[Federal Register Volume 84, Number 218 (Tuesday, November 12, 2019)]
[Proposed Rules]
[Pages 60988-60990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24585]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207, 212, 215, 227, and 252

[Docket DARS-2019-0064]
RIN 0750-AK79


Defense Federal Acquisition Regulation Supplement: Negotiation of 
Price for Technical Data and Preference for Specially Negotiated 
Licenses (DFARS Case 2018-D071)

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

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: DoD is seeking information that will assist in the development 
of a revision to the Defense Federal Acquisition Regulation Supplement 
to implement sections of the National Defense Authorization Acts for 
Fiscal Years 2018 and 2019. In brief, for DoD only, those provisions 
provide for the negotiation of a price for technical data to be 
delivered under contracts for the engineering and manufacturing 
development, production, or sustainment of a major weapon system; and a 
preference for specially negotiated licenses for customized technical 
data to support the product support strategy of a major weapon system 
or subsystem thereof.

DATES: Interested parties should submit written comments to the address 
shown below on or before January 13, 2020, to be considered in the 
formation of any proposed rule.
    DoD is also hosting public meetings to obtain the views of 
interested parties in accordance with the notice published in the 
Federal Register on August 16, 2019, at 84 FR 41953.

ADDRESSES: Submit written comments identified by DFARS Case 2018-D071, 
using any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2018-D071.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2018-D071'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2018-D071 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. 
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

    DoD is seeking information from the public, particularly experts 
and interested parties in Government and the private sector, that will 
assist in the development of a revision to the Defense Acquisition 
Regulation Supplement (DFARS) to implement section 835 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L. 
115-91) and section 867 of the NDAA for FY 2019 (Pub. L. 115-232). Both 
sections are for DoD only; they do not impact other Federal agencies. 
Section 835 enacted a new provision into permanent law (10 U.S.C. 2439) 
and added a new subsection (f) to 10 U.S.C. 2320. Section 867 expanded 
the scope of 10 U.S.C. 2439. As a result, 10 U.S.C. 2439 now requires 
that the Secretary of Defense ensure, to the maximum extent 
practicable, that DoD, before selecting a contractor for the 
engineering and manufacturing development of a major weapon system, 
production of a major weapon system, or sustainment of a major weapon 
system, negotiates a price for technical data to be delivered under a 
contract for such development, production, or sustainment. 10 U.S.C. 
2320(f) now provides for a preference for specially negotiated licenses 
for customized technical data to support the product support strategy 
of a major weapon system or subsystem of a major weapon system.

II. Discussion and Analysis

    An initial draft of the proposed revisions to the DFARS to 
implement section 835 of the NDAA for FY 2018 and section 867 of the 
NDAA for FY 2019 is available in the Federal eRulemaking Portal at 
http://www.regulations.gov, by searching for ``DFARS Case 2018-D071'', 
selecting ``Open Docket Folder'' for RIN 0750-AK79, and viewing the 
``Supporting Documents''. The strawman is also available at https://
www.acq.osd.mil/

[[Page 60989]]

dpap/dars/change_notices.html under the publication notice for November 
12, 2019, and DFARS Case 2018-D071. The following is a summary of DoD's 
proposed approach and the feedback DoD is seeking from industry and the 
public.

A. Negotiation of Price for Technical Data (10 U.S.C. 2439)

    DoD is considering revising the DFARS to require the contracting 
officer to negotiate a price for data (including technical data and 
computer software) and associated license rights to be delivered or 
otherwise provided under a contract for services or for the 
development, production, or sustainment of a system, subsystem, or 
component. The contracting officer would be required to negotiate this 
price to the maximum extent practicable and before making a source 
selection decision or awarding a sole-source contract. Currently, the 
DFARS does not require the contracting officer to negotiate a price for 
data and associated license rights before the source selection decision 
or award of a sole-source contract. Prices for data and associated 
license rights are often negotiated after contract award.
    The primary proposed change regarding mandatory negotiation of 
prices for data is found in proposed DFARS 215.470(a). The primary 
proposed change seeks to apply the new statutory requirement of 10 
U.S.C. 2439 in a manner that is consistent with the implementation of 
other statutory requirements (e.g., 10 U.S.C. 2320-2321) related to 
data (including technical data and computer software) and associated 
license rights (e.g., rights to use technical data to repair damage to 
a system). DoD's intent is to foster consistency in treatment amongst 
contracts awarded by DoD that require the delivery of data (including 
technical data and computer software) and associated license rights. 
The change would clarify that price negotiations must occur whether or 
not the resulting contract is competed. Although 10 U.S.C. 2439 
requires negotiation of prices for data for major weapon systems, the 
regulatory coverage would include commercial technical data, 
noncommercial technical data, and computer software (and associated 
license rights), consistent with the manner in which DoD has 
implemented 10 U.S.C. 2320-2321 in the DFARS over the past 24 years. 
Current DoD policy is to acquire needed technical data and computer 
software and associated license rights under contracts for the 
acquisition of supplies, services, and business systems. Accordingly, 
the primary proposed change would extend the scope of regulatory 
coverage to encompass contracts other than those for engineering and 
manufacturing development, production, or sustainment (including 
services contracts).
    The House Armed Services Committee report accompanying the 
provision of the NDAA Bill that became section 835 of the NDAA for FY 
2018 ``urge[d] program managers when seeking technical data to consider 
the particular data that is required, the level of detail necessary, 
the purpose for which it will be used, with whom the government needs 
to share it, and for how long the government needs it.'' H.Rep. No. 
115-200, at 165 (2017). Thus, Congress intended that a DoD contract 
must require the contractor to:
     Deliver or otherwise provide (i.e., make available to the 
Government) technical data and computer software; and
     Grant license rights to that technical data and computer 
software.
    Accordingly, to foster consistency in treatment, the proposed DFARS 
215.470(a) would require that contracting officers negotiate a fair and 
reasonable price for all data (including technical data and computer 
software) and associated license rights to be delivered or otherwise 
provided under a DoD contract for services or for the development, 
production, or sustainment of a system, subsystem, or component. The 
requirement for price negotiation would not be limited to technical 
data to be delivered under a DoD contract for the engineering and 
manufacturing development, production, or sustainment of, a major 
weapon system.
    The proposed DFARS 215.470(a) also seeks to address the concerns 
identified in Tension Point Papers 1, 4, and 5 of the Final Report of 
the Government-Industry Advisory Panel on Technical Data Rights 
(Section 813 Panel) submitted to the Congressional Defense Committees 
in mid-November 2018 pursuant to section 813(b) of the NDAA for FY 2016 
(Pub. L. 114-92), as amended by section 809 of the NDAA for FY 2017 
(Pub. L. 114-328). In brief, those Tension Point Papers state that 
offerors should provide in their proposals a detailed discussion of 
their intellectual property (IP) evaluation techniques and assumptions, 
and that contracting officers should be required to consider commercial 
IP valuation practices and standards when determining a fair and 
reasonable price for the requested IP.
    The three valuation practices and standards traditionally used by 
commercial entities to calculate the value of IP for transactional and 
litigation purposes are the market method, the cost method, and the 
income method. The market method consists of a comparison of proposed 
prices to other prices for similar IP, for example, a comparison of 
proposed prices to historical prices paid. The cost method involves a 
review and evaluation of the separate cost elements and profit or fee 
that make up the proposed prices. The income method considers the 
income a contractor's IP could generate in the future and the costs of 
generating that income, i.e., the economic benefit of the IP to the 
contractor.
    Currently, contracting officers must comply with existing 
regulations at Federal Acquisition Regulation (FAR) 15.404-1, DFARS 
212.209, and DFARS 215.404-1, which require contracting officers to use 
the market method first, followed by the cost method if it is not 
feasible to use the market method. The proposed DFARS 215.470(a) 
directs contracting officers to consult FAR 15.404-1, DFARS 212.209, 
and DFARS 215.404-1 when negotiating a fair and reasonable price for 
all data (including technical data and computer software) and 
associated license rights, delivered or otherwise provided under a DoD 
contract. Although nothing prohibits the contracting officer from using 
the income method, use of the income method is not discussed in the 
DFARS.

B. Preference for Specially Negotiated License Rights (10 U.S.C. 
2320(f))

    New paragraph (f) of 10 U.S.C. 2320 establishes a preference for 
specially negotiated license rights (SNLR) through two new 
requirements, both of which relate to and require revisions to existing 
DFARS coverage. The DFARS currently authorizes, but does not express a 
preference for, the use of SNLR.
    First, new 10 U.S.C. 2320(f) requires that the assessments and 
planning for a program's long-term needs for technical data for 
sustainment (required by 10 U.S.C. 2320(e)) must now include 
consideration of the use of specially negotiated licenses for 
customized technical data that supports DoD's strategy for sustainment 
of the major weapon system or subsystem being purchased. The underlying 
requirement to assess and plan for long-term technical data needs is 
implemented at DFARS 207.106(S-70), which applies to the program's 
needs for computer software and associated license rights, as well as 
data for major weapon systems and subsystems. Accordingly, the new 
requirements of 2320(f) are

[[Page 60990]]

proposed to be implemented in a similar manner. Specifically, the new 
10 U.S.C. 2320(f) requirement is proposed for insertion as new DFARS 
207.106(S-70)(2)(ii), with existing paragraphs (ii)-(iv) renumbered 
accordingly.
    Second, new 10 U.S.C. 2320(f) requires that, to the maximum extent 
practicable, programs for major weapon systems or subsystems thereof 
shall use specially negotiated licenses for technical data to support 
DoD's strategy for sustainment of the systems or subsystems. While the 
current DFARS coverage does not include a preference for specially 
negotiated licenses, the DFARS authorizes the use of SNLR for all types 
of technical data and computer software, both noncommercial and 
commercial. The current DFARS enables the parties to enter into special 
licenses only by voluntary mutual agreement, and reinforces that any 
rights granted to the Government must be enumerated in an agreement 
that is incorporated into the contract. The DFARS currently identifies 
the minimum license rights that the Government is authorized to accept. 
For example, DFARS 227.7103-5, Government rights, specifies that, when 
negotiating specific license rights for technical data, the Government 
may not accept less than limited rights.
    The proposed approach for implementing the new statutory preference 
for SNLR is to incorporate an appropriate statement of preference into 
the existing DFARS sections and clauses that already authorize and 
address, but do not currently express a preference for, SNLR. This 
implementation requires consideration of how a ``preference'' for SNLR 
can be integrated appropriately into the current regulatory structure 
that allows for SNLR on the basis of voluntary, mutual agreement. The 
proposed approach expresses a preference for use of SNLR ``whenever 
doing so will more equitably address the parties' interests than the 
standard license rights'' provided in the applicable clause or 
allocation of rights. However, to ensure that SNLR are not merely 
authorized and encouraged, but are required to be considered, the 
approach also includes an affirmative requirement that, to the maximum 
extent practicable, the parties must enter into good faith negotiations 
whenever either party desires a special license. Thus, it is only in 
the case when neither party desires a special license agreement (e.g., 
because neither party anticipates doing so would more equitably address 
the parties' relative interests), that the parties are not required to 
negotiate.
    The proposed approach also maintains the existing DFARS coverage, 
which reinforces that neither party can be forced to relinquish its 
standard license rights. Additionally, the proposed approach retains 
the DFARS statement of mandatory minimum license rights, as applicable 
(e.g., currently there is no required minimum license for commercial 
computer software or commercial computer software documentation). The 
approach includes the requirement from 10 U.S.C. 2320(f) that the 
special license must support the program's strategy for sustainment of 
the major weapon system or subsystem being purchased. The proposed 
approach also states that DoD may still challenge the basis for a 
contractor's assertions upon which a special license is based. DoD may 
challenge a contractor's assertions pursuant to DFARS 252.227-7019, 
Validation of Asserted Restrictions-Computer Software, and 252.227-
7037, Validation of Restrictive Markings on Technical Data, as 
applicable. Finally, the approach also seeks to standardize the 
nomenclature for such negotiated licenses using variations of the term 
``special'' (e.g., special license, specially negotiated license 
rights), rather than the term ``specifically,'' which is used 
inconsistently in the current DFARS.
    This proposed implementation resulted in revisions to the existing 
DFARS coverage regarding SNLR for all forms of technical data and 
computer software, as follows:
    (1) For commercial technical data, at 227.7102-2(b) and the 
associated clause at 252.227-7015(c).
    (2) For noncommercial technical data, at 227.7103-5, and -5(d), and 
the associated clause at 252.227-7013(b)(4).
    (3) For commercial computer software, at 227.7202-3(b) (for which 
there is no associated clause).
    (4) For noncommercial computer software, at 227.7203-5, and -5(d), 
and the associated clause at 252.227-7014(b)(4).
    (5) For the Small Business Innovation Research (SBIR) Program, at 
new 227.7104(d), and associated clause at 252.227-7018(b)(5).
    Note that in the case of the SBIR Program, the proposed revisions 
limit the preference and authorization to negotiate special license 
agreements to be only after contract award, in accordance with section 
8, paragraph 6, of the SBIR Program and Small Business Technology 
Transfer Program Policy Directive, published in the Federal Register on 
April 2, 2019, (84 FR 12794), and which became effective on May 2, 
2019.

C. Seeking Public Comment on Additional Topics

    In addition to seeking public comment on the substance of the draft 
DFARS revisions, DoD is also seeking information regarding any 
corresponding change in the burden, including associated costs or 
savings, resulting from contractors and subcontractors complying with 
the draft revised DFARS implementation. More specifically, DoD is 
seeking information regarding any anticipated increase or decrease in 
such burden and costs relative to the burden and costs associated with 
complying with the current DFARS implementing language.

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 a significant regulatory action and, therefore, was 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. Executive Order 13771

    This Advance Notice of Proposed Rulemaking is not subject to E.O. 
13771.

List of Subjects in 48 CFR Parts 207, 212, 215, 227, and 252

    Government procurement.

Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.
[FR Doc. 2019-24585 Filed 11-8-19; 8:45 am]
 BILLING CODE 5001-06-P