[Federal Register Volume 75, Number 53 (Friday, March 19, 2010)]
[Rules and Regulations]
[Pages 13422-13425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5991]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 52

[FAC 2005-39; FAR Case 2008-015; Item VI; Docket 2009-0015, Sequence 1]
RIN 9000-AL26


Federal Acquisition Regulation; FAR Case 2008-015, Payments Under 
Fixed-Price Architect-Engineer Contracts

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 on a final rule 
amending the Federal Acquisition Regulation (FAR) to revise the 
withholding of payment requirements under FAR 52.232-10. This FAR 
change was initiated by the Small Business Administration (SBA) 
Advocacy Office and is a part of the SBA, Office of Advocacy's 
Regulatory Review and Reform Initiative, or r3 initiative. The r3 
program was established to help small businesses address the cumulative 
Federal regulatory burden.

DATES: Effective Date: April 19, 2010.

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact 
Ms. Suzanne Neurauter, Procurement Analyst, at 202-219-0310. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-39, FAR 
case 2008-015.

SUPPLEMENTARY INFORMATION:

A. Background

    The FAR at 52.232-10, Payments Under Fixed-Price Architect-Engineer 
Contracts, currently requires contracting officers to withhold 10 
percent of the amounts due on each voucher; however, payment can be 
made in full during any month in which the contracting officer 
determines the performance to be satisfactory. The Government retains 
the withheld amount until the contracting officer determines that the 
work has been satisfactorily completed. The contracting officer may 
release excess withheld amounts to the contractor when the contracting 
officer determines

[[Page 13423]]

that the work is substantially complete or when the contracting officer 
determines that the amount retained is in excess of the amount adequate 
for the protection of the Government's interests.
    This final rule revises FAR 52.232-10 to permit contracting 
officers to use their judgment regarding the amount of payment withheld 
to apply under fixed-price architect-engineer (A-E) contracts (based on 
an assessment of the contractor's performance under the contract) so 
that the withheld amount will be applied at the level necessary to 
protect the Government's interests. This is in contrast to the current 
requirement that contracting officers withhold 10 percent on all 
payments. Thus, this final rule revises paragraph (b) of the contract 
clause at FAR 52.232-10 to state that contracting officers shall 
withhold up to 10 percent of the payment due only if the contracting 
officer determines that such a withholding is necessary to protect the 
Government's interest and ensure satisfactory completion of the 
contract. The amount of withholding shall be determined based upon the 
contractor's performance record. This final rule also makes several 
related editorial changes including one that clarifies that the 
contractor will be paid any unpaid balance due to include withheld 
amounts at the successful completion of the A-E services work.

Discussion and Analysis
    A proposed rule was published in the Federal Register at 74 FR 
20666 on May 5, 2009. The FAR Secretariat received eight (8) responses 
to the proposed rule from seven (7) respondents. These responses 
included a total of 34 comments on 13 issues. Each issue is discussed 
in the following sections.
    1. Support for the proposed revision.
    Four respondents wrote in support of the proposed rule. One 
respondent commended the Councils for following through on the change, 
which was initially undertaken as part of the SBA's r3 initiative, a 
tool for small business stakeholders to suggest needed reforms.
    2. Clearly distinguish A-E contracts from construction contracts.
    Two respondents recommended that the FAR clearly distinguish 
between A-E contracts and construction contracts, pointing out that A-E 
services are not construction services.
    Response: The Councils thought this would be unnecessary, given 
that FAR part 36 addresses the two types of contracts separately, even 
assigning a separate subpart, subpart 36.6, for A-E contracts. Both A-E 
and construction are thoroughly, and separately, defined at FAR 2.101, 
in terms that do not overlap. No change to the FAR is needed.
    3. Require contracting officers to release excess retainage once 
work is substantially complete.
    Response: This change, requested by three respondents, has been 
made in paragraph (c) of the clause. The clause at FAR 52.232-10, 
Payments under Fixed-Price Architect-Engineer Contracts, requires (not 
merely ``authorizes'') payment by the Government of ``the unpaid 
balance of any money due for work under the statement, including all 
withheld amounts'' upon satisfactory completion and final acceptance of 
``all the work done by the Contractor under the `Statement of 
Architect-Engineer Services.''' The ``Statement of Architect-Engineer 
Services'' is the statement of work for the instant A-E contract; it 
does not include any follow-on construction contract. The rule also 
deletes the second sentence of FAR 52.232-10(c), which allowed the 
Government to retain some monies due until ``satisfactory completion 
and final acceptance of the construction work''.
    The matter of the Government's acceptance of the work is addressed 
at item 10 below.
    4. Adopt retainage requirements similar to those for fixed-price 
contracts with the rest of the construction industry.
    One respondent recommended that the Councils ``adopt FAR 
requirements identical to those for fixed-price contracts made with the 
rest of the construction industry.''
    Response: The Councils note that other respondents rejected 
treating A-E services as a type of construction service. Further, the 
Councils believe that retainage for A-E contracts is now predicated on 
contracting officers determining if retainage is necessary to protect 
the Government's interests and ensure satisfactory completion of the 
contract. Any such retainage is to be released in full, not partially, 
upon satisfactory completion of the A-E statement of work.
    5. Consider past performance in retainage decisions.
    Three respondents asked that past performance (on previous 
contracts) be taken into consideration when negotiating whether 
retainage will be applied to a fixed-price A-E contract.
    Response: The Councils partially concur. Past performance is taken 
into account in selecting the successful offeror and making the 
contract award. In effect, contracting officers are considering 
performance to date on the instant contract when deciding whether to 
retain and in assessing whether current performance is satisfactory.
    6. Proposed rule removes a mandatory requirement designed to 
protect the Government's financial interests.
    One respondent, a Government agency, disagreed with the proposed 
rule, stating that it removes a mandatory requirement designed to (a) 
protect the financial interest of the Government in a fixed-price 
contract, (b) apply a uniform withholding of payments to all 
contractors; and (c) provide an incentive for contractors to complete 
the contract obligation in a timely manner.
    Response: Retainage was a mandatory 10 percent unless performance 
was satisfactory during that month. The rule continues to require 
retainage when determined necessary to protect the Government's 
interests and ensure satisfactory completion of the contract.
    7. Proposed rule fails to provide statutory authority.
    One respondent stated that the proposed rule fails to provide the 
statutory authority for this clause or for retainage on Federal A-E 
contracts.
    Response: Title 40 of the United States Code, chapter 11, Selection 
of Architects and Engineers, is the statutory authority for FAR 
coverage on A-E contracts. The authority for retainage on A-E contracts 
is not statutory but is included in the FAR to ensure the Government's 
interests are protected until final delivery and acceptance of these 
types of services is made.
    8. Proposed rule inappropriately uses the term ``design work''.
    Two respondents believe that the proposed rule loosely and 
inappropriately uses the term ``design work'', while the retainage 
requirement is applied to all types of A-E contracts, not just those 
for design services. A third respondent states that all A-E services 
should be covered by the revised retainage rule.
    Response: The Councils agree, noting that the definition of A-E 
services at FAR 2.101 includes other services such as surveying and 
mapping, consultations, and plans and specifications (see item 9 
below). The final rule has deleted the term ``design'' in the two 
places it is used in FAR 52.232-10(c) of the proposed rule.
    9. Specifically include ``surveying, mapping, and geospatial''.
    One respondent requested that the term ``surveying, mapping, and 
geospatial'' be specifically included in the rule and in FAR 52.232-10.
    Response: Any revisions to the definition of A-E services are 
outside the scope of this case. The Councils note that A-E services are 
defined at FAR 2.101.

[[Page 13424]]

    10. Add requirements to ensure prompt and timely review and 
acceptance of deliverables from A-E contractors.
    Four respondents commented upon the need for prompt and timely 
review and acceptance by the Government of deliverables under A-E 
contracts.
    Response: The Councils take no position on this question because it 
is outside the scope of this case, which was limited to the question of 
retainage on A-E contracts. Other FAR clauses such as FAR 52.232-26, 
Prompt Payment for Fixed-Price Architect-Engineer Contracts, deal with 
these requirements.
    11. Eliminate retainage altogether, except for cause, and require 
contracting officer to bear burden of proving that any withholding of 
fee is necessary.
    Three respondents expressed opposition to the concept of mandatory 
retainage. One respondent opposed the use of any fee withholding 
requirement, and another respondent asked the Councils to clarify that 
retainage is now discretionary, not mandatory.
    Response: The Councils agree that retainage remains an option, one 
that depends on the contractor's performance on the instant contract. 
If the contractor's performance is satisfactory, there need not be any 
retainage at all for the period. The revised paragraph (b) of FAR 
52.232-10 states that contracting officers ``shall require a 
withholding from amounts due under paragraph (a) of this clause of up 
to 10 percent only if the Contracting Officer determines that such a 
withholding is necessary to protect the Government's interest and 
ensure satisfactory completion of the contract.'' (Emphasis added). 
This means that, if performance is satisfactory for the period, then 
retainage could be zero. Also, some amount less than 10 percent could 
be retained.
    The third respondent compared A-E retainage to the payments for 
fixed-price construction contracts and claimed that the burden of proof 
remains on the contracting officer to justify withholding a portion of 
a construction contractor's fee, while this is not the case for A-E 
contracts.
    Response: The Councils disagree with respondent, because the 
revised FAR 52.232-10(b), quoted above, makes it clear that contracting 
officers must make a decision each performance period, based on the 
contractor's performance, whether to retain any amount and, if so, how 
much--up to 10 percent of the vouchered amount--to retain.
    12. Fee withholding should be different for task orders under 
indefinite-delivery/indefinite-quantity (IDIQ) contracts.
    Four respondents commented that IDIQ contracts should be treated 
differently. One respondent noted that some small A-E firms believe 
that the current regulation may not be consistent with IDIQ contracting 
practices. This comment is supported by four other comments received on 
this same point. One respondent claimed that retainage for individual 
task orders under an IDIQ contract is, at times, currently held until 
the entire IDIQ contract is complete.
    Response: Retainage should be related to the contractor's 
performance on the individual task or delivery order and, in order to 
be compliant with the requirements of FAR 52.232-10, the contractor 
must be paid any unpaid balance upon satisfactory completion of the 
work under that contract, whether it is a task or delivery order or a 
stand-alone contract. However, this is a matter of educating 
contracting officers rather than changing policy; the policy is 
correct, but its execution needs improving.
    13. Impact on small businesses.
    One respondent disagreed with the proposed rule's finding that the 
proposed change would not have a significant impact on small firms.
    Response: While the Councils agree that there were some cases 
during contract administration where the retainage in the mandatory 
amount of 10 percent was not justified, the changes made in this rule 
do not rise to the level of a significant impact on a substantial 
number of small entities.
    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 Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify 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 the rule does not 
impose any additional requirements on small businesses. There are 
approximately 230,000 architect-engineer firms, many of which are small 
businesses. This rule actually eases the impact on such firms, but not 
to the point of having a significant economic impact on a substantial 
number of small entities.

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. 
chapter 35, et seq.

List of Subjects in 48 CFR Part 52

    Government procurement.

    Dated: March 15, 2010.
Al Matera,
Director, Acquisition Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR part 52 as set forth below:

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
1. The authority citation for 48 CFR part 52 continues to read as 
follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).


0
2. Amend section 52.232-10 by revising the date of the clause and 
paragraphs (a), (b), and (c) to read as follows:


52.232-10  Payments under Fixed-Price Architect-Engineer Contracts.

* * * * *
    PAYMENTS UNDER FIXED-PRICE ARCHITECT-ENGINEER CONTRACTS APR 2010.

    (a) Estimates shall be made monthly of the amount and value of 
the work and services performed by the Contractor under this 
contract which meet the standards of quality established under this 
contract. The estimates, along with any supporting data required by 
the Contracting Officer, shall be prepared by the Contractor and 
submitted along with its voucher.
    (b) After receipt of each substantiated voucher, the Government 
shall pay the voucher as approved by the Contracting Officer or 
authorized representative. The Contracting Officer shall require a 
withholding from amounts due under paragraph (a) of this clause of 
up to 10 percent only if the Contracting Officer determines that 
such a withholding is necessary to protect the Government's interest 
and ensure satisfactory completion of the contract. The amount 
withheld shall be determined based upon the Contractor's performance 
record under this contract. Whenever the Contracting Officer 
determines that the work is substantially complete and that the 
amount retained is in excess of the amount adequate for the 
protection of the Government, the Contracting Officer shall release 
the excess amount to the Contractor.
    (c) Upon satisfactory completion by the Contractor and final 
acceptance by the Contracting Officer of all the work done by the 
Contractor under the ``Statement of Architect-Engineer Services'', 
the Contractor will be paid the unpaid balance of any

[[Page 13425]]

money due for work under the statement, including all withheld 
amounts.
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[FR Doc. 2010-5991 Filed 3-18-10; 8:45 am]
BILLING CODE 6820-EP-S