[Federal Register Volume 59, Number 66 (Wednesday, April 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8142]
[[Page Unknown]]
[Federal Register: April 6, 1994]
_______________________________________________________________________
Part VIII
Department of Defense
General Services Administration
National Aeronautics and Space Administration
_______________________________________________________________________
48 CFR Part 15, et al.
Federal Acquisition Regulation, et al.; Proposed Rules
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 15
[FAR Case 92-17]
Federal Acquisition Regulation; Overhead Should-cost Reviews
agencies: Department of Defense (DOD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
action: Proposed rule.
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summary: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council are proposing to amend the Federal
Acquisition Regulation (FAR) to add specific guidance on overhead-
should cost reviews. This regulatory action was not subject to Office
of Management and Budget review pursuant to Executive Order No. 12866
dated September 30, 1993.
dates: Comments should be submitted on or before June 6, 1994 to be
considered in the formulation of a final rule.
addresses: Interested parties should submit written comments to:
General Services Administration, FAR Secretariat (VRS), 18th & F
Streets, NW., room 4037, Washington, DC 20405.
Please cite FAR case 92-17 in all correspondence related to this
case.
for further information contact: Mr. Jeremy Olson at (202) 501-3221 in
reference to this FAR case. For general information, contact the FAR
Secretariat, room 4037, GS Building, Washington, DC 20405 (202) 501-
4755. Please cite FAR case 92-17.
SUPPLEMENTARY INFORMATION:
A. Background
The General Accounting Office (GAO) report dated October 30, 1991,
entitled ``Economy and Efficiency Audits Can Help Reduce Overhead
Costs'', recommends that regulations be revised to provide guidance for
the use of overhead should-cost reviews.
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
contracts awarded to small entities normally are not subject to program
or overhead should-cost reviews. 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 FAR subpart will also be considered in
accordance with 5 U.S.C. 610. Such comments must be submitted
separately and should cite 5 U.S.C. 601, et seq. (FAR case 92-17), in
correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose recordkeeping or information
collection requirements, or collections of information from offerors,
contractors, or members of the public which require the approval of the
Office of Management and Budget under 44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 15
Government procurement.
Dated: March 30, 1994.
Albert A. Vicchiolla,
Director, Office of Federal Acquisition Policy.
Therefore, it is proposed that 48 CFR part 15 be amended as set
forth below:
PART 15--CONTRACTING BY NEGOTIATION
1. The authority citation for 48 CFR part 15 continues to read as
follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
2. The heading of section 15.810 is revised and the text is
removed, and sections 15.810-1 thru 15.810-3 are added to read as
follows:
15.810 Should-cost review.
15.810-1 General.
(a) Should-cost reviews are a specialized form of cost analysis.
Should-cost reviews differ from traditional evaluation methods. During
traditional reviews, local contract audit and contract administration
personnel primarily base their evaluation of forecasted costs on an
analysis of historical costs and trends. In contrast, should-cost
reviews do not assume that a contractor's historical costs reflect
efficient and economical operation. Instead, these reviews evaluate the
economy and efficiency of the contractor's existing work force,
methods, materials, facilities, operating systems, and management.
These reviews are accomplished by a multi-functional team of Government
contracting, contract administration, pricing, audit, and engineering
representatives. The objective of should-cost reviews is to promote
both short and long-range improvements in the contractor's economy and
efficiency in order to reduce the cost of performance of Government
contracts. In addition, by providing rationale for any recommendations
and quantifying their impact on cost, the Government will be better
able to develop realistic objectives for negotiation.
(b) There are two types of should-cost reviews--program should-cost
review (see 15.810-2) and overhead should-cost review (see 15.810-3).
An overhead should-cost review may be performed independently, or in
conjunction with a program should-cost review. The scope of a should-
cost review can range from a large-scale review examining the
contractor's entire operation (including plant-wide overhead and
selected major subcontractors) to a small-scale tailored review
examining specific portions of a contractor's operation.
15.810-2 Program should-cost review.
(a) Program should-cost review is used to evaluate significant
elements of direct costs, such as material and labor, and associated
indirect costs, usually incurred in the production of major systems.
When a program should-cost review is conducted relative to a contractor
proposal, a separate audit report on the proposal is required.
(b) A program should-cost review should be considered, particularly
in the case of a major system acquisition (see part 34), when--
(1) Some initial production has already taken place;
(2) The contract will be awarded on a sole-source basis;
(3) There are future year production requirements for substantial
quantities of like items;
(4) The items being acquired have a history of increasing costs;
(5) The work is sufficiently defined to permit an effective
analysis and major changes are unlikely;
(6) Sufficient time is available to plan and conduct the should-
cost review adequately; and
(7) Personnel with the required skills are available or can be
assigned for the duration of the should-cost review.
(c) The contracting officer should decide which elements of the
contractor's operation have the greatest potential for cost savings and
assign the available personnel resources accordingly. While the
particular elements to be analyzed are a function of the contract work
task, elements such as manufacturing, pricing and accounting,
management and organization, and subcontract and vendor management are
normally reviewed in a should-cost review.
(d) In acquisitions for which a program should-cost review is
conducted, a separate program should-cost review team report, prepared
in accordance with agency procedures, is required. Field pricing
reports are required only to the extent that they contribute to the
combined team position. The contracting officer shall consider the
findings and recommendations contained in the program should-cost
review team report when negotiating the contract price. After
completing the negotiation, the contracting officer shall provide the
administrative contracting officer (ACO) a report of any identified
uneconomical or inefficient practices, together with a report of
correction or disposition agreements reached with the contractor. The
contracting officer shall establish a follow-up plan to monitor the
correction of the uneconomical or inefficient practices.
(e) When a program should-cost review is planned, the contracting
officer should state this fact in the acquisition plan (see part 7,
subpart 7.1) and in the solicitation.
15.810-3 Overhead should-cost review.
(a) An overhead should-cost review is used to evaluate indirect
costs, such as fringe benefits, shipping and receiving, facilities and
equipment, depreciation, plant maintenance and security, taxes, and
general and administrative activities. It is normally used to evaluate
and negotiate a forward pricing rate agreement (FPRA) with the
contractor. When an overhead should-cost review is conducted, a
separate audit report is required.
(b) The following factors should be considered when selecting
contractor sites for overhead should-cost reviews:
(1) Dollar amount of Government business;
(2) Level of Government participation;
(3) Level of noncompetitive Government contracts;
(4) Volume of proposal activity;
(5) Major system or program;
(6) Mergers, acquisitions, takeovers; and
(7) Other conditions, e.g., changes in accounting systems,
management, or business activity.
(c) The objective of the overhead should-cost review is to evaluate
significant indirect cost elements in-depth, identify inefficient and
uneconomical practices, and recommend corrective action. If it is
conducted in conjunction with a program should-cost review, a separate
overhead should-cost review report is not required. However, the
findings and recommendations of the overhead should-cost team, or any
separate overhead should-cost review report, shall be provided to the
ACO. The ACO should use this information to form the basis for the
Government position in negotiating a FPRA with the contractor. The ACO
shall establish a follow-up plan to monitor the correction of the
uneconomical or inefficient practices.
[FR Doc. 94-8142 Filed 4-5-94; 8:45 am]
BILLING CODE 6820-34-M
