[Federal Register Volume 68, Number 31 (Friday, February 14, 2003)]
[Proposed Rules]
[Pages 7490-7491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3575]



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DEPARTMENT OF DEFENSE

48 CFR Part 228

[DFARS Case 2002-D030]


Defense Federal Acquisition Regulation Supplement; Payment Bonds 
on Cost-Reimbursement Contracts

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to permit the use of alternative payment 
protections for fixed-price construction subcontracts between $25,000 
and $100,000 issued under cost-reimbursement contracts. This change is 
consistent with the corresponding Federal Acquisition Regulation (FAR) 
policy applicable to fixed-price construction contracts.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before April 15, 2003, to be considered 
in the formation of the final rule.

ADDRESSES: Respondents may submit comments directly on the World Wide 
Web at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. As an 
alternative, respondents may e-mail comments to: [email protected]. 
Please cite DFARS Case 2002-D030 in the subject line of e-mailed 
comments.
    Respondents that cannot submit comments using either of the above 
methods may submit comments to: Defense Acquisition Regulations 
Council, Attn: Mr. Euclides Barrera, OUSD(AT&L)DPAP(DAR), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062; facsimile (703) 602-
0350. Please cite DFARS Case 2002-D030.
    At the end of the comment period, interested parties may view 
public comments on the World Wide Web at http://emissary.acq.osd.mil/dar/dfars.nsf.

FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, (703) 602-0296.

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed rule updates DFARS policy on performance and payment 
bonds for construction contracts. In accordance with the Miller Act (40 
U.S.C. 270a-270f), FAR 28.102-1(a) requires performance and payment 
bonds for construction contracts exceeding $100,000. In accordance with 
section 4104(b)(2) of the Federal Acquisition Streamlining Act of 1994 
(Pub. L. 103-355), FAR 28.102-1(b) permits alternative payment 
protections for construction contracts between $25,000 and $100,000. 
DFARS 228.102-1(a) presently waives the requirement for performance and 
payment bonds for cost-reimbursement contracts, but requires the prime 
contractor to obtain bonds for its fixed-price subcontracts exceeding 
$25,000. This proposed DFARS rule authorizes the use of alternative 
payment protections for subcontracts between $25,000 and $100,000, for 
consistency with the corresponding FAR policy applicable to prime 
contracts.
    In addition, this proposed rule updates text implementing 10 U.S.C. 
2701(h) and (i), pertaining to bonds under Defense Environmental 
Restoration Program contracts. 10 U.S.C. 2701(h) and (i) were to expire 
on December 31, 1999; however, section 314 of the National Defense 
Authorization Act for Fiscal Year 2002 (Pub. L. 107-107) removed this 
expiration date. Therefore, the corresponding DFARS text has been 
amended to remove the expiration date. Additionally, the text has been 
relocated to a new section 228.102-70, as its present location and 
numbering has led to confusion regarding its relationship with the 
subsequent text.
    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 does not expect this 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 the rule 
still requires payment protections for fixed-price construction 
subcontracts exceeding $25,000, while providing flexibility for 
subcontractors to chose the type of protection to be provided for 
subcontracts between $25,000 and $100,000. Therefore, DoD has not 
performed an initial regulatory flexibility analysis. DoD invites 
comments from small businesses and other interested parties. DoD also 
will consider comments from small entities concerning the affected 
DFARS subpart in accordance with 5 U.S.C. 610. Such comments should be 
submitted separately and should cite DFARS Case 2002-D030.

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 228

    Government procurement.

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

    Therefore, DoD proposes to amend 48 CFR Part 228 as follows:
    1. The authority citation for 48 CFR Part 228 continues to read as 
follows:

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

PART 228--BONDS AND INSURANCE

    2. Section 228.102-1 is revised to read as follows:


228.102-1  General.

    The requirement for performance and payment bonds is waived for 
cost-reimbursement contracts. However, for cost type contracts with 
fixed-price construction subcontracts over $25,000, require the prime 
contractor to obtain from each of its construction subcontractors 
performance and payment protections in favor of the prime contractor as 
follows:
    (1) For fixed-price construction subcontracts over $25,000, but not 
exceeding $100,000, payment protection sufficient to pay labor and 
material costs, using any of the alternatives listed at FAR 28.102-
1(b)(1).
    (2) For fixed-price construction subcontracts over $100,000--
    (i) A payment bond sufficient to pay labor and material costs; and
    (ii) A performance bond in an equal amount if available at no 
additional cost.
    3. Section 228.102-70 is added to read as follows:


228.102-70  Defense Environmental Restoration Program construction 
contracts.

    For Defense Environmental Restoration Program construction 
contracts entered into pursuant to 10 U.S.C. 2701--
    (a) Any rights of action under the performance bond shall only 
accrue to, and be for the exclusive use of, the obligee named in the 
bond;
    (b) In the event of default, the surety's liability on the 
performance bond is limited to the cost of completion of the contract 
work, less the balance of unexpended funds. Under no circumstances 
shall the liability exceed the penal sum of the bond;
    (c) The surety shall not be liable for indemnification or 
compensation of the obligee for loss or liability arising from personal 
injury or property damage,

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even if the injury or damage was caused by a breach of the bonded 
contract; and
    (d) Once it has taken action to meet its obligations under the 
bond, the surety is entitled to any indemnification and identical 
standard of liability to which the contractor was entitled under the 
contract or applicable laws and regulations.

[FR Doc. 03-3575 Filed 2-13-03; 8:45 am]
BILLING CODE 5001-08-P