[Federal Register Volume 68, Number 52 (Tuesday, March 18, 2003)]
[Rules and Regulations]
[Pages 13202-13204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6373]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 32, 47, and 52

[FAC 2001-13; FAR Case 1999-024; Item II]
RIN 9000-AI97


Federal Acquisition Regulation; Preference for U.S.-Flag 
Vessels--Subcontracts for Commercial Items

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

-----------------------------------------------------------------------

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) regarding the 
applicability of statutory requirements for use of U.S.-flag vessels in 
the transportation of supplies by sea. The FAR presently waives these 
requirements for subcontracts for the acquisition of commercial items. 
This rule would require the use of U.S.-flag vessels under certain 
subcontracts for commercial items.

DATES: Effective Date: April 17, 2003.

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 Ms. Linda Klein, Procurement Analyst, at (202) 501-
3775. Please cite FAC 2001-13, FAR case 1999-024.

SUPPLEMENTARY INFORMATION:

A. Background

    This final rule amends FAR Parts 12, 32, 47, and associated clauses 
to limit the types of subcontracts for which the waiver of cargo 
preference statutes is applicable. The rule is intended to ensure 
compliance with cargo preference statutes if ocean cargoes are clearly 
destined for Government use, while avoiding disruption of commercial 
delivery systems. This final rule also amends FAR Part 12 by adding 10 
U.S.C. 2631 to the list of laws inapplicable to subcontracts for the 
acquisition of commercial items, except for certain subcontracts, since 
civilian agencies may buy supplies for use of military departments.
    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 65 FR 66920, November 7, 2000. Four respondents submitted 
public comments during the comment period. These comments were 
considered in the formulation of the final rule. A summary of the 
comments and their respective disposition is as follows:
    1. One respondent voiced opposition to the rule indicating that (1) 
neither the statute nor the legislative history grants authority to 
create an administrative deviation from the explicit requirement to use 
U.S.-flag vessels in the transportation of supplies bought for the 
Department of Defense (DoD) either by DoD or a civilian agency; (2) the 
rule should be considered a major rule under 5 U.S.C. 804; and (3) this 
rule will have a significant impact on a substantial number of small 
entities. The Councils did not concur. 41 U.S.C. 430(b), as added by 
the Federal Acquisition Streamlining Act (FASA) of 1994 (Pub. L. 103-
355, Section 8003), requires that the FAR list those laws inapplicable 
to subcontracts for commercial items, and requires that covered laws as 
defined in 41 U.S.C. 430(c) be included on that list unless the FAR 
Council makes a written determination that it would not be in the best 
interest of the Federal Government to exempt commercial subcontracts 
from the applicability of the provision (see comment 2). In accordance 
with this statute, FAR 12.504(a)(10) currently lists 46 U.S.C. 1241(b), 
with the inapplicability effective May 1, 1996. This rule adds 10 
U.S.C. 2631 to the FAR list, because civilian agencies may buy supplies 
for use of military departments. 10 U.S.C. 2631 is currently listed as 
inapplicable to commercial items at DFARS 212.504(a)(xxii), with the 
same exceptions now being incorporated in the FAR. This rule clarifies 
existing policy and limits the number of allowable waivers. The rule 
strengthens the Government support for the Cargo Preference statutes. 
The Office of Information and Regulatory Affairs reviewed the proposed 
rule before publication and did not declare it to be a major rule under 
5 U.S.C. 804.
    2. One respondent expressed opposition to the rule considering it 
to be inconsistent with FASA with respect to commercial item 
procurements. The respondent states that 10 U.S.C. Sec. 2631 is not 
specifically enumerated to remain unaffected by Title VIII of FASA, it 
does not provide for criminal or civil penalties, or contain any 
provisions that would override the provisions in Title VIII of FASA 
and, therefore, a written determination of the FAR Council is required 
to not exempt all commercial item subcontracts from the provisions of 
10 U.S.C. Sec 2631. The FAR Council has made a determination in writing 
as required by the OFPP Act, 41 U.S.C. 430(b).
    3. One respondent expressed concern regarding deletion of contracts 
awarded using the simplified acquisition procedures in Part 13 from the 
current list of exceptions to the preference for U.S.-flag vessels. 
This change was accomplished under FAR case 98-604, and is outside the 
scope of this case.
    4. One respondent expressed concern that the rule does not waive 
Cargo Preference for commercial subcontracts if the prime contractor is 
redistributing or reselling without adding value. The Council did not 
concur. FASA specifically prohibits waiver of laws for subcontracts 
where the prime does not add value; the subcontractor then is held to 
all laws applicable to a prime contractor. The rule merely clarifies 
this portion of the law.
    5. One respondent expressed concern regarding the difference 
between the requirements outlined in the statutes covering DoD and non-
DoD cargo. The concern is that extension of the rule to civilian agency 
acquisitions places an insurmountable burden on Government contractors 
and subcontractors. The Councils did not concur as FAR 47.503(b)(2) 
already states that 10 U.S.C. 2631 is applicable if supplies being 
shipped are for use of military departments. This rule does not expand 
that applicability of 10 U.S.C. 2631 to other non-DoD cargo, but 
actually limits application of Cargo Preference, by providing waiver of 
10 U.S.C. 2631, if it would otherwise be applicable.
    6. One respondent contends that if the proposed rule is not 
withdrawn, it should be modified to require prime contractors to advise 
their subcontractors when the statutes apply. The Councils did not 
concur because the FAR currently requires the prime contractor to 
notify the subcontractors of any flow-down statutes.
    7. Two respondents were concerned that the rule could be read to 
omit one major exception to cargo preference waivers for subcontracts 
for commercial

[[Page 13203]]

items--``non-commercial component parts'' and requests clarification. 
The Councils did not concur because the rule only relates to commercial 
component parts.
    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., because most ocean 
transportation companies are large business concerns. FAR Subpart 47.5 
and the clause at FAR 52.247-64 do not generally apply to acquisitions 
by the Department of Defense.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) applies because the 
final rule will increase the flow down of FAR clause 52.247-64, 
Preference for Privately Owned U.S.-Flag Commercial Vessels, to certain 
commercial subcontracts. This information collection requirement is 
currently approved by the Office of Management and Budget under OMB 
Control Number 9000-0061, Transportation Requirements, which also 
covers other transportation related information collection 
requirements. We estimate an increase of 9000 responses per year as a 
result of this final rule, and a corresponding increase of 900 burden 
hours per year. We received no comments on the information collection 
requirements published in the proposed rule.

List of Subjects in 48 CFR Parts 12, 32, 47, and 52

    Government procurement.

    Dated: March 12, 2003.
Laura G. Smith,
Director, Acquisition Policy Division.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 12, 32, 47, and 52 
as set forth below:
    1. The authority citation for 48 CFR parts 12, 32, 47, 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 12--ACQUISITION OF COMMERCIAL ITEMS

    2. In section 12.504, amend paragraph (a) by redesignating 
paragraphs (a)(1) through (a)(11) as (a)(2) through (a)(12), 
respectively; by adding a new paragraph (a)(1); and by revising the 
newly designated paragraph (a)(11) to read as follows:


12.504  Applicability of certain laws to subcontracts for the 
acquisition of commercial items.

    (a) * * *
    (1) 10 U.S.C. 2631, Transportation of Supplies by Sea (except for 
the types of subcontracts listed at 47.504(d)).
* * * * *
    (11) 46 U.S.C. Appx 1241(b), Transportation in American Vessels of 
Government Personnel and Certain Cargo (see Subpart 47.5) (except for 
the types of subcontracts listed at 47.504(d)).
* * * * *

PART 32--CONTRACT FINANCING


32.1103  [Amended]

    3. Amend section 32.1103 in the introductory text of paragraph (e) 
by removing ``10 U.S.C. 101(a)(13)'' and adding ``2.101'' in its place.

PART 47--TRANSPORTATION

    4. Amend section 47.504 by revising paragraph (d) to read as 
follows:


47.504  Exceptions.

* * * * *
    (d) Subcontracts for the acquisition of commercial items or 
commercial components (see 12.504(a)(1) and (a)(11)). This exception 
does not apply to--
    (1) Grants-in-aid shipments, such as agricultural and food-aid 
shipments;
    (2) Shipments covered under 46 U.S.C. Appx 1241-1, such as those 
generated by Export-Import Bank loans or guarantees;
    (3) Subcontracts under--
    (i) Government contracts or agreements for ocean transportation 
services; or
    (ii) Construction contracts; or
    (4) Shipments of commercial items that are--
    (i) Items the contractor is reselling or distributing to the 
Government without adding value (see FAR 12.501(b)). Generally, the 
contractor does not add value to the items when it subcontracts items 
for f.o.b. destination shipment; or
    (ii) Shipped in direct support of U.S. military--
    (A) Contingency operations;
    (B) Exercises; or
    (C) Forces deployed in connection with United Nations or North 
Atlantic Treaty Organization humanitarian or peacekeeping operations.

    5. Revise section 47.507 to read as follows:


47.507  Contract clauses.

    (a)(1) Insert the clause at 52.247-64, Preference for Privately 
Owned U.S.-Flag Commercial Vessels, in solicitations and contracts that 
may involve ocean transportation of supplies subject to the Cargo 
Preference Act of 1954. (For application of the Cargo Preference Act of 
1954, see 47.502(a)(3), 47.503(a), and 47.504.)
    (2) If an applicable statute requires, or if it has been determined 
under agency procedures, that the supplies to be furnished under the 
contracts must be transported exclusively in privately owned U.S.-flag 
commercial vessels (see 47.502(a)(1) and 47.503(b)), use the clause 
with its Alternate I.
    (3) Except for contracts or agreements for ocean transportation 
services or construction contracts, use the clause with its Alternate 
II if any of the supplies to be transported are commercial items that 
are shipped in direct support of U.S. military--
    (i) Contingency operations;
    (ii) Exercises; or
    (iii) Forces deployed in connection with United Nations or North 
Atlantic Treaty Organization humanitarian or peacekeeping operations.
    (b) The contracting officer may insert in solicitations and 
contracts, under agency procedures, additional appropriate clauses 
concerning the vessels to be used.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    6. Amend section 52.212-5 by revising the date of the clause and 
paragraph (e)(4) to read as follows:


52.212-5  Contract Terms and Conditions Required to Implement Statutes 
or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required To Implement Statutes or 
Executive Orders--Commercial Items (Apr. 2003)

* * * * *
    (e) * * *
    (4) 52.247-64, Preference for Privately Owned U.S.-Flag 
Commercial Vessels (46 U.S.C. Appx 1241 and 10 U.S.C. 2631) (flow 
down required in accordance with paragraph (d) of FAR clause 52.247-
64); and
* * * * *

    7. Amend section 52.213-4 by revising the date of the clause and 
paragraph (b)(1)(xi) to read as follows:

[[Page 13204]]

52.213-4  Terms and Conditions--Simplified Acquisitions (Other than 
Commercial Items).

* * * * *

Terms and Conditions--Simplified Acquisitions (Other Than Commercial 
Items) (Apr. 2003)

* * * * *
    (b)(1) * * *
    (xi) 52.247-64, Preference for Privately Owned U.S.-Flag 
Commercial Vessels (APR 2003) (46 U.S.C. Appx 1241). (Applies to 
supplies transported by ocean vessels (except for the types of 
subcontracts listed at 47.504(d).)
* * * * *

    8. Amend section 52.244-6 by revising the section and clause 
heading, the date of the clause, and paragraph (c)(1)(v) to read as 
follows:


Sec.  52.244-6  Subcontracts for Commercial Items and Commercial 
Components.

* * * * *

Subcontracts for Commercial Items and Commercial Components (Apr. 2003)

* * * * *
    (c)(1) * * *
    (v) 52.247-64, Preference for Privately Owned U.S.-Flag 
Commercial Vessels (APR 2003) (46 U.S.C. Appx 1241 and 10 U.S.C. 
2631) (flow down required in accordance with paragraph (d) of FAR 
clause 52.247-64).
* * * * *

    9. Amend section 52.247-64 by--
    a. Revising the date of the clause;
    b. Removing ``The'' from the beginning of the introductory text of 
paragraph (a) and adding ``Except as provided in paragraph (e) of this 
clause, the'' in its place;
    c. Removing the period at the end of paragraph (d) and adding ``, 
except those described in paragraph (e)(4).'' in its place;
    d. Removing ``and'' at the end of paragraph (e)(2);
    e. Removing the period at the end of paragraph (e)(3) and adding 
``; and'' in its place;
    f. Adding paragraph (e)(4);
    g. Revising the date, introductory text, and paragraph (a) of 
Alternate I; and
    h. Revising Alternate II to read as follows:


52.247-64  Preference for Privately Owned U.S.-Flag Commercial Vessels.

* * * * *

Preference for Privately Owned U.S.-Flag Commercial Vessels (Apr 2003)

* * * * *
    (e) * * *
    (4) Subcontracts or purchase orders for the acquisition of 
commercial items unless--
    (i) This contract is--
    (A) A contract or agreement for ocean transportation services; 
or
    (B) A construction contract; or
    (ii) The supplies being transported are--
    (A) Items the Contractor is reselling or distributing to the 
Government without adding value. (Generally, the Contractor does not 
add value to the items when it subcontracts items for f.o.b. 
destination shipment); or
    (B) Shipped in direct support of U.S. military--
    (1) Contingency operations;
    (2) Exercises; or
    (3) Forces deployed in connection with United Nations or
    North Atlantic Treaty Organization humanitarian or peacekeeping 
operations.
* * * * *
    Alternate I (Apr 2003). As prescribed in 47.507(a)(2), 
substitute the following paragraphs (a) and (b) for paragraphs (a) 
and (b) of the basic clause:
    (a) Except as provided in paragraphs (b) and (e) of this clause, 
the Contractor shall use privately owned U.S.-flag commercial 
vessels, and no others, in the ocean transportation of any supplies 
to be furnished under this contract.
* * * * *
    Alternate II (Apr 2003). As prescribed in 47.507(a)(3), 
substitute the following paragraph (e) for paragraph (e) of the 
basic clause:
    (e) The requirement in paragraph (a) does not apply to--
    (1) Cargoes carried in vessels of the Panama Canal
    Commission or as required or authorized by law or treaty;
    (2) Ocean transportation between foreign countries of supplies 
purchased with foreign currencies made available, or derived from 
funds that are made available, under the Foreign Assistance Act of 
1961 (22 U.S.C. 2353); and
    (3) Shipments of classified supplies when the classification 
prohibits the use of non-Government vessels.
    (4) Subcontracts or purchase orders under this contract for the 
acquisition of commercial items unless the supplies being 
transported are--
    (i) Items the Contractor is reselling or distributing to the 
Government without adding value. (Generally, the Contractor does not 
add value to the items when it subcontracts items for f.o.b. 
destination shipment); or
    (ii) Shipments in direct support of U.S. military--
    (A) Contingency operations;
    (B) Exercises; or
    (C) Forces deployed in connection with United Nations or North 
Atlantic Treaty Organization humanitarian or peacekeeping 
operations. (Note: This contract requires shipment of commercial 
items in direct support of U.S. military contingency operations, 
exercises, or forces deployed in connection with United Nations or 
North Atlantic Treaty Organization humanitarian or peacekeeping 
operations.)

[FR Doc. 03-6373 Filed 3-17-03; 8:45 am]
BILLING CODE 6820-EP-P