[Federal Register Volume 67, Number 207 (Friday, October 25, 2002)]
[Rules and Regulations]
[Pages 65505-65509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27110]


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DEPARTMENT OF DEFENSE

48 CFR Parts 208 and 216

[DFARS Case 2001-D017]


Defense Federal Acquisition Regulation Supplement; Competition 
Requirements for Purchase of Services Under Multiple Award Contracts

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 803 of 
the National Defense Authorization Act for Fiscal Year 2002. Section 
803 requires DoD to issue DFARS policy requiring competition in the 
purchase of services under multiple award contracts.

DATES: Effective Date: October 25, 2002.
    Applicability Date: This rule applies to all orders for services 
placed under multiple award contracts on or after October 25, 2002, 
regardless of whether the multiple award contracts were awarded before, 
on, or after that date.

FOR FURTHER INFORMATION CONTACT: Ms. Susan Schneider, Defense 
Acquisition Regulations Council, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 
Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326; 
facsimile (703) 602-0350. Please cite DFARS Case 2001-D017.

SUPPLEMENTARY INFORMATION: Notification of training opportunities: DoD 
and civilian agency contracting professionals that place orders under 
multiple award contracts using DoD funds, and contractors that sell 
services on multiple award contracts, should receive training on the 
new procedures for placing orders over $100,000 for services. DoD has 
developed many training tools on Section 803 and will be providing 
training in the DC metro area. Please visit the Defense Procurement 
Home Page, ``Interest Items'' drop-down box, for Section 803 training 
materials and lists of training opportunities at http://www.acq.osd.mil/dp. Additional questions regarding training should be 
directed to Melissa Rider at

[[Page 65506]]

[email protected] or (703) 695-1098.

A. Background

    This rule amends DFARS Parts 208 and 216 to implement Section 803 
of the National Defense Authorization Act for Fiscal Year 2002 (Public 
Law 107-107). Section 803 requires DoD to issue DFARS policy requiring 
competition in the purchase of services under multiple award contracts. 
Multiple award contracts include the Multiple Award Schedules (MAS) 
Program operated by the General Services Administration (GSA) and 
multiple award indefinite-quantity (task and delivery) order contracts 
issued pursuant to FAR 16.504. Competition requirements for the MAS are 
set forth in DFARS 208.404-70. Competition requirements for multiple 
award indefinite-quantity contracts other than the MAS are covered in 
DFARS 216.505-70.
    While DFARS 208.404-70, addressing MAS ordering, focuses on 
competition, DoD recognizes that additional regulatory coverage is 
needed to improve practices related to the acquisition of services 
under the MAS. In this regard, the Director of Defense Procurement is 
working with the other members of the Federal Acquisition Regulatory 
Council on separate revisions to FAR Subpart 8.4 that will provide 
Governmentwide guidance on considerations, in addition to competition, 
that must be taken into account to ensure sound MAS purchasing. These 
considerations include, among others, use of statements of work, 
effective pricing of orders, and proper documentation of award 
decisions.
    In addition, the Administrator of the Office of Federal Procurement 
Policy (OFPP) has determined that additional clarification is necessary 
with respect to the structuring of orders under the MAS. FAR 12.207 
currently requires that agencies use firm-fixed-price contracts or 
fixed-price contracts with economic price adjustment for the 
acquisition of commercial items. FAR 12.207 further states that use of 
any other contract type to acquire commercial items is prohibited. 
However, GSA's non-regulatory special ordering procedures for services 
permit use of additional contract types for commercial item 
acquisitions, which is the sole focus of the MAS. In particular, GSA's 
special ordering procedures permit orders to be priced on a time-and-
materials or labor-hour basis under limited circumstances, i.e., when 
the ordering office makes a determination that it is not possible at 
the time of placing the order to estimate accurately the extent or 
duration of the work or to anticipate cost with any reasonable degree 
of confidence. The special ordering procedures rely on somewhat 
different and less stringent safeguard provisions than those that the 
FAR imposes when time-and-materials and labor-hour contracts are used.
    The OFPP Administrator intends to work with the other FAR Council 
members to develop appropriate revisions to current FAR coverage to 
address the use of time-and-materials and labor-hour contracts for 
commercial item acquisitions, including safeguards that are needed to 
effectively protect taxpayer interests when these contractual 
arrangements are used under FAR Part 12.
    DoD published a proposed rule at 67 FR 15351 on April 1, 2002, and 
held a public meeting on April 29, 2002. Seventy-one sources submitted 
written comments on the proposed rule. DoD considered all comments in 
the development of the final rule. A summary of the comments grouped by 
subject area is provided below:

1. Small Business Impact

    Comment: The rule, as applied to the Federal Supply Schedules, 
could harm the small business community, as the requirement to provide 
all contractors a fair notice of the intent to make a purchase will 
dramatically increase the number of competitors for each task, which 
will likely reduce the odds of winning an award and which will increase 
bid and proposal costs. The additional procedural burden imposed by 
this rule will encourage contracting officers to bundle requirements, 
thereby making it less likely that DoD's small business goals will be 
met.
    DoD Response: The intent of the rule is to ensure fairness and 
enhance competition. The rule requires the Government to provide fair 
notice and opportunity. Because the rule does not require the 
contractor to respond to every notice--leaving the decision to respond 
to the contractor `` the fair notice requirement, as imposed by this 
rule, should not increase bid and proposal costs. In addition, the 
final rule has taken into account the resource burdens associated with 
the fair notice process that might precipitate efforts to bundle. With 
respect to Federal Supply Schedule purchases, for example, DoD has 
revised the rule to shift the emphasis from providing fair notice to 
all contractors to providing fair notice to as many contractors as 
practicable based on effective market research. The final rule should 
increase competition while minimizing burden (otherwise associated with 
notifying all contractors) by allowing contracting officers to provide 
notice to a reasonable number of offerors that can do the required 
work. DoD does not believe the rule will negatively affect the ability 
of DoD to meet its small business goals. However, a reminder that 
orders placed against Federal Supply Schedules may be credited toward 
the ordering agency's small business goals has been added to the rule.
    Comment: It is unclear whether small business participation will be 
significantly affected and whether DoD will be allowed to continue with 
the practice of setting aside a portion of the work under multiple 
award contracts exclusively for small business concerns.
    DoD Response: The rule does not change the policies associated with 
small business considerations. The preferences afforded small business 
concerns under FAR 8.404(b)(6) still apply.

2. Brooks Act Applicability

    Comment: The rule should not apply to architect-engineer services. 
Acquisitions of architect-engineer services are governed by the Brooks 
Act (40 U.S.C. 541-544), as implemented in FAR Subpart 36.6.
    DoD Response: Concur. The final rule has been amended to clarify 
that acquisitions of architect-engineer services are subject to the 
Brooks Act and the procedures in FAR Subpart 36.6.

3. Training

    Comment: Sufficient training for contracting, program management, 
and requirements personnel is needed to ensure that services are 
acquired in accordance with regulatory requirements. Industry should 
have access to the same tools as Government personnel.
    DoD Response: Concur. DoD has developed training packages that will 
be released with this DFARS rule and has revised the Defense 
Acquisition University contracting coursework to focus on the proper 
way to make awards under Federal Supply Schedules, Governmentwide 
acquisition contracts, multi-agency contracts and multiple award 
contracts. Additionally, DoD is exploring ways to best reach the 
program management community and has asked the Defense Acquisition 
University to insert material in its program management courses. DoD 
intends to make the Government training tools available to industry. An 
information briefing on this DFARS rule is available on the Defense 
Procurement Web site at http://www.acq.osd.mil/dp

[[Page 65507]]

under ``Special Interest Items'' in the dropdown box entitled ``Section 
803.''

4. Clarification of Services Covered

    Comment: DoD should revise the rule to clarify that the scope of 
the term ``services'' for purposes of the rule does not apply to 
product-like solutions, ancillary services, and transaction-based 
services. For example, the regulations that implement the Service 
Contract Act exempt contracts principally for the maintenance, 
calibration, or repair of many types of equipment, including automatic 
data processing equipment.
    DoD Response: Do not concur. Section 803 provides no authority for 
DoD to limit the scope of the term ``services'' in the manner 
recommended by the respondent.

5. Electronic Notice

    Comment: DoD should post the notice of fair opportunity to a 
specific web page or FedBizOpps.
    DoD Response: Do not concur. The notice requirement is sufficiently 
addressed in the rule. The method of meeting that requirement is a 
management decision more appropriately made at the contracting office 
level. It should be noted that steps are being taken to improve 
transparency through electronic means. For example, GSA recently 
introduced ``e-buy'', among other things, to assist MAS customers in 
providing fair notice to MAS contractors. The availability of e-buy is 
highlighted in the rule.

6. Civilian Agency Applicability/Economy Act

    Comment: Clarification is needed regarding the applicability of 
Section 803 to civilian agencies and interagency acquisitions made 
under the Economy Act.
    DoD Response: Section 803 applies to all DoD requirements for 
services, regardless of which agency acquires the services. The final 
rule addresses this issue by adding a statement to clarify that the 
rule also applies to orders placed by non-DoD agencies on behalf of 
DoD.

7. Effective Date

    Comment: Clarification is needed regarding the timing for 
applicability of the rule.
    DoD Response: Section 803 applies to all purchases of services made 
under multiple award contracts, regardless of whether the multiple 
award contracts were entered into before, on, or after the effective 
date of this rule. This DFARS rule contains the same effective date and 
applicability requirements. Contracting officers must review the terms 
and conditions of existing contracts to determine if modifications to 
the contracts are needed.

8. Exceptions to the Rule

    Comment: The rule should provide an exception that allows a sole-
source follow-on to an initially placed sole-source order with adequate 
justification and legal review.
    DoD Response: The statute does not provide this authority. Section 
803 authorizes use of the exceptions in 2304c(b) which allow for a 
logical follow-on to a task or delivery order already issued on a 
competitive basis.

9. Burden on Industry and Government

    Comment: The rule is difficult to understand; the notification 
requirement will unnecessarily slow down the acquisition process and 
increase acquisition costs; and it will be burdensome for each company 
to continuously receive solicitations for work they have no interest in 
performing.
    DoD Response: The intent of the rule is to ensure fairness by 
requiring a fair notice, fair opportunity to respond, and fair 
consideration of offers. The value added by the fairness component 
should outweigh any burdens associated with the rule. The final rule 
was drafted to provide as much flexibility as permitted by Section 803.

10. Blanket Purchase Agreement (BPA) Issues

    Comment: The rule should be revised to delete the overly 
restrictive requirement that single award BPA tasks or services be 
firm-fixed-price, as this is not required by statute or policy. The BPA 
competition requirements in 208.404-70(d) should apply only to the 
initial establishment of the BPA, and thereafter the traditional 
Federal Supply Schedule rules for the placement of orders should apply.
    DoD Response: DoD does not agree with the respondent's 
recommendation regarding the use of traditional Federal Supply Schedule 
rules for placement of orders, as this is contrary to the provisions of 
Section 803. However, as noted above, the OFPP Administrator intends to 
work with the other FAR Council members to develop appropriate FAR 
coverage addressing the use of time-and-materials and labor-hour 
contracts for commercial item acquisitions, including safeguards that 
are needed to effectively protect the government's interest when these 
contractual arrangements are used.

11. Ordering Procedures

    Comment: The ordering procedures in the proposed rule were derived 
from FAR 16.505(b)(1), which was based upon the fair opportunity 
requirements of the Federal Acquisition Streamlining Act of 1994 
(FASA). Section 803 displaced the ordering procedures under FASA. 
Therefore, appropriate revisions should be made to the rule, e.g., the 
statement in 216.505-70(d)(3)(ii) to ``Not use any method (such as 
allocation or designation of any preferred awardee)'' is unnecessary 
and confuses the issue, because Section 803 now requires that orders be 
placed on a competitive basis that affords all contractors a fair 
opportunity to submit an offer. Obviously, an allocation method cannot 
be used under the Section 803 description of competitive basis, so 
there is no need to mention this issue.
    DoD Response: DoD agrees that language in the proposed rule at 
216.505-70(d)(3)(i) through (iv) and 216.505-70(e)(2) and (3) is not 
essential given that the rule makes competition requirements clear.
    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 clarifies and strengthens existing FAR requirements for 
competition in the placement of orders under multiple award contracts. 
The rule makes no change to preferences afforded small business 
concerns under FAR 8.404(b)(6) for the placement of orders against 
Federal Supply Schedules. FAR 8.404(b)(6) specifies that contracting 
officers should (1) consider including one or more small, women-owned 
small, and/or small disadvantaged business schedule contractor(s) when 
conducting evaluations and before placing an order; and (2) for orders 
exceeding the micro-purchase threshold, give preference to the items of 
small business concerns when two or more items at the same delivered 
price will satisfy the requirement.

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.

[[Page 65508]]

List of Subjects in 48 CFR Parts 208 and 216

    Government procurement.

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

    Therefore, 48 CFR Parts 208 and 216 are amended as follows:
    1. The authority citation for 48 CFR Parts 208 and 216 continues to 
read as follows:

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

PART 208--REQUIRED SOURCES OF SUPPLIES AND SERVICES

    2. The heading of Subpart 208.4 is revised to read as follows:

Subpart 208.4--Federal Supply Schedules

    3. Section 208.404 is amended by adding paragraph (b) to read as 
follows:


208.404  Using schedules.

* * * * *
    (b) Ordering procedures for optional use schedules--
    (2) Orders exceeding the micro-purchase threshold but not exceeding 
the maximum order threshold. The procedures at FAR 8.404(b)(2), 
regarding review of catalogs or pricelists of at least three schedule 
contactors, do not apply to orders for services exceeding $100,000. 
Instead, use the procedures at 208.404-70.
    (3) Orders exceeding the maximum order threshold.
    (i) For orders for services exceeding $100,000, use the procedures 
at 208.404-70 in addition to the procedures at FAR 8.404(b)(3)(i).
    (7) Documentation. For orders for services exceeding $100,000, use 
the procedures at 208.404-70 in addition to the procedures at FAR 
8.404(b)(7).

    4. Section 208.404-70 is added to read as follows:


208.404-70  Additional ordering procedures for services.

    (a) This subsection--
    (1) Implements Section 803 of the National Defense Authorization 
Act for Fiscal Year 2002 (Pub. L. 107-107); and
    (2) Also applies to orders placed by non-DoD agencies on behalf of 
DoD.
    (b) Each order for services exceeding $100,000 shall be placed on a 
competitive basis in accordance with paragraph (c) of this subsection, 
unless the contracting officer waives this requirement on the basis of 
a written determination that--
    (1) One of the circumstances described at FAR 16.505(b)(2)(i) 
through (iii) applies to the order; or
    (2) A statute expressly authorizes or requires that the purchase be 
made from a specified source.
    (c) An order for services exceeding $100,000 is placed on a 
competitive basis only if the contracting officer provides a fair 
notice of the intent to make the purchase, including a description of 
the work the contractor shall perform and the basis upon which the 
contracting officer will make the selection, to--
    (1) As many schedule contractors as practicable, consistent with 
market research appropriate to the circumstances, to reasonably ensure 
that offers will be received from at least three contractors that can 
fulfill the work requirements, and the contracting officer--
    (i)(A) Receives offers from at least three contractors that can 
fulfill the work requirements; or
    (B) Determines in writing that no additional contractors that can 
fulfill the work requirements could be identified despite reasonable 
efforts to do so (documentation should clearly explain efforts made to 
obtain offers from at least three contractors); and
    (ii) Ensures all offers received are fairly considered; or
    (2) All contractors offering the required services under the 
applicable multiple award schedule, and affords all contractors 
responding to the notice a fair opportunity to submit an offer and have 
that offer fairly considered. Posting of a request for quotations on 
the General Services Administration's electronic quote system, ``e-
Buy'' (http://www.gsaAdvantage.gov), is one medium for providing fair 
notice to all contractors as required by this paragraph (c).
    (d) Single and multiple blanket purchase agreements (BPAs) may be 
established against Federal Supply Schedules (see FAR 8.404(b)(4)) if 
the contracting officer--
    (1) Follows the procedures in paragraphs (b) and (c) of this 
subsection;
    (2)(i) For a single BPA, defines the individual tasks to be 
performed; or
    (ii) For multiple BPAs, forwards the statement of work and the 
selection criteria to all multiple BPA holders before placing orders; 
and
    (3) Reviews established BPAs no less than annually to determine 
whether the BPA still represents the best value.
    (e) Orders placed against Federal Supply Schedules may be credited 
toward the ordering agency's small business goals (see FAR 
8.404(b)(6)).

PART 216--TYPES OF CONTRACTS

    5. Section 216.501-1 is added to read as follows:


216.501-1  Definitions.

    Multiple award contract, as used in this subpart, means--
    (1) A multiple award task order contract entered into in accordance 
with FAR 16.504(c); or
    (2) Any other indefinite-delivery, indefinite-quantity contract 
that an agency enters into with two or more sources under the same 
solicitation.

    6. Section 216.505-70 is added to read as follows:


216.505-70  Orders for services under multiple award contracts.

    (a) This subsection--
    (1) Implements Section 803 of the National Defense Authorization 
Act for Fiscal Year 2002 (Pub. L. 107-107);
    (2) Applies to orders for services exceeding $100,000 placed under 
multiple award contracts, instead of the procedures at FAR 16.505(b)(1) 
and (2) (see Subpart 208.4 for procedures applicable to orders placed 
against Federal Supply Schedules);
    (3) Also applies to orders placed by non-DoD agencies on behalf of 
DoD; and
    (4) Does not apply to orders for architect-engineer services, which 
shall be placed in accordance with the procedures in FAR subpart 36.6.
    (b) Each order for services exceeding $100,000 shall be placed on a 
competitive basis in accordance with paragraph (c) of this subsection, 
unless the contracting officer waives this requirement on the basis of 
a written determination that--
    (1) One of the circumstances described at FAR 16.505(b)(2)(i) 
through (iv) applies to the order; or
    (2) A statute expressly authorizes or requires that the purchase be 
made from a specified source.
    (c) An order for services exceeding $100,000 is placed on a 
competitive basis only if the contracting officer--
    (1) Provides a fair notice of the intent to make the purchase, 
including a description of the work the contractor shall perform and 
the basis upon which the contracting officer will make the selection, 
to all contractors offering the required services under the multiple 
award contract; and
    (2) Affords all contractors responding to the notice a fair 
opportunity to submit an offer and have that offer fairly considered.
    (d) When using the procedures in this subsection--
    (1) The contracting officer should keep contractor submission 
requirements to a minimum;

[[Page 65509]]

    (2) The contracting officer may use streamlined procedures, 
including oral presentations;
    (3) The competition requirements in FAR part 6 and the policies in 
FAR subpart 15.3 do not apply to the ordering process, but the 
contracting officer shall consider price or cost under each order as 
one of the factors in the selection decision; and
    (4) The contracting officer should consider past performance on 
earlier orders under the contract, including quality, timeliness, and 
cost control.

[FR Doc. 02-27110 Filed 10-24-02; 8:45 am]
BILLING CODE 5001-08-P