[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Rules and Regulations]
[Pages 80462-80465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25158]



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Vol. 88

Friday,

No. 221

November 17, 2023

Part III





Department of Defense





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Defense Acquisition Regulations System





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 48 Part 212, et al.





Defense Federal Acquisition Regulations; Final Rules and Proposed Rules

  Federal Register / Vol. 88 , No. 221 / Friday, November 17, 2023 / 
Rules and Regulations  

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 219, and 252

[Docket DARS-2018-0035; Req No. DARS-2024-00009-FR]
RIN 0750-AJ21


Defense Federal Acquisition Regulation Supplement: 
Inapplicability of Certain Laws and Regulations to Commercial Items 
(DFARS Case 2017-D010)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule to amend the Defense Federal 
Acquisition Regulation Supplement (DFARS) to partially implement a 
section of the National Defense Authorization Act for Fiscal Year 2017 
that addresses the inapplicability of certain laws and regulations to 
the acquisition of commercial products, including commercially 
available off-the-shelf items, and commercial services.

DATES: Effective November 17, 2023.

FOR FURTHER INFORMATION CONTACT: Ms. Jeanette Snyder, telephone 703-
508-7524.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD published a proposed rule in the Federal Register at 83 FR 
30646 on June 29, 2018, to amend the DFARS to implement section 874 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 
(Pub. L. 114-328). Section 874 amends 10 U.S.C. 2375 (redesignated as 
10 U.S.C. 3452), Relationship of other provisions of law to procurement 
of commercial products and commercial services. Section 874-
     Requires DoD to address commercial item applicability for 
DoD-unique statutes and associated DFARS contract clauses issued after 
January 1, 2015;
     Restricts inclusion of contract clauses in contracts for 
commercial products, commercial services, and commercially available 
off-the-shelf (COTS) items and in subcontracts under contracts for the 
acquisition of commercial products, commercial services, and COTS 
items; and
     Redefines ``subcontract'' and restricts inclusion of 
contract clauses to subcontracts under contracts for the acquisition of 
commercial products, commercial services, and COTS items.
    Six respondents submitted public comments in response to the 
proposed rule.

II. Discussion and Analysis

    This final rule does not implement the definition of 
``subcontract'' based on the section 874 update at 10 U.S.C. 
3452(c)(3). A new DFARS case 2023-D022, Definition of Subcontract, will 
address 10 U.S.C. 3452(c)(3) and will be processed in parallel with the 
related Federal Acquisition Regulation (FAR) case 2018-006, Definition 
of ``Subcontract''. FAR case 2018-006 implements section 820 of the 
NDAA for FY 2018 (Pub. L. 115-91) that updates 41 U.S.C. 1906(c)(1) to 
change the meaning of ``subcontract'' in certain circumstances. The 
updated text at 10 U.S.C. 3452(c)(3) and 41 U.S.C. 1906(c)(1) is the 
same, except for the stated applicability in each of the statutes to 
either DoD or Federal Government contracts, respectively.
    DoD reviewed the public comments in the development of the final 
rule. One change was made to the proposed rule text as a result of the 
public comments. A discussion of the public comments and the changes 
made as a result of those comments is provided as follows:

A. Summary of Significant Changes From the Proposed Rule

    As noted in the introductory text of section II of this preamble, 
this final rule does not implement the changes in the proposed rule 
related to the definition of ``subcontract'' based on the updates at 10 
U.S.C. 3452(c)(3). Therefore, the comment to add the words ``or 
subcontractor at any tier'' at DFARS 212.001 in the definition of 
``subcontract'' in paragraph (2), and in the clauses that include this 
definition, to clarify that the agreements exclusion applies to 
subcontractors at any tier, will be considered under the new DFARS Case 
2023-D022, Definition of Subcontract. One change was made to add a 
sentence at DFARS 212.301, paragraph (f), to clarify the prohibition of 
the use of FAR and DFARS solicitation provisions and contract clauses 
by the contracting officer, where not required by the FAR or DFARS or 
consistent with customary commercial practices.

B. Analysis of Public Comments

1. General
    Comment: Several respondents expressed concerns regarding the 
implementation of the statute and whether all DFARS clauses should be 
reviewed under this rule.
    Response: In addition to this DFARS Case 2017-D010, there are other 
FAR and DFARS cases related to commercial contracts that are in process 
(FAR Cases 2018-013 and 2018-006; and DFARS Cases 2018-D074 and 2023-
D022). FAR Case 2018-018, published at 86 FR 61017 (November 4, 2021), 
implemented section 836 of the NDAA for FY 2019 (Pub. L. 115-232) that 
revised 41 U.S.C. 103 to amend the definition of ``commercial item'' in 
the FAR. DFARS case 2018-D066, published at 88 FR 6578 (January 31, 
2023), also implemented section 836 of the NDAA for FY 2019 in the 
DFARS to make similar changes to the term ``commercial item'', as well 
as implementing sections 837(b) and (c) of the NDAA for FY 2019. 
Section 836 amended the definition of ``commercial item''; and section 
837(b) and (c) made conforming changes at 10 U.S.C. 2533a and 2533b, 
now 10 U.S.C. 4862 and 4863, respectively. Under this rulemaking (DFARS 
Case 2017-D010), DoD reviewed DFARS clauses as directed under section 
874 of the NDAA for FY 2017. Section 874 limits the required review of 
the applicability of provisions of law and contract clauses to prime 
contracts for commercial products (including COTS items) and commercial 
services to those provisions of law and contract clauses enacted after 
January 1, 2015. DFARS Case 2018-D074 will include a review of DFARS 
clauses for applicability of provisions of law and contract clauses to 
prime contracts for commercial products (including COTS items) and 
commercial services for those provisions of law and contract clauses 
enacted after October 13, 1994.
2. Contracting Officer Clause Selection
    Comment: One respondent stated that the DFARS should be amended to 
prohibit the use of DFARS provisions and clauses unless consistent with 
customary commercial practice or approved in accordance with FAR 
12.302. The respondent also recommended the SF 1449 block 10 be revised 
so as to not confuse contracting officers due to the elimination of 
applicability of DFARS 252.219-7010, Notification of Competition 
Limited to Eligible 8(a) Participants--Partnership Agreement, to 
commercial item contracts.
    Response: The proposed rule text has been revised to clarify at 
DFARS 212.301(f) that the use of provisions and clauses other than the 
DFARS part 212 provisions and clauses by the contracting officer is 
prohibited unless required by the FAR or DFARS or unless consistent 
with customary commercial practices. In addition, DFARS 212.370, 
Inapplicability of certain provisions and

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clauses to contracts and subcontracts for the acquisition of commercial 
products, commercial services, and commercially available off-the-shelf 
items, is amended to remove 252.219-7010 from the proposed rule text. 
DFARS 219.811-3, paragraph (2), is amended to state that 252.219-7010 
is used in solicitations and contracts, including those using FAR part 
12 procedures for commercial products and commercial services, when 
using the competitive 8(a) procedures of FAR 19.805. This is necessary 
for DoD procurements of commercial products and commercial services 
that have been accepted by the Small Business Administration for 
competition under the 8(a) program.
3. Flowing Down Clauses to Subcontracts
    Comment: Three respondents stated that the proposed rule should 
prohibit flowing down clauses to subcontracts by contractors (and 
higher-tier subcontractors). One respondent stated that the FAR should 
be amended to delete the language at FAR 52.244-6(c)(2) and should be 
amended to limit flowdown only to clauses that specifically require 
flowdown to subcontracts for commercial items with a prohibition on 
flowing down any additional clauses. Another respondent recommended 
that DoD bar contractors from wholesale flowdown of clauses. Another 
respondent stated that it is unclear what ramifications there will be 
if a FAR or DFARS clause is improperly flowed down.
    Response: This final rule prohibits flowing down FAR or DFARS 
clauses by the prime contractor, under certain conditions, under DFARS 
clause 252.244-7000, Subcontracts for Commercial Products or Commercial 
Services. Also, the rule prohibits flowing down FAR or DFARS provisions 
and clauses by higher-tier subcontractors, under certain conditions, as 
DFARS clause 252.244-7000 has a flowdown requirement. The ramifications 
of improperly flowing down FAR or DFARS clauses would be determined in 
accordance with the terms of the contract.
4. Implementation
    Comment: Two respondents stated that the proposed rule does not 
fully implement the amendment to 10 U.S.C. 2375 (now 10 U.S.C. 3452) by 
section 874 of the NDAA for FY 2017. The respondents objected to DoD's 
application of the date of January 1, 2015, which appears in 10 U.S.C. 
3452(b)(2), to paragraphs (c) and (d). The respondents recommended that 
DoD not limit its review to only those provisions and clauses enacted 
after January 1, 2015.
    Response: The applicability of DFARS clauses published prior to 
January 1, 2015, to contracts and subcontracts for commercial products, 
commercial services, and COTS items is being reviewed under DFARS case 
2018-D074.
5. Definitions of ``subcontract'' and ``Subcontractor''
    Comment: Several respondents commented on the definitions of 
``subcontract'' and ``subcontractor.'' One respondent stated that the 
DFARS definitions of ``subcontract'' and ``subcontractor'' should be 
consistent with the FAR definitions and that the term ``similar 
contractual instrument'' should be defined. Two respondents stated that 
the proposed rule should rephrase the language regarding the exclusion 
from agreements that are ``not identifiable to any particular 
contract'', as the term ``identifiable'' may be ambiguous. One 
respondent stated the language should be changed to state there is an 
exclusion from agreements ``not identified to any particular contract 
under the contractor's disclosed (if applicable) or otherwise 
established business practices.'' A respondent stated that the terms 
``multiple contracts'' and ``other parties'' need clarity. Two 
respondents stated the exclusion should be modified to clarify that it 
excludes contractor agreements at any level of the supply chain. One 
respondent stated the definition of subcontract in the proposed rule 
text will exclude agreements that would benefit from the flowdown of 
DFARS 252.225-7009, Restriction on Acquisition of Certain Articles 
Containing Specialty Metals, and DFARS 252.225-7012, Preference for 
Certain Domestic Commodities, and recommended those clauses be amended 
to include language that removes the exclusion in the definition of 
``subcontract.'' Three respondents stated that the term ``commodities'' 
should be defined. One respondent stated that the definition of 
``subcontract'' should be moved from DFARS 212.001 to DFARS 244.101 to 
avoid limiting application of this definition to DFARS part 212 
clauses.
    Response: DoD agrees that the DFARS definitions of ``subcontract'' 
and ``subcontractor'' should be consistent with the FAR definitions. 
Therefore, DoD has initiated a separate DFARS Case 2023-D022 to 
implement the definition of ``subcontract'' in the DFARS to facilitate 
alignment with the proposed rule for FAR case 2018-006. The DFARS 
generally relies on the FAR definitions of ``subcontract'' and 
``subcontractor.''. The statutory language of 10 U.S.C. 3452(c)(3) is 
limited to DoD; however, FAR case 2018-006 will amend the definition of 
``subcontract'' in the FAR to implement similar statutory language at 
41 U.S.C. 1906(c)(1).
6. Statutory Separation of Commercial Products and Commercial Services
    Comment: One respondent recommended ensuring that the proposed rule 
can be readily applied when future rulemaking transitions the DFARS to 
using the terms ``commercial product'' and ``commercial service.''
    Response: DFARS case 2018-D066, published at 88 FR 6578 (January 
31, 2023), has implemented this change to the nomenclature in the 
DFARS.
7. Application to Existing Contracts and Subcontracts
    Comment: One respondent stated that the proposed rule should be 
made to apply to existing DoD contracts and subcontracts.
    Response: Contracting officers may use their discretion to apply 
this final rule to existing contracts; however, they are not required 
to do so. See FAR 1.108(d).
8. Outside the Scope of the Rule
    Comment: One respondent stated that when COTS products are provided 
under services contracts, as well as services primarily for the 
installation and maintenance of COTS products, those subcontracts 
should also be excluded from flowdown obligations that are excluded 
from COTS item subcontracts. One respondent stated that none of the 
``best interest'' determinations made in this rule adequately consider 
existing standard commercial practice and recommended publishing the 
determinations. Two respondents stated that the proposed rule impacts 
the environment.
    Response: These comments are outside the scope of this rule. A 
commercial subcontract for services that delivers the installation and 
maintenance of COTS items is a contract for commercial services and not 
a contract for COTS items. The only way to extend a COTS item exclusion 
would be to change the definition of COTS item to include services that 
deliver the installation and maintenance of COTS products, which is 
outside the scope of this rule. The applicability of DFARS clauses to 
commercial contracts and commercial subcontracts that do not have an 
exemption from inapplicability at 10 U.S.C. 3452 (e)(1), (e)(2), or 
(e)(3), is being reviewed under DFARS case

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2018-D074. The comment regarding environmental impact is unrelated to 
the proposed rule text.

C. Other Changes

    All references to 10 U.S.C. 2375 in the proposed rule are changed 
in the final rule to 10 U.S.C. 3452. This change is a result of the 
final rule for DFARS Case 2022-D018, Reorganization of Defense 
Acquisition Statutes, published at 87 FR 76988 on December 16, 2022, 
which implemented the transfer and reorganization of the defense 
acquisition statutes.

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

    This final rule does not create any new solicitation provisions or 
contract clauses. It does not impact any existing solicitation 
provisions or contract clauses or their applicability to contracts 
valued at or below the simplified acquisition threshold, for commercial 
products including COTS items, or for commercial services.

IV. Expected Impact of the Rule

    This rule may impact any business, large or small, that is awarded 
a commercial contract by DoD. The rule does not add any new 
solicitation provisions or contract clauses. Rather, there may be a 
reduction in burden on contractors by the creation of two new sections 
in the DFARS that list solicitation provisions and contract clauses 
that are inapplicable to solicitations and contracts for commercial 
products, commercial services, and COTS items.

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 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, as amended.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before a final rule takes effect, DoD will submit a copy of the 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 has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
and is summarized as follows:
    This final rule is required in order to implement part of section 
874 of the National Defense Authorization Act (NDAA) for Fiscal Year 
(FY) 2017. Section 874 amended 10 U.S.C. 2375, redesignated as 10 
U.S.C. 3452, and required certain changes to the Defense Federal 
Acquisition Regulation Supplement (DFARS).
    The objective of the final rule is to partially implement section 
874 of the NDAA for FY 2017 to address the applicability of Defense-
unique statutes to contracts and subcontracts for commercial products, 
commercial services, and commercially available off-the-shelf items.
    There were no significant issues raised by the public comments in 
response to the initial regulatory flexibility analysis.
    DoD obtained data from the Federal Procurement Data System for 
contracts that were awarded in FY 2020 through FY 2022 using FAR part 
12 procedures for the acquisition of commercial products and commercial 
services and that exceeded the micro-purchase threshold. The data 
indicate that DoD awarded this type of contract to approximately 13,952 
unique small entities per year. DoD estimates there may be 
approximately twice that number of small entities receiving 
subcontracts for commercial products and commercial services. Any 
reductions in the applicability of solicitation provisions and contract 
clauses to contracts and subcontracts for the acquisition of commercial 
products and commercial services may be beneficial to these small 
entities.
    This final rule does not include any new projected reporting, 
recordkeeping, or other compliance requirements for small entities.
    DoD did not identify any significant alternatives that would 
minimize or reduce the impact on small entities while accomplishing the 
stated objectives of the applicable statute.

VIII. Paperwork Reduction Act

    The final 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 212, 219, and 252

    Government procurement.

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

    Therefore, 48 CFR parts 212, 219, and 252 are amended as follows:

0
1. The authority citation for parts 212, 219, and 252 continues to read 
as follows:

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

PART 212--ACQUISITION OF COMMERCIAL PRODUCTS AND COMMERCIAL 
SERVICES

0
2. Amend section 212.301 by adding a sentence at the end of paragraph 
(f) introductory text to read as follows:


212.301  Solicitation provisions and contract clauses for the 
acquisition of commercial products and commercial services.

* * * * *
    (f) * * * The contracting officer shall not use other FAR or DFARS 
provisions and clauses unless required by the FAR or DFARS or 
consistent with customary commercial practices (section 874(b)(1)(A), 
Pub. L. 114-328).
* * * * *

0
3. Add section 212.370 to read as follows:


212.370  Inapplicability of certain provisions and clauses to contracts 
and subcontracts for the acquisition of commercial products, commercial 
services, and commercially available off-the-shelf items.

    The following provisions and clauses, not expressly authorized in 
law, are not applicable to contracts for the acquisition of commercial 
products and commercial services:
    (a) FAR 52.204-22, Alternative Line Item Proposal.
    (b) [Reserved]

0
4. Add section 212.371 to read as follows:

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212.371  Inapplicability of certain provisions and clauses to contracts 
for the acquisition of commercially available off-the-shelf items.

    Commercially available off-the-shelf (COTS) items are a subset of 
commercial products. Therefore, the provisions and clauses listed in 
212.370 as not applicable to contracts or subcontracts for the 
acquisition of commercial products are also not applicable to contracts 
or subcontracts for the acquisition of COTS items. In addition, the 
following provisions and clauses published after January 1, 2015, not 
expressly authorized in law, are not applicable to contracts for the 
acquisition of COTS items:
    (a) FAR 52.204-21, Basic Safeguarding of Covered Contractor 
Information Systems.
    (b) [Reserved]

0
5. Revise section 212.505 to read as follows:


212.505  Applicability of certain laws to contracts for the acquisition 
of COTS items.

    Commercially available off-the-shelf (COTS) items are a subset of 
commercial products. Therefore, any laws listed at FAR 12.503, FAR 
12.504, 212.503, or 212.504 are also not applicable or modified in 
their applicability to contracts for the acquisition of COTS items. In 
addition to the laws listed at FAR 12.505 as specifically not 
applicable to COTS items, the following laws are not applicable to 
contracts for the acquisition of COTS items:
    (1) 10 U.S.C. 391, Reporting on Cyber Incidents with Respect to 
Networks and Information Systems of Operationally Critical Contractors 
and Certain Other Contractors, and 10 U.S.C. 393, Reporting on 
Penetrations of Networks and Information Systems of Certain 
Contractors.
    (2) Paragraph (a)(1) of 10 U.S.C. 4863, Requirement to buy 
strategic materials critical to national security from American 
sources, except as provided at 225.7003-3(b)(2)(i).
    (3) Paragraph (a)(1) of 10 U.S.C. 4872, Prohibition on acquisition 
of sensitive materials from non-allied foreign nations, except as 
provided at 225.7018-3(c)(1).

PART 219--SMALL BUSINESS PROGRAMS

0
6. Amend section 219.811-3 by revising paragraph (2) to read as 
follows:


219.811-3  Contract clauses.

* * * * *
    (2) Use the clause at 252.219-7010, Notification of Competition 
Limited to Eligible 8(a) Participants-Partnership Agreement, in lieu of 
the clause at FAR 52.219-18, Notification of Competition Limited to 
Eligible 8(a) Participants, in competitive solicitations and contracts, 
including solicitations and contracts using FAR part 12 procedures for 
the acquisition of commercial products and commercial services, when 
the acquisition is accomplished using the procedures of FAR 19.805 and 
processed in accordance with the PA cited in 219.800.
* * * * *

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
7. Revise section 252.244-7000 to read as follows:


252.244-7000  Subcontracts for Commercial Products or Commercial 
Services.

    As prescribed in 244.403, use the following clause:

Subcontracts for Commercial Products or Commercial Services (NOV 2023)

    (a) The Contractor shall not include the terms of any Federal 
Acquisition Regulation (FAR) clause or Defense Federal Acquisition 
Regulation Supplement (DFARS) clause in subcontracts for commercial 
products or commercial services at any tier under this contract, 
unless--
    (1) For DFARS clauses, it is so specified in the particular 
clause; or
    (2) For FAR clauses, the clause is listed at FAR 12.301(d) or it 
is so specified in paragraph (e)(1) of the clause at FAR 52.212-5 or 
paragraph (b)(1) of the clause at FAR 52.244-6, as applicable. 
(Section 847(b)(1)(B), Pub. L. 114-328)
    (b)(1) In accordance with 10 U.S.C. 3457(c), the Contractor 
shall treat as commercial products 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.
    (2) The Contractor shall ensure that any items to be used in 
performance of this contract, that are treated as commercial 
products pursuant to paragraph (b)(1) of this clause, meet all terms 
and conditions of this contract that are applicable to commercial 
products or commercial services in accordance with the clause at FAR 
52.244-6 and paragraph (a) of this clause.
    (c) Subcontracts. The Contractor shall include the terms of this 
clause, including this paragraph (c), in subcontracts awarded under 
this contract, including subcontracts for the acquisition of 
commercial products or commercial services.

(End of clause)

[FR Doc. 2023-25158 Filed 11-16-23; 8:45 am]
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