[Federal Register Volume 68, Number 190 (Wednesday, October 1, 2003)]
[Rules and Regulations]
[Pages 56682-56684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24586]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 32, and 52

[FAC 2001-16; FAR Case 2001-005; Item V]
RIN 9000-AJ20


Federal Acquisition Regulation; Notification of Overpayment, 
Contract Financing Payments

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

ACTION: Final rule.

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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) to require the 
contractor to notify the contracting officer if the Government overpays 
when making an invoice payment or a contract financing payment under 
either a commercial item or noncommercial item contract.

DATES: Effective Date: October 31, 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. Jeritta Parnell, Procurement Analyst, at (202) 
501-4082. Please cite FAC 2001-16, FAR case 2001-005.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 67 FR 55676, August 29, 2002, with request for comments. 
Two respondents submitted public comments. A discussion of the comments 
is provided below. Differences between the proposed and the final rule 
are discussed in paragraph 4 below.
    1. Comment: There is concern that credit invoices, due to a 
revision of indirect billing rates, contractual actions impacting 
negotiated price, adjustments to progress payments as a result of 
change in the contract's estimated cost at completion, and authorized 
borrow-payback transfers will all be potentially misconstrued as 
overpayments because they may result in a need for the contractor to 
pay a sum back to the Government as a result of the normal and expected 
operation of contractual terms and conditions. Therefore, the following 
definition should be added at the beginning of each of the proposed 
paragraphs imposing a notification requirement:

    An overpayment is a payment of an amount greater than the value 
the contractor is entitled to receive at the time of the payment.

    Councils' response: Do not concur. The intent of the rule is to 
require contractors to notify the Government when they become aware 
that an incorrect payment has been made. The Councils do not believe 
there is a demonstrated need for such a definition. First, the term 
``overpayment'' is used in Government contracting in a variety of 
contexts, and we are concerned that establishing a definition in the 
payment clauses could have unintended consequences. Second, when a 
contract is modified to reflect the incorporation of new billing rates, 
or some other contract administration action, the contract modification 
should identify whether a credit is due the Government. The Councils do 
not anticipate that a contracting officer would issue a notification of 
overpayment in these instances. If, in the future, it becomes apparent 
that, in practice, contracting officers are taking an overly broad and 
needlessly burdensome interpretation of what constitutes an overpayment 
for the purposes of this notification requirement, then the Councils 
will revisit this issue.
    2. Comment: A dollar threshold of $25,000, or some other reasonable 
threshold, should be established for the notification of overpayment 
requirement. The requirement for providing a notification for any 
overpayment, no matter how small or insignificant in amount, is not 
cost-effective. In addition, instead of immediate notification, DoD 
should give contractors thirty days to notify the contracting officer, 
after the overpayment has been verified to source documents. Finally, 
the contract should require that the disposition instructions provided 
by the contracting officer be broadened, i.e., that the payment office 
be required to provide both the contractor and contracting officer with 
appropriation-level detail of how all overpayment refunds are posted 
back to the contract.
    Councils' response: The Councils do not agree with the premise that 
a threshold is needed. Many, if not most, contractors now provide 
notice to the Government when they believe an overpayment, or any other 
payment

[[Page 56683]]

error, has occurred, and there is no threshold involved. Notification 
helps to reinforce the public's trust that taxpayer dollars are being 
properly expended and is important, even for smaller dollar 
transactions, because there may be a mistake in the payment process 
that will cause future payment errors. Notification will enable the 
Government to identify and correct any systemic problems that may have 
arisen. The Councils also do not believe the rule needs to specify a 
notification timeframe. If it is not clear to the contractor that an 
overpayment has actually occurred, the contractor could double-check 
its records expeditiously prior to notification. On the other hand, if 
the contractor provides notification and later determines that it was 
in error, the contractor can retract the notification as easily and as 
swiftly as it was made. The Councils believed that further disposition 
instructions should be addressed on a case-by-case basis.
    3. Comment: The analyses required by the Regulatory Flexibility Act 
and Paperwork Burden Act should be revised since they do not adequately 
address the burden that the proposed rule places on contractors, 
especially small businesses.
    Councils' response: The Councils believe that it is a normal 
business practice for contractors to have billing systems in place that 
identify what is owed them, and to submit payment requests to the 
Government accordingly. Consequently, the inclusion of notification of 
overpayment language in payment and financing clauses is the 
formalization of a practice that normally is already followed by most 
contractors, i.e., to inform the entity that pays you when you believe 
a mistake has been made. Therefore, the proposed case, and the 
notification requirement (already instituted in FAR case 1999-023 
published in the Federal Register at 66 FR 65353, December 18, 2001, 
for most invoicing payments), would only reflect a new burden for 
contractors that routinely ignore payment mistakes. The Councils 
believe the increase in the paperwork burden, as stated in the proposed 
rule, adequately reflects this impact.
    In addition, it is not expected that this change will impact a 
substantial number of small entities since the overpayments cited by 
GAO in its July 1999 report GAO/NSIAD-99-131, Greater Attention Needed 
to Identify and Recover Overpayments, were all related to large 
businesses.
    4. Comment: Government inaction when overpayments occur is a major 
problem in addition to the overpayment itself. Therefore, it is 
recommended that the words ``promptly'' and ``timely'' be added to the 
rule, as indicated below, to emphasize the need for quick response on 
the part of a contracting officer to the contractor's notification of 
overpayment.

    ``If the contractor notifies the contracting officer of a 
duplicate contract financing or invoice payment or that the 
Government has otherwise overpaid on a contract financing or invoice 
payment, the contracting officer must promptly provide instructions 
to the contractor, in coordination with the cognizant payment 
office, regarding timely disposition of the overpayment.''

    Councils' response: Concur. The proposed rule has been changed at 
FAR 12.215 and FAR 32.008.
    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., since the overpayments cited by 
GAO in its report GAO/NSIAD-99-131 were all related to large businesses 
(see reconciliation of comment 3).

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) applies because the 
final rule contains information collection requirements. This final 
rule requires the contractor to notify the contracting officer if the 
contractor becomes aware that the Government has overpaid on a 
financing payment under a contract for noncommercial items, and on 
financing and invoice payments under a contract for commercial items. 
Although this estimated burden requires approval under the Act, it is 
so small (less than 1 percent increase) that it does not substantially 
impact the estimated total burden under Office of Management and Budget 
Control Number 9000-0102 (in lieu of OMB Control Number 9000-0070, 
which was inadvertently listed in the proposed rule). (See 
reconciliation of comment 3.)

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

    Government procurement.

    Dated: September 24, 2003.
Laura G. Auletta,
Director, Acquisition Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 12, 32, and 52 as set 
forth below:
0
1. The authority citation for 48 CFR parts 12, 32, and 52 is revised to 
read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
2. Add section 12.215 to read as follows:


12.215  Notification of overpayment.

    If the contractor notifies the contracting officer of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
contracting officer must promptly provide instructions to the 
contractor, in coordination with the cognizant payment office, 
regarding timely disposition of the overpayment.

PART 32--CONTRACT FINANCING

0
3. Add section 32.008 to read as follows:


32.008  Notification of overpayment.

    If the contractor notifies the contracting officer of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
contracting officer must promptly provide instructions to the 
contractor, in coordination with the cognizant payment office, 
regarding timely disposition of the overpayment.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Amend section 52.212-4 by revising the date of the clause and 
paragraph (i) to read as follows (the undesignated paragraph following 
paragraph (i) is removed):


52.212-4  Contract Terms and Conditions--Commercial Items.

* * * * *

Contract Terms and Conditions--Commercial Items (Oct. 2003)

* * * * *
    (i) Payment.--(1) Items accepted. Payment shall be made for 
items accepted by the Government that have been delivered to the 
delivery destinations set forth in this contract.
    (2) Prompt payment. The Government will make payment in 
accordance with the Prompt Payment Act (31 U.S.C. 3903) and

[[Page 56684]]

prompt payment regulations at 5 CFR part 1315.
    (3) Electronic Funds Transfer (EFT). If the Government makes 
payment by EFT, see 52.212-5(b) for the appropriate EFT clause.
    (4) Discount. In connection with any discount offered for early 
payment, time shall be computed from the date of the invoice. For 
the purpose of computing the discount earned, payment shall be 
considered to have been made on the date which appears on the 
payment check or the specified payment date if an electronic funds 
transfer payment is made.
    (5) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall immediately notify the Contracting Officer and 
request instructions for disposition of the overpayment.

* * * * *

0
5. Amend section 52.213-4 by revising the date of the clause and 
paragraph (a)(2)(iv) to read as follows:


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

* * * * *

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

    (a) * * *
    (2) * * *
    (iv) 52.232-25, Prompt Payment (Oct. 2003).

* * * * *

0
6. Amend section 52.232-25 by revising the date of the clause and 
paragraph (d) to read as follows:


52.232-25  Prompt Payment.

* * * * *

Prompt Payment (Oct. 2003).

* * * * *
    (d) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall immediately notify the Contracting Officer and 
request instructions for disposition of the overpayment.
    (End of clause)

* * * * *

0
7. Amend section 52.232-26 by revising the date of the clause and 
paragraph (c) to read as follows:


52.232-26  Prompt Payment for Fixed-Price Architect-Engineer Contracts.

* * * * *

Prompt Payment for Fixed-Price Architect-Engineer Contracts (Oct. 
2003).

* * * * *
    (c) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall immediately notify the Contracting Officer and 
request instructions for disposition of the overpayment.
    (End of clause)


0
8. Amend section 52.232-27 by revising the date of the clause and 
paragraph (1) to read as follows:


52.232-27  Prompt Payment for Construction Contracts.

* * * * *

Prompt Payment for Construction Contracts (Oct. 2003).

* * * * *
    (1) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall immediately notify the Contracting Officer and 
request instructions for disposition of the overpayment.

[FR Doc. 03-24586 Filed 9-30-03; 8:45 am]
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