[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Rules and Regulations]
[Pages 41834-41835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19630]


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DEPARTMENT OF DEFENSE

Defense Logistics Agency

48 CFR Part 5416


DLA Acquisition Directive; Types of Contracts

AGENCY: Defense Logistics Agency, DoD.

ACTION: Final rule.

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SUMMARY: This rule adds a new part to the Defense Logistics Acquisition 
Directive (DLAD) affecting regulations on the use of solicitation 
provisions and contract clauses for Economic Price Adjustments (EPA). 
The coverage expands the use of EPA based on market price references. 
It also expands the use of EPA based on indexes, to encompass indexes 
for products or services that are identical or similar to the end 
products to be provided under the contract. It authorizes the 
development and use, subject to established agency review and approval 
procedures, of clauses using EPA references as described above. The 
coverage ensures EPA references that more closely follow market prices, 
are in conformance with commercial practice, and reduce price risk for 
both the government and the contractor.

DATES: Effective August 2, 1999.

FOR FURTHER INFORMATION CONTACT: Ms. Helen Bailey, Procurement Analyst, 
Defense Logistics Agency, DLSC-PPP, at (703) 767-1374.

SUPPLEMENTARY INFORMATION: 

[[Page 41835]]

A. Background

    The Defense Energy Support Center (DESC), a major contracting 
activity of DLA, has historically utilized a method of price adjustment 
in the bulk petroleum area using price indexes for the same or similar 
end products and using market price assessments for products published 
in industry trade journals.
    None of the three EPA types currently encompassed by the FAR are 
appropriate for many of the competitive procurements undertaken by DESC 
and other DLA contracting offices. Currently, FAR 16.203 recognizes EPA 
references based on established market or catalog prices of the 
individual contractor only. The new DLAD coverage expands this to 
include industry-wide and geographically specific market price 
assessments, and authorizes the development and use of clauses on that 
basis. FAR 16.203 also recognizes EPA references based only on indexes 
for labor or material costs or indexes of such costs. The DLAD coverage 
expands this to include indexes for the same or similar supplies, 
services, or end items and authorizes the development and uses of 
clauses on that basis.
    The uses of an EPA reference based on an individual contractor's 
established price or cost of materials is impractical for various 
competitive procurements. Unique EPA references for each offeror 
engender relative price variations during the delivery period, making 
it impossible to determine the most favorable offer at time of award. 
This creates a significant price risk for the Government in periods 
where the margins are shrinking and for the contractors in periods 
where the margins are expanding. such fluctuations can be significant, 
for example, in petroleum markets. A reference based on the same or 
similar products as provided under the contract, results in a common 
EPA reference for competing offerors and minimizes the price risk for 
both the Government and the contractor.
    A proposed rule with request for comments was published in the 
Federal Register.. (60 FR 10826, Feb. 28, 1995.) One respondent 
submitted comments on the proposed rule. The respondent's comments were 
considered in the development of the final rule. On October 5, 1995, 
the Director, Defense Procurement, approved a permanent class deviation 
for DLA to deviate from the requirements of FAR 16.203-1 and 16.203-
4(a) when using fixed price contracts with economic price adjustments. 
Under this deviation, DLA was authorized to include conforming language 
in the DLA supplement.
    The final rule is the same as the proposed rule with one exception. 
The second sentence in Subpart 5416.203-4, ``Contract clauses' of the 
proposed rule, which states that ``established prices in such clauses 
need not be verifiable using the criteria in 48 CFR (FAR) 15.804-3'' 
was removed in the final rule. The criteria referred to were deleted 
from the Truth in Negotiations Act (TINA) (10 U.S.C. 2306a.) when the 
statute was recently revised. Accordingly, the revised and renumbered 
FAR Part 15 no longer contains these criteria. Therefore, the language 
has been removed from the final rule as it is no longer applicable.

Regulatory Flexibility Act

    The final rule does not have 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. An initial regulatory 
flexibility analysis was not performed. The final rule does not 
represent a change for small entities doing business with DLA. Comments 
were requested concerning the effect of the proposed rule on small 
entities in accordance with section 612 of the Act. No comments were 
received.

B. Paperwork Reduction Act

    This rule does not impose any new reporting or record keeping 
requirements that require the approval of OMB under 44 U.S.C. 3501, et 
seq.

List of Subjects in 48 CFR Part 5416

    Government procurement.

    For reasons set forth in the preamble, the Defense Logistics Agency 
amends 48 CFR Chapter 54, by adding part 5416 to read as follows:

PART 5416--TYPES OF CONTRACTS

Subpart 5416.2--Fixed Price Contracts

5416.203  Fixed-Price Contracts with Economic Price Adjustment
5416.203-1  Description
5416.203-3  Limitations
5416.203-4  Contract Clauses

    Authority: Fixed Price Contracts


 4516.203  Fixed Price Contracts with Economic Price Adjustment


 4516.203-1  Description.

    (a)(S-90) Adjustments based on established prices. Established 
prices may reflect industry-wide and/or geographically based market 
price fluctuations for commodity groups, specific supplies or services, 
or contract end items.
    (c)(S-90) Adjustments based on cost indexes of labor or materials. 
These price adjustments may also be based on increases or decreases in 
indexes for commodity groups, specific supplies or services, or 
contract end items.


 4516.203-3  Limitations.

    (S-90) A fixed price contract with economic price adjustment may 
also be used to provide for price adjustments authorized in this 
section.


 4516.203-4  Contract clauses.

    (S-90) When the contracting officer determines that an existing EPA 
clause is not appropriate, the contracting officer may develop and use 
another EPA clause in accordance with 5416.203-1 (a)(S-90) or (c)(S-
90). Established prices and cost indexes need not reflect changes in 
the costs or established prices of a specific contractor. The 
established price or cost index may be derived from sales prices in the 
marketplace, quotes, or assessments as reported or made available in a 
consistent manner in a publication, electronic database, or other form, 
by an independent trade association, Governmental body, or other third 
party independent of the contractor. More than one established price or 
cost index may be combined in a formula for economic price adjustment 
purposes in the absence of an appropriate single price or cost index.

    Dated: July 23, 1999.
William J. Kenny,
Executive Director, Procurement Management.
[FR Doc. 99-19630 Filed 7-30-99; 8:45 am]
BILLING CODE 3620-01-M