[Federal Register Volume 83, Number 126 (Friday, June 29, 2018)]
[Rules and Regulations]
[Pages 30584-30587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14042]


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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: Final rule.

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SUMMARY: DoD is issuing a final rule amending 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: Effective June 29, 2018.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Gomersall, telephone 571-372-
6176.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD published a proposed rule in the Federal Register at 81 FR 
73007 on October 21, 2016, to amend 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 of costs incurred 
during the undefinitized period of 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

    Two respondents submitted public comments in response to the 
proposed rule. DoD reviewed the public comments in the development of 
this final rule. An analysis of the comments is provided as follows:

[[Page 30585]]

A. Summary of Significant Changes

    The following changes were made to the language published in the 
proposed rule:
    1. The term ``auditable proposal'' in 215.404-71-2 is revised as 
``qualifying proposal as defined in 217.7401(c)'' for consistency with 
10 U.S.C. 2326.
    2. The instructions for completing blocks 24a and 24b have been 
revised for clarity.
    3. The language at 215.404-71-3(d)(2)(ii) is revised for clarity.

B. Analysis of Public Comments

1. Weighted Guidelines Revision
    Comment: One respondent did not see the need to change the current 
weighted guidelines form and structure to address unique requirements 
associated with establishing profit objectives for undefinitized 
contract actions, and therefore recommended no change to the current 
weighted guidelines application. The respondent asserted that the 
Government should comply with guidance provided by USD/AT&L, and the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017, 
which stipulates that allowable profit should reflect the cost risk at 
the time that a contractor submits a qualifying proposal. The 
respondent stated that contractors should not be penalized for positive 
and efficient performance because they agreed to start work before 
final agreement on price, particularly when Government action or 
inaction is the cause of the delay. The respondent therefore asserted 
that profit should be based upon the risk at the time of the proposal 
and not at the time of negotiation.
    Response: The stated purpose of this rule is to provide a more 
transparent means of documenting the impact of costs incurred during 
the undefinitized period of a 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. Therefore, the weighted guidelines form is 
revised to provide a means of clearly demonstrating that the 
contracting officer has appropriately considered and documented the 
risk to the contractor during the undefinitized period, as well as the 
contractor's due diligence in submitting a timely, auditable proposal. 
DFARS case 2017-D022 has been opened to implement section 811, Modified 
Restrictions on Undefinitized Contractual Actions, of the NDAA for FY 
2017.
2. Costs Incurred Prior to Definitization
    Comment: One respondent stated that the requirements of 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, are inconsistent with the tenets of the NDAA for FY 2017 and 
should also be deleted.
    Response: The requirements of DFARS 215.404-71-3(d)(2) are 
consistent with the requirements of section 811 of the NDAA for FY 
2017, which are being implemented under DFARS case 2017-D022.
3. Management/Cost Control Weighted Guidelines Factor Adjustment
    Comment: One respondent expressed concern that the 1 percent 
adjustment to the management/cost control factor is tied to the 
contractor's timely submission of an auditable proposal. The respondent 
stated that in many cases, industry submits timely, auditable proposals 
only to have the Government, usually after lengthy delay, deem them 
insufficient and request an updated proposal. This becomes an endless 
loop of auditing, requests for updated information (including actuals), 
more auditing, more requests for updated information, etc.
    Response: The adjustment to the management/cost control factor in 
the weighted guidelines is established to allow contracting officers 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. It is 
incumbent on contractors to provide timely, auditable proposals in 
order to demonstrate their efficient management and internal cost 
control systems.
4. Timely UCA Definitization
    Comment: Both respondents expressed concern that the rule does not 
address the need for the Government to definitize UCAs in a timely 
manner.
    Response: To provide for enhanced management and oversight of UCAs, 
departments and agencies prepare and maintain semiannual Consolidated 
UCA Management Plans and UCA Management Reports to ensure contracting 
officers are actively and efficiently pursuing definitization of UCAs. 
Likewise, contractors are expected to submit timely, auditable 
proposals, including adequate supporting data in order to avoid 
unnecessary delays.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Items, Including Commercially 
Available Off-the-shelf (COTS) Items

    This rule amends the 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. The 
revisions do not add any new burdens or impact applicability of clauses 
and provisions at or below the simplified acquisition threshold, or to 
commercial items.

IV. 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.

V. Executive Order 13771

    This rule is not an E.O. 13771, Reducing and Controlling Regulatory 
Costs, regulatory action, because this rule is not significant under 
E.O. 12866.

VI. Regulatory Flexibility Act

    This 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.
    The objective of the 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. 
The rule requires contracting officers to document in the price 
negotiation memorandum their rationale for assigning a specific 
contract type risk value. In addition, Item 24 on the DD Form 1547 is 
separated into Item 24a, Contract Type Risk (based on contractor 
incurred costs under a UCA) and Item 24b, Contract Type Risk (based on 
Government projected costs).
    This rule will not have a significant economic impact on a 
substantial number of small entities. This rule only

[[Page 30586]]

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 contract action. 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.
    There is no change to reporting or recordkeeping as a result of 
this rule. 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 considers the approach described 
in the proposed rule to be the most practical and beneficial for both 
Government and industry.

VII. 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.

Amy G. Williams,
Deputy, Defense Acquisition Regulations System.

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

0
1. The authority citation for 48 CFR 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, qualifying proposal (as 
defined in 217.7401(c)) 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 revising paragraphs (b) introductory 
text, (b)(1) through (3), and (d)(2) to 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)(i)             (3)
                             incurred costs at the time of
                             qualifying proposal submission).
24b.......................  Contract Type Risk (based on                     (1)         (2)(ii)             (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 section using the evaluation criteria in paragraph (d) of this 
section. See paragraph (d)(2) of this section.
    (2)(i) 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 the Block 24a column titled Base.
    (ii) Insert the amount of Government estimated cost to complete 
(excluding facilities capital cost of money) into the Block 24b column 
titled Base.
    (3) Multiply (1) by (2)(i) and (2)(ii), respectively for Blocks 24a 
and 24b. Add Blocks 24a and 24b and insert the totals 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 in the price negotiation 
memorandum the reason for assigning a specific contract type risk 
value, to include the extent to which any reduced cost risk during the 
undefinitized period of performance was considered, in determining the 
negotiation objective.
* * * * *

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 in its place ``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.

[[Page 30587]]

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. 2018-14042 Filed 6-28-18; 8:45 am]
 BILLING CODE 5001-06-P