[Federal Register Volume 77, Number 144 (Thursday, July 26, 2012)]
[Rules and Regulations]
[Pages 44059-44062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17727]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 16, 32, and 52

[FAC 2005-60; FAR Case 2011-003; Item II; 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: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending 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: Effective Date: August 27, 2012.

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 FAC 2005-60, FAR Case 2011-
003.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 76 FR 44884 on July 27, 2011, to make the necessary 
regulatory revisions to enable the use of the appropriate payment 
provisions for time-and-materials and labor-hour contracts. These 
revisions supplement the following previously issued revisions to the 
FAR addressing time-and-materials contracts:

[[Page 44060]]

    (1) FAR Case 2003-027, Additional Commercial Contract Types (71 FR 
74667 dated 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 (SARA), amended section 8002(d) of the Federal 
Acquisition Streamlining Act of 1994 (FASA) (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 (71 FR 74656 dated 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.

II. Discussion and Analysis of the Public Comments

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the 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:

A. Summary of Significant Changes

    The proposed rule sought to harmonize the provisions for invoicing 
and submission of the final invoice between FAR clauses 52.216-7, 
Allowable Cost and Payment, and 52.232-7, Payments under Time-and 
Materials and Labor-Hour Contracts, when a time-and-materials contract 
is being used. Currently, under a time-and-materials contract, FAR 
clause 52.232-7 provides for monthly invoicing and submission of the 
completion voucher no later than one year from the date of work 
completion. These provisions are in conflict with the corresponding 
provisions of FAR clause 52.216-7, which is invoked under a time-and-
materials contract. FAR clause 52.216-7 provides for invoicing on a bi-
weekly basis for large businesses, and more frequent invoicing for 
small businesses, and the submission of the completion voucher no later 
than 120 days after completion of work.
    Consequently, the final rule amends the basic FAR clause 52.232-7 
to reflect the provisions for invoicing and submission of the 
completion voucher at FAR clause 52.216-7. This final rule deletes 
Alternate I along with its prescription for use at FAR 32.111(a)(7)(i).
    Alternate I of FAR 52.232-7 provided for the addition of paragraph 
(j) in labor-hour contracts which deleted the terms of the basic clause 
governing the reimbursement of furnished materials. Alternate I, 
paragraph (j), is superfluous and is deleted since the terms of the 
basic clause governing the reimbursement of furnished materials are in 
effect self-deleting.

B. Analysis of Public Comments

    Three respondents submitted comments in response to the proposed 
rule. A discussion of these comments and the changes made to the rule 
as a result of these comments are provided as follows:
1. Time-and-Materials Contracts and Ceiling Prices
    Comment: A respondent recommended changing the way time-and-
materials contracts are managed to align more closely with how the 
Canadian procurement regulations manage time-and-materials contracts. 
Specifically, U.S. Government regulations should include language 
requiring a ceiling price on time-and-materials contracts within which 
the contractor must complete the prescribed work.
    Response: This comment is outside the scope of this case, which was 
limited to simply clarifying the existing prescriptions and clauses 
relating to appropriate payment provisions for use in time-and-
materials and labor-hour contracts. FAR 16.601 delineates that time and 
materials contracts must include a ceiling price that the contractor 
exceeds at its own risk.
2. Inclusion of FAR 52.246-6(f) Provision
    Comment: A respondent stated that the proposed rule should include 
consideration of the provision found at FAR 52.246-6(f), Inspection--
Time-and-Material and Labor-Hour, paragraph (f) (requirement to replace 
or correct services or materials that failed to meet contract 
requirements).
    Response: This comment is outside the scope of this case, which was 
limited to simply clarifying the existing prescriptions and clauses 
relating to appropriate payment provisions for use in time-and-
materials and labor-hour contracts. Inclusion of FAR provision 52.246-
6(f) language into the payment provisions at FAR 52.212-4, 52.216-7, or 
52.232-7 is unnecessary.
3. Consistency Between Revised Clauses
    Comment: A respondent cited several instances where language was 
inconsistent between the clauses under the proposed rule. Specifically, 
the proposed rule aligned the frequency of invoicing and the period for 
submission of the completion voucher provisions for time-and-materials 
contracts at FAR 52.232-7 with that currently set forth in the 
``Allowable Cost and Payment'' clause at FAR 52.216-7. However, for 
labor-hour contracts, under Alternate I to 52.232-7, the proposed rule 
left the invoicing and period for submission of the completion voucher 
provisions, which were different from the requirements set forth in FAR 
52.216-7 and 52.232-7, unchanged. The respondent questioned this 
inconsistency regarding these provisions.
    Response: The invoicing and submission of the completion voucher 
provisions in time-and-materials contracts and labor-hour contracts 
should align. Consequently, the final rule does not include the 
proposed rule language regarding invoicing and the period for 
submission of completion vouchers for labor-hour contracts in Alternate 
I to FAR clause 52.232-7.

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 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.

IV. 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 it merely clarifies the 
existing prescriptions and clauses relating to services contracts. No 
comments from

[[Page 44061]]

small entities were submitted in response to the Regulatory Flexibility 
Act request under the proposed rule.

V. 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 16, 32, and 52

    Government procurement.

    Dated: July 16, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 16, 32, and 52 as 
follows:

0
1. The authority citation for 48 CFR parts 16, 32, and 52 is revised to 
read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 16--TYPES OF CONTRACTS

0
2. Amend section 16.307 by revising paragraph (a)(1); and adding 
paragraphs (a)(3) through (5) to read as follows:


Sec.  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 the clause at 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, the clause at 52.216-7 
does not apply to labor-hour contracts.
* * * * *
    (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 32--CONTRACT FINANCING

0
3. Amend section 32.111 by revising paragraph (a)(7) to read as 
follows:


Sec.  32.111  Contract clauses for non-commercial purchases.

    (a) * * *
    (7) The clause at 52.232-7, Payments under Time-and-Materials and 
Labor-Hour Contracts, in solicitations and contracts when a time-and-
materials or labor-hour contract is contemplated. If the contracting 
officer determines that it is necessary to withhold payment to protect 
the Government's interests, paragraph (a)(7) of the clause permits the 
contracting officer to unilaterally issue a modification requiring the 
contractor to withhold 5 percent of amounts due, up to a maximum of 
$50,000 under the contract. The contracting officer shall ensure that 
the modification specifies the percentage and total amount of the 
withheld payment. Normally, there should be no need to withhold payment 
for a contractor with a record of timely submittal of the release 
discharging the Government from all liabilities, obligations, and 
claims, as required by paragraph (g) of the clause.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Amend Alternate I of section 52.212-4 by--
0
a. Revising the date of Alternate I and the introductory text;
0
b. Revising paragraphs of (i)(1) introductory text and (i)(1)(ii)(A); 
and
0
c. Adding paragraph (m).
    The revised and added text reads as follows:


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

* * * * *
    Alternate I (AUG 2012). 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) Payments. (1) Work performed. The Government will pay the 
Contractor as follows upon the submission of commercial invoices 
approved by the Contracting Officer:
* * * * *
    (ii) * * *
    (A) If the Contractor furnishes materials that meet the 
definition of a commercial item at 2.101, the price to be paid for 
such materials shall not exceed the Contractor's established catalog 
or market price, adjusted to reflect the--
* * * * *
    (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)(4) 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.


0
5. Amend section 52.216-7 by adding Alternates II through Alternates IV 
to read as follows:


Sec.  52.216-7   Allowable Cost and Payment.

* * * * *
    Alternate II (AUG 2012). As prescribed in 16.307(a)(3), 
substitute the following paragraph (a)(1) for paragraph (a)(1) of 
the basic clause:
    (a)(1) The Government will make payments to the Contractor when 
requested as work progresses, but not more often than once every two 
weeks, in amounts determined to be allowable by the Contracting 
Officer in accordance with 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 (AUG 2012). As prescribed in 16.307(a)(4), 
substitute the following paragraph (a)(1) for paragraph (a)(1) of 
the basic clause:
    (a)(1) The Government will make payments to the Contractor when 
requested as work progresses, but not more often than once every two 
weeks, in amounts determined to be allowable by the Contracting 
Officer in accordance with 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 (AUG 2012). As prescribed in 16.307(a)(5), 
substitute the following paragraph (a)(1) for paragraph (a)(1) of 
the basic clause:
    (a)(1) The Government will make payments to the Contractor when 
requested as work progresses, but not more often than once every two 
weeks, in amounts determined to be allowable by the Contracting 
Officer in

[[Page 44062]]

accordance with 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.


0
6. Amend section 52.232-7 by--
0
a. Revising the date of the clause;
0
b. Revising the introductory text of paragraph (a)(5);
0
c. Removing from the last sentence of paragraph (f) ``1 year'' and 
adding ``120 days'' in its place; and
0
d. Removing ``Alternate I''.
    The revised text reads as follows:


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

* * * * *

Payments Under Time-and-Materials and Labor-Hour Contracts (AUG 2012)

* * * * *
    (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 schedule) 
by evidence of actual payment and by--
* * * * *
[FR Doc. 2012-17727 Filed 7-25-12; 8:45 am]
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