[Federal Register Volume 84, Number 105 (Friday, May 31, 2019)]
[Proposed Rules]
[Pages 25225-25228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11309]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 232, and 252

[Docket DARS-2019-0025]
RIN 0750-AK25


Defense Federal Acquisition Regulation Supplement: Prompt 
Payments of Small Business Contractors (DFARS Case 2018-D068)

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 2019 that provides for 
accelerated payments to small business contractors and subcontractors.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before July 30, 2019, to be considered in 
the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2018-D068, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2018-D068.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2018-D068'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2018-D068 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Jennifer 
D. Johnson, OUSD(A-S)DPC/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: Ms. Jennifer D. Johnson, telephone 
571-372-6100.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule proposes to revise the DFARS to implement section 852 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 
(Pub. L. 115-232). Section 852 provides for accelerated payments to 
small business contractors and to small business subcontractors by 
accelerating payments to their prime contractors. Specifically, section 
852 requires DoD, to the fullest extent permitted by law, to establish 
an accelerated payment date for small business contractors, with a goal 
of 15 days after receipt of a proper invoice, if a specific payment 
date is not established by contract. For contractors that subcontract 
with small businesses, section 852 requires DoD, to the fullest extent 
permitted by law, to establish an accelerated payment date, with a goal 
of 15 days after receipt of a proper invoice, if: (1) A specific 
payment date is not established by contract, and (2) the contractor 
agrees to make accelerated payments to the subcontractor without any 
further consideration from, or fees charged to, the subcontractor.
    The requirements of section 852 are similar to current DoD policy 
and practice regarding payments to small business contractors and 
subcontractors. DFARS 232.903 states DoD's policy of assisting small 
businesses by paying them as quickly as possible after receipt of 
invoices and proper documentation, and before normal payment due dates 
established in the contract. In practice, the Defense Financial 
Accounting Service (DFAS) currently provides accelerated payments to 
nearly all DoD contractors, as permitted by law.

[[Page 25226]]

II. Discussion and Analysis

    This rule proposes to amend DFARS parts 212, 232, and 252 to 
implement section 852 of the NDAA for FY 2019. In part 232, this rule 
proposes to add section 232.009, Providing accelerated payments to 
small business subcontractors, to address compliance with section 852. 
The clause at Federal Acquisition Regulation (FAR) 52.232-40, Providing 
Accelerated Payments to Small Business Subcontractors, already includes 
most of the requirements of section 852. Therefore, DoD will continue 
to use the FAR clause, in order to avoid unnecessary duplication. 
However, this rule proposes to add a new contract clause at DFARS 
252.232-7XXX, Accelerating Payments to Small Business Subcontractors--
Prohibition on Fees and Consideration. In accordance with section 852, 
this new clause prohibits contractors from requiring any further 
consideration from, or charging fees to, their small business 
subcontractors when making accelerated payments under FAR 52.232-40. 
The rule proposes to add this new clause to the list at section 
212.301, Solicitation provisions and contract clauses for the 
acquisition of commercial items.

III. Expected Impact of the Proposed Rule

    Current DoD policy, as stated in DFARS 232.903, is to pay small 
business contractors as quickly as possible after receipt of invoices 
and proper documentation. This rule proposes to specify that DoD will 
provide payment as quickly as possible, to the fullest extent permitted 
by law, with a goal of 15 days after receipt of proper invoices and 
documentation, and before normal payment due dates. For items that 
ordinarily require payment in less than 15 days (e.g., perishable 
food), DoD will provide payment as quickly as possible after receipt of 
proper invoices and documentation, and before the normal payment due 
date.
    With few exceptions, DoD will provide accelerated payments to small 
business contractors and to other contractors that agree to provide 
accelerated payments to their small business subcontractors without 
further consideration or fees. DoD will not be able to provide 
accelerated payments if such payments put DoD at risk of a violation of 
law.
    DoD estimates that 40,282 contractors (including 30,498 small 
businesses) will receive accelerated payments each year, based on data 
obtained from the Federal Procurement Data System and input from 
subject matter experts. Specifically, DoD awarded contracts to an 
average of 40,689 unique entities (including 30,806 small businesses) 
each year from FY 2016 through FY 2018. Subject matter experts 
estimated that DoD would not provide accelerated payments to 
approximately 1 percent (407, including 308 small businesses) of these 
contractors because such payments would put DoD at risk of a violation 
of law. Therefore, approximately 40,282 contractors (including 30,498 
small businesses) per year would receive accelerated payments.
    The clause at FAR 52.232-40, Providing Accelerated Payments to 
Small Business Subcontractors, currently requires contractors to 
provide accelerated payments to their small business subcontractors 
when the Government provides accelerated payments to the contractors. 
DoD contracting officers are required to include this clause in DoD 
contracts. As a result, DoD contractors should already be providing 
accelerated payments to small business subcontractors.
    In accordance with section 852 of the NDAA for FY 2019, this rule 
proposes to prohibit contractors from requiring any further 
consideration from, or charging fees to, their small business 
subcontractors when making accelerated payments. This prohibition will 
be communicated to contractors in a new contract clause at DFARS 
252.232-7XXX, Accelerating Payments to Small Business Subcontractors--
Prohibition on Fees and Consideration. This prohibition would benefit 
small business subcontractors who have been required to provide 
consideration or pay fees to the prime contractor in order to receive 
accelerated payments. Any costs for prime contractors to implement the 
prohibition on fees and consideration are expected to be de minimis 
since DoD expects that only a small number of contractors have required 
such consideration or fees from their small business subcontractors.
    It is not possible for DoD to estimate the number of small business 
subcontractors who have been required to provide consideration or pay 
fees for accelerated payments from prime contractors, nor is it 
possible to estimate the dollar value of the consideration provided or 
fees paid. The lack of available data makes it difficult to predict the 
impact of the proposed rule. Depending on the extent to which small 
business subcontractors have been required to provide consideration or 
pay fees to receive accelerated payments, the proposed prohibition 
could result in cost savings. DoD invites public comment regarding the 
number of small businesses required to provide such consideration or 
fees to prime contractors, the basis for such estimates, and the cost 
impact of the consideration or fees.

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

    DoD intends to apply the requirements of section 852 of the NDAA 
for FY 2019 to contracts at or below the simplified acquisition 
threshold (SAT) and to contracts for the acquisition of commercial 
items, including commercially available off-the-shelf (COTS) items.

A. Applicability to Contracts at or Below the SAT

    41 U.S.C. 1905 governs the applicability of laws to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold. It is intended to limit the applicability of laws to such 
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision 
of law contains criminal or civil penalties, or if the FAR Council 
makes a written determination that it is not in the best interest of 
the Federal Government to exempt contracts or subcontracts at or below 
the SAT, the law will apply to them. The Principal Director, Defense 
Pricing and Contracting (DPC), is the appropriate authority to make 
comparable determinations for regulations to be published in the DFARS, 
which is part of the FAR system of regulations.
    Given that the requirements of section 852 of the NDAA for FY 2019 
were enacted to provide accelerated payments to small business 
contractors and subcontractors, and since approximately 96 percent of 
DoD contracts are valued at or below the SAT, DoD intends to determine 
that it is in the best interest of the Federal Government to apply the 
rule to contracts at or below the SAT. An exception for contracts at or 
below the SAT would exclude contracts intended to be covered by the 
law, thereby undermining the overarching public policy purpose of the 
law.

B. Applicability to Contracts for the Acquisition of Commercial Items, 
Including COTS Items

    10 U.S.C. 2375 governs the applicability of laws to DoD contracts 
and subcontracts for the acquisition of commercial items, including 
COTS items, and is intended to limit the applicability of laws to 
contracts and subcontracts for the acquisition of

[[Page 25227]]

commercial items, including COTS items. 10 U.S.C. 2375 provides that if 
a provision of law contains criminal or civil penalties, or if the 
Under Secretary of Defense for Acquisition and Sustainment (USD(A&S)) 
makes a written determination that it is not in the best interest of 
the Federal Government to exempt commercial item contracts, the 
provision of law will apply to contracts for the acquisition of 
commercial items. Due to delegations of authority from USD(A&S), the 
Principal Director, DPC, is the appropriate authority to make this 
determination.
    Given that the requirements of section 852 of the NDAA for FY 2019 
were enacted to provide accelerated payments to small business 
contractors and subcontractors, and since more than half of DoD's 
contractors are small businesses providing commercial items, including 
COTS items, DoD intends to determine that it is in the best interest of 
the Federal Government to apply the rule to contracts for the 
acquisition of commercial items, including COTS items, as defined at 
FAR 2.101. An exception for contracts for the acquisition of commercial 
items, including COTS items, would exclude the contracts intended to be 
covered by the law, thereby undermining the overarching public policy 
purpose of the law.

V. 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.

VI. Executive Order 13771

    This rule is not expected to be subject to the requirements of E.O. 
13771, because this rule is not a significant regulatory action under 
E.O. 12866.

VII. Regulatory Flexibility Act

    DoD expects that this proposed rule may 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. Therefore, an 
initial regulatory flexibility analysis has been performed and is 
summarized as follows:
    DoD is proposing to amend the DFARS to implement section 852 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 
(Pub. L. 115-232). Section 852 requires DoD, to the fullest extent 
permitted by law, to establish an accelerated payment date for small 
business contractors, with a goal of 15 days after receipt of a proper 
invoice, if a specific payment date is not established by contract. For 
contractors that subcontract with small businesses, section 852 
requires DoD, to the fullest extent permitted by law, to establish an 
accelerated payment date, with a goal of 15 days after receipt of a 
proper invoice, if--(1) a specific payment date is not established by 
contract and (2) the contractor agrees to make accelerated payments to 
the subcontractor without any further consideration from, or fees 
charged to, the subcontractor.
    The objective of the rule is to provide accelerated payments to 
small business contractors and subcontractors. The legal basis is 
section 852 of the NDAA for FY 2019.
    According to data obtained from the Federal Procurement Data 
System, DoD awarded contracts to an average of 30,806 unique small 
entities each year from FY 2016 through FY 2018. DoD estimates that it 
may not be possible to provide accelerated payments to approximately 
308 small contractors (1%) because such payments would put DoD at risk 
of a violation of law. Therefore, approximately 30,498 small 
contractors per year would receive accelerated payments.
    This rule does not impose any new reporting, recordkeeping or other 
compliance requirements for small entities.
    This rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no known alternatives that would accomplish the stated 
objectives of the applicable statute.
    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 2018-D068), in 
correspondence.

VIII. 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 212, 232, and 252

    Government procurement.

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

    Therefore, 48 CFR parts 212, 232, and 252 are proposed to be 
amended as follows:

0
1. The authority citations for 48 CFR part 212, 232, and 252 continue 
to read as follows:

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

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
2. Amend section 212.301 by adding paragraph (f)(xiii)(G) to read as 
follows:


212.301  Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (f) * * *
    (xiii) * * *
    (G) Use the clause at 252.232-7XXX, Accelerating Payments to Small 
Business Subcontractors--Prohibition on Fees and Consideration, as 
prescribed in 232.009-2(2).
* * * * *

PART 232--CONTRACT FINANCING

0
3. Add sections 232.009, 232.009-1, and 232.009-2 to read as follows:


232.009  Providing accelerated payments to small business 
subcontractors.


232.009-1  General.

    Section 852 of the National Defense Authorization Act for Fiscal 
Year 2019 (Pub. L. 115-232) requires DoD to provide accelerated 
payments to small business contractors and subcontractors, to the 
fullest extent permitted by law, with a goal of 15 days.


232.009-2  Contract clause.

    Use the clause at 252.232-7XXX, Accelerating Payments to Small 
Business Subcontractors--Prohibition on Fees and Consideration, in 
solicitations and contracts, including those using FAR part 12 
procedures for the acquisition of commercial items, that include the 
clause at FAR 52.232-40, Providing Accelerated Payments to Small 
Business Subcontractors.

[[Page 25228]]

Subpart 232.9--Prompt Payment

0
4. Revise section 232.903 to read as follows:


232.903  Responsibilities.

    In accordance with section 852 of the National Defense 
Authorization Act for Fiscal Year 2019 (Pub. L. 115-232), DoD shall 
assist small business concerns by providing payment as quickly as 
possible, to the fullest extent permitted by law, with a goal of 15 
days after receipt of proper invoices and all required documentation, 
including acceptance, and before normal payment due dates established 
in the contract (see 232.906(a)).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Add section 252.232-7XXX to read as follows:


252.232-7XXX  Accelerating Payments to Small Business Subcontractors--
Prohibition on Fees and Consideration.

    As prescribed in 232.009-2, use the following clause:

ACCELERATING PAYMENTS TO SMALL BUSINESS SUBCONTRACTORS--PROHIBITION ON 
FEES AND CONSIDERATION (DATE)

    (a) In accordance with section 852 of Public Law 115-232, the 
contractor shall not require any further consideration from or 
charge fees to the small business subcontractor when making 
accelerated payments to subcontractors under the clause at FAR 
52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors.
    (b) Include the substance of this clause, including this 
paragraph (b), in all subcontracts with small business concerns, 
including those for the acquisition of commercial items.

(End of clause)

[FR Doc. 2019-11309 Filed 5-30-19; 8:45 am]
BILLING CODE 5001-06-P