[Federal Register Volume 64, Number 185 (Friday, September 24, 1999)]
[Rules and Regulations]
[Page 51844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24420]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 97-14; FAR Case 98-006; Item XI]
RIN 9000-AI24
Federal Acquisition Regulation; Interest and Other Financial
Costs
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) to make minor changes
to the cost principle concerning ``interest and other financial
costs.''
EFFECTIVE DATE: November 23, 1999.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC, 20405, (202) 501-4755, for information
pertaining to status or publication schedules. For clarification of
content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-
1900. Please cite FAC 97-14, FAR case 98-006.
SUPPLEMENTARY INFORMATION:
A. Background
The Councils published a proposed rule in the Federal Register on
January 29, 1999 (64 FR 4760). The rule proposed amending FAR 31.205-
20, Interest and Other Financial Costs, to add ``interest charges and
other amounts paid as a consequence of late contractor payments'' to
the list of unallowable costs. In addition, the rule proposed several
minor revisions, including the deletion of ``and directly associated
costs.'' This phrase is unnecessary since FAR 31.201-6(a) indicates
that when ``an unallowable cost is incurred, its directly associated
costs are also unallowable.''
Fifteen respondents submitted public comments to the proposed rule.
Many of the respondents expressed the following concerns:
The ruling by the Court of Appeals for the Federal
Circuit (Lockheed Corporation v. Secretary of the Air Force, 113
F.3d 1225 (Fed. Cir. 1997)) did not involve interest charges paid
``as a consequence of late contractor payments,'' but rather as a
consequence of an inadvertent tax deficiency.
The term ``late contractor payments'' is overly broad
and may result in confusion regarding interest allowability.
The rule is inequitable since it proposes to disallow Government
reimbursement of interest costs incurred by a contractor for the
underpayment of State taxes while FAR 31.201-5, Credits, requires
the contractor to credit the Government the applicable portion of
any State tax refunds it receives, together with interest.
The rule incentivizes contractors to be overly
conservative in computing State tax liability.
The rule substantially increases administrative burdens
on the Government and contractors.
While the Councils do not agree with all of the concerns expressed
by the respondents, the Councils have decided not to add ``interest
charges and other amounts paid as a consequence of late contractor
payments'' to the list of unallowable costs in FAR 31.205-20, pending
further study on the issue of interest allowability. Therefore, this
final rule only makes minor changes to the interest cost principle.
This is not a significant regulatory action and, therefore, was not
subject to Office of Management and Budget review under Section 6(b) of
Executive Order 12866, Regulatory Planning and Review, dated September
30, 1993. This rule is not a major rule under 5 U.S.C. 804.
B. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not 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 this rule only makes
nonsubstantive changes to the cost principle concerning ``interest and
other financial costs.'' In addition, most contracts awarded to small
entities use simplified acquisition procedures or are awarded on a
competitive, fixed-price basis, and do not require application of the
cost principle contained in this rule.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the changes to
the FAR do not impose information collection requirements that 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 31
Government procurement.
Dated: September 14, 1999.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Therefore, DoD, GSA, and NASA amend 48 CFR Part 31 as set forth
below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
1. The authority citation for 48 CFR Part 31 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. Revise section 31.205-20 to read as follows:
31.205-20 Interest and other financial costs.
Interest on borrowings (however represented), bond discounts, costs
of financing and refinancing capital (net worth plus long-term
liabilities), legal and professional fees paid in connection with
preparing prospectuses, and costs of preparing and issuing stock rights
are unallowable (but see 31.205-28). However, interest assessed by
State or local taxing authorities under the conditions specified in
31.205-41(a)(3) is allowable.
[FR Doc. 99-24420 Filed 9-23-99; 8:45 am]
BILLING CODE 6820-EP-P
