05-17949. Office of Federal Procurement Policy; Cost Accounting Standards Board; CAS Exemption for Contracts Executed and Performed Entirely Outside the United States, Its Territories, and Possessions

AGENCY:

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

ACTION:

Staff Discussion Paper (SDP); request for comments.

SUMMARY:

The Cost Accounting Standards (CAS) Board, Office of Federal Procurement Policy, invites public comments on the staff discussion paper regarding a provision that provides an exemption from CAS for contracts that are executed and performed entirely outside the United States, its territories, and possessions.

DATES:

Comments must be in writing and must be received by November 14, 2005.

ADDRESSES:

Due to delays in OMB's receipt and processing of mail, respondents are strongly encouraged to submit comments electronically to ensure timely receipt. Electronic comments may be submitted to [e-mail]. Please put the full body of your comments in the text of the electronic message and also as an attachment readable in either MS Word or Corel WordPerfect. Please include your name, title, organization, postal address, telephone number, and e-mail address in the text of the message. Comments may also be submitted via facsimile to [phone].

FOR FURTHER INFORMATION CONTACT:

David Capitano, Cost Accounting Standards Board (telephone: [phone]).

SUPPLEMENTARY INFORMATION:

A. Regulatory Process

The 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 (CAS), 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 (e.g., promulgation of a Staff Discussion Paper.)

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

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

4. Promulgate a Final Rule.

This Staff Discussion Paper (SDP) is issued by the Board as step one of the four-step process. The Board notes that the exemption at 48 CFR 9903.201-1(b)(14) is not subject to the four-step process required by 41 U.S.C. 422(g)(1) because it is not a standard. Thus, there is no requirement for the Board to follow the four-step process for this promulgation. Nevertheless, the Board believes following the four-step process is beneficial for this issue. However, the issuance of this SDP is not intended to establish any precedence for use of the four-step process in promulgating CAS rules and regulations other than standards.

B. Background and Summary

The Office of Federal Procurement Policy, Cost Accounting Standards Board, is releasing a SDP regarding the exemption at 48 CFR 9903.201-1(b)(14). The purpose of the SDP is to solicit public views with respect to the Board's consideration of whether the exemption at 48 CFR 9903.201-1(b)(14) should be revised or eliminated. Respondents are encouraged to identify and comment on any issues not addressed in this SDP that they believe are important to the subject. This SDP reflects research accomplished to date by the staff of the Cost Accounting Standards Board in the respective subject area.

C. Public Comments

Interested persons are invited to participate by submitting data, views or arguments with respect to this SDP, including but not limited to the questions listed in the SDP. All comments must be in writing or by E-mail, and submitted to the mailing or E-mail addresses indicated in the ADDRESSES section.

David H. Safavian,

Chair, Cost Accounting Standards Board.

Cost Accounting Standards Board Staff Discussion Paper (SDP)

48 CFR 9903.201-1(b)(14)

Exemption for Contracts Entirely Executed and Performed Outside the United States

Background

Purpose

48 CFR 9903.201-1(b) provides a list of categories of contracts and subcontracts that are exempt from all CAS requirements (CAS exemptions). Paragraph (14) of this provision provides an exemption for “Contracts and subcontracts to be executed and performed entirely outside the United States, its territories, and possessions.” The purpose of this SDP is to explore whether this exemption should be revised or eliminated.

History of Exemption

The original CAS Board (the 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). Since the provisions of the DPA were applicable only within the United States, the CAS Board's rules, regulations and standards were also applicable only within the United States.

On May 29, 1973, Mr. Van Cleve, General Counsel to the CAS Board, wrote to Mr. Jack Kendig, DCAA, reiterating the Board's lack of authority over contracts executed and performed entirely outside the United States. These comments were made during the CAS Board's early deliberations of what contracts were, or were not, under its purview:

“As you are aware, the CASB has previously recognized that its authorizing legislation is a part of Defense Production Act and that pertinent provisions of that Act apply to the activities of the Board. We consider that the above provision [Section 713 of the Act] does exclude from the Board's jurisdiction any contracts which are executed and performed in their entirety outside of the United States, its territories and possessions.

To the extent the Board has dealt with foreign contracts, it has been assumed that either the document was executed in the United States or that some part of performance occurred within the United States which would, of course, bring the contract within the scope of the Board's authority.” [Reference added for clarification]

On June 29, 1973, the Deputy Assistant Secretary of Defense for Procurement advised the CAS Board that based on Mr. Van Cleve's May 29, 1973 opinion, DOD was revising ASPR 3-1204 (Contract Clauses) to add contracts and subcontracts executed and performed entirely outside the United States to the list of exclusions from CAS. On September 24, 1973, Defense Procurement Circular No. 115 amended ASPR 3-1204 to provide for this CAS exclusion. As amended, ASPR 3-1204 read as follows:

3-1204 Contract Clause. The Cost Accounting Standards clause set forth in 7-104.83 shall be inserted in all negotiated contracts exceeding $100,000, except when the price is based on established catalog or market prices of commercial items sold in substantial quantities to the general public or is set by law or regulation. In addition to the foregoing exceptions, the clause shall not be included in the following contracts:

* * * * *

(vi) contracts which are executed and performed in their entirety outside the United States, its territories and possessions.

In 1980, the CAS Board ceased to exist under the DPA. CAS administration 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 decided to review the exemption from CAS for contracts and subcontracts executed and performed entirely outside the United States, its territories and possessions at FAR 30.201-1(14). The exemption was retained and incorporated in the current CAS Board's recodified rules and regulations at 48 CFR 9903.201-1(b)(14) on April 17, 1992 (57 FR 14148).

Key Questions for Consideration

The CAS Board is soliciting comments on this issue from interested parties. In particular, the Board is interested in comments related to the following issues:

1. Any statute that would require the CAS Board to retain this exemption. If any such statute exists, provide the specific statute and language that contain this requirement.

2. How this exemption does or does not promote the CAS Board's primary objective of achieving “(1) an increased degree of uniformity in cost accounting practices among Government contractors in like circumstances, and (2) consistency in cost accounting practices in like circumstances by individual government contractor over periods of time.”

3. The significance of the location of contract execution to CAS applicability.

4. The significance of the location of contract performance to CAS applicability.

5. The advantages and disadvantages of exempting contracts and subcontracts from CAS that are executed and performed entirely outside the U.S.

6. Contracting situations in which the exemption has historically been utilized.