[Federal Register Volume 68, Number 190 (Wednesday, October 1, 2003)]
[Rules and Regulations]
[Pages 56561-56563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24629]


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DEPARTMENT OF DEFENSE

48 CFR Parts 226 and 252

[DFARS Case 2002-D033]


Defense Federal Acquisition Regulation Supplement; Indian 
Incentive Program

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comments.

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SUMMARY: DoD has issued an interim rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement Section 8021 of 
the DoD Appropriations Act for Fiscal Year 2003. Section 8021 revises 
the criteria for application of the Indian Incentive Program to DoD 
contracts.

DATES: Effective date: October 1, 2003.
    Comment date: Comments on the interim rule should be submitted to 
the address shown below on or before December 1, 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-D033 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. Angelena Moy, OUSD (AT&L) DPAP (DAR), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062; facsimile (703) 602-
0350. Please cite DFARS Case 2002-D033.
    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. Angelena Moy, (703) 602-1302.

SUPPLEMENTARY INFORMATION: 

A. Background

    The Indian Incentive Program provides for incentive payments to 
contractors, and subcontractors at any tier, that use Indian 
organizations and Indian-owned economic enterprises as subcontractors. 
DoD implementation of the Indian Incentive Program is in DFARS Subpart 
226.1 and the clause at 252.226-7001. Section 8021 of the DoD 
Appropriations Act for Fiscal Year 2003 (Public Law 107-248) revises 
the criteria for application of the Indian Incentive Program by 
establishing a $500,000 threshold for contracts and subcontracts under 
which incentives may be paid; by authorizing incentive payments for 
subcontracts awarded to Native Hawaiian small business concerns; and by 
adding contracts and subcontracts for commercial items to the Program. 
This interim rule amends DFARS subpart 226.1 and the clause at 252.226-
7001 to implement section 8021 of Public Law 107-248.
    In addition, this interim rule incorporates changes to the clause 
at 252.226-7001 resulting from the proposed rule published at 67 FR 
70389 on November 22, 2002, under DFARS Case 2002-D013. That proposed 
rule removed references to specific contract types from the clause, 
since the Indian Incentive Program applies to all contract types. Four 
sources submitted comments on the proposed rule. A discussion of the 
comments is provided below.
    1. Comment: The rule should clarify that a contractor can receive a 
separate equitable adjustment in addition to the incentive payment 
under the clause. The equitable adjustment would apply if the cost of 
subcontracting with an Indian organization exceeds the cost of 
subcontracting with a non-Indian source. The 1996 version of the Indian 
Incentive clause at FAR 52.226-1 substantiates this position.
    DoD Response: Do not concur. 25 U.S.C. 1544 provides that ``a 
contractor * * * may be allowed an additional amount of compensation 
equal to 5 percent of the amount paid, or to be paid, to a 
subcontractor or supplier, in carrying out the contract if such 
subcontractor or supplier is an Indian organization or Indian-owned 
economic enterprise * * *'' Section 8021 of Public Law 107-248 
appropriates funds ``only for incentive payments authorized by * * * 25 
U.S.C. 1544 * * *'' Accordingly, the clause at DFARS 252.226-7001 
provides for an incentive payment of 5 percent of the amount of a 
subcontract awarded to an Indian organization or Indian-owned economic 
enterprise.
    When the Indian Incentive Program was added to the FAR as an 
interim rule on August 22, 1991 (56 FR 41736), the clause at 52.226-1 
provided that a contract adjustment under the Program would be the 
lesser of (1) the difference between the price of the subcontract 
awarded to an Indian concern and the price of the otherwise low, non-
Indian offeror, or (2) 5 percent of the price of the subcontract 
awarded to an Indian concern. When the FAR rule was finalized on July 
26, 1996 (61 FR 39210), the clause was revised to eliminate the first 
option and to specify the ``5 percent'' payment method as the

[[Page 56562]]

sole method of incentive payment under the Program. Confusion has 
existed because the FAR and DFARS clauses have used the terms 
``incentive'' and ``adjustment'' interchangeably. However, the statutes 
and the implementing clauses historically have permitted only one type 
of incentive payment per subcontract award. To clarify this point, DoD 
has replaced the term ``adjustment'' with the term ``incentive'' each 
place it appeared in the clause at 252.226-7001.
    2. Comment: The requirement of DFARS 252.226-7001(d), that 
prohibits an incentive payment from being made within 50 working days 
of subcontract award, is arbitrary and should be deleted. The 
contracting officer should have the flexibility to make a case-by-case 
determination of when it is appropriate to make the incentive payment.
    DoD Response: Concur. The interim rule eliminates the 50-day 
waiting period.
    This rule was not 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. DoD has prepared an initial 
regulatory flexibility analysis, which is summarized as follows:
    This interim rule amends the DFARS to implement Section 8021 of the 
DoD Appropriations Act for Fiscal Year 2003. Section 8021 does the 
following: (1) Appropriates funds for implementation of the Indian 
Incentive Program; (2) establishes a threshold of $500,000 for 
contracts and subcontracts under which incentives may be paid; (3) 
expands the Program to permit incentive payments for subcontract awards 
to Native Hawaiian small business concerns; and (4) adds contracts and 
subcontracts for commercial items to the Program, provided the 
commercial items are produced or manufactured in whole or in part by an 
Indian organization or enterprise or Native Hawaiian small business 
concern. The rule will apply to contractors and subcontractors that 
subcontract work under DoD contracts, and will pertain to subcontract 
awards to Indian organizations, Indian-owned economic enterprises, and 
Native Hawaiian small business concerns. The net effect on small 
entities is unknown at this time. DoD knows of no alternatives that 
would meet the requirements of Section 8021 of the DoD Appropriations 
Act for Fiscal Year 2003.
    A copy of the analysis may be obtained from the address 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-D033.

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.

D. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense that urgent and compelling reasons exist to publish an 
interim rule prior to affording the public an opportunity to comment. 
This interim rule implements Section 8021 of the DoD Appropriations Act 
for Fiscal Year 2003 (Pub. L. 107-248). Section 8021 revises the 
criteria for application of the Indian Incentive Program by 
establishing a $500,000 threshold for contracts and subcontracts under 
which incentives may be paid; by authorizing incentive payments for 
subcontracts awarded to Native Hawaiian small business concerns; and by 
adding contracts and subcontracts for commercial items to the Program. 
Section 8021 became effective upon enactment, on October 23, 2002. 
Comments received in response to this interim rule will be considered 
in the formation of the final rule.

List of Subjects in 48 CFR Parts 226 and 252

    Government procurement.

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

0
Therefore, 48 CFR parts 226 and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 226 and 252 continues to 
read as follows:

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

PART 226--OTHER SOCIOECONOMIC PROGRAMS

0
2. Sections 226.103 and 226.104 are revised to read as follows:


226.103  Procedures.

    (f) The contracting officer shall--
    (i) Submit a request for funding of the Indian incentive to the 
Office of Small and Disadvantaged Business Utilization, Office of the 
Under Secretary of Defense (Acquisition, Technology, and Logistics) 
(OUSD(AT&L)SADBU), 1777 North Kent Street, Suite 9100, Arlington, VA 
22209; and
    (ii) Upon receipt of funding from OUSD(AT&L)SADBU, issue a contract 
modification to add the Indian incentive funding for payment of the 
contractor's request for adjustment as described in the clause at 
252.226-7001, Utilization of Indian Organizations, Indian-Owned 
Economic Enterprises, and Native Hawaiian Small Business Concerns.


226.104  Contract clause.

    Use the clause at 252.226-7001, Utilization of Indian 
Organizations, Indian-Owned Economic Enterprises, and Native Hawaiian 
Small Business Concerns, in solicitations and contracts for supplies or 
services exceeding $500,000 in value for which subcontracting 
opportunities may exist.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
3. Section 252.212-7001 is amended as follows:
0
a. By revising the clause date to read ``(Oct 2003)''; and
0
b. In paragraph (b) by adding, in numerical order, entry ``252.226-
7001'' to read as follows:


252.212-7001  Contract terms and conditions required to implement 
statutes or Executive orders applicable to Defense acquisitions of 
commercial items.

* * * * *
    (b) * * *

252.226-7001  Utilization of Indian Organizations, Indian-Owned 
Economic Enterprises, and Native Hawaiian Small Business Concerns (Oct 
2003) (Section 8021 of Pub. L. 107-248).

* * * * *

0
4. Section 252.226-7001 is revised to read as follows:


252.226-7001  Utilization of Indian organizations, Indian-owned 
economic enterprises, and native Hawaiian small business concerns.

    As prescribed in 226.104, use the following clause:

Utilization of Indian Organizations, Indian-Owned Economic Enterprises, 
and Native Hawaiian Small Business Concerns (Oct 2003)

    (a) Definitions. As used in this clause--

[[Page 56563]]

    Indian means any person who is a member of any Indian tribe, 
band, group, pueblo, or community that is recognized by the Federal 
Government as eligible for services from the Bureau of Indian 
Affairs (BIA) in accordance with 25 U.S.C. 1452(c) and any 
``Native'' as defined in the Alaska Native Claims Settlement Act (43 
U.S.C. 1601).
    Indian organization means the governing body of any Indian tribe 
or entity established or recognized by the governing body of an 
Indian tribe for the purposes of 25 U.S.C. chapter 17.
    Indian-owned economic enterprise means any Indian-owned (as 
determined by the Secretary of the Interior) commercial, industrial, 
or business activity established or organized for the purpose of 
profit, provided that Indian ownership constitutes not less than 51 
percent of the enterprise.
    Indian tribe means any Indian tribe, band, group, pueblo, or 
community, including native villages and native groups (including 
corporations organized by Kenai, Juneau, Sitka, and Kodiak) as 
defined in the Alaska Native Claims Settlement Act, that is 
recognized by the Federal Government as eligible for services from 
BIA in accordance with 25 U.S.C. 1452(c).
    Interested party means a contractor or an actual or prospective 
offeror whose direct economic interest would be affected by the 
award of a subcontract or by the failure to award a subcontract.
    Native Hawaiian small business concern means an entity that is--
    (1) A small business concern as defined in section 3 of the 
Small Business Act (15 U.S.C. 632) and relevant implementing 
regulations; and
    (2) Owned and controlled by a Native Hawaiian as defined in 25 
U.S.C. 4221(9).
    (b) The Contractor shall use its best efforts to give Indian 
organizations, Indian-owned economic enterprises, and Native 
Hawaiian small business concerns the maximum practicable opportunity 
to participate in the subcontracts it awards, to the fullest extent 
consistent with efficient performance of the contract.
    (c) The Contracting Officer and the Contractor, acting in good 
faith, may rely on the representation of an Indian organization, 
Indian-owned economic enterprise, or Native Hawaiian small business 
concern as to its eligibility, unless an interested party challenges 
its status or the Contracting Officer has independent reason to 
question that status.
    (d) In the event of a challenge to the representation of a 
subcontractor, the Contracting Officer will refer the matter to--
    (1) For matters relating to Indian organizations or Indian-owned 
economic enterprises: U.S. Department of the Interior, Bureau of 
Indian Affairs, Attn: Chief, Division of Contracting and Grants 
Administration, 1849 C Street NW, MS-2626-MIB, Washington, DC 20240-
4000. The BIA will determine the eligibility and will notify the 
Contracting Officer.
    (2) For matters relating to Native Hawaiian small business 
concerns: Department of Hawaiian Home Lands, PO Box 1879, Honolulu, 
HI 96805. The Department of Hawaiian Home Lands will determine the 
eligibility and will notify the Contracting Officer.
    (e) No incentive payment will be made--
    (1) While a challenge is pending; or
    (2) If a subcontractor is determined to be an ineligible 
participant.
    (f)(1) The Contractor, on its own behalf or on behalf of a 
subcontractor at any tier, may request an incentive payment in 
accordance with this clause.
    (2) The incentive amount that may be requested is 5 percent of 
the estimated cost, target cost, or fixed price included in the 
subcontract at the time of award to the Indian organization, Indian-
owned economic enterprise, or Native Hawaiian small business 
concern.
    (3) In the case of a subcontract for commercial items, the 
Contractor may receive an incentive payment only if the 
subcontracted items are produced or manufactured in whole or in part 
by an Indian organization, Indian-owned economic enterprise, or 
Native Hawaiian small business concern.
    (4) The Contractor has the burden of proving the amount claimed 
and shall assert its request for an incentive payment prior to 
completion of contract performance.
    (5) The Contracting Officer, subject to the terms and conditions 
of the contract and the availability of funds, will authorize an 
incentive payment of 5 percent of the estimated cost, target cost, 
or fixed price included in the subcontract awarded to the Indian 
organization, Indian-owned economic enterprise, or Native Hawaiian 
small business concern.
    (6) If the Contractor requests and receives an incentive payment 
on behalf of a subcontractor, the Contractor is obligated to pay the 
subcontractor the incentive amount.
    (g) The Contractor shall insert the substance of this clause, 
including this paragraph (g), in all subcontracts exceeding $500,000 
for which further subcontracting opportunities may exist.

[FR Doc. 03-24629 Filed 9-30-03; 8:45 am]
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