[Comments on Proposed FAR Changes]
Highlights
GAO commented on proposed changes to parts of two Federal Acquisition Regulation contract clauses which provide for adjustments to a contract price or cost allowance if a contractor's failure to comply with applicable cost accounting standards or practices results in increased costs to the government. Both clauses provide that the adjustment consist of the increase in costs plus interest. GAO found that the proposed changes were consistent with the requirements of the 1986 Department of Defense Authorization Act and, therefore, it had no objection to them.
B-205208, NOV 29, 1985, OFFICE OF GENERAL COUNSEL
FEDERAL ACQUISITION REGULATION - PROPOSED REVISION DIGEST: GAO HAS NO OBJECTION TO PROPOSED CHANGES TO FEDERAL ACQUISITION REGULATION (FAR) CONTRACT CLAUSES FOUND AT FAR SECS. 52.230-3(A)(5) AND 52.230-5(A)(4) IMPLEMENTING SECTION 934 OF THE DEPARTMENT OF DEFENSE AUTHORIZATION ACT, 1986, PUB.L. 99-145, WHICH STATES THAT THE INTEREST RATE TO BE CHARGED A GOVERNMENT CONTRACTOR FOR FAILURE TO COMPLY WITH COST ACCOUNTING STANDARDS OR TO FOLLOW COST ACCOUNTING PRACTICES CONSISTENTLY SHALL BE THE RATE ESTABLISHED BY THE SECRETARY OF THE TREASURY UNDER PUBLIC LAW 92-41.
MS. MARGARET A. WILLIS:
FAR SECRETARIAT
GENERAL SERVICES ADMINISTRATION
THIS RESPONDS TO YOUR LETTER OF NOVEMBER 4, 1985, REQUESTING OUR COMMENTS ON A PROPOSED CHANGE TO PARTS OF TWO FEDERAL ACQUISITION REGULATION (FAR) CONTRACT CLAUSES FOUND AT FAR SECTIONS 52.230-3 AND 52.230-5. THE PROPOSED CHANGES ARE NECESSARY BECAUSE OF AN AMENDMENT, DISCUSSED BELOW, TO THE DEFENSE PRODUCTION ACT OF 1950 CONTAINED IN SECTION 934(B) OF THE DEPARTMENT OF DEFENSE (DOD) AUTHORIZATION ACT, 1986, WHICH WAS ENACTED ON NOVEMBER 8, 1985, AS PUBLIC LAW 99-145.
THE CONTRACT CLAUSE AT FAR SECTION 52.230-3(A)(5) REQUIRES A GOVERNMENT CONTRACTOR TO AGREE TO AN ADJUSTMENT OF THE CONTRACT PRICE OR OF A COST ALLOWANCE IF A FAILURE BY THE CONTRACTOR OR A SUBCONTRACTOR EITHER TO COMPLY WITH AN APPLICABLE COST ACCOUNTING STANDARD (CAS) OR TO FOLLOW CONSISTENTLY ANY COST ACCOUNTING PRACTICE RESULTS IN INCREASED CONTRACT COSTS TO THE GOVERNMENT. THE CLAUSE AT FAR SECTION 52.230-5(A)(4) PROVIDES FOR A SIMILAR ADJUSTMENT FOR ANY FAILURE TO COMPLY WITH CAS 401, CONSISTENCY IN ESTIMATING ACCOUNTING, AND REPORTING COSTS, OR CAS 402, CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE, IF THE FAILURE RESULTS IN INCREASED CONTRACT COSTS TO THE GOVERNMENT. BOTH CLAUSES PROVIDE THAT THE ADJUSTMENT SHALL CONSIST OF THE INCREASE IN COSTS PLUS INTEREST. THE INTEREST IS COMPUTED AT THE LESSER OF THE RATE DETERMINED BY THE SECRETARY OF THE TREASURY UNDER PUBLIC LAW 92-41 OR 7 PERCENT PER ANNUM, THE INTEREST RATE CEILING PROVIDED FOR BY SECTION 719 OF THE DEFENSE PRODUCTION ACT OF 1950, 50 U.S.C. APP. SEC. 2168(H)(1) (1982). THE 1986 DOD AUTHORIZATION ACT DELETES THE 7-PERCENT CEILING AND SUBSTITUTES A PROVISION STATING THAT THE INTEREST RATE TO BE CHARGED THE CONTRACTOR IN THESE CIRCUMSTANCES IS THE RATE ESTABLISHED UNDER PUBLIC LAW 92-41.
THE CHANGES PROPOSED TO THE CITED FAR CLAUSES ARE CONSISTENT WITH THE REQUIREMENTS OF THE 1986 DOD AUTHORIZATION ACT. WE THEREFORE HAVE NO OBJECTION TO THE PROPOSED CHANGES.