[Federal Register Volume 67, Number 207 (Friday, October 25, 2002)]
[Rules and Regulations]
[Pages 65512-65514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27108]


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DEPARTMENT OF DEFENSE

48 CFR Parts 212, 226, and 237

[DFARS Case 2000-D306]


Defense Federal Acquisition Regulation Supplement; Performance-
Based Contracting Using Federal Acquisition Regulation Part 12 
Procedures

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement Section 821(b) 
of the National Defense Authorization Act for Fiscal Year 2001. Section 
821(b) permits DoD to treat certain performance-based service contracts 
and task orders as contracts for the procurement of commercial items.

EFFECTIVE DATE: October 25, 2002.

FOR FURTHER INFORMATION CONTACT: Ms. Sandra Haberlin, Defense 
Acquisition Regulations Council, OUSD (AT&L) DP (DAR), IMD 3C132, 3062 
Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0289; 
facsimile (703) 602-0350. Please cite DFARS Case 2000-D306.

SUPPLEMENTARY INFORMATION:

A. Background

    This rule revises and finalizes the interim rule published at 66 FR 
63335 on December 6, 2001. The rule implements Section 821(b) of the 
National Defense Authorization Act for Fiscal Year 2001 (Public Law 
106-398). Section 821(b) permits DoD to use Federal Acquisition 
Regulation (FAR) Part 12 (Acquisition of Commercial Items) procedures 
for performance-based service contracts and task orders, if certain 
conditions are met.
    Four respondents submitted comments on the interim rule. A 
discussion of the comments is provided below:
    Comment: The rule appears to contradict the language in FAR Subpart 
13.5, which permits the use of simplified procedures for the 
acquisition of commercial items in amounts exceeding the simplified 
acquisition threshold but not exceeding $5 million. Section 212.102 of 
the rule prohibits the use of FAR Subpart 13.5 procedures when using 
FAR Part 12 for acquisitions that are performance-based. DoD Response: 
Do not concur. FAR 12.102 authorizes the use of FAR Part 12 in 
conjunction with FAR Part 13, 14, or 15, when acquiring supplies or 
services that meet the definition of commercial

[[Page 65513]]

item at FAR 2.101. DFARS 212.102 provides additional authority for use 
of FAR Part 12 to acquire services that do not meet the definition of 
commercial item, when performance-based contracting methods are used. 
Therefore, the prohibition against use of FAR Subpart 13.5 in 
conjunction with FAR Part 12 applies only to performance-based 
contracts for services that do not meet the definition of commercial 
item but can be acquired using FAR Part 12 pursuant to the authority in 
DFARS 212.102.
    Comment: The statement in 212.102(a)(i) specifying that the rule 
applies to contracts or task orders ``. . . entered into on or before 
October 30, 2003'' should be changed to apply to contracts or task 
orders ``. . . entered into after October 30, 2000, but before October 
30, 2003.'' The statute became effective on October 30, 2000, and this 
new authority is not available to task orders that were awarded prior 
to that date, but would be applicable to task orders awarded after that 
date even though the contract was awarded before October 30, 2000. DoD 
Response: Do not concur. The interim rule became effective on December 
6, 2001. Since this date is in the past, there is no need to include it 
in the DFARS text. In addition, the rule, as written, does not preclude 
application to task orders issued under contracts that were awarded 
before the rule became effective.
    Comment: The statement in 212.102(a)(i) that requires the use of 
quality assurance surveillance plans should be deleted from the rule. 
While such plans are a common best practice for performance-based 
contracts, this requirement is not part of the statute and, therefore, 
is not ``in accordance with the Act.'' DoD Response: Do not concur. 
While quality assurance surveillance plans are not specifically 
addressed in the statute, this requirement should be retained, because 
the plans are an element of performance-based contracting. See FAR 
Subpart 37.6, which establishes quality assurance as a component of 
performance-based contracting.
    Comment: The statement in 212.102(a)(i) that permits application of 
the rule if award is made ``to an entity that provides similar services 
at the same time to the general public under terms and conditions 
similar to those in the contract'' should be changed to add, at the 
end, the phrase ``or task order.'' Under the law, it is clear that the 
two similarity tests are appropriately applied at either the contract 
level or at the task order level. DoD Response: Concur. The statement 
has been amended to add the phrase ``or task order.''
    Comment: The cross-reference text at 237.601 should be changed from 
``See 212.102 for the use of FAR Part 12 procedures with performance-
based contracting'' to ``See 212.102 for additional authority and 
specific conditions where it is appropriate to use FAR Part 12 
procedures with performance-based contracting.'' This change is 
necessary to avoid any misconception that DFARS 212.102 contains the 
only provisions for use of FAR Part 12 for performance-based contracts. 
Public Law 106-398 clearly established these conditions as an 
additional incentive for use of the performance-based service contract 
under FAR Part 12. DoD Response: Do not concur. The change is not 
necessary, as the DFARS does not indicate such a limitation.
    Comment: The text at 212.102(a)(ii) should be changed from ``* * * 
modify paragraph (a) of the clause at FAR 52.212-4 * * *'' to ``* * * 
tailor paragraph (a) of the clause at FAR 52.212-4* * *'' DoD Response: 
Concur. The word ``tailor'' is consistent with the terminology used in 
FAR Part 12. This change has been made in the final rule.
    Comment: The statement in 212.102(a)(i) that permits application of 
the rule if award is made ``to an entity that provides similar services 
at the same time to the general public * * *'' may exclude some small 
businesses, including 8(a) and native-owned firms, that focus their 
efforts on Government contracts. DoD Response: Partially concur. Firms 
that direct their efforts exclusively toward providing services to the 
Government will not meet this condition of the rule. However, this 
condition was established by Section 821(b) of Public Law 106-398 and 
cannot be deleted.
    Comment: The rule reclassifies all service contracts of less than 
$5 million as subject to FAR Part 12 procedures. DFARS 226.104(1) 
precludes use of the clause at 252.226-7001, Utilization of Indian 
Organizations and Indian-Owned Economic Enterprises--DoD Contracts, in 
any contract that uses FAR Part 12 procedures. Therefore, this rule 
eliminates all service contracts of less than $5 million from the 
Indian Incentive Program, thereby causing significant harm to Native 
American service companies and Indian Tribal Corporations. DoD should 
remove the Part 12 exclusion from the clause prescription at DFARS 
226.104(1). DoD Response: Partially concur. DoD does not agree that the 
rule reclassifies all service contracts of less than $5 million as 
subject to FAR Part 12. The rule is limited to performance-based 
contracting for services that meet specific criteria. DoD does agree 
that, as the interim rule was written, the Indian Incentive Program 
could not be used for any performance-based service contracts awarded 
using FAR Part 12 procedures. The FAR Part 12 exclusion at DFARS 
226.104 was established prior to this rule and was intended to apply to 
the acquisition of supplies and services that meet the definition of 
commercial item at FAR 2.101. Since this rule permits the use of FAR 
Part 12 procedures for acquisition of services that do not meet the 
definition of commercial item, DFARS 226.104 has been amended to 
clarify that there is no restriction on use of the clause at 252.226-
7001 in performance-based contracts for services that either are not 
commercial items, or are treated as commercial items solely as a result 
of the authority in 212.102.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD certifies 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. The 
rule permits the use of FAR Part 12 procedures for the award of certain 
performance-based service contracts and task orders. While the use of 
FAR Part 12 procedures will improve the efficiency of contracting for 
these services, the economic impact on small entities will not be 
substantial.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the rule does 
not impose any 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 212, 226, and 237

    Government procurement.

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

Interim Rule Adopted as Final With Changes

    Accordingly, the interim rule amending 48 CFR Parts 212 and 237, 
which was published at 66 FR 63335 on December 6, 2001, is adopted as a 
final rule with the following changes:
    1. The authority citation for 48 CFR Parts 212, 226, and 237 
continues to read as follows:


[[Page 65514]]


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

PART 212--ACQUISITION OF COMMERCIAL ITEMS

    2. Section 212.102 is revised to read as follows:


212.102  Applicability.

    (a)(i) In accordance with Section 821 of the National Defense 
Authorization Act for Fiscal Year 2001 (Pub. L. 106-398), the 
contracting officer also may use FAR Part 12 for any performance-based 
contracting for services if the contract or task order--
    (A) Is not awarded using the procedures in FAR Subpart 13.5;
    (B) Is entered into on or before October 30, 2003;
    (C) Has a value of $5 million or less;
    (D) Meets the definition of performance-based contracting at FAR 
2.101;
    (E) Uses quality assurance surveillance plans;
    (F) Includes performance incentives where appropriate;
    (G) Specifies a firm-fixed price; and
    (H) Is awarded to an entity that provides similar services at the 
same time to the general public under terms and conditions similar to 
those in the contract or task order.
    (ii) In exercising the authority specified in paragraph (a)(i) of 
this section, the contracting officer should tailor paragraph (a) of 
the clause at FAR 52.212-4 as may be necessary to ensure the contract's 
remedies adequately protect the Government's interests.

PART 226--OTHER SOCIOECONOMIC PROGRAMS

    3. Section 226.104 is revised to read as follows:


226.104  Contract clause.

    Use the clause at 252.226-7001, Utilization of Indian Organizations 
and Indian-Owned Economic Enterprises--DoD Contracts, in solicitations 
and contracts for supplies or services that--
    (1)(i) Are other than commercial items; or
    (ii) Qualify to use FAR Part 12 procedures solely through the 
authority in 212.102; and
    (2) Are expected to exceed the simplified acquisition threshold.

[FR Doc. 02-27108 Filed 10-24-02; 8:45 am]
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