[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Rules and Regulations]
[Pages 33657-33659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11189]


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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 2005-04; FAR Case 2004-004; Item III]
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:  Final rule.

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SUMMARY:  The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed to convert the 
interim rule published in the Federal Register at 69 FR 34226, June 18, 
2004, to a final rule with changes to amend 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.

DATE: Effective Date: June 8, 2005.

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, Director, Contract 
Policy Division, at (202) 208-1168. Please cite FAC 2005-04, FAR case 
2004-004.

SUPPLEMENTARY INFORMATION:

A. Background

    This final rule amends the Federal Acquisition Regulation. DoD, 
GSA, and NASA published an interim rule in the Federal Register at 69 
FR 34226, June 18, 2004, implementing Section 1431 and Section 1433 of 
the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 
108-136). Public comments were received from three entities. The 
Councils reviewed and resolved the comments. The disposition of 
comments, as stated below, requires one change to the rule, as 
requested in comment 7.
    1. Comment: Requested clarification as to whether the term 
``performance assessment'' should be used in place of ``quality 
assurance'' in FAR 37.601(a)(2). This comment was based on a statement 
in the ``Guidebook for Performance-Based Services Acquisition (PBSA) in 
the Department of Defense,'' December 2000, that, ``[h]ereafter, 
`performance assessment' will be used in place of the term `quality 
assurance' unless otherwise noted.''
    Council's response: This statement applied only to usage in the 
Guide and was not meant as a change in Governmentwide policy. In fact, 
a more recent memo, dated August 19, 2003, from the Undersecretary of 
Defense for Acquisition, Technology and Logistics, continues to use the 
term ``quality assurance,'' as does the ``Seven Steps Guide to 
Procurement Based Services Acquisition Guide.'' This comment is more 
appropriate for FAR Case 2003-18, which covers a broader revision of 
Performance-Based Services Acquisition, and will be considered along 
with other comments received in response to that case. FAR Case 2003-18 
was published in the Federal Register at 69 FR 43712, July 21, 2004; 
public comments were due September 20, 2004.
    2. Comment: Suggested that the Councils move the reference to 
quality assurance surveillance plans from FAR 37.601(a)(2) and make it 
a new subparagraph (5) to emphasize the importance of quality assurance 
surveillance plans.
    Council's response: The Councils did not adopt this suggestion 
because the purpose of this case is to allow agencies to use FAR Part 
12 for noncommercial services if the services otherwise meet the 
existing definition of performance-based contracting. This comment is 
more appropriate for FAR Case 2003-18 and will be considered along with 
other comments received in response to that case.
    3. Comment: Recommended revising FAR 12.102(g)(1) by adding the 
additional qualifying factor of ``Includes a performance work 
statement.''
    Council's response: The Councils did not adopt this suggestion 
because the purpose of the case is to allow agencies to use FAR Part 12 
for noncommercial services if the services otherwise meet the existing 
definition of performance-based contracting, which addresses use of a 
work statement that is performance-based. FAR

[[Page 33658]]

12.102(g)(1)(vi) further addresses this comment.
    4. Comment: Recommended changing FAR 12.102(g)(1)(ii) to: ``has an 
estimated value at time of solicitation of not more that $25 million'' 
because they thought it would be very cumbersome to change back to FAR 
Part 15 if the contract value ends up exceeding $25 million.
    Council's response: The Councils did not adopt this suggestion 
because it will change the intent of this SARA provision. If 
acquisition planning is properly performed, prudent independent 
Government estimates are constructed and market research is conducted, 
the contracting officer will know upfront if this SARA authority is 
appropriate for this acquisition.
    5. Comment: Recommended changing the language in FAR 
12.102(g)(1)(iv) to ``includes appropriate quality assurance 
provisions'' instead of ``includes a quality assurance surveillance 
plan'' since the Government should not require the creation of a 
quality assurance plan different from the one the contractor uses when 
providing commercial services as required by FAR 12.208.
    Council's response: FAR 12.208 does require the Government to rely 
on contractors' existing quality assurance systems as a substitute for 
Government inspection and testing unless customary market practices for 
the commercial item being acquired include in-process inspection. Since 
the rule authorizes the use of FAR Part 12 procedures for certain non-
commercial services, customary market practices for the non-commercial 
services may not exist. However, the Councils do not believe it is 
necessary to ``include'' the quality assurance surveillance plan in the 
contract or task order and revised the rule to require each contract or 
task order to ``use'' a quality assurance surveillance plan.
    6. Comment: Recommended changing the language in FAR 12.102(g)(vii) 
to: ``under terms and conditions similar to those being offered to the 
Federal Government.''
    Council's response: The Councils recognize the difference in the 
language, but believe this change is consistent with and clarifies the 
statutory language.
    7. Comment: Stated that the language in FAR 12.102(g)(2) was more 
prescriptive than the language in FAR 12.302 for tailoring provisions 
and clauses for commercial items and recommended that the language be 
revised to avoid unnecessary tailoring of the inspection and acceptance 
provisions in FAR 52.212-4(a).
    Council's response: The Councils recognize the need to avoid 
unnecessary tailoring when acquiring commercial items, and consequently 
changed the language in FAR 12.102(g)(2) by inserting the word ``may'' 
instead of the word ``should.'' However, this case authorizes the use 
of FAR Part 12 procedures when purchasing certain non-commercial 
services. The current basis for tailoring a FAR Part 12 contract at FAR 
12.302 authorizes tailoring based, in part, on customary commercial 
practices. It is likely that customary commercial practices may not 
exist for non-commercial services, even when the services are acquired 
using a performance-based requirement. This is particularly important 
in the area of inspection and acceptance covered by FAR 12.102(g)(2) 
and the clause at FAR 52.212-4. The Councils believe that relying 
exclusively on FAR 12.302 as the basis for tailoring provisions for 
non-commercial services may not adequately ensure the Government's 
interests are protected in this area. Therefore, the Councils 
determined that the FAR should provide the ability to consider 
additional remedies if needed to protect the Government against 
nonconforming services since the items being procured are not 
commercial items as defined by FAR 2.101. Since the new language at FAR 
12.102(g)(2) only allows the contracting officer to tailor the 
inspections and acceptance provisions when necessary to protect the 
Government, the Councils do not believe this flexibility will lead to 
unnecessary tailoring.
    8. Comment: Recommended several revisions to FAR 37.601(a) to 
provide for additional flexibility when using performance-based 
contracts for services.
    Council's response: The Councils did not adopt these suggestions 
because this rule does not change existing FAR requirements at FAR 
37.601(a) that pertain to performance-based contracts for services. The 
only revision to FAR 37.601 in this rule is to add a cross reference to 
FAR 12.102(g). These comments are more appropriate for FAR case 2003-
18, which covers a broader revision of Performance-Based Services 
Acquisition, and will be considered along with other comments received 
in response to that case.
    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 administration of contracts or task orders 
enabling the Government to treat certain commercial 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, a Final Regulatory Flexibility Analysis (FRFA) was 
prepared in accordance with Title 5, of the United States Code 604. The 
rule revised the FAR in order to comply with recently enacted Public 
Law 108-136, Section 1431 and 1433 of the National Defense 
Authorization Act for Fiscal Year 2004. Section 1431 provides for 
Governmentwide authority to treat certain performance-based contracts 
or task orders for services as commercial items if the certain 
conditions are met. 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 change the FAR as 
follows:
     Revises the commercial items definition in FAR 2.101 and 
52.202-1;
     Adds a new record requirement for reporting commercial 
performance-based contracts and task orders to FAR 4.601;
     Incorporates the conditions for using FAR Part 12 for any 
performance-based contract or task order for services in FAR 12.102;
     Adds performance-based terms as required by section 1433; 
and
     Adds a cross reference to FAR 12.102(g) in FAR 37.601.
    An Initial Regulatory Flexibility Analysis (IRFA) was published 
with the interim rule, and no comments

[[Page 33659]]

concerning the IRFA were received. A Final Regulatory Flexibility 
Analysis (FRFA) was prepared. The rule is expected to have a positive 
impact on small business concerns. However, it is not expected to have 
a significant impact on a substantial number of small entities because 
it provides Governmentwide procurement authority that enables the 
contracting officer (CO) to treat a noncommercial service as commercial 
if specific conditions, most of which pertain to performance-based 
contracting, are met. The Government is encouraged to use performance-
based contracting techniques on all service contracts and allowing this 
authority--
     Opens up opportunities to small businesses that otherwise 
would not have been available if they could not meet the commercial 
items definition in FAR 2.101 and 52.202-1;
     Provides contracting flexibility when using performance-
based contracting techniques;
     Helps the Government move closer to achieving the 
performance-based contracting performance-goals for Fiscal Years 2004 
and 2005; and
     Allows the CO to use FAR Part 12, and procure these types 
of services similar to the commercial marketplace.
    Specifically, a query of the Central Contractor Registration (CCR) 
system indicates there are 198,732 small businesses registered, and 
many of these contractors were awarded performance-based contracts or 
task orders for noncommercial services and the Government was required 
to use FAR Part 13, Simplified Acquisition Procedures, FAR Part 14, 
Sealed Bidding, or FAR Part 15, Contracting by Negotiations, for these 
acquisitions because they were not commercial items. This authority 
allows the CO to use FAR Part 12, which is the Government's preference 
since this will allow us to procure these types of services similar to 
the commercial marketplace, and using FAR Part 12 will provide more 
contracting flexibility and opportunities to the small business 
community.
    The rule will impose no new reporting or recording keeping 
requirements on large or small entities. It only requires the 
Government to report on contracts or task orders awarded under this 
authority. Specifically, implementation of Section 1431 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 Federal Procurement Data 
System-Next Generation (FPDS-NG) will be revised to enable agencies to 
report on the use of such authority both Governmentwide and for each 
department and agency. By November 2006, the Office of Management and 
Budget will start reporting to the Committees on Governmental Affairs 
and Armed Services of the Senate, and the Committees on Government 
Reform and Armed Services of the House of Representatives on the 
implementation of this section. The authority of Section 1431 expires 
on November 24, 2013, ten years after enactment.
    The FAR Secretariat has submitted a copy of the FRFA 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 
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 2005-
004, 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.

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

    Government procurement.

    Dated: May 27, 2005.
Julia B. Wise,
Director, Contract Policy Division.

Interim Rule Adopted as Final With Changes

0
Accordingly, DOD, GSA, and NASA adopt the interim rule amending 48 CFR 
parts 2, 4, 12, 37, and 52, which was published in the Federal Register 
at 69 FR 34226, June 18, 2004, as a final rule with the following 
changes:
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 12--ACQUISITION OF COMMERCIAL ITEMS


12.102   [Amended]

0
2. Amend section 12.102 in paragraph (g)(1)(iv) by removing 
``Includes'' and adding ``Uses'' in its place; and in paragraph (g)(2) 
by removing ``should'' and adding ``may'' in its place.
[FR Doc. 05-11189 Filed 6-7-05; 8:45 am]
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