96-10542. Defense Federal Acquisition Regulation Supplement; Pricing for Sales of Defense Articles

[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Rules and Regulations]
[Pages 18987-18988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10542]



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DEPARTMENT OF DEFENSE

48 CFR Part 225

[DFARS Case 96-D309]


Defense Federal Acquisition Regulation Supplement; Pricing for 
Sales of Defense Articles

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comment.

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SUMMARY: The Director of Defense Procurement is amending the Defense 
Federal Acquisition Regulation Supplement (DFARS) to implement 
statutory provisions which require that foreign military sales wholly 
paid for from funds made available on a nonrepayable basis shall be 
priced on the same costing basis as is applicable to acquisitions of 
like items purchased by DoD for its own use.

DATES: Effective date: April 30, 1996.
    Comment date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before July 1, 1996, to be 
considered in the formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Ms. Amy Williams, PDUSD 
(A&T) DP (DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-
3062. Telefax [phone]. Please cite DFARS Case 96-D309 in all 
correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT:
Ms. Amy Williams, [phone].

SUPPLEMENTARY INFORMATION:

A. Background

    This interim rule amends DFARS Subpart 225.73 to implement Section 
531A of the Fiscal Year 1996 Foreign Operations, Export Financing, and 
Related Programs Appropriations Act (Pub. L. 104-107), which amends 
Section 22 of the Arms Export Control Act (22 U.S.C. 2762) to require 
that foreign military sales of defense articles and defense services 
wholly paid for from funds made available on a nonrepayable basis shall 
be priced on the same costing basis as is applicable to like items 
purchased by DoD for its own use.

B. Regulatory Flexibility Act

    This 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 DFARS Subpart 
225.73 already requires pricing of foreign military sales contracts 
using the same general principles as are used in pricing other defense 
contracts. The only significant change in this rule relates to the 
allowability of independent research and development and bid and 
proposal costs in accordance with the cost principle at FAR 31.205-18. 
This change is not expected to significantly impact small entities, as 
most contracts awarded to small entities are awarded on a competitive, 
fixed-price basis and do not require application of the FAR cost 
principles. An initial regulatory flexibility analysis has therefore 
not been performed. Comments are invited from small businesses and 
other interested parties. Comments from small entities concerning the 
affected DFARS subpart will be considered in accordance with 5 U.S.C. 
610. Such comments must be submitted separately and cite DFARS Case 96-
D309 in correspondence.

C. Paperwork Reduction Act

    This rule does not impose any new information collection 
requirements which require the approval of the Office of Management and 
Budget under 44 U.S.C. 3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense that compelling reasons exist to promulgate this interim 
rule without prior opportunity for public comment. This action is 
necessary to implement Section 531A of the Fiscal Year 1996 Foreign 
Operations, Export Financing, and Related Programs Appropriations Act 
(Pub. L. 104-107), which became effective on April 12, 1996. Comments 
received in response to the publication of this interim rule will be 
considered in formulating the final rule.

List of Subjects in 48 CFR Part 225

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, 48 CFR Part 225 is amended as follows:

PART 225--FOREIGN ACQUISITION

    1. The authority citation for 48 CFR Part 225 continues to read as 
follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
    2. Section 225.7303 is amended by revising the title to read as 
follows:

225.7303  Pricing acquisitions for foreign military sales (FMS).

    3. Section 225.7303-2 is amended by revising the introductory text 
of paragraphs (a) and (c) to read as follows:


225.7303-2  Cost of doing business with a foreign government or an 
international organization.

    (a) In pricing FMS contracts where non-U.S. Government prices as 
described in 225.7303-1 do not exist, except as provided in 225.7303-5, 
recognize the reasonable and allocable costs of doing business with a 
foreign government or international organization, even though such 
costs might not be recognized in the same amounts in pricing other 
defense contracts. Examples of such costs include, but are not limited 
to--
* * * * *
    (c) The provisions of 10 U.S.C. 2372 do not apply to contracts for 
foreign military sales. Therefore, the cost limitations on independent 
research and development and bid and proposal (IR&D/B&P) costs in FAR 
31.205-18 do not apply to such contracts, except as provided in 
225.7303-5. The allowability of IR&D/B&P costs on contracts for foreign 
military sales not wholly paid for from funds made available on a 
nonrepayable basis shall

[[Page 18988]]

be limited to the contract's allocable share of the contractor's total 
IR&D/B&P expenditures. In pricing contracts for such foreign military 
sales--
* * * * *
    4. Section 225.7303-5 is added to read as follows:


225.7303-5  Aquisitions wholly paid for from nonrepayable funds.

    (a) In accordance with 22 U.S.C. 2762(d), foreign military sales 
wholly paid for from funds made available on a nonrepayable basis shall 
be priced on the same costing basis with regard to profit, overhead, 
IR&D/B&P, and other costing elements, as is applicable to acquisitions 
of like items purchased by DoD for its own use.
    (b) Direct costs associated with meeting a foreign customer's 
additional or unique requirements will be allowable under such 
contracts. Indirect burden rates applicable to such direct costs shall 
be permitted at the same rates applicable to acquisitions of like items 
purchased by DoD for its own use.
    (c) A U.S. defense contractor may not recover costs incurred to 
implement its offset agreement with a foreign government or 
international organization if the organization if the foreign military 
sale Letter of Offer and Acceptance is financed with funds made 
available on a nonrepayable basis.

[FR Doc. 96-10542 Filed 4-29-96; 8:45 am]
BILLING CODE 5000-04-M