[Federal Register Volume 84, Number 154 (Friday, August 9, 2019)]
[Proposed Rules]
[Pages 39254-39256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16763]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215 and 252

[Docket DARS-2019-0038]
RIN 0750-AJ78


Defense Federal Acquisition Regulation Supplement: Management of 
Should-Cost Review Process (DFARS Case 2018-D015)

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 2018, which requires an 
amendment to the DFARS to provide for the appropriate use of the 
should-cost review process of a major weapon system.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before October 8, 2019, to be considered 
in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2018-D015, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2018-D015''. Select ``Submit a Comment Now'' 
and follow the instructions provided to submit a comment. Please 
include ``DFARS Case 2018-D015'' on any attached document.
    [cir] Email: [email protected]. Include DFARS Case 2018-D015 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. 
Heather Kitchens, 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. Heather Kitchens, telephone 571-
372-6104.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule proposes to amend the DFARS to implement section 837 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 
(Pub. L. 115-91). Section 837 requires an amendment to the DFARS to 
provide for the appropriate use of the should-cost review process of a 
major weapon system in a manner that is transparent, objective, and 
provides for the efficiency of the systems acquisition process in the 
Department of Defense. A weapon system is considered to be a ``major 
weapon system,'' as defined by DFARS 234.7001, when it is ``a weapon 
system acquired pursuant to a major defense acquisition program.'' At a 
minimum, DoD is required to address the following:
     A description of the features of the should-cost review 
process.
     Establishment of a process for communicating with the 
prime contractor on the program the elements of a proposed should-cost 
review.
     A method for ensuring that identified should-cost savings 
opportunities are based on accurate, complete, and current information 
and can be quantified and tracked.
     A description of the training, skills, and experience that 
Department of Defense and contractor officials carrying out a should-
cost review should possess.
     A method for ensuring appropriate collaboration with the 
contractor throughout the review process.
     Establishment of review process requirements that provide 
for sufficient analysis and minimize any impact on program schedule.

II. Discussion and Analysis

    Federal Acquisition Regulation (FAR) 15.407-4(b) establishes when a 
program should-cost review should be considered in the case of a major 
system acquisition. DoD is proposing to add a new paragraph (b) to 
DFARS 215.407-4 to address the six elements of a program should-cost 
review, as required by section 837. In addition, DoD is proposing to 
add a new contract clause at DFARS 252.215-701X, Program Should-Cost 
Review, for use in solicitations and contracts for the development or 
production of a major weapon system, as defined in DFARS 234.7001, to 
ensure objectivity and efficiency in the should-cost review process, if 
a program should-cost review is performed.

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 provisions or clauses 
or impact any existing provisions or clauses for contracts at or below 
the simplified acquisition threshold or for contracts for the 
acquisition of commercial items, including commercially available off-
the-shelf items. Contracts for the development and or production of a 
major weapon system do not include contracts valued at or below the 
simplified acquisition threshold and are unlikely to include contracts 
for commercial items.

IV. Executive Orders 12866 and 13563

    Executive Order (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 and, therefore, was not subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This is not a major rule under 5 
U.S.C. 804.

V. Executive Order 13771

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

VI. Regulatory Flexibility Act

    DoD does not expect this rulemaking to have a significant economic 
impact on a substantial number of small entities

[[Page 39255]]

within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., because the rule only applies to major weapon system acquisition 
programs. 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 to implement section 837 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L. 115-91). 
Section 837 requires an amendment to the DFARS to provide for the 
appropriate use of the should-cost review process of a major weapon 
system in a manner that is transparent, objective and provides for the 
efficiency of the systems acquisition process in the Department of 
Defense.
    The objective of this rulemaking is to incorporate in the DFARS the 
six elements of a program should-cost review required to be addressed 
by section 837, and to provide a new contract clause for use in 
solicitations and contracts for the development or production of a 
major weapon system, in order to ensure objectivity and efficiency in 
the should-cost review process. The legal basis for these changes is 
section 837 of the NDAA for FY 2018.
    DoD estimates that there are 150 major systems, which include major 
weapon systems. DoD further estimates that the prime contractors for 
major weapon systems are other than small business and only one program 
should-cost review occurs per year for major weapon systems, so this 
rule will have minimal impact on small businesses.
    This proposed rule does not include any new reporting or 
recordkeeping requirements for small entities.
    The 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 requirements 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-D015), in 
correspondence.

VI. 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 and 252

    Government procurement.

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

    Therefore, 48 CFR parts 215 and 252 are proposed to be amended as 
follows:

0
1. The authority citations for 48 CFR parts 215 and 252 continue to 
read as follows:

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

PART 215--CONTRACTING BY NEGOTIATION

0
2. Amend section 215.407-4 by designating the text as paragraph (a), 
adding a heading to newly designated paragraph (a) and adding paragraph 
(b) to read as follows:


215.407-4  Should-cost review.

    (a) General. * * *
    (b) Program should-cost review. Major weapon system should-cost 
program reviews shall be conducted in a manner that is transparent, 
objective, and provides for the efficiency of the DoD systems 
acquisition process (section 837 of the National Defense Authorization 
Act for Fiscal Year 2018 (Pub. L. 115-91)).
    (i) Major weapon system should-cost reviews may include the 
following features:
    (A) A thorough review of each contributing element of the program 
cost and the justification for each cost.
    (B) An analysis of non-value added overhead and unnecessary 
reporting requirements.
    (C) Benchmarking against similar DoD programs, similar commercial 
programs (where appropriate), and other programs by the same contractor 
at the same facility.
    (D) An analysis of supply chain management to encourage competition 
and incentive cost performance at lower tiers.
    (E) A review of how to restructure the program (Government and 
contractor) team in a streamlined manner, if necessary.
    (F) Identification of opportunities to break out Government-
furnished equipment versus prime contractor-furnished materials;
    (G) Identification of items or services contracted through third 
parties that result in unnecessary pass-through costs.
    (H) Evaluation of ability to use integrated developmental and 
operational testing and modeling and simulation to reduce overall 
costs.
    (I) Identification of alternative technology and materials to 
reduce developmental or lifecycle costs for a program.
    (J) Identification and prioritization of cost savings 
opportunities.
    (K) Establishment of measurable targets and ongoing tracking 
systems.
    (ii) The should-cost review shall provide for sufficient analysis 
while minimizing the impact on program schedule by engaging 
stakeholders early, relying on information already available before 
requesting additional data, and establishing a team with the relevant 
expertise early.
    (iii) The should-cost review team shall be comprised of members, 
including third-party experts if necessary, with the training, skills, 
and experience in analysis of cost elements, production or sustainment 
processes, and technologies relevant to the program under review. The 
review team may include members from the Defense Contract Management 
Agency, the department or agency's cost analysis center, and 
appropriate functional organizations, as necessary.
    (iv) The should-cost review team shall establish a process for 
communicating and collaborating with the contractor throughout the 
should-cost review, including notification to the contractor regarding 
which elements of the contractor's operations will be reviewed and what 
information will be necessary to perform the review, as soon as 
practicable, both prior to and during the review.
    (v) The should-cost review team report shall ensure, to the maximum 
extent practicable, review of current, accurate, and complete data, and 
shall identify cost savings opportunities associated with specific 
engineering or business changes that can be quantified and tracked.
0
3. Amend section 215.408 by adding paragraph (8) to read as follows:


215.408   Solicitation provisions and contract clauses.

* * * * *
    (8) Use the clause at 252.215-701X, Program Should-Cost Review, in 
all solicitations and contracts for the development or production of a 
major weapon system, as defined in 234.7001.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Add section 252.215-701X to read as follows:

[[Page 39256]]

252.215-701X   Program Should-Cost Review.

    As prescribed in 215.408(8), use the following clause:

Program Should-Cost Review (Date)

    (a) The Government has the right to perform a program should-
cost review, as described in Federal Acquisition Regulation (FAR) 
15.407-4(b). The review may be conducted in support of a particular 
contract proposal or during contract performance to find 
opportunities to reduce program costs. The Government will 
communicate the elements of the proposed should-cost review to the 
prime contractor (Pub. L. 115-91).
    (b) If the Government performs a program should-cost review, 
upon the Government's request, the Contractor shall provide access 
to accurate and complete cost data and Contractor facilities and 
personnel necessary to permit the Government to perform the program 
should-cost review.
    (c) The Government has the right to use third-party experts to 
supplement the program should-cost review team. The Contractor shall 
provide access to the Contractor's facilities and information 
necessary to support the program should-cost review to any third-
party experts who have signed non-disclosure agreements in 
accordance with the FAR 52.203-16.
(End of Clause)
[FR Doc. 2019-16763 Filed 8-8-19; 8:45 am]
 BILLING CODE 5001-06-P