[Federal Register Volume 84, Number 229 (Wednesday, November 27, 2019)]
[Proposed Rules]
[Pages 65322-65325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25663]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 244, and 252

[Docket DARS-2019-0052]
RIN 0750-AK66


Defense Federal Acquisition Regulation Supplement: Treatment of 
Certain Items as Commercial Items (DFARS Case 2019-D029)

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 several sections of the 
National Defense Authorization Act for Fiscal Year 2017 that address 
treatment of commingled items purchased by contractors and services 
provided by nontraditional defense contractors as commercial items. DoD 
is also proposing to further implement a section of the National 
Defense Authorization Act for Fiscal Year 2018 that provides that a 
contract for an item using FAR part 12 procedures shall serve as a 
prior commercial item determination.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before January 27, 2020, to be considered 
in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2019-D029, using 
any of the following methods:
    [cir] Regulations.gov: http://www.regulations.gov. Search for 
``DFARS Case 2019-D029'' under the heading ``Enter keyword or ID'' and 
selecting ``Search.'' Select ``Comment Now'' and follow the 
instructions provided to submit a comment. Please include ``DFARS Case 
2019-D029'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2019-D029 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. Amy 
Williams, OUSD(A&S)DPC/DARS,

[[Page 65323]]

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. Amy G. Williams, telephone 571-
372-6106.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS to implement sections 877 and 
878 of the National Defense Authorization Act (NDAA) for Fiscal Year 
(FY) 2017 (Pub. L. 114-328) and further implement section 848 of the 
NDAA for FY 2018 (Pub. L. 115-91). Section 877, Treatment of Commingled 
Items purchased by Contractors as Commercial Items, adds 10 U.S.C. 
2380B. Section 878, Treatment of Services Provided by Nontraditional 
Contractors as Commercial Items, amends 10 U.S.C. 2380a. Section 848 
modifies 10 U.S.C. 2380(b) to provide that a contract for an item using 
FAR part 12 procedures shall serve as a prior commercial item 
determination, unless the appropriate official determines in writing 
that the use of such procedures was improper or that it is no longer 
appropriate to acquire the item using commercial item acquisition 
procedures.

II. Discussion and Analysis

    A. Section 848. This rule proposes to amend DFARS 212.102(a) in 
order to further implement section 848 of the NDAA for FY 2017, which 
was partially implemented in the final rule under DFARS Case 2018-D006, 
published in the Federal Register on January 31, 2018 (83 FR 4431). 
This rule--
     Adds a new paragraph at (a)(i) to clarify that the use of 
FAR part 12 procedures is not only for the acquisition of items that 
have been determined to be commercial items, as defined in FAR 2.101, 
but also for the acquisition of items that do not meet than FAR 
definition of ``commercial item'' and do not require a commercial item 
determination, but are to be treated as commercial items due to the 
applicability of 41 U.S.C. 1908 or 10 U.S.C. 2380a;
     Redesignates paragraph (a)(ii) on prior commercial item 
determinations as (a)(iii) and expands it to cover other prior use of 
FAR part 12 procedures;
     Adds a paragraph at (a)(iii)(A)(2) to state that a 
contract for an item acquired using commercial item acquisition 
procedures under FAR part 12 shall serve as a prior commercial item 
determination, unless the item was acquired pursuant to one of those 
statutes and therefore did not require a commercial item determination.
     Adds a clarification at (a)(iii)(B) with regard to when 
DFARS subpart 212.70 is applicable.
    B. Section 878. This rule also proposes to add a new DFARS 
212.102(a)(iv)(B) to implement section 878 of the NDAA for FY 2017, 
with regard to the requirement to treat services provided by a business 
unit that is a nontraditional defense contractor as commercial 
services, to the extent that such services use the same pool of 
employees as used for commercial customers and are priced using 
methodology similar to methodology used for commercial pricing. This is 
an exception to the general rule of granting agency discretion to treat 
supplies and services provided by nontraditional defense contractors as 
commercial items.
    C. Section 877. Lastly, this rule proposes to implement section 877 
of the NDAA for FY 2018 at DFARS 244.402 and 252.244.7000, Subcontracts 
for Commercial Items. The policy is established at DFARS 244.403(S-70), 
and the requirement is imposed on the contractor in a new paragraph (c) 
of the clause at DFARS 252.244-7000, to treat as commercial items any 
items valued at less than $10,000 per item that were purchased by the 
contractor for use in the performance of multiple contracts with the 
Department of Defense and other parties and are not identifiable to any 
particular contract when purchased. This does not apply to items that 
were purchased specifically for a DoD contract but were subsequently 
commingled with similar items purchased for other contracts. The clause 
also requires that the contractor shall ensure that any such items to 
be used in performance of a DoD contract meet all applicable terms and 
conditions of the DoD contract, because issues may arise with regard to 
the compliance of commingled parts that were not purchases specifically 
for use in performance of a DoD contract.

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

    This rule proposes to modify the clause at DFARS 252.244,7000, 
Subcontracts for Commercial Items, but does not modify its 
applicability. The clause is applicable to all solicitations and 
contracts, including solicitations and contracts using FAR part 12 
procedures for the acquisition of commercial items and solicitations 
and contracts valued at or below the simplified acquisition procedures. 
However, the amendment to DFARS 252.244-7000 proposed by this rule does 
not add or impose any burdens on contractors, but allows treatment of 
certain items as commercial items that do not otherwise meet the 
definition of ``commercial item'' in FAR part 2.

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 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. 
However, an initial regulatory flexibility analysis has been performed 
and is summarized as follows:
    This proposed rule is issued in order to implement sections 877 and 
878 of the National Defense Authorization Act (NDAA) for Fiscal Year 
(FY) 2017 (10 U.S.C. 2380a and 10 U.S.C. 2380b) and further implements 
section 848 of the NDAA for FY 2018 (10 U.S.C. 2380(b)).
    The objective of this rule is to address the use of FAR part 12 
procedures, prior

[[Page 65324]]

commercial item determinations, and the treatment as commercial items 
of services provided by nontraditional defense contractors and certain 
items purchased by a contractor for use in the performance of multiple 
contracts. The legal basis for the rule is the NDAA section cited as 
the reasons for the action.
    Based on FY 2018 data from the Federal Procurement Data System 
(FPDS), awards of commercial contracts were made to 15,231 
nontraditional defense contractors that were also small entities. It is 
unknown how many of those entities might provide services that use the 
same pool of employees used for commercial customers and are priced 
using methodology similar to the methodology used for commercial 
pricing.
    Also based on FPDS data for FY 2018, DoD awarded 110,000 contracts 
for the purchase of supplies, commercial or noncommercial, exceeding 
$10,000, to 13,892 unique small entities. This rule will affect an 
unknown number of those 13,892 small entities, if such small entities 
purchase noncommercial items valued at less than $10,000 per item that 
are not identifiable to any particular contract when purchased and are 
for use in the performance of multiple contracts with DoD and other 
parties.
    This rule does not impose any new reporting, recordkeeping, or 
other compliance requirements. The rule does remind the contractor of 
the responsibility to ensure that items treated as commercial items 
pursuant to section 877 of the NDAA for FY 2017 that are to be used in 
the performance of the DoD contract meet all terms and conditions of 
the contract that are applicable to commercial items.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    DoD did not identify any significant alternatives that would 
minimize or reduce the significant economic impact on small entities, 
because there is no significant impact on small entities. Any impact is 
expected to be beneficial.
    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 2019-D027), in 
correspondence.

VII. Paperwork Reduction Act

    The rule does not contain any new 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, 244, and 252

    Government procurement.

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

    Therefore, 48 CFR parts 212, 244, and 252 are proposed to be 
amended as follows:

0
1. The authority citation for 48 CFR parts 212, 244, and 252 continues 
to read as follows:

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

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
2. Revise section 212.102 to read as follows:


212.102   Applicability.

    (a)(i) Use of FAR part 12 procedures. Use of FAR part 12 procedures 
is based on--
    (A) A determination that an item is a commercial item, as defined 
in FAR 2.101; or
    (B) Applicability of the following statutes that provide for 
treatment as a commercial item and use of part 12 procedures, even 
though the item does not meet the definition of ``commercial item'' at 
FAR 2.101 and does not require a commercial item determination:
    (1) 41 U.S.C. 1903, when used to procure supplies or services to be 
used to facilitate defense against or recovery from cyber, nuclear, 
biological, chemical, or radiological attack pursuant to FAR 12.102(f).
    (2) 10 U.S.C. 2380a, when used to procure supplies or services from 
nontraditional defense contractors pursuant to 212.102(a)(iv).
    (ii) Commercial item determination. (A) When using FAR part 12 
procedures for acquisitions of commercial items pursuant to 
212.102(a)(i)(A) exceeding $1 million in value, the contracting officer 
shall--
    (1) Determine in writing that the acquisition meets the commercial 
item definition in FAR 2.101;
    (2) Include the written determination in the contract file;
    (3) Obtain approval at one level above the contracting officer when 
a commercial item determination relies on paragraph (1)(ii), (3), (4), 
or (6) of the ``commercial item'' definition at FAR 2.101; and
    (4) Follow the procedures and guidance at PGI 212.102(a)(ii)(A) 
regarding file documentation and commercial item determinations.
    (B) See PGI 212.102(a)(ii)(B) for information about items that DoD 
has historically acquired as military-unique, noncommercial items.
    (iii) Prior commercial item determination or other use of FAR part 
12 procedures. (A)(1) Pursuant to 10 U.S.C. 2306a(b)(4)(A), the 
contracting officer may presume that a prior commercial item 
determination made by a military department, a defense agency, or 
another component of DoD shall serve as a determination for subsequent 
procurements of such item.
    (2) Pursuant to 10 U.S.C. 2380(b), except as provided in paragraph 
(a)(iii)(B)(2) of this section, a contract for an item acquired using 
commercial item acquisition procedures under FAR part 12 shall serve as 
a prior commercial item determination, unless the item was acquired 
pursuant to paragraph (a)(i)(B) of this section.
    (B)(1) Until November 15, 2020, prior to converting a procurement 
of commercial items valued at more than $1 million from commercial 
acquisition procedures to noncommercial acquisition procedures under 
FAR part 15, follow the procedures at subpart 212.70 in lieu of the 
procedures in paragraph (a)(iii)(B)(2) of this section.
    (2) Pursuant to 10 U.S.C. 2306a(b)(4)(B) and (C) and 10 U.S.C. 
2380(b), except as provided in paragraph (a)(iii)(B)(1) of this 
section, if the contracting officer does not make the presumption that 
a prior commercial item determination is valid, or that the continued 
use of FAR part 12 procedures for other statutory reasons is still 
appropriate, and instead chooses to proceed with a procurement of an 
item using procedures other than FAR part 12 procedures, the 
contracting officer shall request a review by the head of the 
contracting activity that will conduct the procurement. Not later than 
30 days after receiving a request for review, the head of a contracting 
activity shall--
    (i) Confirm that the prior use of FAR part 12 procedures was 
appropriate and still applicable; or
    (ii) Issue a determination that the prior use of FAR part 12 
procedures was improper or that it is no longer appropriate to acquire 
the item using FAR part 12 procedures, with a written explanation of 
the basis for the determination.
    (iv) Nontraditional defense contractors. In accordance with 10 
U.S.C. 2380a, contracting officers--
    (A) Except as provided in paragraph (a)(iv)(B) of this section, may 
treat supplies and services provided by nontraditional defense 
contractors as

[[Page 65325]]

commercial items. This permissive authority is intended to enhance 
defense innovation and investment, enable DoD to acquire items that 
otherwise might not have been available, and create incentives for 
nontraditional defense contractors to do business with DoD. It is not 
intended to recategorize current noncommercial items, however, when 
appropriate, contracting officers may consider applying commercial item 
procedures to the procurement of supplies and services from business 
segments that meet the definition of ``nontraditional defense 
contractor'' even though they have been established under traditional 
defense contractors;
    (B) Shall treat services provided by a business unit that is a 
nontraditional defense contractor as commercial items, to the extent 
that such services use the same pool of employees as used for 
commercial customers and are priced using methodology similar to 
methodology used for commercial pricing; and
    (C) Shall document the file when treating supplies or services from 
a nontraditional defense contractor as commercial items in accordance 
with paragraph (a)(iv)(A) or (B) of this section.


212.7001   [Amended]

0
3. Amend section 212.7001(a)(2) by removing ``Acquisition, Technology, 
and Logistics'' and adding ``Acquisition and Sustainment'' in its 
place.

PART 244--SUBCONTRACTING POLICIES AND PROCEDURES

0
4. Amend section 244.402 by-
0
a. In paragraph (a), removing ``Contractors shall'' and adding 
``Contractors are required to'' in its place; and
0
b. Adding paragraph S-70.
    The addition reads as follows:


244.402   Policy requirements.

* * * * *
    (S-70) In accordance with 10 U.S.C. 2380B, items that are valued at 
less than $10,000 per item that are purchased by a contractor for use 
in the performance of multiple contracts with the Department of Defense 
and other parties and are not identifiable to any particular contract 
when purchased shall be treated as commercial items.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Amend section 252.244-7000 by-
0
a. In the clause heading, removing the date ``(JUN 2013)'' and adding 
``(ABBREVIATED MONTH AND YEAR OF FINAL RULE EFFECTIVE DATE)'' in its 
place;
0
b. Redesignating paragraph (c) as paragraph (d);
0
c. Adding a new paragraph (c); and
0
d. In the newly redesignated paragraph (d), removing ``paragraph (c)'' 
and adding ``paragraph (d)'' in its place.
    The addition reads as follows:


252.244-7000   Subcontracts for Commercial Items.

* * * * *
    (c) The Contractor shall treat as commercial items any items valued 
at less than $10,000 per item that were purchased by the Contractor for 
use in the performance of multiple contracts with the Department of 
Defense and other parties and are not identifiable to any particular 
contract when purchased. The Contractor shall ensure that any such 
items to be used in performance of this contract meet all terms and 
conditions of this contract that are applicable to commercial items.
* * * * *
[FR Doc. 2019-25663 Filed 11-26-19; 8:45 am]
 BILLING CODE 5001-06-P