05-14625. Defense Federal Acquisition Regulation Supplement; Business Restructuring Costs-Delegation of Authority To Make Determinations Relating to Payment

AGENCY:

Department of Defense (DoD).

ACTION:

Interim rule with request for comments.

SUMMARY:

DoD has issued an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 819 of the National Defense Authorization Act for Fiscal Year 2005. Section 819 contains changes concerning delegation of authority to make determinations relating to payment of defense contractors for business restructuring costs.

DATES:

Effective date: July 26, 2005.

Comment date: Comments on the interim rule should be submitted to the address shown below on or before September 26, 2005 to be considered in the formation of the final rule.

ADDRESSES:

You may submit comments, identified by DFARS Case 2004-D026, using any of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• Defense Acquisition Regulations Web Site: http://emissary.acq.osd.mil/​dar/​dfars.nsf/​pubcomm. Follow the instructions for submitting comments.
• E-mail: [e-mail]. Include DFARS Case 2004-D026 in the subject line of the message.
• Fax: [phone].
• Mail: Defense Acquisition Regulations Council, Attn: Mr. Bill Sain, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062.
• Hand Delivery/Courier: Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402. All comments received will be posted to http://emissary.acq.osd.mil/​dar/​dfars.nsf.

FOR FURTHER INFORMATION CONTACT:

Mr. Bill Sain, [phone].

SUPPLEMENTARY INFORMATION:

A. Background

10 U.S.C. 2325(a)(1), Limitation on Payment of Restructuring Costs, prohibits DoD from reimbursing a defense contractor for restructuring costs arising from a business combination that occurs after November 18, 1997, unless the Secretary of Defense determines in writing either: (i) That the amount of projected savings for DoD associated with the restructuring will be at least twice the amount of the costs allowed; or (ii) that the amount of projected savings for DoD associated with the restructuring will exceed the amount of the costs allowed and that the business combination will result in the preservation of a critical capability that otherwise might be lost to DoD.

10 U.S.C. 2325(a)(2) previously prohibited the Secretary of Defense from delegating the authority to make such written savings determinations below the level of an Assistant Secretary of Defense. The Secretary of Defense delegated the authority to make such determinations to the Under Secretary of Defense (Acquisition, Technology, and Logistics) (USD(AT&L)), or his Principal Deputy. Section 819 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) amended 10 U.S.C. 2325(a)(2) to permit the Director of the Defense Contract Management Agency to make the required written determination of savings when restructuring costs are expected to be less than $25 million over a 5-year period.

To implement Section 819, this interim rule adds paragraph (c)(4)(ii) to DFARS 231.205-70, External restructuring costs. The rule also makes changes to DFARS 231.205-70(b)(4), (c), and (e)(6) to remove unnecessary references to USD(AT&L) certifications for pre-November 19, 1997, business combinations; and makes editorial changes to DFARS 231.205-70(e)(6) to clarify the existing requirement for projected restructuring costs and savings to be computed on a present value basis.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

DoD does 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, 5 U.S.C. 601, et seq., because the cost principle addressed in this rule applies only to DoD contractors that incur restructuring costs for external restructuring activities. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subpart in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2004-D026.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that 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 urgent and compelling reasons exist to publish an interim rule prior to affording the public an opportunity to comment. This interim rule implements Section 819 of the National Defense Authorization Act for Fiscal Year 2005 (Pub. L. 108-375). Section 819 amended 10 U.S.C. 2325 to permit delegation of authority to the Director of the Defense Contract Management Agency for determinations relating to payment of defense contractors for business restructuring costs. Section 819 became effective upon enactment on October 28, 2004. Comments received in response to this interim rule will be considered in the formation of the final rule.

List of Subjects in 48 CFR Part 231

• Government procurement

Michele P. Peterson,

Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 231 is amended as follows:

PART 231—CONTRACT COST PRINCIPLES AND PROCEDURES

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.

2. Section 231.205-70 is amended as follows:

a. In paragraph (b)(4) by revising the last sentence; and

b. By revising paragraph (c), the heading of paragraph (e), and paragraph (e)(6) to read as follows:

231.205-70

External restructuring costs.

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(b) * * *

(4) * * * For purposes of this definition, if restructuring costs associated with external restructuring activities allocated to DoD contracts are less than $2.5 million, the costs shall not be subject to the audit, review, and determination requirements of paragraph (c)(4) of this subsection; instead, the normal rules for determining cost allowability in accordance with FAR part 31 shall apply.

* * * * *

(c) Limitations on cost allowability. Restructuring costs associated with external restructuring activities shall not be allowed unless—

(1) Such costs are allowable in accordance with FAR part 31 and DFARS part 231;

(2) An audit of projected restructuring costs and restructuring savings is performed;

(3) The cognizant administrative contracting officer (ACO) reviews the audit report and the projected costs and projected savings, and negotiates an advance agreement in accordance with paragraph (d) of this subsection; and

(4)(i) The official designated in paragraph (c)(4)(ii) of this subsection determines in writing that the audited projected savings, on a present value basis, for DoD resulting from the restructuring will exceed either—

(A) The costs allowed by a factor of at least two to one; or

(B) The costs allowed, and the business combination will result in the preservation of a critical capability that might otherwise be lost to DoD.

(ii)(A) If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (Acquisition, Technology, and Logistics) or the Principal Deputy. This authority may not be delegated below the level of an Assistant Secretary of Defense.

(B) For all other cases, the designated official is the Director of the Defense Contract Management Agency. The Director may not delegate this authority.

* * * * *

(e) Information needed to obtain a determination.

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(6) The cognizant ACO's recommendation for a determination. This recommendation must clearly indicate one of the following, consistent with paragraph (c)(4)(i) of this subsection:

(i) The audited projected savings for DoD will exceed the costs allowed by a factor of at least two to one on a present value basis.

(ii) The business combination will result in the preservation of a critical capability that might otherwise be lost to DoD, and the audited projected savings for DoD will exceed the costs allowed on a present value basis.

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