[Federal Register Volume 81, Number 204 (Friday, October 21, 2016)]
[Proposed Rules]
[Pages 73007-73009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25332]



Federal Register / Vol. 81, No. 204 / Friday, October 21, 2016 / 
Proposed Rules

[[Page 73007]]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215, 217, and 243

[Docket DARS-2016-0026]
RIN 0750-AI99


Defense Federal Acquisition Regulation Supplement: Undefinitized 
Contract Action Definitization (DFARS Case 2015-D024)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to provide a more transparent means of 
documenting the impact of costs incurred during the undefinitized 
period of an undefinitized contract action on allowable profit.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before December 20, 2016, to be 
considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2015-D024, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2015-D024.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2015-D024'' on any attached documents.
    [cir] Email: osd.dfars@mail.mil. Include DFARS Case 2015-D024 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

    DoD is proposing to revise the DFARS to provide a more transparent 
means of documenting the impact of costs incurred during the 
undefinitized period of an undefinitized contract action (UCA), and to 
recognize when contractors demonstrate efficient management and 
internal cost control systems through the submittal of a timely, 
auditable proposal in furtherance of definitization of a UCA. In some 
cases, DoD contracting personnel have not documented their 
consideration of the reduced risk to the contractor for costs incurred 
as of the date the contractor submits a qualifying proposal to 
definitize a UCA. While such costs generally present very little risk 
to the contractor, the contracting officer should consider the reasons 
for any delays in definitization in making their determination of the 
appropriate assigned value for contract type risk.

II. Discussion and Analysis

    This rule proposes to make the following amendments to DFARS parts 
215, 217, and 243:
     DFARS 215.404-71-2, Performance Risk. This section is 
amended to specify that if the contractor demonstrates efficient 
management and cost control through the submittal of a timely, 
auditable proposal in furtherance of definitization of an undefinitized 
contract action (UCA), and the proposal demonstrates effective cost 
control from the time of award to the present, the contracting officer 
may add 1 percentage point to the value determined for management/cost 
control up to the maximum of 7 percent.
     DFARS 215.404-71-3, Contract Type Risk and Working Capital 
Adjustment. This section is amended to reflect the separation of Item 
24 on the DD Form 1547, Record of Weighted Guidelines, into Item 24a, 
Contract Type Risk (based on costs incurred as of the date the 
contractor submits a qualifying proposal); Item 24b, Contract Type Risk 
(based on Government estimated cost to complete); and Item 24c, Totals. 
Also, paragraph (d)(2)(ii) is added to require contracting officers to 
document the reason for assigning a specific contract type risk value 
in determining the negotiation objective.
     DFARS 217.7404-6, Allowable Profit. This section is 
amended to require contracting officers to document in the price 
negotiation memorandum the reason for assigning a specific contract 
type risk value.
     DFARS 243.204-70-6, Allowable Profit. This section is 
amended to require contracting officers to document in the price 
negotiation memorandum the reason for assigning a specific contract 
type risk value.
    In addition, the DD Form 1547, Record of Weighted Guidelines 
Application, is proposed to be amended to separate Item 24, Contract 
Type Risk, into Item 24a, Contract Type Risk (based on contractor 
incurred costs under a UCA), Item 24b, Contract Type Risk (based on 
Government projected costs), and Item 24c, Totals.

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 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. 
However, an initial regulatory flexibility analysis has been prepared 
and is summarized as follows:
    DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to provide a more transparent means of 
documenting the impact of costs incurred during the undefinitized 
period of an undefinitized contract action (UCA) on allowable profit, 
and to recognize when contractors demonstrate efficient management and 
internal cost control systems through the submittal of a timely, 
auditable proposal in furtherance of definitization of a UCA. In some 
cases, DoD contracting personnel have not documented their 
consideration of the reduced risk to the contractor of costs incurred 
during the undefinitized period of a UCA.
    The objective of this proposed rule is to gain visibility into the 
contracting officer's rationale for the contract type risk values 
entered on the DD Form 1547, Record of Weighted Guidelines Application. 
Therefore, the proposed rule requires contracting officers to

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enter separate contract type risk values on the DD Form 1547, one value 
based on incurred costs under an UCA and the other value based on 
Government estimated costs to complete.
    This rule only changes processes that are internal to the 
Government by providing a more transparent means of documenting the 
impact of costs incurred during the undefinitized period of a UCA when 
calculating negotiation profit objectives. This rule does not revise 
the current regulatory requirements at DFARS 215.404-71-3(d)(2), which 
direct contracting officers to assess the extent to which costs have 
been incurred prior to definitization of the UCA. However, to recognize 
when contractors demonstrate efficient management and cost control 
through the submittal of a timely, auditable proposal in furtherance of 
definitization of a UCA, and the proposal demonstrates effective cost 
control from the time of award to the present, the contracting officer 
may add 1 percentage point to the value determined for management/cost 
control up to the maximum of 7 percent. Since this rule merely provides 
a more transparent means of documenting the impact of such incurred 
costs and contractors' efficient management and cost control, there is 
no impact to small entities who are awarded UCAs.
    The rule does not impact reporting, recordkeeping, or other 
compliance requirements. The rule does not duplicate, overlap, or 
conflict with any other Federal rules. There are no known significant 
alternative approaches to the rule that would meet the requirements.
    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 U.S.C. 610 (DFARS Case 2015-D024), 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).

List of Subjects in 48 CFR Parts 215, 217, and 243

    Government procurement.

Jennifer L. Hawes,
Editor, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 215, 217, and 243 are proposed to be 
amended as follows:

0
1. The authority citation for parts 215, 217, and 243 continues to read 
as follows:

    Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

PART 215--CONTRACTING BY NEGOTIATION

0
2. Amend section 215.404-71-2 by adding paragraph (e)(2)(iii) to read 
as follows:


215.404-71-2  Performance risk.

* * * * *
    (e) * * *
    (2) * * *
    (iii) If the contractor demonstrates efficient management and cost 
control through the submittal of a timely, auditable proposal in 
furtherance of definitization of an undefinitized contract action, and 
the proposal demonstrates effective cost control from the time of award 
to the present, the contracting officer may add 1 percentage point to 
the value determined for management/cost control up to the maximum of 7 
percent.
* * * * *
0
3. Amend section 215.404-71-3 by--
0
a. Revising paragraph (b) introductory text and paragraphs (b)(1) 
through (3); and
0
b. Revising paragraph (d)(2).
    The revisions and addition read as follows:


215.404-71-3  Contract type risk and working capital adjustment.

* * * * *
    (b) Determination. The following extract from the DD 1547 is 
annotated to explain the process.

----------------------------------------------------------------------------------------------------------------
                                                                                                      Profit
           Item                  Contractor risk factors        Assigned value        Base          objective
----------------------------------------------------------------------------------------------------------------
24a.......................  Contract Type Risk (based on                  (1)              (2)              (3)
                             incurred costs at the time of
                             qualifying proposal submission).
24b.......................  Contract Type Risk (based on                  (1)              (2)              (3)
                             Government estimated cost to
                             complete).
24c.......................  Totals...........................  ...............             (3)              (3)
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                                                                                                      Profit
       Item         Contractor risk factors   Costs  financed   Length  factor   Interest  rate     objective
----------------------------------------------------------------------------------------------------------------
25...............  Working Capital (4)......             (5)              (6)              (7)              (8)
----------------------------------------------------------------------------------------------------------------

    (1) Select a value from the list of contract types in paragraph (c) 
of this subsection using the evaluation criteria in paragraph (d) of 
this subsection. See paragraph (d)(2) of this section.
    (2) Insert the amount of costs incurred as of the date the 
contractor submits a qualifying proposal, such as under an 
undefinitized contract action, (excluding facilities capital cost of 
money) into Block 24a, and the amount of Government estimated cost to 
complete (excluding facilities capital cost of money) into Block 24b.
    (3) Multiply (1) by (2) for Blocks 24a and 24b. Add Blocks 24a and 
24b and insert the total in Block 24c.
* * * * *
    (d) * * *
    (2) Mandatory. (i) The contracting officer shall assess the extent 
to which costs have been incurred prior to definitization of the 
contract action (also see 217.7404-6(a) and 243.204-70-6). When costs 
have been incurred prior to definitization, generally regard the 
contract type risk to be in the low end of the designated range. If a 
substantial portion of the costs have been incurred prior to 
definitization, the contracting officer may assign a value as low as 0 
percent, regardless of contract type.
    (ii) Contracting officers shall document the reason for assigning a 
specific contract type risk value, to include the extent to which any 
reduced

[[Page 73009]]

cost risk during the undefinitized period of performance was 
considered, in determining the negotiation objective. This 
justification shall be documented in the price negotiation memorandum.
* * * * *

PART 217--SPECIAL CONTRACTING METHODS


217.7404-6  [Amended]

0
4. Amend section 217.7404-6 by--
0
a. In paragraph (b), removing ``The contractor's reduced cost risk for 
costs incurred'' and adding ``Any reduced cost risk to the contractor 
for costs expected to be incurred'' in its place; and
0
b. In paragraph (c), removing ``contract file'' and adding ``price 
negotiation memorandum'' in its place.

PART 243--CONTRACT MODIFICATIONS


243.204-70-6  [Amended]

0
5. Amend section 243.204-70-6 by--
0
a. In paragraph (b), removing ``The contractor's reduced cost risk for 
costs incurred'' and adding ``Any reduced cost risk to the contractor 
for costs expected to be incurred'' in its place; and
0
b. In paragraph (c), removing ``contract action'' and adding ``unpriced 
change order'' in its place and removing ``contract file'' and adding 
``price negotiation memorandum'' in its place.

[FR Doc. 2016-25332 Filed 10-20-16; 8:45 am]
 BILLING CODE 5001-06-P