[Federal Register Volume 84, Number 250 (Tuesday, December 31, 2019)]
[Rules and Regulations]
[Pages 72247-72249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27823]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 244

[Docket DARS-2019-0024]
RIN 0750-AJ48


Defense Federal Acquisition Regulation Supplement: Contractor 
Purchasing System Review Threshold (DFARS Case 2017-D038)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to establish a DoD contractor 
purchasing system review dollar threshold that provides a regulatory 
basis for allowing DoD personnel to support other essential priorities 
and missions of greater contractual risk, while reducing regulatory 
impact on contractors.

DATES: Effective December 31, 2019.

FOR FURTHER INFORMATION CONTACT: Kimberly Ziegler, telephone 571-372-
6095.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 84 FR 
25228 on May 31, 2019, proposing to amend the DFARS to implement a 
recommendation from the Defense Contract Management Agency (DCMA) to 
raise the contractor purchasing system review (CPSR) threshold at 
Federal Acquisition Regulation (FAR) 44.302(a) from $25 million to $50 
million. Currently, FAR 44.302(a) requires the administrative 
contracting officer (ACO) to determine whether a contractor's sales to 
the Government are expected to exceed $25 million during the next 12 
months and, if so, perform a review to determine if a CPSR is needed. 
The ACO uses this dollar threshold in conjunction with the surveillance 
criteria cited at FAR 44.302(a), i.e., contractor past performance, and 
the volume, complexity, and dollar value of subcontracts, to make this 
determination. DCMA performs the preponderance of DoD CPSRs. 
Competitively awarded firm-fixed-price and competitively awarded fixed-
price with economic price adjustment contracts and sales of commercial 
items pursuant to part 12 of the FAR are excluded from this 
requirement.
    FAR 44.302(a) specifically authorizes the head of the agency 
responsible for contract administration to raise or lower the $25 
million CPSR threshold if it is considered to be in the Government's 
best interest. The dollar threshold of $25 million cited at FAR 
44.302(a) has been unchanged since 1996. In 2016, the DCMA CPSR Group 
conducted an analysis to determine if raising the CPSR threshold would 
be beneficial. Based on the Group's findings, it was determined that 
adjusting the threshold upward to $50 million would appropriately 
account for inflation, reduce burden on small contractors, and allow a 
more efficient and effective use of CPSR resources to review larger 
contractors where more taxpayer dollars are at risk. Three respondents 
submitted public comments in response to the proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule.

A. Summary of Significant Changes From the Proposed Rule

    There are no changes made to the final rule as a result of the 
public comments.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Two respondents conveyed overall support for the rule, but 
one respondent stated the support for the rule was contingent on DoD 
ensuring procurements valued at $50 million or below will not require 
the contractor to have or maintain an approved purchasing system per 
the clause at DFARS 252.242-7005, Contractor Business Systems.
    Response: FAR clause 52.244-2, Subcontracts, allows the contracting 
officer to assess whether a system review is needed (e.g., when meeting 
the $50 million threshold is anticipated). DFARS 252.244-7001, 
Contractor Purchasing System Administration, establishes the review 
criteria. Contractors whose sales have not reached the $50 million 
threshold may opt to allow their approval to expire rather than incur 
the costs to maintain a system that meets the criteria for an approved 
system. If an approved purchasing system is necessary to support a 
particular program, the contractor can work with the contracting 
officer to obtain a purchasing system review based on risk or pressing 
need. Otherwise, the contractor can request consent to subcontract in 
accordance with FAR 52.244-2.

[[Page 72248]]

2. Assessment of Risk
    Comment: One respondent conveyed concerns that smaller contractors 
with fewer and lower dollar value contracts can create greater risks 
than contractors with larger dollar value contracts due to the 
availability of financial resources.
    Response: There is no evidence that contractors with lower sales 
are inherently more risky than those with higher sales. The $25 million 
threshold established by FAR 44.302(a) has not changed since 1996. 
Analysis shows that the threshold could be raised to $50 million with 
consideration given to inflation and acceptable risk. Consistent with 
Better Buying Power (BBP) 3.0, raising the CPSR threshold is intended 
reduce the administrative burden on smaller contractors. Smaller 
contractors are often exempt from many of the CPSR review elements as a 
result of the recent increase to the threshold for obtaining certified 
cost or pricing data.
    Comment: One respondent recommended reevaluating the risk-based 
assessment approach that DCMA employs to assess which contractors to 
review in a given year because contractors currently exceeding the 
threshold should not have latent undiscovered weaknesses in their 
purchasing systems. Based upon this assumption, the increased threshold 
would have no significant impact upon those purchasing systems.
    Response: Risk assessments on approved systems are used by DCMA to 
prioritize one approved system over another and are used to schedule 
reviews. New entries (initial reviews) are worked into the existing 
schedule.
3. FAR 52.244-2, Subcontracts, and DFARS 252.244-7001, Contractor 
Purchasing System Administration
    Comment: One respondent recommended revising the requirement for 
inclusion of the clause at FAR 52.244-2, Subcontracts, and the clause 
at DFARS 252.244-7001, Contractor Purchasing System Administration, and 
permit contracting officers to omit both clauses from applicable 
contracts if a CPSR will not be performed.
    Response: The contracting officer inserts the FAR clause 52.244-2, 
Subcontracts, when flexibly priced contracts are anticipated, thus 
setting the stage for a contractor to submit requests for consent to 
subcontract. If a contractor's sales to the Government (excluding 
competitively awarded firm-fixed-price and competitively awarded fixed-
price with economic price adjustment contracts and sales of commercial 
items pursuant to part 12) are expected to exceed $50 million during 
the next 12 months, the contracting officer will perform a review to 
determine if a CPSR is needed. In evaluating the acceptability of the 
contractor's purchasing system, the contracting officer, in 
consultation with the purchasing system analyst or auditor, determines 
whether the contractor's purchasing system complies with the system 
criteria for an acceptable purchasing system as prescribed in the 
clause at 252.244-7001, Contractor Purchasing System Administration. 
CPSR approval can be viewed to lighten the consent to subcontract 
burden on both the contractor and contracting officer. If the 
contracting officer determines that an approved system is not in the 
best interests of the Government, then they can choose not to initiate 
a review and continue with consent packages and annual contracting 
officer surveillance. The criteria found at DFARS 252.244-7001 can be 
used by contracting officers, in addition to those found in FAR 52.244-
2, when conducting annual surveillance of a contractor without an 
approved system when the clause is present in prime contracts.
4. Initial Regulatory Flexibility Analysis (IRFA)
    Comment: One respondent inquired if the data in the IRFA for DCMA 
CPSRs included all of the military departments and defense agencies.
    Response: See section VI of this preamble.
5. Small Business Impacts
    Comment: One respondent conveyed concerns that many solicitations 
require as a responsive element of bidding that the contractor 
demonstrate that it has a current approved purchasing system. The 
respondent further stated that contractors meeting the threshold for 
CPSRs will meet that test, however, those that are no longer required 
to maintain and receive CPSRs will not. As a result, the respondent 
recommends that DoD consider the potential implications for small 
businesses and on competition for cost-reimbursement or certain 
indefinite delivery indefinite quantity contracts from the CPSR 
threshold change when developing contract requirements in the future.
    Response: If an approved purchasing system is necessary to support 
a particular program, the contractor can work with the contracting 
officer to obtain a purchasing system review based on risk or pressing 
need. Otherwise, the contractor can request consent to subcontract in 
accordance with the clause at FAR 52.244-2.
6. Out of Scope
    Comment: One respondent questioned the mechanism to be used to 
provide oversight of cybersecurity compliance if an entity no longer 
meets the threshold for a CPSR.
    Response: This comment is out of scope of this rule.

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 add any new provisions or clauses or impact any 
existing provisions or clauses. The rule merely increases the DoD 
dollar threshold for conducting CPSRs from $25 million to $50 million.

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

VI. Regulatory Flexibility Act

    A final regulatory flexibility analysis (FRFA) has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 604, et seq. 
The FRFA is summarized as follows:
    DoD is amending the Defense Federal Acquisition Regulation 
Supplement (DFARS) to establish a DoD contractor purchasing system 
review (CPSR) dollar threshold. This rule creates a new DFARS section 
at 244.302 to establish a CPSR dollar threshold of $50 million. The 
threshold will be used in conjunction with other surveillance criteria 
cited at Federal Acquisition Regulation (FAR) 44.302(a), to include 
contractor past performance and the volume, complexity, and dollar 
value of subcontracts. The rule establishes a DoD

[[Page 72249]]

dollar threshold of $50 million for a formal CPSR; in effect, raising 
the current surveillance threshold of $25 million cited at FAR 
44.302(a) for DoD contractors.
    One respondent submitted a public comment in response to the 
initial regulatory flexibility analysis (IRFA) which is summarized as 
follows:
    Comment: The respondent inquired if the data in the IRFA for DCMA 
CPSRs included all of the military departments and defense agencies.
    Reponse: The data included all CPSRs across all of the Department 
of Defense. The Government sales include all Government contracts/
subcontracts (to include military departments and defense agencies) 
minus those competitively awarded firm-fixed-price, competitively 
awarded fixed-price with economic price adjustment contracts, or sales 
of commercial items pursuant to FAR part 12.
    In 2014, there were 667 unique entities for which administrative 
contracting officers (ACO) had recorded approved CPSR decisions in the 
Contract Business Analysis Repository. A 20% reduction in the number of 
CPSRs is expected to result from increasing the CPSR threshold from $25 
million to $50 million for a total reduction of approximately 133 firms 
no longer meeting the criteria for a CPSR review. Contractor purchasing 
systems are eligible for a comprehensive follow-on review every three 
years. Based on this three-year review cycle, approximately 45 fewer 
contractors would be reviewed each year (133 firms/3-year cycle = 44.3, 
rounded to 45 fewer reviews conducted each year). Of the 45 entities, 
it is estimated that 35 of these contractors are large businesses and 
10 are small entities.
    The $50 million dollar threshold should reduce the compliance 
burden for approximately 133 contractors, and permit a more prudent and 
efficient use of resources, prioritizing surveillance to the larger 
firms.
    For the approximately 133 contractors affected by this rule, there 
could be additional requirements for those firms to request consent to 
contract from the ACO, pursuant to the clause at FAR 52.244-2, 
Subcontracts. It is estimated that the annual number of consent to 
contract requests are approximately 12 per contractor.
    There are no known significant alternative approaches to the rule 
that would accomplish the stated objectives.

VII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies. The 
rule contains information collection requirements. The Office of 
Management and Budget (OMB) has previously cleared the information 
collection requirements affected by this rule under OMB Control Number 
9000-0132, Contractors' Purchasing System Review, and 9000-0149, 
Subcontract Consent. These two clearances have been consolidated; the 
updated clearance reflecting the new DoD CPSR threshold has been 
cleared by OMB under 9000-0149, entitled ``Subcontract Consent and 
Contractor's Purchasing System Review'' through February 28, 2022.

List of Subjects in 48 CFR Part 244

    Government procurement.

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

    Therefore, 48 CFR part 244 is amended as follows:

PART 244--SUBCONTRACTING POLICIES AND PROCEDURES

0
1. The authority citation for 48 CFR part 244 continues to read as 
follows:

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


0
2. Section 244.302 is added to read as follows:


244.302  Requirements.

    (a) In lieu of the threshold at FAR 44.302(a), the ACO shall 
determine the need for a CPSR if a contractor's sales to the Government 
are expected to exceed $50 million during the next 12 months.

[FR Doc. 2019-27823 Filed 12-30-19; 8:45 am]
BILLING CODE 5001-06-P