[Federal Register Volume 78, Number 251 (Tuesday, December 31, 2013)]
[Rules and Regulations]
[Pages 80382-80384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-31150]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 13, 32, 43, and 52

[FAC 2005-72; FAR Case 2013-005; Item III; Docket 2013-0005, Sequence 
1]
RIN 9000-AM45


Federal Acquisition Regulation; Terms of Service and Open-Ended 
Indemnification and Unenforceability of Unauthorized Obligations

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, without change, an 
interim rule amending the Federal Acquisition Regulation (FAR) to 
address concerns raised in an opinion from the U.S. Department of 
Justice (DOJ) Office of Legal Counsel (OLC) involving the use of 
unrestricted, open-ended indemnification clauses in acquisitions for 
social media applications.

DATES: Effective: December 31, 2013.

FOR FURTHER INFORMATION CONTACT: Ms. Marissa Petrusek, Procurement 
Analyst, at 202-501-0136, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-72, FAR Case 2013-
005.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 78 FR 37686 on June 21, 2013, to implement a recent DOJ OLC 
opinion, entitled ``Memorandum for Barbara S. Fredericks, Assistant 
General Counsel for Administration, United States Department of 
Commerce,'' which noted that the Anti-Deficiency Act (ADA) (31 U.S.C. 
1341) is violated when a Government contracting officer or other 
employee with authority to bind the Government agrees, without 
statutory authorization or other exception, to an open-ended, 
unrestricted indemnification clause. On April 4, 2013, the Office of 
Management and Budget (OMB) issued guidance outlining a series of 
management actions to ensure agencies act in compliance with the ADA 
and in accordance with OLC's opinion. See

[[Page 80383]]

OMB Guidance M-13-10, Anti-deficiency Act Implications of Certain 
Online Terms of Service Agreements. The interim rule became effective 
on June 21, 2013. One respondent submitted comments on the interim 
rule.

II. Discussion and Analysis

    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 is provided 
as follows:

A. Summary of Significant Changes

    No changes were made as a result of the public comments.

B. Analysis of Public Comments

1. Attachment of Clause to Licenses
    Comment: The respondent believed that the clause does not reliably 
attach to licenses because of situations where an End User License 
Agreement (EULA) or Terms of Service (TOS) is passed through an 
intermediary contractor or subcontractor to the Government. The 
respondent recommended that the Government directly negotiate with 
major commercial software and service providers to ensure that the 
clause ``is included in those providers' EULAs or TOSs with the 
Government and that the interim rule make clear that commercial items 
and software can be accepted only where such an agreement has been made 
directly with the licensor''.
    Response: The clause does attach to licenses. The clause is not 
limited to instances in which the Government has directly negotiated 
with the indemnitees. No change is made in the final rule.
2. Unintended Consequences
    Comment: The respondent expressed concern that this rule could lead 
commercial companies to forego doing business with the Government. Not 
all contractors may be able to accept the risk re-allocation effected 
by the interim rule, according to the respondent.
    Response: The interim rule became effective on June 21, 2013. The 
objective of the rule is to clarify that the inclusion of an open-ended 
indemnification clause in a EULA, TOS, or other agreement, is not 
binding on the Government unless expressly authorized by statute and 
specifically authorized under applicable agency regulations and 
procedures, and shall be deemed to be stricken from the EULA, TOS, or 
similar legal instrument or agreement. Since the interim rule was 
published, the Councils have received no indications that the scenario 
envisioned by the respondent has come to pass. No change is made in the 
final rule.
3. Alternative Solutions To Address the ADA Concerns
    Comment: The respondent suggested two alternatives. The first was 
for the Department of Justice to definitively indicate that agency 
disclosures are not required for (and contracting officers will not be 
prosecuted for) ADA violations stemming solely from open-ended 
indemnifications contained in commercial EULAs and TOSs so long as, 
once discovered, the Government negotiates with the licensor directly 
to limit the attendant open-ended risk. The other alternative was for 
the Government to retain the clause from the interim rule with a cap on 
licensors' liability at the amount of appropriated funds directed to 
the particular purchase.
    Response: This type of additional guidance would not be included in 
the FAR. Development of this additional guidance is outside the purview 
of the Councils. No change is made in the final rule.

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 a significant regulatory action and, therefore, was 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

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 
U.S.C. 601, et seq. The FRFA is summarized as follows:

    This final rule is required to implement an opinion by the U.S. 
Department of Justice Office of Legal Counsel. The objective of the 
final rule is to clarify that the inclusion of an open-ended 
indemnification clause in a EULA, TOS, or other agreement, is not 
binding on the Government unless expressly authorized by statute and 
specifically authorized under applicable agency regulations and 
procedures, and shall be deemed to be stricken from the EULA, TOS, 
or similar legal instrument or agreement.
    The Chief Counsel for Advocacy of the Small Business 
Administration did not submit any comments in response to the rule.
    This rule will impact all small entities with a supply or 
service contract subject to a supplier license agreement. There may 
be a small beneficial impact on small entities because these 
revisions to the FAR will help save time and streamline processes 
since small entities will no longer have to individually 
renegotiate, on a prospective basis, a EULA, TOS, or similar 
agreement containing an indemnification provision. Further, clauses 
like open-ended, unrestricted indemnification clauses have generally 
been unenforceable against the Government, unless expressly 
authorized by statute, and the FAR is being revised to reflect this.
    DoD, GSA and NASA estimate that this rule will impact 
approximately 3,538 small entities. Many supplies or services are 
acquired subject to supplier license agreements. These are 
particularly common in information technology acquisitions, but they 
may apply to any supply or service. DoD, GSA and NASA considered 
that the majority of the information technology purchases associated 
with this rule will be purchased through the GSA Information 
Technology Schedule 70 contracts. As such, DoD, GSA, and NASA used, 
as a basis for the estimate, the number of GSA Information-
Technology Schedule 70 vendors, plus an estimate for contractors 
other than information technology acquisitions.
    There are currently 4,988 GSA Information-Technology Schedule 70 
vendors. DoD, GSA and NASA estimate that this rule will impact 75 
percent, or 3,741, of those vendors because they have EULAs or TOS 
in their Government contracts. Of those affected entities, it is 
estimated that around 86 percent, or 3,217, will be small entities. 
DoD, GSA, and NASA estimate that there are approximately 10 percent, 
or 321, more small entities across the Government with information 
technology acquisitions and other than information-technology 
acquisition with Government contracts that include EULAs or TOS and 
therefore impacted. As a result, it is estimated that this rule will 
impact approximately 3,538 small entities.
    DoD, GSA, and NASA do not anticipate an impact on small entities 
in acquisitions conducted through Government purchase cards. This is 
because the rule does not require entities to negotiate or change 
their agreement language.
    There is no record keeping or reporting requirement for this 
rule.
    Steps have been taken in this interim rule to minimize the 
impact on small entities which help to save them time and streamline 
their processes; for example, this would greatly reduce the 
requirement to negotiate all EULAs, TOS, or similar arrangements on 
a case-by-case basis.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat

[[Page 80384]]

has submitted a copy of the FRFA to the Chief Counsel for Advocacy of 
the Small Business Administration.

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 12, 13, 32, 43, and 52

    Government procurement.

    Dated: December 19, 2013.
William Clark,
Acting Director, Office of Government-wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-wide Policy.

Interim Rule Adopted as Final Without Change

    Accordingly, the interim rule amending 48 CFR parts 12, 13, 32, 43, 
and 52, which was published in the Federal Register at 78 FR 37686 on 
June 21, 2013, is adopted as a final rule without change.

[FR Doc. 2013-31150 Filed 12-30-13; 8:45 am]
BILLING CODE 6820-EP-P