[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Rules and Regulations]
[Pages 70520-70522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29092]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAC 2001-10; FAR Case 2000-007; Item IV]
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: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending 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 revise the criteria governing when a 
prime contractor can bill the Government for costs incurred, but not 
yet paid, for supplies and services purchased directly for the contract 
and for associated subcontractor financing payment requests.

DATES: Effective Date: December 23, 2002.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Jeremy Olson at (202) 501-3221. Please cite FAC 
2001-10, FAR case 2000-007.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 65 FR 56454, September 18, 2000. The proposed rule--
    [sbull] Revised the requirement at FAR 32.1003(b) to permit 
performance-based payments type of financing on fixed-price contracts 
prior to definitization;
    [sbull] Completely removed 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. A final rule under FAR case 1998-400 
was published in the Federal Register at 65 FR 16274, March 27, 2000. 
The intent of that final rule was to remove this restriction from all 
the payment 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 published 
under this FAR case 2000-007 corrected this oversight and the rule--
    [sbull] Established, for both cost-reimbursement and fixed-price 
contracts, a standard time period of 30 days that contractors have to 
pay their subcontractors after the contractors have billed the 
Government for incurred subcontractor costs. As indicated in the 
previous paragraph, the final rule under FAR case 1998-400 amended 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 were met: The unpaid amounts were 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. The second condition permitted a large 
business to submit cost vouchers on a cost-reimbursement contract every 
14 days, but the large business could 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 
subcontractors, 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 revised the second condition 
to establish a single standard time period of 30 days; and
    [sbull] Made several editorial changes.
    Four respondents submitted public comments to the proposed rule. 
The Councils considered all comments when developing the final rule 
which differs from the proposed rule with regard to when a contractor 
can bill the Government for supplies and services purchased directly 
for the contract and associated financing payment requests received 
from their subcontractors that have not yet been paid for by the prime 
contractors. As amended by this final rule, the contractor can bill the 
Government when contractor payment

[[Page 70521]]

for the amount determined due the supplier or subcontractor is 
scheduled to be made within 30 days of the submission of the 
contractor's current payment request to the Government. The Councils 
believe that a 30-day float period for the prime contractor represents 
a reasonable time period and do not believe it would be in the best 
interests of the Government or subcontractors to effectively encourage 
float periods in excess of 30 days.
    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 Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify 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. 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.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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: November 12, 2002.
Al Matera,
Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 32 and 52 as set 
forth below:

    1. The authority citation for 48 CFR parts 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. Amend section 32.504 by revising the introductory text of 
paragraph (b) and paragraph (b)(2) to read as follows:


32.504  Subcontracts under prime contracts providing progress payments.

* * * * *
    (b) The contractor's requests for progress payments may include the 
full amount of commercial item purchase financing payments, 
performance-based payments, or progress payments to a subcontractor, 
whether paid or unpaid, provided that unpaid amounts are limited to 
amounts determined due and that the contractor will pay--
* * * * *
    (2) Ordinarily within 30 days of the submission of the contractor's 
progress payment request to the Government.
* * * * *

    3. Amend section 32.1003 by revising the introductory text and 
paragraph (b) to read as follows:


32.1003  Criteria for use.

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

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Amend section 52.216-7 by revising the date of the clause; and 
by revising the introductory text of paragraph (b)(1)(ii)(A) and 
paragraph (b)(1)(ii)(A)(2) to read as follows:


52.216-7  Allowable Cost and Payment.

* * * * *

Alowable Cost and Payment (Dec. 2002)

* * * * *
    (b) Reimbursing costs. (1) * * *
    (ii) * * *
    (A) Supplies and services purchased directly for the contract 
and associated financing payments to subcontractors, provided 
payments determined due will be made--
* * * * *
    (2) Ordinarily within 30 days of the submission of the 
Contractor's payment request to the Government;
* * * * *


    5. Amend section 52.216-26 by revising the date of the clause, the 
introductory text of paragraph (d)(2)(i), and paragraph (d)(2)(i)(B) to 
read as follows:


52.216-26  Payments of Allowable Costs Before Definitization.

* * * * *

Payments of Allowable Costs Before Definitization (Dec 2002)

* * * * *
    (d) * * *
    (2) * * *
    (i) Supplies and services purchased directly for the contract 
and associated financing payments to subcontractors, provided 
payments determined due will be made--
* * * * *
    (B) Ordinarily within 30 days of the submission of the 
Contractor's payment request to the Government;
* * * * *

    6. Amend section 52.232-7 by revising the date of the clause, and 
paragraphs (b)(3) and (b)(4)(ii) 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 (Dec 2002)

* * * * *
    (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 these purchased supplies or services; or
    (ii) Will make these payments determined due--
    (A) In accordance with the terms and conditions of a subcontract 
or invoice; and
    (B) Ordinarily within 30 days of the submission of the 
Contractor's payment request to the Government.
    (4)(i) * * *
    (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 determined due of cash, checks, or other forms of 
payment to the subcontractor--
    (A) In accordance with the terms and conditions of a subcontract 
or invoice; and
    (B) Ordinarily within 30 days of the submission of the 
Contractor's payment request to the Government.
* * * * *

    7. Amend section 52.232-16 by revising the date of the clause, the 
introductory text of paragraph (a)(2), and paragraph (a)(2)(ii) to read 
as follows:


52.232-16  Progress Payments.

* * * * *

Progress Payments (Dec 2002)

* * * * *
    (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 
are determined due and will be paid to subcontractors--
* * * * *

[[Page 70522]]

    (ii) Ordinarily within 30 days of the submission of the 
Contractor's payment request to the Government.
* * * * *

[FR Doc. 02-29092 Filed 11-21-02; 8:45 am]
BILLING CODE 6820-EP-P