DCN 20050222

DEFENSE FAR SUPPLEMENT (DFARS) Change Notice 20050222

DoD published the following changes and proposed changes to the DFARS on February 22, 2005 :

Interim Rule

Provision of Information to Cooperative Agreement Holders (DFARS Case 2004-D025)

Increases, from $500,000 to $1,000,000, the threshold at which DoD contracts must include a requirement for the contractor to provide to cooperative agreement holders, upon their request, a list of the contractor’s employees who are responsible for entering into subcontracts. Amends the prescription for use of the clause at DFARS 252.205-7000, Provision of Information to Cooperative Agreement Holders, to reflect the new dollar threshold. This change implements Section 816 of the National Defense Authorization Act for Fiscal Year 2005.

Affected subparts/sections: 205.4

The Federal Register notice for this rule:.

[Federal Register: February 22, 2005 (Volume 70, Number 34)]

DEPARTMENT OF DEFENSE

48 CFR Part 205

[DFARS Case 2004-D025]

Defense Federal Acquisition Regulation Supplement; Provision of Information to Cooperative Agreement Holders

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comments.

SUMMARY: DoD has issued an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement section 816 of the National Defense Authorization Act for Fiscal Year 2005. Section 816 increases, from $500,000 to $1,000,000, the threshold at which a DoD contract must include a requirement for the contractor to provide to cooperative agreement holders, upon their request, a list of the contractor's employees who are responsible for entering into subcontracts.

DATES: Effective date: February 22, 2005.

Comment date: Comments on the interim rule should be submitted to the address shown below on or before April 25, 2005, to be considered in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2004-D025, using any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

Defense Acquisition Regulations Web site: http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. Follow the instructions for submitting comments.

E-mail: dfars@osd.mil. Include DFARS Case 2004-D025 in the subject line of the message.

Fax: (703) 602-0350.

Mail: Defense Acquisition Regulations Council, Attn: Ms. Michele Peterson, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062.

Hand Delivery/Courier: Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.

All comments received will be posted to http://emissary.acq.osd.mil/dar/dfars.nsf

FOR FURTHER INFORMATION CONTACT: Ms. Michele Peterson, (703) 602-0311.

SUPPLEMENTARY INFORMATION:

A. Background This interim rule implements Section 816 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375). Section 816 amends 10 U.S.C. 2416(d) to increase, from $500,000 to $1,000,000, the threshold at which a DoD contract must include a requirement for the contractor to provide to cooperative agreement holders, upon their request, a list of the contractor's employees who are responsible for entering into subcontracts. The rule amends the prescription for use of the clause at DFARS 252.205-7000, Provision of Information to Cooperative Agreement Holders, to reflect the new dollar threshold.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act DoD does not expect this 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. While the rule will reduce administrative burdens for contractors, the economic impact is ot expected to be substantial. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subpart in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2004-D025.

C. Paperwork Reduction Act The information collection requirements of the clause at DFARS 252.205-7000, Provision of Information to Cooperative Agreement Holders, have been approved by the Office of Management and Budget, under Control Number 0704-0286, for use through September 30, 2007.

D. Determination To Issue an Interim Rule A determination has been made under the authority of the Secretary of Defense that urgent and compelling reasons exist to publish an interim rule prior to affording the public an opportunity to comment. This interim rule implements Section 816 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375). Section 816 amends 10 U.S.C. 2416(d) to increase, from $500,000 to $1,000,000, the threshold at which a DoD contract must include a requirement for the contractor to provide to cooperative agreement holders, upon their request, a list of the contractor's employees who are responsible for entering into subcontracts. Section 816 became effective upon enactment on October 28, 2004. Comments received in response to this interim rule will be considered in the formation of the final rule.

List of Subjects in 48 CFR Part 205

Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 205 is amended as follows:

A Microsoft Word format document showing all additions and deletions made by this rule:

Provision of Information to Cooperative Agreement Holders

DFARS Case 2004-D025

Interim Rule

PART 205—PUBLICIZING CONTRACT ACTIONS

* * * * *

SUBPART 205.4--RELEASE OF INFORMATION

205.470 Contract clause.

Use the clause at 252.205-7000, Provision of Information to Cooperative Agreement Holders, in solicitations and contracts expected to exceed $500,000[1,000,000]. This clause implements

10 U.S.C. 2416.

* * * * *

Final Rules :

Government Source Inspection Requirements (DFARS Case 2002-D032)

Eliminates Government source inspection requirements for contracts or delivery orders valued below $250,000, unless mandated by DoD regulation, required by a memorandum of agreement between the acquiring department or agency and the contract administration agency, or determined necessary by the contracting officer because of the technical nature and criticality of the item being acquired. The objective is to focus diminishing contract management resources on high-risk areas, while providing flexibility for exceptions where needed.

Affected subparts/sections: Part 246 Table of Contents; 246.4

The Federal Register notice for this rule:

[Federal Register: February 22, 2005 (Volume 70, Number 34)]

DEPARTMENT OF DEFENSE

48 CFR Part 246

[DFARS Case 2002-D032]

Defense Federal Acquisition Regulation Supplement; Government Source Inspection Requirements

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to eliminate requirements for Government contract quality assurance at source for contracts or delivery orders valued below $250,000, unless certain conditions exist.

DATES: Effective Date: February 22, 2005.

FOR FURTHER INFORMATION CONTACT: Ms. Michele Peterson, Defense Acquisition Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0311; facsimile (703) 602-0350. Please cite DFARS Case 2002-D032.

SUPPLEMENTARY INFORMATION:

A. Background This final rule adds policy at DFARS 246.402 and 246.404 to eliminate the requirement for Government contract quality assurance at source for contracts or delivery orders valued below $250,000, unless (1) mandated by DoD regulation, (2) required by a memorandum of agreement between the acquiring department or agency and the contract administration agency, or (3) the contracting officer determines that certain conditions exist.

DoD published a proposed rule at 68 FR 53946 on September 15, 2003. Thirty-seven respondents submitted comments on the proposed rule. Nine of the respondents were in favor of the rule, noting that the change will result in savings, will expedite deliveries, and is especially appropriate for commercial items. A discussion of comments submitted by the other respondents is provided below:

1. Comment: It is unclear as to why the criteria of both 242.402(3)(i) and (ii) must be met. If the Government specifies important technical requirements (through technical documents, specifications, drawings, etc.), there is adequate justification for Government quality assurance at source. Paragraphs (3)(i) and (ii) should be combined to read ``(i) Contract technical requirements are significant (e.g., the technical requirements include drawings, test procedures, characteristics that are critical to proper performance of the item are identified, specific concerns have been identified with regard to the contractors ability to meet technical requirements, etc)''.

DoD Response: Do not agree with the proposed revision. However, 246.402(3)(ii) has been revised in the final rule for clarity.

2. Comment: Section 246.402(3)(iii), addressing manufacturers/producers and non-manufacturers/non-producers, should be eliminated.

DoD Response: Do not agree. The delivery of supplies through a non-manufacturer or non-producer affects the ability to perform meaningful quality assurance at sources. The rule is intended to ensure that contracting officers address this issue.

3. Comment: Section 246.402(3)(iii) should be clarified to explain its meaning and how it will be defined to apply equally.

DoD Response: Do not agree. The terms in paragraph (3)(iii), relating to manufacturers and producers, are sufficiently clear and do not require definition.

4. Comment: One respondent posed a question regarding 246.402(3)(ii) and asked about the interpretation of critical product features/characteristics and specific acquisition concerns at the contract administration office level.

DoD Response: The final rule revises 246.402(3) to further clarify the requirement for the contracting officer to ensure that critical product features and characteristics are identified, either through contract technical requirements or through other communications with the provider of the Government contract quality assurance at source, and to identify specific concerns. The contract administration office should assist in this identification as appropriate, but is not expected to provide the information absent the contracting officer activities.

5. Comment: To minimize confusion that will ensue regarding determinations for the need for source inspection, the phrase ``critical product feature'' should be clarified.

DoD Response: The final rule revises 246.402(3)(ii) for further clarification.

6. Comment: The following subparagraphs should be added to 246.402 as exceptions to the proposed rule: (3)(iv)--``The contract will require shipment of material OCONUS''; and (4)--``Contract is in support of a Security Assistance or Foreign Military Sales case.'' The comment details additional costs and export licenses associated with free on board (f.o.b.) destination conditions for OCONUS shipments and agreed-to letters of offer and acceptance between the U.S. Government and foreign governments.

DoD Response: Do not agree with the recommended change. If the conditions for Government contract quality assurance at source are met, the additional requirements may be communicated by defining them as a specific acquisition concern.

7. Comment: Section 246.402(3) should be revised to provide flexibility with regard to the first two criteria and to add a fourth criterion to allow for other circumstances determined by the contracting officer after consultation with quality assurance personnel.

DoD Response: Do not agree. Neither an additional criterion nor changes to the existing criteria are needed. However, 246.402(3)(ii) has been revised for further clarity.

8. Comment: The text at 246.402 provides differing criteria for Government contract quality assurance at source than that found at FAR 46.404.

DoD Response: Do not agree. FAR 46.404 directs the user to FAR 46.402, which is supplemented by this DFARS change.

9. Comment: DFARS 246.405 should be reinstated to ensure that subcontract activities parallel the proposed change.

DoD Response: Do not agree. The provisions of FAR 46.405 adequately address required Government quality assurance activity at the subcontract level.

10. Comment: FAR 52.213-4(d) and FAR 52.246-2 should not be used concurrently in the same contract.

DoD Response: The comment is outside the scope of this case. However, it is noted that FAR 46.302 specifically allows for inclusion of the clause at FAR 52.246-2 in contracts below the simplified acquisition threshold when it is in the Government's best interest.

11. Comment: The threshold of $250,000 could be twice that amount.

DoD Response: DoD considers a threshold of $250,000 to be appropriate at this time.

12. Comment: The dollar threshold should be eliminated on the basis that it is irrelevant and appears arbitrary in nature. Technical description, complexity, and criticality are the FAR 46.203 criteria for establishment of contract quality requirements.

DoD Response: DoD recognizes that cost is not the indicator of requirements for Government contract quality assurance at source. Therefore, the conditions for Government contract quality assurance at source as described in the rule are of primary importance. The establishment of a dollar threshold is a means for ensuring that contracting offices apply the conditions as a matter of course.

13. Comment: The words ``and delivery orders'' should be deleted from the introductory sentence of 246.402 to support Air Force Material Command strategic contracts.

DoD Response: Do not agree. Delivery orders under strategic contracts must meet the conditions described in the rule in order to receive Government contract quality assurance at source.

14. Comment: The rule should explicitly address indefinite delivery/indefinite quantity contracts used through corporate contracts that may mix source and destination inspection/acceptance requirements on the same contract.

DoD Response: Do not agree. The rule already addresses delivery orders. For delivery orders under $250,000, only contract line items that meet the conditions specified in the rule qualify for Government contract quality assurance at source.

15. Comment: Contracting offices are not capable of providing critical characteristics.

DoD Response: Do not agree. A basic responsibility of the contracting office, per FAR 46.103, is to provide technical requirements and any specifications for inspection, testing, and other contract quality requirements essential to ensure the integrity of the supplies or services.

16. Comment: The contracting officer receives quality assurance requirements from the technical activity (FAR 46.103) and is not adequately trained to determine whether technical requirements are significant and to identify critical product features/characteristics.

DoD Response: The technical activity provides quality assurance requirements to the contracting officer, including inspection and testing requirements, which are conveyed to the contractor and the contract administration activity by the contracting officer.

17. Comment: DFARS 213.402, Conditions for Use of Fast Payment Procedures, should be changed to accommodate direct vendor delivery awards exceeding the $25,000 threshold for use of fast payment procedures, and awards that combine contract line items being shipped to stock not meeting the fast payment conditions, as well as direct vendor delivery contract line items that do; and to provide for instances when the best value is conditional on f.o.b. origin shipment terms. Additionally, conflict with FAR 47.305-5 and 47.304-1(d) may be resolved by amending DFARS 213.402 further by adding (a)(vi)--``When the sole reason for designating inspection and acceptance at source would be because f.o.b. origin is required in accordance with FAR 47.305-5 and 47.304-1(d).''

DoD Response: The recommended changes are outside the scope of this case.

18. Comment: Instead of this new language, allow ``good'' contractors to deliver with limited Government contract quality assurance at source, since adequate tools are available to the Government quality assurance representative (i.e., alternative release procedures, certificates of conformance, and fast pay).

DoD Response: Do not agree. The intent of the change is to alleviate Government contract quality assurance at source for those procurements that typically are limited to the assessments of kind, count, and condition. With the exception of certificates of conformance, the tools described in this comment do not alleviate quality assurance activities at source. The tools will remain available for use as appropriate.

19. Comment: The change to 246.402 is too broad. It should be applied to commercial items and non-commercial items delivered via certificate of conformance.

DoD Response: Do not agree. The scope of the rule is appropriate. The conditions for Government contract quality assurance at source as described are of primary importance.

20. Comment: Contractors approved for alternative release procedures should be allowed to continue to conduct their own origin inspections and designate contracts to approved contractors for continued origin inspection.

DoD Response: Do not agree. The comment expresses a misapplication of the alternative release provision as defined by DFARS 246.471(b).

21. Comment: Language should be added to provide for Government contract quality assurance at source due to adverse manufacturer past performance; significant changes to the supplier's quality assurance program, manufacturing environment, or supplier base; or the previous receipt of nonconforming material for same or similar items.

DoD Response: The events described by the respondent may necessitate the requirement for Government contract quality assurance at source. Circumstances such as these are adequately covered by the provision for specific acquisition concerns at 246.402(3)(ii)(C).

22. Comment: Instead of the dollar value, the clause should be designed to reduce Government contract quality assurance at source for ISO-certified suppliers.

DoD Response: Do not agree. Currently, DoD does not require certification to international standards as a contract condition, opting to require compliance with associated contract quality requirements. Although ISO certification/compliance is a risk management tool considered while performing Government contract quality assurance, the comment is not supported by current acquisition regulations and policies.

23. Comment: The change ignores the relationship with the f.o.b. point.

DoD Response: Do not agree. The rule affects the f.o.b. point as specified by FAR 47.302(c)(2). However, there is no conflict. The provisions of FAR 47.302 state that the place of performance of Government acquisition quality assurance actions and the place of acceptance shall not control the delivery term, except when acceptance is at destination.

24. Comment: Contracts will need to be modified to account for additional cost burden associated with the f.o.b. point based on the change, per FAR 47.302. Additional costs will be incurred through contractor liability for delivery, storage, demurrage, and other costs prior to actual delivery; duplicate packaging and marking by the contractor and the Government; and liability for loss/damage before shipment receipt.

DoD Response: Do not agree. The rule affects the f.o.b. point as specified by FAR Part 47 and, as such, will require contractors to consider those costs when proposing on future contracts. However, current contracts will not require modification, because this change is not retroactive.

25. Comment: The f.o.b. points for both solicitations and contracts (FAR 47.305-5(a)(1) and 47.302(c)(1)) conflict with the rule, particularly when shipping to foreign military sales customers and Naval vessels.

DoD Response: Do not agree. The rule affects the f.o.b. point as specified by FAR 47.302(c)(2); however, there is no conflict. The provisions of FAR 47.302 state that the place of performance of Government acquisition quality assurance actions and the place of acceptance shall not control the delivery term, except when acceptance is at destination. Additionally, solicitation provisions are available to the contracting officer with regard to FAR 47.305-5(b)(2) when destinations are unknown that would not result in a conflict.

26. Comment: The phrase ``for contracts assigned administration to the Defense Contract Management Agency'' should be added to allow for the conduct of Government contract quality assurance at source when conditions are not met by the contracting agency.

DoD Response: Do not agree. The initiative to reduce Government contract quality assurance at source unless appropriate conditions exist should not be applicable to only one DoD agency. The conditions described allow for effective Government contract quality assurance at source for all involved in DoD acquisition and make the best use of resources throughout DoD.

27. Comment: The rule should exempt contractor plants with in-plant Defense Contract Management Agency offices. It is not cost-effective to have hardware delivered, subjected to process assessment at the plant level, then inspected at another location. If non-exempt, assure that the rule is only applied to future contracts.

DoD Response: The rule will result in Government contract quality assurance at source for only those supplies that meet the conditions of the rule. The rule is not retroactive to include current contracts.

28. Comment: The Government quality assurance representative provides assistance in interpreting contract requirements and facilitates corrections.

DoD Response: Agree. The revision does not preclude Government quality assurance representatives from providing assistance to contractors in support of Government contract interpretation as appropriate and facilitating corrections with the contracting office.

29. Comment: The Government quality assurance representative provides deterrence with regard to fraudulent activities.

DoD Response: Not applicable. Government contract quality assurance is not intended to detect fraudulent activities. It is incumbent upon all involved in Government acquisition to identify and report any potentially fraudulent activities.

30. Comment: The Government quality assurance representative at source rejects nonconforming parts based on more than defined critical characteristics.

DoD Response: Agree. The revision does not preclude the rejection of nonconforming parts based solely on critical characteristics at destination or, when the conditions of the proposed change exist, at source.

31. Comment: The rule should address instances where no Government inspection is required, especially when in-process system activities are performed.

DoD Response: Do not agree. Government contract quality assurance activities, whether at source or destination, are required to perform the Government acceptance function and subsequent transfer of title. In-process assessments are a form of Government contract quality assurance at source. At times, the quality assurance activities may be extremely limited, such as when quality assurance is limited to kind, count, and condition assessments (inspections); however, they nonetheless occur.

32. Comment: DoD should implement fast payment procedures for all contracts that require inspection at Government facilities.

DoD Response: Not applicable. Conditions for use of fast payment procedures are outside the scope of this case.

33. Comment: Recommend acceptance at source with inspection at destination, which will increase the fast payment procedure threshold and the expanded use of certificates of conformance to allow invoicing at shipment.

DoD Response: Do not agree. DoD regulations and policy do not allow for acceptance prior to Government contract quality assurance activities. Fast payment provisions are outside the scope of this case. The conditions for use of certificates of conformance are not being modified, and the certificate of conformance continues to be a valuable acquisition tool.

34. Comment: DoD should implement a joint contractor-Government process approach to the appropriate oversight level, with sampling techniques or self-oversight.

DoD Response: Do not agree. Presently, Government contract quality assurance at source activities may be performed jointly with the contractor. The rule does not affect this activity.

35. Comment: Will surplus contracts continue to be administered by the Defense Contract Management Agency?

DoD Response: The comment is outside the scope of this case. Assignment of contract administration by the contracting activity is in accordance with FAR Part 42 and DFARS Part 242. Contract administration represents more than quality assurance services and is dependent on the terms of the individual contract.

36. Comment: Will surplus contractors be required to re-package and re-label items prior to shipping? If so, how will DoD ensure traceability back to the original DoD contract and conformance to the surplus certification?

DoD Response: Not applicable. Packaging and traceability requirements specified by individual contracts are outside the scope of this case.

37. Comment: The rule should be amended to clearly state that it does not impose or otherwise change the inspection criteria currently adhered to by surplus contractors via 52.211-9000, Government Surplus Material DLAD (APR 2002).

DoD Response: Do not agree. The DFARS applies to DoD as a whole. Unique department and agency implementation activities are outside the scope of the case.

38. Comment: The memorandum of agreement provisions should be changed to allow negotiation at the contracting activity level instead of the department or agency.

DoD Response: Do not agree. Departments and agencies may issue their own procedures to identify the appropriate authority for approval of a memorandum of agreement.

39. Comment: Inspection locations should be specified in the solicitation.

DoD Response: Not applicable. Terms of individual solicitations are outside the scope of this case. However, it is the obligation of the contracting officer to specify the terms and conditions that apply to a contract.

40. Comment: The rule should be amended to require the Government to inspect material no later than 30 days following receipt and that payment be made no later than 60 days regardless of inspection occurrence.

DoD Response: Not applicable. The comment relates to payment terms, which are outside the scope of this case.

41. Comment: Provide the date when the new electronic payment system will be implemented.

DoD Response: There is no new electronic payment system. However, if the respondent is referring to the new Wide Area WorkFlow-Receipt and Acceptance (WAWF-RA) system, it is available now and has already been widely deployed. Many DoD locations are already registered in WAWF-RA, and more are being continually added. However, because submission under a particular contract is dependent on the acceptance point designated for that contract being registered in WAWF-RA, availability may vary. If a company is unsure whether a particular DoD location is registered in WAWF-RA, they should contact that activity to confirm WAWF-RA status.

42. Comment: Implementation of the policy should be deferred until WAWF-RA is fully deployed by DoD; or the rule should be phased in to provide for destination acceptance for locations participating in WAWF-RA to limit invoicing delays. Some companies would be adversely affected by delays in payment and the current cycle time (estimated as 45 days for paper invoices and 37 electronically) could increase by 10 days or more.

DoD Response: Sufficient guidance is presently available to facilitate Government contract quality assurance at destination to include acceptance. Achieving department-wide implementation of WAWF-RA, although anticipated to increase efficiencies, is not necessary to implement this rule.

43. Comment: DoD should develop detailed metrics to accumulate real savings associated with the change.

DoD Response: Do not agree. Development of metrics is outside the scope of this case.

44. Comment: The rule should be based on unit costs instead of contract value.

DoD Response: Do not agree. Cost is not the indicator of requirements for Government contract quality assurance at source. Therefore, the conditions for Government contract quality assurance at source as described in the rule are of primary importance.

45. Comment: Discontinuing source inspections under $250,000 sends a clear signal that low risk equates to low value.

DoD Response: Do not agree. This change does not signal a direct relationship between dollar value and risk, since it recognizes that Government contract quality assurance may be necessary and appropriate for items of any dollar value. The established criteria for accomplishment of Government contract quality assurance at source are intended to drive the decision.

46. Comment: One respondent remarked that it will not bid on contracts with inspection/acceptance at destination, due to the criticality of obtaining acceptance documentation to permit invoicing and the difficulty of obtaining this documentation when acceptance is at destination.

DoD Response: Sufficient guidance is currently available to facilitate Government contract quality assurance at destination to include acceptance. Full operational capability of Wide Area WorkFlow-Receipt and Acceptance is expected to increase efficiencies, but is not necessary to implement this rule.

47. Comment: The change will result in the delivery of nonconforming material and increase the administrative burden of buying activities.

DoD Response: Do not agree. There is no evidence to support this assertion. Contractual obligations to provide conforming material are not lessened by this change. Contracting offices are obligated to ensure that contractors are responsive and responsible prior to contracting for supplies.

48. Comment: The change increases the burden on the destination point without the required manpower, expertise, or equipment to perform destination inspection and acceptance.

DoD Response: Do not agree. The destination quality assurance activities anticipated as a result of this revision should consist of the assessment of item kind, count, and physical condition. Destination activities normally assess kind, count, and condition of items delivered to them, even when this assessment has already been performed at source. If the exceptions described in the DFARS rule exist, Government contract quality assurance at source should be designated.

49. Comment: Inspection at source decreases instances of improper completion of DD Forms 250.

DoD Response: Do not agree. The Government quality assurance representative provides valuable assistance in these matters; however, accurate completion of DD Form 250 is the obligation of the contractor, in accordance with DFARS Appendix F. There is no evidence to indicate that instances of improper completion will increase as a result of this change.

50. Comment: The integrity of higher-level packaging will be destroyed at destination inspection.

DoD Response: Contracting offices will need to assess the effect regarding the integrity of higher-level packaging when determining where Government contract quality assurance will be performed and will need to adjust contract terms accordingly. If the packaging is unique to a supplier, or if the integrity of the packaging would be in question, this may constitute a specific acquisition concern that would meet the exception in the rule at 246.402(3)(ii)(C).

51. Comment: The change will result in the closure of Defense Contract Management Agency offices, thus reducing activities associated with subcontractor surveillance.

DoD Response: Do not agree. There is no evidence to support the assertion that this change will result in the closure of Defense Contract Management Agency offices or adversely impact abilities associated with the surveillance of subcontractor activities.

52. Comment: The change will result in increased costs to the Government receipt point.

DoD Response: Do not agree. Overall DoD costs will be reduced, because duplicate ``kind, count, and condition'' inspections will be eliminated. The only additional responsibilities imposed on destination activities are those associated with the execution and distribution of the DD Form 250. DoD deployment of Wide Area WorkFlow-Receipt and Acceptance should greatly relieve this burden.

53. Comment: Delays in inspection will delay delivery to the military user.

DoD Response: Do not agree. There is no evidence to support the assertion.

54. Comment: Defense Contract (Criminal) Investigative Services should be solicited to review small-dollar contractors under investigation for fraudulent activities.

DoD Response: The comment is outside the scope of this case.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act DoD has prepared a final regulatory flexibility analysis consistent with 5 U.S.C. 604. The analysis is summarized below. A copy of the analysis may be obtained from the point of contact specified herein.

This final rule amends the DFARS to eliminate requirements for Government contract quality assurance at source for contracts or delivery orders valued below $250,000 unless: (1) Mandated by DoD regulation; (2) required by a memorandum of agreement between the acquiring department or agency and the contract administration agency; or (3) the contracting officer determines that certain conditions exist that make contract quality assurance at source necessary. The objective of the rule is to reduce lower-risk contract quality assurance workload, allowing for redirection of limited labor resources to higher-risk work, while providing flexibility for exceptions where special attention is needed. Several respondents expressed concern about delays in payment that might be experienced due to the reduction in the number of source inspections. DoD implementation of Wide Area WorkFlow-Receipt and Acceptance, a web-based system for electronic invoicing, receipt, and acceptance, will significantly speed up the acceptance and payment process and should offset any delays due to reductions in source inspections. Many DoD locations are already registered in Wide Area WorkFlow-Receipt and Acceptance, and more are being continually added. Since Wide Area WorkFlow-Receipt and Acceptance is well on the way toward full implementation, DoD believes that any economic impact on small entities will be minimal.

C. Paperwork Reduction Act The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 246

Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR Part 246 is amended as follows:

A Microsoft Word format document showing all additions and deletions made by this rule:

Government Source Inspection Requirements

DFARS Case 2002-D032

Final Rule

PART 246—QUALITY ASSURANCE

* * * * *

[246.402 Government contract quality assurance at source.

Do not require Government contract quality assurance at source for contracts or delivery orders valued below $250,000, unless—

(1) Mandated by DoD regulation;

(2) Required by a memorandum of agreement between the acquiring department or agency and the contract administration agency; or

(3) The contracting officer determines that—

(i) Contract technical requirements are significant (e.g., the technical requirements include drawings, test procedures, or performance requirements);

(ii) The product being acquired—

(A) Has critical characteristics;

(B) Has specific features identified that make Government contract quality assurance at source necessary; or

(C) Has specific acquisition concerns identified that make Government contract quality assurance at source necessary; and

(iii) The contract is being awarded to—

(A) A manufacturer or producer; or

(B) A non-manufacturer or non-producer and specific Government verifications have been identified as necessary and feasible to perform.]

* * * * *

[246.404 Government contract quality assurance for acquisitions at or below the simplified acquisition threshold.

Do not require Government contract quality assurance at source for contracts or delivery orders valued at or below the simplified acquisition threshold unless the criteria at 246.402 have been met.]

* * * * *

Resolving Tax Problems (DFARS Case 2003-D032)

Relocates text to the new DFARS companion resource, Procedures, Guidance, and Information (PGI), available at http://www.acq.osd.mil/dpap/dars/pgi. The relocated text contains guidance on resolution of tax issues and information on tax relief agreements between the United States and foreign governments.

Affected subparts/sections: 229.1; PGI 229.1

The Federal Register notice for this rule:

[Federal Register: February 22, 2005 (Volume 70, Number 34)] DEPARTMENT OF DEFENSE

48 CFR Part 229

[DFARS Case 2003-D032]

Defense Federal Acquisition Regulation Supplement; Resolving Tax Problems

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to update text pertaining to resolution of tax problems under DoD contracts. This rule is a result of a transformation initiative undertaken by DoD to dramatically change the purpose and content of the DFARS.

EFFECTIVE DATE: February 22, 2005.

FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, Defense Acquisition Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0296; facsimile (703) 602-0350. Please cite DFARS Case 2003-D032.

SUPPLEMENTARY INFORMATION:

A. Background

DFARS Transformation is a major DoD initiative to dramatically change the purpose and content of the DFARS. The objective is to improve the efficiency and effectiveness of the acquisition process, while allowing the acquisition workforce the flexibility to innovate. The transformed DFARS will contain only requirements of law, DoD-wide policies, delegations of FAR authorities, deviations from FAR requirements, and policies/procedures that have a significant effect beyond the internal operating procedures of DoD or a significant cost or administrative impact on contractors or offerors. Additional information on the DFARS Transformation initiative is available at http://www.acq.osd.mil/dpap/dfars/transf.htm.

This final rule is a result of the DFARS Transformation initiative. The rule revises DFARS 229.101 to remove text pertaining to (1) resolution of issues regarding the applicability of taxes under DoD contracts; and (2) tax relief agreements between the United States and European governments. This text has been relocated to the new DFARS companion resource, Procedures, Guidance, and Information (PGI), available at http://www.acq.osd.mil/dpap/dars/pgi.

DoD published a proposed rule at 69 FR 48445 on August 10, 2004. DoD received no comments on the proposed rule. Therefore, DoD has adopted the proposed rule as a final rule without change.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act DoD certifies that this final rule will not 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 the rule relocates DoD procedural information related to tax relief, with no substantive change in policy.

C. Paperwork Reduction Act The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501,

et seq.

List of Subjects in 48 CFR Part 229

Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 229 is amended as follows:

A Microsoft Word format document showing all additions and deletions made by this rule:

Resolving Tax Problems

DFARS Case 2003-D032

Final Rule

(Text that is stricken and highlighted will be relocated

to Procedures, Guidance, and Information (PGI))

PART 229—TAXES

SUBPART 229.1--GENERAL

229.101 Resolving tax problems.

(a) Within DoD, the agency-designated legal counsels are the defense agency General Counsels, the General Counsels of the Navy and Air Force, and for the Army, the Chief, Contract Law Division, Office of the Judge Advocate General.

[(c) For guidance on directing a contractor to litigate the applicability of a particular tax, see PGI 229.101(c).

(d) For information on tax relief agreements between the United States and European foreign governments, see PGI 229.101(d).]

(c) The contracting officer may direct the contractor to litigate the applicability of a particular tax if—

(i) The contract is either a cost reimbursement type or a fixed price type with a tax escalation clause; and

(ii) The direction is coordinated with the agency-designated legal counsel through the DoD Tax Policy and Advisory Group.

(d)(i) Tax relief agreements between the United States and foreign governments in Europe that exempt the United States from payment of specific taxes on purchases made for common defense purposes are maintained by the United States European Command (USEUCOM). For further information contact HQ USEUCOM, ATTN: ECLA, Unit 30400, Box 1000, APO AE 09128; Telephone: DSN 430-8001/7263, Commercial 49-0711-680-8001/7263; Telefax: 49-0711-680-5732.

(ii) Tax relief also may be available in countries that have not signed tax relief agreements. The potential for such relief should be explored in accordance with paragraph (d)(iii) of this section.

(iii) Review DoDD 5100.64, Department of Defense Foreign Tax Relief Program, before contracting with a foreign source. Refer questions on implementation of the program to the Commanding Officers in Table 29-1, Designated Commanding Officers, which have been designated under subsection E.7 of DoDD 5100.64 to serve as—

(A) Single point of contact for U.S. contracting offices for investigation and resolution of specific foreign tax relief matters; and

(B) Liaison with responsible diplomatic mission and local foreign tax authorities.

(iv) Refer foreign tax relief questions which have not been resolved by the designated Commanding Officer to the agency-designated legal counsel.

(v) When an acquisition is for a contract to be performed in a country or area listed in Table 29-1, Designated Commanding Officers—

(A) Obtain from the designated Commanding Officer detailed information concerning the taxes and duties from which the Government of the United States is exempt, and

(B) Provide the information to prospective offerors.

(C) Do not provide prospective offerors any other information about foreign taxes or duties.

(D) Issue tax exemption certificates, as appropriate, to assist the contractor in obtaining relief from foreign taxes and duties which were excluded from the contract price.

(E) Seek advice and assistance from the designated Commanding Officer and, if necessary, the agency-designated legal counsel if the contractor notifies the contracting officer that it has been assessed a tax or duty by a foreign government which could increase the contract price.

(vi) Also see Subpart 229.70 for special procedures for obtaining tax relief and duty-free import privileges when conducting U.S. Government acquisitions in certain foreign countries.

TABLE 29-1, DESIGNATED COMMANDING OFFICERS

Country or Area

Designated Commanding Officer

Australia

Commander in Chief, Pacific Representative, Australia

Azores

Commander, U.S. Forces, Azores

Bahrain

Commander in Chief, U.S. Naval Forces, Europe

Belgium

Commander in Chief, U.S. Army, Europe

Bermuda

Commanding Officer, U.S. Naval Air Station, Bermuda

Canada

Commander, Space Command

Caribbean Islands (including Bahamas)

Commander, Antilles Defense Command

Denmark

Commander in Chief, U.S. Air Forces, Europe

Ethiopia

Commander in Chief, U.S. Army, Europe

France

Commander in Chief, U.S. Army, Europe

Germany

Commander in Chief, U.S. Army, Europe

Greece

Commander in Chief, U.S. Air Forces, Europe

Greenland

Commander, Space Command

Iceland

Commander, Iceland Defense Force

Iran

Commander in Chief, U.S. Army, Europe

Italy

Commander in Chief, U.S. Naval Forces, Europe

Japan

Commander, U.S. Forces, Japan

Korea

Commander, U.S. Forces, Korea

Luxembourg

Commander in Chief, U.S. Army, Europe

Morocco

Commander in Chief, U.S. Naval Forces, Europe

Netherlands

Commander in Chief, U.S. Air Forces, Europe

New Zealand

Commander, U.S. Naval Support Forces, Antarctica

Norway

Commander in Chief, U.S. Air Forces, Europe

Philippines

Commander in Chief, Pacific Representative, Philippines

Portugal

Commander in Chief, U.S. Naval Forces,

Europe

Spain

Commander in Chief, U.S. Air Forces,

Europe

Taiwan

Commander, U.S. Military Assistance

Command, Thailand

Turkey

Commander in Chief, U.S. Air Forces,

Europe

United Kingdom

Commander in Chief, U.S. Air Forces,

Europe

A Microsoft Word format document showing the text added to PGI:

Resolving Tax Problems

DFARS Case 2003-D032

Procedures, Guidance, and Information

PGI 229—TAXES

PGI 229.1--GENERAL

PGI 229.101 Resolving tax problems.

(c) The contracting officer may direct the contractor to litigate the applicability of a particular tax if—

(i) The contract is either a cost-reimbursement type or a fixed-price type with a tax escalation clause such as FAR 52.229-4; and

(ii) The direction is coordinated with the DoD Tax Policy and Advisory Group through the agency-designated legal counsel.

(d)(i) Tax relief agreements between the United States and foreign governments in Europe that exempt the United States from payment of specific taxes on purchases made for common defense purposes are maintained by the United States European Command (USEUCOM). For further information contact HQ USEUCOM, ATTN: ECLA, Unit 30400, Box 1000, APO AE 09128; Telephone: DSN 430-8001/7263, Commercial 49-0711-680-8001/7263; facsimile: 49-0711-680-5732.

(ii) Tax relief also may be available in countries that have not signed tax relief agreements. The potential for such relief should be explored in accordance with paragraph (d)(iii) of this section.

(iii) Review DoDD 5100.64, DoD Foreign Tax Relief Program, before contracting with a foreign source. Refer questions on implementation of the program to the Commanding Officers in Table C-1 of Army Regulation 27-50/SECNAVISNT 5820.4G, which have been designated under subsection 5.7 of DoDD 5100.64 to serve as—

(A) Single point of contact for U.S. contracting offices for investigation and resolution of specific foreign tax relief matters; and

(B) Liaison with responsible diplomatic mission and local foreign tax authorities.

(iv) Refer foreign tax relief questions that have not been resolved by the designated Commanding Officer to the agency-designated legal counsel.

(v) When a contract will be performed in a country or area listed in Table C-1 of Army Regulation 27-50/SECNAVISNT 5820.4G—

(A) Obtain from the designated Commanding Officer detailed information concerning the taxes and duties from which the Government of the United States is exempt;

(B) Provide the information to prospective offerors;

(C) Do not provide prospective offerors any other information about foreign taxes or duties;

(D) Issue tax exemption certificates, as appropriate, to assist the contractor in obtaining relief from foreign taxes and duties that were excluded from the contract price; and

(E) Seek advice and assistance from the designated Commanding Officer and, if necessary, the agency-designated legal counsel if the contractor notifies the contracting officer that it has been assessed a tax or duty by a foreign government that could increase the contract price.

(vi) Also see PGI 229.70 for special procedures for obtaining tax relief and duty-free import privileges when conducting U.S. Government acquisitions in certain foreign countries.

TABLE 29-1, DESIGNATED COMMANDING OFFICERS

Country or Area

Designated Commanding Officer

Australia

Commander in Chief, Pacific Representative, Australia

Azores

Commander, U.S. Forces, Azores

Bahrain

Commander in Chief, U.S. Naval Forces, Europe

Belgium

Commander in Chief, U.S. Army, Europe

Bermuda

Commanding Officer, U.S. Naval Air Station, Bermuda

Canada

Commander, Space Command

Caribbean Islands (including Bahamas)

Commander, Antilles Defense Command

Denmark

Commander in Chief, U.S. Air Forces, Europe

Ethiopia

Commander in Chief, U.S. Army, Europe

France

Commander in Chief, U.S. Army, Europe

Germany

Commander in Chief, U.S. Army, Europe

Greece

Commander in Chief, U.S. Air Forces, Europe

Greenland

Commander, Space Command

Iceland

Commander, Iceland Defense Force

Iran

Commander in Chief, U.S. Army, Europe

Italy

Commander in Chief, U.S. Naval Forces, Europe

Japan

Commander, U.S. Forces, Japan

Korea

Commander, U.S. Forces, Korea

Luxembourg

Commander in Chief, U.S. Army, Europe

Morocco

Commander in Chief, U.S. Naval Forces, Europe

Netherlands

Commander in Chief, U.S. Air Forces, Europe

New Zealand

Commander, U.S. Naval Support Forces, Antarctica

Norway

Commander in Chief, U.S. Air Forces, Europe

Philippines

Commander in Chief, Pacific Representative, Philippines

Portugal

Commander in Chief, U.S. Naval Forces,

Europe

Spain

Commander in Chief, U.S. Air Forces,

Europe

Taiwan

Commander, U.S. Military Assistance

Command, Thailand

Turkey

Commander in Chief, U.S. Air Forces,

Europe

United Kingdom

Commander in Chief, U.S. Air Forces,

Europe

Bonds (DFARS Case 2003-D033)

Updates DFARS text on the use of bonds for financial protection against losses under DoD contracts. The change clarifies that fidelity and forgery bonds are authorized for use when necessary for protection of the Government or the contractor or when the investigative and claims services of a surety company are desired.

Affected subparts/sections: 228.1

The Federal Register notice for this rule:

[Federal Register: February 22, 2005 (Volume 70, Number 34)][Rules and Regulations]

DEPARTMENT OF DEFENSE48 CFR Part 228

[DFARS Case 2003-D033]

Defense Federal Acquisition Regulation Supplement; Bonds

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to update text pertaining to the use of fidelity and forgery bonds under DoD contracts. This rule is a result of a transformation initiative undertaken by DoD to dramatically change the purpose and content of the DFARS.

EFFECTIVE DATE: February 22, 2005.

FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, Defense Acquisition Regulations Council, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0296; facsimile (703) 602-0350. Please cite DFARS Case 2003-D033.

SUPPLEMENTARY INFORMATION:

A. Background DFARS Transformation is a major DoD initiative to dramatically change the purpose and content of the DFARS. The objective is to improve the efficiency and effectiveness of the acquisition process, while allowing the acquisition workforce the flexibility to innovate. The transformed DFARS will contain only requirements of law, DoD-wide policies, delegations of FAR authorities, deviations from FAR requirements, and policies/procedures that have a significant effect beyond the internal operating procedures of DoD or a significant cost or administrative impact on contractors or offerors. Additional information on the DFARS Transformation initiative is available at http://www.acq.osd.mil/dpap/dfars/transf.htm.

This final rule is a result of the DFARS Transformation initiative. The rule--

Amends DFARS 228.105 to clarify that fidelity and forgery bonds are authorized for use under certain circumstances; and

Amends DFARS 228.106-7(a) to update a cross-reference.

DoD published a proposed rule at 69 FR 48444 on August 10, 2004. DoD received no comments on the proposed rule. Therefore, DoD has adopted the proposed rule as a final rule without change.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act DoD certifies that this final rule will not 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 the rule updates and clarifies DFARS text, with no substantive change in policy.

C. Paperwork Reduction Act The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 228

Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 228 is amended as follows:

A Microsoft Word format document showing all additions and deletions made by this rule :

Bonds

DFARS Case 2003-D033

Final Rule

PART 228—BONDS AND INSURANCE

* * * * *

228.105 Other types of bonds.

Fidelity and forgery bonds generally are not required but may be used [are authorized for use] when—

(1) Necessary for the protection of the Government or the contractor; or

(2) The investigative and claims services of a surety company are desired.

228.106 Administration.

228.106-7 Withholding contract payments.

(a) Withholding may be appropriate in other than construction contracts (see 232.970-1(b) [FAR 32.112-1(b)]).

* * * * *

Technical Amendment :

Corrects typographical errors in the headings of DFARS sections 209.270-3 and 209.270-4.

Affected subparts/sections: 209.2

The Federal Register notice for this rule:

[Federal Register: February 22, 2005 (Volume 70, Number 34)][Rules and Regulations]

DEPARTMENT OF DEFENSE

48 CFR Part 225

[DFARS Case 2004-D002]

Defense Federal Acquisition Regulation Supplement; Polyacrylonitrile Carbon Fiber--Restriction to Domestic Sources;

Correction

AGENCY: Department of Defense (DoD).

ACTION: Correction to final rule. SUMMARY: DoD is issuing a correction to the final rule published at 70 FR 6374-6375 on February 7, 2005, that extended the ending date for phasing out domestic source restrictions on the acquisition of polyacrylonitrile (PAN) carbon fiber. The correction revises the terminology used to describe milestone B in the development of a major system, for consistency with the terminology used in DoD Instruction 5000.2, Operation of the Defense Acquisition System.

EFFECTIVE DATE: February 7, 2005.

FOR FURTHER INFORMATION CONTACT: Ms. Michele Peterson, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0311; facsimile (703) 602-0350.

List of Subjects in 48 CFR Part 225

Government procurement.

Therefore, 48 CFR part 225 is amended as follows:

PART 225--FOREIGN ACQUISITION

1. The authority citation for 48 CFR part 225 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

2. Section 225.7103-3 is corrected to read as follows:

225.7103-3 Contract clause.

Use the clause at 252.225-7022, Restriction on Acquisition of Polyacrylonitrile (PAN) Carbon Fiber, in solicitations and contracts for major systems issued on or before May 31, 2006, if the system is not yet in development and demonstration (milestone B as defined in DoDI 5000.2).

Michele P. Peterson,Editor, Defense Acquisition Regulations System.

END OF DCN 20050222