[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Proposed Rules]
[Pages 35720-35723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16846]



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DEPARTMENT OF DEFENSE

Defense Logistics Agency

48 CFR Parts 5446 and 5452


DLA Acquisition Regulation; Quality Assurance

AGENCY: Defense Logistics Agency, DOD.

ACTION: Proposed rule and request for comments.

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SUMMARY: The Defense Logistics Agency proposes to add a new part to 48 
CFR Chapter 54, the Defense Logistics Acquisition Regulation (DLAR) 
part 5446 and add coverage to 48 CFR Chapter 54, Part 5452. The 
proposed coverage implements a test under which a contractor will be 
required to replace, repair or provide reimbursements for items which 
do not conform with the specifications of the contract when such 
nonconformances are discovered within one year after Government 
acceptance. Comments are hereby requested on the proposed coverage.


[[Page 35721]]

DATES: Comments must be submitted on or before September 11, 1995, to 
be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Logistics Agency, Directorate of Procurement, AQPLC, ATTN: Mary 
Massaro, Room 4D175, Cameron Station, Alexandria, VA 22304-6100.

FOR FURTHER INFORMATION CONTACT:
Mary Massaro, Defense Logistics Agency, AQPLC, (703) 274-6307.

SUPPLEMENTARY INFORMATION:

Background

    From 1989 to 1993, the Office of the DoD Inspector General (DoDIG) 
conducted six audits dealing in some measure with the DoD product 
quality deficiency reporting (PQDR) program. The DoDIG has concluded 
that DoD does not have effective remedies to obtain reimbursement or 
replacement for major and critical nonconforming products. Current FAR 
coverage and clauses allow the Government to require contractor 
corrections of latent, but not patent, nonconformances discovered after 
acceptance of supplies delivered under fixed-price contracts. In order 
to correct this situation, the DODIG has suggested certain regulatory 
and procedural changes regarding Government acceptance. The Director of 
Defense Procurement (USD(A&T)) has agreed to permit DLA to test changes 
to acceptance procedures in accordance with the DoDIG's general 
recommendations to determine whether such changes are effective, cost-
beneficial, and capable of widespread implementation. The proposed rule 
presents such a mechanism: a clause, not unlike a warranty, which 
provides that, notwithstanding acceptance of items, the Government can 
require the contractor to remedy any nonconformance determined to have 
been contractor-caused. Such a nonconformance must have been discovered 
either via testing at a Government-designated laboratory or by a 
completed, validated product quality deficiency report investigation; 
even in the latter case, lab testing may be used, as appropriate, for 
validation purposes. Any Government action for recoupment must have 
been initiated within one year of the date of acceptance. The clause 
will be used by three of DLA's buying activities, the Defense 
Construction Supply Center (DCSC), the Defense Electronics Supply 
Center (DESC), and the Defense Industrial Supply Center (DISC). In the 
former two, the clause will be incorporated in contracting actions for 
the purchase of supplies in certain federal supply classes (FSCs) that 
have yielded high or disproportionate rates of nonconformance in the 
recent past. At DISC, because of the wide variety and large numbers of 
individual items within FSCs, that Center will implement the test for 
selected national stock numbers (items) within two of the FSCs listed 
below, and for all the items within a third FSC. The FSCs to be 
included are:

    DCSC-2520--Vehicular Power Transmission Components, 2815--Diesel 
Engines and Components, 4320--Power and Hand Pumps
    DESC-5965--Headsets, Handsets, Microphones and Speakers
    DISC-5307--Studs (all items), 5310--Nuts & Washers (Class 3 self-
locking nuts IAW MIL-N-25027, only), 5340--Hardware, Misc. (zinc anodes 
only)

    The proposed coverage will be included in the Defense Logistics 
Agency Acquisition Regulation (DLAR) 4105.1, which implements and 
supplements the Federal Acquisition Regulation (FAR), the Defense 
Federal Acquisition Regulation Supplement (DFARS), and other DOD 
publications and, pursuant to FAR 1.304, establishes DLA procedures 
relating to the acquisition of supplies and services under the 
authority of 10 U.S.C. 301. This supplementary coverage and clause are 
designed to give contracting officers an effective tool for dealing 
with contractor-caused patent nonconformances.

Regulatory Flexibility Act

    The proposed additions to 48 CFR parts 5446 and 5452 may 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 they provide a means of recoupment for patently defective 
items when these nonconformances are discovered after Government 
acceptance. This remedy is provided against both small and large 
entities under the proposed rule. An Initial Regulatory Flexibility 
Analysis has been prepared and is summarized as follows:
    A limited number of procurements was selected for the test to 
provide valid test results while minimizing the impact on industry.
    Elminating small business from the test would invalidate the test 
results. Most DLA contractors are small businesses.
    The proposed coverage at 48 CFR parts 5446 and 5452 is required in 
order to provide DLA with a means of recoupment for patently defective 
items when these nonconformances are discovered after Government 
acceptance. The proposed rule will apply to all businesses, large and 
small, that enter into contracts with DLA field activities for the 
covered FSCs/items. Although the rule will apply to all and cannot be 
waived or relaxed for small entities, it will only have an adverse 
impact on those contractors that provide items with patent 
nonconformances. The proposed rule does not contain any information 
collection and recordkeeping requirements which require the approval of 
OMB under 44 U.S.C. 3501, et seq.  Costs of compliance are dependent 
upon numbers of nonconforming items/lots delivered within the affected 
FSCs, and cannot be estimated at the present time. There are no 
alternatives to the proposed rule that will accomplish the stated 
objectives.
    A copy of the Initial Regulatory Flexibility Analysis has been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the IRFA may be obtained from the individual 
listed above. Comments from small entities concerning the affected DLAR 
Subparts will be considered in accordance with Section 610 of the Act.

Paperwork Reduction Act

    The proposed rule does not impose any reporting or recordkeeping 
requirements which require the approval of OMB under 44 U.S.C. 3501et 
seq.  and, therefore, the Paperwork Reduction Act does not apply.
Public Participation

    Public participation in the rulemaking will be handled by means of 
the Defense Logistics Agency's consideration of written comments mailed 
to the address set forth above.
    Government procurement.

List of Subjects in 48 CFR Parts 5446 and 5452

    Therefore, it is proposed that 48 CFR chapter 54 be amended as 
follows:
    1. Part 5446 is added to read as follows:

PART 5446--QUALITY ASSURANCE

    Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR Part 1, subpart 
1.3 and 48 CFR part 201 subpart 201.3


5446.393  Remedies for post-acceptance discovery of nonconformance.

    The contracting officer shall insert the clause at 5452.246-9005, 
Remedies for Post-Acceptance Discovery of Nonconformances (Test), in 
solicitations and contracts in accordance with 5446.590.

[[Page 35722]]



Sec. 5446.590  Post-acceptance discovery of defects (test).

    (a) The purpose of this test is to determine the viability of 
contract coverage which provides remedies to the Government for patent 
defects discovered after acceptance. Specific procedures are set forth 
in the test plan. The test will apply to designated FSCs or items at 
DCSC, DESC, and DISC for which these Centers have experienced unusually 
high levels of nonconformances, as evidenced by PQDR data from the 
System for Analysis of Laboratory Testing (SALT) data base. The DLA 
laboratory testing program and/or completed, validated PQDR 
investigations will be used to uncover nonconformances and to support 
determinations of contractor causation. The clause at 5452.246-9005, 
Remedies for the Post-Acceptance Discovery of Nonconformances (Test), 
will be used in contracts for the covered FSCs/items to provide 
remedies for those nonconformances.
    (b) The clause at 5452.246.9005 gives the Government the means to 
pursue repair, replacement or recoupment, at Government option, for a 
period of one year after the cognizant Government representative 
signifies acceptance by signature on the DD250 or similar 
documentation. These remedies also apply to replacements for up to one 
year after their acceptance. Remedies provided under this clause do not 
preclude the use of the nonconformance against the contractor in future 
sources selection decisions. After one year from the acceptance date, 
acceptance shall be conclusive in accordance with the FAR standard 
inspection clauses (e.g., paragraph (k) of FAR 52.246-2, which states 
that acceptance shall be conclusive except for latent defects, fraud, 
and the like). Future discoveries of patent defects (after the twelve-
month period has ended) are subject to voluntary recoupment procedures.
    (c) Receipts of the designated items will be targeted (identified/
segregated) upon their delivery to a depot. Not all items or all lots 
in the designated FSCs will be subject to lab testing. However, in the 
event of a lab test failure, lab personnel will report their results to 
the ICP; the contracting officer will be notified through the Center 
Quality element. The contracting officer shall pursue remedies 
available under the clause at 5452.246-9005 when the nonconformance can 
be traced to a specific contract and is contractor-caused.
    (d) Even for those nonconformances not originally uncovered via 
random laboratory testing, labs may be used as necessary to validate 
the existence of the patent defects. Positive lab test results shall 
not prohibit the Government's pursuit of remedies for nonconformances 
subsequently identified by depot personnel, end-users, or others 
(whether or not confirmed by lab testing) within the twelve months 
after acceptance. As stated in paragraph (b) of this section after the 
one-year period has passed, any discovery of patent defects in these 
items shall be handled in accordance with voluntary recoupment 
procedures.
    (e) Like warranties, the clause requires that the items or packages 
be marked with notice of coverage, and contractor-prepared shipping 
documents must also carry notice of the clause's applicability to the 
shipped items.
    (f) During the test period, the contracting officer shall include 
the clause at 5452.246-9005, Remedies for Post-Acceptance Discovery of 
Nonconformances (Test), in all non-SASPS-I contracting actions for the 
covered FSCs/items, except where the contracting officer determines 
that the cost for inclusion of the clause is unreasonable. The cost 
reasonableness will be based on evaluation of the contractor's stated 
prices for the item with and without clause inclusion. (The latter is 
to be expressed via ``additive CLIN.'') A determination that the cost 
is unreasonable must be approved at a level above the contracting 
officer and documented in the contract file. Since the purpose of the 
test is to determine the viability of the clause, such determinations 
must not be used customarily.
    (g) Contracting officers shall maintain a separate log, in the same 
fashion and containing the same data fields as the Warranty Log, for 
all items covered by the Remedies for Post-Acceptance Discovery of 
Nonconformances (Test) clause. The log must distinguish between patent 
and latent defects.
PART 5452--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

5452.246-9005  [Added]

    2. The authority citation for part 5452 continues to read as 
follows:

    Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR part 1, subpart 
1.3 and 48 CFR part 201, subpart 201.3.

    3. Part 5452, subpart 5452.2, is amended by adding section 
5452.246-9005 to read as follows:


Sec. 5452.246-9005  Remedies for Post-Acceptance Discovery of 
Nonconformance (test).

    As prescribed in 5446.590, insert the following clause in contracts 
for designated FSCs or items at DCSC, DESC, and DISC to provide 
remedies for nonconformances.

5452.246-9005--Remedies for Post-Acceptance Discovery of 
Nonconformances (Test) (June 1995) (DLAR)
    (a) Definitions. (1) Acceptance: The word acceptance as used 
herein means the execution of the acceptance block and signing of a 
DD Form 250 (or similar documentation) by the authorized Government 
representative.
    (2) Supplies: The word supplies as used herein means the end-
item furnished by the contractor and any related services required 
under this contract. The word does not include technical data.
    (b) Purpose and scope. Notwithstanding Government inspection and 
acceptance in accordance with any of the standard inspection clauses 
of supplies furnished under this contract, or any other term or 
condition of the contract concerning the conclusiveness thereof, and 
notwithstanding that the contractor may already have been paid for 
contractual performance and the contract otherwise closed, such 
acceptance shall not be considered final for a period of one year 
after the date that a cognizant Government representative signifies 
acceptance by signature on the DD Form 250 or similar documentation. 
Upon discovery during the one-year period of any nonconforming 
supplies delivered under this contract, acceptance may be rescinded 
in accordance with the terms set forth below. After one year, the 
terms of the standard inspection clause concerning the 
conclusiveness of acceptance shall apply.
    (c) Contractor's obligations. (1) As stated above, 
notwithstanding Government acceptance, the contractor agrees that at 
the time of delivery of each item, lot, or shipment, and continuing 
for a period of one year following acceptance:
    (i) All supplies delivered under this contract shall be free 
from defects in material and workmanship (and design, if it is the 
contractor's, rather than the Government's, design that shall be 
used), and shall conform with all requirements of this contract;
    (ii) The preservation, packaging, packing and marking, and the 
preparation for, and method of, shipment of all end-items shall 
conform with the requirements of this contract; and
    (iii) All nonconformances discovered by the Government during 
the one-year period after acceptance that are determined/adjudged 
not to be the fault of the Government shall subject the contractor 
to the remedies set forth in (e), below.
    (2) All items delivered under this contract may be subject to 
post-acceptance laboratory testing by a Government-designated 
laboratory in accordance with applicable sampling plans set forth 
elsewhere in this contract. If either such testing or a completed, 
validated product quality deficiency report investigation uncovers 
or 

[[Page 35723]]
confirms contractor-caused nonconformances, acceptance of the items, or 
the lots or shipments of which they are representative, shall be 
rescinded, and the contractor shall be obligated to provide such 
remedies to the Government as are set forth in (e), below.
    (3) The contractor shall make note of the existence of this 
clause, and all rights and remedies afforded to the Government 
thereby, on all shipping documents for items delivered under this 
contract.
    (4) The contractor shall be expected to quote two separate 
prices for the supplies furnished under this contract: one for the 
items without reference to this coverage, and another reflecting the 
price increase (if any) that is a consequence of this clause's 
inclusion.
    (d) Notification. The contracting officer shall give written 
notification to the contractor of any nonconformance within one year 
after delivery of the nonconforming items.
    (e) Remedies. With respect to each item or lot in which a 
nonconformance is discovered and confirmed, the contracting officer 
shall require the prompt repair or replacement of the item or lot. 
If this remedy is impractical under the particular circumstances, 
the contracting officer shall retain the item or lot and require, in 
lieu of repair or replacement, monetary restitution in the form of a 
decrease in contract price on any remaining open contract(s) with 
the contractor, or refund of the price of the nonconforming items or 
lots, at the election of the contracting officer.
    (f) Transportation costs. The contractor shall bear the cost of 
transportation of items for return, replacement, or correction from 
the place of delivery specified in the contract to the contractor's 
plant. Any additional transportation costs (e.g., shipment from 
other than the original delivery site) shall be borne by the 
Government. Responsibility for supplies while in transit remains 
with the contractor.
    (g) Contractor's failure to remedy. The contracting officer may, 
by contract or otherwise, correct or replace the nonconforming 
supplies with similar supplies and charge to the contractor the cost 
occasioned thereby if the contractor: (1) fails to make redelivery 
of the corrected or replaced supplies within the time established 
for their return; or (2) fails either to accept return of the 
nonconforming supplies or fails to make progress after their return; 
or (3) fails to make restitution for same.
    (h) Timeframe for correction, repair, replacement, or 
reimbursement. Unless otherwise set forth in this contract, the 
contractor shall have 90 days from the date of notification of the 
defect or return of the items/lots, whichever is later, within which 
to effect the required restitution.
    (i) Continuing liability. Any supplies or parts thereof, 
corrected or furnished in replacement under this clause, shall also 
be subject to the terms of this clause to the same extent as 
supplies initially delivered. The period during which the Government 
can require correction of these defective replacements shall also be 
one year from the date of delivery thereof.
    (j) Government property. Items accepted by the Government and 
subsequently returned to the contractor under the terms of this 
clause remain the property of the Government. Disposal and 
replacement of these items are subject to the terms and conditions 
of the Government property clause(s) set forth elsewhere in this 
contract.
    (k) Disposition instructions from contractor. When the 
Government elects the equitable adjustment remedy, in lieu of 
correction or replacement, the contractor shall provide disposition 
instructions for the nonconforming items within 60 days of 
notification thereof.
    (l) Contract closeout. Notwithstanding the contract closeout 
timeframes established for contracts of this type, and 
notwithstanding the fact that final payment has already been 
effected, this contract shall remain open solely for purposes of 
enforcement of this clause for one year subsequent to Government 
acceptance of the items, lots, or shipments delivered under this 
contract.
    (m) Rights and remedies: scope. The rights and remedies of the 
Government provided in this clause are in addition to and do not 
limit any rights afforded to the Government by any other clause of 
this contract.
    (n) Price consequences. As stated in (c)(4), above, you must 
indicate the amount, if any, by which the item price you have quoted 
is affected by, or raised in response to, inclusion of this clause. 
You should express any such change by means of a second quoted price 
for the items that takes this coverage into account.

[End of clause]

    Dated: June 30, 1995.
Margaret J. Janes,
Assistant Executive Director (Procurement Policy).
[FR Doc. 95-16846 Filed 7-10-95; 8:45 am]
BILLING CODE 5000-04-M