[Federal Register Volume 68, Number 40 (Friday, February 28, 2003)]
[Proposed Rules]
[Pages 9627-9628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4700]


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DEPARTMENT OF DEFENSE

48 CFR Parts 232 and 252

[DFARS Case 2002-D017]


Defense Federal Acquisition Regulation Supplement; Payment 
Withholding

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 remove the requirement that a 
contracting officer withhold 5 percent of the payments due under a 
time-and-materials or labor-hour contract unless otherwise prescribed 
in the contract Schedule. The proposed rule would permit, but not 
require, the administrative contracting officer (ACO) to withhold 
payment amounts if the ACO determines the withholding to be necessary 
to protect the Government's interests.

DATES: DoD will consider all comments received by April 29, 2003.

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-D017 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: Ms. Sandra Haberlin, OUSD(AT&L)DPAP(DAR), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062; facsimile (703) 602-
0350. Please cite DFARS Case 2002-D017.
    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: Ms. Sandra Haberlin, (703) 602-0289.

SUPPLEMENTARY INFORMATION:

A. Background

    Federal Acquisition Regulation (FAR) 52.232-7, Payments under Time-
and-Materials and Labor-Hour Contracts, requires the contracting 
officer to withhold 5 percent of the amounts due, up to a maximum of 
$50,000, unless otherwise specified in the contract Schedule. The 
Government retains the withheld amount until the contractor executes 
and delivers, at the time of final payment, a release discharging the 
Government from all liabilities, obligations, and claims arising under 
the contract.
    This rule proposes to add DFARS 232.111(b) and DFARS 252.232-7XXX, 
Alternate A, to specify that, normally, there should be no need to 
withhold payments when dealing with contractors that typically comply 
with contractual requirements in a timely manner. This is in contrast 
to the current requirement in time-and-materials and labor-hour 
contracts that contracting officers must withhold payments unless other 
direction is provided in the contract.
    DoD is considering revising its policy because the current 
withholding provisions are administratively burdensome and may, in some 
situations, result in the withholding of amounts that exceed reasonable 
amounts needed to protect the Government's interests. In addition, the 
contractor is already incentivized to execute and deliver the release 
discharging the Government from all liabilities, obligations, and 
claims under the contract, since this release is a condition for final 
payment.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

[[Page 9628]]

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 
applies only to time-and-materials and labor-hour contracts. Most 
contracts awarded to small entities use simplified acquisition 
procedures or are awarded on a competitive, fixed-price basis. 
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 subparts in accordance with 5 U.S.C. 610. 
Such comments should be submitted separately and should cite DFARS Case 
2002-D017.

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 232 and 252

    Government procurement.

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

    Therefore, DoD proposes to amend 48 CFR Parts 232 and 252 as 
follows:
    1. The authority citation for 48 CFR Parts 232 and 252 continues to 
read as follows:

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

PART 232--CONTRACT FINANCING

    2. Section 232.111 is added to read as follows:


232.111  Contract clauses for non-commercial purchases.

    (b) Use the clause at FAR 52.232-7, Payments under Time-and-
Materials and Labor-Hour Contracts, with 252.232-7XXX, Alternate A, in 
solicitations and contracts when a time-and-materials or labor-hour 
contract is contemplated.
    (i) Alternate A permits the administrative contracting officer 
(ACO) to withhold 5 percent of the amount due until a reserve is set 
aside in an amount the ACO considers to be necessary, but not to exceed 
$50,000, to protect the Government's interests.
    (ii) Normally, there should be no need to withhold payment for a 
contractor with a record of timely submittal of the release discharging 
the Government from all liabilities, obligations, and claims.
    (iii) If the ACO determines that it is necessary to withhold 
payment to protect the Government's interests, the ACO shall issue 
written direction to the contractor to withhold 5 percent of amounts 
due until a sufficient reserve is set aside.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    3. Section 252.232-7XXX is added to read as follows:


252.232-7XXX  Alternate A.

Alternate A (XXX 2003)

    As prescribed in 232.111(b), substitute the following paragraph 
(a)(2) for paragraph (a)(2) of the clause at FAR 52.232-7:
    (a)(2) The Administrative Contracting Officer (ACO) may 
unilaterally issue written direction to the Contractor to withhold 
amounts from its billings until a reserve is set aside in an amount 
that the ACO considers necessary to protect the Government's 
interests. The ACO may withhold 5 percent of the amounts due under 
this paragraph (a), but the total amount withheld shall not exceed 
$50,000. The amounts withheld shall be retained until the Contractor 
executes and delivers the release required by paragraph (f) of this 
clause.

[FR Doc. 03-4700 Filed 2-27-03; 8:45 am]
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