[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Rules and Regulations]
[Pages 26424-26426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11029]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 15

[FAC 2005-82; FAR Case 2013-012; Item II; Docket No. 2013-0012; 
Sequence No. 1]
RIN 9000-AM57


Federal Acquisition Regulation; Review and Justification of Pass-
Through 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 implement section 802 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013. 
This section provides additional requirements relative to the review 
and justification of pass-through contracts.

DATES: Effective: June 8, 2015.

FOR FURTHER INFORMATION CONTACT: Ms. Kathy J. Hopkins, Procurement 
Analyst, at 202-969-7226 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat Division at 202-501-4755. Please cite FAC 2005-82, FAR Case 
2013-012.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 79 FR 39361 on July 10, 2014 to implement section 802 of 
the NDAA for FY 2013 (Pub. L. 112-239) which provided for additional 
requirements relative to the review and justification of pass-through 
contracts. Specifically, in those instances where an offeror for a 
contract, task order, or delivery order informs the agency pursuant to 
FAR 52.215-22 of its intention to award subcontracts for more than 70 
percent of the total cost of work to be performed under the contract, 
task order, or delivery order, section 802 requires the contracting 
officer to (1) consider the availability of alternative contract 
vehicles and the feasibility of contracting directly with a 
subcontractor or subcontractors that will perform the bulk of the work; 
(2) make a written determination that the contracting approach selected 
is in the best interest of the Government; and (3) document the basis 
for such determination. These statutory requirements are being 
implemented in FAR 15.404-1(h). For consistency, this rule is 
applicable to all of the agencies subject to the FAR, even though 
section 802 only applied to the Department of Defense, the Department 
of State, and the United States Agency for International Development. 
Contract actions under section 46 of the Small Business Act (15 U.S.C. 
657s) are exempt from the requirements under section 802 of the NDAA 
for FY 2013.
    Two respondents submitted comments on the proposed 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 and the 
changes made to the rule as a result of those comments are provided as 
follows:

A. Summary of Significant Changes

    This final rule makes two changes from the proposed rule. The first 
change revises FAR 15.404-1(h)(2) to make clear that competition 
requirements still apply if the contracting officer selects alternative 
approaches. The second change revises FAR 15.404-1(h)(3) to clarify 
that the requirements of this rule do not apply to small business set-
aside contracts.

B. Analysis of Public Comments

    The Regulatory Secretariat Division received responses from two 
respondents to the proposed rule which are discussed below:
1. Application of Rule to FAR Part 36
    Comment: One respondent requested that the final rule ensure that 
this new requirement take into consideration the requirements found in 
FAR 36.501, which addresses performance of work by prime construction 
contractors.
    Response: The statute does not exempt the contracting officer from 
making a written determination that the contracting approach selected 
is in the best interest of the Government under FAR part 36 
acquisitions. The contracting officer shall take into consideration 
industry practices in making this determination.
2. Conflict With FAR 52.219-14
    Comment: One respondent stated that FAR clause 52.219-14, 
Limitations on Subcontracting, could also conflict with the new 
requirements of this rule.

[[Page 26425]]

    Response: FAR clause 52.219-14, Limitations on Subcontracting, 
applies only to contracts that have been set aside for small business 
concerns or 8(a) concerns. Section 1615 of the NDAA for FY 2014 (Pub. 
L. 113-66) exempts contract actions subject to Section 46 of the Small 
Business Act (15 U.S.C. 657s). The text at FAR 15.404-1(h)(3) has been 
revised to clarify that contract actions awarded pursuant to FAR 
subparts 19.5, 19.8, 19.13, 19.14, or 19.15 are exempt from the 
requirements of this rule. Therefore, the requirements of this rule do 
not conflict with FAR clause 52.219-14.
3. Potential Increase in Bid Protests
    Comment: One respondent stated that by requiring contracting 
officers to consider direct award to a subcontractor that will perform 
more than 70 percent of the work, those subcontractors could become 
interested parties for bid protest purposes. This could open the door 
to a substantial number of bid protests and significantly impact the 
ability of agencies to make timely awards.
    Response: The statute requires that the contracting officer 
consider the availability of alternative contract vehicles and the 
feasibility of contracting directly with a subcontractor or 
subcontractors that will perform the bulk of the work, make a 
determination that the contracting approach selected is in the best 
interest of the Government, and document the basis for such 
determination. By following these requirements and adhering to the 
established solicitation procedures in the FAR, contracting officers 
will mitigate the risk of protests. This rule does not change existing 
competition requirements, nor does it change the status of 
subcontractors in the bid protest process.
4. Subcontractors Lacking Prime Contractor Experience
    Comment: One respondent stated that direct award to subcontractors 
that do not have sufficient prime experience can severely impact 
procurements and result in a substantial increase in workload for both 
the contractor and the Government (i.e. additional audits and business 
system reviews).
    Response: The statute requires that contracting officers consider 
direct award to subcontractors and the purpose of this rule is to amend 
the FAR to implement that requirement. However, it should be noted that 
both the statute and the rule only require that the contracting officer 
consider direct award. Contracting officers shall continue to ensure 
that purchases shall be made from, and contracts shall be awarded to, 
responsible prospective contractors only, in accordance with FAR 9.103.
5. Subcontractors Contracting Directly With the Government
    Comment: One respondent opined that prime contractors will try to 
avoid the impact of this rule by using contract provisions that 
prohibit subcontractors from entering into a direct contract with the 
agency. So, if this rule is going to work, a clause preventing primes 
from including a restrictive provision in a teaming arrangement and/or 
subcontract needs to be included in the rule.
    Response: FAR clause 52.203-6 ``Restrictions on Subcontractor Sales 
to the Government'' precludes prime contractors from including such 
restrictions in their agreements with actual or prospective 
subcontractors. For acquisitions of commercial items, the prohibition 
applies only to the extent that any agreement restricting sales by 
subcontractors results in the Federal Government being treated 
differently from any other prospective purchaser for the sale of the 
commercial item(s).
6. Subcontractor Pricing and Participation in Negotiations
    Comment: One respondent stated that in many cases, the prime 
contractors do not allow subcontractors to see the final version of the 
prime's proposal sent in response to the Government's RFP or allow 
subcontractors to participate in negotiations. As such, the 
subcontractor pricing that the Government sees in the prime 
contractor's proposal or during negotiations may not be accurate. This 
issue can be resolved by revising the proposed clause in the rule to 
require the prime contractor to obtain the signed approval of the 
subcontractor's portion of the final offer submitted to the Government 
and allowing subcontractors that will perform 70 percent or more work 
to participate in negotiations.
    Response: FAR 15.404-3 already provides requirements for evaluating 
subcontractor pricing and obtaining certified cost or pricing data as 
required. Prime contractors are responsible for managing their 
subcontractors and appropriately evaluating subcontractor cost or 
pricing data in accordance with FAR subpart 15.4.

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 the rule augments the 
current responsibilities of contracting officers relative to the review 
and justification of pass-through contracts and does not initiate or 
impose any new administrative or performance requirements on 
contractors. In addition, contract actions awarded pursuant to FAR 
subparts 19.5, 19.8, 19.13, 19.14, or 19.15 are exempt from the 
requirements of this rule.

V. Paperwork Reduction Act

    The 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 Subject in 48 CFR Part 15

    Government procurement.

    Dated: April 30, 2015.
William Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.
    Therefore, DoD, GSA, and NASA amend 48 CFR part 15 as set forth 
below:

PART 15--CONTRACTING BY NEGOTIATION

0
1. The authority citation for 48 CFR part 15 continues to read as 
follows:

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


0
2. Amend section 15.404-1 by adding paragraph (h) to read as follows:


15.404-1  Proposal analysis techniques.

* * * * *

[[Page 26426]]

    (h) Review and justification of pass-through contracts. (1) The 
requirements of this paragraph (h) are applicable to all agencies. The 
requirements apply by law to the Department of Defense, the Department 
of State, and the United States Agency for International Development, 
per section 802 of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2013. The requirements apply as a matter of policy to other 
Federal agencies.
    (2) Except as provided in paragraph (h)(3) of this section, when an 
offeror for a contract or a task or delivery order informs the 
contracting officer pursuant to 52.215-22 that it intends to award 
subcontracts for more than 70 percent of the total cost of work to be 
performed under the contract, task or delivery order, the contracting 
officer shall--
    (i) Consider the availability of alternative contract vehicles and 
the feasibility of contracting directly with a subcontractor or 
subcontractors that will perform the bulk of the work. If such 
alternative approaches are selected, any resulting solicitations shall 
be issued in accordance with the competition requirements under FAR 
part 6;
    (ii) Make a written determination that the contracting approach 
selected is in the best interest of the Government; and
    (iii) Document the basis for such determination.
    (3) Contract actions awarded pursuant to subparts 19.5, 19.8, 
19.13, 19.14, or 19.15 are exempt from the requirements of this 
paragraph (h) (see section 1615 of the National Defense Authorization 
Act for Fiscal Year 2014 (Pub. L. 113-66)).

[FR Doc. 2015-11029 Filed 5-6-15; 8:45 am]
 BILLING CODE 6820-EP-P