[Federal Register Volume 85, Number 169 (Monday, August 31, 2020)]
[Proposed Rules]
[Pages 53755-53758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18640]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 227 and 252

[Docket DARS-2019-0048]
RIN 0750-AK71


Defense Federal Acquisition Regulation Supplement: Validation of 
Proprietary and Technical Data (DFARS Case 2018-D069)

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, which amended the 
statutory presumption of development exclusively at private expense for 
commercial items in the procedures governing the validation of asserted 
restrictions on technical data.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before October 30, 2020, to be considered 
in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2018-D069, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2018-D069.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2018-D069'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2018-D069 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 proposing to revise the DFARS to implement section 865 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 
(Pub. L. 115-232), which repeals several years of congressional 
adjustments to the statutory presumption of development at private 
expense for commercial items in the validation procedures at paragraph 
(f) of 10 U.S.C. 2321. DoD hosted public meetings to obtain the views 
of interested parties with notice published in the Federal Register on 
August 16, 2019, at 84 FR 41953. In addition, DoD published an advance 
notice of proposed rulemaking (ANPR) on September 13, 2019, at 84 FR 
48513, providing draft DFARS revisions and requesting any written 
public comments by November 12, 2019.
    The presumption of development funding at private expense for 
commercial items was established in 1994 by section 8106 of the Federal 
Acquisition Streamlining Act (FASA) (Pub. L. 103-355). This statutory 
presumption has been amended numerous times, including by section 
802(b) of the NDAA for FY 2007 (Pub. L. 109-364), section 815(a)(2) of 
the NDAA for FY 2008 (Pub. L. 110-181), section 1071(a)(5) of the NDAA 
for FY 2015 (Pub. L. 113-291), section 813(a) of the NDAA for FY 2016 
(Pub. L. 114-92), and most recently by section 865.
    The DFARS implementation of this mandatory presumption has evolved 
accordingly to track the statutory changes, with the primary coverage 
found at paragraph (c) of section 227.7103-13, Government right to 
review, verify, challenge, and validate asserted restrictions, and 
paragraph (b) of the clause at 252.227-7037, Validation of Restrictive 
Markings on Technical Data. There is no DFARS coverage applying such a 
presumption regarding development funding for commercial computer 
software because, as a matter of policy also dating back to the FASA 
time frame, the underlying procedures for challenging and validating 
asserted restrictions have not been applied to commercial computer 
software--only to noncommercial computer software (e.g., section 
227.7203-13, Government right to review, verify, challenge, and 
validate asserted restrictions, and the clause at 252.227-7019, 
Validation of Asserted Restrictions--Computer Software).

II. Discussion and Analysis

    DoD reviewed the public comments submitted in writing, and also as 
discussed by the attendees at the public meeting on November 15, 2019, 
in the development of the proposed rule. Only one respondent provided a 
written public comment. A discussion of the comments and the changes 
made to the rule as a result of those comments is provided, as follows:

A. Summary of Significant Changes From the ANPR

    Language was added to clarify DFARS 227.7103-13(c). The proposed 
revisions clarify that the statutory threshold for all challenges, 
including those for commercial items, is that a contracting officer 
must have reasonable grounds to question the validity of the asserted 
restriction. In recognition of the higher burden to sustain a challenge 
for commercial items, the text was revised to require a contracting 
officer to include, to the maximum extent practicable, sufficient 
information in the challenge notice to reasonably demonstrate that the 
commercial item was not developed exclusively at private expense. The 
proposed revisions require the contracting officer to provide, in order 
to sustain a challenge, information demonstrating that the commercial 
item was not developed exclusively at private expense. Additionally, a 
change to DFARS 227.7103-13(d)(4) is proposed, in the case of 
commercial item acquisitions, to direct the contracting officer to 
DFARS 227.7103-13, paragraph (c)(2).
    Changes were made to 252.227-7037(b) to clarify that the 
presumption of development at private expense for commercial items 
applies to the issuance of a challenge. A revision is proposed in 
paragraph (e)(1)(i) of DFARS 252.227-7037 to clarify that, for 
commercial items, the challenge notice will include, to the maximum 
extent practicable, sufficient information to reasonably demonstrate 
that the commercial item was not developed at private expense. In 
paragraphs (f) and (g)(2)(i) of 252.227-7037, revisions are proposed to 
explain that, in order to sustain a challenge for commercial items, the 
contracting officer will provide information demonstrating that the 
commercial item was not developed exclusively at private expense.

B. Analysis of Public Comments

    Comment: The respondent requests two specific changes: (1) A 
substitution of language so that a contracting officer

[[Page 53756]]

needs to provide information to the contractor that a commercial item 
was not developed exclusively at private expense before challenging an 
assertion in DFARS 227.7103-13(c), and (2) replacement of the word 
``will'' with the word ``shall'' in paragraph (b) of the clause at 
DFARS 252.227-7037. The respondent recommends a change to clarify that 
a contracting officer must provide information to the contractor that a 
commercial item was not developed exclusively at private expense in 
order to challenge an assertion.
    Response: DoD generally agrees that, as a matter of policy, 
sufficient information should be provided to a contractor to reasonably 
demonstrate that the commercial item was not developed exclusively at 
private expense. Therefore, paragraph (c) in DFARS 227.7103-13 is 
revised to clarify a need for transparency, to the maximum extent 
practicable, when a contracting officer challenges any assertion.
    Regarding the respondent's recommended change of the word ``will'' 
to the word ``shall'' in paragraph (b) of the clause, the requested 
changes cannot be made pursuant to the FAR drafting conventions 
regarding the use of the terms ``shall'' and ``will'' in clauses and 
provisions. For consistency in the regulations, ``shall'' is the 
preferred term to use in provisions and clauses to indicate an 
obligation to act on the part of an offeror or contractor. To indicate 
an obligation for the Government to act, the term ``will'' is used. 
Accordingly, the word ``shall'' is replaced with ``will'' throughout 
the clause at DFARS 252.227-7037, where the Government is to perform an 
action.

C. Technical Amendments

    References in the DFARS text to ``subsection'' are changed to 
``section''. One editorial correction is made to a cross-reference in 
the introductory text to clause 252.227-7037. The reference to 
``27.7104(e)(5)'' is corrected to read ``227.7104(e)(5)''. In the 
clause, ``shall'' is changed to ``will'' when providing direction to 
the contracting officer.

III. 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 865 of the NDAA 
for FY 2019 to contracts at or below the simplified acquisition 
threshold and to acquisitions of commercial items, including 
commercially available off-the-shelf (COTS) items.

A. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold

    Title 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. Title 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.
    DoD has determined that it is in the best interest of the Federal 
Government to apply the statutory requirements regarding the 
presumption of development at private expense for commercial items in 
validations of asserted restrictions to acquisitions at or below the 
simplified acquisition threshold; i.e., the section 865 revisions to 
the presumption scheme do not alter the applicability of the underlying 
validation procedures. The validation procedures are necessary to 
ensure that the license rights granted to the Government are consistent 
with the applicable data rights clauses, and therefore affect both 
parties' substantive legal rights. Moreover, within the validation 
procedures, the presumption of development at private expense for 
commercial items is designed primarily to protect the contractors' 
interests and thus should remain applicable to acquisitions at or below 
the simplified acquisition threshold.

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

    Title 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 for the acquisition of commercial items, including 
COTS items. Title 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.
    Therefore, given that the requirements of section 865 of the NDAA 
for FY 2019 were enacted to return to a presumption of development 
exclusively at private expense for commercial items, DoD has determined 
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 
contracts intended to be covered by the law, thereby undermining the 
overarching public policy purpose of the law.

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 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 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., 
because implementation of section 865 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2019 provides for a 
presumption of development exclusively at private expense under a 
contract for commercial items. Section 865 clarifies that burden is 
shifted to the Government to provide information that

[[Page 53757]]

the commercial item was not developed exclusively at private expense. 
However, an initial regulatory flexibility analysis has been performed 
and is summarized as follows:
    DoD is proposing to implement section 865 of the NDAA for FY 2019 
(Pub. L. 115-232), which revised 10 U.S.C. 2321. Section 865 repeals 
amendments to 10 U.S.C. 2321(f) made by the NDAAs for FY 2007 through 
FY 2016. The impact is to return the coverage at DFARS 227.7103-13 and 
252.227-7037 substantially back to the original Federal Acquisition 
Streamlining Act-implementing language with regard to the presumption 
of development exclusively at private expense. Section 865 also 
codifies and revises DoD challenges to contractor-asserted restrictions 
on technical data pertaining to a commercial item, i.e., DoD is 
required to presume that the contractor or subcontractor has justified 
the asserted restriction on the basis that the item was developed 
exclusively at private expense, regardless of whether the contractor or 
subcontractor submits a justification in response to the Government's 
challenge notice. In such a case, the challenge to the use or release 
restriction may be sustained only if information provided by DoD 
demonstrates that the item was not developed exclusively at private 
expense.
    The objective of the proposed rule is to implement section 865 of 
the NDAA for FY 2019.
    This proposed rule will apply to small entities that have contracts 
with DoD requiring delivery of technical data. Based on data from 
Electronic Data Access for FY 2017 through FY 2019, DoD estimates that 
43,939 contractors may be impacted by the changes in this proposed 
rule. Of those entities, approximately 23,181 (53 percent) are small 
entities.
    This proposed rule does not impose any new reporting, recordkeeping 
or other compliance requirements for small entities. The DFARS text and 
clause that are proposed to be amended are covered by OMB Control 
Number 0704-0369. The changes in this proposed rule are expected to 
have negligible impact on the burdens already covered by the OMB 
clearance.
    This proposed rule does not duplicate, overlap, or conflict with 
any other Federal rules.
    There are no known alternatives which would accomplish the stated 
objectives of the applicable statute.
    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-D069), in 
correspondence.

VII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply to 
this rule; however, these changes to the DFARS do not impose additional 
information collection requirements to the paperwork burden previously 
approved under OMB Control Number 0704-0369, entitled ``DFARS: Subparts 
227.71, Rights in Technical Data; and Subpart 227.72, Rights in 
Computer Software and Computer Software Documentation, and related 
provisions and clauses of the Defense Federal Acquisition Regulation 
Supplement (DFARS).''

List of Subjects in 48 CFR Parts 227 and 252

    Government procurement.

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

    Therefore, 48 CFR parts 227 and 252 are proposed to be amended as 
follows:

0
1. The authority citation for 48 CFR parts 227 and 252 continues to 
read as follows:

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

PART 227--PATENTS, DATA, AND COPYRIGHTS

0
2. Amend section 227.7103-13 by--
0
a. In paragraph (c)(1) removing the third sentence;
0
b. Revising paragraph (c)(2); and
0
c. In paragraphs (d)(2)(i) and (d)(4), removing ``subsection'' wherever 
it appears and adding ``section'' in each place; and
0
d. In paragraph (d)(4), adding a sentence after the first sentence.
    The revision and addition read as follows:


227.7103-13   Government right to review, verify, challenge, and 
validate asserted restrictions.

* * * * *
    (c) * * *
    (2) Commercial items--presumption regarding development exclusively 
at private expense. 10 U.S.C. 2320(b)(1) and 2321(f) establish a 
presumption and procedures regarding validation of asserted 
restrictions for technical data related to commercial items on the 
basis of development exclusively at private expense. Contracting 
officers shall presume that a commercial item was developed exclusively 
at private expense whether or not a contractor or subcontractor submits 
a justification in response to a challenge notice. The contracting 
officer shall not challenge a contractor's assertion that a commercial 
item was developed exclusively at private expense unless the Government 
can specifically state the reasonable grounds to question the validity 
of the assertion. The challenge notice shall, to the maximum extent 
practicable, include sufficient information to reasonably demonstrate 
that the commercial item was not developed exclusively at private 
expense. In order to sustain the challenge, the contracting officer 
shall provide information demonstrating that the commercial item was 
not developed exclusively at private expense. A contractor's or 
subcontractor's failure to respond to the challenge notice cannot be 
the sole basis for issuing a final decision denying the validity of an 
asserted restriction.
    (d) * * *
    (4) * * * For commercial items, also see paragraph (c)(2) of this 
section. * * *
* * * * *

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
3. Amend section 252.227-7037 by--
0
a. In the introductory text, removing ``27.7104(e)(5)'' and adding 
``227.7104(e)(5)'' in its place;
0
b. Removing the clause date ``(SEP 2016)'' and adding ``(DATE)'' in its 
place;
0
c. Revising paragraph (b);
0
d. In paragraph (c), removing ``paragraph (b)(1)'' and adding 
``paragraph (b)'' in its place;
0
e. In paragraphs (d)(2), (e)(1) introductory text, (e)(2) and (4), 
(g)(1), and (h)(2)(i) and (ii), removing ``shall'' and adding ``will'' 
in its place wherever it appears; and
0
f. Revising paragraphs (e)(1)(i), (f), and (g)(2)(i).
    The revisions read as follows:


252.227-7037   Validation of Restrictive Markings on Technical Data.

* * * * *
    (b) Commercial items--presumption regarding development exclusively 
at private expense. The Contracting Officer will presume that the 
Contractor's or a subcontractor's asserted use or release restrictions 
with respect to a commercial item are justified on the basis that the 
item was developed exclusively at private expense. The Contracting 
Officer will not issue a challenge unless there are reasonable grounds 
to question the validity of the assertion that the commercial item was

[[Page 53758]]

not developed exclusively at private expense.
* * * * *
    (e) * * *
    (1) * * *
    (i) State the specific grounds for challenging the asserted 
restriction, including, for commercial items, to the maximum extent 
practicable, sufficient information to reasonably demonstrate that the 
commercial item was not developed exclusively at private expense;
* * * * *
    (f) Final decision when Contractor or subcontractor fails to 
respond. Upon a failure of a Contractor or subcontractor to submit any 
response to the challenge notice the Contracting Officer will issue a 
final decision to the Contractor or subcontractor in accordance with 
the Disputes clause of this contract. In order to sustain the challenge 
for commercial items, the Contracting Officer will provide information 
demonstrating that the commercial item was not developed exclusively at 
private expense. This final decision will be issued as soon as possible 
after the expiration of the time period of paragraph (e)(1)(ii) or 
(e)(2) of this clause. Following issuance of the final decision, the 
Contracting Officer will comply with the procedures in paragraphs 
(g)(2)(ii) through (iv) of this clause.
    (g) * * *
    (2)(i) If the Contracting Officer determines that the validity of 
the restrictive marking is not justified, the Contracting Officer will 
issue a final decision to the Contractor or subcontractor in accordance 
with the Disputes clause of this contract. In order to sustain the 
challenge for commercial items, the Contracting Officer will provide 
information demonstrating that the commercial item was not developed 
exclusively at private expense. Notwithstanding paragraph (e) of the 
Disputes clause, the final decision will be issued within sixty (60) 
days after receipt of the Contractor's or subcontractor's response to 
the challenge notice, or within such longer period that the Contracting 
Officer has notified the Contractor or subcontractor of the longer 
period that the Government will require. The notification of a longer 
period for issuance of a final decision will be made within sixty (60) 
days after receipt of the response to the challenge notice.
* * * * *
[FR Doc. 2020-18640 Filed 8-28-20; 8:45 am]
BILLING CODE 5001-06-P