[Federal Register Volume 63, Number 119 (Monday, June 22, 1998)]
[Rules and Regulations]
[Pages 34059-34062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16112]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

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

[FAC 97-05; FAR Case 95-011; Item I]
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: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed on a final rule amending 
the Federal Acquisition Regulation (FAR) to reduce requirements for 
consent to subcontract. The rule eliminates the consent requirements 
for contractors that have an approved purchasing system, except when 
specific subcontracts requiring consent are identified by the 
contracting officer; eliminates consent requirements for fixed-price 
incentive contracts and fixed-price redeterminable contracts; and 
increases, to the simplified acquisition threshold, the dollar level at 
which consent requirements are included in time-and-materials, labor-
hour, and letter contracts. This regulatory action was not subject to 
Office of Management and Budget review under Executive Order 12866, 
dated September 30, 1993, and is not a major rule under 5 U.S.C. 804.

EFFECTIVE DATE: August 21, 1998.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Klein, Procurement Analyst, at (202) 501-
3775. Please cite FAC 97-05, FAR case 95-011.

SUPPLEMENTARY INFORMATION:

A. Background

    A proposed rule was published in the Federal Register on April 21, 
1997 (62 FR 19465). Comments were received from nine respondents. All 
comments were considered in the development of this final rule.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not 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, and this 
rule reduces the requirement for consent to subcontract.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501, et seq.) is deemed to 
apply because the final rule contains information collection 
requirements. Accordingly, a request for approval of the information 
collection requirements was submitted to the Office of Management and 
Budget (OMB) and approved through June 30, 2000, under OMB Control 
Number 9000-0149. Public comments concerning this request were invited 
through Federal Register notice 62 FR 19465, April 21, 1997, and no 
comments were received.

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

    Government procurement.

    Dated: June 11, 1998.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, 48 CFR Parts 4, 22, 35, 36, 44, and 52 are 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. chapter 137; and 42 
U.S.C. 2473(c).

[[Page 34060]]

PART 4--ADMINISTRATIVE MATTERS


4.705-3  [Amended]

    2. Section 4.705-3 is amended in paragraph (f) by revising the 
parenthetical to read ``(see 52.244-2)''.

PART 22--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS


22.810  [Amended]

    3. Section 22.810 is amended in paragraph (g) by removing the 
phrase ``paragraph (a), (b), or (c) of 44.204'' and adding in its place 
``44.204(a)''.

PART 35--RESEARCH AND DEVELOPMENT CONTRACTING

    4. Section 35.009 is amended by revising the last sentence 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 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.

    (a) 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.
    (b) The consent and advance notification requirements of subpart 
44.2 are not applicable to prime contracts for commercial items 
acquired pursuant to part 12.


44.102  [Removed]

    7. Section 44.102 is removed.


44.201  Consent and advance notification requirements.

    8. The heading of section 44.201 is revised to read as set forth 
above.
    9. Sections 44.201-1 and 44.201-2 are revised to read as follows:


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 for cost-reimbursement, time-and-
materials, labor-hour, or letter contracts, and also for unpriced 
actions (including unpriced modifications and unpriced delivery orders) 
under fixed-price contracts that exceed the simplified acquisition 
threshold, for--
    (1) Cost-reimbursement, time-and-materials, or labor-hour 
subcontracts; and
    (2) Fixed-price subcontracts that exceed--
    (i) 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 total estimated 
cost of the contract; or
    (ii) 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 total estimated cost of the 
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.


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 total estimated 
cost of the 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 total estimated cost of the 
contract.


44.201-3 and 44.201-4  [Removed]

    10. Sections 44.201-3 and 44.201-4 are removed.
    11. Section 44.202-1 is amended by revising paragraphs (b) and (c) 
to read as follows:


44.202-1  Responsibilities.

* * * * *
    (b) The contracting officer responsible for consent shall review 
the contractor's 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 identify 
those subcontracts in paragraph (k) of the clause at 52.244-2.


44.202-2  [Amended]

    12. Section 44.202-2 is amended in the introductory text of 
paragraph (a) by adding ``, at a minimum,'' after the word ``shall''.
    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;

[[Page 34061]]

    (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) Use of this clause is not required in--
    (i) Fixed-price architect-engineer contracts; or
    (ii) 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 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 (AUG 1998)

    (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 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 the 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 when the contract contains the clause at FAR 52.245-18, 
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), and 
only if required in accordance with paragraph (d) or (e) of this 
clause.
    (d) If the Contractor does not have an approved purchasing 
system, consent to subcontract is required for any subcontract 
that--
    (1) Is of the cost-reimbursement, time-and-materials, or labor-
hour type; or
    (2) Is fixed-price and exceeds--
    (i) For a contract awarded by the Department of Defense, the 
Coast Guard, or the National Aeronautics and Space Administration, 
the greater of the simplified acquisition threshold or 5 percent of 
the total estimated cost of the contract; or
    (ii) For a contract awarded by a civilian agency other than the 
Coast Guard and the National Aeronautics and Space Administration, 
either the simplified acquisition threshold or 5 percent of the 
total estimated cost of the 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 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 FAR 15.404-
4(c)(4)(i).
    (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.
    (k) Paragraphs (d) and (f) of this clause do not apply to the 
following subcontracts, which were evaluated during negotiations:

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(End of clause)

    Alternate I (Aug 1998). As prescribed in 44.204(a)(2)(i), 
substitute the following paragraph (f)(2) for paragraph (f)(2) of 
the basic clause:

[[Page 34062]]

    (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 the simplified acquisition threshold or 5 percent of 
the total estimated cost of this contract. The notification shall 
include the information required by paragraphs (f)(1)(i) through 
(f)(1)(iv) of this clause.
    Alternate II (Aug 1998). As prescribed in 44.204(a)(2)(ii), 
substitute the following paragraph (f)(2) for paragraph (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 the simplified acquisition threshold or 5 percent of the 
total estimated cost of this contract. The notification shall 
include the information required by paragraphs (f)(1)(i) through 
(f)(1)(iv) of this clause.


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, 
introductory paragraph, and clause heading and date 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 OUTSIDE ASSOCIATES AND CONSULTANTS (ARCHITECT-
ENGINEER SERVICES) (AUG 1998)

* * * * *

(End of clause)


52.244-5  [Amended]

    18. Section 52.244-5 is amended in the introductory paragraph by 
revising ``44.204(e)'' to read ``44.204(c)''.

[FR Doc. 98-16112 Filed 6-19-98; 8:45 am]
BILLING CODE 6820-EP-P