[Federal Register Volume 77, Number 42 (Friday, March 2, 2012)]
[Rules and Regulations]
[Pages 12925-12927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4481]



[[Page 12925]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 2, 7, 16, 32, 42, and 50

[FAC 2005-56; FAR Case 2008-030; Item II; Docket 2011-0082, Sequence 1]
RIN 9000-AL78


Federal Acquisition Regulation; Proper Use and Management of 
Cost-Reimbursement 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: DoD, GSA, and NASA have adopted as final, with changes, an 
interim rule amending the Federal Acquisition Regulation (FAR) to 
implement a section of the Duncan Hunter National Defense Authorization 
Act for Fiscal Year 2009 that addresses the use and management of cost-
reimbursement contracts.

DATES: Effective Date: April 2, 2012

FOR FURTHER INFORMATION CONTACT: Mr. William Clark, Procurement 
Analyst, at 202-219-1813, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-56, FAR Case 2008-
030.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 76 FR 14543 on March 16, 2011, to implement section 864 of 
the Duncan Hunter National Defense Authorization Act for Fiscal Year 
2009 (NDAA) (Pub. L. 110-417) enacted on October 14, 2008. This law 
aligns with the President's goal of reducing high-risk contracting as 
denoted in the March 4, 2009, Presidential Memorandum on Government 
Contracting. Section 864 of the law requires amending the FAR to 
address the use and management of cost-reimbursement contracts in the 
following three areas:
    1. Circumstances when cost-reimbursement contracts are appropriate.
    2. Acquisition plan findings to support the selection of a cost-
reimbursement contract.
    3. Acquisition resources necessary to award and manage a cost-
reimbursement contract.
    Six respondents submitted comments in response to the interim rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule. A discussion of the comments and the 
changes made to the rule as a result of those comments are provided as 
follows:
    Comment: One respondent expressed a preference for continued 
reliance on OMB Circular A-133 Audits of States, Local Governments and 
Non-Profit Organizations to determine and monitor the adequacy of an 
educational institution or nonprofit organization's accounting system 
during the performance of cost-type contracts.
    Response: The rule does not prevent reliance on OMB Circular A-133 
to determine and monitor the adequacy of an educational institution or 
nonprofit organization's accounting system during the performance of 
cost-type contracts.
    Comment: A number of respondents asked for clarification of whether 
the appointment of a contracting officer's representative (COR) is now 
mandatory for other than firm-fixed-price contracts.
    Response: A COR is required on all contracts and orders other than 
those that are firm-fixed-price, and for firm-fixed-price contracts, as 
appropriate. The Government applies this requirement to all contract 
types except firm-fixed-price contracts.
    Comment: One respondent referenced FAR 16.103(d)(1) stating ``Each 
contract file shall include documentation to show why the particular 
contract type was selected. This shall be documented in the acquisition 
plan, or if a written acquisition plan is not required, in the contract 
file.'' The respondent recommended clarifying the circumstances when a 
formal acquisition plan would not be required.
    Response: There are circumstances, such as low dollar thresholds or 
non-complex contracts, which are set forth in agency procedures, when a 
formal acquisition plan is not required. However, if a written 
acquisition plan is not required, the contract type selection must 
still be documented in the contract file.
    Comment: One respondent expressed support for the interim rule and 
stated an opinion that cost-plus-incentive-fee is the best contract 
type for the Government and U.S. taxpayer, particularly when in a sole-
source environment.
    Response: Contracting officers are required to determine the 
appropriate contract type that is in the best interests of the 
Government.
    Comment: One respondent recommended that the final rule be written 
so as to exempt research and development (R&D) contracts from the 
requirements. The respondent questioned the necessity of the 
documentation requirements set forth in this rule for R&D contracts. 
Further, the respondent questioned the necessity of assigning CORs to 
R&D contracts, since contracting officers generally retain such duties.
    Response: Section 864 does not provide for an exception for R&D 
contracts under this rule. Each contract file shall include 
documentation to show why the particular contract type was selected, in 
order to ensure the appropriate contract type is utilized. Specifically 
for high risk contracts such as R&D contracts it is necessary to 
discuss the Government's additional risks and the burden to manage the 
contract type selected. Contracting officers are not precluded under 
this rule from retaining COR duties.
    Comment: One respondent recommended that the Councils reset the 
effective date of the interim rule to permit training and designation 
of CORs and revision of internal guidance and templates.
    Response: The statute does not provide for a grace period to permit 
training and designation of CORs and revision of internal guidance and 
templates.
    Comment: One respondent commented that the interim rule interferes 
with the contracting officer's discretion in selecting the appropriate 
contract type, and imposes a documentation burden that may not be 
effective in actually reducing the risk to the Government.
    Response: The rule does not interfere with the contracting 
officer's discretion to select the appropriate contract type. It merely 
clarifies when cost-reimbursement contracts are appropriate and 
requires the contracting officer to document the rationale for the 
decision.
    Comment: One respondent questioned the applicability of the rule to 
other than firm-fixed price contracts, and specifically for supply type 
contracts. The respondent questioned whether the term ``other than 
firm-fixed price contracts'' means only cost-reimbursement, time-and-
material, and labor-hour contracts.
    Response: The term ``other than firm-fixed price contracts'' means 
all contract types other than firm-fixed price contracts, including 
supply type contracts.

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    Comment: One respondent recommended the contracting officer be 
required to make a written determination in order to retain and execute 
the COR duties. Further the respondent recommended delaying the 
designation of the COR until the contractor or potential contractor is 
identified and the terms and conditions of the contract are known.
    Response: Contracting officers are not required to make formal 
written determinations in order to retain their existing duties and 
responsibilities. However, when the appointment of CORs is necessary, 
in order to ensure adequate resources are available to monitor and 
manage other than firm-fixed price contracts, CORs must be nominated as 
early as practicable. It would not be in the Government's best interest 
to delay such appointments.

III. Changes in the Final Rule

    The following changes were made in the final rule:
    (1) FAR 1.602-2(d) was revised to clarify that COR duties may be 
retained by contracting officers; the language has been revised and 
moved to the first sentence.
    (2) FAR 1.602-2(d)(1), (3), and (6) were modified to make 
administrative revisions.
    (3) At FAR 1.602-2(d)(2), the word ``current'' has been added and 
the words ``dated November 26, 2007'' have been removed. Additionally, 
the phrase ``or for DoD, DoD Regulations as applicable'' has been 
replaced by the phrase ``or for DoD, in accordance with the current 
applicable DoD policy guidance.''
    (4) With regard to nomination of a COR, FAR 7.104(e) was modified 
to delete ``and designated and authorized by the contracting officer'' 
because it is redundant to language in the following sentence.
    (5) FAR 16.103(d)(1) was revised to make an administrative change. 
The phrase ``in the contract file'' was moved from the end of the 
sentence to the middle of the sentence for clarity. The words ``by 
agency procedures'' were also added for clarity.
    (6) Because the need to document the contract file with regard to 
selection of contract type is already adequately addressed in FAR 
16.103(d)(1), FAR 16.301-2(b) was revised to remove the next to last 
sentence, ``If a written acquisition plan is not required, the 
contracting officer shall document the rationale in the contract 
file.''
    (7) FAR 16.301-3(a)(4) has been modified to add at the beginning 
``Prior to award of the contract or order,'' with regard to the 
requirement for availability of adequate Government resources to award 
and manage a contract other than firm-fixed price. FAR 16.301-3(a)(4) 
is further modified to delete the previous (a)(4)(i) (designation of 
COR is addressed elsewhere) and make the old (a)(4)(ii) the second 
sentence of (a)(4). The previous (a)(4)(ii) language has been revised 
to read, ``This includes appropriate Government surveillance during 
performance in accordance with 1.602-2, to provide reasonable assurance 
that efficient methods and effective cost controls are used.''

IV. 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 not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

V. 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 section 864 affects 
only internal Government operations and requires the Government to 
establish internal guidance on the proper use and management of all 
contracts especially other than firm-fixed-price contracts (e.g., cost-
reimbursement, time-and-material, and labor-hour) and does not impose 
any additional requirements on small businesses. Therefore, a Final 
Regulatory Flexibility Analysis has not been performed.

VI. Paperwork Reduction Act

    The final 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 1, 2, 7, 16, 32, 42, and 50

    Government procurement.

    Dated: February 21, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

Interim Rule Adopted as Final With Changes

    Accordingly, the interim rule amending 48 CFR parts 1, 2, 7, 16, 
32, 42, and 50 which was published in the Federal Register at 76 FR 
14543 on March 16, 2011, is adopted as final with the following 
changes:

0
1. The authority citation for 48 CFR parts 1, 7, and 16 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 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

0
2. Amend section 1.602-2 by--
0
a. Revising the introductory text of paragraph (d), and paragraphs 
(d)(1), (d)(2), and (d)(3); and
0
b. Removing from paragraph (d)(6) ``Must'' and adding ``Shall'' in its 
place.
    The revised text reads as follows:


1.602-2  Responsibilities.

* * * * *
    (d) Unless the contracting officer retains and executes the 
contracting officer's representative (COR) duties, in accordance with 
agency procedures, designate and authorize, in writing, a COR on all 
contracts and orders other than those that are firm-fixed price, and 
for firm-fixed-price contracts and orders as appropriate. See 7.104(e). 
A COR--
    (1) Shall be a Government employee, unless otherwise authorized in 
agency regulations;
    (2) Shall be certified and maintain certification in accordance 
with the current Office of Management and Budget memorandum on the 
Federal Acquisition Certification for Contracting Officer 
Representatives (FAC-COR) guidance, or for DoD, in accordance with the 
current applicable DoD policy guidance;
    (3) Shall be qualified by training and experience commensurate with 
the responsibilities to be delegated in accordance with agency 
procedures;
* * * * *

PART 7--ACQUISITION PLANNING


7.104  [Amended]

0
3. Amend section 7.104 by removing from paragraph (e) ``, and 
designated

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and authorized by the contracting officer,''.

PART 16--TYPES OF CONTRACTS

0
4. Amend section 16.103 by revising the second sentence of paragraph 
(d)(1) introductory text to read as follows:


16.103  Negotiating contract type.

* * * * *
    (d) * * *
    (1) * * * This shall be documented in the acquisition plan, or in 
the contract file if a written acquisition plan is not required by 
agency procedures.
* * * * *


16.301-2  [Amended]

0
5. Amend section 16.301-2 by removing the second sentence from 
paragraph (b).

0
6. Amend section 16.301-3 by--
0
a. Removing from paragraph (a)(3) ``contract;'' and adding ``contract 
or order;'' in its place; and
0
b. Revising paragraph (a)(4).
    The revised text reads as follows:


16.301-3  Limitations.

    (a) * * *
    (4) Prior to award of the contract or order, adequate Government 
resources are available to award and manage a contract other that firm-
fixed-priced (see 7.104(e)). This includes appropriate Government 
surveillance during performance in accordance with 1.602-2, to provide 
reasonable assurance that efficient methods and effective cost controls 
are used.
* * * * *

[FR Doc. 2012-4481 Filed 3-1-12; 8:45 am]
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