[Predetermined Overhead Rates]

GAO responded to a question regarding whether the proposed use of predetermined overhead rates in contracts with nonprofit organizations, State and local governments, and Federally recognized Indian tribal governments constitutes a prohibited cost-plus-a-percentage-of-cost (CPPC) system of contracting. Regarding a proposed amendment to Federal Procurement Regulations (FPR) 1-3.704.1(b) which concerns the relevant predetermined overhead rates, GAO amended earlier comments and stated that it objected to the amendment because such rates violate statutory prohibition against a CPPC system of contracting. Moreover, GAO recommended that such authorization be eliminated from the FPR. However, GAO commented that, although it is permissible to use predetermined overhead rates in grants made to nonprofit, noneducational organizations, it is not a good practice. Further, GAO stated that there would be no violation of the statutory prohibition against a CPPC system of contracting when a predetermined overhead rate is used in appropriate circumstances and in conjunction with a roll forward provision, which is a form of retroactive adjustment to actual costs.