[Federal Register Volume 62, Number 228 (Wednesday, November 26, 1997)]
[Proposed Rules]
[Pages 63047-63050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31111]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

48 CFR Parts 214 and 215

[DFARS Case 97-D011]


Defense Federal Acquisition Regulation Supplement; Distribution 
of Contract Financing Payments

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: The Director of Defense Procurement is proposing to amend the 
Defense Federal Acquisition Regulation Supplement (DFARS) to specify 
that, when a contract contains multiple accounting classification 
reference numbers and a clause for progress payments, the contracting 
officer shall provide instructions to enable the paying office to 
distribute the progress payments in proportions that reasonably reflect 
the performance of work under the contract. This policy was originally 
scheduled for implementation on October 1, 1997; implementation has 
been delayed pending a more complete review of the resource 
implications of the Department's planned manner of distributing 
progress payments. This regulatory action was subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993. The Administrator of the Office of Information and 
Regulatory Affairs has determined that this is a major rule under 5 
U.S.C. 804.

DATES: Comments on the proposed rule and the associated information 
collection requirements should be submitted in writing to the addresses 
specified below on or before January 26, 1998, to be considered in the 
formulation of the final rule.

ADDRESSES: Interested parties should submit written comments on the 
proposed rule to: Defense Acquisition Regulations Council, Attn: Ms. 
Sandra G. Haberlin, PDUSD (A&T) DP (DAR), IMD 3D139, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telefax number (703) 602-0350. E-
mail comments submitted over the Internet should be addressed to: 
[email protected]. Please cite DFARS Case 97-D011 in all correspondence 
related to this issue. E-mail correspondence should cite DFARS Case 97-
D011 in the subject line.
    Interested parties should submit written comments on the associated 
information collection requirements to: Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attn: Mr. Peter N. 
Weiss, Desk Officer, Room 10236, New Executive Office Building, 
Washington, DC 20503, with a copy to the Defense Acquisition 
Regulations Council at the address specified above.

FOR FURTHER INFORMATION CONTACT:
Ms. Sandra G. Haberlin, (703) 602-0131.

SUPPLEMENTARY INFORMATION:

A. Background

    A proposed DFARS rule was published in the Federal Register on June 
5, 1997 (62 FR 30829). The rule required a contracting officer to 
provide payment instructions to enable the paying office to distribute 
financing payments to the contract line item number (CLIN)/subline item 
number (SLIN) that reflects the work performed during the period 
covered by the contractor's financing request. Public comments were 
received from seven sources. All comments were considered.
    This DFARS rule differs significantly from the proposed DFARS rule 
published in the Federal Register on June 5, 1997. Therefore, this 
second proposed rule is being published to obtain further public 
comments, prior to promulgation of a final rule. One of the main 
differences is that this revised rule raises the level to which actual 
funds usage must be identified. The previously published proposed rule 
required contracting officers to provide distribution instructions at 
the contract line item or subline item level. DoD has concluded that 
instructions by CLIN or SLIN are not necessary, in particular, in cases 
where several CLINs/SLINs are funded with the same accounting 
classification reference number (ACRN). Consequently, this DFARS rule 
requires distribution instructions by ACRN, rather than by CLIN/SLIN. 
Each appropriation or subdivision thereof is reflected in the contract 
by a distinct ACRN.
    A second difference between the two proposed rules is that this 
revised rule no longer requires the contracting officer to use one of 
four alternative approaches for developing the payment instructions. 
However, for research and development contracts, the rule does retain 
the approach of using oldest funds first, absent conflicting 
information.
    This proposed rule also differs from the June 5, 1997, proposed 
rule by

[[Page 63048]]

clarifying that the rule applies to the progress payments type of 
financing; and that contractors, when asked by contracting officers to 
provide information, need to provide best estimates of funding 
distribution by ACRN, based on existing accounting systems.

B. Regulatory Flexibility Act

    The proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meeting of 
the Regulatory Flexibity Act, 5 U.S.C. 601, et seq., because most 
contracts awarded to small entities have a dollar value less than the 
simplified acquisition threshold, and, therefore, do not use the 
progress payments method of financing. An initial regulatory 
flexibility analysis has therefore not been performed. Comments are 
invited from small businesses and other interested parties. Comments 
from small entities concerning the affected DFARS subparts will also be 
considered in accordance with 5 U.S.C. 610. Such comments should be 
submitted separately and should cite 5 U.S.C. 601, et seq. (DFARS Case 
97-D011), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act, 44 U.S.C. 3501, et seq., applies 
because the proposed rule contains information collection requirements. 
A new information collection requirement has been submitted to the 
Office of Management and Budget (OMB) for review under 44 U.S.C. 
3507(d)(1)(A).
    1. Title, Associated Form, and OMB Number: A new information 
collection requirement, ``Distribution of Contract Financing 
Payments,'' has been submitted to OMB for review. An OMB Number has not 
yet been assigned.
    2. Needs and Uses: 31 U.S.C. 1301(a) provides that ``Appropriations 
shall be applied only to the objects for which the appropriations were 
made except as otherwise provided by law.'' To facilitate compliance, 
the Under Secretary of Defense (Comptroller) (USD(C)) has directed 
paying offices to begin charging progress payments to the obligations 
that correspond to the deliverables for which costs were incurred 
during the period covered by the progress payment request. In order to 
implement this direction, contracting officers must provide progress 
payment distribution instructions to paying offices. One possible 
source of information for devising distribution instructions is the 
contractor, by means of a contract requirement for estimates of 
distributions by ACRN.
    Affected Public: Businesses or other for profit.
    Annual Burden Hours: 1,440,000.
    Number of Respondents: 2,000.
    Average Burden Per Response: 60 hours.
    Frequency: On occasion.
    3. Supplementary Information: Summary of Information Collection. 
The collection of information from contractors will be required only to 
the extent deemed necessary by contracting officers if they are unable 
to devise payment distribution instructions using other available 
information. Compliance with 31 U.S.C. 1301(a) does not require 
submission of information by contractors. However, in order to better 
meet the requirements of the law, contracting officers may need to 
obtain certain information from contractors in the form of contractor 
estimates of payment distribution by ACRN, based on actual or 
anticipated contract performance. When obtained from contractors, the 
frequency of submittal of distribution information will be determined 
by the frequency of the contractor's submission of progress payment 
requests, but may not be more frequent than monthly.
    4. Comments: Particular comments are solicited on:
    a. Whether the collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information will have practical utility;
    b. The accuracy of the agency's estimate of the burden of the 
information collection;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    d. Ways to minimize the burden of the information collection on 
respondents, including the use of automated collection techniques or 
other forms of information technology.

List of Subjects in 48 CFR Parts 214 and 215

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

    Therefore, 48 CFR Parts 214 and 215 are proposed to be amended as 
follows:
    1. The authority citation for 48 CFR parts 214 and 215 continues to 
read as follows:

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

PART 214--SEALED BIDDING

    2. Sections 214.201, 214.201-2, and 214.201-9 are added to read as 
follows:


214.201  Preparation of invitations for bids.


214.201-2  Part I--the Schedule.

    (g) Section G, Contract administration data.
    (i) When a contract contains multiple accounting classification 
reference numbers (ACRNs) (see 204.7101) and includes a clause for 
progress payments, the contracting officer shall provide instructions 
to enable the paying office to distribute progress payments to the 
ACRNs in proportions that reasonably reflect the performance of the 
work on the contract. Payment instructions shall represent a best 
estimate based on available information, and shall be updated as 
necessary.
    (ii) The contracting officer may provide payment distribution 
instructions to the paying office with each progress payment request, 
or as an extended schedule for application to multiple requests on one 
contract. If provided as an extended schedule, the instructions must be 
furnished before the first progress payment is to be paid.
    (iii) For incrementally funded research and development (R&D) 
contracts, or contract line items funded with R&D appropriations, the 
contracting officer may assume contractor work will be performed for 
the benefit of ACRNs with the earliest fiscal year's funding (i.e., 
using oldest funds first), unless there is information to the contrary 
available.
    (iv) For non-R&D contracts, the contracting officer should provide 
distribution instructions using the best information available, 
including information based upon--
    (A) Contract funds status reports provided under a contract 
requirement for contractor cost reporting;
    (B) The contract delivery schedule; or
    (C) A profile of anticipated contractor expenditures based on 
historical spending patterns, or other knowledge of contractor 
performance of similar efforts.
    (v) If the type of information set forth in paragraph (g)(iv) of 
this subsection is not available, or the contracting officer is not 
able to develop distribution instructions based on available 
information, the contracting officer may develop a best estimate of the 
contractor's anticipated work progress based on a general knowledge of 
the contractor or industry practices. Alternatively, the contracting 
officer may require the contractor to furnish distribution instructions 
in accordance with a contract requirement. However, if such a 
requirement is included in a contract, the contracting officer shall--
    (A) Require the contractor to provide its best estimate of work 
performed by

[[Page 63049]]

ACRN, in accordance with the guidance provided in DFARS 214.201-2(g), 
and inform the contractor that this information is not considered to be 
an attachment to the Standard Form 1443, Contractor's Request for 
Progress Payment.
    (B) Provide information to the contractor on total obligations by 
ACRN, including their relationship with each contract line item/subline 
item, and maintain that information as required by contract changes. A 
matrix such as the following may be used for this purpose:

------------------------------------------------------------------------
                                               AA        AB        AC   
------------------------------------------------------------------------
0001......................................      $500  ........  ........
0002......................................     1,000  ........  ........
0003AA....................................  ........      $600  ........
0003AB....................................  ........       800  ........
0004......................................  ........  ........      $400
                                           -----------------------------
      Total...............................     1,500     1,400       400
------------------------------------------------------------------------

    (C) Not require the contractor to revise its accounting system to 
account for or accumulate costs by ACRN.
    (vi) The overall limit on progress payments on a contract, 
established through application of the contract progress payment rate 
and, if applicable, a loss ratio, shall continue to govern the total 
amount of progress payments that may be paid on a contract. These 
limits should continue to be applied on a total contract basis. 
Progress payments will be liquidated at the ACRN level.


214.201-9  Simplified contract format.

    (b) Contract schedule.
    (8) See 214.210-2(g) for contracts that contain multiple accounting 
classification reference numbers and include a clause for progress 
payments.

PART 215--CONTRACTING BY NEGOTIATION

    3. Section 215.406-2 is revised to read as follows:


215.406-2  Part I--The Schedule.

    (g) Section G, Contract administration data.
    (i) When a contract contains both fixed-price and cost-
reimbursement line items or subline items, the contracting officer 
shall provide, in Section B, Supplies or Services and Prices/Costs, an 
identification of contract type specified for each contract line item 
or subline item to facilitate appropriate payment.
    (ii) Contracts with multiple accounting classification reference 
numbers (ACRNs) and a clause for progress payments.
    (A) When a contract contains multiple accounting classification 
reference numbers (ACRNs) (see 204.7101) and includes a clause for 
progress payments, the contracting officer shall provide instructions 
to enable the paying office to distribute progress payments to the 
ACRNs in proportions that reasonably reflect the performance of the 
work on the contract. Payment instructions shall represent a best 
estimate based on available information, and shall be updated as 
necessary.
    (B) The contracting officer may provide payment distribution 
instructions to the paying office with each progress payment request, 
or as an extended schedule for application to multiple requests on one 
contract. If provided as an extended schedule, the instructions must be 
furnished before the first progress payment is to be paid.
    (C) For incrementally funded research and development (R&D) 
contracts, or contract line items funded with R&D appropriations, the 
contracting officer may assume contractor work will be performed for 
the benefit of ACRNs with the earliest fiscal year's funding (i.e., 
using oldest fund first), unless there is information to the contrary 
available.
    (D) For non-R&D contracts, the contracting officer should provide 
distribution instructions using the best information available, 
including information based upon--
    (1) Contract funds status reports provided under a contract 
requirement for contractor cost reporting;
    (2) The contract delivery schedule; or
    (3) A profile of anticipated contractor expenditures based on 
historical spending patterns, or other knowledge of contractor 
performance of similar efforts.
    (E) If the type of information set forth in paragraph (g)(ii)(D) of 
this subsection is not available, or the contracting officer is not 
able to develop distribution instructions based on available 
information, the contracting officer may develop a best estimate of the 
contractor's anticipated work progress based on a general knowledge of 
the contractor or industry practices. Alternatively, the contracting 
officer may require the contractor to furnish distribution instructions 
in accordance with a contract requirement. However, if such a 
requirement is included in a contract, the contracting officer shall--
    (1) Require the contractor to provide its best estimate of work 
performed by ACRN, in accordance with the guidance provided in DFARS 
215.406-2(g), and inform the contactor that this information is not 
considered to be an attachment to the Standard Form 1443, Contractor's 
Request for Progress Payment.
    (2) Provide information to the contractor on total obligations by 
ACRN, including their relationship with each contract line item/subline 
item, and maintain that information as required by contract changes. A 
matrix such as the following may be used for this purposes:

------------------------------------------------------------------------
                                               AA        AB        AC   
------------------------------------------------------------------------
0001......................................      $500  ........  ........
0002......................................     1,000  ........  ........
0003AA....................................  ........      $600  ........
0003AB....................................  ........       800  ........
0004......................................  ........  ........      $400
                                           -----------------------------
      Total...............................     1,500     1,400       400
------------------------------------------------------------------------


[[Page 63050]]

    (3) Not require the contractor to revise its accounting system to 
account for or accumulate costs by ACRN.
    (F) The overall limit on progress payments on a contract, 
established through application of the contract progress payment rate 
and, if applicable, a loss ratio, shall continue to govern the total 
amount of progress payments that may be paid on a contract. These 
limits should continue to be applied on a total contract basis. 
Progress payments will be liquidated at the ACRN level.

[FR Doc. 97-31111 Filed 11-25-97; 8:45 am]
BILLING CODE 5000-04-M