[Federal Register Volume 73, Number 7 (Thursday, January 10, 2008)]
[Rules and Regulations]
[Pages 1823-1826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-175]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207, 209, 234, 235, and 252

RIN 0750-AF80


Defense Federal Acquisition Regulation Supplement; Lead System 
Integrators (DFARS Case 2006-D051)

AGENCY: Defense Acquisition Regulations System, 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 807 of 
the National Defense Authorization Act for Fiscal Year 2007. Section 
807 places limitations on contractors acting as lead system integrators 
in the acquisition of major DoD systems. Such contractors may have no 
direct financial interest in the development or construction of any 
individual system or element of any

[[Page 1824]]

system of systems unless an exception applies.

DATES: Effective date: January 10, 2008.
    Comment date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before March 10, 2008, to be 
considered in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2006-D051, 
using any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include DFARS Case 2006-D051 in the 
subject line of the message.
     Fax: 703-602-7887.
      Mail: Defense Acquisition Regulations System, Attn: Mr. 
Michael Benavides, OUSD(AT&L)DPAP(DARS), IMD 3D139, 3062 Defense 
Pentagon, Washington, DC 20301-3062.
     Hand Delivery/Courier: Defense Acquisition Regulations 
System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 
22202-3402.
    Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Mr. Michael Benavides, 703-602-1302.

SUPPLEMENTARY INFORMATION: 

A. Background

    This interim rule implements Section 807 of the National Defense 
Authorization Act for Fiscal Year 2007 (Pub. L. 109-364). Section 807 
provides that, with certain exceptions, no entity performing lead 
system integrator functions in the acquisition of a major system by DoD 
may have any direct financial interest in the development or 
construction of any individual system or element of any system of 
systems. The interim rule adds DFARS policy, and a corresponding 
solicitation provision and contract clause, to implement the 
requirements of Section 807 of Public Law 109-364.
    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 application 
of the rule is limited to contractors performing lead system integrator 
functions for major DoD systems. 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 subparts in 
accordance with 5 U.S.C. 610. Such comments should be submitted 
separately and should cite DFARS Case 2006-D051.

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 807 of the National Defense 
Authorization Act for Fiscal Year 2007 (Pub. L. 109-364). Section 807 
places limitations on contractors acting as lead system integrators in 
the acquisition of major DoD systems. Such contractors may have no 
direct financial interest in the development or construction of any 
individual system or element of any system of systems unless an 
exception applies. Section 807 requires DoD to update the acquisition 
regulations to address these limitations. Comments received in response 
to this interim rule will be considered in the formation of the final 
rule.

List of Subjects in 48 CFR Parts 207, 209, 234, 235, and 252

    Government procurement.

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

0
Therefore, 48 CFR parts 207, 209, 234, 235, and 252 are amended as 
follows:
0
1. The authority citation for 48 CFR parts 207, 209, 234, 235, and 252 
continues to read as follows:

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

PART 207--ACQUISITION PLANNING

0
2. Section 207.106 is amended by adding paragraph (S-71) to read as 
follows:


207.106  Additional requirements for major systems.

* * * * *
    (S-71) See 209.570 for policy applicable to acquisition strategies 
that consider the use of lead system integrators.

PART 209--CONTRACTOR QUALIFICATIONS

0
3. Subpart 209.5 is added to read as follows:
Subpart 209.5--Organizational and Consultant Conflicts of Interest
Sec.
209.570 Limitations on contractors acting as lead system 
integrators.
209.570-1 Definitions.
209.570-2 Policy.
209.570-3 Procedures.
209.570-4 Solicitation provision and contract clause.

Subpart 209.5--Organizational and Consultant Conflicts of Interest


209.570  Limitations on contractors acting as lead system integrators.


209.570-1  Definitions.

    Lead system integrator, as used in this section, is defined in the 
clause at 252.209-7007, Prohibited Financial Interests for Lead System 
Integrators. See PGI 209.570-1 for additional information.


209.570-2  Policy.

    (a) Except as provided in paragraph (b) of this subsection, 10 
U.S.C. 2410p prohibits any entity performing lead system integrator 
functions in the acquisition of a major system by DoD from having any 
direct financial interest in the development or construction of any 
individual system or element of any system of systems.
    (b) The prohibition in paragraph (a) of this subsection does not 
apply if--
    (1) The Secretary of Defense certifies to the Committees on Armed 
Services of the Senate and the House of Representatives that--
    (i) The entity was selected by DoD as a contractor to develop or 
construct the system or element concerned through the use of 
competitive procedures; and
    (ii) DoD took appropriate steps to prevent any organizational 
conflict of interest in the selection process; or
    (2) The entity was selected by a subcontractor to serve as a lower-
tier subcontractor, through a process over which the entity exercised 
no control.


209.570-3  Procedures.

    In making a responsibility determination before awarding a contract 
for the acquisition of a major system, the contracting officer shall--
    (a) Determine whether the prospective contractor meets the 
definition of ``lead system integrator'';
    (b) Consider all information regarding the prospective contractor's 
direct

[[Page 1825]]

financial interests in view of the prohibition at 209.570-2(a); and
    (c) Follow the procedures at PGI 209.570-3.


209.570-4  Solicitation provision and contract clause.

    (a) Use the provision at 252.209-7006, Limitations on Contractors 
Acting as Lead System Integrators, in solicitations for the acquisition 
of a major system when the acquisition strategy envisions the use of a 
lead system integrator.
    (b) Use the clause at 252.209-7007, Prohibited Financial Interests 
for Lead System Integrators--
    (1) In solicitations that include the provision at 252.209-7006; 
and
    (2) In contracts when the contractor will fill the role of a lead 
system integrator for the acquisition of a major system.

PART 234--MAJOR SYSTEM ACQUISITION

0
4. Section 234.004 is added to read as follows:


234.004  Acquisition strategy.

    See 209.570 for policy applicable to acquisition strategies that 
consider the use of lead system integrators.

PART 235--RESEARCH AND DEVELOPMENT CONTRACTING

0
5. Section 235.008 is added to read as follows:


235.008  Evaluation for award.

    See 209.570 for limitations on the award of contracts to 
contractors acting as lead system integrators.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Sections 252.209-7006 and 252.209-7007 are added to read as follows:


252.209-7006  Limitations on Contractors Acting as Lead System 
Integrators.

    As prescribed in 209.570-4(a), use the following provision:
Limitations on Contractors Acting As Lead System Integrators (JAN 2008)
    (a) Definitions. Lead system integrator, lead system integrator 
with system responsibility, and lead system integrator without system 
responsibility, as used in this provision, have the meanings given in 
the clause of this solicitation entitled ``Prohibited Financial 
Interests for Lead System Integrators'' (DFARS 252.209-7007).
    (b) General. Unless an exception is granted, no contractor 
performing lead system integrator functions in the acquisition of a 
major system by the Department of Defense may have any direct financial 
interest in the development or construction of any individual system or 
element of any system of systems.
    (c) Representations. (1) The offeror represents that it does
    [ ] does not [ ] propose to perform this contract as a lead system 
integrator with system responsibility.
    (2) The offeror represents that it does [ ] does not [ ] propose to 
perform this contract as a lead system integrator without system 
responsibility.
    (3) If the offeror answered in the affirmative in paragraph (c)(1) 
or (2) of this provision, the offeror represents that it does [ ] does 
not [ ] have any direct financial interest as described in paragraph 
(b) of this provision with respect to the system(s), subsystem(s), 
system of systems, or services described in this solicitation.
    (d) If the offeror answered in the affirmative in paragraph (c)(3) 
of this provision, the offeror should contact the Contracting Officer 
for guidance on the possibility of submitting a mitigation plan and/or 
requesting an exception.
    (e) If the offeror does have a direct financial interest, the 
offeror may be prohibited from receiving an award under this 
solicitation, unless the offeror submits to the Contracting Officer 
appropriate evidence that the offeror was selected by a subcontractor 
to serve as a lower-tier subcontractor through a process over which the 
offeror exercised no control.
    (f) This provision implements the requirements of 10 U.S.C. 2410p, 
as added by section 807 of the National Defense Authorization Act for 
Fiscal Year 2007 (Pub. L. 109-364).


(End of provision)


252.209-7007  Prohibited Financial Interests for Lead System 
Integrators.

    As prescribed in 209.570-4(b), use the following clause:
Prohibited Financial Interests for Lead System Integrators (JAN 2008)
    (a) Definitions. As used in this clause--
    (1) Lead system integrator includes lead system integrator with 
system responsibility and lead system integrator without system 
responsibility.
    (2) Lead system integrator with system responsibility means a prime 
contractor for the development or production of a major system if the 
prime contractor is not expected at the time of award, as determined by 
the Contracting Officer, to perform a substantial portion of the work 
on the system and the major subsystems.
    (3) Lead system integrator without system responsibility means a 
contractor under a contract for the procurement of services whose 
primary purpose is to perform acquisition functions closely associated 
with inherently governmental functions (see section 7.503(d) of the 
Federal Acquisition Regulation) with regard to the development or 
production of a major system.
    (b) Limitations. The Contracting Officer has determined that the 
Contractor meets the definition of lead system integrator with [ ] 
without [ ] system responsibility. Unless an exception is granted, the 
Contractor shall not have any direct financial interest in the 
development or construction of any individual system or element of any 
system of systems while performing lead system integrator functions in 
the acquisition of a major system by the Department of Defense under 
this contract.
    (c) Agreement. The Contractor agrees that during performance of 
this contract it will not acquire any direct financial interest as 
described in paragraph (b) of this clause, or, if it does acquire or 
plan to acquire such interest, it will immediately notify the 
Contracting Officer. The Contractor further agrees to provide to the 
Contracting Officer all relevant information regarding the change in 
financial interests so that the Contracting Officer can determine 
whether an exception applies or whether the Contractor will be allowed 
to continue performance on this contract. If a direct financial 
interest cannot be avoided, eliminated, or mitigated to the Contracting 
Officer's satisfaction, the Contracting Officer may terminate this 
contract for default for the Contractor's material failure to comply 
with the terms and conditions of award or may take other remedial 
measures as appropriate in the Contracting Officer's sole discretion.
    (d) Notwithstanding any other clause of this contract, if the 
Contracting Officer determines that the Contractor misrepresented its 
financial interests at the time of award or has violated the agreement 
in paragraph (c) of this clause, the Government may terminate this 
contract for default for the Contractor's material failure to comply 
with the terms and conditions of award or may take other remedial 
measures as appropriate in the Contracting Officer's sole discretion.
    (e) This clause implements the requirements of 10 U.S.C. 2410p, as 
added by section 807 of the National

[[Page 1826]]

Defense Authorization Act for Fiscal Year 2007 (Pub. L. 109-364).


(End of clause)

 [FR Doc. E8-175 Filed 1-9-08; 8:45 am]
BILLING CODE 5001-08-P