95-764. Defense Federal Acquisition Regulation Supplement; Internal Restructuring Costs

[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Proposed Rules]
[Pages 2924-2925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-764]



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DEPARTMENT OF DEFENSE

48 CFR Part 231


Defense Federal Acquisition Regulation Supplement; Internal 
Restructuring Costs

agency: Department of Defense (DoD).

action: Proposed rule with request for comments.

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summary: The Department of Defense is proposing to amend the Defense 
Federal Acquisition Regulation Supplement to address the allowability 
of costs associated with internal restructuring activities.

[[Page 2925]] dates: Comments on the proposed rule should be submitted 
in writing at the address shown below on or before March 13, 1995, to 
be considered in the formulation of a final rule.

addresses: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, ATTN: Mr. Eric R. Mens, 
PDUSD(A&T)DP/DAR, IMD 3D139, 3062 Defense Pentagon, Washington, DC 
20301-3062. Telefax number [phone]. Please cite DFARS Case 94-
D007 in all correspondence.

for further information contact: Mr. Eric Mens, [phone].

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed DFARS rule supplements an interim DFARS rule which 
the Director of Defense Procurement issued on December 29, 1994, to 
implement Section 818 of the National Defense Authorization Act for 
Fiscal year 1995 (Public Law 103-337). The interim DFARS rule imposed 
restrictions on the allowability of restructuring costs associated with 
a business combination undertaken by a defense contractor. While the 
interim rule provided policies and procedures for allowing appropriate 
contractor costs which involve external restructuring activities, it 
did not address the allowability of costs associated with internal 
restructuring activities.
    This proposed DFARS rule states that contractor costs associated 
with internal restructuring activities are unallowable unless allowable 
in accordance with FAR Part 31 and DFARS Part 231; an audit of 
projected restructuring costs and savings is performed; and the ACO 
determines that overall reduced costs should result for DoD and 
negotiates an advance agreement with the contractor. Unlike 
restructuring costs associated with external restructuring activities, 
certification by the Under Secretary of Defense (Acquisition & 
Technology) concerning projected future savings for DoD is not required 
for reimbursement of the costs associated with internal restructuring 
activities.

B. Regulatory Flexibility Act

    The proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because most 
small entities are not subject to the contract cost principles in FAR 
Part 31 or DFARS Part 231. The contract cost principles normally apply 
where contract award exceeds $500,000 and the price is based on 
certified cost or pricing data. This proposed DFARS rule applies only 
to defense contractors which incur restructuring costs coincident to 
internal restructuring activities and are subject to the contract cost 
principles. Most contracts awarded to small entities are awarded on a 
competitive, fixed-price basis. An Initial Regulatory Flexibility 
Analysis has, therefore, not been performed. Comments are invited from 
small business entities and other interested parties. Comments from 
small entities concerning the affected DFARS Subparts will also be 
considered in accordance with section 610 of the Act. Such comments 
must be submitted separately and cite DFARS Case 94-D007 in 
correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 96-511) does not apply because 
the proposed rule does not impose any additional reporting or 
recordkeeping requirements which require the approval of OMB under 44 
U.S.C. 3501 et seq.

List of Subjects in 48 CFR Part 231

    Government Procurement.
Claudia L. Naugle,
Deputy Director, Defense Acquisition Regulations Council.

    Therefore, it is proposed that 48 CFR Part 231 be amended as 
follows:
    1. The authority citation for 48 CFR Part 231 continues to read as 
follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

    2. Section 231.205-70 is amended by adding a new paragraph (c) (4) 
to read as follows:


231.205-70  Restructuring costs.

* * * * *
    (c) Limitations on cost allowability. * * *
    (4) Restructuring costs associated with internal restructuring 
activities shall not be allowed unless--
    (i) Such costs are allowable in accordance with FAR Part 31 and 
DFARS Part 231;
    (ii) An audit of projected restructuring costs and restructuring 
savings is performed; and
    (iii) The cognizant ACO reviews the audit report and the projected 
costs and projected savings, determines that overall reduced costs 
should result for DoD, and negotiates an advance agreement with the 
contractor.
* * * * *
[FR Doc. 95-764 Filed 1-11-95; 8:45 am]
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