CAS exemption for
FFP contracts and subcontracts awarded
on the basis of adequate price
competition without cost or pricing
data.
Response: Whether or not another
CAS exemption might apply, aside from
the previously discussed exemption at
48 CFR 9903.201–1(b)(4), is not germane
to the question of eliminating the (b)(14)
overseas exemption. While it is likely
that other exemptions might apply in
certain situations, it is recognized that
some exemptions would never apply.
However, finding an alternative
exemption that yields the same result as
the (b)(14) overseas exemption is not the
objective of this assessment. The
relevant question is whether, given the
absence of conditions which created the
exemption in the first place, there are
other sufficient reasons for retaining the
exemption. As previously stated, the
CAS Board has not been persuaded that
there are other sufficient reasons for
retaining the exemption.
7. Comment: A respondent noted that
the CAS waiver process is not suitable
in the foreign concern subcontracting
context. A CAS waiver must be
requested by an agency, rather than the
contractor, considering the needs of the
agency with supporting justification
from the perspective of the agency. The
waiver process is not conducive to the
offset obligations of the contractor as the
offset requirement may be contrary to
the requirement to establish other
sources to avoid a waiver in the future.
Response: The CAS Board agrees that
the waiver process may be arduous.
However, given that only CAS 401 and
CAS 402 would be imposed in the
absence of the (b)(14) overseas
exemption, the CAS Board believes it is
unlikely that a CAS waiver would be
requested.
8. Comment: A respondent opined
that the impact from the elimination of
the (b)(14) overseas exemption on
foreign concern subcontractors is
understated. The respondent stated the
impact of eliminating (b)(14) overseas
PO 00000
Frm 00089
Fmt 4700
Sfmt 4700
49367
exemption will be most acute on foreign
concern subcontractors, and the prime
contractors and higher-tier
subcontractors who have relied on the
that exemption historically. Foreign
concern subcontractor usage data is not
readily available because there is no
requirement to capture it. While
everyone believes subcontractors will be
affected, the scope of the impact is
unknown.
Response: The CAS Board
understands that the visibility into
subcontracting activities of a prime
contractor is limited, particularly
foreign concern subcontractors. The
CAS Board notes that this condition has
also been given as reasoning for
eliminating the (b)(14) overseas
exemption. As previously discussed, the
CAS Board believes there will be
mitigating factors that lessen the impact
on foreign concern subcontractors. If
this proves to be unfounded, then the
CAS Board can reconsider the (b)(14)
overseas exemption.
9. Comment: Two respondents stated
that the elimination of the (b)(14)
overseas exemption is contrary to U.S.
export and foreign economic
development policies. There is a long
standing belief that export of defense
industry products benefit the US, and
laws and regulations reflect that. NDAA
FYs 1988 and 1989 (respectively, Pub.
L. 100–202 and 100–456) made
allowable the costs of promoting the
export of US defense industry products.
The March 11, 2010 Executive Order
(EO) on the National Export Initiative
established the Administration’s goal to
double exports over the next five years
as a critical component to stimulate
economic growth in US. Elimination of
exemption would create competitive
disadvantages for U.S. firms attempting
to grow export sales of defense industry
products as exports are linked to offsets.
A key element of Government policy in
war torn and economically
underdeveloped countries is to require
prime contractors to subcontract with
host foreign country subcontractors.
Imposition of CAS ‘‘will likely shrink
the local competitive landscape, stymie
host country economic development,
potentially harm project missions, and
stress relations with foreign
governments.’’
Response: The CAS Board does not
accept the notion that eliminating the
(b)(14) overseas exemption is contrary to
U.S. export and foreign economic
development policies. No one within
the Legislative or Executive Branches
has made that claim at any time during
the rulemaking process. The CAS Board
has not been persuaded that the burden
imposed by CAS 401 and CAS 402, as
E:\FR\FM\10AUR1.SGM
10AUR1
49368
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Rules and Regulations
well as perhaps the CAS Disclosure
Statement, will be significant.
10. Comment: A respondent observed
that the (b)(14) overseas exemption has
not been identified as a cause for
overseas subcontracting challenges in
recent testimonies. On June 29, 2010,
Stuart W. Bowen, Jr., Special Inspector
General for Iraq Reconstruction, testified
before the House Subcommittee on
National Security and Foreign Affairs,
and identified many subcontracting
issues. However, he did not mention the
(b)(14) overseas exemption from CAS as
a cause for any of the issues, nor did he
recommend the imposition of CAS
coverage on foreign concern
subcontracts as a potential solution. In
the July 26, 2010 hearing on war zone
subcontracting before the Commission
on Wartime Contracting (CWC), none of
the witnesses cited the (b)(14) overseas
exemption from CAS as contributing to
the subcontracting challenges identified
during the hearings, nor did any witness
recommend the imposition of CAS
coverage as a solution to overseas
subcontracting problems. None of the
CWC commissioners spoke of, or
inquired about, subcontractor CAS
coverage or CAS compliance during
opening statements or witness
testimony.
Response: The CAS Board does not
accept this reasoning for retaining the
(b)(14) overseas exemption.
the provisions of Executive Order
12866, and that a regulatory impact
analysis is not required. For the same
reason, the Administrator of the Office
of Information and Regulatory Affairs
has determined that this final rule is not
a ‘‘major rule’’ under the Congressional
Review Act, 5 U.S.C. chapter 8. Finally,
this rule does not have a significant
effect on a substantial number of small
entities because small businesses are
exempt from the application of the Cost
Accounting Standards. Therefore, this
final rule does not require a regulatory
flexibility analysis under the Regulatory
Flexibility Act of 1980, 5 U.S.C.
chapter 6.
F. List of Subjects in 48 CFR 9903
Government procurement, Cost
accounting standards.
Daniel I. Gordon,
Chair, Cost Accounting Standards Board.
For the reasons set forth in this
preamble, Chapter 99 of Title 48 of the
Code of Federal Regulations is proposed
to be amended as set forth below:
PART 9903—COST ACCOUNTING
STANDARDS
1. The authority citation for Part 9903
is amended to read as follows:
■
Authority: Public Law 111–350, 124 Stat.
3677, 41 U.S.C. 1502.
mstockstill on DSK4VPTVN1PROD with RULES
D. Paperwork Reduction Act
The Paperwork Reduction Act (44
U.S.C. chapter 35, subchapter I) does
not apply to this rulemaking, because
this rule imposes no additional
paperwork burden on offerors, affected
contractors and subcontractors, or
members of the public which requires
the approval of OMB under 44 U.S.C.
3501, et seq. The records required by
this final rule are those normally
maintained by contractors and
subcontractors who claim
reimbursement of costs under
government contracts.
9903.201–1
E. Executive Order 12866, the
Congressional Review Act, and the
Regulatory Flexibility Act
Because the affected contractors and
subcontractors are those who are
already subject to CAS but for the
(b)(14) overseas exemption, and those
who are subject to only CAS 401 and
402 under the (b)(4) foreign concern
exemption, the economic impact of this
final rule on contractors and
subcontractors is expected to be minor.
As a result, the CAS Board has
determined that this final rule will not
result in the promulgation of an
‘‘economically significant rule’’ under
[Docket No. 110112022–1262–02]
VerDate Mar<15>2010
19:04 Aug 09, 2011
Jkt 223001
[Amended]
2. Section 9903.201–1 is amended by
removing and reserving paragraph
(b)(14).
■
[FR Doc. 2011–20212 Filed 8–9–11; 8:45 am]
BILLING CODE P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 635
RIN 0648–BA45
Atlantic Highly Migratory Species;
Modification of the Retention of
Incidentally-Caught Highly Migratory
Species in Atlantic Trawl Fisheries
AGENCY: National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Final rule.
SUMMARY: This final rule modifies the
permitting requirements and retention
limits for Atlantic highly migratory
PO 00000
Frm 00090
Fmt 4700
Sfmt 4700
species (HMS) that are incidentallycaught in Atlantic trawl fisheries. This
action will reduce regulatory dead
discards of incidentally-caught Atlantic
swordfish in the Illex squid trawl
fishery by establishing a new Incidental
HMS Squid Trawl permit for all valid
Illex squid moratorium permit holders.
The Incidental HMS Squid Trawl permit
will allow up to 15 swordfish per trip
to be retained. The final rule also
establishes a retention limit for
smoothhound sharks in all Atlantic
trawl fisheries. These actions are
necessary to achieve domestic
management objectives under the
Magnuson-Stevens Fishery
Conservation and Management Act
(Magnuson-Stevens Act), and to
implement the 2006 Consolidated HMS
Fishery Management Plan (Consolidated
HMS FMP), including objectives in the
FMP to monitor and control all
components of fishing mortality, both
directed and incidental, so as to ensure
the long-term sustainability of HMS
stocks, and to provide the data
necessary for assessing HMS fish stocks
and managing HMS, including
addressing inadequacies in current data
collection and the ongoing collection of
economic and bycatch data in Atlantic
HMS fisheries.
DATES: Effective August 10, 2011, except
for the amendments to § 635.21(e)(3)(i),
§ 635.24(a)(7), and § 635.71(d)(18),
which are delayed indefinitely. NMFS
will publish a document in the Federal
Register announcing the effective dates
for this amendments.
ADDRESSES: Highly Migratory Species
Management Division, 1315 East-West
Highway, Silver Spring, MD 20910.
Copies of the supporting documents—
including the Environmental
Assessment (EA), Regulatory Impact
Review (RIR), Final Regulatory
Flexibility Analysis (FRFA), small entity
compliance guide, and the 2006
Consolidated Atlantic HMSFMP—are
available from the HMS Web site at
https://www.nmfs.noaa.gov/sfa/hms/.
Written comments regarding the
burden-hour estimates or other aspects
of the collection-of-information
requirements contained in this final rule
may be submitted to the HMS
Management Division (see above) and
by e-mail to
OIRA_Submission@omb.eop.gov, or fax
to (202) 395–7285.
FOR FURTHER INFORMATION CONTACT: Rick
Pearson at (727) 824–5399, Steve Durkee
at (202) 670–6637, or Delisse Ortiz at
(301) 427–8503.
SUPPLEMENTARY INFORMATION: North
Atlantic swordfish and smoothhound
shark species are managed under the
E:\FR\FM\10AUR1.SGM
10AUR1
]]>Agencies
[Federal Register Volume 76, Number 154 (Wednesday, August 10, 2011)]
[Rules and Regulations]
[Pages 49365-49368]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20212]
=======================================================================
-----------------------------------------------------------------------
OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
48 CFR Part 9903
Cost Accounting Standards: Elimination of the Exemption From Cost
Accounting Standards for Contracts and Subcontracts Executed and
Performed Entirely Outside the United States, Its Territories, and
Possessions
AGENCY: Office of Management and Budget (OMB), Office of Federal
Procurement Policy (OFPP), Cost Accounting Standards Board (Board).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of Federal Procurement Policy (OFPP), Cost
Accounting Standards (CAS) Board, is publishing a final rule to
eliminate the exemption from regulations regarding Cost Accounting
Standards for contracts executed and performed entirely outside the
United States, its territories, and possessions.
DATES: Effective Date: October 11, 2011.
FOR FURTHER INFORMATION CONTACT: Raymond J. M. Wong, Director, Cost
Accounting Standards Board (telephone: 202-395-6805; e-mail: Raymond_wong@omb.eop.gov).
SUPPLEMENTARY INFORMATION:
A. Regulatory Process--Changes to 48 CFR Part 9903
The CAS Board's regulations and Standards are codified at 48 CFR
chapter 99. This notice concerns the amendment of a CAS Board
regulation other than a Standard, and as such is not subject to the
statutorily prescribed rulemaking process for the promulgation of a
Standard at 41 U.S.C. 1502(c) [formerly, 41 U.S.C. 422(g)]. The
document being published today is a Final Rule.
B. Background and Summary
The Office of Federal Procurement Policy (OFPP), Cost Accounting
Standards (CAS) Board, is publishing a final rule to eliminate the
exemption at 48 CFR 9903.201-1(b)(14) from the Cost Accounting
Standards for contracts executed and performed entirely outside the
United States, its territories, and possessions (hereafter referred to
as the ``(b)(14) overseas exemption'').
The CAS Board is publishing a final rule which eliminates the
(b)(14) overseas exemption from CAS for contracts and subcontracts
executed and performed entirely outside the United States, its
territories, and possessions.
Statutory Requirement
Section 823(a) of the Duncan Hunter National Defense Authorization
Act for Fiscal Year 2009 (NDAA FY 2009) required the CAS Board to:
``(1) Review the inapplicability of the cost accounting standards, in
accordance with existing exemptions, to any contract and subcontract
that is executed and performed outside the United States when such a
contract or subcontract is performed by a contractor that, but for the
fact that the contract or subcontract is being executed and performed
entirely outside the United States, would be required to comply with
such standards; and (2) determine whether the application of the
standards to such a contract and subcontract (or any category of such
contracts and subcontracts) would benefit the Government.'' Section 823
further required the CAS Board to publish a request for information and
to submit to the appropriate committees of Congress a report
containing: (1) Any proposed revision to the CAS regulations as a
result of the review and a copy of any proposed rulemaking implementing
the revision or (2) if no revision and rulemaking are proposed, a
detailed justification for such decision.
History of the (b)(14) Overseas Exemption
The (b)(14) overseas exemption was first promulgated in 1973 at
Section 3-1204 of the Armed Services Procurement Regulation (ASPR). See
Defense Procurement Circular No. 115 (dated September 24, 1973). The
reason given for promulgation of the (b)(14) overseas exemption was
that the underlying authority for CAS, Section 2168 of the Defense
Production Act (DPA), was applicable to the United States, its
Territories and possessions, and the District of Columbia (Section 2163
of the DPA). The (b)(14) overseas exemption was intended to eliminate
confusion that had existed at that time over the applicability of CAS
outside the United States.
In 1980, the CAS Board ceased to exist under the DPA. Congress
reestablished the CAS Board in 1988 under Section 22 of the OFPP Act,
41 U.S.C. 1501 [formerly, 41 U.S.C. 422]. Unlike the DPA, under the
OFPP Act, CAS is not limited in applicability to the United States.
However, in 1991, the CAS Board, after reviewing the rules and
regulations applicable to the administration of CAS, opted to retain
the (b)(14) overseas exemption.
The CAS Board later sought to reevaluate the (b)(14) overseas
exemption. On September 13, 2005, the CAS Board published a notice
seeking comment on the Staff Discussion Paper (SDP) discussing the
appropriateness of continuing the exemption (70 FR 53977). Only three
public comments were received, all of which supported retaining the
exemption. The CAS Board took no further action at that time and
published a notice discontinuing the review on February 13, 2008 (73 FR
8259).
In response to Section 823(a) of NDAA FY 2009, the CAS Board
published on April 23, 2009, another notice requesting information on
six general questions regarding the (b)(14) overseas exemption (74 FR
18491). In addition to this notice, the CAS Board requested assessments
directly from three Federal agencies with significant volume of
contracts performed outside of the United States--the Department of
Defense (DOD), the Department of State (DOS) and the United States
Agency for International Development (USAID). After reviewing the
comments received from the notice and the assessments of the three
Federal agencies, the CAS Board published a Notice of Proposed Rule
(NPR) on October 20, 2010, proposing to eliminate the (b)(14) overseas
exemption (75 FR 64684). A copy of the proposed rule was provided to
the appropriate committees of Congress in accordance with Section 823.
[[Page 49366]]
Conclusions
The CAS Board has considered the comments received in response to
the NPR, which are available to the public on the CAS Board's Web site
at https://www.whitehouse.gov/omb/casb_index_public_comments/ and
https://www.regulations.gov, and has concluded that the (b)(14) overseas
exemption should be eliminated. Although the CAS Board's responses to
specific comments received are discussed later in this notice, the
principal reasons for eliminating the exemptions are as follows:
(1) The statutory basis originally used to justify the (b)(14)
overseas exemption no longer exists. Absent such justification, the CAS
Board must give deference to the existing CAS applicability statutes as
mandatory for use by all executive agencies and by contractors and
subcontractors in estimating, accumulating, and reporting costs in
connection with pricing and administration of, and settlement of
disputes concerning, all negotiated prime contract and subcontract
procurements with the United States (41 U.S.C. 1502(b)(1)(B) [formerly,
41 U.S.C. 422(f)(2)(A)]).
(2) There is not an accounting basis for the (b)(14) overseas
exemption. The place of contract execution and performance is not
germane to the fundamental requirements and practices set forth in CAS
used to measure, assign, and allocate the costs of contract
performance.
(3) The CAS Board was not persuaded that the imposition of CAS in
situations where the (b)(14) overseas had been applied would create
hardships for Federal agencies, prime contractors, and subcontractors,
particularly in view of mitigating factors. Foremost among these
factors would be that a contractor would still have available the
exemption at 48 CFR 9903.201-1(b)(4) which states ``Contracts and
subcontracts with foreign governments or their agents or
instrumentalities or, insofar as the requirements of CAS other than
9904.401 and 9904.402 are concerned, any contract or subcontract
awarded to a foreign concern.'' In the CAS Board's view, the imposition
of CAS 401, ``Consistency in Estimating, Accumulating and Reporting
Costs,'' and CAS 402, ``Consistency in Allocating Costs Incurred for
the Same Purpose,'' are the minimal requirements necessary to meet the
requirements of CAS. In the Board's view, these minimal requirements
are not substantively different from what is already imposed under the
Federal Acquisition Regulation (FAR).
C. Public Comments to the Notice of Proposed Rule
In response to the NPR, the CAS Board received a total of five
comments from a Federal agency, consultant, public interest group, and
industry and trade associations. The comments, which were all
considered by the Board in its deliberations, reflected a difference of
views on whether to retain or eliminate the (b)(14) overseas exemption.
They are summarized and addressed in this section, grouped by common
themes.
1. Comment: Two respondents supported the CAS Board's proposed rule
to eliminate the (b)(14) overseas exemption.
Response: The CAS Board noted the agreement.
2. Comment: One respondent believed that eliminating the (b)(14)
overseas exemption will have a very narrow impact in terms of the
number of foreign concerns which will become subject to the consistency
requirements of CAS 401 and 402, respectively, consistency in
estimating, accumulating and reporting costs, and consistency in
allocating costs incurred for the same purpose. Contract savvy foreign
concerns will attempt to enter into contracts where another CAS
exemption is applicable. To the contrary, another respondent opined
that there is a misconception that some other CAS exemptions are
applicable if the (b)(14) overseas exemption is eliminated. The
respondent opined that the other CAS exemptions are of limited
applicability, and that even the limited applicability of CAS 401 and
402 would be a deterrent to foreign concerns in accepting subcontracts
to satisfy the U.S. contractors' offset requirements. A greater
deterrent to foreign concerns are the requirements to submit a CAS
Disclosure Statement and notifications of changes in accounting
practice with cost impact analyses.
Response: The imposition of CAS 401 and CAS 402 are not likely to
be a hardship, since they are already substantively applied by the FAR.
The threshold for submitting a CAS Disclosure Statement was
significantly increased in 2000 to $50 million in recognition that this
requirement should be applied to levels of contracting activity where a
more formal disclosure was appropriate.
3. Comment: One respondent noted that there is an obvious
accounting basis for retaining the (b)(14) overseas exemption,
specifically, the differences between the fundamental accounting
principles between U.S. GAAP (Generally Accepted Accounting Principles)
and IFRS (International Financial Reporting Standards).
Response: The CAS Board does not believe differences between GAAP
and IFRS are relevant to the question of extending the (b)(14) overseas
exemption.
4. Comment: Two respondents noted that the costs of CAS
administration would exceed any benefits achieved from requiring CAS.
One respondent noted that essentially no aspect of the CAS rulemaking
during the past 37 years has received any input from entities otherwise
exempt from all CAS requirements. Another respondent noted that foreign
concerns will have difficulty understanding and interpreting the CAS
Disclosure Statement, which is published only in English. The
respondent also noted that not only foreign concerns will have
administrative costs in implementing and administering CAS for foreign
concerns; the Government, and higher tier subcontractors and prime
contractors with foreign concerns as subcontractors will also have
administrative costs associated with administering the CAS Disclosure
Statement process, as well as the cost impacts for cost accounting
changes and CAS non-compliances.
Response: For reasons previously discussed, the CAS Board does not
agree that the administrative costs of essentially applying CAS 401 and
CAS 402 will exceed the benefits received by the taxpayers. There
presently are foreign concerns, unable to take advantage of the (b)(14)
overseas exemption, that are able to comply with the applicable
requirements of CAS. Moreover, the same requirements are in the FAR.
5. Comment: Two respondents raised concerns about an unintended
consequence of imposing CAS on foreign concerns: the negative impact on
exports which would result. The expressed concern was that the U.S.
aerospace export sales would be endangered. The respondents stated that
U.S. aerospace export sales have been enabled by the purchase of parts
supplied by foreign concern subcontractors who are currently exempted
from CAS, presumably by the (b)(14) overseas exemption. The respondents
argued that contractors must satisfy offset requirements in order to
make the sale to the foreign country. Offset requirements are host
country industrial participation requirements imposed by the foreign
host country as a condition of the contract. Contractors establish
relationships with foreign subcontractors to develop potential offset
placements to position themselves
[[Page 49367]]
for future contract awards for export sales. Such relationships are
established and developed with strategic placement of subcontracts for
contracts with the U.S. in anticipation of new export sales
opportunities and related offset obligations.
Response: Based on these comments, the CAS Board sought additional
guidance on the matter of exports. Aerospace sales to foreign countries
are made through either foreign military sales (FMS) contracts with the
U.S. Government as the party to the contract with the contractor or
contracts executed directly between the foreign host country and the
U.S. contractor as a ``commercial sale.'' The CAS requirements are only
imposed on sales to the U.S. Government (in this case, to the FMS
contracts), and not on a commercial sale made directly with the foreign
host country. U.S. Government funded FMS contracts do not have offset
requirements, while foreign government funded FMS contracts may have
offset requirements. In those instances when there are offset
requirements in FMS contracts, the imposition of CAS 401 and CAS 402,
if applicable, are not likely to be a hardship, since they are already
substantively applied by the FAR for subcontracts. See the responses to
Comments 2 and 4.
6. Comment: One respondent stated that the other CAS exemptions or
applicability requirements are not applicable to foreign concerns,
generally. Sealed bidding would not be effective for subcontracting to
meet offset requirements where discussions are likely to be necessary.
The CAS applicability threshold of $650,000 (soon to be adjusted to
$700,000) still leaves many foreign concern subcontractors subject to
it. The small business exemption from CAS only applies to U.S.
businesses. While contracts and subcontracts with foreign governments
or their instrumentalities are exempted from CAS, other foreign
concerns are still subject to CAS 401 and 402, which would be a
deterrent to foreign concerns accepting subcontracts to satisfy offset
for U.S. contractors when they do not have CAS requirements for
subcontracts with non-U.S. contractors. The larger deterrent for the
larger subcontractors (who exceed the $50 million CAS Disclosure
Statement filing threshold) is the Disclosure Statement filing
requirement. The CAS exemption applicable when the price is set by law
or regulation is irrelevant to foreign concern subcontracts for
aerospace products. The CAS exemption for firm-fixed price (FFP)
contracts, fixed price contracts with economic price adjustments, and
contracts and subcontracts for commercial items has limited
applicability. The CAS exemption for the NATO PHM Ship program has
limited applicability, and is not germane to foreign concern
subcontracts for aerospace products. The limited technical capabilities
of the industrial bases of many countries with offset requirements make
competition not tenable. Even in the most competitive emerging markets,
i.e., India, South Korea, Saudi Arabia, and Turkey, competition in the
award of subcontracts will be severely limited by the industrial base,
limiting the applicability of the CAS exemption for FFP contracts and
subcontracts awarded on the basis of adequate price competition without
cost or pricing data.
Response: Whether or not another CAS exemption might apply, aside
from the previously discussed exemption at 48 CFR 9903.201-1(b)(4), is
not germane to the question of eliminating the (b)(14) overseas
exemption. While it is likely that other exemptions might apply in
certain situations, it is recognized that some exemptions would never
apply. However, finding an alternative exemption that yields the same
result as the (b)(14) overseas exemption is not the objective of this
assessment. The relevant question is whether, given the absence of
conditions which created the exemption in the first place, there are
other sufficient reasons for retaining the exemption. As previously
stated, the CAS Board has not been persuaded that there are other
sufficient reasons for retaining the exemption.
7. Comment: A respondent noted that the CAS waiver process is not
suitable in the foreign concern subcontracting context. A CAS waiver
must be requested by an agency, rather than the contractor, considering
the needs of the agency with supporting justification from the
perspective of the agency. The waiver process is not conducive to the
offset obligations of the contractor as the offset requirement may be
contrary to the requirement to establish other sources to avoid a
waiver in the future.
Response: The CAS Board agrees that the waiver process may be
arduous. However, given that only CAS 401 and CAS 402 would be imposed
in the absence of the (b)(14) overseas exemption, the CAS Board
believes it is unlikely that a CAS waiver would be requested.
8. Comment: A respondent opined that the impact from the
elimination of the (b)(14) overseas exemption on foreign concern
subcontractors is understated. The respondent stated the impact of
eliminating (b)(14) overseas exemption will be most acute on foreign
concern subcontractors, and the prime contractors and higher-tier
subcontractors who have relied on the that exemption historically.
Foreign concern subcontractor usage data is not readily available
because there is no requirement to capture it. While everyone believes
subcontractors will be affected, the scope of the impact is unknown.
Response: The CAS Board understands that the visibility into
subcontracting activities of a prime contractor is limited,
particularly foreign concern subcontractors. The CAS Board notes that
this condition has also been given as reasoning for eliminating the
(b)(14) overseas exemption. As previously discussed, the CAS Board
believes there will be mitigating factors that lessen the impact on
foreign concern subcontractors. If this proves to be unfounded, then
the CAS Board can reconsider the (b)(14) overseas exemption.
9. Comment: Two respondents stated that the elimination of the
(b)(14) overseas exemption is contrary to U.S. export and foreign
economic development policies. There is a long standing belief that
export of defense industry products benefit the US, and laws and
regulations reflect that. NDAA FYs 1988 and 1989 (respectively, Pub. L.
100-202 and 100-456) made allowable the costs of promoting the export
of US defense industry products. The March 11, 2010 Executive Order
(EO) on the National Export Initiative established the Administration's
goal to double exports over the next five years as a critical component
to stimulate economic growth in US. Elimination of exemption would
create competitive disadvantages for U.S. firms attempting to grow
export sales of defense industry products as exports are linked to
offsets. A key element of Government policy in war torn and
economically underdeveloped countries is to require prime contractors
to subcontract with host foreign country subcontractors. Imposition of
CAS ``will likely shrink the local competitive landscape, stymie host
country economic development, potentially harm project missions, and
stress relations with foreign governments.''
Response: The CAS Board does not accept the notion that eliminating
the (b)(14) overseas exemption is contrary to U.S. export and foreign
economic development policies. No one within the Legislative or
Executive Branches has made that claim at any time during the
rulemaking process. The CAS Board has not been persuaded that the
burden imposed by CAS 401 and CAS 402, as
[[Page 49368]]
well as perhaps the CAS Disclosure Statement, will be significant.
10. Comment: A respondent observed that the (b)(14) overseas
exemption has not been identified as a cause for overseas
subcontracting challenges in recent testimonies. On June 29, 2010,
Stuart W. Bowen, Jr., Special Inspector General for Iraq
Reconstruction, testified before the House Subcommittee on National
Security and Foreign Affairs, and identified many subcontracting
issues. However, he did not mention the (b)(14) overseas exemption from
CAS as a cause for any of the issues, nor did he recommend the
imposition of CAS coverage on foreign concern subcontracts as a
potential solution. In the July 26, 2010 hearing on war zone
subcontracting before the Commission on Wartime Contracting (CWC), none
of the witnesses cited the (b)(14) overseas exemption from CAS as
contributing to the subcontracting challenges identified during the
hearings, nor did any witness recommend the imposition of CAS coverage
as a solution to overseas subcontracting problems. None of the CWC
commissioners spoke of, or inquired about, subcontractor CAS coverage
or CAS compliance during opening statements or witness testimony.
Response: The CAS Board does not accept this reasoning for
retaining the (b)(14) overseas exemption.
D. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35, subchapter I)
does not apply to this rulemaking, because this rule imposes no
additional paperwork burden on offerors, affected contractors and
subcontractors, or members of the public which requires the approval of
OMB under 44 U.S.C. 3501, et seq. The records required by this final
rule are those normally maintained by contractors and subcontractors
who claim reimbursement of costs under government contracts.
E. Executive Order 12866, the Congressional Review Act, and the
Regulatory Flexibility Act
Because the affected contractors and subcontractors are those who
are already subject to CAS but for the (b)(14) overseas exemption, and
those who are subject to only CAS 401 and 402 under the (b)(4) foreign
concern exemption, the economic impact of this final rule on
contractors and subcontractors is expected to be minor. As a result,
the CAS Board has determined that this final rule will not result in
the promulgation of an ``economically significant rule'' under the
provisions of Executive Order 12866, and that a regulatory impact
analysis is not required. For the same reason, the Administrator of the
Office of Information and Regulatory Affairs has determined that this
final rule is not a ``major rule'' under the Congressional Review Act,
5 U.S.C. chapter 8. Finally, this rule does not have a significant
effect on a substantial number of small entities because small
businesses are exempt from the application of the Cost Accounting
Standards. Therefore, this final rule does not require a regulatory
flexibility analysis under the Regulatory Flexibility Act of 1980, 5
U.S.C. chapter 6.
F. List of Subjects in 48 CFR 9903
Government procurement, Cost accounting standards.
Daniel I. Gordon,
Chair, Cost Accounting Standards Board.
For the reasons set forth in this preamble, Chapter 99 of Title 48
of the Code of Federal Regulations is proposed to be amended as set
forth below:
PART 9903--COST ACCOUNTING STANDARDS
0
1. The authority citation for Part 9903 is amended to read as follows:
Authority: Public Law 111-350, 124 Stat. 3677, 41 U.S.C. 1502.
9903.201-1 [Amended]
0
2. Section 9903.201-1 is amended by removing and reserving paragraph
(b)(14).
[FR Doc. 2011-20212 Filed 8-9-11; 8:45 am]
BILLING CODE P
