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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: May 21, 2004

SUBJECT: Federal Acquisition Regulation (FAR); Gains and Losses

SOURCE: Federal Register, May 21, 2004, Vol. 69, No. 99, page 29379

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed that FAR 31.205-16, Gains and Losses on Disposition or Impairment of Depreciable Property or Other Capital Assets, be amended to streamline its provisions and respond to comments on an earlier proposed rule.

EDITOR'S NOTE: For more on the original proposed rule that led to this proposed rule, see the July 7, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Gains and Losses, Maintenance and Repair Costs, and Material Costs."

DATES: Comments must be submitted on or before July 20, 2004.

ADDRESSES: Submit written comments on the proposed rule to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405. Submit e-mail comments to: farcase.2004-005@gsa.gov. Cite "FAR case 2004-005" when referring to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Edward Loeb, 202-501-0650.

SUPPLEMENTAL INFORMATION: In 2001, Director of Defense Procurement Deidre Lee established a special interagency ad hoc committee to perform a comprehensive review of policies and procedures in FAR Part 31, Contract Cost Principles and Procedures, related to cost measurement, assignment, and allocation to assess the need for each specific requirement in light of the evolution of generally accepted accounting principles and experience gained from implementation.

Public meetings were held in 2001 to discuss potential opportunities to streamline the provisions of FAR Part 31. The ad hoc committee reviewed the cost principles and procedures and the public comments, identified potential changes to the FAR, and submitted draft proposed rules to the Civilian Agency Acquisition Council (CAAC) and the Defense Acquisition Regulations Council (DARC) for consideration.

On July 7, 2003, the Councils published proposed revisions to FAR 31.205-16; FAR 31.205-24, Maintenance and Repair Costs; and FAR 31.205-26, Material Costs. The Councils reviewed the public comments and concluded that the portion of the proposed rule relating to FAR 31.205-24 and FAR 31.205-26 should be converted to a final rule with minor changes -- the final rule will be published separately in a future Federal Acquisition Circular (FAC). However, the Councils decided to make substantive changes to the proposed FAR 31.205-16, so the Councils are publishing this new proposed rule and requesting additional comments.

The July 7, 2003, proposed rule would have added a new paragraph (b) that would have addressed the method and timing for determining the gain and loss associated with a sale and leaseback arrangement. The introductory material to the proposed rule stated, "The Councils believe that (a) a contractor should not benefit or be penalized for entering into a sale and leaseback arrangement; (b) the government should reimburse the contractor the same amount for the subject asset as if the contractor had retained title; and (c) the government would be precluded from recovering the financing costs that were imbedded in the sales price should the gain be recognized at the date of the sale and leaseback arrangement. For these reasons, the Councils are recommending that the gain or loss be determined at the end of the lease term or when the contractor no longer occupies the property (whichever date is later), rather than the date of the sale and leaseback arrangement."

Three respondents submitted comments on the proposed FAR 31.205-16 and, as a result, the new proposed rule now states that the disposition date is the date of the sale and leaseback arrangement, rather than at the end of the lease term (proposed paragraph (b)(2)).

In addition, several other editorial changes have been made to the proposed FAR 31.205-16.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2004 by Panoptic Enterprises. All Rights Reserved.

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