[Federal Register Volume 80, Number 105 (Tuesday, June 2, 2015)]
[Rules and Regulations]
[Pages 31309-31310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12901]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Part 225
RIN 0750-AI59
Defense Federal Acquisition Regulation Supplement: Offset Costs
(DFARS Case 2015-D028)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Interim rule.
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SUMMARY: DoD is issuing an interim rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to clarify requirements
related to costs associated with indirect offsets under Foreign
Military Sales agreements.
DATES: Effective June 2, 2015.
Comment Date: Comments on the interim rule should be submitted in
writing to the address shown below on or before August 3, 2015, to be
considered in the formation of a final rule.
ADDRESSES: Submit comments identified by DFARS Case 2015-D028, using
any of the following methods:
[cir] Regulations.gov: http://www.regulations.gov. Submit comments
via the Federal eRulemaking portal by entering ``DFARS Case 2015-D028''
under the heading ``Enter keyword or ID'' and selecting ``Search.''
Select the link ``Submit a Comment'' that corresponds with ``DFARS Case
2015-D028.'' Follow the instructions provided at the ``Submit a
Comment'' screen. Please include your name, company name (if any), and
``DFARS Case 2015-D028'' on your attached document.
[cir] Email: [email protected]. Include DFARS Case 2015-D028 in
the subject line of the message.
[cir] Fax: 571-372-6094.
[cir] Mail: Defense Acquisition Regulations System, Attn: Mr. Mark
Gomersall, OUSD (AT&L) DPAP/DARS, Room 3B941, 3060 Defense Pentagon,
Washington, DC 20301-3060.
Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To
confirm receipt of your comment(s), please check www.regulations.gov,
approximately two to three days after submission to verify posting
(except allow 30 days for posting of comments submitted by mail).
FOR FURTHER INFORMATION CONTACT: Mr. Mark Gomersall, telephone 571-372-
6099.
SUPPLEMENTARY INFORMATION:
I. Background
This interim rule revises DFARS 225.7303-2, ``Cost of doing
business with a foreign government or an international organization,''
by adding paragraph (a)(3)(iii) to provide guidelines to contracting
officers when an indirect offset is a condition of a Foreign Military
Sales (FMS) acquisition. A reference to the Defense Security
Cooperation Agency manual is also updated at DFARS 225.7301.
This interim rule specifically addresses indirect offsets as they
are applied to the Defense Security Cooperation Agency's FMS cases.
II. Discussion and Analysis
DoD administers FMS programs to maintain and strengthen
relationships with partner nations. Failure to nurture these
relationships may create a threat to national security. DoD's FMS
program allows foreign customers to request, and pay for, through
inclusion of the cost in the FMS Letter of Offer and Acceptance (LOA)
and DoD contract, offsets that are directly related to the FMS end
items (i.e., ``direct offsets''), as well as offsets that are not
directly related to the end item (i.e., ``indirect offsets'').
DoD recognizes the need to have offsets embedded in DoD FMS
contracts. However, the decision whether to engage in indirect offsets
and the responsibility for negotiating and implementing these offset
arrangements ultimately reside with the FMS customer and contractor(s)
involved. Thus, the DoD contracting officer is not provided the
information necessary to negotiate cost or price of the indirect
offsets, particularly with respect to price reasonableness
determinations pursuant to FAR part 15. This interim rule provides that
under these circumstances, when the provision of an indirect offset is
a condition of the FMS acquisition, and provided that the U.S. defense
contractor submits to the contracting officer an offset agreement or
other substantiating documentation, the indirect offset costs are
deemed reasonable for the purposes of FAR part 31.
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 does 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. However, an initial
regulatory flexibility analysis has been performed, and is summarized
as follows:
The objective of this rule is to provide clarification to
contracting officers when indirect offsets are a condition of an FMS
acquisition. This rule revises DFARS 225.7303-2, ``Cost of doing
business with a foreign government or an international organization,''
by adding paragraph (a)(3)(iii) to provide guidelines to contracting
officers when an indirect offset is a condition of a Foreign Military
Sales (FMS) acquisition. This interim rule specifically addresses
indirect offsets as they are applied to the Defense Security
Cooperation Agency's FMS cases.
This rule does not add any reporting or recordkeeping requirements.
The rule does not duplicate, overlap, or conflict with any other
Federal rules. This rule does not impose any significant economic
burden on small firms because the DFARS amendments merely clarify that
contracting officers are not responsible for making a determination of
price reasonableness for indirect offset agreements, which are not
within their purview.
DoD did not identify any alternatives that could reduce the burden
and still meet the objectives of the rule.
DoD invites comments from small business concerns and other
interested parties on the expected impact of this rule on small
entities.
DoD 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
[[Page 31310]]
U.S.C. 610 (DFARS Case 2015-D028), in correspondence.
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).
VI. Determination to Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense that urgent and compelling reasons exist to promulgate this
interim rule without prior opportunity for public comment. DoD
administers FMS programs to maintain and strengthen relationships with
partner nations. Failure to nurture these relationships may create a
threat to national security. This action is necessary because of the
recent and foreseeable trend of increasing numbers and complexity of
indirect offsets desired by DoD's Foreign Military Sales (FMS)
customers.
Currently, Defense Federal Acquisition Regulation Supplement
(DFARS) 225.7303-2(a)(3)(ii) provides that the U.S. Government assumes
no obligation to satisfy or administer the offset requirement or to
bear any of the associated costs. However, DFARS 225.7301(b) provides
that the U.S. Government conduct FMS acquisitions under the same
acquisition and contract management procedures used for other defense
acquisitions. This requires the contracting officer to adhere to FAR
provisions concerning the negotiation of contracts and subcontracts
(FAR part 15) and contract cost principles (FAR part 31), and thus be
capable of attesting to the price reasonableness of FMS contracts,
including indirect offset costs that are not tied directly to the end
item. Contracting officers must follow these regulations even though no
DoD appropriated funds are being used to pay for the effort, and DoD
contracting officers have no insight to pricing of the indirect offset.
In the past several years, compliance with regulations has resulted in
an inability of contracting officers to finalize FMS contract
negotiations.
The interim rule affirms that all offset costs that involve
benefits provided by a U.S. defense contractor to an FMS customer that
are unrelated to the item being purchased under a Letter of Offer and
Acceptance (LOA), i.e., indirect offset costs, are deemed reasonable
for purposes of FAR part 31. The rule provides that no additional
analysis is necessary on the part of the contracting officer, provided
that the U.S. defense contractor submits to the contracting officer a
signed offset agreement or other documentation showing that the FMS
customer has made the provision of an indirect offset of a certain
dollar value a condition of the FMS acquisition. Finally, the rule
provides that the FMS customer shall be notified through the LOA that
indirect offset costs are deemed reasonable without any further
analysis by the contracting officer.
It is essential that DoD implement this interim rule immediately to
clarify that contracting officers are not required to make price
reasonableness determinations on costs associated with indirect offsets
under FMS agreements, which, while included in the FMS contract, fall
outside of the DoD contracting officer's purview. Immediate
implementation will allow DoD contracting officers to finalize pending
negotiations for FMS contracts to support U.S. allies and partners, and
maintain bilateral relationships. However, pursuant to 41 U.S.C. 1707
and FAR 1.501-3(b), DoD will consider public comments received in
response to this interim rule in the formation of the final rule.
List of Subjects in 48 CFR Part 225
Government procurement.
Amy G. Williams,
Editor, Defense Acquisition Regulations System.
Therefore, 48 CFR part 225 is amended as follows:
PART 225--FOREIGN ACQUISITION
0
1. The authority citation for 48 CFR part 225 continues to read as
follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
2. Amend section 225.7301 by revising paragraph (a) to read as follows:
225.7301 General.
(a) The U.S. Government sells defense articles and services to
foreign governments or international organizations through FMS
agreements. The agreement is documented in a Letter of Offer and
Acceptance (LOA) (see the Defense Security Cooperation Agency (DSCA)
Security Assistance Management Manual (DSCA 5105.38-M)).
* * * * *
0
3. Amend section 225.7303-2 by--
0
a. Adding a heading to paragraph (a)(3), and revising the introductory
text of paragraph (a)(3); and
0
b. Adding a new paragraph (a)(3)(iii).
The revision and additions read as follows:
225.7303-2 Cost of doing business with a foreign government or an
international organization.
(a) * * *
(3) Offsets. For additional information see PGI 225.7303-2(a)(3)),
and also see 225.7306.
* * * * *
(iii) All offset costs that involve benefits provided by the U.S.
defense contractor to the FMS customer that are unrelated to the item
being purchased under the LOA (indirect offset costs) are deemed
reasonable for purposes of FAR part 31 with no further analysis
necessary on the part of the contracting officer, provided that the
U.S. defense contractor submits to the contracting officer a signed
offset agreement or other documentation showing that the FMS customer
has made the provision of an indirect offset of a certain dollar value
a condition of the FMS acquisition. FMS customers are placed on notice
through the LOA that indirect offset costs are deemed reasonable
without any further analysis by the contracting officer.
* * * * *
[FR Doc. 2015-12901 Filed 6-1-15; 8:45 am]
BILLING CODE 5006-01-P