[Federal Register Volume 65, Number 181 (Monday, September 18, 2000)]
[Proposed Rules]
[Pages 56453-56455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23912]



[[Page 56453]]

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Part VI





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Parts 32 and 52



Federal Acquisition Regulation; Financing Policies; Proposed Rule

Federal Register / Vol. 65, No. 181 / Monday, September 18, 2000 / 
Proposed Rules

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAR Case 2000-007]
RIN 9000-AI92


Federal Acquisition Regulation; Financing Policies

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 (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to permit the use of performance-
based payments type of financing on fixed-price contracts prior to 
definitization, and to establish a standard time period of 30 days that 
contractors have to pay their vendors after the contractors have billed 
the Government for incurred vendor costs.

DATES: Interested parties should submit comments in writing on or 
before November 17, 2000 to be considered in the formulation of a final 
rule.

ADDRESSES: Submit written comments to: General Services Administration, 
FAR Secretariat (MVR), 1800 F Street, NW, Room 4035, ATTN: Laurie 
Duarte, Washington, DC 20405.
    Submit electronic comments via the Internet to: farcase.2000-007@gsa.gov.
    Please submit comments only and cite FAR case 2000-007 in all 
correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Jeremy Olson, at (202) 501-0692. Please cite FAR 
case 2000-007.

SUPPLEMENTARY INFORMATION:

A. Background

    The Councils published a final rule in the Federal Register at 65 
FR 16276, March 27, 2000, under FAR Case 1998-400, Progress Payments 
and Related Financing Policies. The rule revised the policies and 
procedures related to contract financing to make them easier to 
understand and to minimize the burdens imposed on contractors and 
contracting officers. This proposed FAR rule supplements the final 
rule.
    The proposed rule--
    (1) Revises the requirement at FAR 32.1003(b) to permit 
performance-based payments type of financing on fixed-price contracts 
prior to definitization;
    (2) Completely removes the ``paid cost rule'' restriction from the 
payment clauses at FAR 52.216-26, Payments of Allowable Costs Before 
Definitization, and FAR 52.232-7, Payments under Time-and-Materials and 
Labor-Hour Contracts. The ``paid cost rule'' is the requirement that a 
large business must actually pay (not just incur) costs for supplies 
and services purchased directly for the contract and financing payments 
to subcontractors before including the payments in its billings to the 
Government. The intent of the final rule under FAR case 1998-400 was to 
remove this restriction from all the payments clauses if contractors 
met certain conditions. Inadvertently, this restriction was not removed 
in its entirety from FAR 52.216-26(d)(2) and FAR 52.232-7(b)(3). The 
proposed rule corrects for this oversight;
    (3) Establishes a standard time period that contractors have to pay 
their vendors after the contractors have billed the Government for 
incurred vendor costs. As indicated in paragraph (2) above, the final 
rule under FAR case 1998-400 revised the FAR to permit a large business 
to include, in its billings, certain costs that it had incurred but not 
actually paid, if the following conditions are met: the unpaid amounts 
are paid (1) in accordance with the terms and conditions of a 
subcontract or invoice; and (2) ordinarily prior to the submission of 
the contractor's next payment request to the Government.
    A large business prime contractor is allowed to submit cost 
vouchers on a cost-reimbursement contract every 14 days, but can bill 
no more frequently than every 30 days when billing progress payments on 
a fixed-price contract. Therefore, contractors may need to maintain 
several systems and procedures to accommodate the timing differences 
for payments to vendors, depending on whether the costs are billed on a 
cost-reimbursement or fixed-price type prime contract. To eliminate the 
timing differences, the proposed FAR rule revises the second condition 
to establish a single standard time period of 30 days; and
    (4) It makes several editorial changes.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule 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 have a dollar value 
less than the simplified acquisition threshold, and, therefore, do not 
have the progress payment or performance-based payment type of 
financing. In addition, the ``paid cost rule'' restriction does not 
apply to small entities. An Initial Regulatory Flexibility Analysis 
has, therefore, not been performed. We invite comments from small 
businesses and other interested parties. The Councils will consider 
comments from small entities concerning the affected FAR parts 32 and 
52 in accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 601, et seq. (FAR case 
2000-007), in correspondence.

C. Paperwork Reduction Act

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

List of Subjects in 48 CFR Parts 32 and 52

    Government procurement.

    Dated: September 12, 2000.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose that 48 CFR parts 32 and 52 
be amended as set forth below:
    1. The authority citation for 48 CFR part 32 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).

PART 32--CONTRACT FINANCING

    2. Revise paragraph (b)(2) of section 32.504 to read as follows:


32.504  Subcontracts under prime contracts providing progress payments.

* * * * *
    (b) * * *
    (2) Not later than 30 days after the submission of the contractor's 
progress payment request to the Government.
* * * * *

[[Page 56455]]

    3. Revise the introductory text and paragraph (b) of section 
32.1003 to read as follows:


32.1003  Criteria for use.

    The contracting officer may only use performance-based payments if 
the following conditions are met:
* * * * *
    (b) The contract is a fixed-price type contract; and
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Revise the date of the clause, the introductory text of 
paragraph (b)(1)(ii), and paragraph (b)(1)(ii)(A) of section 52.216-7 
to read as follows:


52.216-7  Allowable Cost and Payment.

* * * * *
Allowable Cost and Payment (Date)
* * * * *
    (b) Reimbursing costs. (1) * * *
* * * * *
    (ii) When the Contractor is not delinquent in paying costs of 
contract performance in the ordinary course of business, costs 
incurred, but not necessarily paid, for--
    (A) Supplies and services purchased directly for the contract and 
associated financing payments to subcontractors, provided payments will 
be made--
    (1) In accordance with the terms and conditions of a subcontract or 
invoice; and
    (2) Not later than 30 days after the submission of the Contractor's 
payment request to the Government;
* * * * *
    5. Revise the date of the clause, the introductory text of 
paragraphs (d) and (d)(2), and paragraph (d)(2)(i) of section 52.216-26 
to read as follows:


52.216-26  Payments of Allowable Costs Before Definitization.

* * * * *
Payments of Allowable Costs Before Definitization (Date)
* * * * *
    (d) Allowable costs. For the purpose of determining allowable 
costs, the term ``costs'' includes--
    (1) * * *
    (2) When the Contractor is not delinquent in payment of costs of 
contract performance in the ordinary course of business, costs 
incurred, but not necessarily paid, for--
    (i) Supplies and services purchased directly for the contract and 
associated financing payments to subcontractors, provided payments will 
be made--
    (A) In accordance with the terms and conditions of a subcontract or 
invoice; and
    (B) Not later than 30 days after the submission of the Contractor's 
payment request to the Government;
* * * * *
    6. In section 52.232-7 revise the date of the clause and paragraphs 
(b)(3), (b)(4)(ii), and (b)(4)(ii)(B) to read as follows:


52.232-7  Payments Under Time-and-Materials and Labor-Hour Contracts.

* * * * *
Payments Under Time-and-Materials and Labor-Hour Contracts (Date)
* * * * *
    (b) * * *
    (3) The Government will reimburse the Contractor for supplies and 
services purchased directly for the contract when the Contractor--
    (i) Has made payments of cash, checks, or other forms of payment 
for such purchased supplies or services; or
    (ii) Will make such payments--
    (A) In accordance with the terms and conditions of a subcontract or 
invoice; and
    (B) Not later than 30 days after the submission of the Contractor's 
payment request to the Government.
    (4) * * *
* * * * *
    (ii) The Government will limit reimbursable costs in connection 
with subcontracts to the amounts paid for supplies and services 
purchased directly for the contract when the Contractor has made or 
will make payments of cash, checks, or other forms of payment to the 
subcontractor--
* * * * *
    (B) Not later than 30 days after the submission of the Contractor's 
payment request to the Government.
* * * * *

    7. Revise the date of the clause and paragraph (a)(2) of section 
52.232-16 to read as follows:


52.232-16  Progress Payments.

* * * * *
Progress Payments (Date)
* * * * *
    (a) * * *
    (2) The amount of financing and other payments for supplies and 
services purchased directly for the contract are limited to the amounts 
that have been paid by cash, check, or other forms of payment, or that 
will be paid to subcontractors--
    (i) In accordance with the terms and conditions of a subcontract or 
invoice, and
    (ii) Not later than 30 days after the submission of the 
Contractor's payment request to the Government.
* * * * *
[FR Doc. 00-23912 Filed 9-15-00; 8:45 am]
BILLING CODE 6820-EP-U