[Federal Register Volume 76, Number 144 (Wednesday, July 27, 2011)]
[Proposed Rules]
[Pages 44884-44887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18520]



[[Page 44884]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 16 and 52

[FAR Case 2011-003; Docket 2011-0003; Sequence 1]
RIN 9000-AM01


Federal Acquisition Regulation; Payments Under Time-and-Materials 
and Labor-Hour Contracts

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to make necessary revisions to accommodate 
the authorization to use time-and-materials and labor-hour contract 
payment requirements.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before September 26, 2011 to be considered in the formation of the 
final rule.

ADDRESSES: Submit comments in response to FAR case 2011-003 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by inputting ``FAR Case 
2011-003'' under the heading ``Enter Keyword or ID'' and selecting 
``Search.'' Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2011-003.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2011-003'' on your attached document.
     Fax: (202) 501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Hada Flowers, 1275 First Street, NE., 7th 
Floor, Washington, DC 20417.
    Instructions: Please submit comments only and cite FAR Case 2011-
003, in all correspondence related to this case. All comments received 
will be posted without change to http://www.regulations.gov, including 
any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at (202) 501-3221 for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAR Case 2011-
003.

SUPPLEMENTARY INFORMATION: 

I. Background

    On December 12, 2006, DoD, GSA, and NASA published two final FAR 
rules that made significant changes to the regulations for time-and-
materials and labor-hour contracts:
    (1) FAR Case 2003-027, Additional Commercial Contract Types, 
published in the Federal Register at 71 FR 74667, December 12, 2006, 
implemented section 1432 of the National Defense Authorization Act for 
Fiscal Year 2004 (Pub. L. 108-136). Title XIV of the Act, referred to 
as the Services Acquisition Reform Act of 2003, amended section 8002(d) 
of the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355, 
41 U.S.C. 3307) to expressly authorize the use of time-and-materials 
and labor-hour contracts for commercial services under specified 
conditions.
    (2) FAR Case 2004-015, Payments Under Time-and-Materials and Labor-
Hour Contracts, published in the Federal Register at 71 FR 74656, 
December 12, 2006, revised and clarified policies related to the award 
and administration of noncommercial time-and-materials and labor-hour 
contracts and the policies regarding payments made under those 
contracts.
    This rule proposes to make additional changes to enable the use of 
appropriate payment provisions for time-and-materials and labor-hour 
contracts, addressing potential problems with the new time-and-
materials regulations.

II. Discussion and Analysis

A. Commercial Time-and-Material (T&M) Contracts

    Termination for Cause. FAR 52.212-4, Contract Terms and 
Conditions--Commercial Items, contains the provisions on the 
Government's right to terminate commercial contracts. If the Government 
terminates the contract for the Government's convenience, the 
Government pays the contractor for work performed prior to the 
termination, plus reasonable charges resulting from the termination. If 
the Government terminates the contract for cause, the Government only 
pays for supplies and services ``accepted by the Government.''
    Alternate I of the clause establishes the termination-for-
convenience provisions for commercial T&M contracts. Consistent with 
the basic clause, the Government pays contractors for work performed 
prior to the termination plus reasonable charges that result from the 
termination. However, Alternate I does not provide any unique 
termination-for-cause provisions for commercial T&M contracts. 
Currently, without substitute/unique provisions, the termination-for-
cause provisions of the basic clause apply. Under those provisions, the 
Government only pays for work ``accepted by the Government.'' However, 
those provisions are inconsistent with the longstanding noncommercial 
T&M termination-for-cause provisions.
    Alternate IV of FAR 52.249-6, Termination (Cost-Reimbursement), 
provides that the Government pays the contractor for work performed 
prior to the termination for cause. For labor ``not accepted by the 
Government,'' the Government pays for work performed, but does not pay 
any profit on the work.
    The proposed rule establishes commercial T&M termination-for-cause 
provisions that are consistent with the longstanding provisions for 
noncommercial T&M contracts. Under the proposed rule, the contractor 
will be paid for work performed prior to the termination for cause, 
including work ``not delivered to or accepted by the Government,'' less 
applicable profit.

B. Payment for Nonconforming Supplies and Services

    When supplies or services do not conform to contract requirements, 
the Government generally rejects the supplies or services. The 
Government ordinarily provides contractors an opportunity to correct or 
replace nonconforming supplies or services when correction or 
replacement can be accomplished within the required delivery schedule. 
Correction or replacement is generally made without additional cost to 
the Government. However, certain contract types, including T&M 
contracts, generally require the Government to pay additional costs for 
replacement or correction, but no additional fee is paid. Payment for 
replacement or re-performance is consistent with the ``best efforts'' 
nature of T&M contracts. The Government generally pays for replacement 
and re-performance on both commercial and noncommercial T&M contracts.
    However, a subtle difference in the terminology used for payments 
in the commercial and noncommercial T&M clauses may be causing 
confusion over whether the treatment for replacement and re-performance 
is the same on both commercial and noncommercial contracts. For 
noncommercial T&M

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contracts, FAR 52.232-7, Payments under Time-and-Materials and Labor-
Hour Contracts, states--

    ``The Government will pay the Contractor as follows upon the 
submission of vouchers approved by the Contracting Officer or the 
authorized representative.''

    In addition to the above coverage, paragraph (i)(1) of the 
commercial T&M clause (Alternate I of FAR 52.212-4, Contract Terms and 
Conditions--Commercial Items) states--

    ``Services accepted. Payment shall be made for services accepted 
by the Government that have been delivered to the delivery 
destinations(s) set forth in this contract.''

    Inclusion of the additional text in the commercial T&M clause is 
unnecessary. Therefore, this rule proposes to delete the inappropriate 
text in the commercial T&M clause.

C. Commercial Item Materials

    The payment provisions for commercial item materials are 
inconsistent in the commercial T&M clause and the noncommercial T&M 
clause. The noncommercial T&M clause provides that the price to be paid 
for commercial-item materials ``shall not exceed'' the contractor's 
established catalog or market price. The commercial T&M clause provides 
that the price to be paid for commercial-item materials ``shall be'' 
the contractor's established catalog or market price. Since commercial 
item pricing is subject to negotiation, the rule revises the commercial 
T&M clause to be consistent with the noncommercial clause.

D. Noncommercial Time-and-Materials

    The Allowable Cost and Payment Clause, FAR 52.216-7, is a required 
contract clause for noncommercial time-and-materials contracts. 
However, a couple of the provisions of FAR 52.232-7, Payments Under 
Time-and-Materials and Labor-Hour Contracts, are inconsistent with 
provisions of the Allowable Cost and Payment FAR clause 52.216-7.
    (a) Payment. The Allowable Cost and Payment FAR clause 52.216-7 
authorizes bi-weekly invoicing for large businesses and more frequent 
invoicing for small businesses. However, FAR 52.232-7, Payments under 
Time-and-Materials Contracts and Labor-Hour Contracts, only authorizes 
monthly invoicing.
    By authorizing bi-weekly invoicing for time-and-materials contracts 
under FAR clause 52.232-7, the proposed rule aligns invoicing under 
time-and-materials contracts with invoicing under FAR 52.216-7. 
However, the rule does not change the frequency of invoicing under 
labor-hour contracts which remains at no more than once each month 
under revised Alternate I.
    (b) Completion Voucher. The Allowable Cost and Payment, FAR clause 
52.216-7 requires the contractor to submit a completion voucher within 
120 days after settlement of final indirect cost rates. However, Time-
and-Materials and Labor-Hour Contracts, FAR clause 52.232-7, requires 
submission of a completion voucher within one year after the contract 
is completed. By requiring the submission of the completion voucher 
within 120 days after contract completion for time-and-materials 
contracts under FAR clause 52.232-7, the proposed rule aligns the 
submission of the completion voucher under time-and-materials contracts 
with that prescribed under FAR clause 52.216-7. However, the rule does 
not change the requirement for the submission of the completion voucher 
under labor-hour contracts which remains at one year.

E. Application of FAR 52.216-7 to Time-and-Materials and Labor-Hour 
Contracts

    This rule proposes to amend FAR 16.307(a)(1) to clarify that for 
time-and-materials contracts FAR clause 52.216-7 is used in conjunction 
with FAR clause 52.232-7, and that FAR clause 52.216-7 does not apply 
to labor-hour contracts.
    Revision of FAR 16.307(a)(1) and creation of new subparagraphs FAR 
16.307(a)(3), (a)(4), and (a)(5). Creation of new Alternate clauses II, 
III, and IV at FAR 52.216-7.
    Currently, FAR 16.307(a)(1) contains a series of prescriptions to 
modify FAR clause 52.216-7, Allowable Cost and Payment, by changing the 
particular subpart reference under part 31, Contract Cost Principles 
and Procedures, depending on the characterization of the business 
entity: educational institutions, State or local governments, or non-
profit organizations. Consequently, this subparagraph is extremely busy 
and not reader friendly. For ease of reading and general clarity, FAR 
16.307(a)(1) has been reduced significantly, and FAR subparagraphs 
16.307(a)(3), (a)(4), and (a)(5) have been created. These new 
subparagraphs, respectively, prescribe the use of new Alternate 
clauses; II (educational institutions), III (state or local 
governments), and IV (non-profit organizations) at FAR 52.216-7. Each 
new alternate clause reflects the controlling subpart under part 31, 
e.g., subpart 31.3 for Alternate II (educational institutions).

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was 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.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA do not expect this proposed 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 it merely clarifies the existing prescriptions and clause 
prefaces relating to service contracts.
    Therefore, an Initial Regulatory Flexibility Analysis has not been 
performed. DoD, GSA, and NASA invite comments from small business 
concerns and other interested parties on the expected impact of this 
rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by the rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C 610 (FAR Case 2011-003), in 
correspondence.

V. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 16 and 52

    Government procurement.

    Dated: July 15, 2011.
Laura Auletta,
Acting Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy.

    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 16 and 
52 as set forth below:

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    1. The authority citation for 48 CFR parts 16 and 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).

PART 16--TYPES OF CONTRACTS

    2. Amend section 16.307 by revising paragraph (a) to read as 
follows:


16.307   Contract Clauses.

    (a)(1) The contracting officer shall insert the clause at 52.216-7, 
Allowable Cost and Payment, in solicitations and contracts when a cost-
reimbursement contract or a time-and-materials contract (other than a 
contract for a commercial item) is contemplated. If the contract is a 
time-and-materials contract, the clause at 52.216-7 applies in 
conjunction with 52.232-7, but only to the portion of the contract that 
provides for reimbursement of materials (as defined in the clause at 
52.232-7) at actual cost. Further, 52.216-7 does not apply to labor-
hour contracts.
    (2) If the contract is a construction contract and contains the 
clause at 52.232-27, Prompt Payment for Construction Contracts, the 
contracting officer shall use the clause at 52.216-7 with its Alternate 
I.
    (3) If the contract is with an educational institution, the 
contracting officer shall use the clause at 52.216-7 with its Alternate 
II.
    (4) If the contract is with a State or local government, the 
contracting officer shall use the clause at 52.216-7 with its Alternate 
III.
    (5) If the contract is with a nonprofit organization other than an 
educational institution, a State or local government, or a nonprofit 
organization exempted under OMB Circular No. A-122, the contracting 
officer shall use the clause at 52.216-7 with its Alternate IV.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    3. Amend section 52.212-4 by amending Alternate I as follows:
    a. Revising the introductory text;
    b. Revising paragraph (i)(1) introductory text;
    c. Removing from paragraph (i)(1)(ii)(A) ``be the contractor's'' 
and adding ``not exceed the Contractor's'' in its place; and
    e. Adding paragraph (m).
    The revised and added text reads as follows:


52.212-4  Contract Terms and Conditions--Commercial Items.

* * * * *
    Alternate (I) (DATE) When a time-and-materials or labor-hour 
contract is contemplated, substitute the following paragraphs (a), (e), 
(i), (l), and (m) for those in the basic clause.
* * * * *
    (i) * * *
    (1) Work performed. The Government will pay the Contractor as 
follows upon the submission of commercial invoices approved by the 
Contracting Officer:
* * * * *
    (m) Termination for cause. The Government may terminate this 
contract, or any part hereof, for cause in the event of any default by 
the Contractor, or if the Contractor fails to comply with any contract 
terms and conditions, or fails to provide the Government, upon written 
request, with adequate assurances of future performance. Subject to the 
terms of this contract, the Contractor shall be paid an amount computed 
under paragraph (i) Payments of this clause, but the ``hourly rate'' 
for labor hours expended in furnishing work not delivered to or 
accepted by the Government shall be reduced to exclude that portion of 
the rate attributable to profit. Unless otherwise specified in 
paragraph (a)(3) of this clause, the portion of the ``hourly rate'' 
attributable to profit shall be 10 percent. In the event of termination 
for cause, the Contractor shall be liable to the Government for any and 
all rights and remedies provided by law. If it is determined that the 
Government improperly terminated this contract for default, such 
termination shall be deemed a termination for convenience.
    4. Amend section 52.216-7 by adding Alternates II, III, and IV. The 
added text reads as follows:


52.216-7   Allowable Cost and Payment.

* * * * *
    Alternate II (DATE). As prescribed in 16.307(a)(3), substitute the 
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
    (1) The Government will make payments to the Contractor when 
requested as work progresses, but (except for small business concerns) 
not more often than once every 2 weeks, in amounts determined to be 
allowable by the Contracting Officer in accordance with Federal 
Acquisition Regulation (FAR) Subpart 31.3 in effect on the date of this 
contract and the terms of this contract. The Contractor may submit to 
an authorized representative of the Contracting Officer, in such form 
and reasonable detail as the representative may require, an invoice or 
voucher supported by a statement of the claimed allowable cost for 
performing this contract.
    Alternate III (DATE). As prescribed in 16.307(a)(4), substitute the 
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
    (1) The Government will make payments to the Contractor when 
requested as work progresses, but (except for small business concerns) 
not more often than once every 2 weeks, in amounts determined to be 
allowable by the Contracting Officer in accordance with Federal 
Acquisition Regulation (FAR) Subpart 31.6 in effect on the date of this 
contract and the terms of this contract. The Contractor may submit to 
an authorized representative of the Contracting Officer, in such form 
and reasonable detail as the representative may require, an invoice or 
voucher supported by a statement of the claimed allowable cost for 
performing this contract.
    Alternate IV (DATE). As prescribed in 16.307(a)(5), substitute the 
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
    (1) The Government will make payments to the Contractor when 
requested as work progresses, but (except for small business concerns) 
not more often than once every 2 weeks, in amounts determined to be 
allowable by the Contracting Officer in accordance with Federal 
Acquisition Regulation (FAR) Subpart 31.7 in effect on the date of this 
contract and the terms of this contract. The Contractor may submit to 
an authorized representative of the Contracting Officer, in such form 
and reasonable detail as the representative may require, an invoice or 
voucher supported by a statement of the claimed allowable cost for 
performing this contract.
    5. Amend section 52.232-7 by--
    a. Revising the date of the clause;
    b. Revising paragraph (a)(5) introductory text;
    c. Removing from paragraph (f) ``1 year'' and adding ``120 days'' 
in its place; and
    d. Revising Alternate I.
    The revised text reads as follows:


52.232-7   Payments under Time-and-Materials and Labor-Hour Contracts.

* * * * *

Payments Under Time-and-Material and Labor-Hour Contracts (Date)

* * * * *
    (a) * * *
    (5) Vouchers may be submitted not more than once every two weeks to 
the Contracting Officer or authorized representative. A small business 
concern may receive more frequent payments than every two weeks. The 
Contractor shall substantiate vouchers (including any subcontractor 
hours reimbursed at the hourly rate in the

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schedule) by evidence of actual payment and by--
* * * * *
    Alternate I (DATE). If a labor-hour contract is contemplated, the 
Contracting Officer shall substitute paragraphs (a)(5) and (f) and (j) 
to the basic clause as follows:
    (a)(5) Vouchers may be submitted not more than once each month (or 
at more frequent intervals, if approved by the Contracting Officer), to 
the Contracting Officer or authorized representative. The Contractor 
shall substantiate vouchers (including any subcontractor hours 
reimbursed at the hourly rate in the schedule) by evidence of actual 
payment and by--
    (i) Individual daily job timekeeping records;
    (ii) Records that verify the employees meet the qualifications for 
the labor categories specified in the contract; or
    (iii) Other substantiation approved by the Contracting Officer.
    (f) Audit. At any time before final payment under this contract, 
the Contracting Officer may request audit of the vouchers and 
supporting documentation. Each payment previously made shall be subject 
to reduction to the extent of amounts, on preceding vouchers, that are 
found by the Contracting Officer or authorized representative not to 
have been properly payable and shall also be subject to reduction for 
overpayments or to increase for underpayments. Upon receipt and 
approval of the voucher designated by the Contractor as the 
``completion voucher'' and supporting documentation, and upon 
compliance by the Contractor with all terms of this contract 
(including, without limitation, terms relating to patents and the terms 
of paragraph (g) of this clause), the Government shall promptly pay any 
balance due the Contractor. The completion voucher, and supporting 
documentation, shall be submitted by the Contractor as promptly as 
practicable following completion of the work under this contract, but 
in no event later than 1 year (or such longer period as the Contracting 
Officer may approve in writing) from the date of completion.
    (j) The terms of this clause that govern reimbursement for 
materials furnished are considered to have been deleted.

[FR Doc. 2011-18520 Filed 7-26-11; 8:45 am]
BILLING CODE 6820-EP-P