[Federal Register Volume 71, Number 54 (Tuesday, March 21, 2006)]
[Rules and Regulations]
[Pages 14101-14102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2642]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 207 and Appendix D to Chapter 2

[DFARS Case 2003-D071]


Defense Federal Acquisition Regulation Supplement; Component 
Breakout

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to remove procedures for 
breaking out components of end items for future acquisitions. These 
procedures have been relocated to the new DFARS companion resource, 
Procedures, Guidance, and Information. This final rule is a result of a 
transformation initiative undertaken by DoD to dramatically change the 
purpose and content of the DFARS.

DATES: Effective Date: March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, Defense 
Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-
0296; facsimile (703) 602-0350. Please cite DFARS Case 2003-D071.

SUPPLEMENTARY INFORMATION:

A. Background

    DFARS Transformation is a major DoD initiative to dramatically 
change the purpose and content of the DFARS. The objective is to 
improve the efficiency and effectiveness of the acquisition process, 
while allowing the acquisition workforce the flexibility to innovate. 
The transformed DFARS will contain only requirements of law, DoD-wide 
policies, delegations of FAR authorities, deviations from FAR 
requirements, and policies/procedures that have a significant effect 
beyond the internal operating procedures of DoD or a significant cost 
or administrative impact on contractors or offerors. Additional 
information on the DFARS Transformation initiative is available at 
http://www.acq.osd.mil/dpap/dars/dfars/transformation/index.htm.
    This final rule is a result of the DFARS Transformation initiative. 
The rule removes DFARS Appendix D, which contains DoD policy and 
procedures for breakout of components of end items for future 
acquisitions. The portions of Appendix D containing DoD policy on 
component breakout have been relocated to a new section at DFARS 
207.171. The portions of Appendix D containing internal DoD procedures 
for component breakout have been relocated to the new DFARS companion 
resource, Procedures, Guidance, and Information (PGI), available at 
http://www.acq.osd.mil/dpap/dars/pgi dpap/dars/pgi.
    DoD published a proposed rule at 70 FR 14623 on March 23, 2005. One 
industry association submitted comments on the proposed rule. A 
discussion of the comments is provided below.
    1. Comment: Relocation of component breakout requirements to a 
guidance document is not appropriate, because it would provide DoD with 
the option to unilaterally eliminate the breakout requirement in its 
entirety, without affording the public an opportunity to object.
    DoD Response: Although PGI is more than a guidance document, DoD 
agrees that portions of Appendix D are more appropriate for retention 
in the DFARS. Therefore, the portions of Appendix D containing DoD 
policy for component breakout have been relocated to a new section at 
DFARS 207.171. The portions of Appendix D that have been relocated to 
PGI are limited to internal DoD procedures for conducting breakout 
reviews, documenting breakout decisions, and maintaining breakout 
records. These procedures are still

[[Page 14102]]

mandatory for use, in accordance with 207.171(d) of this final rule.
    2. Comment: Transfer of the component breakout requirements to a 
guidance document, as opposed to maintaining a regulatory requirement, 
would de-emphasize the importance of tracking this type of information. 
Without such information, DoD would not be able to ensure its 
compliance with existing domestic source laws and regulations. In 
addition, de-emphasizing the importance of this information would be 
inconsistent with the on-going U.S. initiative on limiting the adverse 
effects of offsets in defense procurement. Since the issue of offsets 
is integrally entwined with foreign and domestic sources of major 
weapons systems and components, the ability to establish a baseline for 
components would be impaired by de-emphasizing the requirement to track 
the breakout of components.
    DoD Response: DoD believes that the final rule actually emphasizes 
the importance of component breakout since, prior to this rule, there 
was no reference to component breakout or Appendix D in any of the 
numbered sections of the DFARS. In addition, DoD's ability to ensure 
compliance with existing domestic source laws and regulations, or to 
track the effect of offsets, is not related to component breakout 
procedures. Appendix D does not require any breaking out of data, nor 
does it require tracking of data on components. While unrelated to 
component breakout, DFARS 225.7307 specifies that DoD does not 
encourage, enter into, or commit U.S. firms to foreign military sales 
offset arrangements. The only discernable connection between component 
breakout policy and offsets is that U.S. industry would not be able to 
offer components for manufacture in a foreign country under offset 
arrangements if DoD breaks out the component for direct procurement by 
DoD. This connection in no way affects DoD's component breakout policy 
or the decision regarding placement of breakout procedures in PGI.
    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 certifies that this final rule will not 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 rule makes no significant change to DoD policy for breakout of 
components of end items for future acquisitions.

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.

List of Subjects in 48 CFR Part 207

    Government procurement.

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

0
Therefore, 48 CFR part 207 and Appendix D to Chapter 2 are amended as 
follows:
0
1. The authority citation for 48 CFR part 207 and Appendix D to 
subchapter I continues to read as follows:

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

PART 207--ACQUISITION PLANNING

0
2. Sections 207.171 through 207.171-4 are added to read as follows:


207.171  Component breakout.


207.171-1  Scope.

    (a) This section provides policy for breaking out components of end 
items for future acquisitions so that the Government can purchase the 
components directly from the manufacturer or supplier and furnish them 
to the end item manufacturer as Government-furnished material.
    (b) This section does not apply to--
    (1) The initial decisions on Government-furnished equipment or 
contractor-furnished equipment that are made at the inception of an 
acquisition program; or
    (2) Breakout of parts for replenishment (see Appendix E).


207.171-2  Definition.

    Component, as used in this section, includes subsystems, 
assemblies, subassemblies, and other major elements of an end item; it 
does not include elements of relatively small annual acquisition value.


207.171-3  Policy.

    DoD policy is to break out components of weapons systems or other 
major end items under certain circumstances.
    (a) When it is anticipated that a prime contract will be awarded 
without adequate price competition, and the prime contractor is 
expected to acquire any component without adequate price competition, 
the agency shall break out that component if--
    (1) Substantial net cost savings probably will be achieved; and
    (2) Breakout action will not jeopardize the quality, reliability, 
performance, or timely delivery of the end item.
    (b) Even when either or both the prime contract and the component 
will be acquired with adequate price competition, the agency shall 
consider breakout of the component if substantial net cost savings will 
result from--
    (1) Greater quantity acquisitions; or
    (2) Such factors as improved logistics support (through reduction 
in varieties of spare parts) and economies in operations and training 
(through standardization of design).
    (c) Breakout normally is not justified for a component that is not 
expected to exceed $1 million for the current year's requirement.


207.171-4  Procedures.

    Agencies shall follow the procedures at PGI 207.171-4 for component 
breakout.

Appendix D to Chapter 2 [Removed and Reserved]

0
3. Appendix D to Chapter 2 is removed and reserved.

[FR Doc. 06-2642 Filed 3-20-06; 8:45 am]
BILLING CODE 5001-08-P