[Federal Register Volume 78, Number 88 (Tuesday, May 7, 2013)]
[Proposed Rules]
[Pages 26573-26575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10211]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 28, and 52

[FAR Case 2011-023; Docket 2011-0023; Sequence 1]
RIN 9000-AM53


Federal Acquisition Regulation; Irrevocable Letters of Credit

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 remove all references to Office of 
Federal Procurement Policy (OFPP) Pamphlet No. 7, Use of Irrevocable 
Letters of Credit, and also provide updated sources of data required to 
verify the credit worthiness of a financial entity issuing or 
confirming an irrevocable letter of credit (ILC).

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before July 8, 2013 to be considered in the formation of the final 
rule.

ADDRESSES: Submit comments in response to FAR Case 2011-023 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2011-023.'' Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2011-023.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2011-023'' 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-
023, 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: Ms. Cecelia Davis, Procurement 
Analyst, at 202-219-0202, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAR Case 2011-023.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA are proposing to amend the Federal Acquisition 
Regulation (FAR) to remove all references to OFPP Pamphlet No. 7, Use 
of Irrevocable Letters of Credit, and provide updated sources of data 
required to verify the credit worthiness of a financial entity issuing 
or confirming an ILC.
    OFPP Pamphlet No. 7 provided detailed guidance for implementing 
policy letter 91-4, Use of Irrevocable Letters of Credit (ILC), for 
Government

[[Page 26574]]

contracts. A prior FAR final rule (FAR Case 2000-605, Rescission of 
Office of Federal Procurement Policy Letters, 65 FR 36014) removed the 
FAR references to OFPP Policy Letter 91-4 along with several other 
policy letters that were rescinded by OFPP, effective March 30, 2000 
(see 65 FR 16968). However, the reference to OFPP Pamphlet No. 7 
remained in FAR Part 28 because the information was considered relevant 
and provided, among other information, a listing of available 
quantitative and qualitative credit rating institutions and resources, 
formats for ILCs, and other useful data.
    FAR 28.204-3 currently cites OFPP Pamphlet No. 7 at subparagraphs 
(g)(1) and (h)(1) as an available resource that may be used to obtain 
information on credit rating services or investment grade ratings of 
financial entities issuing or confirming ILCs because it provides 
overarching policy and specific guidance on the use of ILCs, but some 
of the information is outdated. Therefore, instead of referencing the 
OFPP Pamphlet, this rule proposes to--
    (1) Extract from the OFPP Pamphlet the relevant and current 
information for inclusion in the FAR; and
    (2) Provide additional sources of data required to verify the 
credit worthiness of a financial entity issuing or confirming an ILC, 
as summarized on the Web sites of the Federal Deposit Insurance 
Corporation (http://www2.fdic.gov/idasp/index.asp) and Securities and 
Exchange Commission (http://www.sec.gov/answers/nsro.htm).

II. 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 Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

III. 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 the rule only removes references to OFPP Pamphlet No. 7 
in FAR Part 28 and replaces these references with information relative 
to sources of data required to verify the credit worthiness of a 
financial entity offering an ILC. Nevertheless, an Initial Regulatory 
Flexibility Analysis has been performed, and is summarized as follows:

    This action is necessary to remove a reference to OFPP Pamphlet 
No. 7, Use of Irrevocable Letters of Credit, and provide updated 
sources of data required to verify credit worthiness of a financial 
entity issuing or confirming an ILC.
    The objective of the rule is to provide up-to-date and readily 
available information on requirements regarding credit rating for 
the financial institution issuing or confirming an ILC.
    This will apply to all contracts for services, supplies, or 
construction, when a bid guarantee or performance and payment bonds 
are required. 40 U.S.C. 3131 requires performance and payment bonds 
for any construction contract exceeding $100,000; this was raised 
for inflation to $150,000 (see FAR 1.109). Any person required to 
furnish a bond has the option to furnish a bond secured by an ILC. 
For construction contracts valued at $30,000 to $150,000, 
alternative payment protection is required, which may involve an 
ILC. Generally, agencies do not require bonds for other than 
construction contracts. According to data from the Federal 
Procurement Data System, in FY 2011 there were about 58,000 new 
awards for construction and construction maintenance, of which 
41,000 were awarded to small businesses (about 70 percent). If we 
estimate that 10 percent of these awards involve an ILC, then this 
rule applies to approximately 4,100 small businesses.
    The rule only removes references to OFPP Pamphlet No. 7 and 
replaces these references with information relative to sources of 
data required to verify an ILC that generally replicates what was in 
the pamphlet. There are no new reporting, recordkeeping, or 
compliance requirements.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    No significant alternatives to the rule were identified that 
would accomplish the objectives of the rule. We do not foresee any 
significant economic impact of the rule on small entities. The basic 
requirements remain unchanged; the requirements of the pamphlet are 
directly stated, some of the references have been updated, and a Web 
site provided for access to a list of Nationally Recognized 
Statistical Rating Organizations.

    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 this 
proposed 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 
2011-023) in correspondence.

IV. 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). 
However, there is a pre-existing requirement at FAR 52.228-14 for 
offerors/contractors to provide the contracting officer a credit rating 
that indicates the financial institutions have the required credit 
rating as of the date of issuance of the ILC. OMB Control Number 9000-
0045, titled: Bid Guarantees, Performance and Payment Bonds, and 
Alternative Payment Protections, covers the information collection 
requirements associated with alternative payment protections (including 
ILCs) and acceptable security for bonds (including ILCs). ILCs are 
seldom offered as alternative payment protection or security for a bid 
bond, performance bond, or payment bond. The negligible burden of 
providing a credit rating along with the required ILC is already 
sufficiently covered by the approved burden hours in 9000-0045.

List of Subjects in 48 CFR Parts 1, 28, and 52

    Government procurement.

    Dated: April 25, 2013.
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 1, 28, 
and 52 as set forth below:

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

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

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM


1.106  [Amended]

0
2. Amend section 1.106, in the table following the introductory text, 
by adding in numerical sequence, FAR segment ``52.228-14'' and its 
corresponding OMB Control No. ``9000-0045''.

PART 28--BONDS AND INSURANCE

0
3. The authority citation for 48 CFR part 28 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.


[[Page 26575]]


0
4. Amend section 28.204-3 by revising the section heading and 
paragraphs (a), (g), and (h) to read as follows:


28.204-3  Irrecovable Letter of Credit.

    (a) Any person required to furnish a bond has the option to furnish 
a bond secured by an irrevocable letter of credit (ILC) in an amount 
equal to the penal sum required to be secured (see 28.204). A separate 
ILC is required for each bond.
* * * * *
    (g) Only federally insured financial institutions rated investment 
grade shall issue or confirm the ILC. Unless the financial institution 
issuing the ILC had letter of credit business of at least $25 million 
in the past year, ILCs over $5 million must be confirmed by another 
acceptable financial institution that had letter of credit business of 
at least $25 million in the past year.
    (1) The offeror/contractor is required by paragraph (d) of the 
clause at 52.228-14, Irrevocable Letter of Credit, to provide the 
contracting officer a credit rating from a recognized commercial rating 
service that indicates the financial institution has the required 
rating(s) as of the date of issuance of the ILC.
    (2) To support the credit rating of the financial institution(s) 
issuing or confirming the ILC, the contracting officer shall verify the 
following information:
    (i) Federal insurance. Each financial institution is federally 
insured. Verification of federal insurance is available through the 
Federal Deposit Insurance Corporation (FDIC) institution directory at 
the Web site http://www2.fdic.gov/idasp/index.asp.
    (ii) Current credit rating. The current credit rating for each 
financial institution is investment grade and that the credit rating is 
a Nationally Recognized Statistical Rating Organization (NRSRO). NRSROs 
can be located at the Web site http://www.sec.gov/answers/nrsro.htm 
maintained by the SEC.
    (3) The rating services listed in the Web site above use different 
rating scales (e.g., AAA, AA, A, BBB, BB, B, CCC, CC, C, and D; or Aaa, 
Aa, A, Baa, Ba, B, Caa, Ca, and C) to provide evaluations of 
institutional credit risk; however, all such systems specify the range 
of investment grade ratings (e.g., BBB-AAA or Baa-Aaa in the above 
examples) and permit evaluation of the relative risk associated with a 
specific institution. If the contracting officer learns that a 
financial institution's rating has dropped below investment grade 
level, the contracting officer shall give the contractor 30 days to 
substitute an acceptable ILC or shall draw on the ILC using the sight 
draft in paragraph (g) of the clause at 52.228-14.
    (h) A copy of the Uniform Customs and Practice (UCP) for 
Documentary Credits, 2006 Edition, International Chamber of Commerce 
Publication No. 600, is available from: ICC Books USA, 1212 Avenue of 
the Americas, 21st Floor, New York, NY 10036, Phone: 212-703-5066, Fax: 
212-391-6568, E-Mail: [email protected], Via the Internet at: http://store.iccbooksusa.net.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Amend section 52.228-14 by revising the date of the clause and 
paragraphs (d), (e)(5), and (f)(5) to be read as follows:


52.228-14  Irrevocable Letter of Credit.

* * * * *

Irrevocable Letter of Credit (Date)

* * * * *
    (d)(1) Only federally insured financial institutions rated 
investment grade by a commercial rating service shall issue or 
confirm the ILC.
    (2) Unless the financial institution issuing the ILC had letter 
of credit business of at least $25 million in the past year, ILCs 
over $5 million must be confirmed by another acceptable financial 
institution that had letter of credit business of at least $25 
million in the past year.
    (3) The offeror/Contractor shall provide the Contracting Officer 
a credit rating that indicates the financial institutions have the 
required credit rating as of the date of issuance of the ILC.
    (4) The current rating for a financial institution is available 
through any of the following rating services registered with the 
U.S. Securities and Exchange Commission (SEC) as a Nationally 
Recognized Statistical Rating Organization (NRSRO). NRSRO's can be 
located at the Web site http://www.sec.gov/answers/nsro.htm 
maintained by the SEC.
    (e) * * *
    5. This Letter of Credit is subject to the Uniform Customs and 
Practice (UCP) for Documentary Credits, International Chamber of 
Commerce Publication No. -------------------------------- (Insert 
version in effect at the time of ILC issuance, e.g., ``Publication 
600, 2006 edition'') and to the extent not inconsistent therewith, 
to the laws of ------------------------ State of confirming 
financial institution, if any, otherwise State of issuing financial 
institution.
* * * * *
    (f) * * *
    5. This confirmation is subject to the Uniform Customs and 
Practice (UCP) for Documentary Credits, International Chamber of 
Commerce Publication No. -------------------------------- (Insert 
version in effect at the time of ILC issuance, e.g., ``Publication 
600, 2006 edition'') and to the extent not inconsistent therewith, 
to the laws of ------------------------ State of confirming 
financial institution.
* * * * *
[FR Doc. 2013-10211 Filed 5-6-13; 8:45 am]
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