[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Rules and Regulations]
[Pages 70323-70325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29468]


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DEPARTMENT OF DEFENSE

48 CFR Part 225

[DFARS Case 2002-D005]


Defense Federal Acquisition Regulation Supplement; Foreign 
Military Sales Customer Involvement

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 add policy regarding the 
participation of foreign military sales (FMS) customers in the 
development of contracts that DoD awards on their behalf. The objective 
is to provide FMS customers with more visibility into the contract 
pricing and award process.

EFFECTIVE DATE: November 22, 2002.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, OUSD(AT&L)DPAP(DAR), 
IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 
(703) 602-0328; facsimile (703) 602-0350. Please cite DFARS Case 2002-
D005.

[[Page 70324]]


SUPPLEMENTARY INFORMATION:

A. Background

    This final rule revises DFARS 225.7304 to provide for greater 
involvement of FMS customers in the contract award process, while 
protecting against unauthorized disclosure of contractor proprietary 
data. DoD published a proposed rule at 67 FR 20713 on April 26, 2002. 
Seven sources submitted comments on the proposed rule. As a result of 
the public comments, the final rule differs from the proposed rule in 
that it contains additional language requiring the contracting officer 
to--
    1. Consult with the contractor before making a decision regarding 
the degree of FMS customer participation in contract negotiations; and
    2. Provide an explanation to the FMS customer if its participation 
in negotiations will be limited.
    A discussion of public comments addressing other aspects of the 
rule is provided below:
    Comment: In 225.7304(b), change ``FMS customers should be 
encouraged to participate'' to ``FMS customers may participate.''
    DoD Response: Do not concur. The objective of the rule is to 
increase transparency for FMS customers. The word ``may'' does not 
accurately reflect this objective.
    Comment: Revise 225.7304(c) to permit disclosure of proprietary 
data only ``in limited circumstances where the contractor authorizes 
release of specific data'' rather than when ``the contractor authorizes 
its release.''
    DoD Response: Do not concur. The language in the final rule 
adequately protects the rights of the contractor.
    Comment: The Defense Security Cooperation Agency should determine 
the degree of customer participation in contract negotiations, rather 
than leaving this decision to the sole discretion of the contracting 
officer.
    DoD Response: Do not concur. The contracting officer is responsible 
for contract negotiations.
    Comment: Add language to increase the role of the FMS customer in 
the supplier selection process.
    DoD Response: Do not concur. The FMS customer may suggest 
additional supply sources for any acquisition. Section 225.7304(e)(1) 
of the rule specifies that the FMS customer may suggest the inclusion 
of additional firms in the solicitation process.
    Comment: Amend 225.7304(e)(3) to limit FMS customer observation or 
participation in negotiations involving any cost information, including 
cost or pricing data.
    DoD Response: Do not concur. A major concern is to preclude 
unnecessary exclusion of FMS customer representatives from negotiations 
when only top-level pricing information is discussed. There are 
sufficient protections in the rule for nondisclosure of proprietary 
information. Participation of the FMS customer in discussions involving 
information other than cost or pricing data would be at the discretion 
of the contracting officer, after consultation with the contractor. 
This DFARS rule implements DoD policy, as set forth in a memorandum of 
the Deputy Secretary of Defense dated January 9, 2002, Subject: 
Department of Defense Policy on Foreign Customer Participation in the 
Letter of Offer and Acceptance and Contracting Development Process, 
which requires a DFARS deviation only when the negotiations involve 
cost or pricing data.
    Comment: In 225.7304(f), delete the parenthetical ``(except that, 
upon timely notice, the contracting officer may attempt to obtain any 
special contract provisions, warranties, or other unique requirements 
requested by the FMS customer),'' because it appears to encourage 
untimely modification of the stated requirements.
    DoD Response: Do not concur. Section 225.7304(f) of the rule 
specifically requires timely notice.
    Comment: Include additional language regarding requirements for the 
contracting officer to justify price reasonableness.
    DoD Response: Do not concur. Section 225.7304(h) of the rule 
requires the contracting officer, upon request, to demonstrate the 
reasonableness of the contract price to the FMS customer. How this 
demonstration is accomplished should be left to the discretion of the 
contracting officer.
    Comment: In 225.7304(h), delete the word ``sufficient'' from the 
phrase requiring the contracting officer to ``provide sufficient 
information to demonstrate the reasonableness of the price...'' This 
term is indefinable in the sense that it is virtually impossible to 
objectively determine what is ``sufficient'' information.
    DoD Response: Do not concur. The word ``sufficient'' describes the 
adequacy of the information to demonstrate the reasonableness of the 
price. Although the term cannot be objectively defined, DoD does not 
agree that this establishes a limitless requirement.
    Comment: Add language to address U.S. export laws that limit FMS 
customer participation in the acquisition process.
    DoD Response: Do not concur. An approved Letter of Offer and 
Acceptance constitutes the legal authorization for the export of the 
defense articles, technical data, or defense services described 
therein. 22 U.S.C. 2778(b)(2) provides that ``* * * no license shall be 
required for exports or imports made by or for an agency of the United 
States Government * * * for carrying out any foreign assistance or 
sales program authorized by law and subject to the control of the 
President by other means.''
    Comment: Add language that clarifies the right of foreign auditors 
to conduct pre-contract award proposal audits and to have access to 
price negotiation memoranda and business clearance memoranda.
    DoD Response: Do not concur. This DFARS rule is not the appropriate 
place to address the participation of foreign auditors in U.S. 
acquisitions or the release of price negotiation and business clearance 
memoranda to them. These topics are more appropriately addressed in the 
reciprocal procurement agreements with the foreign country.
    Comment: Provide an explanation of what constitutes contractor 
proprietary data and the conditions under which a deviation would be 
granted for an FMS customer to participate in contract negotiations 
when cost or pricing data will be discussed.
    DoD Response: What constitutes proprietary data is governed by U.S. 
law. The disclosure of proprietary data is generally controlled by the 
Trade Secrets Act (18 U.S.C. 1905) and the Freedom of Information Act 
(5 U.S.C. 552). A deviation to the regulations (for other than 
statutory requirements) may be granted when necessary to meet the 
specific needs and requirements of any procurement. Policy pertaining 
to deviations is provided in FAR Subpart 1.4 and DFARS Subpart 201.4.
    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., 
because the involvement of FMS customers in contract development should 
have no significant effect on offerors or contractors, and the rule 
provides for the protection of contractor proprietary data.

[[Page 70325]]

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 Part 225

    Government procurement.

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

    Therefore, 48 CFR part 225 is amended as follows:
    1. The authority citation for 48 CFR part 225 continues to read as 
follows:

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

PART 225--FOREIGN ACQUISITION

    2. Section 225.7304 is revised to read as follows:


225.7304  FMS customer involvement.

    (a) FMS customers may request that a defense article or defense 
service be obtained from a particular contractor. In such cases, FAR 
6.302-4 provides authority to contract without full and open 
competition. The FMS customer may also request that a subcontract be 
placed with a particular firm. The contracting officer shall honor such 
requests from the FMS customer only if the LOA or other written 
direction sufficiently fulfills the requirements of FAR Subpart 6.3.
    (b) FMS customers should be encouraged to participate with U.S. 
Government acquisition personnel in discussions with industry to--
    (1) Develop technical specifications;
    (2) Establish delivery schedules;
    (3) Identify any special warranty provisions or other requirements 
unique to the FMS customer; and
    (4) Review prices of varying alternatives, quantities, and options 
needed to make price-performance tradeoffs.
    (c) Do not disclose to the FMS customer any data, including cost or 
pricing data, that is contractor proprietary unless the contractor 
authorizes its release.
    (d) Except as provided in paragraph (e)(3) of this section, the 
degree of FMS customer participation in contract negotiations is left 
to the discretion of the contracting officer after consultation with 
the contractor. The contracting officer shall provide an explanation to 
the FMS customer if its participation in negotiations will be limited. 
Factors that may limit FMS customer participation include situations 
where--
    (1) The contract includes requirements for more than one FMS 
customer;
    (2) The contract includes unique U.S. requirements; or
    (3) Contractor proprietary data is a subject of negotiations.
    (e) Do not allow representatives of the FMS customer to--
    (1) Direct the exclusion of certain firms from the solicitation 
process (they may suggest the inclusion of certain firms);
    (2) Interfere with a contractor's placement of subcontracts; or
    (3) Observe or participate in negotiations between the U.S. 
Government and the contractor involving cost or pricing data, unless a 
deviation is granted in accordance with Subpart 201.4.
    (f) Do not accept directions from the FMS customer on source 
selection decisions or contract terms (except that, upon timely notice, 
the contracting officer may attempt to obtain any special contract 
provisions, warranties, or other unique requirements requested by the 
FMS customer).
    (g) Do not honor any requests by the FMS customer to reject any bid 
or proposal.
    (h) If an FMS customer requests additional information concerning 
FMS contract prices, the contracting officer shall, after consultation 
with the contractor, provide sufficient information to demonstrate the 
reasonableness of the price and reasonable responses to relevant 
questions concerning contract price. This information--
    (1) May include tailored responses, top-level pricing summaries, 
historical prices, or an explanation of any significant differences 
between the actual contract price and the estimated contract price 
included in the initial LOA; and
    (2) May be provided orally, in writing, or by any other method 
acceptable to the contracting officer.

[FR Doc. 02-29468 Filed 11-21-02; 8:45 am]
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