[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Proposed Rules]
[Pages 12179-12182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06246]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 216, 217, 225, 234, and 235

[Docket DARS-2019-0008]
RIN 0750-AJ32


Defense Federal Acquisition Regulation Supplement: Use of Fixed-
Price Contracts (DFARS Case 2017-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 implement a section of the National 
Defense Authorization Act for Fiscal Year 2017 that requires the 
preference for the use of fixed-price contracts in the determination of 
contract type, requires review and approval for certain cost-
reimbursement contract types at specified thresholds and established 
time periods, and requires the use of firm fixed-price contract types 
for foreign military sales unless an exception or waiver applies.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before May 31, 2019, to be considered in 
the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2017-D024, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2017-D024.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please cite ``DFARS Case 
2017-D024'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2017-D024 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. 
Kimberly Bass, OUSD(A&S)DPC/DARS, Room 3B941, 3060 Defense Pentagon, 
Washington, DC 20301-3060.

[[Page 12180]]

    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: Ms. Kimberly Bass, telephone 571-372-
6174.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to amend the DFARS to implement sections 829 and 
830 of the National Defense Authorization Act (NDAA) for Fiscal Year 
(FY) 2017. Section 829 of the FY 2017 NDAA requires contracting 
officers to first consider fixed-price contracts, to include fixed-
price incentive contracts, when determining contract type and to obtain 
approval from the head of the contracting activity for--
    [cir] Cost-reimbursement contracts in excess of $50 million to be 
awarded after October 1, 2018, and before October 1, 2019; and
    [cir] Cost-reimbursement contracts in excess of $25 million to be 
awarded on or after October 1, 2019.
    Section 830 provides requirements, exceptions, and waiver authority 
for the use of firm-fixed-price contracts for foreign military sales 
(FMS). It requires contracting officers to use firm fixed-price 
contracts unless specified exceptions or a waiver applies. Contracting 
officers are required to use a different contract type if the FMS 
customer has established in writing a preference for a different 
contract type or has requested in writing that a different contract 
type be used for a specific FMS. The waiver authorizes contracting 
officers the ability to use other than firm-fixed-price contract type 
on a case by case basis when determined it is in the best interest of 
the United States and American taxpayers.

II. Discussion and Analysis

    The following changes to the DFARS are proposed to implement 
sections 829 and 830 of the NDAA for FY 2017:
    DFARS section 202.101 adds the definition of ``milestone decision 
authority'' since the definition is used in multiple DFARS parts.
    DFARS 216.102(1) adds a reference to section 829 to inform 
contracting officers on the new requirements when selecting contract 
types and includes a reference to DFARS 216.301-3(2) for the approval 
requirements on the use of cost-reimbursement contracts. DFARS 
216.102(3) is added to provide a reference to DFARS 225.7301-1 for the 
requirements on the use of fixed-price contracts for FMS sales in 
accordance with section 830 of the FY 2017 NDAA.
    DFARS 216.104-70 includes a reference to DFARS 235.006(b) for the 
new research and development (R&D) contract type approval requirements.
    DFARS 216.301-3(2) is added to incorporate the exception on the use 
of cost-reimbursement contracts for R&D as provided in DFARS 
235.006(b). Paragraph (2) also provides the statutory requirements of 
section 829 on the use of cost-reimbursement contracts over the 
established thresholds and timelines and establishes the approval level 
on the use of cost-reimbursement contracts as the head of the 
contracting activity.
    DFARS 217.202 incorporates PGI references for guidance on the use 
of options for FMS requirements and for sole source major systems for 
U.S. and U.S./FMS combined procurements.
    DFARS 225.7301-1 is added to implement section 830 of the NDAA for 
FY 2017. Paragraph (a) incorporates a new requirement to use firm-fixed 
price contracts for FMS requirements unless a preference for a 
different contract type is established in writing or requests in 
writing that a different contract type be used for a specific FMS. It 
also provides a reference to guidance in DFARS PGI 217.202(2) on the 
use of priced options for FMS requirements. DFARS 225.7301-1(b) 
establishes a waiver process for the use of firm-fixed-price contract 
requirements if the chief of the contracting office determines a 
different contract type is in the best interest of the Government, on a 
case by case basis.
    DFARS 225.7301-2 provides guidance on the review requirements, 
prior to issuing a solicitation for a sole source contract for U.S./FMS 
combined requirements for a major system with a contract value 
exceeding $500 million, in accordance with the Defense Pricing and 
Contracting (DPC) (formerly Defense Procurement and Acquisition Policy) 
policy memorandum dated June 28, 2018. It also includes a reference 
link to PGI 216.403-1(1)(ii)(B) and (C) for procedures on the use of 
fixed-price incentive (firm target) (FPIF) contracts.
    DFARS 234.004(2)(ii)(A) revises ``USD(AT&L)'' to reflect the new 
organization Under Secretary of Defense for Acquisition and Sustainment 
(USD(A&S)) (throughout the proposed rule text) and clarifies the 
existing approval and certification requirements for contract type 
selection and determination in the acquisition strategies and 
acquisition plans for MDAPs, which include the milestone decision 
authority (MDA) when the MDA is the service acquisition executive of 
the military department managing the program, as specified in section 
848 of the NDAA for FY 2017. DFARS 234.004(2)(iii) provides a reference 
to DFARS 216.301-3 for the additional approval requirements on cost-
reimbursement contracts for major system acquisitions. DFARS 
234.004(2)(iv) provides a reference to PGI 216.403-1(1)(ii)(B) and (C) 
for procedures on the use of FPIF contracts.
    DFARS 235.006(b)(i) incorporates the approval by USD(A&S) on the 
authority to use cost-reimbursement contracts for R&D in excess of $25 
million if the contracting officer executes a written determination and 
findings that the risk level does not permit realistic pricing and it 
is not possible to allocate that risk equitably between the Government 
and the contractor. Risks associated with a program is a major factor 
and consideration point for choosing the contract type. Since 
development efforts are inherently risky and do not lend themselves to 
a fixed[hyphen]price type of contract; a cost[hyphen]reimbursement 
contract is more appropriate and customary for most development 
programs. DFARS 235.006(b)(i)(B) is revised to reflect the revision to 
the notification requirements of an intent not to exercise a fixed-
price production option on a development contract for a major weapon 
system prior to expiration of the option period; updated to reflect the 
MDA instead of the former USD(AT&L) now USD(A&S).

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    This rule does not propose to create any new DFARS clauses or amend 
any existing DFARS clauses.

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

[[Page 12181]]

rule is not a major rule under 5 U.S.C. 804.

V. Executive Order 13771

    This proposed rule is not expected to be an E.O. 13771 regulatory 
action, because this rule is not significant under E.O. 12866.

VI. 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., 
because the rule is mainly impacting the internal operations of the 
government for review and approval on the use of certain contract 
types. However, an initial regulatory flexibility analysis has been 
performed and is summarized as follows:
    DOD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement sections 829 and 830 of the 
National Defense Authorization Act for Fiscal Year 2017 that requires 
the preference for the use of firm fixed-price contract types for 
foreign military sales (FMS) with exceptions and waiver authority in 
accordance with sections 830(b) and (c). Section 829 requires review 
and approval for certain cost-reimbursement contract types at specified 
thresholds and established time periods.
    The objective of this proposed rule is to require contracting 
officers to establish a preference for fixed-price and fixed-price 
incentive contracts during the consideration of contract type and 
require the use of firm fixed-price contracts for FMS, unless an 
exception applies or a waiver is executed.
    Small business statistics were obtained from the Federal 
Procurement Data System for fiscal year 2017 data identifying the DoD 
cost-reimbursement awards issued, including task and delivery orders 
under single award indefinite delivery indefinite quantity (IDIQ) 
contracts as of August 8, 2018.
    Of the 2,120 contract awards over $25 million (includes $50 
million), only 206 awards, or approximately ten percent, were made to 
unique small business entities.
    This proposed rule does not include any new reporting, 
recordkeeping, or other compliance requirements for small businesses. 
The proposed rule does not duplicate, overlap, or conflict with any 
other Federal rules.
    There are no known significant alternative approaches to the 
proposed rule that would meet the proposed objectives.
    DoD invites comments from small entities 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 2017-D024), in 
correspondence.

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 202, 216, 217, 225, 234, and 235

    Government procurement.

Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 202, 216, 217, 225, 234, and 235 are 
proposed to be amended as follows:


0
1. The authority citation for 48 CFR parts 202, 216, 217, 225, 234, and 
235 continues to read as follows:

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

PART 202--DEFINITION OF WORDS AND TERMS

0
2. Amend section 202.101 by adding in alphabetical order a definition 
for ``Milestone decision authority'' to read as follows:


202.101  Definitions.

* * * * *
    Milestone decision authority, with respect to a major defense 
acquisition program, major automated information system, or major 
system, means the official within the Department of Defense designated 
with the overall responsibility and authority for acquisition decisions 
for the program or system, including authority to approve entry of the 
program or system into the next phase of the acquisition process (10 
U.S.C. 2431a).
* * * * *

PART 216--TYPES OF CONTRACTS

0
3. Amend section 216.102 by--
0
a. Designating the text as paragraph (2); and
0
b. Adding paragraphs (1) and (3).
    The additions read as follows:


216.102  Policies.

    (1) In accordance with section 829 of the National Defense 
Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), the 
contracting officer shall first consider the use of fixed-price 
contracts, including fixed-price incentive contracts, in the 
determination of contract type. See 216.301-3(2) for approval 
requirements for certain cost-reimbursement contracts.
* * * * *
    (3) See 225.7301-1 for the requirement to use fixed-price contracts 
for acquisitions for foreign military sales.


216.104-70  [Amended]

0
4. Amend section 216.104-70 by removing ``contract type'' and adding 
``contract type and see 235.006(b) for additional approval 
requirements'' in its place.
0
5. Amend section 216.301-3 by--
0
a. Designating the text as paragraph (1); and
0
b. Adding paragraph (2).
    The addition reads as follows:


216.301-3  Limitations.

* * * * *
    (2) Except as provided in 235.006(b), in accordance with section 
829 of the National Defense Authorization Act for Fiscal Year 2017 
(Pub. L. 114-328), approval of the head of the contracting activity is 
required prior to awarding the following:
    (i) Cost-reimbursement contracts in excess of $50 million to be 
awarded after October 1, 2018, and before October 1, 2019.
    (ii) Cost-reimbursement contracts in excess of $25 million to be 
awarded on or after October 1, 2019.

PART 217--SPECIAL CONTRACTING METHODS

0
6. Amend section 217.202 by adding paragraphs (1)(i) and (ii) to read 
as follows:


217.202  Use of options.

    (1) * * *
    (i) See PGI 217.202(1) for guidance on the use of options with 
foreign military sales (FMS).
    (ii) See PGI 217.202(2) for the use options with sole source major 
systems for U.S. and U.S./FMS combined procurements.
* * * * *

PART 225--FOREIGN ACQUISITION

0
7. Add section 225.7301-1 to read as follows:

[[Page 12182]]

225.7301-1  Requirement to use firm-fixed-price contracts.

    (a) Requirement. In accordance with section 830 of the National 
Defense Authorization Act for Fiscal Year 2017 (Pub. L. 14-328), a 
firm-fixed-price contract shall be used for FMS, unless the foreign 
country that is the counterparty to FMS--
    (1) Has established in writing a preference for a different 
contract type; or
    (2) Requests in writing that a different contract type be used for 
a specific FMS. See PGI 217.202(2) on the use of priced options for FMS 
requirements.
    (b) Waiver. The requirement in paragraph (a) of this section may be 
waived, if the chief of the contracting office determines, on a case-
by-case basis, that a different contract type is in the best interest 
of the United States and American taxpayers.
0
8. Add section 225.7301-2 to read as follows:


225.7301-2  Solicitation approval for sole source contracts.

    The contracting officer shall coordinate through agency channels 
with the Principal Director, Defense Pricing and Contracting, prior to 
issuing a solicitation for a sole source contract for U.S./FMS combined 
requirements for a major system that has an estimated contract value 
that exceeds $500 million. See also 201.170 and PGI 216.403-1(1)(ii)(B) 
and (C).

PART 234--MAJOR SYSTEM ACQUISITION

0
9. Amend section 234.004--
0
a. In paragraphs (2)(i)(A) and (2)(i)(C) introductory text, by removing 
``Milestone Decision Authority'' and adding ``milestone decision 
authority'' in both places;
0
b. By revising paragraph (2)(ii)(A) introductory text;
0
c. In paragraph (2)(ii)(A)(2), by removing the word ``when''; and
0
d. By adding paragraphs (2)(iii) and (2)(iv).
    The revision and addition read as follows:


234.004  Acquisition strategy.

* * * * *
    (2) * * *
    (ii) * * *
    (A) Not use cost-reimbursement line items for the acquisition of 
production of major defense acquisition programs, unless the Under 
Secretary of Defense for Acquisition and Sustainment (USD(A&S)), or the 
milestone decision authority when the milestone decision authority is 
the service acquisition executive of the military department that is 
managing the program, submits to the congressional defense committees--
* * * * *
    (iii) See 216.301-3 for additional contract type approval 
requirements for cost-reimbursement contracts.
    (iv) For fixed-price incentive (firm target) contracts, contracting 
officers shall comply with the guidance provided at PGI 216.403-
1(1)(ii)(B) and (C).

PART 235--RESEARCH AND DEVELOPMENT CONTRACTING

0
10. Amend section 235.006--
0
a. By redesignating paragraphs (b)(i) and (b)(ii) as paragraphs (b)(ii) 
and (b)(iii);
0
b. In newly redesignated paragraph (b)(ii)(B) introductory text, by 
removing ``Under Secretary of Defense (Acquisition, Technology, and 
Logistics (USD(AT&L))'' and adding ``milestone decision authority'' in 
its place;
0
c. In newly redesignated paragraphs (b)(iii)(A)(3) introductory text 
and (b)(iii)(A)(3)(i) and (ii), by removing ``(b)(ii)(A)(1)'', 
``USD(AT&L)'', and ``(b)(ii)(A)(3)(i)'' and adding ``(b)(iii)(A)(1), 
``USD(A&S)'', and ``(b)(iii)(A)(3)(i)'' in their places, respectively;
0
d. In the newly redesignated paragraph (b)(iii)(B) introductory text, 
by removing ``USD(AT&L)'' and adding ``USD(A&S) in two places; and
0
e. By adding new paragraph (b)(i).
    The addition reads as follows:


235.006  Contracting methods and contract type.

    (b)(i) Consistent with section 829 of the National Defense 
Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), the Under 
Secretary of Defense for Acquisition and Sustainment (USD(A&S)) has 
determined that the use of cost-reimbursement contracts for research 
and development in excess of $25 million is approved, if the 
contracting officer executes a written determination and findings 
that--
    (A) The level of program risk does not permit realistic pricing; 
and
    (B) It is not possible to provide an equitable and sensible 
allocation of program risk between the Government and the contractor.
* * * * *
[FR Doc. 2019-06246 Filed 3-29-19; 8:45 am]
 BILLING CODE 5001-06-P