[Federal Register Volume 62, Number 76 (Monday, April 21, 1997)]
[Proposed Rules]
[Pages 19465-19468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10246]



  Federal Register / Vol. 62, No. 76 / Monday, April 21, 1997 / 
Proposed Rules  

[[Page 19465]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 4, 22, 35, 36, 44, and 52

[FAR Case 95-011]
RIN 9000-AH57


Federal Acquisition Regulation; Subcontract Consent

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

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation (FAR) to reduce the consent to subcontract 
requirements. The rule eliminates the requirement for consent to 
subcontract when there is an approved purchasing system, unless 
specifically required by the contracting officer. The rule also 
eliminates the consent requirement for fixed-price incentive contracts, 
and increases the threshold for the requirement on time-and-material 
contracts to the same level as other covered subcontracts. This 
regulatory action was not subject to Office of Management and Budget 
review under Executive Order 12866, dated September 30, 1993. This is 
not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before June 20, 1997 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVR), 1800 F Street, 
NW, Room 4035, Washington, DC 20405.
    E-mail comments submitted over Internet should be addressed to: www.arnet.gov">95-
011@www.arnet.gov.
    Please cite FAR case 95-011 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Ms. Linda Klein at (202) 501-3775 for 
information about content or clarification. For information pertaining 
to status or publication schedules, contact the FAR Secretariat, Room 
4035, GS Building, Washington, DC 20405 (202) 501-4755. Please cite FAR 
case 95-011.

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed rule amends the FAR as a result of recommendations of 
the Contract Administration Services Reform Process Action Team.

B. Regulatory Flexibility Act

    This proposed rule is not expected to 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 
consent to subcontract requirement has a very small administrative cost 
that is passed along to the Government as part of the contract price. 
This rule will reduce the requirement for contractors to seek 
Government consent to subcontract. Also, this rule should have no 
effect upon small entities in terms of potential subcontracting 
opportunities since this rule does not change subcontracting 
requirements but only reduces the Government review and consent 
requirement. An Initial Regulatory Flexibility Analysis has, therefore, 
not been performed. Comments from small entities concerning the 
affected FAR subpart will be considered in accordance with 5 U.S.C. 610 
of the Act. Such comments must be submitted separately and should cite 
5 U.S.C. 601, et seq. (FAR case 95-011), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act applies because the proposed changes 
impose reporting or information collection requirements, or collections 
of information from offerors, contractors, or members of the public 
which require the approval of the Office of Management and Budget (OMB) 
under 44 U.S.C. 3501, et seq. Necessary requests for approval of the 
information collection requirements have been submitted to the Office 
of Management and Budget under Section 3507(d) of the Act.
    DATES: Comments may be submitted on information collection 
requirements on or before June 20, 1997.
    ADDRESSES: Send written comments on information collection 
requirements of this proposed rule to the Office of Information and 
Regulatory Affairs of OMB, Attn.: Mr. Peter N. Weiss, FAR Desk Officer, 
Room 10236, New Executive Office Building, Washington, DC 20503, and a 
copy to the FAR Secretariat at the address listed for comments on the 
proposed rule.

List of Subjects in 48 CFR Parts 4, 22, 35, 36, 44, and 52

    Government procurement.

    Dated: April 2, 1997.
Ralph Destefano,
Acting Director, Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Parts 4, 22, 35, 6, 44, and 
52 be amended as set forth below:
    1. The authority citation for 48 CFR Parts 4, 22, 35, 6, 44, and 52 
continues to read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. 2301 to 2331; and 42 
U.S.C. 2473(c).

PART 4--ADMINISTRATIVE MATTERS


4.705-3  [Amended]

    2. Section 4.705-3 is amended in the parenthetical of paragraph (f) 
by removing ``52.244-1 and''.

PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS

    3. Section 22.810 is amended by revising paragraph (g) to read as 
follows:


22.810  Solicitation provisions and contract clauses.

* * * * *
    (g) The contracting officer shall insert the clause at
52.222-28, Equal Opportunity Preaward Clearance of Subcontracts, in 
solicitations and contracts, except for construction, when the 
amount of the contract is expected to be for $1 million or more and 
includes the clause prescribed in 44.204(a).
* * * * *

PART 35--RESEARCH AND DEVELOPMENT CONTRACTING

    4. Section 35.009 is amended by revising the last sentence of the 
paragraph to read as follows:


35.009  Subcontracting research and development effort.

    * * * The clause at 52.244-2, Subcontracts, prescribed for certain 
types of contracts at 44.204(a), requires the contracting officer's 
prior approval for the placement of certain subcontracts.

PART 36--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS

    5. Section 36.606 is amended by revising paragraph (e) to read as 
follows:


36.606  Negotiations.

* * * * *
    (e) Because selection of firms is based upon qualifications, the 
extent of any subcontracting is an important negotiation topic. The 
clause prescribed

[[Page 19466]]

at 44.204(b), ``Subcontractors and Outside Associates and Consultants 
(Architect-Engineer Services)'' (see 52.244-4), limits a firm's 
subcontracting to firms agreed upon during negotiations.
* * * * *

PART 44--SUBCONTRACTING POLICIES AND PROCEDURES

    6. Section 44.000 is revised to read as follows:


44.000  Scope of part.

    This part prescribes policies and procedures for consent to 
subcontracts or advance notification of subcontracts, and for review, 
evaluation, and approval of contractors' purchasing systems.


44.102  [Removed]

    7. Section 44.102 is removed.
    8. Sections 44.201 and 44.201-1 are revised to read as follows:


44.201  Consent and advance notification requirements.


44.201-1  Consent requirements.

    (a) If the contractor has an approved purchasing system, consent is 
required for subcontracts specifically identified by the contracting 
officer in the subcontracts clause of the contract. The contracting 
officer may require consent to subcontract if the contracting officer 
has determined that an individual consent action is required to protect 
the Government adequately because of the subcontract type, complexity, 
or value or because the subcontract needs special surveillance. These 
can be subcontracts for critical systems, subsystems, components, or 
services. Subcontracts may be identified by subcontract number or by 
class of items (e.g., subcontracts for engines on a prime contract for 
airframes).
    (b) If the contractor does not have an approved purchasing system, 
consent to subcontract is required under cost-reimbursement contracts, 
letter contracts, other unpriced contract actions (including unpriced 
modifications and unpriced delivery orders), time-and-materials 
contracts, or labor-hour contracts for--
    (1) Cost-reimbursement, time-and-materials, or labor-hour 
subcontracts; and
    (2) Fixed-price subcontracts that exceed the greater of--
    (i) The simplified acquisition threshold, or
    (ii) 5 percent of the total estimated cost of the prime contract.
    (c) Consent may be required for subcontracts under prime contracts 
for architect-engineer services.
    (d) The contracting officer's written authorization for the 
contractor to purchase from Government sources (see Part 51) 
constitutes consent.
    9. Section 44.201-2 is revised to read as follows:


44.201-2  Advance notification requirements.

    Under cost-reimbursement contracts, even if the contractor has an 
approved purchasing system and consent to subcontract is not required 
under 44.201-1, the contractor is required by statute (10 U.S.C. 
2306(e) or 41 U.S.C. 254(b)) to notify the agency before the award of--
    (a) Any cost-plus-fixed-fee subcontract; or
    (b) Any fixed-price subcontract that exceeds--
    (1) For the Department of Defense, the Coast Guard, and the 
National Aeronautics and Space Administration, the greater of the 
simplified acquisition threshold, or 5 percent of the estimated cost of 
the prime contract; or
    (2) For civilian agencies other than the Coast Guard and the 
National Aeronautics and Space Administration, either the simplified 
acquisition threshold, or 5 percent of the estimated cost of the prime 
contract.


44.201-3 and 44.201-4  [Removed]

    10. Sections 44.201-3 and 44.201-4 are removed.
    11. Sections 44.202 and 44.202-1 are revised to read as follows:


44.202  Contracting officer's evaluation.


44.202-1  Responsibilities.

    (a) The cognizant administrative contracting officer (ACO) is 
responsible for consent to subcontract, except when the contracting 
officer retains the contract for administration or withholds the 
consent responsibility from delegation to the ACO. In such cases, the 
contract administration office should assist the contracting office in 
its evaluation as requested.
    (b) The contracting officer responsible for consent shall review 
the notification and supporting data to ensure that the proposed 
subcontract is appropriate for the risks involved and consistent with 
current policy and sound business judgment.
    (c) Designation of specific subcontractors during contract 
negotiations does not in itself satisfy the requirements for advance 
notification or consent pursuant to the clause at 52.244-2. However, 
if, in the opinion of the contracting officer, the advance notification 
or consent requirements were satisfied for certain subcontracts 
evaluated during negotiations, the contracting officer shall specify in 
the contract that those requirements have been satisfied (see 
44.204(a)(3)).
    12. Section 44.202-2 is amended by revising paragraph (a) 
introductory text to read as follows:


44.202-2  Considerations.

    (a) The contracting officer responsible for consent shall, at a 
minimum, review the request and supporting data and consider the 
following:
* * * * *
    13. Section 44.204 is revised to read as follows:


44.204  Contract clauses.

    (a)(1) The contracting officer shall insert the clause at 52.244-2, 
Subcontracts, in solicitations and contracts when contemplating:
    (i) A cost-reimbursement contract;
    (ii) A letter contract that exceeds the simplified acquisition 
threshold;
    (iii) A fixed-price contract that exceeds the simplified 
acquisition threshold under which unpriced contract actions (including 
unpriced modifications or unpriced delivery orders) are anticipated;
    (iv) A time-and-materials contract that exceeds the simplified 
acquisition threshold; or
    (v) A labor-hour contract that exceeds the simplified acquisition 
threshold.
    (2) If a cost-reimbursement contract is contemplated
    (i) For the Department of Defense, the Coast Guard, and the 
National Aeronautics and Space Administration, the contracting officer 
shall use the clause with its Alternate I; or
    (ii) For civilian agencies other than the Coast Guard and the 
National Aeronautics and Space Administration, the contracting officer 
shall use the clause with its Alternate II.
    (3) If, in the opinion of the contracting officer, the advance 
notification or consent requirements were satisfied for certain 
subcontracts evaluated during negotiations, the contracting officer 
shall use the clause with its Alternate III.
    (4) Use of this clause is not required in:
    (i) Fixed-price architect-engineer contracts, or
    (ii) Solicitations and contracts for mortuary services, refuse 
services, or shipment and storage of personal property, when an agency-
prescribed clause on approval of subcontractors' facilities is 
required.
    (b) The contracting officer may insert the clause at 52.244-4, 
Subcontractors and Outside Associates and

[[Page 19467]]

    Consultants (Architect-Engineer Services), in fixed-price 
architect-engineer contracts.
    (c) The contracting officer shall, when contracting by negotiation, 
insert the clause at 52.244-5, Competition in Subcontracting, in 
solicitations and contracts when the contract amount is expected to 
exceed the simplified acquisition threshold, unless--
    (1) A firm-fixed price contract, awarded on the basis of adequate 
price competition or whose prices are set by law or regulation, is 
contemplated; or
    (2) A time-and-materials, labor-hour, or architect-engineer 
contract is contemplated.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.244-1   [Removed and Reserved]

    14. Section 52.244-1 is removed and reserved.
    15. Section 52.244-2 is revised to read as follows:


52.244-2   Subcontracts.

    As prescribed in 44.204(a)(1), insert the following clause:

Subcontracts (DATE)

    (a) Definitions. As used in this clause--
    Approved purchasing system means a Contractor's purchasing 
system that has been reviewed and approved in accordance with part 
44 of the Federal Acquisition Regulation (FAR).
    Consent to subcontract means the Contracting Officer's written 
consent for the prime Contractor to enter into a particular 
subcontract.
    Subcontract means any contract as defined in FAR Subpart 2.1 
entered into by a subcontractor to furnish supplies or services for 
performance of a prime contract or a subcontract. It includes but is 
not limited to purchase orders, and changes and modifications to 
purchase orders.
    (b) This clause does not apply to subcontracts for special test 
equipment.
    (c) When this clause is included in a fixed-price type contract, 
consent to subcontract is required only on unpriced contract actions 
(including unpriced modifications or unpriced delivery orders) under 
such contracts.
    (d) If the Contractor does not have an approved purchasing 
system, consent to subcontract is required for any subcontract if--
    (1) The proposed subcontract is of the cost-reimbursement, time-
and-materials, or labor-hour type;
    (2) The proposed subcontract is fixed-price and exceeds the 
greater of the simplified acquisition threshold or 5 percent of the 
total estimated cost of this contract.
    (e) If the Contractor has an approved purchasing system, the 
Contractor nevertheless shall obtain the Contracting Officer's 
written consent before placing the following subcontracts:

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    (f)(1) The Contractor shall notify the Contracting Officer 
reasonably in advance of placing any subcontract or modification 
thereof for which consent is required under paragraph (c), (d), or 
(e) of this clause, including the following information:
    (i) A description of the supplies or services to be 
subcontracted.
    (ii) Identification of the type of subcontract to be used.
    (iii) Identification of the proposed subcontractor.
    (iv) The proposed subcontract price.
    (v) The subcontractor's current, complete, and accurate cost or 
pricing data and Certificate of Current Cost or Pricing Data, if 
required by other contract provisions.
    (vi) The subcontractor's Disclosure Statement or Certificate 
relating to Cost Accounting Standards when such data are required by 
other provisions of this contract.
    (vii) A negotiation memorandum reflecting;
    (A) The principal elements of the subcontract price 
negotiations;
    (B) The most significant considerations controlling 
establishment of initial or revised prices;
    (C) The reason cost or pricing data were or were not required;
    (D) The extent, if any to which the Contractor did not rely on 
the subcontractor's cost or pricing data in determining the price 
objective and in negotiating the final price;
    (E) The extent to which it was recognized in the negotiation 
that the subcontractor's cost or pricing data were not accurate, 
complete, or current; the action taken by the Contractor and the 
subcontractor; and the effect of any such defective data on the 
total price negotiated;
    (F) The reasons for any significant difference between the 
Contractor's price objective and the price negotiated; and
    (G) A complete explanation of the incentive fee or profit plan 
when incentives are used. The explanation shall identify each 
critical performance element, management decisions used to quantify 
each incentive element, reasons for the incentives, and a summary of 
all trade-off possibilities considered.
    (2) The Contractor is not required to notify the Contracting 
Officer in advance of entering into any subcontract for which 
consent to subcontract is not required under paragraph (c), (d) or 
(e) of this clause.
    (g) Unless the consent or approval specifically provides 
otherwise, neither consent by the Contracting Officer to any 
subcontract nor approval of the Contractor's purchasing system shall 
constitute a determination;
    (1) Of the acceptability of any subcontract terms or conditions,
    (2) Of the allowability of any cost under this contract, or
    (3) To relieve the Contractor of any responsibility for 
performing this contract.
    (h) No subcontract or modification thereof placed under this 
contract shall provide for payment on a cost-plus-a-percentage-of-
cost basis, and any fee payable under cost-reimbursement type 
subcontracts shall not exceed the fee limitations in paragraph 
15.903(d) of the FAR.
    (i) The Contractor shall give the Contracting Officer immediate 
written notice of any action or suit filed and prompt notice of any 
claim made against the Contractor by any subcontractor or vendor 
that, in the opinion of the Contractor, may result in litigation 
related in any way to this contract, with respect to which the 
Contractor may be entitled to reimbursement from the Government.
    (j) The Government reserves the right to review the Contractor's 
purchasing system as set forth in FAR Subpart 44.3.

(End of clause)

    Alternate I (DATE). As prescribed in 44.204(a)(2)(i), substitute 
the following subparagraph (f)(2) for subparagraph (f)(2) of the 
basic clause:
    (f)(2) If the Contractor has an approved purchasing system and 
consent is not required under paragraph (c), (d), or (e) of this 
clause, the Contractor nevertheless shall notify the Contracting 
Officer reasonably in advance of entering into any--
    (i) Cost-plus-fixed-fee subcontract; or
    (ii) Fixed-price subcontract that exceeds the greater of--
    (A) The simplified acquisition threshold; or
    (B) 5 percent of the total estimated cost of this contract. The 
notification shall include the information required in subparagraphs 
(f)(1)(i) through (f)(1)(iv) of this clause.
    Alternate II (DATE). As prescribed in 44.204(a)(2)(ii), 
substitute the following subparagraph (f)(2) for subparagraph (f)(2) 
of the basic clause:
    (f)(2) If the Contractor has an approved purchasing system and 
consent is not required under paragraph (c), (d), or (e) of this 
clause, the Contractor nevertheless shall notify the Contracting 
Officer reasonably in advance of entering into any (i) cost-plus-
fixed-fee subcontract, or (ii) fixed-price subcontract that exceeds 
either (A) the simplified acquisition threshold or (B) 5 percent of 
the total estimated cost of this contract. The notification shall 
include the information required in subparagraphs (f)(1)(i) through 
(f)(1)(iv) of this clause.
    Alternate III (DATE). As prescribed in 44.204(a)(3), add the 
following paragraph (k) to the basic clause:
    (k) Paragraph (d) of this clause does not apply to the following 
subcontracts, which were evaluated during negotiations:

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52.244-3  [Removed and Reserved]

    16. Section 52.244-3 is removed and reserved.
    17. Section 52.244-4 is amended by revising the section heading, 
the introductory paragraph, and the clause heading to read as follows:


52.244-4 Subcontractors and Outside Associates and Consultants 
(Architect-Engineer Services).

    As prescribed in 44.204(b), insert the following clause: 
Subcontractors and

[[Page 19468]]

Outside Associates and Consultants (Architect-Engineer Services) (Date)
* * * * *
    18. Section 52.244-5 is amended by revising the introductory 
paragraph to read as follows:


52.244-5  Competition in Subcontracting.

    As prescribed in 44.204(c), insert the following clause:
* * * * *
[FR Doc. 97-10246 Filed 4-18-97; 8:45 am]
BILLING CODE 6820-EP-P