[Federal Register Volume 63, Number 229 (Monday, November 30, 1998)]
[Proposed Rules]
[Pages 65727-65728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31696]


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

DEPARTMENT OF DEFENSE

48 CFR Part 231

[DFARS Case 98-D019]


Defense Federal Acquisition Regulation Supplement; Restructuring 
Savings Repricing Clause

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 contracting officers should consider using a repricing clause in 
noncompetitive fixed-price contracts that are negotiated during the 
period between the time a business combination is announced and the 
time the contractor's forward pricing rates are adjusted to reflect the 
impact of restructuring.

DATES: Comments on the proposed rule should be submitted in writing to 
the address specified below on or before January 29, 1999, 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 98-D019 in all correspondence 
related to this issue. E-mail correspondence should cite DFARS Case 98-
D019 in the subject line.

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

SUPPLEMENTARY INFORMATION:

A. Background

    Since the late 1980's, defense contractors have been restructuring 
their business operations to increase efficiencies and become more 
competitive in the defense marketplace. Many of the restructuring 
activities result from business combinations (such as mergers or 
acquisitions), and often lead to reduced overall costs and future 
savings. However, a significant amount of time may lapse between the 
announcement of the merger or acquisition and the point at which the 
contractor reflects the restructuring savings in reduced overhead rates 
and contract prices. During this uncertain period, fixed-price 
contracts without a repricing or reopener clause are risky because, 
once awarded, they cannot be repriced. Projected restructuring savings 
are difficult to estimate and may be significant in amount.
    This rule proposes to amend DFARS 231.205-70, External 
restructuring costs, to specify that contracting officers should 
consider including a downward-only repricing clause in noncompetitive 
fixed-price contracts that are negotiated during the period between the 
time a business combination is announced and the time the contractor's 
forward pricing rates are adjusted to reflect the impact of 
restructuring. The repricing clause should ensure that DoD receives its 
appropriate share of restructuring savings.

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 meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most 
contracts awarded to small entities use simplified acquisition 
procedures or are awarded on a competitive fixed-price basis, and do 
not require application of the cost principle contained in this rule. 
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 subpart also will 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 98-D019), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
rule does not impose any information collection requirements that 
require Office of Management and Budget approval under 44 U.S.C. 3501, 
et seq.

List of subjects in 48 CFR Part 231

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

    Therefore, 48 CFR part 231 is proposed to be amended as follows:
    1. The authority citation for 48 CFR part 231 continues to read as 
follows:

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

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

    2. Section 231.205-70 is amended by adding paragraph (f) to read as 
follows:


231.205-70  External restructuring costs.

* * * * *
    (f) Contracting officer responsibilities. (1) The contracting 
officer, in consultation with the cognizant ACO, should consider 
including a repricing clause in noncompetitive fixed-price contracts 
that are negotiated during the period between--
    (i) The time a business combination is announced; and
    (ii) The time the contractor's forward pricing rates are adjusted 
to reflect the impact of restructuring.
    (2) The repricing clause should provide for downward-only price 
adjustment to ensure that DoD receives its appropriate share of 
restructuring savings.

[[Page 65728]]

    (3) The decision to use a repricing clause will depend upon the 
particular circumstances involved, including--
    (i) When the restructuring will take place;
    (ii) When restructuring savings will begin to be realized;
    (iii) The contract performance period; and
    (iv) The size of the potential dollar impact on the contract.

[FR Doc. 98-31696 Filed 11-27-98; 8:45 am]
BILLING CODE 5000-04-M