E8-2668. Cost Accounting Standards Board (CAS) Exemption for Contracts Executed and Performed Outside the United States, Its Territories, and Possessions

AGENCY:

Cost Accounting Standards Board, Office of Federal Procurement Policy, OMB.

ACTION:

Notice of Discontinuation of Case.

SUMMARY:

The Office of Federal Procurement Policy (OFPP), Cost Accounting Standards (CAS) Board, is providing public notification of the decision to discontinue its review of the exemption for contracts that are executed and performed outside the United States, its territories, and possessions.

FOR FURTHER INFORMATION CONTACT:

Laura Auletta, Manager, Cost Accounting Standards Board, 725 17th Street, NW., Room 9013, Washington, DC 20503 (telephone: [phone]).

SUPPLEMENTARY INFORMATION:

A. Regulatory Process

The Cost Accounting Standards Board's rules, regulations and Standards are codified at 48 CFR Chapter 99. The Office of Federal Procurement Policy Act, 41 U.S.C. 422(g)(1), requires the Board, prior to the establishment of any new or revised Cost Accounting Standard, to complete a prescribed rulemaking process. The process generally consists of the following four steps:

1. Consult with interested persons concerning the advantages, disadvantages, and improvements anticipated in the pricing and administration of government contracts as a result of the adoption of a proposed Standard.

2. Promulgate an Advance Notice of Proposed Rulemaking (ANPRM).

3. Promulgate a Notice of Proposed Rulemaking (NPRM).

4. Promulgate a Final Rule.

This notice announces the discontinuation of a case after completing step one of the four-step process.

B. Background and Summary

On September 15, 2005, the CAS Board issued a Staff Discussion Paper inviting comments regarding whether the exemption at 48 CFR 9903.201-1(b)(14) should be revised or eliminated (70 FR 53977). The SDP discussed the history of the exemption. In summary, this discussion stated that the original CAS Board was established by Section 2168 of the Defense Production Act of 1950 (DPA). Section 2163 of the DPA, entitled “Territorial Application of Act,” provided that Sections 2061 through 2170 of the Act “shall be applicable to the United States, its territories and possessions, and the District of Columbia” (United States). Therefore, because the provisions of the DPA were applicable only within the United States, the CAS Board rules, regulations and standards were also applicable only within the United States. In 1980, the original CAS Board ceased to exist under the DPA and administration of the standards was undertaken by the Department of Defense until the CAS Board was re-established in 1988 under the Office of Federal Procurement Policy (OFPP) Act. In 1991, the new CAS Board retained the exemption when it recodified its rules and regulations at 48 CFR 9902.201-1(b)(14) on April 17, 1992 (57 FR 14148). The SDP published on September 15, 2005 invited public comments on whether the Board should revisit the exemption.

C. Public Comments

The Board received three sets of public comments in response to the staff discussion paper (available at http://www.whitehouse.gov/​omb/​procurement/​casb/​index_​public_​comments.html). None of the comments supported the Board revising or eliminating the exemption. In fact, all three of the comments offered arguments for why the CAS Board should retain the exemption.

One commented that while the OFPP Act, unlike the DPA, does not specifically limit CAS to contracts and subcontracts executed and performed within the United States, when Congress intends for laws to have extra-territorial effect, it would expressly state that intention. Additionally, the commenter notes that given the dynamic nature of international relations and bilateral agreements, the CAS Board would find it difficult to insure consistency of its regulations with international law and trade agreements. This commenter also questioned the material impact of the exemption, stating that, based on anecdotal evidence, contractors do not invoke the exception frequently. The value of the exemption, noted the commenter, includes putting foreign and U.S. companies on an equal footing by applying the same local accounting requirements; facilitating government procurements in the context of war readiness, other military action or disaster relief.

Another commenter discussed the impracticality of applying CAS to contracts and subcontracts performed entirely outside the United States, noting, in part, that a contractor would be expected to follow the accounting conventions (rules and regulations) of the country where the contract is being performed. Requiring contractors and those in their supply chain to follow CAS instead would likely make participation in the U.S. Government procurement process prohibitive.

Another commenter expressed concern that eliminating the exemption would result in applying CAS to foreign contractors that would otherwise be small businesses, since the CAS small business exemption applies only to firms that have a place of business located in the United States.

While the CAS Board does not necessarily share each of the views expressed in these comments, the Board agrees with the conclusion not to delete or revise the exemption, especially with the absence of any commenter support for any such revision or elimination.

D. Conclusion

Based on the public input and Board discussions of this issue, the Board finds that the exemption should be retained without change.

Paul A. Denett,

Administrator, Office of Federal Procurement Policy.