Federal Acquisition Regulation; Prohibition on Reimbursement for Congressional Investigations and Inquiries, 4732-4734 [2016-31499]
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4732
Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Rules and Regulations
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005–95; FAR Case 2015–016; Item
V; Docket No. 2015–0016; Sequence No. 1]
II. Discussion and Analysis
The Civilian Agency Acquisition
Council and the Defense Acquisition
Regulations Council (the Councils)
reviewed the public comments in the
development of the final rule:
RIN 9000–AM97
Federal Acquisition Regulation;
Prohibition on Reimbursement for
Congressional Investigations and
Inquiries
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 to amend the Federal
Acquisition Regulation (FAR) to
implement section 857 of the Carl Levin
and Howard P. ‘Buck’ McKeon National
Defense Authorization Act for Fiscal
Year 2015. This section provides
additional requirements relative to the
allowability of costs incurred by a
contractor in connection with a
Congressional investigation or inquiry.
DATES: Effective: January 13, 2017.
FOR FURTHER INFORMATION CONTACT: For
clarification of content, contact Ms.
Zenaida Delgado, Procurement Analyst,
at 202–969–7207. For information
pertaining to status or publication
schedules, contact the Regulatory
Secretariat at 202–501–4755. Please cite
FAC 2005–95, FAR Case 2015–016.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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I. Background
DoD, GSA, and NASA published a
proposed rule in the Federal Register at
81 FR 8031 on February 17, 2016,
soliciting public comments on
implementing section 857 of the Carl
Levin and Howard P. ‘Buck’ McKeon
National Defense Authorization Act
(NDAA) for Fiscal Year (FY) 2015 (Pub.
L. 113–291).
This statute amended 10 U.S.C.
2324(e)(1) to disallow costs incurred by
a contractor in connection with a
Congressional investigation or inquiry
into an issue that is the subject matter
of a proceeding resulting in a
disposition as described in 10 U.S.C.
2324(k)(2).
While section 857 only applies to
contracts with DoD, NASA, and the
Coast Guard, for the purpose of
promoting consistency in the
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accounting systems of Federal
contractors, it was decided to apply the
section’s requirements to all agencies
subject to the FAR.
Additionally, conforming language on
unallowable costs is added to FAR
31.603–16 and 31.603–15 (to update
language associated with whistleblower
complaints).
Two respondents submitted public
comments.
A. Summary of Significant Changes
Several editorial changes are made to
the rule as a result of the comments
received; these were aimed at
simplifying sentence structure for
clarification purposes. There were no
comments on the Initial Regulatory
Flexibility Analysis.
B. Analysis of Public Comments
1. Unfair Withholding of Costs
Comment: One respondent stressed
that contractors should not be penalized
until guilt is determined by a court of
law. Contractors should be reimbursed
for their costs, as incurred, at the time
of their participation in a Congressional
investigation or inquiry. While affirming
that it only makes sense that a
contractor found guilty of defrauding or
cheating the Government in association
with their work should forfeit their
reimbursement, the respondent
maintained that, until guilt is
determined by a court of law, the
contractor should be reimbursed for its
costs. Then, if the contractor is found
guilty of defrauding or cheating the
Government, it should pay those costs
back to the Government.
Response: The disallowance of costs
in accordance with 10 U.S.C.
2324(e)(1)(Q) (i.e., any costs incurred by
a contractor in connection with a
Congressional investigation or inquiry
into an issue that is the subject matter
of a proceeding resulting in a
disposition that meets conditions at
FAR 31.205–47(b)(1) through (5)) does
not constitute a penalty. The regulation
clearly states that costs are unallowable
if incurred in connection with a
Congressional investigation or inquiry
into an issue that is the subject matter
of a proceeding that results in a
specified disposition. Absent a specified
disposition, no disallowance of costs
would exist.
Comment: The same respondent
stated that the ‘‘guilty verdict’’ must
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come from an impartial court, and must
be associated with the inquiry.
Response: The Councils appreciate
this concern, but note that it extends
beyond the scope of this case.
2. Use of Congressional Investigations
Comment: One respondent suggested
fixing ‘‘the real problem’’ by writing
regulations to penalize politicians who
use Congressional investigations to
promote their personal or their affiliated
party’s agenda. The respondent noted
that, in many cases, small businesses
incur hundreds of thousands of dollars
in costs associated with the inquiry,
despite the fact that the only thing they
did wrong was work for a Government
entity that was targeted by a political
party.
Response: The Councils appreciate
this concern, but note that it extends
beyond the scope of this case.
3. Clarify Relationship Among the FAR
31.205–47 Paragraphs
Comment: One respondent questioned
whether FAR 31.205–47(c) or (d) would
impact the allowability of the cost of a
Congressional investigation or inquiry.
Specifically, the respondent asked if the
cost of a Congressional investigation or
inquiry related to an issue that is the
subject matter of a FAR 31.205–47(b)
proceeding, whose result is described in
FAR 31.205–47(b)(1) through (5), would
be unallowable if one of the
circumstances described in FAR
31.205–47(c) or (d) existed.
Response: The cost of a Congressional
investigation or inquiry cannot be
treated the same as the cost of a
proceeding under FAR 31.205–47(c) or
(d). Although the section 857 language
ties the cost of the Congressional
investigation or inquiry to an issue that
is the subject matter of a proceeding
resulting in a disposition as described in
10 U.S.C. 2324(k)(2), Congress did not
enact parallel treatment. 10 U.S.C.
2324(e)(1)(O) disallows ‘‘Costs incurred
by a contractor in connection with any
criminal, civil, or administrative
proceeding commenced by the United
States or a State, to the extent provided
in subsection (k),’’ which includes the
exceptions in paragraphs (k)(3) and
(k)(4), covered in the FAR at 31.205–
47(c) and (d). Section 857, as
implemented in 10 U.S.C. 2324(e)(1)(Q),
references only paragraph (k)(2) and
does not reference paragraph (k) in its
entirety; nor does it reference
paragraphs (k)(3) or (k)(4) specifically.
Therefore, the statute requires that the
costs incurred in connection with a
Congressional investigation or inquiry
be treated differently than the costs
incurred in connection with other
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Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Rules and Regulations
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criminal, civil, or administrative
proceedings in which costs may be
allowable under certain circumstances.
Comment: The same respondent
questioned whether the limitations at
FAR 31.205–47(e) would be applicable
to the costs incurred in connection with
a Congressional investigation or inquiry.
Specifically, the respondent asked if the
costs of a Congressional investigation or
inquiry into a subject matter of a FAR
31.205–47(b) proceeding, whose result
is not one described in FAR 31.205–
47(b)(1) through (5), would be subject to
the limitations in FAR 31.205–47(e).
Response: FAR 31.205–47(e) relates to
costs not made unallowable by
paragraph (b), while the new paragraph
(f)(9) relates to costs made unallowable
by paragraphs (b)(1) through (5), which
describe the outcomes that would deem
the costs unallowable. Because there is
no overlap between the two concepts,
there is no need to clarify that
relationship in the FAR text.
Comment: The same respondent
questioned whether requirements in
FAR 31.205–47(g), regarding costs that
may be unallowable under FAR 31.205–
47(b), would be applicable to costs that
may be unallowable under FAR 31.205–
47(f)(9).
Response: FAR 31.205–47(g) pertains
to all unallowable costs under 31.205–
47.
4. Clarify the Relationship Between FAR
31.205–47(g) and FAR 31.603(b)(15) and
FAR 31.603(b)(16)
Comment: One respondent questioned
whether the FAR 31.205–47(g)
segregation of cost requirements are to
be imposed regarding costs that may be
made unallowable based on FAR
31.603(b)(15) or (16). Since the
proposed rule does not address this
issue, there was a question as to
whether FAR 31.205–47(g) is applicable
to costs that may be made unallowable
based on FAR 31.603(b)(15) or (16). For
costs that may be made unallowable
under FAR 31.205–47, the respondent
argued that it would be in the
Government’s best interest for: (1) State,
local, and federally recognized Indian
tribal governments to segregate and
account separately for costs that may be
made unallowable under FAR
31.603(b)(15) and FAR 31.603(b)(16)
during the pendency of a related
proceeding, and (2) the contracting
officer to normally withhold payment of
such costs. Accordingly, the respondent
recommended that FAR 31.603(b)(15)
and (16) be revised to incorporate
requirements similar to those in FAR
31.205–47(g).
Response: The Councils appreciate
this concern, but note that adding this
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as a requirement would require a
separate FAR case. Although segregation
of potentially unallowable costs (as
described at FAR 31.205–47(g)) is a
prudent business practice for State,
local, and federally recognized Indian
tribal governments, section 857 of the
NDAA for FY 2016 did not extend this
requirement to such entities.
5. Clarification of Regulatory Intent of
FAR 31.205–47(f)(9)
Comment: One respondent focused a
question upon Congressional inquiry or
investigation activities that predate the
existence of the proceeding, noting that
the proposed version of FAR 31.205–
47(f)(9) makes unallowable costs
incurred in connection with a
Congressional investigation or inquiry
into an issue that is the subject matter
of a proceeding resulting in a
disposition as described in FAR 31.205–
47(b)(1) through (5). The respondent
interpreted this to mean that, in order
for the costs of the Congressional
investigation or inquiry to be
unallowable, a proceeding would have
to be in process. Therefore, it would
follow that costs incurred in connection
with a Congressional investigation or
inquiry that predate the existence of a
proceeding are allowable. Specifically,
even if the issue becomes the subject
matter of a FAR 31.205–47 proceeding
at a later date, there is no intention
under the proposed rule to retroactively
make costs incurred in connection with
a Congressional investigation or inquiry
that is the subject matter of the
proceeding unallowable. If that
understanding is incorrect and the rule’s
intent is to make the costs incurred in
connection with a Congressional
investigation or inquiry that pre-date the
existence of a proceeding unallowable,
then the proposed rule should be
revised to state that requirement in the
cost principle.
Response: The statutory language
states: ‘‘. . . congressional investigation
or inquiry into an issue that is
[emphasis added] the subject matter of
a proceeding.’’ Therefore, the
proceeding must be a known event,
whether it has already commenced or is
known to be commencing on a future
date. Preparation (i.e., segregation of
costs) for a potential disallowance
begins when it is known that a
proceeding will ensue.
Comment: The same respondent
asked about Government Accountability
Office (GAO) investigations, noting that
the proposed version of FAR 31.205–
47(f)(9) makes unallowable the costs
incurred in connection with a
Congressional investigation or inquiry
into an issue that is the subject matter
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4733
of a proceeding resulting in a
disposition described in FAR
paragraphs 31.205–47(b)(1) through (5).
The respondent stated that no specifics
are provided in the proposed rule
concerning what is considered a
Congressional investigation or inquiry
into an issue that is the subject matter
of a proceeding, cautioning that this
could lead to different interpretations
concerning costs incurred to facilitate or
respond to a GAO audit or request, in
the event that the project was suggested
or specifically required by a
Congressional committee or
subcommittee. The respondent posited
that some might conclude that the
proposed rule makes such costs
unallowable, and requested
confirmation that there is, in fact, no
intent to make such costs unallowable.
Response: The Councils believe that
Congress intended 10 U.S.C.
2324(e)(1)(Q) to apply only to
investigations and inquiries conducted
by Congress, per se. Therefore, under
FAR 31.205–47(f)(9), the potential
disallowance and requisite segregation
of costs would not be triggered by the
GAO’s efforts, but rather by an actual
investigation or inquiry conducted by
Congress. Further, the language is clear
in its applicability to a Congressional
investigation or inquiry into an issue—
one that is the subject matter of a
proceeding, a known event.
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 has been deemed 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
DoD, GSA, and NASA have prepared
a Final Regulatory Flexibility Analysis
(FRFA) consistent with the Regulatory
Flexibility Act 5 U.S.C. 601, et seq. The
FRFA is summarized as follows:
DoD, GSA, and NASA do not expect this
rule to have a significant economic impact on
a substantial number of small entities within
the meaning of the Regulatory Flexibility Act,
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Federal Register / Vol. 82, No. 9 / Friday, January 13, 2017 / Rules and Regulations
5 U.S.C. 601, et seq., because the rule will be
manifested as a cost principle to which only
select small businesses are subject. Pursuant
to FAR 31.000, the cost principles are
applicable to contracts, subcontracts, and
modifications whenever cost analysis is
performed, or when a contract clause
requires the determination or negotiation of
costs. An analysis of contracts awarded
during Fiscal Year 2014, the most recent full
year for which information was available,
revealed that fewer than 200 small businesses
were performing contracts subject to FAR 31.
Again, the rule merely disallows costs
incurred in the extremely rare instances
when a contractor incurs costs in connection
with a Congressional investigation or inquiry
into an issue resulting in a disposition (e.g.,
conviction, liability, corrective action, etc.),
as described in 10 U.S.C. 2324(k)(2).
Accordingly, given the miniscule segment of
the small business population that could
potentially be impacted by the rule, and the
low likelihood of the conditions being met,
the impact on small businesses is
insignificant.
There were no significant issues
raised by the public in response to the
Initial Regulatory Flexibility Analysis
provided in the proposed rule. The final
rule applies to all entities, both small
and other than small, performing as
contractors or subcontractors on U.S.
Government contracts, and who are
required to abide by the Cost Principles
at FAR part 31. However, the rule is not
expected to have a significant impact.
There are no reporting, recordkeeping,
or other information collection
requirements of the rule.
DoD, GSA, and NASA did not identify
any significant alternatives that would
reduce the impact on small entities and
still meet the objectives of the statute.
Interested parties may obtain a copy
of the FRFA from the Regulatory
Secretariat. The Regulatory Secretariat
has submitted a copy of the FRFA to the
Chief Counsel for Advocacy of the Small
Business Administration.
V. Paperwork Reduction Act
This rule does not contain any
information collection requirements that
require the approval of the Office of
Management and Budget under the
Paperwork Reduction Act (44 U.S.C.
chapter 35).
List of Subjects in 48 CFR Part 31
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Government procurement.
Dated: December 21, 2016.
William F. Clark,
Director, Office of Government-wide
Acquisition Policy, Office of Acquisition
Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA
amend 48 CFR part 31 as set forth
below:
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PART 31—CONTRACT COST
PRINCIPLES AND PROCEDURES
1. The authority citation for 48 CFR
part 31 continues to read as follows:
■
Authority: 40 U.S.C. 121(c); 10 U.S.C.
chapter 137; and 51 U.S.C. 20113.
2. Amend section 31.205–47 by—
a. In paragraph (a):
i. In the definition of ‘‘Fraud’’,
removing ‘‘Fraudmeans’’ and adding
‘‘Fraud means’’ in its place;
■ ii. In the definition of ‘‘Penalty’’,
removing the comma after the word
‘‘Penalty’’;
■ iii. In the definition of ‘‘Proceeding’’,
removing the comma after the word
‘‘Proceeding’’;
■ b. Revising paragraph (b) introductory
text; and
■ c. Adding paragraph (f)(9).
The addition reads as follows:
■
■
■
31.205–47 Costs related to legal and other
proceedings.
*
*
*
*
*
(b) Costs incurred in connection with
any proceeding brought by: A Federal,
State, local, or foreign government for a
violation of, or failure to comply with,
law or regulation by the contractor
(including its agents or employees) (41
U.S.C. 4310 and 10 U.S.C. 2324(k)); a
contractor or subcontractor employee
submitting a whistleblower complaint of
reprisal in accordance with 41 U.S.C.
4712 or 10 U.S.C. 2409; or a third party
in the name of the United States under
the False Claims Act, 31 U.S.C. 3730,
are unallowable if the result is—
*
*
*
*
*
(f) * * *
(9) A Congressional investigation or
inquiry into an issue that is the subject
matter of a proceeding resulting in a
disposition as described in paragraphs
(b)(1) through (5) of this section (see 10
U.S.C. 2324(e)(1)(Q)).
*
*
*
*
*
■ 3. Amend section 31.603 by—
■ a. Revising paragraphs (b)
introductory text and (b)(15); and
■ b. Adding paragraph (b)(16).
The revisions and addition reads as
follows:
31.603
Requirements.
*
*
*
*
*
(b) Agencies are not expected to place
additional restrictions on individual
items of cost. However, under 10 U.S.C.
2324, 41 U.S.C. 4304, 31 U.S.C. 3730,
and 41 U.S.C. 4310, the following costs
are unallowable:
*
*
*
*
*
(15) Unless any of the exceptions at
31.205–47(c) or (d) apply, costs incurred
by a contractor in connection with any
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criminal, civil, or administrative
proceedings that result in dispositions
described at 31.205–47(b)(1) through (5)
commenced by: A Federal, State, local,
or foreign government, for a violation of,
or failure to comply with, law or
regulation by the contractor (including
its agents or employees); a contractor or
subcontractor employee submitting a
whistleblower complaint of reprisal in
accordance with 41 U.S.C. 4712 or 10
U.S.C. 2409; or a third party in the name
of the United States under the False
Claims Act, 31 U.S.C. 3730. For any
such proceeding that does not result in
a disposition described at 31.205–
47(b)(1) through (5), or to which 31.205–
47(c) exceptions apply, the cost of that
proceeding shall be subject to the
limitations in 31.205–47(e).
(16) Costs incurred in connection
with a Congressional investigation or
inquiry into an issue that is the subject
matter of a proceeding resulting in a
disposition as described at 31.205–
47(b)(1) through (5).
[FR Doc. 2016–31499 Filed 1–12–17; 8:45 am]
BILLING CODE 6820–EP–P
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Chapter 1
[Docket No. FAR 2016–0051, Sequence No.
9]
Federal Acquisition Regulation;
Federal Acquisition Circular 2005–95;
Small Entity Compliance Guide
Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Small Entity Compliance Guide.
AGENCY:
This document is issued
under the joint authority of DOD, GSA,
and NASA. This Small Entity
Compliance Guide has been prepared in
accordance with section 212 of the
Small Business Regulatory Enforcement
Fairness Act of 1996. It consists of a
summary of the rules appearing in
Federal Acquisition Circular (FAC)
2005–95, which amends the Federal
Acquisition Regulation (FAR). An
asterisk (*) next to a rule indicates that
a regulatory flexibility analysis has been
prepared. Interested parties may obtain
further information regarding these
rules by referring to FAC 2005–95,
which precedes this document. These
SUMMARY:
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Agencies
[Federal Register Volume 82, Number 9 (Friday, January 13, 2017)]
[Rules and Regulations]
[Pages 4732-4734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31499]
[[Page 4732]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 2005-95; FAR Case 2015-016; Item V; Docket No. 2015-0016; Sequence
No. 1]
RIN 9000-AM97
Federal Acquisition Regulation; Prohibition on Reimbursement for
Congressional Investigations and Inquiries
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 to amend the
Federal Acquisition Regulation (FAR) to implement section 857 of the
Carl Levin and Howard P. `Buck' McKeon National Defense Authorization
Act for Fiscal Year 2015. This section provides additional requirements
relative to the allowability of costs incurred by a contractor in
connection with a Congressional investigation or inquiry.
DATES: Effective: January 13, 2017.
FOR FURTHER INFORMATION CONTACT: For clarification of content, contact
Ms. Zenaida Delgado, Procurement Analyst, at 202-969-7207. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at 202-501-4755. Please cite FAC 2005-95, FAR
Case 2015-016.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 81 FR 8031 on February 17, 2016, soliciting public comments
on implementing section 857 of the Carl Levin and Howard P. `Buck'
McKeon National Defense Authorization Act (NDAA) for Fiscal Year (FY)
2015 (Pub. L. 113-291).
This statute amended 10 U.S.C. 2324(e)(1) to disallow costs
incurred by a contractor in connection with a Congressional
investigation or inquiry into an issue that is the subject matter of a
proceeding resulting in a disposition as described in 10 U.S.C.
2324(k)(2).
While section 857 only applies to contracts with DoD, NASA, and the
Coast Guard, for the purpose of promoting consistency in the accounting
systems of Federal contractors, it was decided to apply the section's
requirements to all agencies subject to the FAR.
Additionally, conforming language on unallowable costs is added to
FAR 31.603-16 and 31.603-15 (to update language associated with
whistleblower complaints).
Two respondents submitted public comments.
II. Discussion and Analysis
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. Summary of Significant Changes
Several editorial changes are made to the rule as a result of the
comments received; these were aimed at simplifying sentence structure
for clarification purposes. There were no comments on the Initial
Regulatory Flexibility Analysis.
B. Analysis of Public Comments
1. Unfair Withholding of Costs
Comment: One respondent stressed that contractors should not be
penalized until guilt is determined by a court of law. Contractors
should be reimbursed for their costs, as incurred, at the time of their
participation in a Congressional investigation or inquiry. While
affirming that it only makes sense that a contractor found guilty of
defrauding or cheating the Government in association with their work
should forfeit their reimbursement, the respondent maintained that,
until guilt is determined by a court of law, the contractor should be
reimbursed for its costs. Then, if the contractor is found guilty of
defrauding or cheating the Government, it should pay those costs back
to the Government.
Response: The disallowance of costs in accordance with 10 U.S.C.
2324(e)(1)(Q) (i.e., any costs incurred by a contractor in connection
with a Congressional investigation or inquiry into an issue that is the
subject matter of a proceeding resulting in a disposition that meets
conditions at FAR 31.205-47(b)(1) through (5)) does not constitute a
penalty. The regulation clearly states that costs are unallowable if
incurred in connection with a Congressional investigation or inquiry
into an issue that is the subject matter of a proceeding that results
in a specified disposition. Absent a specified disposition, no
disallowance of costs would exist.
Comment: The same respondent stated that the ``guilty verdict''
must come from an impartial court, and must be associated with the
inquiry.
Response: The Councils appreciate this concern, but note that it
extends beyond the scope of this case.
2. Use of Congressional Investigations
Comment: One respondent suggested fixing ``the real problem'' by
writing regulations to penalize politicians who use Congressional
investigations to promote their personal or their affiliated party's
agenda. The respondent noted that, in many cases, small businesses
incur hundreds of thousands of dollars in costs associated with the
inquiry, despite the fact that the only thing they did wrong was work
for a Government entity that was targeted by a political party.
Response: The Councils appreciate this concern, but note that it
extends beyond the scope of this case.
3. Clarify Relationship Among the FAR 31.205-47 Paragraphs
Comment: One respondent questioned whether FAR 31.205-47(c) or (d)
would impact the allowability of the cost of a Congressional
investigation or inquiry. Specifically, the respondent asked if the
cost of a Congressional investigation or inquiry related to an issue
that is the subject matter of a FAR 31.205-47(b) proceeding, whose
result is described in FAR 31.205-47(b)(1) through (5), would be
unallowable if one of the circumstances described in FAR 31.205-47(c)
or (d) existed.
Response: The cost of a Congressional investigation or inquiry
cannot be treated the same as the cost of a proceeding under FAR
31.205-47(c) or (d). Although the section 857 language ties the cost of
the Congressional investigation or inquiry to an issue that is the
subject matter of a proceeding resulting in a disposition as described
in 10 U.S.C. 2324(k)(2), Congress did not enact parallel treatment. 10
U.S.C. 2324(e)(1)(O) disallows ``Costs incurred by a contractor in
connection with any criminal, civil, or administrative proceeding
commenced by the United States or a State, to the extent provided in
subsection (k),'' which includes the exceptions in paragraphs (k)(3)
and (k)(4), covered in the FAR at 31.205-47(c) and (d). Section 857, as
implemented in 10 U.S.C. 2324(e)(1)(Q), references only paragraph
(k)(2) and does not reference paragraph (k) in its entirety; nor does
it reference paragraphs (k)(3) or (k)(4) specifically. Therefore, the
statute requires that the costs incurred in connection with a
Congressional investigation or inquiry be treated differently than the
costs incurred in connection with other
[[Page 4733]]
criminal, civil, or administrative proceedings in which costs may be
allowable under certain circumstances.
Comment: The same respondent questioned whether the limitations at
FAR 31.205-47(e) would be applicable to the costs incurred in
connection with a Congressional investigation or inquiry. Specifically,
the respondent asked if the costs of a Congressional investigation or
inquiry into a subject matter of a FAR 31.205-47(b) proceeding, whose
result is not one described in FAR 31.205-47(b)(1) through (5), would
be subject to the limitations in FAR 31.205-47(e).
Response: FAR 31.205-47(e) relates to costs not made unallowable by
paragraph (b), while the new paragraph (f)(9) relates to costs made
unallowable by paragraphs (b)(1) through (5), which describe the
outcomes that would deem the costs unallowable. Because there is no
overlap between the two concepts, there is no need to clarify that
relationship in the FAR text.
Comment: The same respondent questioned whether requirements in FAR
31.205-47(g), regarding costs that may be unallowable under FAR 31.205-
47(b), would be applicable to costs that may be unallowable under FAR
31.205-47(f)(9).
Response: FAR 31.205-47(g) pertains to all unallowable costs under
31.205-47.
4. Clarify the Relationship Between FAR 31.205-47(g) and FAR
31.603(b)(15) and FAR 31.603(b)(16)
Comment: One respondent questioned whether the FAR 31.205-47(g)
segregation of cost requirements are to be imposed regarding costs that
may be made unallowable based on FAR 31.603(b)(15) or (16). Since the
proposed rule does not address this issue, there was a question as to
whether FAR 31.205-47(g) is applicable to costs that may be made
unallowable based on FAR 31.603(b)(15) or (16). For costs that may be
made unallowable under FAR 31.205-47, the respondent argued that it
would be in the Government's best interest for: (1) State, local, and
federally recognized Indian tribal governments to segregate and account
separately for costs that may be made unallowable under FAR
31.603(b)(15) and FAR 31.603(b)(16) during the pendency of a related
proceeding, and (2) the contracting officer to normally withhold
payment of such costs. Accordingly, the respondent recommended that FAR
31.603(b)(15) and (16) be revised to incorporate requirements similar
to those in FAR 31.205-47(g).
Response: The Councils appreciate this concern, but note that
adding this as a requirement would require a separate FAR case.
Although segregation of potentially unallowable costs (as described at
FAR 31.205-47(g)) is a prudent business practice for State, local, and
federally recognized Indian tribal governments, section 857 of the NDAA
for FY 2016 did not extend this requirement to such entities.
5. Clarification of Regulatory Intent of FAR 31.205-47(f)(9)
Comment: One respondent focused a question upon Congressional
inquiry or investigation activities that predate the existence of the
proceeding, noting that the proposed version of FAR 31.205-47(f)(9)
makes unallowable costs incurred in connection with a Congressional
investigation or inquiry into an issue that is the subject matter of a
proceeding resulting in a disposition as described in FAR 31.205-
47(b)(1) through (5). The respondent interpreted this to mean that, in
order for the costs of the Congressional investigation or inquiry to be
unallowable, a proceeding would have to be in process. Therefore, it
would follow that costs incurred in connection with a Congressional
investigation or inquiry that predate the existence of a proceeding are
allowable. Specifically, even if the issue becomes the subject matter
of a FAR 31.205-47 proceeding at a later date, there is no intention
under the proposed rule to retroactively make costs incurred in
connection with a Congressional investigation or inquiry that is the
subject matter of the proceeding unallowable. If that understanding is
incorrect and the rule's intent is to make the costs incurred in
connection with a Congressional investigation or inquiry that pre-date
the existence of a proceeding unallowable, then the proposed rule
should be revised to state that requirement in the cost principle.
Response: The statutory language states: ``. . . congressional
investigation or inquiry into an issue that is [emphasis added] the
subject matter of a proceeding.'' Therefore, the proceeding must be a
known event, whether it has already commenced or is known to be
commencing on a future date. Preparation (i.e., segregation of costs)
for a potential disallowance begins when it is known that a proceeding
will ensue.
Comment: The same respondent asked about Government Accountability
Office (GAO) investigations, noting that the proposed version of FAR
31.205-47(f)(9) makes unallowable the costs incurred in connection with
a Congressional investigation or inquiry into an issue that is the
subject matter of a proceeding resulting in a disposition described in
FAR paragraphs 31.205-47(b)(1) through (5). The respondent stated that
no specifics are provided in the proposed rule concerning what is
considered a Congressional investigation or inquiry into an issue that
is the subject matter of a proceeding, cautioning that this could lead
to different interpretations concerning costs incurred to facilitate or
respond to a GAO audit or request, in the event that the project was
suggested or specifically required by a Congressional committee or
subcommittee. The respondent posited that some might conclude that the
proposed rule makes such costs unallowable, and requested confirmation
that there is, in fact, no intent to make such costs unallowable.
Response: The Councils believe that Congress intended 10 U.S.C.
2324(e)(1)(Q) to apply only to investigations and inquiries conducted
by Congress, per se. Therefore, under FAR 31.205-47(f)(9), the
potential disallowance and requisite segregation of costs would not be
triggered by the GAO's efforts, but rather by an actual investigation
or inquiry conducted by Congress. Further, the language is clear in its
applicability to a Congressional investigation or inquiry into an
issue--one that is the subject matter of a proceeding, a known event.
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 has been deemed 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
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act 5 U.S.C.
601, et seq. The FRFA is summarized as follows:
DoD, GSA, and NASA do not expect this rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act,
[[Page 4734]]
5 U.S.C. 601, et seq., because the rule will be manifested as a cost
principle to which only select small businesses are subject.
Pursuant to FAR 31.000, the cost principles are applicable to
contracts, subcontracts, and modifications whenever cost analysis is
performed, or when a contract clause requires the determination or
negotiation of costs. An analysis of contracts awarded during Fiscal
Year 2014, the most recent full year for which information was
available, revealed that fewer than 200 small businesses were
performing contracts subject to FAR 31.
Again, the rule merely disallows costs incurred in the extremely
rare instances when a contractor incurs costs in connection with a
Congressional investigation or inquiry into an issue resulting in a
disposition (e.g., conviction, liability, corrective action, etc.),
as described in 10 U.S.C. 2324(k)(2). Accordingly, given the
miniscule segment of the small business population that could
potentially be impacted by the rule, and the low likelihood of the
conditions being met, the impact on small businesses is
insignificant.
There were no significant issues raised by the public in response
to the Initial Regulatory Flexibility Analysis provided in the proposed
rule. The final rule applies to all entities, both small and other than
small, performing as contractors or subcontractors on U.S. Government
contracts, and who are required to abide by the Cost Principles at FAR
part 31. However, the rule is not expected to have a significant
impact.
There are no reporting, recordkeeping, or other information
collection requirements of the rule.
DoD, GSA, and NASA did not identify any significant alternatives
that would reduce the impact on small entities and still meet the
objectives of the statute.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy
of the FRFA to the Chief Counsel for Advocacy of the Small Business
Administration.
V. Paperwork Reduction Act
This rule does not contain any information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: December 21, 2016.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR part 31 as set forth
below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
0
1. The authority citation for 48 CFR part 31 continues to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
0
2. Amend section 31.205-47 by--
0
a. In paragraph (a):
0
i. In the definition of ``Fraud'', removing ``Fraudmeans'' and adding
``Fraud means'' in its place;
0
ii. In the definition of ``Penalty'', removing the comma after the word
``Penalty'';
0
iii. In the definition of ``Proceeding'', removing the comma after the
word ``Proceeding'';
0
b. Revising paragraph (b) introductory text; and
0
c. Adding paragraph (f)(9).
The addition reads as follows:
31.205-47 Costs related to legal and other proceedings.
* * * * *
(b) Costs incurred in connection with any proceeding brought by: A
Federal, State, local, or foreign government for a violation of, or
failure to comply with, law or regulation by the contractor (including
its agents or employees) (41 U.S.C. 4310 and 10 U.S.C. 2324(k)); a
contractor or subcontractor employee submitting a whistleblower
complaint of reprisal in accordance with 41 U.S.C. 4712 or 10 U.S.C.
2409; or a third party in the name of the United States under the False
Claims Act, 31 U.S.C. 3730, are unallowable if the result is--
* * * * *
(f) * * *
(9) A Congressional investigation or inquiry into an issue that is
the subject matter of a proceeding resulting in a disposition as
described in paragraphs (b)(1) through (5) of this section (see 10
U.S.C. 2324(e)(1)(Q)).
* * * * *
0
3. Amend section 31.603 by--
0
a. Revising paragraphs (b) introductory text and (b)(15); and
0
b. Adding paragraph (b)(16).
The revisions and addition reads as follows:
31.603 Requirements.
* * * * *
(b) Agencies are not expected to place additional restrictions on
individual items of cost. However, under 10 U.S.C. 2324, 41 U.S.C.
4304, 31 U.S.C. 3730, and 41 U.S.C. 4310, the following costs are
unallowable:
* * * * *
(15) Unless any of the exceptions at 31.205-47(c) or (d) apply,
costs incurred by a contractor in connection with any criminal, civil,
or administrative proceedings that result in dispositions described at
31.205-47(b)(1) through (5) commenced by: A Federal, State, local, or
foreign government, for a violation of, or failure to comply with, law
or regulation by the contractor (including its agents or employees); a
contractor or subcontractor employee submitting a whistleblower
complaint of reprisal in accordance with 41 U.S.C. 4712 or 10 U.S.C.
2409; or a third party in the name of the United States under the False
Claims Act, 31 U.S.C. 3730. For any such proceeding that does not
result in a disposition described at 31.205-47(b)(1) through (5), or to
which 31.205-47(c) exceptions apply, the cost of that proceeding shall
be subject to the limitations in 31.205-47(e).
(16) Costs incurred in connection with a Congressional
investigation or inquiry into an issue that is the subject matter of a
proceeding resulting in a disposition as described at 31.205-47(b)(1)
through (5).
[FR Doc. 2016-31499 Filed 1-12-17; 8:45 am]
BILLING CODE 6820-EP-P