[Federal Register Volume 77, Number 144 (Thursday, July 26, 2012)]
[Proposed Rules]
[Pages 43780-43782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-18276]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 8, 12, 16, and 52

[FAR Case 2011-025; Docket 2011-0025; Sequence 1]
RIN 9000-AM28


Federal Acquisition Regulation; Changes to Time-and-Materials and 
Labor-Hour Contracts and Orders

AGENCIES: 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 provide additional guidance when 
raising the ceiling price or otherwise changing the scope of work for a 
time-and-materials (T&M) or labor-hour (LH) contract or order.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before September 24, 2012 to be considered in the formation of the 
final rule.

ADDRESSES: Submit comments in response to FAR Case 2011-025 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2011-025''. Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2011-025.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2011-025'' 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-
025, 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. Michael O. Jackson, Procurement Analyst, at 202-208-4949, for 
clarification of content. For information pertaining to status or 
publication schedules, contact the Regulatory Secretariat at 202-501-
4755. Please cite FAR Case 2011-025.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA are proposing to revise the FAR to implement a 
policy that provides additional guidance to address actions required 
when raising the ceiling price for a T&M or LH contract or order. FAR 
Case 2009-043, ``Time-and-Materials and Labor-Hour Contracts for 
Commercial Items'', was published as a final rule in the Federal 
Register at 77 FR 194 on January 3, 2012. As a result of FAR case 2009-
043, the Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) were concerned that 
contracting officers may erroneously conclude that a Determination and 
Findings (D&F) is always sufficient to justify a change in the ceiling 
price.

II. Discussion and Analysis

    This FAR case provides additional guidance to address actions 
required when raising the ceiling price or otherwise changing the 
general scope of a T&M or LH contract or order. The case provides 
guidance to address this issue for the respective parts of the FAR 
addressing T&M and LH contracts or orders, such as FAR 8.404, 12.207, 
and 16.601.
    The Government Accountability Office stated within Matter of 
Specialty Marine, Inc., B-293871, B-293871.2, 2004 Comp. Gen. Proc. 
Dec. P130, (June 17, 2004) that: ``When a protester alleges that an 
order is outside the scope of the contract, we analyze the protest in 
essentially the same manner as those in which the protester argues that 
a contract modification is outside the scope of the underlying 
contract. The fundamental issue is whether issuance of the task or 
delivery order in effect circumvents the general statutory requirement 
under the Competition in Contracting Act (CICA) that agencies `obtain 
full and open competition through the use of competitive procedures' 
when procuring their requirements. See 10 U.S.C. 2304(a)(1)(A) (2000).
    In determining whether a task or delivery order (or modification) 
is outside the scope of the underlying contract, and thus falls within 
CICA's competition requirement, our Office examines whether the order 
is materially different from the original contract. Evidence of a 
material difference is found by reviewing the circumstances attending 
the original procurement; any changes in the type of work, performance 
period, and costs between the contract as awarded and the order as 
issued; and whether the original solicitation effectively advised 
offerors of the potential for the type of orders issued. Overall, the 
inquiry is whether the order is one which potential offerors would have 
reasonably anticipated.''
    The Councils propose the following changes:
    FAR 8.404(h)(3)(iv). This paragraph is revised to require analysis 
and documentation for changes in T&M or LH orders and to clarify that 
changes in the general scope should be justified as non-competitive new 
work. In addition, a clarification is added that if modifying an order 
to add open market items, the contracting officer must also comply with 
the requirements at FAR 8.402(f).
    FAR 12.207(b)(1)(ii)(C). This paragraph is revised to require 
analysis and documentation for changes in T&M or LH contracts or orders 
and to clarify that changes in the general scope should be justified as 
non-competitive new work. The new proposed language distinguishes 
between changes that modify the general scope of a contract and changes 
that modify the general scope of an order. For the changes that modify 
the general scope of the contract, contracting officers are advised to 
follow the procedures at FAR 6.303. For the changes that modify the 
general scope of an order, contracting officers are advised to follow 
the procedures at FAR 8.405-6 for orders issued under the Federal 
Supply Schedules. For the orders issued under multiple award task and 
delivery order contracts, contracting officers are advised to follow 
the procedures at FAR 16.505(b)(2).
    FAR 16.505(b)(4) and (5). These paragraphs are added to reference

[[Page 43781]]

additional requirements for cost reimbursement, T&M or LH orders.
    FAR 16.601. This section is revised to require analysis and 
documentation for changes in T&M or LH contracts or orders and to 
clarify that changes in the general scope should be justified as non-
competitive new work. FAR 16.601(d) has also been amended to make it 
clear that a D&F is required for T&M orders. This FAR change will 
clarify that a T&M D&F is required for each non-commercial item T&M 
order under a part 16 indefinite-delivery indefinite-quantity (IDIQ) 
contract. This change is necessary both to keep part 16 parallel with 
part 8 (which requires a D&F for each part 8 T&M order) and to clarify 
an unintended lack of clarity in the 2006 FAR changes that rewrote much 
of the T&M policies in the FAR (see FAC 2005-15, published in the 
Federal Register at 71 FR 74656 on December 12, 2006). Currently, only 
part 12 includes a direct requirement for T&M orders to be authorized 
by a T&M D&F, but this applies only to commercial items. This FAR case 
is adding a clarification to part 8 to repeat that policy to ensure 
that part 8 T&M orders are also each authorized by a T&M D&F. With this 
case, part 16 is also being changed to explicitly require T&M D&Fs for 
orders.
    FAR 16.601(e). The new proposed language distinguishes between 
changes that modify the general scope of a contract and changes that 
modify the general scope of an order. For the changes that modify the 
general scope of the contract, contracting officers are advised to 
follow the procedures at FAR 6.303. For the changes that modify the 
general scope of an order, contracting officers are advised to follow 
the procedures at FAR 8.405-6 for orders issued under the Federal 
Supply Schedules. For the orders issued under multiple award task and 
delivery order contracts, contracting officers are advised to follow 
the procedures at FAR 16.505(b)(2).

III. Executive Order 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 change may 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. The Initial Regulatory 
Flexibility Analysis (IRFA) is summarized as follows:

    The purpose of this case is to clarify the procedures necessary 
to raise the ceiling price of a time-and-materials (T&M) or labor-
hour (LH) contract or order.
    In finalizing FAR rule 2009-043 ``Time-and-Materials and Labor-
Hour Contracts for Commercial Items'' it became apparent that the 
guidance in the FAR on raising the ceiling price for a T&M or LH 
contract or order was not clear or consistent throughout the FAR. 
This case was opened to clarify the process and necessary 
documentation when raising the ceiling price for these contracts or 
orders.
    This rule deals with the administration of T&M and LH contracts 
and orders and most likely will not have a direct effect on 
contractors. In FY 2011, the Federal Government awarded 23,023 T&M 
and LH contracts and orders of which 6,315 went to small businesses. 
This rule is not likely to affect how many large and small 
businesses are awarded this type of contract.
    This rule does not add any new information collection 
requirements.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    No alternatives were determined that will accomplish the 
objectives of the rule.

    The Regulatory Secretariat will be submitting a copy of the Initial 
Regulatory Flexibility Analysis (IRFA) to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the IRFA may 
be obtained from the Regulatory Secretariat. The Councils 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 this 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 2011-025) 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 8, 12, 16, and 52

    Government procurement.

    Dated: July 20, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 8, 12, 
16, and 52 as follows:
    1. The authority citation for 48 CFR parts 8, 12, 16, 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 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES

    2. Amend section 8.404 by revising paragraph (h)(3)(iv) to read as 
follows:


 8.404  Use of Federal Supply Schedules.

* * * * *
    (h) * * *
    (3) * * *
    (iv) Prior to an increase in the ceiling price of a time-and-
materials or labor-hour order, the ordering activity shall--
    (A) Conduct an analysis of pricing and other relevant factors to 
determine if the action is in the best interest of the Government and 
document the order file;
    (B) Follow the procedures at 8.405-6 for a change that modifies the 
general scope of the order; and
    (C) Comply with the requirements at 8.402(f) when modifying an 
order to add open market items.

PART 12--ACQUISITION OF COMMERCIAL ITEMS

    3. Amend section 12.207 by revising paragraph (b)(1)(ii)(C) to read 
as follows:


12.207  Contract type.

* * * * *
    (b)(1) * * *
    (ii) * * *
    (C) Prior to increasing the ceiling price of a time-and-materials 
or labor-hour contract or order, shall--
    (1) Conduct an analysis of pricing and other relevant factors to 
determine if the action is in the best interest of the Government;
    (2) Document the decision in the contract or order file; and
    (3) When making a change that modifies the general scope of--
    (i) A contract, follow the procedures at 6.303;
    (ii) An order issued under the Federal Supply Schedules, follow the 
procedures at 8.405-6; or

[[Page 43782]]

    (iii) An order issued under multiple award task and delivery order 
contracts, follow the procedures at 16.505(b)(2).
* * * * *

PART 16--TYPE OF CONTRACTS


16.504  [Amended]

    4. Amend section 16.504 by removing from paragraph (a)(4)(v) ``(see 
16.505(b)(6))'' and adding ``(see 16.505(b)(8))'' in its place.
    5. Amend section 16.505 by--
    a. Removing from paragraph (b)(1)(iv)(E) ``paragraph (b)(4)'' and 
adding ``paragraph (b)(6)'' in its place;
    b. Redesignating paragraphs (b)(4) through paragraphs (b)(6) as 
paragraphs (b)(6) through (b)(8), respectively; and
    c. Adding new paragraphs (b)(4) and (b)(5).
    The additions read as follows:


16.505  Ordering.

* * * * *
    (b) * * *
    (4) For additional requirements for cost reimbursement orders see 
16.301-3.
    (5) For additional requirements for time-and-materials or labor-
hour orders, see 16.601(e).
* * * * *
    6. Amend section 16.601 by--
    a. Removing from paragraph (c)(2)(i) ``(see 16.601(e)(1))'' and 
adding ``(see 16.601(f)(1))'' in its place;
    b. Revising paragraph (d) introductory text and paragraph (d)(2);
    c. Redesignating paragraph (e) as paragraph (f); and
    d. Adding a new paragraph (e),
    The revisions and addition read as follows.


16.601  Time-and-materials contracts.

* * * * *
    (d) Limitations. A time-and-materials contract or order may be used 
only if--
* * * * *
    (2) The contract or order includes a ceiling price that the 
contractor exceeds at its own risk. Also see 12.207(b) for further 
limitations on use of time-and-materials or labor-hour contracts for 
acquisition of commercial items.
    (e) Post award requirements. Prior to an increase in the ceiling 
price of a time-and-materials or labor-hour contract or order, the 
contracting officer shall--
    (1) Conduct an analysis of pricing and other relevant factors to 
determine if the action is in the best interest of the Government;
    (2) Document the decision in the contract or order file; and
    (3) When making a change that modifies the general scope of--
    (i) A contract, follow the procedures at 6.303;
    (ii) An order issued under the Federal Supply Schedules, follow the 
procedures at 8.405-6; or
    (iii) An order issued under multiple award task and delivery order 
contracts, follow the procedures at 16.505(b)(2).
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.216-29  [Amended]

    7. Amend section 52.216-29 by removing from the introductory 
paragraph ``16.601(e)(1)'' and adding ``16.601(f)(1)'' in its place.


52.216-30  [Amended]

    8. Amend section 52.216-30 by removing from the introductory 
paragraph ``16.601(e)(2)'' and adding ``16.601(f)(2)'' in its place.


52.216-31  [Amended]

    9. Amend section 52.216-31 by removing from the introductory 
paragraph ``16.601(e)(3)'' and adding ``16.601(f)(3)'' in its place.

[FR Doc. 2012-18276 Filed 7-25-12; 8:45 am]
BILLING CODE 6820-EP-P