[Federal Register Volume 69, Number 101 (Tuesday, May 25, 2004)]
[Proposed Rules]
[Pages 29838-29839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11736]



[[Page 29837]]

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Part III





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Parts 14, 32, and 52



Federal Acquisition Regulation; Payment Withholding; Proposed Rule

  Federal Register / Vol. 69, No. 101 / Tuesday, May 25, 2004 / 
Proposed Rules  

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 14, 32, and 52

[FAR Case 2004-003]
RIN 9000-AJ94


Federal Acquisition Regulation; Payment Withholding

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

ACTION: Proposed rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) by removing 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 contracting officer to withhold payment amounts if the 
contracting officer determines the withholding to be necessary to 
protect the Government's interests.

DATES: Interested parties should submit comments in writing on or 
before July 26, 2004 to be considered in the formulation of a final 
rule.

ADDRESSES: Submit printed comments to General Services Administration, 
FAR Secretariat (MVA), 1800 F Street, NW., Room 4035, ATTN: Laurie 
Duarte, Washington, DC 20405. Submit electronic comments via the 
Internet to the U.S. Government's rulemaking website at http://www.regulations.gov, or to GSA's e-mailbox at [email protected].
    Please submit comments only and cite FAR case 2004-003 in all 
correspondence related to this case.

FOR FURTHER INFORMATION CONTACT:  The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Mr. Edward Loeb, Policy Advisor, at 
(202) 501-0650. Please cite FAR case 2004-003.

SUPPLEMENTARY INFORMATION:

A. Background

    Federal Acquisition Regulation (FAR) 52.232-7, Payments under Time-
and Materials and Labor-Hour Contracts, currently 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 withhold 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.
    The rule proposes to add FAR 32.111(a)(7)(iii) to permit 
contracting officers to use their judgment regarding whether to 
withhold payments under time-and-materials and labor-hour contracts so 
that the withhold would be applied only when necessary to protect the 
Government's interests. The proposed rule makes it clear that, 
normally, there should be no need to withhold payments when dealing 
with contractors that typically comply with contractual release 
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.
    The rule also proposes to revise paragraph (a)(2) of the contract 
clause at FAR 52.232-7, to state that the contracting officer may 
(rather than shall) withhold 5 percent of the amounts due. The rule 
also makes several related editorial changes to improve clarity and 
structure.
    The Councils are 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 of final payment.
    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 Councils do not expect this proposed 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 material and labor-hour 
contracts with small business, representing approximately 2 percent of 
all contracting. In addition, the rule eases the impact of the current 
FAR by permitting the contracting officer to use judgment in deciding 
whether to withhold payments, thus the number of contracts affected is 
a subset of the 2 percent figure. This change is expected to have a 
small but beneficial impact on small businesses. An Initial Regulatory 
Flexibility Analysis has, therefore, not been performed. We invite 
comments from small businesses and other interested parties. The 
Councils will consider comments from small entities concerning the 
affected FAR parts in accordance with 5 U.S.C. 610. Interested parties 
must submit such comments separately and should cite 5 U.S.C. 601, et 
seq. (FAR case 2004-003), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose 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 14, 32, and 52

    Government procurement.

    Dated: May, 19, 2004.
Ralph De Stefano,
Acting Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 14, 32, 
and 52 as set forth below:
    1. The authority citation for 48 CFR parts 14, 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 14--SEALED BIDDING


14.408-3  [Amended]

    2. Amend section 14.408-3 in paragraph (b) by removing ``See 
32.111(c)(1),'' and adding ``See 32.111(b)(1),'' in its place.

PART 32--CONTRACT FINANCING

    3. Amend section 32.111 by--
    a. Removing ``and'' at the end of paragraph (a)(5);
    b. Removing the period at the end of paragraph (a)(6) and adding 
``; and'' in its place;
    c. Redesignating paragraph (b) as paragraph (a)(7);
    d. Redesignating paragraphs (c) and (d) as (b) and (c), 
respectively; and
    e. Revising newly designated paragraph (a)(7) to read as follows:

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32.111  Contract clauses for non-commercial purchases.

    (a) * * *
    (7) The clause at 52.232-7, Payments under Time-and-Materials and 
Labor-Hour Contracts, in solicitations and contracts when a time-and-
materials or labor-hour contract is contemplated.
    (i) If the nature of the work to be performed requires the 
contractor to furnish material that is regularly sold to the general 
public in the normal course of business by the contractor and the price 
is under the limitations prescribed in 16.601(b)(3), the contracting 
officer shall use the clause with its Alternate I.
    (ii) If a labor-hour contract is contemplated, and if no specific 
reimbursement for materials furnished is intended, the contracting 
officer may use the clause with its Alternate II.
    (iii) If the contracting officer determines that it is necessary to 
withhold payment to protect the Government's interests, paragraph 
(a)(2) of the clause permits the contracting officer to withhold 5 
percent of the amounts due until a reserve is set aside in an amount 
the contracting officer considers to be necessary, but not to exceed 
$50,000. 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, as 
required by paragraph (f) of the clause.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.232-7  [Amended]

    4. Amend section 52.232-7 by--
    a. Removing ``32.111(b)'' and adding ``32.111(a)(7)'' in its place 
in the introductory text of section 52.232-7.
    b. Revising the date of the clause to read ``(XXX 2004)''.
    c. Revising paragraph (a)(2) to read as follows:


52.232-7  Payments under Time-and-Materials and Labor-Hour Contracts.

    (a) * * *
    (2) Unless otherwise prescribed in the Schedule, the Contracting 
Officer 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.
* * * * *
    5. In the introductory text of section 52.232-8, remove 
``32.111(c)(1)'' and add ``32.111(b)(1)'' in its place.
    6. In the introductory text of section 52.232-9, remove 
``32.111(c)(2)'' and add ``32.111(b)(2)'' in its place.
    7. In the introductory text of section 52.232-10, remove 
``32.111(d)(1)'' and add ``32.111(c)(1)'' in its place.
    8. In the introductory text of section 52.232-11, remove 
``32.111(d)(2)'' and add ``32.111(c)(2)'' in its place.

[FR Doc. 04-11736 Filed 5-24-04; 8:45 am]
BILLING CODE 6820-EP-S