[Federal Register Volume 70, Number 88 (Monday, May 9, 2005)]
[Rules and Regulations]
[Pages 24323-24325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9183]


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DEPARTMENT OF DEFENSE

48 CFR Part 217

[DFARS Case 2004-D024]


Defense Federal Acquisition Regulation Supplement; Multiyear 
Contracting

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 8008 of 
the Defense Appropriations Act for Fiscal Year 2005 and Section 814 of 
the National Defense Authorization Act for Fiscal Year 2005. Sections 
8008 and 814 establish new requirements related to the funding of 
multiyear contracts.

DATES: Effective date: May 9, 2005.
    Comment date: Comments on the interim rule should be submitted to 
the address shown below on or before July 8, 2005, to be considered in 
the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2004-D024, 
using any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    [cir] Defense Acquisition Regulations Web site: http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. Follow the instructions for 
submitting comments.
    [cir] E-mail: [email protected]. Include DFARS Case 2004-D024 in the 
subject line of the message.
    [cir] Fax: (703) 602-0350.
    [cir] Mail: Defense Acquisition Regulations Council, Attn: Ms. 
Robin Schulze, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062 Defense Pentagon, 
Washington, DC 20301-3062.
    [cir] Hand Delivery/Courier: Defense Acquisition Regulations 
Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 
22202-3402.
    All comments received will be posted to http://emissary.acq.osd.mil/dar/dfars.nsf.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, (703) 602-0326.

SUPPLEMENTARY INFORMATION:

A. Background

    This interim rule amends DFARS Subpart 217.1 to implement Section 
8008 of the Defense Appropriations Act for Fiscal Year 2005 (Pub. L. 
108-287) and Section 814 of the National Defense Authorization Act for 
Fiscal Year 2005 (Pub. L. 108-375).
    Section 8008 provides that DoD may not use fiscal year 2005 funds 
to award a multiyear contract unless: (1) The Secretary of Defense has 
submitted to Congress a budget request for full funding of units to be 
procured through the contract; (2) cancellation provisions in the 
contract do not include consideration of recurring manufacturing costs 
of the contractor associated with the production of unfunded units to 
be delivered under the contract; (3) the contract provides that 
payments to the contractor under the contract shall not be made in 
advance of incurred costs on funded units; and (4) the contract does 
not provide for a price adjustment based on a failure to award a 
follow-on contract. These requirements have been added to the DFARS at 
217.172(g) and (h).
    Section 814 amended 10 U.S.C. 2306b and 10 U.S.C. 2306c to require 
that, for any multiyear contract with a cancellation ceiling exceeding 
$100 million that is not fully funded, the agency head must give 
written notification to the congressional defense committees of (1) the 
cancellation ceiling amounts planned for each program year in the 
proposed multiyear contract, together with the reasons for the amounts 
planned; (2) the extent to which costs of contract cancellation are not 
included in the budget for the contract; and (3) a financial risk 
assessment of not including budgeting for costs of contract 
cancellation. These requirements have been added to the DFARS at 
217.171(a)(5) and 217.172(e)(2)(ii).
    In addition to implementation of the new statutory requirements, 
DoD has relocated text from DFARS 217.173(b) to 217.172(e) to more 
closely align with the structure of 10 U.S.C. 2306b(h).
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD does not expect this 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 
primarily addresses DoD planning and budget considerations with regard 
to multiyear contracts. Therefore, DoD has not performed an initial 
regulatory flexibility analysis. DoD invites comments from small 
businesses and other interested parties. DoD also will consider 
comments from small entities concerning the affected DFARS subpart in 
accordance with 5 U.S.C. 610. Such comments should be submitted 
separately and should cite DFARS Case 2004-D024.

[[Page 24324]]

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 8008 of the Defense Appropriations 
Act for Fiscal Year 2005 (Pub. L. 108-287) and Section 814 of the 
National Defense Authorization Act for Fiscal Year 2005 (Pub. L. 108-
375). Sections 8008 and 814 establish new requirements related to 
funding that DoD must meet before entering into multiyear contracts for 
supplies or services. Sections 8008 and 814 became effective upon 
enactment on August 5, 2004, and October 28, 2004, respectively. 
Comments received in response to this interim rule will be considered 
in the formation of the final rule.

List of Subjects in 48 CFR Part 217

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR Part 217 is amended as follows:

0
1. The authority citation for 48 CFR Part 217 continues to read as 
follows:

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

PART 217--SPECIAL CONTRACTING METHODS

0
2. Section 217.170 is amended by revising paragraph (d)(1)(i) to read 
as follows:


217.170  General.

* * * * *
    (d)(1) * * *
    (i) Exceed $500 million (see 217.171(a)(6); 217.172(c); and 
217.172(e)(4));
* * * * *

0
3. Section 217.171 is amended as follows:
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a. By redesignating paragraph (a)(5) as paragraph (a)(6); and
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b. By adding a new paragraph (a)(5) to read as follows:


217.171  Multiyear contracts for services.

    (a) * * *
    (5) If the budget for a contract that contains a cancellation 
ceiling in excess of $100 million does not include proposed funding for 
the costs of contract cancellation up to the cancellation ceiling 
established in the contract--
    (i) The notification required by paragraph (a)(4) of this section 
shall include--
    (A) The cancellation ceiling amounts planned for each program year 
in the proposed multiyear contract, together with the reasons for the 
amounts planned;
    (B) The extent to which costs of contract cancellation are not 
included in the budget for the contract; and
    (C) A financial risk assessment of not including budgeting for 
costs of contract cancellation (10 U.S.C. 2306c(d)); and
    (ii) The head of the agency shall provide copies of the 
notification to the Office of Management and Budget at least 14 days 
before contract award in accordance with the procedures at PGI 217.1.
* * * * *

0
4. Section 217.172 is amended as follows:
0
a. By revising the last sentence of paragraph (a);
0
b. By redesignating paragraph (e) as paragraph (f); and
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c. By adding new paragraphs (e), (g), and (h) to read as follows:


217.172  Multiyear contracts for supplies.

    (a) * * * For additional policies that apply only to multiyear 
contracts for weapon systems, see 217.173.
* * * * *
    (e) The head of the agency shall ensure that the following 
conditions are satisfied before awarding a multiyear contract under the 
authority described in paragraph (b) of this section:
    (1) The multiyear exhibits required by DoD 7000.14-R, Financial 
Management Regulation, are included in the agency's budget estimate 
submission and the President's budget request.
    (2) The Secretary of Defense certifies to Congress that the current 
5-year defense program fully funds the support costs associated with 
the multiyear program (10 U.S.C. 2306b(i)(1)(A)).
    (i) The head of the agency shall submit information supporting this 
certification to USD(C)(P/B) for transmission to Congress through the 
Secretary of Defense.
    (ii) In the case of a contract with a cancellation ceiling in 
excess of $100 million, if the budget for the contract does not include 
proposed funding for the costs of contract cancellation up to the 
cancellation ceiling established in the contract--
    (A) The head of the agency shall, as part of this certification, 
give written notification to the congressional defense committees of--
    (1) The cancellation ceiling amounts planned for each program year 
in the proposed multiyear contract, together with the reasons for the 
amounts planned;
    (2) The extent to which costs of contract cancellation are not 
included in the budget for the contract; and
    (3) A financial risk assessment of not including the budgeting for 
costs of contract cancellation (10 U.S.C. 2306b(g)); and
    (B) The head of the agency shall provide copies of the notification 
to the Office of Management and Budget at least 14 days before contract 
award in accordance with the procedures at PGI 217.1.
    (3) The proposed multiyear contract provides for production at not 
less than minimum economic rates, given the existing tooling and 
facilities (10 U.S.C. 2306b(i)(1)(B)). The head of the agency shall 
submit to USD(C)(P/B) information supporting the agency's determination 
that this requirement has been met.
    (4) If the value of a multiyear contract for a particular system or 
component exceeds $500 million, use of a multiyear contract is 
specifically authorized by--
    (i) An appropriations act (10 U.S.C. 2306b(l)(3)); and
    (ii) A law other than an appropriations act (10 U.S.C. 
2306b(i)(3)).
    (5) The contract is for the procurement of a complete and usable 
end item (10 U.S.C. 2306b(i)(4)(A)).
    (6) Funds appropriated for any fiscal year for advance procurement 
are obligated only for the procurement of those long-lead items that 
are necessary in order to meet a planned delivery schedule for complete 
major end items that are programmed under the contract to be acquired 
with funds appropriated for a subsequent fiscal year (including an 
economic order quantity of such long-lead items when authorized by law 
(10 U.S.C. 2306b(i)(4)(b)).
    (7) All other requirements of law are met and there are no other 
statutory restrictions on using a multiyear contract for the specific 
system or component (10 U.S.C. 2306b(i)(2)). One such restriction may 
be the achievement of specified cost savings. If the agency finds, 
after negotiations with the contractor(s), that the specified savings 
cannot be achieved, the head of the agency shall assess the savings 
that, nevertheless, could be achieved by using a multiyear contract. If 
the savings are substantial, the head of the agency may request relief 
from the law's

[[Page 24325]]

specific savings requirement. The request shall--
    (i) Quantify the savings that can be achieved;
    (ii) Explain any other benefits to the Government of using the 
multiyear contract;
    (iii) Include details regarding the negotiated contract terms and 
conditions; and
    (iv) Be submitted to OUSD (AT&L) DPAP for transmission to Congress 
via the Secretary of Defense and the President.
* * * * *
    (g) The head of an agency shall not award a multiyear contract 
using fiscal year 2005 appropriated funds unless--
    (1) The Secretary of Defense has submitted to Congress a budget 
request for full funding of units to be procured through the contract;
    (2) Cancellation provisions in the contract do not include 
consideration of recurring manufacturing costs of the contractor 
associated with the production of unfunded units to be delivered under 
the contract; and
    (3) The contract provides that payments to the contractor under the 
contract shall not be made in advance of incurred costs on funded units 
(Section 8008 of Pub. L. 108-287).
    (h) Do not award a multiyear contract using fiscal year 2005 
appropriated funds that provides for a price adjustment based on a 
failure to award a follow-on contract (Section 8008 of Public Law 108-
287).

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5. Section 217.173 is revised to read as follows:


217.173  Multiyear contracts for weapon systems.

    As authorized by 10 U.S.C. 2306b(h) and subject to the conditions 
in 217.172(e), the head of the agency may enter into a multiyear 
contract for--
    (a) A weapon system and associated items, services, and logistics 
support for a weapon system; and
    (b) Advance procurement of components, parts, and materials 
necessary to manufacture a weapon system, including advance procurement 
to achieve economic lot purchases or more efficient production rates 
(see 217.174 regarding economic order quantity procurement).


217.174  [Amended]

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6. Section 217.174 is amended in paragraph (c) by removing 
``217.173(b)(6)'' and adding in its place ``217.172(e)(6)''.
[FR Doc. 05-9183 Filed 5-6-05; 8:45 am]
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