[Federal Register Volume 88, Number 101 (Thursday, May 25, 2023)]
[Rules and Regulations]
[Pages 33835-33838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11139]
-----------------------------------------------------------------------
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: DoD is issuing a final rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) as recommended by the DoD
Inspector General to refine the management of undefinitized contract
actions.
DATES: Effective May 25, 2023.
FOR FURTHER INFORMATION CONTACT: David Johnson, telephone 202-913-5764.
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule in the Federal Register at 87 FR
65507 on October 28, 2022, to amend the DFARS to refine the management
of undefinitized contract actions (UCAs). This final rule implements
recommendations regarding 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). 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. No changes are made to the final rule in response to the public
comments. A discussion of the comments is provided, as follows:
A. Analysis of Public Comments
1. Possible Subjectiveness Associated With the Term ``Qualified
Proposal''
Comment: Several respondents remarked that aspects of the
definition of ``qualified proposal'' in the context of UCAs appear open
to interpretation, and the resulting subjectivity could result in
unwarranted detrimental treatment of contractors. Some respondents
suggested DoD should change the DFARS to provide additional details
regarding what comprises a qualifying proposal or otherwise require
contracting officers to undertake a dialogue to assist contractors
developing and submitting qualifying proposals.
Response: The term ``qualified proposal,'' defined at DFARS
217.7401, was not proposed for revision in this rule, and the
definition is based on statute now found at 10 U.S.C. 3377(b)(2). This
rule does not conceptually change the term or its usage, and the
comment is therefore outside the scope of this rule.
2. Contract Risk Factors
Comment: Several respondents commented on the language regarding
contract risk factors at 215.404-71-3(d)(2)(i). Several respondents
stated that this rule would limit the contracting officer's discretion
and flexibility to review and assign risk factors that consider the
circumstances of a particular UCA. One respondent noted that current
language at DFARS 215.404-71-3(d)(2)(i) already instructs the
contracting officer to consider the extent to which costs have been
incurred prior to definitization rendering unnecessary the language
this rule adds at DFARS 215.404-71-3(d)(2)(i), including any resulting
updates to DD Form 1547, Record of Weighted Guidelines. One respondent
suggested modifying DFARS 217.7404-6, Allowable Profit, to specify
cost-risk factors, including ``inflation and baseline fluidity, and
reduced negotiating strength with suppliers and vendors in a UCA
environment.'' Some respondents disagreed with the assumption reflected
in the DFARS that a contractor's cost risk declines during the period
of a UCA, therefore warranting a fee reduction based on lower risk.
Response: This rule is intended to incentivize both parties to
definitize UCAs timely. The additional language in this rule at DFARS
215.404-71-3(d)(2)(i) provides contracting officers with flexibility
and clarity to properly consider and assign fees to the relevant
portions based upon their differing risk profiles, and DoD declines to
remove the additional language from the final rule. Regarding the
comment centering on stating factors that affect cost risk, at least
some of the factors or considerations the respondent listed are
effectively reflected at DFARS 215.404-71-3(d)(1), and the contracting
officer would already consider them when ascribing contract risk. The
comment regarding contract risk declining over
[[Page 33836]]
the course of a UCA speaks to DFARS language not proposed for revision
in this rule; rather, the change in this rule provides guidance to
contracting officers when completing DD Form 1547, Record of Weighted
Guidelines, without conceptually changing the language regarding
declining contract risk. DoD declines to revise this language in the
final rule.
3. Concerns Regarding the 5 Percent Maximum Withhold
Comment: Several respondents remarked that the 5 percent maximum
withhold specified under this rule, used to protect the Government's
interest where a qualifying proposal is not submitted timely, would
encourage a 5 percent withhold arbitrarily or as a matter of course
without considering either extenuating circumstances or a lesser
withholding percentage. Similarly, one respondent noted that the
documentation requirement at DFARS 217.7404-3(b)(2) would encourage a 5
percent withhold as a matter of course. One respondent stated that
applying a withhold where a qualifying proposal is not submitted timely
would cause additional delay, counter to the intent of the rule.
Additionally, one respondent indicated that the 5 percent withhold is
unnecessary in light of existing remedies.
Response: In accordance with DFARS language existing prior to this
rule, contracting officers have discretion whether to withhold or take
other appropriate action, where a qualifying proposal is not submitted
timely. This rule does not change the discretionary nature either of
such withholding or taking other appropriate action. This discretion
allows for consideration of extenuating circumstances as appropriate.
Additionally, the rule emphasizes that the withhold can be applied in a
broad variety of contract financing situations.
4. Requests To Withdraw the Rule
Comment: Several respondents requested DoD withdraw this rule in
its entirety as, for example, unnecessary to encourage submission of
qualifying proposals.
Response: DoD declines to withdraw the rule because doing so would
preclude implementing updates to management of UCAs per the DoDIG
report.
5. Underlying Causes of Delays in Submitting Qualifying Proposals
Comment: Several respondents remarked that circumstances outside
the control of contractors often contribute to delays in submitting
qualifying proposals and in negotiation of the final price, rendering
aspects of this rule one-sided or punitive. For example, some
respondents noted that delays in submitting qualified proposals are
sometimes caused by the prime contractor awaiting cost or pricing
details from subcontractors. In this context, one respondent suggested
changing the DFARS in the final rule to require explicit agreement by
the contractor both to the definitization schedule and to the risk
assessment negotiated in the price negotiation memorandum. Some
respondents suggested DoD should consider minimizing Government-driven
changes affecting contract definitization by disallowing changes to
work statements or specifications after the parties initially enter
into the UCA and before the contract is definitized.
Response: The contracting officer has discretion under this rule to
consider extenuating circumstances surrounding a particular UCA,
including delays caused by awaiting data from subcontractors, when
developing a defintization schedule or before taking appropriate action
such as a withhold. The nature of a UCA, which is inherently subject to
some uncertainty, works against the suggestion to disallow changes to
the work statement, and DoD therefore declines the suggestion. Further,
the parties can bilaterally address scope changes that might
necessitate revision to the proposal submission date.
6. Past Performance Evaluations
Comment: One respondent suggested deleting the reference to
documenting the contractor's past performance evaluation as an
appropriate action under DFARS 217.7404-3(b)(1) where a qualifying
proposal is not submitted timely. One respondent suggested DoD should
provide an appellate process to challenge past performance evaluations
that the contractor believes are inaccurate.
Response: DoD declines to delete the reference in this rule to
documenting the contractor's past performance evaluation. This rule
does not change the DFARS to compel documenting past performance
information in this context but rather lists such documentation as an
example of possible appropriate actions. Further, although this case
adds a reference to documenting past performance information, the
possibility of using this method as an appropriate action existed prior
to this rule. Additionally, the suggestion to develop in this rule an
appellate process to challenge past performance evaluations is outside
the scope of this rule.
7. Underlying Causes of UCAs
Comment: Several respondents suggested that DoD should address
underlying causes of UCAs, such as insufficient Government staffing or
delayed acquisition planning. Similarly, some respondents stated that
DoD should further specify in the DFARS proper or appropriate use of
UCAs.
Response: DoD declines the suggestions because they are outside the
scope of the rule.
B. Other Changes
No other changes are made to the final rule.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Services, and for 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 final 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
[[Page 33837]]
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.
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. The Office of
Information and Regulatory Affairs has determined that this rule is not
a major rule as defined by 5 U.S.C. 804.
VII. Regulatory Flexibility Act
A final regulatory flexibility analysis (FRFA) has been prepared
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
The FRFA is summarized as follows:
DoD is amending 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 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 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.
DoD received no public comments in response to the initial
regulatory flexibility analysis.
This 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 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
rule may apply to approximately 324 unique small entities.
The rule does not impose any new reporting, recordkeeping, or
compliance requirements.
DoD did not identify any significant alternatives that would
minimize or reduce the significant economic impact on small entities,
because this rule is not expected to have a significant impact on small
entities.
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 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.
* * * * *
(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).
[[Page 33838]]
(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 (May 2023)
(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]:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(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. 2023-11139 Filed 5-24-23; 8:45 am]
BILLING CODE 5001-06-P