OFFICE OF THE UNDER SECRETARY OF DEFENSE

13000 DEFENSE PENTAGON

WASHINGTON, DC 203O1-3000

ACQUISITION AND

TECHNOLOGY

MEMORANDUM FOR DIRECTORS OF DEFENSE AGENCIES DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT

SUBJECT: Contractor Insurance/Pension Reviews (CIPRs)

The attached final DFARS rule is effective immediately and will be published in a future Defense Acquisition Circular.

[Federal Register: July 29, 1998 (Volume 63, Number 145)]

DEPARTMENT OF DEFENSE

48 CFR Part 242

[DFARS Case 97-D012]

Defense Federal Acquisition Regulation Supplement; Contractor

Insurance/Pension Reviews

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: The Director of Defense Procurement has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to revise guidance pertaining to the conduct of Contractor Insurance/Pension Reviews (CIPRs). The rule clarifies requirements for conducting a CIPR, eliminates the requirement to conduct a CIPR at least every 2 years, and requires the performance of a special CIPR under certain circumstances.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Rick Layser, Defense Acquisition Regulations Council, PDUSD (A&T) DP

(DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062.

Telephone (703) 602-0131; telefax (703) 602-0350. Please cite DFARS

Case 97-D012.

SUPPLEMENTARY INFORMATION:

A. Background

This final rule revises the guidance in DFARS Subpart 242.73 pertaining to the conduct of CIPRs. A proposed rule was published in the Federal Register on August 20, 1997 (62 FR 44249). Ten respondents submitted comments on the proposed rule. All comments were considered in the development of the final rule.

B. Regulatory Flexibility Act

The Department of Defense certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because the rule applies only to contractors whose annual

qualifying sales to the Government exceed $40 million, and no small entities are known to meet this criterion.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the final rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq. List of Subjects in 48 CFR Part 242 Government procurement. Michele P. Peterson, Executive Editor, Defense Acquisition Regulations Council.

Therefore, 48 CFR Part 242 is amended as follows:

1. The authority citation for 48 CFR Part 242 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 242--CONTRACT ADMINISTRATION

2. Sections 242.7301 and 242.7303 are revised to read as follows:

242.7301 General.

(a) The administrative contracting officer (ACO) is responsible for determining the[ ] [allowability] of insurance/pension costs in Government contracts. [Defense Logistics Agency (DLA) i]nsurance/pension specialists [and Defense Contract Audit Agency (DCAA) auditors] assist ACOs in making these determinations by conducting CIPRs.

[ (1)] A CIPR is an in-depth evaluation of a contractor's--

[(i)] Insurance program;

[(ii)] Pension plans;

[ (iii)] Other deferred compensation plans; and

[ (iv)] Related policies, procedures, practices, and costs.

[ (2) A special CIPR is a joint DLA/DCAA review that concentrates on specific areas of the contractor's insurance program, pension plan, or other deferred compensation plan.]

(b) [ ]DLA is the DoD Executive Agency for the performance of all CIPRs conducted under 242.7302.]

242.7302 Requirements.

(a)[(1)] A CIPR shall be conducted [only when--

(i) A contractor has $40 million of qualifying sales to the Government during the contractor's preceding fiscal year; and

(ii) The ACO, with advice from DLA insurance/pension specialists and DCAA auditors, determines a CIPR is needed based on a risk assessment of the contractor's past experience and current vulnerability.][ ]

[ (2)] Qualifying sales are sales for which [ ] cost or pricing data were required under 10 U.S.C. 2306[a], as implemented in [ ] FAR 15.[403], or[ ][ that] are [ ]contracts [priced on other than a firm-fixed-price or fixed-price with economic price adjustment basis]. Sales include prime contracts, subcontracts, and modifications to such contracts and subcontracts.

[ ]

[ (b) A special CIPR shall be performed for a contractor (including, but not limited to, a contractor meeting the requirements in paragraph (a) of this section) when any of the following circumstances exists, but only if the circumstance(s) may result in a material impact on Government contract costs:

(1) Information reveals a deficiency in the contractor's insurance/pension program.

(2) The contractor proposes or implements changes in its insurance, pension, or deferred compensation plans.

(3) The contractor is involved in a merger, acquisition, or divestiture.

(4) The Government needs to follow up on contractor implementation of prior CIPR recommendations].

[ ]

[ (c) The DCAA auditor shall use relevant findings and recommendations of previously performed CIPRs in determining the scope of any audits of insurance and pension costs.]

[ ]

[ (d) When a Government organization believes that a review of the contractor's insurance/pension program should be performed, that organization should provide a recommendation for a review to the ACO. If the ACO concurs, the review should be performed as part of an ACO-initiated special CIPR or as part of a CIPR already scheduled for the near future.]

242.7303 Responsibilities.

(a) The [ ][ACO] is responsible for--

(1) Determining the need for a CIPR [ ]under 242.7302;

(2) Requesting and scheduling the reviews with the appropriate [ ][ DLA] activity;

(3) Notifying the contractor of the proposed date and purpose of the review, and obtaining any preliminary data needed by the [DLA] insurance/pension specialist [or the DCAA auditor];

(4) Reviewing the CIPR report, advising the contractor of the [ ] [recommendations contained therein, considering contractor comments, and rendering a decision on those recommendations];

(5) providing other interested contracting officers copies of documents related to the CIPR[ ];

(6) Ensuring adequate follow-up on all CIPR recommendations[; and] [ (7) Performing contract administration responsibilities related to Cost Accounting Standards administration as described in FAR Subparts 30.2 and 30.6.]

(b) The [DLA] insurance/pension specialist is responsible for--

(1) Preparing and maintaining the schedule of CIPRs to be performed during the next 12 months and providing the military departments and [ ][DCAA] a copy of the schedule;

[(2) Issuing a technical report on the contractor's insurance/ pension plans for incorporation into the final CIPR report based on an analysis of the contractor's pension program, insurance program, and other related data;

(3) Leading the team that conducts the review. Another individual may serve as the team leader when both the insurance/pension specialist and the individual agree. The team leader is responsible for--

(i)] Maintaining complete documentation for CIPR reports;

[(ii)] To the extent possible, resolving discrepancies between audit reports and CIPR draft reports prior to releasing the final CIPR report;

[(iii)] Preparing and distributing the final CIPR report;

[(iv)] Providing the final audit report [and/or the insurance/pension specialist's report] as an attachment to the CIPR report;[ and]

[(v)] Preparing a draft letter for the administrative contracting officer's use in notifying the contractor of CIPR results; and

[(4)] When requested, advising administrative contracting officers and other Government representatives concerning contractor insurance/pension matters.

(c) [The DCAA] auditor is responsible for--

(1) Participating as a member of the CIPR team [or serving as the team leader (see paragraph (b)(3) of this section)];

[ ]

[ (2) Issuing an audit report for incorporation into the final CIPR report based on an analysis of the contractor's books, accounting records, and other related data; and]

[ (3) Performing contract audit responsibilities related to Cost Accounting Standards administration as described in FAR Subparts 30.2 and 30.6.]