[Federal Register Volume 87, Number 208 (Friday, October 28, 2022)]
[Proposed Rules]
[Pages 65507-65509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23280]



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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215, 217, and 252

[Docket DARS-2022-0026]
RIN 0750-AL22


Defense Federal Acquisition Regulation Supplement: Undefinitized 
Contract Actions (DFARS Case 2021-D003)

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) as recommended by the DoD Inspector 
General to refine the management of undefinitized contract actions.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before December 27, 2022, to be 
considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2021-D003, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for ``DFARS Case 2021-D003.'' Select ``Comment'' and follow the 
instructions to submit a comment. Please include your name, company 
name (if any), and ``DFARS Case 2021-D003'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2021-D003 in 
the subject line of the message.
    Comments received generally will be posted without change to 
https://www.regulations.gov, including any personal information 
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission 
to verify posting.

FOR FURTHER INFORMATION CONTACT: David E. Johnson, telephone 202-913-
5764.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS to implement recommendations 
to refine management of undefinitized contract actions (UCAs) as 
addressed in the DoD Inspector General Audit of Military Department 
Management of Undefinitized Contract Actions (Report No. DODIG-2020-
084). This report recommends changes to the DFARS to encourage 
contractors to provide timely qualifying proposals, including the 
possibility of the Government withholding a percentage of payments yet 
to be paid under a UCA until it receives a qualifying proposal from the 
contractor.
    This proposed rule reinforces the contracting officer's existing 
authority, notwithstanding FAR 52.216-26, Payments of Allowable Costs 
Before Definitization, to withhold up to 5 percent of all subsequent 
financing requests or take other appropriate actions when the 
contractor does not submit qualifying proposals in accordance with the 
contract definitization schedule. DoD contracting officers will 
appropriately document contract files and apply contract risk factors 
on DD Form 1547, Record of Weighted Guidelines, under this proposed 
rule.

II. Discussion and Analysis

    DFARS 215.404-71-3, Contract type risk and working capital 
adjustment, generally regards the contract type risk to be in the low 
end of the designated range when costs have been incurred prior to 
definitization. This proposed rule adds, at 215.404-71-3, paragraph 
(d)(2)(i), that when considering the reduced cost risks associated with 
allowable incurred costs on an undefinitized contract action, it is 
appropriate to apply separate contract risk factors for allowable 
incurred costs and estimated costs to complete when completing the 
contract risk factors section of DD Form 1547, Record of Weighted 
Guidelines.
    DFARS subpart 217.74 prescribes policies and procedures for the 
management and oversight of undefinitized contract actions and related 
approval requirements. DFARS 217.7404-3(b) currently states that if the 
contractor does not submit a timely qualifying proposal, the 
contracting officer may suspend or reduce progress payments or take 
other appropriate action. This proposed rule revises the withholding 
guidance to specify ``an amount necessary to protect the interests of 
the Government, not to exceed 5 percent of all subsequent financing 
requests,'' if the qualifying proposal is not submitted in accordance 
with the contract definitization schedule. This proposed rule provides 
examples of other appropriate actions to include documenting the 
noncompliance in the contractor's past performance evaluation or 
terminating the contract for default. This proposed rule adds that 
contracting officers must ensure contract files are documented with 
justification for withholding or not withholding payments when the 
qualifying proposal was not submitted in accordance with the contract 
definitization schedule.
    This proposed rule adds to the clause at DFARS 252.217-7027, 
Contract Definitization, that failure to meet the qualifying proposal 
date in the contract definitization schedule could result in the 
Government withholding an amount of up to 5 percent of all subsequent 
requests for financing until the contracting officer determines that a 
proposal is qualifying.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Services and Commercial Products, 
Including Commercially Available Off-the-Shelf (COTS) Items

    This rule amends the clause at DFARS 252.217-7027, Contract 
Definitization. However, this rule does not impose any new requirements 
on contracts at or below the SAT or for commercial services or 
commercial products, including COTS items. The clause will continue to 
not apply to acquisitions at or below the SAT and to acquisitions of 
commercial services and commercial products, including COTS items.

IV. Expected Impact of the Rule

    The proposed rule will incentivize contractors to submit qualifying 
proposals according to the contract definitization schedule to avoid 
the withholding of an amount of up to 5 percent of all subsequent 
financing requests. DoD contracting officers will be required to 
consider applying separate and differing contract risk factors to costs 
incurred and estimated costs to complete, when completing the DD Form 
1547, Record of Weighted Guidelines. Contracting officers will also be 
required to document the contract file to show justification for 
withholding or not withholding a portion of financing payment when the 
qualifying proposal was not submitted according to the contract 
definitization schedule.

V. 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

[[Page 65508]]

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.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD will submit a copy of 
the interim or final rule with the form, Submission of Federal Rules 
under the Congressional Review Act, to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the Congressional Review Act cannot take effect until 
60 days after it is published in the Federal Register. This rule is not 
anticipated to be a major rule under 5 U.S.C. 804.

VII. 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 no additional administrative burdens will be placed on small 
entities. 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 (DFARS) as recommended by the DoD Inspector 
General Audit of Military Department Management of Undefinitized 
Contract Actions (Report No. DODIG-2020-084) to refine the management 
of undefinitized contract actions. This report recommends changes to 
the DFARS to encourage contractors to provide timely qualifying 
proposals, including the possibility of the Government withholding a 
percentage of payments yet to be paid under an undefinitized contract 
action until it receives a qualifying proposal from the contractor.
    This proposed rule incentivizes contractors to submit qualifying 
proposals in accordance with the contract definitization schedule; and, 
notwithstanding FAR 52.216-26, Payments of Allowable Costs Before 
Definitization, allows contracting officers to withhold an amount 
necessary to protect the interests of the Government, not to exceed 5 
percent of all subsequent financing requests, or take other appropriate 
actions if a qualifying proposal is not submitted in accordance with 
the contract definitization schedule. Contracting officers will 
document in the contract file the justification for withholding or not 
withholding payments if the qualifying proposal was not submitted in 
accordance with the contract definitization schedule. This proposed 
rule clarifies that, when considering the reduced cost risks associated 
with allowable incurred costs on an undefinitized contract action, it 
is appropriate to apply separate and differing contract risk factors 
for allowable incurred costs and estimated costs to complete when 
documenting the contract risk sections of DD Form 1547, Record of 
Weighted Guidelines.
    The objective of the proposed rule is to implement the 
recommendations of the DoD Inspector General. The legal basis for the 
rule is 41 U.S.C 1303.
    This proposed rule will likely affect small entities that will be 
awarded undefinitized contract actions. Data was obtained from the 
Procurement Business Intelligence Service (PBIS) for all contracts and 
modifications containing DFARS clause 252.217-7027, Contract 
Definitization. Data from PBIS revealed DoD awarded a total of 2,162 
contracts to 971 small businesses from fiscal year 2019 through fiscal 
year 2021, which averages out to 324 small businesses per year. 
Therefore, this proposed rule may apply to approximately 324 unique 
small entities.
    The rule does not impose any new reporting, recordkeeping, or 
compliance requirements.
    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 this proposed rule is not expected to have a significant impact 
on small entities.
    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 2021-D003), in 
correspondence.

VIII. Paperwork Reduction Act

    This 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, 217, and 252

    Government procurement.

    Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 215, 217, and 252 are proposed to be 
amended as follows:

0
1. The authority citation for 48 CFR parts 215, 217, and 252 continues 
to read as follows:

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

PART 215--CONTRACTING BY NEGOTIATION

0
2. Amend section 215.404-71-3 by revising paragraph (d)(2)(i) to read 
as follows:


215.404-71-3  Contract type risk and working capital adjustment.

* * * * *
    (d) * * *
    (2) * * *
    (i) The contracting officer shall assess the extent to which costs 
have been incurred prior to definitization of the contract action (also 
see 217.7404-6(a) and 243.204-70-6). When considering the reduced cost 
risks associated with allowable incurred costs on an undefinitized 
contract action, it is appropriate to apply separate contract risk 
factors for allowable incurred costs and estimated costs to complete 
when completing the contract risk sections of DD Form 1547, Record of 
Weighted Guidelines. When costs have been incurred prior to 
definitization, generally regard the contract type risk to be in the 
low end of the designated range. If a substantial portion of the costs 
has been incurred prior to definitization, the contracting officer may 
assign a value as low as zero percent, regardless of contract type. 
However, if a contractor submits a qualifying proposal to definitize an 
undefinitized contract action and the contracting officer for such 
action definitizes the contract after the end of the 180-day period 
beginning on the date on which the contractor submitted the qualifying 
proposal as defined in 217.7401, the profit allowed on the contract 
shall accurately reflect the cost risk of the contractor as such risk 
existed on the date the contractor submitted the qualifying proposal.
* * * * *

PART 217--SPECIAL CONTRACTING METHODS

0
3. Amend section 217.7404-3 by revising paragraph (b) to read as 
follows:


217.7404-3   Definitization schedule.

* * * * *

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    (b)(1) Submission of a qualifying proposal in accordance with the 
definitization schedule is a material element of the contract. If the 
contractor does not submit a qualifying proposal in accordance with the 
contract definitization schedule, notwithstanding FAR 52.216-26, 
Payments of Allowable Costs Before Definitization, the contracting 
officer may withhold an amount necessary to protect the interests of 
the Government, not to exceed 5 percent of all subsequent financing 
requests, or take other appropriate actions (e.g., documenting the 
noncompliance in the contractor's past performance evaluation or 
terminating the contract for default).
    (2) Contracting officers shall document in the contract file the 
justification for withholding or not withholding payments if the 
qualifying proposal was not submitted in accordance with the contract 
definitization schedule.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Revise section 252.217-7027 to read as follows:


252.217-7027   Contract definitization.

    As prescribed in 217.7406(b), use the following clause:

Contract Definitization (Date)

    (a) A ___ [insert specific type of contract action] is 
contemplated. The Contractor agrees to begin promptly negotiating 
with the Contracting Officer the terms of a definitive contract that 
will include--
    (1) All clauses required by the Federal Acquisition Regulation 
(FAR) on the date of execution of the undefinitized contract action;
    (2) All clauses required by law on the date of execution of the 
definitive contract action; and
    (3) Any other mutually agreeable clauses, terms, and conditions.
    (b) The Contractor agrees to submit a ___ [insert type of 
proposal; e.g., fixed-price or cost-and-fee] proposal and certified 
cost or pricing data supporting its proposal. Notwithstanding FAR 
52.216-26, Payments of Allowable Costs Before Definitization, 
failure to meet the qualifying proposal date in the contract 
definitization schedule could result in the Contracting Officer 
withholding an amount up to 5 percent of all subsequent requests for 
financing until the Contracting Officer determines that a proposal 
is qualifying.
    (c) The schedule for definitizing this contract action is as 
follows [insert target date for definitization of the contract 
action and dates for submission of proposal, beginning of 
negotiations, and, if appropriate, submission of the make-or-buy and 
subcontracting plans and certified cost or pricing data]:

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    (d) If agreement on a definitive contract action to supersede 
this undefinitized contract action is not reached by the target date 
in paragraph (c) of this clause, or within any extension of it 
granted by the Contracting Officer, the Contracting Officer may, 
with the approval of the head of the contracting activity, determine 
a reasonable price or fee in accordance with FAR subpart 15.4 and 
part 31, subject to Contractor appeal as provided in the Disputes 
clause. In any event, the Contractor shall proceed with completion 
of the contract, subject only to the Limitation of Government 
Liability clause.
    (1) After the Contracting Officer's determination of price or 
fee, the contract shall be governed by--
    (i) All clauses required by the FAR on the date of execution of 
this undefinitized contract action for either fixed-price or cost-
reimbursement contracts, as determined by the Contracting Officer 
under this paragraph (d);
    (ii) All clauses required by law as of the date of the 
Contracting Officer's determination; and
    (iii) Any other clauses, terms, and conditions mutually agreed 
upon.
    (2) To the extent consistent with paragraph (d)(1) of this 
clause, all clauses, terms, and conditions included in this 
undefinitized contract action shall continue in effect, except those 
that by their nature apply only to an undefinitized contract action.
    (e) The definitive contract resulting from this undefinitized 
contract action will include a negotiated ___ [insert ``cost/price 
ceiling'' or ``firm-fixed price''] in no event to exceed ___ [insert 
the not-to-exceed amount].
(End of clause)
[FR Doc. 2022-23280 Filed 10-27-22; 8:45 am]
BILLING CODE 5001-06-P