[Federal Register Volume 74, Number 222 (Thursday, November 19, 2009)]
[Rules and Regulations]
[Pages 59914-59916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27848]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 208

RIN 0750-AG03


Defense Federal Acquisition Regulation Supplement; Competition 
Requirements for Purchases From Federal Prison Industries (DFARS Case 
2008-D015)

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

ACTION: Final rule.

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SUMMARY: DoD has adopted as final, without change, an interim rule

[[Page 59915]]

amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to implement section 827 of the National Defense Authorization Act for 
Fiscal Year 2008. Section 827 requires the use of competitive 
procedures in the acquisition of items for which Federal Prison 
Industries has a significant market share.

DATES: Effective Date: November 19, 2009.

FOR FURTHER INFORMATION CONTACT: Ms. Cassandra Freeman, Defense 
Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3D139, 
3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 703-602-
8383; facsimile 703-602-7887. Please cite DFARS Case 2008-D015.

SUPPLEMENTARY INFORMATION: 

A. Background

    Section 827 of the National Defense Authorization Act for Fiscal 
Year 2008 (Pub. L. 110-181) amended 10 U.S.C. 2410n to require the use 
of competitive procedures in the acquisition of items for which Federal 
Prison Industries (FPI) has a significant market share. Section 827 
provides that FPI shall be treated as having a significant share of the 
market for a product if DoD, in consultation with the Office of Federal 
Procurement Policy, determines that the FPI share of the DoD market for 
the category of products including that product is greater than five 
percent.
    DoD published an interim rule at 73 FR 46816 on August 12, 2008, to 
implement section 827 of Public Law 110-181. Five sources submitted 
comments on the interim rule. The respondents expressed general support 
for section 827 as a means of increasing competition and ensuring the 
best value for the Government. A discussion of other comments received 
from the respondents is provided below.
    1. Comment: Although section 827 of Public Law 110-181 is limited 
to products, DoD acquisition personnel should take the spirit of the 
statute into account when procuring services.
    DoD Response: In accordance with FAR 8.605(g), FPI is not a 
mandatory source for services. Therefore, application of this DFARS 
rule to the acquisition of services is unnecessary.
    2. Comment: The 5 percent threshold should be applied to individual 
items, rather than to entire Federal supply classes. FPI will be 
supplying more than 50 percent of DoD's requirements for ballistic 
helmets, even though it only supplies 3.8 percent of the overall 
Federal supply class (FSC 4870--Armor, Personal) to which this item 
belongs. A mechanism should be available to group products of a similar 
type and characteristics into smaller sub-classes in order to comply 
with the statutory intent.
    DoD Response: Section 827 specifically provides for application of 
its requirements to categories of products, rather than individual 
items. As a practical matter, it would be difficult, if not impossible, 
to determine up-to-date market share percentages at the individual item 
level. Given the number of items acquired by the Federal Government, 
Federal supply classes are the most practical groupings of items; sub-
classes would be too numerous for practical applicability. In 
accordance with FAR 8.604 and 8.605, waiver and exception mechanisms 
exist to permit acquisition of FPI Schedule items from other sources if 
necessary.
    3. Comment: DoD has not required FPI to compete on a level playing 
field for those procurements where private industry is now allowed to 
participate. Ordinarily, when U.S. Government agencies compete with 
private sector entities for the provision of goods or services to other 
Government agencies, such competitions are governed by OMB Circular A-
76. Among other things, OMB Circular A-76 requires that, when 
considering the cost to the Government of an agency's submittal, the 
purchasing agency must consider both the price charged and the amount 
of any subsidy provided by the Government to the agency bidding for 
such work. Now that FPI is being required to compete for the supply of 
certain products, the provisions of OMB Circular A-76 should apply to 
such competitions and, although private industry now has the right to 
compete against FPI in certain areas, it will be at a significant 
disadvantage unless and until the Government's subsidies to FPI are 
considered when evaluating its pricing.
    DoD Response: This comment pertains to acquisitions that employ 
comparability determinations, rather than to those where competitive 
procedures are used because of FPI's significant market share. 
Therefore, the comment is outside the scope of this DFARS case. 
However, a recent Government Accountability Office (GAO) decision (B-
400328) addressed this issue as follows:

    ``We find no statute or regulation * * * that specifically 
requires an agency to conduct an A-76 study and competition, or 
otherwise adjust its evaluation to account for any FPI competitive 
advantages simply because FPI is a potential or actual competitor. 
For example, neither 18 U.S.C. 4124 nor 10 U.S.C. 4210n refers to A-
76, and FAR Sec.  7.302(b)(2) does not establish a separate 
requirement that agencies must meet when FPI is a potential or 
actual competitor. Likewise, we are aware of no requirement that an 
agency otherwise notify offerors of FPI's participation in a 
procurement or to equalize FPI's alleged competitive advantages. 
Further, while FPI transactions constitute intragovernmental 
transfers (18 U.S.C. 4124(c)), and not contracts, there was no 
solicitation, statutory, or regulatory provision that required the 
agency to specifically evaluate the impact of this difference.''

    4. Comment: DoD should conduct yearly or semi-yearly market studies 
to determine FPI's current market share for a product.
    DoD Response: As permitted by section 827(b)(2) of Public Law 110-
181, DoD will modify the list of products for which FPI has a 
significant market share when new data indicate the need for 
modification. The latest update was made on June 3, 2009, and is 
available at http://www.acq.osd.mil/dpap/cpic/cp/specific_policy_areas.html#federal_prison. DoD does not consider it necessary to 
establish a specific schedule for updating the list.
    5. Comment: Textiles and clothing should be added to the list of 
items for which FPI has a significant market share, based on sales 
information in FPI's 2007 Annual Report.
    DoD Response: Textiles and clothing fall within the 8000 series of 
Federal supply classes. The initial list, published on March 28, 2008, 
was based on DoD contract data for fiscal year 2006, which indicated 
that FPI's market share during that fiscal year did not exceed 5 
percent for any of the Federal supply classes in the 8000 series. The 
current list, published on June 3, 2009, is based on fiscal year 2008 
contract data and contains three federal supply classes within the 8000 
series: 8405, Men's Outerwear; 8415, Special Purpose Clothing; and 
8420, Men's Underwear and Nightwear.
    6. Comment: The web site referenced in the rule at 208.602-70(b) 
does not take you directly to the list of Federal supply classes for 
which FPI has a significant market share. Recommend referencing a site 
that provides a better link to the list.
    DoD Response: The web site referenced at 208.602-70(b) now provides 
direct access to the list.
    This rule was subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
point of contact

[[Page 59916]]

specified herein. The analysis is summarized as follows:
    The objective of the rule is to provide for competition in the 
acquisition of items for which FPI has a significant market share. The 
legal basis for the rule is 10 U.S.C. 2410n, as amended by section 827 
of the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 
110-181). The rule is expected to benefit small business concerns that 
offer items for which FPI has a significant market share, by permitting 
those concerns to compete for additional DoD contract awards. The rule 
also could adversely impact small business concerns that provide 
supplies and services to FPI relative to the affected items. There are 
no practical alternatives that would accomplish the objectives of 
section 827 of Public Law 110-181.

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 208

    Government procurement.

Amy G. Williams,
Editor, Defense Acquisition Regulations System.

0
Accordingly, the interim rule amending 48 CFR part 208, which was 
published at 73 FR 46816 on August 12, 2008, is adopted as a final rule 
without change.

[FR Doc. E9-27848 Filed 11-18-09; 8:45 am]
BILLING CODE 5001-08-P