[Federal Register Volume 68, Number 94 (Thursday, May 15, 2003)]
[Proposed Rules]
[Pages 26265-26269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12190]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

48 CFR Parts 208, 219, and 252

[DFARS Case 2002-D003]


Defense Federal Acquisition Regulation Supplement; Competition 
Requirements for Purchases From a Required Source

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

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

SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement Section 811 of the National 
Defense Authorization Act for Fiscal Year 2002 and Section 819 of the 
National Defense Authorization Act for Fiscal Year 2003. Sections 811 
and 819 address requirements for conducting market research before 
purchasing a product listed in the Federal Prison Industries (FPI) 
catalog, and for use of competitive procedures if an FPI product is 
found to be noncomparable to products available from the private 
sector. Section 819 also addresses

[[Page 26266]]

limitations on an inmate worker's access to information and on use of 
FPI as a subcontractor.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before July 14, 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-D003 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. Susan Schneider, OUSD (AT&L) DPAP (DAR), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062; facsimile (703) 602-
0350. Please cite DFARS Case 2002-D003.
    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. Susan Schneider, (703) 602-0326.

SUPPLEMENTARY INFORMATION: 

A. Background

    Section 811 of the National Defense Authorization Act for Fiscal 
Year 2002 (Pub. L. 107-107) added 10 U.S.C. 2410n, providing that (1) 
before purchasing a product listed in the FPI catalog, DoD must conduct 
market research to determine whether the FPI product is comparable in 
price, quality, and time of delivery to products available from the 
private sector; (2) if the FPI product is not comparable in price, 
quality, and time of delivery, DoD must use competitive procedures to 
acquire the product; and (3) in conducting such a competition, DoD must 
consider a timely offer from FPI for award in accordance with the 
specifications and evaluation factors in the solicitation.
    On April 26, 2002, DoD published an interim rule at 67 FR 20687 to 
implement Section 811 of Public Law 107-107. In addition, DoD conducted 
a public meeting on June 2, 2002, to hear the views of interested 
parties. Approximately 60 persons attended the public meeting, and 43 
sources submitted written comments in response to the interim rule.
    On December 2, 2002, Section 819 of the National Defense 
Authorization Act for Fiscal Year 2003 (Public Law 107-314) amended 10 
U.S.C. 2410n to (1) clarify requirements for conducting market research 
before purchasing a product listed in the FPI catalog; (2) specify 
requirements for use of competitive procedures or for making a purchase 
under a multiple award contract if an FPI product is found to be 
noncomparable to products available from the private sector; (3) 
specify that a contracting officer's determination, regarding the 
comparability of an FPI product to products available from the private 
sector, is not subject to the arbitration provisions of 18 U.S.C. 
4124(b); (4) specify that a DoD contractor may not be required to use 
FPI as a subcontractor; and (5) prohibit the award of a contract to FPI 
that would allow an inmate worker access to classified or sensitive 
information.
    This proposed rule further implements the requirements of Section 
811 of Public Law 107-107 and implements Section 819 of Public Law 107-
314. DoD considered comments received in response to the interim rule 
published on April 26, 2002, in developing this proposed rule. A 
discussion of the comments, grouped by subject area, is provided below:

1. Small Business Issues

    Comment: DoD should provide guidance on the role of FPI 
participation in small business set-aside competitions. Some 
respondents want DoD to restrict FPI participation to those 
acquisitions that have not been set aside for competition among small 
businesses. Those respondents indicate that, prior to the issuance of 
the first interim rule, FPI had been defined as an ``other than small'' 
business and, therefore, is not eligible to compete for small business 
set-aside awards. Other respondents commented that FPI participation in 
small business set-asides will have a positive effect on FPI.
    DoD Response: Section 811 of Public Law 107-107 was silent on FPI's 
relationship to small business set-asides. However, Section 819 of 
Public Law 107-314 added a definition of ``competitive procedures'' as 
it applies to 10 U.S.C. 2410n. This definition is the one at 10 U.S.C. 
2302(2), which includes, in subsection (2)(D), ``procurements conducted 
in furtherance of section 15 of the Small Business Act (15 U.S.C. 644) 
* * *'' Therefore, this proposed rule adds text at 208.601-70, 
208.602(a)(iv)(B), subpart 219.5, and Part 252 to provide for the 
inclusion of FPI in procurements conducted using small business set-
aside procedures.
    Comment: The Initial Regulatory Flexibility Analysis is correct in 
stating that the rule will have a positive effect on small business 
concerns, because the rule permits small businesses to participate in 
procurements for supplies that were previously allocated to FPI on a 
priority basis.
    DoD Response: DoD expects this rule to have a positive impact on 
small businesses. If an FPI product is determined to be noncomparable, 
small businesses will have the opportunity to compete. The rule further 
provides small businesses an opportunity to compete with FPI as their 
sole competitor.

2. Micro-Purchase Exclusion

    Comment: DoD should exempt micro-purchases ($2,500 and under) from 
the requirements of the rule. The procedures of the rule are far too 
burdensome for micro-purchases.
    Comment: The requirements of Section 811 and FPI's statute apply 
regardless of whether the purchase is below the micro-purchase 
threshold.
    DoD Response: 10 U.S.C. 2410n does not authorize DoD to provide an 
exemption for micro-purchases. However, FPI's Board of Directors 
recently adopted a resolution exempting purchases at or below $2,500 
from FPI clearance requirements. This change is being processed under a 
separate FAR case. When the FAR is amended to reflect this exemption, 
the text at DFARS 208.606(1) will become obsolete and will be removed. 
Therefore, this proposed rule excludes the text at DFARS 208.606(1).
3. Competitive Procedures
    Comment: DoD should provide examples of ``competitive procedures.''
    DoD Response: Section 819 of Public Law 107-314 added a definition 
of ``competitive procedures'' as it applies to 10 U.S.C. 2410n. The 
definition in the proposed rule at 208.601-70 reflects the statutory 
definition, and also includes competition conducted using simplified 
acquisition procedures in accordance with FAR Part 13.

4. GSA Multiple Award Schedules

    Comment: It is questionable whether the use of GSA multiple award 
schedules constitutes ``competitive procedures'' as contemplated in 
Section 811. Confusion arises because orders on GSA schedules do not 
require issuance of a solicitation or establishment of evaluation 
factors.
    DoD Response: Section 811 of Public Law 107-107 was silent on FPI's 
relationship to the GSA multiple award schedule program. However, the 
definition of ``competitive procedures'' added by Section 819 of Public 
Law 107-314 includes ``the procedures

[[Page 26267]]

established by the Administrator of General Services for the multiple 
award schedule program * * *'' (10 U.S.C. 2302(2)(C)). The definition 
of ``competitive procedures'' in the proposed rule at 208.601-70 
includes the use of GSA multiple award schedules (as one of the 
procedures in FAR 6.102). The proposed rule provides further 
clarification, at 208.602(a)(iv)(C), regarding competitive procedures 
involving multiple award schedules.
    Comment: Contracting officers should be authorized to acquire the 
product off the Federal Supply Schedule, eliminating further 
competition if Federal Supply Schedule published prices are lower than 
FPI catalog prices.
    DoD Response: Do not concur. This would violate 10 U.S.C. 2410n, 
which requires market research to determine if the FPI product is 
comparable. If the FPI product is determined to be noncomparable, 
competitive procedures must be used to acquire the product.

5. Comparability

    Comment: The meaning of ``comparable price, quality, and time of 
delivery'' is questionable with respect to FPI products compared to 
private sector competition. Recognizing that it may not be feasible to 
produce a single general methodology that applies to every product, the 
rule should require disclosure of specific guidelines and the 
methodology used. Several respondents believed it was clear from both 
the statute and the interim rule that, to be found comparable to a 
product from the private sector, the FPI product must meet all three 
criteria of price, quality, and time of delivery. The inability to meet 
any one of the criteria should result in an automatic failure to find 
FPI comparable. Several other respondents stated exactly the opposite, 
i.e., that for the FPI product to be considered comparable, it need 
only be comparable in one of the three areas. Several respondents 
requested that the final rule contain procedures for making the 
noncomparability determination.
    DoD Response: Section 819(b) of Public Law 107-314 clarifies that 
DoD may determine an FPI product to be noncomparable based on price, 
quality, or time of delivery. The proposed rule clarifies this point at 
208.602(a)(iv). The comparability determination must be fair, but it is 
not practicable to set the criteria that will apply to all 
circumstances. The contracting officer must retain flexibility. The 
word ``comparable'' is already used throughout the FAR with its common 
dictionary meaning (``having sufficient features in common with 
something else to afford comparison''). To support the comparability 
determination, a requirement for a written document has been included 
in the proposed rule at 208.602(a)(ii). This document will include an 
assessment of the three factors, based on the results of market 
research that compares FPI products to those available from the private 
sector.
    Comment: Eliminate the requirement to allow FPI to compete if, 
based on market research, it is determined noncomparable to the private 
sector. The private sector does not receive two chances, so FPI should 
not either.
    DoD Response: Do not concur. The recommended change does not comply 
with 10 U.S.C. 2410n, which requires that an offer from FPI be 
considered if made in a timely fashion.
    Comment: Section 811 is not appropriate for build-to-print items 
(spares) that support older weapons systems. It is more appropriate for 
commercial-type items, where it is easier to conduct market surveys for 
comparison purposes. In some cases, the organization uses the 
Government's depot cost to fabricate, as a basis of comparison. The use 
of the term ``private sector'' invalidates that comparison and requires 
a further comparison before award to FPI.
    DoD Response: It appears that 10 U.S.C. 2410n was tailored more for 
commercial-type items than build-to-print items. However, DoD 
organizations must comply with its requirements.
    Comment: The rule does not address buys of military-unique items, 
because those items do not have catalog prices. Each requirement is 
built to customer specification and must be individually quoted. There 
are no catalogs to consult for pricing and delivery, from either FPI or 
commercial sources. Section 811 would require following manual 
procedures, outside of automated procurement systems, and cause 
additional unnecessary lead time. In these situations, is it 
permissible to solicit commercial sources and FPI simultaneously and 
have the competitive offers and subsequent award decision serve as the 
basis for making the determination of whether the FPI product is 
comparable?
    DoD Response: Although 10 U.S.C. 2410n does not prohibit this 
method of conducting comparability determinations, the statute clearly 
establishes an ``if-then'' situation, i.e., if the Secretary makes a 
noncomparability determination, then he uses competitive procedures. 
Therefore, section 208.602 of the proposed rule addresses the market 
research and resulting comparability determination as a step separate 
from the solicitation process, to adhere to the ``if-then'' approach 
established in 10 U.S.C. 2410n.

6. The Resolution Process

    Comment: Does the arbitration panel affect the resolution of 
protests? In enacting Section 811, Congress was silent regarding the 
arbitration panel's authority or whether a clearance or waiver from FPI 
is required if the market research indicates that FPI's products are 
not comparable to those available from the private sector.
    DoD Response: Although Section 811 was silent on this matter, 
Section 819 of Public Law 107-314 provides that the contracting 
officer's determination, regarding the comparability of FPI products or 
services to those available from the private sector that best meet 
DoD's needs in terms of price, quality, and time of delivery, is not 
subject to 18 U.S.C. 4124(b). 18 U.S.C. 4124(b) addresses the 
arbitration board process as it relates to disputes as to price, 
quality, character, or suitability of FPI products. The proposed rule 
amends the text at DFARS 208.602(a)(i) to clarify that the arbitration 
board process does not apply to a contracting officer's comparability 
determination.

7. Delegation of Authority

    Comment: Will the determination to award to other than FPI be 
delegated down to the contracting officer level, as opposed to being 
kept at the department or agency level as stated in 208.602?
    DoD Response: The proposed rule amends DFARS 208.602(a) to provide 
contracting officers the authority to make comparability determinations 
with regard to FPI products. This amendment is consistent with the 
language in Section 819(c)(1) of Public Law 107-314.

8. Unilateral Decision at 208.602(a)

    Comment: It is inappropriate for the rule to state that the 
comparability determination is ``a unilateral decision made solely at 
the discretion of the department or agency.'' This sentence should 
either be stricken or clarified. The provisions of the rule may 
conflict with other statutes or lead to possible misapplication of 
applicable law. DoD should be afforded discretion in making its 
decision, however, there must be guidance setting forth the criteria so 
the decisions are not arbitrary or capricious.
    DoD Response: Do not concur. The comparability determination is 
clearly and solely a DoD determination.

9. Terminology

    Comment: The words ``FPI Schedule'', in the first sentence of 
208.602(a),

[[Page 26268]]

should be changed to ``FPI Catalog'' to conform to the language in 
Section 811.
    DoD Response: Do not concur. The word ``Schedule'' has been 
retained to conform to the terminology used in FAR subpart 8.4.

10. Previous DoD Guidance

    Comment: The validity of a policy memorandum from the Office of the 
Assistant Secretary of Defense, dated October 1988, that directs use of 
GSA schedules as a ``quick and efficient'' way to obtain furniture for 
DoD activities is questionable.
    DoD Response: DoD recommends that the respondent not use this 
memorandum for guidance. The policy has been superceded by 10 U.S.C. 
2410n and its implementing regulations.

11. Sole-source Purchases

    Comment: Is there a requirement to perform a comparability 
determination if the need is to be acquired on a sole-source basis?
    DoD Response: 10 U.S.C. 2410n does not provide for sole-source 
purchases. If a product is on the FPI Schedule, the purchaser must 
follow the DFARS policy implementing 10 U.S.C. 2410n.

12. Architect-engineer Contracts

    Comment: There is concern about mandating the use of FPI products 
for architect-engineer contracts. The rule should state that ``FPI may 
not be specified as a source, nor shall an FPI product be prescribed or 
recommended in any design or specification prepared by an architect or 
engineer under contract to the Government. * * *''
    DoD Response: The requirements of 10 U.S.C. 2410n are imposed on 
the Government, not on the contractor. Section 819 of Public Law 107-
314 added text prohibiting DoD from requiring a contractor or potential 
contractor to use FPI as a subcontractor or supplier. This prohibition 
is addressed in the proposed rule at 208.670.

13. Use of the Term ``Solicitation''.

    Comment: Use of the term ``solicitation'' means one must proceed 
with issuing a formal solicitation whenever an agency determines that 
an FPI product is not comparable.
    DoD Response: Do not concur. As defined in FAR 2.101, 
``solicitation'' means any request to submit offers or quotations to 
the Government. For further clarification, the proposed rule separately 
addresses the use of multiple award schedules at 208.602(a)(iv)(C).

14. Use of the Phrase ``That Best Meet the Government's Needs''.

    Comment: The rule should be revised to conform to the text of 
Section 811 by deleting the phrase ``that best meet the Government's 
needs'' at each of the three locations where it appears. This phrase 
does not meet the intent of the statute.
    DoD Response: DoD used the phrase ``that best meet the Government's 
needs'' in the interim rule to provide needed guidance in this area. 
This phrase was included in Section 819 of Public Law 107-314 and, 
therefore, has been retained in the proposed rule.

15. Application of Priorities for Use of Government Supply Sources.

    Comment: If the FPI item is not comparable, can the Government go 
directly to JWOD?
    DoD Response: No. FPI can still fulfill the requirement, even 
though it has been determined to be noncomparable.10 U.S.C. 2410n 
requires DoD to consider a timely offer from FPI under such 
circumstances.
    This rule was subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    This rule may 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 will permit 
small entities to compete with FPI for DoD contract awards under 
certain conditions. An initial regulatory flexibility analysis has been 
prepared and is summarized as follows: This rule proposes amendments to 
DoD policy pertaining to the acquisition of products from FPI. The rule 
implements 10 U.S.C. 2410n. The impact of the rule is unknown at this 
time. However, the rule could benefit small business concerns that 
offer products comparable to those listed in the FPI Schedule, by 
permitting those concerns to compete for DoD contract awards.
    A copy of the analysis may be obtained from the point of contact 
specified herein. 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-D003.

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 208, 219, and 252

    Government procurement.

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

    Therefore, DoD proposes to amend 48 CFR Parts 208, 219, and 252 as 
follows:
    1. The authority citation for 48 CFR Parts 208, 219, and 252 
continues to read as follows:

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

PART 208--REQUIRED SOURCES OF SUPPLIES AND SERVICES

    2. Section 208.601-70 is added to read as follows:


208.601-70  Definitions.

    As used in this subpart--
    Competitive procedures includes the procedures in FAR 6.102, the 
set-aside procedures in FAR subpart 19.5, and competition conducted in 
accordance with FAR part 13.
    Market research means obtaining specific information about the 
price, quality, and time of delivery of products available in the 
private sector and may include techniques described in FAR 
10.002(b)(2).
    3. Sections 208.602 and 208.606 are revised to read as follows:


208.602  Policy.

    (a)(i) Before purchasing a product listed in the FPI Schedule, 
conduct market research to determine whether the FPI product is 
comparable to products available from the private sector that best meet 
the Government's needs in terms of price, quality, and time of delivery 
(10 U.S.C. 2410n). This is a unilateral determination made at the 
discretion of the contracting officer. The procedures of FAR 8.605 do 
not apply.
    (ii) Prepare a written determination that includes supporting 
rationale explaining the assessment of price, quality, and time of 
delivery, based on the results of market research comparing FPI 
products to those available from the private sector.
    (iii) If the FPI product is comparable, follow the policy at FAR 
8.602(a).
    (iv) If the FPI product is not comparable in one or more of the 
areas of price, quality, and time of delivery--

[[Page 26269]]

    (A) Acquire the product using--
    (1) Competitive procedures; or
    (2) The fair opportunity procedures in FAR 16.505, if placing an 
order under a multiple award task or delivery order contract;
    (B) Include FPI in the solicitation process and consider a timely 
offer from FPI for award in accordance with the requirements and 
evaluation factors in the solicitation, including solicitations issued 
using small business set-aside procedures; and
    (C) When using a multiple award schedule issued under the 
procedures of FAR subpart 8.4--
    (1) Establish and communicate to FPI the requirements and 
evaluation factors that will be used as the basis for selecting a 
source, so that an offer from FPI can be evaluated on the same basis as 
the schedule holder; and
    (2) Consider a timely offer from FPI.


208.606  Exceptions.

    For DoD, FPI clearances also are not required when the contracting 
officer makes a determination that the FPI product is not comparable to 
products available from the private sector that best meet the 
Government's needs in terms of price, quality, and time of delivery, 
and the procedures at 208.602(a)(iv) are used.
    4. Sections 208.670 and 208.671 are added to read as follows:


208.670  Performance as a subcontractor.

    Do not require a contractor, or subcontractor at any tier, to use 
FPI as a subcontractor for performance of a contract by any means, 
including means such as--
    (a) A solicitation provision requiring a potential contractor to 
offer to make use of FPI products or services;
    (b) A contract specification requiring the contractor to use 
specific products or services (or classes of products or services) 
offered by FPI; or
    (c) Any contract modification directing the use of FPI products or 
services.


208.671  Protection of classified and sensitive information.

    Do not enter into any contract with FPI that allows an inmate 
worker access to any--
    (a) Classified data;
    (b) Geographic data regarding the location of--
    (1) Surface and subsurface infrastructure providing communications 
or water or electrical power distribution;
    (2) Pipelines for the distribution of natural gas, bulk petroleum 
products, or other commodities; or
    (3) Other utilities; or
    (c) Personal or financial information about any individual private 
citizen, including information relating to such person's real property 
however described, without the prior consent of the individual.

PART 219--SMALL BUSINESS PROGRAMS

    5. Section 219.502-70 is added to read as follows:


219.502-70  Inclusion of Federal Prison Industries, Inc.

    When using competitive procedures in accordance with 
208.602(a)(iv), include Federal Prison Industries, Inc. (FPI), in the 
solicitation process and consider a timely offer from FPI.
    6. Section 219.508 is added to read as follows:


219.508  Solicitation provisions and contract clauses.

    (c) Use the clause at FAR 52.219-6, Notice of Total Small Business 
Set-Aside, with 252.219-70XX, Alternate A, when the procedures of 
208.602(a)(iv) apply to the acquisition.
    (d) Use the clause at FAR 52.219-7, Notice of Partial Small 
Business Set-Aside, with 252.219-70YY, Alternate A, when the procedures 
of 208.602(a)(iv) apply to the acquisition.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    7. Sections 252.219-70XX and 252.219-70YY are added to read as 
follows:


252.219-70XX  Alternate A.

Alternate A (XXX 2003)

    As prescribed in 219.508(c), substitute the following paragraph 
(b) for paragraph (b) of the clause at FAR 52.219-6:
    (b) General. (1) Offers are solicited only from small business 
concerns and Federal Prison Industries, Inc. (FPI). Offers received 
from concerns that are not small business concerns or FPI shall be 
considered nonresponsive and will be rejected.
    (2) Any award resulting from this solicitation will be made to 
either a small business concern or FPI.

252.219-70YY  Alternate A.

Alternate A (XXX 2003)

    As prescribed in 219.508(d), add the following paragraph (d) to the 
clause at FAR 52.219-7:

    (d) Notwithstanding paragraph (b) of this clause, offers will be 
solicited and considered from Federal Prison Industries, Inc., for 
both the set-aside and non-set-aside portion of this requirement.

[FR Doc. 03-12190 Filed 5-14-03; 8:45 am]
BILLING CODE 5001-08-P