When the Federal Acquisition Regulation Council released the model deviation text for FAR Part 31 under the Revolutionary FAR Overhaul initiative, it was accompanied by a reassurance that the overhaul contained “minimal, if any, substantive changes.” At first blush, contractors might conclude there’s little to worry about. Yet a close reading of the deviation text reveals several substantive changes that could materially affect compliance. The disconnect between the official “minimal change” narrative and the reality of the text raises important questions about administrative law and notice requirements. It also reinforces why contractors need to scrutinize the details rather than rely on high‑level summaries.
Hidden Changes in FAR Part 31
While the official description highlighted largely organizational changes, the deviation shows several substantive revisions:
- Travel Costs – The deviation deletes language allowing companies to delegate approval of travel expenses that exceed federal per‑diem or lodging ceilings. Under the new text, only a corporate “official” may approve over‑ceiling travel costs. This removes flexibility to rely on travel compliance staff or project managers and significantly increases the risk of disallowance if officer‑level approval is missing.
- Indirect Cost Rate Certification (New § 31.109) – The overhaul introduces a dedicated section on indirect cost rate certification and penalties for unallowable costs. By elevating these requirements from subsections buried elsewhere, the Administration signals that contracting officers and auditors should scrutinize incurred cost proposals earlier and more closely. Contractors could face penalties even for costs later withdrawn as unallowable.
- Advance Agreements (§ 31.110) – Advance agreements were moved and no longer labeled “not an absolute requirement.” Though reorganized, this change signals a stronger emphasis on negotiating treatment of ambiguous or high‑dollar items before costs are incurred. Contractors should proactively seek advance agreements for items like home‑office allocations or idle facility costs to avoid disputes later.
- Removal of Agency Supplements – References to “applicable agency supplements” were deleted, narrowing allowability determinations to FAR Part 31 itself. This limits agencies’ ability to impose unpublished or informal cost rules, giving contractors a stronger basis to challenge disallowances that are not grounded in the FAR.
- Clarifying CAS Authority – The phrase “CAS rules and regulations” was changed to simply “CAS regulations,” indicating that only formal Cost Accounting Standards and regulations (48 C.F.R. Chapter 99) are authoritative. This limits reliance on interpretive guidance or audit manuals as binding.
Each of these changes has compliance and audit implications. They may not redefine the cost principles wholesale, but they do alter who may approve costs, what must be documented, and how contractors can defend their rates and cost claims.
Why Weren’t These Changes Highlighted?
From a legal perspective, the FAR Council is not required to summarize every change in the preamble or description of a proposed rule. 41 U.S.C. § 1707, the statute on publication of proposed regulations, only requires publication of the full text and an opportunity for public comment. The “minimal change” narrative likely reflects the Council’s view that the core cost principles remain intact and that the structural edits are largely editorial. Indeed, many law firms note that the new section on indirect cost certifications merely cross‑references existing regulations and that the reorganization of advance agreements preserves the same substantive requirements.
However, framing the changes as superficial can mislead stakeholders who rely on summaries. Contractors who assume nothing substantive has changed may fail to revise internal controls—particularly around travel approvals, rate certifications, and advance agreements—and could face audit challenges or penalties. The omission also raises questions of transparency, because the line‑out documents released by the Office of Management and Budget to accompany the deviation guidance do not show “line‑ins,” meaning added or revised text may escape notice. Although this practice may satisfy the letter of the notice requirement, it arguably conflicts with the spirit of due process, which favors clear disclosure of substantive changes.
Administrative Law Considerations
Unlike typical agency rulemaking governed by the Administrative Procedure Act, FAR changes are governed by 41 U.S.C. § 1707. This statute requires that regulations with a significant effect on contractors be published for at least 30 days before taking effect and invites public comment. During Phase I, class deviations are issued without public comment, but they are temporary and only remain in effect until the FAR Council completes notice‑and‑comment rulemaking. Once the proposed rule is published, failure to adequately notify the public of substantive changes could make those portions vulnerable to challenge. Courts reviewing FAR amendments under administrative law principles could consider whether the notice fairly disclosed the issues and allowed meaningful comment.
Practical Takeaways
- Don’t Rely on Summaries: High‑level descriptions may downplay or omit substantive revisions. Review the full deviation text and compare it to current FAR text to identify operational impacts.
- Strengthen Controls for Travel and Rates: Ensure officer‑level approvals for over‑ceiling travel costs, tighten documentation for indirect cost rate certifications, and assess unallowable cost practices in light of the new penalties.
- Proactively Seek Advance Agreements: Engage contracting officers early to negotiate treatment of ambiguous costs. Document your rationale and link agreements to project codes.
- Monitor the Formal Rulemaking: The next phase will publish the proposed rule in the Federal Register. This is your opportunity to comment on any substantive change and to ensure that the final FAR appropriately balances efficiency with cost‑allowability safeguards.
- Advocate for Transparency: Participate in industry coalitions or trade associations to push for more detailed summaries and “line‑ins” that clearly identify substantive changes. Greater transparency benefits both contractors and agencies by reducing misunderstandings and protests.
Conclusion
The FAR Council’s characterization of the Part 31 overhaul as “minimal change” may be accurate in a technical sense—the core cost principles largely remain—but it obscures revisions that will affect contractors’ systems, approvals, and audit exposure. Administrative law requires that the public be given notice and an opportunity to comment. Whether a summary downplays substantive changes does not invalidate a rule if the full text is published, but it does put the burden on contractors to read closely. In the context of the Revolutionary FAR Overhaul, vigilance is essential: the headline may proclaim modest edits, but the fine print can still reshape cost compliance.
