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Federal Register / Vol. 70, No.

189 / Friday, September 30, 2005 / Rules and Regulations 57467

penalty provisions at 42.709, the SUMMARY: The Civilian Agency 2004. Seven respondents submitted
amount projected to the sampling Acquisition Council and the Defense comments on the proposed FAR rule.
universe from that sampled cost is also Acquisition Regulations Council Two respondents supported the
subject to the same penalty provisions. (Councils) have agreed on a final rule proposed rule, four respondents
(4) Use of statistical sampling amending the Federal Acquisition opposed it, and one respondent
methods for identifying and segregating Regulation (FAR) by revising the requested clarification. A discussion of
unallowable costs should be the subject relocation cost principle to permit the comments is provided below. The
of an advance agreement under the contractors the option of being Councils considered all comments and
provisions of 31.109 between the reimbursed on a lump-sum basis for concluded that the proposed rule
contractor and the cognizant three types of employee relocation costs: should be converted to a final rule, with
administrative contracting officer or costs of finding a new home; costs of changes to the proposed rule.
Federal official. The advance agreement travel to the new location; and costs of Differences between the proposed rule
should specify the basic characteristics temporary lodging. These three types of and final rule are discussed in Section
of the sampling process. The cognizant costs are in addition to the B, Comment 1, and Section C below.
administrative contracting officer or miscellaneous relocation costs for B. Public Comments
Federal official shall request input from which lump-sum reimbursements are
the cognizant auditor before entering already permitted. No standard for measuring
into any such agreements. reasonableness
DATES: Effective Date: October 31, 2005.
(5) In the absence of an advance 1. Comment: Four respondents
FOR FURTHER INFORMATION CONTACT: The opposed the proposed rule and
agreement, if an initial review of the
FAR Secretariat at (202) 501–4755 for expressed the concern that with
facts results in a challenge of the
information pertaining to status or contractors spending significant
statistical sampling methods by the
publication schedules. For clarification amounts on employee relocations, the
contracting officer or the contracting
of content, contact Mr. Jeremy Olson, Government would have no objective
officer’s representative, the burden of
Procurement Analyst, at (202) 501– standard for evaluating the
proof shall be on the contractor to
3221. Please cite FAC 2005–06, FAR reasonableness of the new lump-sum
establish that such a method meets the
case 2003–002. amounts being claimed.
criteria in paragraph (c)(2) of this
subsection. SUPPLEMENTARY INFORMATION: After conducting surveys that suggest
‘‘contractors are incurring hundreds of
* * * * * A. Background millions of dollars of relocation costs
(e)(1) * * * The Councils originally considered
(3) When a selected item of cost under annually,’’ the first respondent
expanding the reimbursement of expressed ‘‘significant concern as to
31.205 provides that directly associated
relocation costs on a lump-sum basis where an auditor, contracting officer, or
costs be unallowable, such directly
under FAR case 1997–032, Relocation contractor could turn to gather adequate
associated costs are unallowable only if
Costs. However, the Councils decided to data to make a determination as to the
determined to be material in amount in
study this issue further under a separate appropriateness and reasonableness of
accordance with the criteria provided in
case and published a final rule on the the lump-sum method or resulting
paragraphs (e)(1) and (e)(2) of this
remainder of FAR case 1997–032 in the amount.’’ The respondent concluded its
subsection, except in those situations
Federal Register at 67 FR 43516, June letter by stating it ‘‘believes that paying
where allowance of any of the directly
27, 2002. On October 24, 2002, the a lump-sum for such significant
associated costs involved would be
Councils published a Notice of Request amounts places an unacceptable risk on
considered to be contrary to public
for Comments in the Federal Register the Government and creates an
(67 FR 65468) with a list of questions excessive audit task to establish
[FR Doc. 05–19476 Filed 9–29–05; 8:45 am] allowability of relocation costs.’’
regarding the use of a lump-sum
BILLING CODE 6820–EP–S Also citing the above mentioned
approach for reimbursing employee
relocation expenses. After reviewing the survey of the large amounts of
public comments that were submitted in relocation costs allocated to cost
DEPARTMENT OF DEFENSE reimbursement contracts each year, the
response to that Federal Register notice,
GENERAL SERVICES the Councils held a public meeting on second respondent stated that ‘‘allowing
ADMINISTRATION February 6, 2003, to further explore the lump-sum reimbursement of these costs
views of interested parties on this issue. without supporting documentation is
NATIONAL AERONAUTICS AND Public comments and the discussions not in the best interests of the
SPACE ADMINISTRATION at the public meeting revealed that, in Government’’ because ‘‘the proposed
addition to the miscellaneous relocation revision would subject millions of
48 CFR Part 31 costs for which lump-sum dollars to a subjective test of
reimbursements are already permitted reasonableness requiring Government
[FAC 2005–06; FAR Case 2003–002; Item by FAR 31.205–35(b)(4), it is common auditors, contracting officials, attorneys,
X] and others to expend significantly more
commercial practice to reimburse
RIN 9000–AJ81 relocating employees on a lump-sum resources to determine the
basis for their house-hunting, final reasonableness of the claimed costs,
Federal Acquisition Regulation; move, and temporary lodging expenses. review the determination, and resolve
Reimbursement of Relocation Costs A FAR case was opened to expand the disputes between the Government and
on a Lump-Sum Basis relocation cost principle to permit the contractor involving disallowed
AGENCIES: Department of Defense (DoD), lump-sum reimbursements for these costs.’’ The respondent went on to
General Services Administration (GSA), three types of costs. suggest ‘‘contractors will also incur
and National Aeronautics and Space The Councils published a proposed additional expenses in excess of any
Administration (NASA). FAR rule in the Federal Register at 68 administrative costs saved supporting
FR 69264, December 11, 2003, with a the reasonableness of the relocation
ACTION: Final rule.
request for comments by February 9, costs.’’

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57468 Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations

The third respondent based its requirement should provide essentially payments is a common commercial
opposition to the proposed rule on ‘‘the the same audit visibility into the practice’’ and expressed the belief ‘‘that
millions of taxpayer dollars that will be reasonableness of lump-sum payments the proposed rule will help align
wasted on this special interest as currently exists for actual relocation relocation cost reimbursement policies
giveaway’’ and suggested that the costs. with commercial best practices.’’
Government’s motivation in pursuing it Relocation lump-sums as a common Another respondent also agreed that the
was ‘‘not wanting to disappoint commercial practice proposed changes ‘‘are in keeping with
contractors.’’ The respondent argued 2. Comment: In opposing the current commercial business practice’’
further that ‘‘contractors favor this proposed rule, one respondent also and explained that ‘‘beginning in 1993
approach, not because of any asserted that the use of lump-sum with the Revenue Reconciliation Act,
administrative burden reduction, but payments for travel and temporary many companies moved to lump-sum
rather because it leads to higher levels lodging related relocation costs ‘‘is not allowances for what became taxable
of reimbursement without any need to a predominant industry practice at this reimbursements to the home-finding,
justify costs.’’ Finally, the respondent time.’’ The respondent explained that it temporary living, and final move
expressed its opinion that ‘‘with few recently reviewed the current relocation portions of relocation policy.’’ The
exceptions, these (relocation) costs policies in place at four large contractor respondent concluded with its opinion
should only be reimbursed on an ‘actual locations and found that three of these that ‘‘the recommended revision will
cost’ basis.’’ four contractors use a single corporate- enable Government contractors to
The fourth respondent did not submit wide policy for their employee implement this best practice and take
any original comments, but simply relocation reimbursement programs. advantage of a tested and proven
forwarded the third respondent’s Even though one of these three process efficiency that has been an
comments with an accompanying companies claims it is a predominantly accepted part of the commercial sector’s
statement that it ‘‘fully concurs in the commercial company and the other two relocation programs for over a decade.’’
substantive objections expressed’’ companies also have a substantial Councils’ response: While the use of
therein. commercial business base, the lump-sum reimbursements for selected
Councils’ response: The Councils respondent pointed out that none of the relocation expenses may not be the
believe that a provision permitting the three has established a lump-sum option predominant commercial practice at this
expanded use of lump-sum for its commercial business segments. time, the Councils believe there is
reimbursements should be added to the In addition, the respondent cited an ample evidence that the use of such
relocation cost principle. Such a August 2003 news release from a payments is a common and growing
provision is expected to reduce the relocation management firm which commercial practice. The survey data
accounting and administrative burden stated that only 30 percent of the cited by the respondents support this
of that cost principle on contractors and companies it had recently surveyed said assessment. In addition, a relocation
lead to faster relocations. they were using lump-sums to cover management firm that has been in
The Councils are very receptive to the travel and temporary lodging expenses. business for more than 70 years stated
important concerns expressed by the Finally, the respondent pointed out that at the February 6, 2003, public meeting
respondents. The Councils believe that it had recently been advised by a and in its subsequent public comments
the words ‘‘on an appropriate lump-sum relocation management firm that, that lump-sum reimbursement is now a
basis to the individual employee’’ in the shortly before Dr. John Hamre left the common commercial practice for house-
proposed rule were intended to Department of Defense, he ‘‘shut down’’ hunting, final move, and temporary
condition the allowability of the new an effort by the relocation management lodging costs.
lump-sum reimbursements on firm and the Defense Integrated Travel The Councils do not find it surprising
contractors by providing sufficient and Relocation Solutions (DITRS) office that contractors who wish to maintain a
visibility into the component cost to put together a plan for using lump- single, corporate-wide policy for
projections used in developing the sums for DoD civilian relocations. reimbursing relocation costs continue to
lump-sum amounts to permit an audit After reviewing the responses to the apply a policy which parallels the
determination of their reasonableness. October 24, 2002, Federal Register current cost principle, even though they
However, the comments make it Notice of Request for Comments (67 FR may have significant commercial
abundantly clear that such a 65468), a respondent questioned business. The revised relocation cost
requirement needs to be more explicit. ‘‘whether the FAR Council has obtained principle will give such firms an
The Councils certainly want to sufficient information to support its additional option for the first time on
eliminate any possible public assertion that it is now common Government contracts that could well
perception of this proposed rule change commercial practice to reimburse become their corporate-wide standard in
as a ‘‘blank check’’ for contractors and relocating employees on a lump-sum the future.
to ensure that the Government only basis for their house-hunting, final Finally, it is the Councils’
reimburses reasonable costs. move, and temporary lodging understanding that DoD terminated its
Accordingly, the Councils have added expenses.’’ The respondent observed two-year initiative to reengineer
language at FAR 31.205–35(b)(6)(i) that that of the eight respondents who relocation policies and procedures and
makes the costs of lump-sum payments responded to that notice, one disbanded the DITRS office which
to relocating employees for house- respondent’s letter gave no specifics on oversaw that effort due to a lack of
hunting, final move, and temporary the number of companies using lump- funds and interest from the military
lodging expenses allowable only when sum reimbursements, and another departments. And while the relocation
‘‘adequately supported by data on the respondent stated that its 2001 survey management firm stated during its
individual elements (e.g., showed that 55 companies out of 109 presentation at the February 6, 2003,
transportation, lodging, and meals) contacted were using lump-sum public meeting that the Federal Deposit
comprising the build-up of the lump- reimbursements. Insurance Corporation is currently using
sum amount to be paid based on the In supporting the proposed rule, one lump-sum reimbursements for its
circumstances of the particular respondent agreed ‘‘with the Councils’ employees’ relocation costs, this
employee’s relocation.’’ This statement that the use of lump-sum appears to be an exception within the

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Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations 57469

Federal Government. However, even if finding a new home, (2) costs of travel reasonable amounts are allowed for
lump-sum reimbursements for Federal to the new location, and (3) costs of lump-sum reimbursements of these
employee relocation expenses are temporary lodging, in addition to the three types of relocation costs. This
relatively rare, the purpose of this case existing ‘miscellaneous expenses’ that additional flexibility should help
is to recognize a common and growing would be subject to a $5,000 lump-sum promote increased entry into the
commercial best practice in the reimbursement, per employee move.’’ Federal marketplace by firms that have
relocation cost principle that should The respondent offered this alternative previously been hesitant to do so,
benefit both contractors and the ‘‘in the interest of promoting greater resulting in increased competition on
Government. flexibility within the existing relocation future purchases.
Allowability of lump-sum payments cost principle, but without increasing Clarification of current lump-sum cap
3. Comment: While supporting the overall costs to taxpayers.’’ for miscellaneous expenses
effort to expand the use of lump-sum Councils’ response: Nonconcur. 6. Comment: A respondent asked: ‘‘Is
reimbursements for contractor employee Under its cost-type contracts, the the proposed lump-sum amount of $5K
relocation costs, one respondent Government is obligated to pay the applicable to both the continental
suggested that the revised paragraph contractor’s allocable and reasonable United States (CONUS) and outside
(b)(4) needs to include ‘‘a clear costs of contract performance. Not only CONUS relocations?’’
affirmative statement that the lump-sum would the respondent’s proposal be Councils’ response: The $5,000 cap on
payments are allowable costs’’ to avoid fundamentally unfair to contractors, but allowable lump-sum reimbursements for
any possible confusion. In addition, the it would also severely undermine the miscellaneous relocation expenses is a
respondent recommended that the basic rationale for this proposed rule current, not proposed, limitation at FAR
words ‘‘to the individual employee’’ be change. The current cap on 31.205–35(b)(4). It applies to all
deleted from the revised paragraph miscellaneous relocation costs at FAR contractor employee relocations,
(b)(4) because ‘‘contractors should not 31.205–35(b)(4) was increased to $5,000 regardless of location.
have to demonstrate on an individual in June 2002 based on survey data
basis that the lump-sum payments are published by the Employee Relocation C. Additional Change—No adjustments
reasonable and appropriate for each Council regarding the median amount of The Councils are concerned that
relocating employee.’’ Finally, the such payments in the commercial contractors who reimburse employee
respondent recommended that the sector. There is no logical reason to relocation costs on a lump-sum basis
Councils eliminate the current ceilings arbitrarily add house-hunting, final could make additional after-the-fact
on allowable home sale and purchase travel, and temporary lodging costs to payments to employees whose actual
costs of 14 percent and 5 percent, this separate lump-sum cap. The cost costs exceeded the lump-sum amount.
respectively. principles should ensure that To address this concern, the Councils
Councils’ response: Nonconcur. The contractors are treated fairly, consistent added the following limitation at FAR
Councils do not agree that any with sound public policy. 31.205–35(b)(6)(ii): ‘‘When
additional language is necessary to Proposed rule would make Federal reimbursement on a lump-sum basis is
avoid confusion regarding the employees second class citizens used, any adjustments to reflect actual
allowability of the specified lump-sum 5. Comment: One respondent costs are unallowable.’’
payments. The Councils believe it is expressed concern ‘‘that this proposal
very clear from the language at FAR would make Federal employees second D. Regulatory Planning and Review
31.205–35(b)(6)(i) that lump-sum class citizens vis-á-vis their contractor This is not a significant regulatory
payments to employees for any of these counterparts with respect to relocation action and, therefore, was not subject to
three types of relocation costs will be expenses.’’ The respondent concluded review under Section 6(b) of Executive
allowable if the requisite criteria are by stating that ‘‘in no case should Order 12866, Regulatory Planning and
met. The Councils also believe that the increases in lump-sum payments Review, dated September 30, 1993. This
data provided by the contractor on the beyond $5,000 per contractor employee rule is not a major rule under 5 U.S.C.
component cost projections used in be considered until ... Federal 804.
developing its lump-sum amounts must employees are afforded the same
be ‘‘based on the circumstances of the advantages as their contractor E. Regulatory Flexibility Act
particular employee’s relocation,’’ such counterparts.’’ The Department of Defense, the
as family size, city, and number of Councils’ response: Nonconcur. While General Services Administration, and
vehicles. Otherwise, the lump-sum the Councils understand that the the National Aeronautics and Space
amount paid could be excessive, and respondent is particularly sensitive to Administration certify that this final
therefore unreasonable, for a given what it perceives to be preferential rule will not have a significant
relocation. Finally, the current ceilings treatment of contractor employees, the economic impact on a substantial
on allowable home sale and purchase Councils do not believe the allowability number of small entities within the
costs are outside the scope of this case. of contractor relocation costs must meaning of the Regulatory Flexibility
(Incidentally, the relocation parallel exactly the treatment afforded Act, 5 U.S.C. 601, et seq., because most
management firm indicated at the Federal employees. It is now a common contracts awarded to small entities use
February 6, 2003, public meeting that commercial practice to reimburse simplified acquisition procedures or are
such costs are seldom included in lump- relocating employees on a lump-sum awarded on a competitive, fixed-price
sum relocation payments.) basis for their house-hunting, final basis, and do not require application of
Add the three types of employee move, and temporary lodging expenses, the cost principle discussed in this rule.
relocation costs to current lump-sum and the Councils believe the relocation For Fiscal Year 2003, only 2.4 percent
cap for miscellaneous expenses cost principle should be revised to of all contract actions were cost
4. Comment: One respondent permit contractors the option of using contracts awarded to small businesses.
suggested that if the proposed rule is not this methodology. The language added
withdrawn, it ‘‘does not object to adding at FAR 31.205–35(b)(6)(i) will ensure F. Paperwork Reduction Act
the three additional types of employee that, just as when reimbursement is The Paperwork Reduction Act (Pub.
relocation costs, i.e., (1) the costs of based on actual expenses, only L. 104–13) does not apply because the

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57470 Federal Register / Vol. 70, No. 189 / Friday, September 30, 2005 / Rules and Regulations

changes to the FAR do not impose DEPARTMENT OF DEFENSE 34810) on May 15, 2002, with a request
information collection requirements that for comments by July 15, 2002. On June
require the approval of the Office of GENERAL SERVICES 11, 2002, an amendment was published
Management and Budget under 44 ADMINISTRATION in the Federal Register (67 FR 40136) to
U.S.C. 3501, et seq. correct an error in the Supplementary
NATIONAL AERONAUTICS AND Information section accompanying the
List of Subjects in 48 CFR Part 31 SPACE ADMINISTRATION proposed rule. Six respondents
Government procurement. submitted public comments. As a result
Dated: September 22, 2005.
48 CFR Part 31 of the comments received, the Councils
[FAC 2005–06; FAR Case 2001–021; Item
made significant changes to the
Julia B. Wise,
XI] proposed FAR rule and published a
Director, Contract Policy Division. second proposed FAR rule in the
■ Therefore, DoD, GSA, and NASA RIN 9000–AJ38 Federal Register (69 FR 4436) on
amend 48 CFR part 31 as set forth January 29, 2004, with a request for
Federal Acquisition Regulation; comments by March 29, 2004.
Training and Education Cost Principle Nine respondents submitted
PART 31—CONTRACT COST AGENCIES: Department of Defense (DoD), comments in response to the second
PRINCIPLES AND PROCEDURES General Services Administration (GSA), proposed FAR rule. A discussion of
and National Aeronautics and Space these public comments is provided
■ 1. The authority citation for 48 CFR below. The Councils considered all
Administration (NASA).
part 31 continues to read as follows: comments and concluded that the
ACTION: Final rule.
Authority: Authority: 40 U.S.C. 121(c); 10 proposed rule should be converted to a
U.S.C. chapter 137; and 42 U.S.C. 2473(c). SUMMARY: The Civilian Agency final rule, with changes to the proposed
■ 2. Amend section 31.205–35 by Acquisition Council and the Defense rule. Differences between the second
revising paragraph (b)(4); and adding Acquisition Regulations Council proposed rule and final rule are
paragraphs (b)(5) and (b)(6) to read as (Councils) have agreed on a final rule discussed in Section B, Comments 1, 2,
follows: amending the Federal Acquisition 4, and 6, below.
Regulation (FAR) by revising the B. Public Comments
31.205–35 Relocation costs. ‘‘training and education costs’’ contract
* * * * * cost principle. The amendment Proposed paragraph (a): Education for
(b)* * * streamlines the cost principle and sole purpose to obtain academic degree
increases clarity by eliminating or qualify for job.
(4) Amounts to be reimbursed shall
not exceed the employee’s actual restrictive and confusing language, and Comment 1: Seven respondents
expenses, except as provided for in by restructuring the rule to list only generally supported the proposed rule;
paragraphs (b)(5) and (b)(6) of this specifically unallowable costs. The final however, they strongly recommended
subsection. rule eliminates several specific that proposed paragraph (a) be deleted
(5) For miscellaneous costs of the type limitations on the allowability of costs before issuing a final rule. Several of the
discussed in paragraph (a)(5) of this associated with the various categories of respondents pointed out that paragraph
subsection, a lump-sum amount, not to education, eliminates the disparate (a) is inconsistent with the Councils’
exceed $5,000, may be allowed in lieu treatment of full-time and part-time own Federal Register comments that
of actual costs. undergraduate education costs, and they ‘‘support upward mobility, job
limits allowable costs to training and retraining, and educational
(6)(i) Reimbursement on a lump-sum
education related to the field in which advancement.’’ In this regard, one
basis may be allowed for any of the
the employee is working or may respondent stated its concern that
following relocation costs when
reasonably be expected to work. The paragraph (a) would prevent it from
adequately supported by data on the
rule makes job-related training and providing ‘‘the educational
individual elements (e.g.,
education costs generally allowable, opportunities that we have provided for
transportation, lodging, and meals)
except for six public policy exceptions decades.’’ Some respondents
comprising the build-up of the lump-
that are retained from the current cost complained that it had ‘‘no idea how
sum amount to be paid based on the
principle. Except for the six expressly one is to discern whether the training
circumstances of the particular
unallowable cost exceptions, the and education relates ‘solely’ to
employee’s relocation:
reasonableness of specific contractor obtaining an academic degree or to a
(A) Costs of finding a new home, as training and education costs is assessed particular position’’ and that
discussed in paragraph (a)(2) of this by reference to the FAR section entitled ‘‘implementation of this provision will
subsection. ‘‘Determining reasonableness.’’ be burdensome and lead to contested
(B) Costs of travel to the new location, costs; hardly a simplification that
DATES: Effective Date: October 31, 2005.
as discussed in paragraph (a)(1) of this increases the clarity of the cost
subsection (but not costs for the principle.’’
transportation of household goods). FAR Secretariat at (202) 501–4755 for
information pertaining to status or Several respondents challenged the
(C) Costs of temporary lodging, as fundamental notion that the allowability
publication schedules. For clarification
discussed in paragraph (a)(2) of this of contractor employee training and
of content, contact Mr. Jerry Olson at
subsection. education costs must parallel exactly
(202) 501–3221. Please cite FAC 2005–
(ii) When reimbursement on a lump- 06, FAR case 2001–021. the treatment afforded Federal
sum basis is used, any adjustments to employees. One respondent wrote—
SUPPLEMENTARY INFORMATION: ‘‘We believe that utilization of the test of
reflect actual costs are unallowable.
A. Background whether the Federal Government is willing to
* * * * * reimburse education costs for Federal
[FR Doc. 05–19477 Filed 9–29–05; 8:45 am] The Councils published a proposed employees is an inappropriate basis for
BILLING CODE 6820–EP–S FAR rule in the Federal Register (67 FR determining cost allowability. The

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