[Federal Register Volume 69, Number 117 (Friday, June 18, 2004)]
[Rules and Regulations]
[Pages 34226-34228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13618]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 4, 12, 37, and 52

[FAC 2001-24; FAR Case 2004-004; Item I]
RIN 9000-AJ97


Federal Acquisition Regulation; Incentives for Use of 
Performance-Based Contracting for Services

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

ACTION: Interim rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on an interim 
rule amending the Federal Acquisition Regulation (FAR) to implement 
sections 1431 and 1433 of the National Defense Authorization Act for 
Fiscal Year 2004 (Pub. L. 108-136). Section 1431 enacts Governmentwide 
authority to treat performance-based contracts or task orders for 
services as commercial items if certain conditions are met, and 
requires agencies to report on performance-based contracts or task 
orders awarded using this authority. Section 1433 amends the definition 
of commercial item to add specific performance-based terminology and to 
conform to the language added by section 1431.

DATES: Effective Date: June 18, 2004.
    Comment Date: Interested parties should submit comments to the FAR 
Secretariat at the address shown below on or before August 17, 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 Web site at http://www.regulations.gov, or to GSA's e-mailbox at farcase.2004-004@gsa.gov.
    Please submit comments only and cite FAC 2001-24, FAR case 2004-
004, 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 Ms. Julia Wise, Procurement Analyst, 
at (202) 208-1168. Please cite FAC 2001-24, FAR case 2004-004.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 1431 of the National Defense Authorization Act for Fiscal 
Year 2004 (Pub. L. 108-136) enacts Governmentwide authority to treat 
certain performance-based contracts or task orders for services as 
commercial items if the--
    (1) Value of the contract or task order is estimated not to exceed 
$25,000,000;
    (2) Contract or task order sets forth specifically each task to be 
performed and, for each task--
    a. Defines the task in measurable, mission-related terms;
    b. Identifies the specific end products or output to be achieved; 
and
    c. Contains firm, fixed prices for specific tasks to be performed 
or outcomes to be achieved; and
    (3) Source of the services provides similar services to the general 
public under terms and conditions similar to those offered to the 
Federal Government.
    Implementation of section 1431 also requires agencies to collect 
and maintain reliable data sufficient to identify the contracts or task 
orders treated as contracts for commercial items using the authority of 
this section. The data will be collected using the Federal Procurement 
Data System-Next Generation (FPDS-NG). By November 24, 2006, OMB will 
be required to report to the Committees on Governmental Affairs and on 
Armed Services of the Senate and the Committees on Government Reform 
and on Armed Services of the House of Representatives on the 
implementation of Section 1431. The report shall include data on the 
use of such authority both Governmentwide and for each department and 
agency. The authority of section 1431 expires on November 24, 2013, ten 
years after enactment. Section 1433 also amends the definition of 
commercial services to conform to the language added by section 1431 by 
inserting performance-based terms for clarification. The implementation 
of sections 1431 and 1433 will--
     Revise the commercial items definition in FAR 2.101 and 
52.202-1;
     Add a new record requirement for reporting commercial 
performance-based contracts or task orders to FAR 4.601;
     Incorporate the conditions for using FAR Part 12 for any 
performance-based contract or task order for services in FAR 12.102; 
and
     Add performance-based terms as required by section 1433, 
and
     Add a cross reference to FAR 12.102(g) in FAR 37.601.
    The reference to the definition of performance-based contracting in 
the proposed language is a change from the statutory requirement. 
Section 1431 provides for a contract or task order to be treated as a 
contract for commercial items if: ``The contract or task order sets 
forth specifically each task to be performed and for each task--defines 
the task in measurable, mission-related terms; identifies the specific 
end products or output to be achieved; and contains firm, fixed prices 
for specific tasks to be performed or outcomes to be achieved.'' 
However, the two requirements of law regarding how tasks, products, or 
outputs are described are being implemented by requiring contracts or 
task orders to meet the definition of performance-based contracting at 
FAR 2.101. This language and that at 12.102 paragraphs (g)(1)(iv) and 
(v) and in (g)(2) are to ensure consistency with the overarching policy 
in FAR 37.601 that applies to performance-based contracting for 
services.
    Section 1431 recommends that the Federal Procurement Data System 
(FPDS) or other reporting mechanism collect this data. The FPDS is the 
only Governmentwide system that can potentially collect this data. This 
system currently tracks performance-based contracts and task orders 
awarded. A petition was made to the FPDS-NG Change Control Board to 
incorporate a change to report data on services treated as commercial 
items under the conditions stated in section 1431 when using 
performance-based contracting techniques.
    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 changes 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 we have changed 
procedures for award and

[[Page 34227]]

administration of contracts or task orders enabling the Government to 
treat certain services as commercial items when the contract or task 
order--
     Is entered into on or before November 24, 2013;
     Has a value of $25 million or less;
     Meets the definition of performance-based contracting at 
FAR 2.101;
     Includes a quality assurance surveillance plan;
     Includes performance incentives where appropriate;
     Specifies a firm-fixed price for specific tasks to be 
performed or outcomes to be achieved; and
     Is awarded to an entity that provides similar services to 
the general public under terms and conditions similar to those in the 
contract or task order.
    Therefore, we have prepared an Initial Regulatory Flexibility 
Analysis that is summarized as follows:

    The rule (1) amends the commercial items definition in FAR 2.101 
and 52.202-1; (2) adds a new record requirement for reporting 
commercial performance-based contracts or task orders to FAR 4.601; 
(3) incorporates the conditions for using FAR Part 12 for any 
performance-based contract or task order for services in FAR 12.102; 
and (4) adds performance-based terms as required by section 1433, 
and (5) adds a cross reference to FAR 12.102(g) in FAR 37.601. The 
rule will apply to all large and small entities that seek award of 
performance-based service contracts that are not commercial services 
as defined by FAR 2.101 and 52.202-1. Although these changes were 
made to implement section 1431 and 1433 of the National Defense 
Authorization Act for Fiscal Year 2004 (P.L. 108-136), the impact of 
these changes are positive and may provide (1) new contracting 
opportunities to small businesses that otherwise would not have been 
available if their services did not meet the definition of 
commercial item in FAR 2.101 and 52.202-1; and (2) contracting 
flexibility for the acquisition community when using PBC techniques.

    The FAR Secretariat has submitted a copy of the IRFA to the 
Chief Counsel for Advocacy of the Small Business Administration. 
Interested parties may obtain a copy from the FAR Secretariat. The 
Councils will consider comments from small entities concerning the 
affected FAR Parts 2, 4, 12, 37, and 52 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. (FAC 2001-24, FAR case 2004-004), 
in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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.

D. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary to implement sections 1431 and 1433 of the National 
Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136) which 
became effective November 24, 2003. However, pursuant to Public Law 98-
577 and FAR 1.501, the Councils will consider public comments received 
in response to this interim rule in the formation of the final rule.

List of Subjects in 48 CFR Parts 2, 4, 12, 37, and 52

    Government procurement.

    Dated: June 10, 2004.
Ralph J. De Stefano,
Acting Director, Acquisition Policy Division.


0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 4, 12, 37, and 52 
as set forth below:
0
1. The authority citation for 48 CFR parts 2, 4, 12, 37, 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 2--DEFINITIONS OF WORDS AND TERMS

0
2. Amend section 2.101 in paragraph (b) in the definition ``Commercial 
item'' by revising the introductory text of paragraph (6) to read as 
follows:


2.101  Definitions.

* * * * *
    (b) * * *
    Commercial item means--
* * * * *
    (6) Services of a type offered and sold competitively in 
substantial quantities in the commercial marketplace based on 
established catalog or market prices for specific tasks performed or 
specific outcomes to be achieved and under standard commercial terms 
and conditions. This does not include services that are sold based on 
hourly rates without an established catalog or market price for a 
specific service performed or a specific outcome to be achieved. For 
purposes of these services--
* * * * *

PART 4--ADMINISTRATIVE MATTERS

0
3. Amend section 4.601 by adding paragraph (d)(6) to read as follows:


4.601  Record requirements.

* * * * *
    (d) * * *
    (6) Contracts or task orders treated as commercial items pursuant 
to 12.102(g).
* * * * *

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
4. Amend section 12.102 by adding paragraph (g) to read as follows:


12.102  Applicability.

* * * * *
    (g)(1) In accordance with section 14313 of the National Defense 
Authorization Act for Fiscal Year 2004 (Pub. L. 108-136) (41 U.S.C. 
437), the contracting officer also may use Part 12 for any acquisition 
performance-based contracting for services that does not meet the 
definition of commercial item in FAR 2.101, if the contract or task 
order--
    (i) Is entered into on or before November 24, 2013;
    (ii) Has a value of $25 million or less;
    (iii) Meets the definition of performance-based contracting at FAR 
2.101;
    (iv) Includes a quality assurance surveillance plan;
    (v) Includes performance incentives where appropriate;
    (vi) Specifies a firm-fixed price for specific tasks to be 
performed or outcomes to be achieved; and
    (vii) Is awarded to an entity that provides similar services to the 
general public under terms and conditions similar to those in the 
contract or task order.
    (2) In exercising the authority specified in paragraph (g)(1) of 
this section, the contracting officer should tailor paragraph (a) of 
the clause at FAR 52.212-4 as may be necessary to ensure the contract's 
remedies adequately protect the Government's interests.

PART 37--SERVICE CONTRACTING

0
5. Revise section 37.601 to read as follows:


37.601  General.

    (a) Performance-based contracting methods are intended to ensure 
that required performance quality levels are achieved and that total 
payment is related to the degree that services performed or outcomes 
achieved meet contract standards. Performance-based contracts or task 
orders--

[[Page 34228]]

    (1) Describe the requirements in terms of results required rather 
than the methods of performance of the work;
    (2) Use measurable performance standards (i.e., in terms of 
quality, timeliness, quantity, etc.) and quality assurance surveillance 
plans (see 46.103(a) and 46.401(a));
    (3) Specify procedures for reductions of fee or for reductions to 
the price of a fixed-price contract when services are not performed or 
do not meet contract requirements (see 46.407); and
    (4) Include performance incentives where appropriate.
    (b) See 12.102(g) for the use of Part 12 procedures for 
performance-based contracting.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Amend section 52.202-1 by revising the date of the clause and the 
introductory text of paragraph (c)(6) of the clause to read as follows:


52.202-1  Definitions.

* * * * *

Definitions (Jun 2004)

* * * * *
    (c) * * *
    (6) Services of a type offered and sold competitively in 
substantial quantities in the commercial marketplace based on 
established catalog or market prices for specific tasks performed or 
specific outcomes to be achieved and under standard commercial terms 
and conditions. This does not include services that are sold based 
on hourly rates without an established catalog or market price for a 
specific service performed or a specific outcome to be achieved. For 
purposes of these services--
* * * * *
[FR Doc. 04-13618 Filed 6-17-04; 8:45 am]
BILLING CODE 6820-EP-P