[Federal Register Volume 61, Number 22 (Thursday, February 1, 1996)]
[Rules and Regulations]
[Pages 3600-3601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2009]



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DEPARTMENT OF DEFENSE

48 CFR Parts 228 and 252


Defense Federal Acquisition Regulation Supplement; Alternatives 
to Miller Act Bonds

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comment.

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SUMMARY: The Director of Defense Procurement is amending the Defense 
Federal Acquisition Regulation Supplement (DFARS) to revise the interim 
rule which was published in the Federal Register on August 31, 1995, 
providing alternative payment protections for construction contracts 
between $25,000 and $100,000.

DATES: Effective Date: Februar 1, 1996.
    Comments Date: April 1, 1996.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Ms. Amy Williams, 
PDUSD(A&T)DP(DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 
20301-3062. Telefax number (703) 602-0350. Please cite DFARS Case 95-
D305 in all correspondence related to this issue.


[[Page 3601]]

FOR FURTHER INFORMATION CONTACT:
Ms. Amy Williams, (703) 602-0131.

SUPPLEMENTARY INFORMATION:

A. Background

    This interim DFARS rule revises the interim rule which was 
published in the Federal Register on August 31, 1995 (60 FR 45376). It 
provides alternative payment protections for construction contracts 
between $25,000 and $100,000, pending implementation of Section 
4104(b)(2) of the Federal Acquisition Streamlining Act of 1994 (Pub. L. 
103-355) in the FAR. This rule has been revised to require that the 
contracting officer select two or more alternative payment protections, 
and encourages the contracting officer to include irrevocable letters 
of credit as one of the selected alternatives. In addition, this rule 
excludes payment bonds from the provisions authorizing the contracting 
officer to access funds under the payment protection.

B. Regulatory Flexibility Act

    This interim rule 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 the rule 
provides alternatives to payment bonds as payment protection for 
construction contracts between $25,000 and $100,000. The objective of 
the rule is to make it easier for small businesses to provide payment 
protections under construction contracts. An Initial Regulatory 
Flexibility Analysis (IRFA) has been prepared and may be obtained from 
the address specified herein. A copy of the IRFA has been submitted to 
the Chief Counsel for Advocacy of the Small Business Administration. 
Comments are invited from small businesses and other interested 
parties. Comments from small entities concerning the affected DFARS 
subparts will be considered in accordance with Section 610 of the Act. 
Such comments must be submitted separately and cite DFARS Case 95-D305 
in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act applies. The applicable OMB Control 
Number is 9000-0045.

D. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense to issue this rule as an interim rule. Urgent and compelling 
reasons exist to promulgate this rule without prior opportunity for 
further public comment because it is necessary to revise the payment 
protections for construction contracts between $25,000 and $100,000, 
based on comments received on the interim rule published in the Federal 
Register on August 31, 1995 (60 FR 45376). The wording of the initial 
interim rule regarding contracting officer access to funds under 
payment bonds erroneously resulted in a ``forfeiture type'' payment 
bond rather than a traditional type payment bond consistent with the 
terms and conditions of the Miller Act. However, comments received in 
response to this interim rule will be considered in formulating the 
final rule.

List of Subjects in 48 CFR Parts 228 and 252

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, 48 CFR Parts 228 and 252 are amended as follows:
    1. The authority citation for 48 CFR Parts 228 and 252 continues to 
read as follows:

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

PART 228--BONDS AND INSURANCE

    2. Section 228.171-1 is revised to read as follows:


228.171-1  General.

    (a) For construction contracts greater than $25,000, but not 
greater than $100,000, the contracting officer shall select two or more 
of the following payment protections, giving particular consideration 
to inclusion of an irrevocable letter of credit as one of the selected 
alternatives:
    (1) A payment bond.
    (2) An irrevocable letter of credit.
    (3) A tripartite escrow agreement. The prime contractor establishes 
an escrow account in a Federally insured financial institution and 
enters into a tripartite escrow agreement with the financial 
institution, as escrow agent, and all of the suppliers of labor and 
material. The escrow agreement shall establish the terms of payment 
under the contract and of resolution of disputes among the parties. The 
Government makes payments to the contractor's escrow account, and the 
escrow agent distributes the payments in accordance with the agreement, 
or triggers the disputes resolution procedures if required.
    (4) Certificates of deposit. The contractor deposits certificates 
of deposit from a federally insured financial institution with the 
contracting officer, in an acceptable form, executable by the 
contracting officer.
    (5) A deposit of the types of security listed in FAR 28.204.
    (b) The contractor shall submit to the Government one of the 
payment protections selected by the contracting officer.
    3. Section 228.171-2 is amended by revising paragraph (a) to read 
as follows:


228.171-2  Amount required.

    (a) The requirements at FAR 28.102-2(b), for the amount of payment 
bonds, also apply to the alternative payment protections described in 
228.171-1.
* * * * *
    4. Section 228.171-3 is revised to read as follows:


228.171-3  Contract clause.

    Use the clause at 252.228-7007, Alternative Payment Protections, in 
solicitation and contracts for construction, when the estimated or 
actual value exceeds $25,000 but does not exceed $100,000. Complete the 
clause by specifying the payment protections selected (see 228.171-
1(a)), the penal amount required, and the deadline for submission.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    5. Section 252.228-7007 is amended by revising the clause date and 
by revising paragraphs (d) and (e) to read as follows:


252.228-7007  Alternative Payment Protections.

    As prescribed in 228.171-3, use the following clause:
ALTERNATIVE PAYMENT PROTECTIONS (FEB 1996)
* * * * *
    (d) The payment protection shall provide protection for the full 
contract performance period plus a one-year period.
    (e) Except for escrow agreements and payment bonds, which provide 
their own protection procedures, the Contracting Officer is authorized 
to access funds under the payment protection when it has been alleged 
in writing by a supplier of labor or material that a nonpayment has 
occurred, and to withhold funds pending resolution by administrative or 
judicial proceedings or mutual agreement of the parties.
* * * * *
[FR Doc. 96-2009 Filed 1-31-96; 8:45 am]
BILLING CODE 5000-04-M