[Federal Register Volume 79, Number 63 (Wednesday, April 2, 2014)]
[Proposed Rules]
[Pages 18503-18506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07371]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 3, 12, and 52

[FAR Case 2013-022; Docket No. 2013-0022; Sequence No. 1]
RIN 9000-AM69


Federal Acquisition Regulation; Extension of Limitations on 
Contractor Employee Personal Conflicts of Interest

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 implement a section of the National 
Defense Authorization Act (NDAA) for Fiscal Year 2013 to extend the 
limitations on contractor employee personal conflicts of interest to 
apply to the performance of all functions that are closely associated 
with inherently governmental functions and contracts for personal 
services.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before June 2, 2014 to be considered in the formation of the final 
rule.

ADDRESSES: Submit comments in response to FAR Case 2013-022 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2013-022.'' Select the link ``Comment Now'' that corresponds with ``FAR 
Case 2013-022.'' Follow the instructions provided at the ``Submit a 
Comment'' screen. Please include your name, company name (if any), and 
``FAR Case 2013-022'' on your attached document.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Hada Flowers, 1800 F Street NW., 2nd Floor, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR Case 2013-
022, 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 L. 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 2013-022.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA are proposing to revise the FAR to implement 
section 829 of the NDAA for Fiscal Year 2013 (Pub. L. 112-239). Section 
829 required the Secretary of Defense to review the guidance on 
personal conflicts of interest for contractor employees, issued 
pursuant to section 841(a) of the NDAA for Fiscal Year 2009 (Pub. L. 
110-417), in order to determine whether it would be in the best 
interest of DoD and the taxpayers to extend such guidance to personal 
conflicts of interest by contractor personnel performing any of the 
following:
    (1) Functions other than acquisition functions that are closely 
associated with inherently governmental functions (as that term is 
defined at 10 U.S.C. 2383(b)(3)).
    (2) Personal services contracts (as that term is defined in 10 
U.S.C. 2330a(g)(5)).
    (3) Contracts for staff augmentation services (as that term is 
defined in section 808(d)(3)) of the NDAA for Fiscal Year 2012 (Pub. L. 
112-81).

A. Section 841(a) of the National Defense Authorization Act for Fiscal 
Year 2008

    1. Section 841(a) (now codified at 41 U.S.C. 2303(b)) required the 
Administrator for Federal Procurement Policy to develop and issue a 
policy to address personal conflicts of interest for contractor 
employees who perform acquisition functions closely associated with 
inherently governmental functions. The final rule to implement section 
841(a) in the FAR was published in the Federal Register at 76 FR 68017 
on November 2, 2011, effective December 2, 2011. The rule added FAR 
subpart 3.11, Preventing Personal Conflicts of Interest for Contractor 
Employees Performing Acquisition Functions, and FAR clause 52.203-16, 
Preventing Personal Conflicts of Interest.

[[Page 18504]]

    2. Section 841(b) (now codified at 41 U.S.C. 2303 Note) required 
the Administrator for Federal Procurement Policy, in consultation with 
the Director of the Office of Government Ethics, to determine whether 
revisions to the FAR were necessary to address personal conflicts of 
interest by contractor employees with respect to functions other than 
those described in section 841(a).
    DoD, GSA, and NASA, in consultation with the Office of Federal 
Procurement Policy (OFPP) and the Office of Government Ethics, 
published a request for information in the Federal Register on November 
2, 2011, seeking public comment on whether additional guidance is 
necessary to address personal conflicts of interest by employees of 
Government contractors. Only one response was received. The respondent 
recommended that it was premature at that time to extend the FAR 
coverage on personal conflicts of interest, because the rule had only 
been in effect for one month, and was just beginning to be applied to 
new contracts and task orders.

 B. Section 829 of the National Defense Authorization Act for Fiscal 
Year 2013

    The Secretary of Defense reviewed existing FAR guidance on personal 
conflicts of interest for contractor employees by issuing a data call 
on February 28, 2013, to the military departments and defense agencies, 
requesting feedback on the questions posed by section 829. Responses 
were received from 23 military departments and defense agencies. The 
majority of the respondents indicated that protection or agreements 
covering additional functions would be helpful, as would a contractor-
managed personal conflicts of interest identification and mitigation 
program, similar to that required by section 841(a).
    Following analysis of the responses received, DoD concluded that 
extension of the FAR personal conflicts of interest regulations to 
additional functions and contract types may be in the best interest of 
DoD and the taxpayers. In a memo dated June 10, 2013, the Deputy 
Director of Defense Procurement and Acquisition Policy (DPAP) (Contract 
Policy and International Contracting) requested the Deputy Director 
Defense Acquisition Regulations System, to open a case to propose 
regulations relating to prevention of personal conflicts of interest. 
The memorandum further recommended that DPAP confer with OFPP and the 
FAR Council to determine whether to pursue such extension of coverage 
as a FAR change. The FAR signatories agreed to open this FAR case on 
August 2, 2013.
    The FAR coverage of personal conflicts of interest has now been in 
effect since December 2, 2011, and section 829 did not propose any 
change to the FAR regulations at subpart 3.11 and section 52.203-16, 
other than to consider extending the coverage to additional functions 
and contract types.

II. Discussion and Analysis

A. Proposed Extension of Guidance on Personal Conflicts of Interest

    This rule proposes to extend regulations on personal conflicts of 
interest to contractor employees performing all functions that are 
closely associated with inherently governmental functions (not just 
acquisition functions) and to personal services contracts (to the 
extent such contracts are authorized by law, e.g., legal or medical).
    Section 736 of Division D of Pub. L. 111-8 defines ``functions 
closely associated with inherently governmental functions'' as follows:
    ``The term `functions closely associated with inherently 
governmental functions' means the functions described in section 
7.503(d) of the Federal Acquisition Regulation.''
    The Defense Acquisition Regulations Council and the Civilian Agency 
Acquisition Council (Councils) welcome comments with regard to the 
appropriateness and benefits of this proposal, particularly if there 
are certain functions not currently covered in FAR subpart 3.11 and 
section 52.203-16 that should definitely be included (or excluded) from 
the final rule.
    The Councils also note that FAR Case 2012-001, Performance of 
Inherently Governmental Functions and Critical Functions, is currently 
being processed as a proposed rule to implement the OFPP Policy Letter 
11-01, Performance of Inherently Governmental and Critical Functions, 
issued in the Federal Register at 76 FR 56227 on September 12, 2011, 
which also addresses functions closely associated with inherently 
governmental functions.

B. Inapplicability to Commercial Items and Below the Simplified 
Acquisition Threshold

    The current FAR regulations on contractor employee personal 
conflicts of interest do not apply below the simplified acquisition 
threshold or to acquisitions of commercial items. Section 841(a)(3) 
specifically stated that the law does not apply to contracts in amounts 
that do not exceed the simplified acquisition threshold. The final rule 
under FAR Case 2008-025 added section 841(a) of the NDAA for Fiscal 
Year 2008 (now codified at 41 U.S.C. 2303(b)) to the list of laws 
inapplicable to contracts for the acquisition of commercial items (FAR 
12.503). This rule does not propose to change the applicability of the 
regulations on contractor employee personal conflicts of interest to 
commercial items or acquisitions that do not exceed the simplified 
acquisition threshold.

C. Further Changes

    Section 12.503(a)(9) is amended to clarify and update related 
citations. Further, corrections are made to the OMB Control Number in 
section 1.106.

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

    DoD, GSA, and the NASA do not expect this 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. Nevertheless, an Initial Regulatory Flexibility Analysis (IRFA) 
has been prepared and is summarized as follows:

    This proposed rule was initiated to amend the FAR to implement 
section 829 of the NDAA for Fiscal Year 2013 (Pub. L. 112-239), by 
considering extension of the contractor employees personal conflict 
of interest limitations at FAR subpart 3.11 (i.e., currently limited 
to individuals who perform an acquisition function closely 
associated with inherently governmental functions) to individuals 
who perform a function closely associated with inherently 
governmental functions or perform under a personal services contract 
and are--
    (1) An employee of the contractor; or
    (2) A subcontractor that is a self-employed individual treated 
as a covered employee of the contractor because there is no employer 
to whom such an individual could submit the required disclosures.

[[Page 18505]]

    By extending contractor employee personal conflict of interest 
limitations, the proposed rule furthers enforcement of Government 
policy that requires contractors and subcontractors to: (a) identify 
and prevent personal conflicts of interest of their covered 
employees; and (b) prohibit covered employees who have access to 
non-public information by reason of performance on a Government 
contract from using such information for personal gain.
    Section 829 of the NDAA for Fiscal Year 2013 (Pub. L. 112-239) 
required the Secretary of Defense to review the guidance on personal 
conflicts of interest for contractor employees, issued pursuant to 
section 841(a) of the NDAA for Fiscal Year 2009 (Pub. L. 110-417), 
in order to determine whether it would be in the best interest of 
the DoD and the taxpayers to extend such guidance to personal 
conflicts of interest by contractor personnel performing any of the 
following:
    (1) Functions other than acquisition functions that are closely 
associated with inherently governmental functions (as that term is 
defined at 10 U.S.C. 2383(b)(3).
    (2) Personal services contracts (as that term is defined in 10 
U.S.C. 2330a(g)(5).
    (3) Contracts for staff augmentation services (as that term is 
defined in section 808(d)(3) of the NDAA for Fiscal Year 2012 (Pub. 
L. 112-81).
    The Secretary of Defense reviewed existing FAR guidance on 
personal conflicts of interest for contractor employees by issuing a 
data call on February 28, 2013, to the military departments and 
defense agencies, requesting feedback on the questions posed by 
section 829. Responses were received from 23 military departments 
and defense agencies. The majority of the respondents indicated that 
protection or agreements covering additional functions would be 
helpful, as would a contractor-managed personal conflicts of 
interest identification and mitigation program, similar to that 
required by section 841(a).
    Following analysis of the responses received, DoD concluded that 
extension of the FAR personal conflicts of interest regulations to 
additional functions may be in the best interest of DoD and the 
taxpayers. In a memo dated June 10, 2013, the Deputy Director of 
Defense Procurement and Acquisition Policy (DPAP) (Contract Policy 
and International Contracting) requested the Deputy Director Defense 
Acquisition Regulations System, to open a case to propose 
regulations relating to prevention of personal conflicts of 
interest. The memorandum further recommended that DPAP confer with 
OFPP and the FAR Council to determine whether to pursue such 
extension of coverage as a FAR change. The FAR signatories agreed to 
open FAR Case 2013-022, Preventing Personal Conflicts of Interest 
for Contractor Employees, on August 2, 2013.
    Under the FAR clause at 52.203-16, as revised in the proposed 
rule, ``covered employees'' means an individual who performs a 
function closely associated with inherently governmental functions 
or performs under a personal services contract and is--
    (1) An employee of the contractor; or
    (2) A subcontractor that is a self-employed individual treated 
as a covered employee of the contractor because there is no employer 
to whom such an individual could submit the required disclosures.
    The following estimates are based on data reported to the 
Federal Procurement Data System (FPDS) between March 1, 2012 and 
March 1, 2013 (the first year during which such data was available), 
on contract actions over the simplified acquisition threshold (SAT) 
coded as being functions closely associated with inherently 
governmental functions, or personal services contracts (Product 
Service Code (PSC) R497).
     Between March 1, 2012, and March 1, 2013, a total of 
22,716 contract actions over the simplified acquisition threshold 
were coded as functions closely associated with inherently 
governmental functions. Of that total, 10,600 actions were awarded 
to small businesses, and 12,116 actions were awarded to other than 
small businesses.
     During the same period, a total of 5,369 contract 
actions exceeding the simplified acquisition threshold were coded 
with a R497 Product Service Code (PSC), Support-Professional: 
Personal Services Contracts. Of that total, 2,732 actions were 
awarded to small businesses, and 2,637 were awarded to other than 
small businesses.
    DoD, GSA, and NASA estimate that the 13,332 actions (10,600 for 
functions closely associated with inherently governmental functions 
and 2,732 for personal services contracts) awarded to small business 
were made to 4,444 unique small business entities (one-third of 
13,332).
    The clause at FAR 52.203-16 applies to contract actions over the 
simplified acquisition threshold, and only requires contractors to 
obtain information from each covered employee on an ``as required 
basis,'' i.e., (1) when initially assigned to a task that requires a 
disclosure of interests that might be affected by the task to which 
the employee has been assigned; and (2) whenever the employee's 
personal or financial circumstances change in such a way that a new 
personal conflict of interest might occur because of the task that 
the covered employee is performing. Other associated information 
collection is required only to report to the contracting officer any 
personal conflict of interest violation by a covered employee as 
soon as it is identified, and, in exceptional circumstances, for the 
contractor to submit a request, through the contracting officer, for 
the head of the contracting activity to agree to a plan to mitigate 
the personal conflict of interest, or waive the requirement to 
prevent personal conflicts of interest. These requirements apply 
regardless of the size of the contractor.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no practical alternatives that will accomplish the 
objectives of the proposed rule.

    The Regulatory Secretariat has submitted a copy of the IRFA to the 
Chief Counsel for Advocacy of the Small Business Administration. A copy 
of the IRFA may be obtained from the Regulatory Secretariat. 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 the 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 2013-022), 
in correspondence.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The 
proposed rule contains information collection requirements. 
Accordingly, the Regulatory Secretariat has submitted a request for 
approval of a revised information collection requirement concerning OMB 
clearance number 9000-0183, Preventing Personal Conflicts of Interest 
for Contractor Employees, to the Office of Management and Budget.
    A. Public reporting burden for this collection of information is 
estimated to average 30 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    The annual reporting burden estimated as follows:
    Respondents: 188.
    Responses per respondent: 1.
    Total annual responses: 188.
    Preparation hours per response: 30 hours.
    Total response burden hours: 5,640.
    The annual recordkeeping burden is estimated as follows:
    Recordkeepers: 9,361.
    Hours per recordkeeper: 59.
    Total recordkeeping hours: 552,299.

B. Request for Comments Regarding Paperwork Burden

    Submit comments, including suggestions for reducing this burden, 
not later than June 2, 2014 to: FAR Desk Officer, OMB, Room 10102, 
NEOB, Washington, DC 20503, and a copy to the General Services 
Administration, Regulatory Secretariat (MVCB), ATTN: Hada Flowers, 1800 
F Street, NW., 2nd Floor, Washington, DC 20405.
    Public comments are particularly invited on: whether this 
collection of information is necessary for the proper performance of 
functions of the FAR, and will have practical utility; whether the 
estimate of the public burden of this collection of information is 
accurate, and based on valid assumptions and methodology; ways to 
enhance the

[[Page 18506]]

quality, utility, and clarity of the information to be collected; and 
ways in which the Government can minimize the burden of the collection 
of information on those who are to respond, through the use of 
appropriate technological collection techniques or other forms of 
information technology.
    Requesters may obtain a copy of the supporting statement from the 
General Services Administration, Regulatory Secretariat (MVCB), ATTN: 
Hada Flowers, 1800 F Street, NW., 2nd Floor, Washington, DC 20405. 
Please cite OMB Control Number 9000-0181, Preventing Personal Conflicts 
of Interest for Contractor Employees, in all correspondence.

List of Subjects in 48 CFR Parts 1, 3, 12, and 52

    Government procurement.

    Dated: March 27, 2014.
William Clark,
Acting Director, Office of Government-wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-wide Policy.

    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 1, 3, 
12, and 52 as set forth below:

0
1. The authority citation for 48 CFR parts 1, 3, 12, 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 by--
0
a. Removing from FAR segment 3.11, the OMB Control Number ``9000-0181'' 
and adding ``9000-0183'' in its place; and
0
b. Removing from FAR segment 52.203-16, the OMB Control Number ``9000-
0181'' and adding ``9000-0183'' in its place.

PART 3--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF 
INTEREST

0
3. Revise Subpart 3.11 heading to read as follows:

Subpart 3.11--Preventing Personal Conflicts of Interest for 
Contractor Employees

0
4. Revise section 3.1100 to read as follows:


3.1100  Scope of subpart.

    This subpart implements--
    (a) Section 841(a) of the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009 (Pub. L. 110-417) (41 U.S.C. 
2303); and
    (b) Section 829 of the National Defense Authorization Act for 
Fiscal Year 2013 (Pub. L. 112-239).
0
5. Amend section 3.1101 by--
0
a. Removing the definition ``Acquisition function closely associated 
with inherently governmental functions''; and
0
b. Revising the introductory text of the definition ``Covered 
employee''.
    The revised text reads as follows:


3.1100  Definitions.

* * * * *
    Covered employee means an individual who performs a function 
closely associated with inherently governmental functions (see subpart 
7.5) or performs under a personal services contract (see 37.104) and 
is--
* * * * *
0
6. Amend section 3.1103 by revising the introductory text of paragraph 
(a) to read as follows:


3.1103  Procedures.

    (a) By use of the contract clause at 52.203-16, as prescribed at 
3.1106, the contracting officer shall require each contractor with at 
least one covered employee to--
* * * * *
0
7. Amend section 3.1106 by revising paragraphs (a)(2), (b), and (c) to 
read as follows:


3.1106  Contract clause.

    (a) * * *
    (2) Include a requirement for services by contractor employee(s) 
that are covered employees, i.e., an individual who performs a function 
closely associated with inherently governmental functions or performs 
under a personal services contract and is--
    (i) An employee of the contractor; or
    (ii) A subcontractor that is a self-employed individual treated as 
a covered employee of the contractor because there is no employer to 
whom such an individual could submit the required disclosures.
    (b) If only a portion of a contract is for the performance of 
services by covered employees, then the contracting officer shall still 
insert the clause, but shall limit applicability of the clause to that 
portion of the contract that is for the performance of such services.
    (c) Do not insert the clause in solicitations or contracts with a 
self-employed individual if the services are to be performed entirely 
by the self-employed individual, rather than a covered employee of the 
contractor. In such cases, the contracting officer shall consider these 
matters as part of the Organizational Conflict of Interest analysis 
(see subpart 9.5).

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
8. Amend section 12.503 by revising paragraph (a)(9) to read as 
follows:


12.503  Applicability of certain laws to Executive agency contracts for 
the acquisition of commercial items.

    (a) * * *
    (9) 41 U.S.C. 2303(b), Policy on Personal Conflicts of Interest by 
Contractor Employees and 41 U.S.C. 2303 note (see subpart 3.11).
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
9. Amend section 52.203-16 by--
0
a. Revising the date of the clause;
0
b. Removing from paragraph (a) the definition ``Acquisition function 
closely associated with inherently governmental functions'';
0
c. Revising the introductory text of the definition ``Covered 
employee''; and
0
d. Removing from paragraph (d)(2) the word ``acquisition''.
    The revised text read as follows:


52.203-16  Preventing Personal Conflicts of Interest.

* * * * *

Preventing Personal Conflicts of Interest (Date)

* * * * *
    Covered employee means an individual who performs a function 
closely associated with inherently governmental functions (see subpart 
7.5) or performs under a personal services contract (see 37.104) and 
is--
* * * * *
[FR Doc. 2014-07371 Filed 4-1-14; 8:45 am]
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