DFARS CHANGE NOTICE 20060321

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

[Rules and Regulations]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207, 208, 216, 217, and 237

[DFARS Case 2002-D024]

Defense Federal Acquisition Regulation Supplement; Approval of Service Contracts and Task and Delivery Orders

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

ACTION: Final rule.

SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 801(b) of the National Defense Authorization Act for Fiscal Year 2002 and Section 854 of the National Defense

Authorization Act for Fiscal Year 2005. Section 801(b) requires DoD to establish and implement a management structure for the procurement of services. Section 854 requires DoD agencies to comply with certain review and approval requirements before using a non-DoD contract to procure supplies or services in amounts exceeding the simplified acquisition threshold.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326; facsimile (703) 602-0350. Please cite DFARS Case 2002-D024.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 68 FR 56563 on October 1, 2003, to implement Section 801(b) of the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. 107-107). The rule established requirements for DoD to obtain certain approvals before acquiring services through use of a DoD contract or task order that is not performance based, or through any contract or task order that is awarded by an agency other than DoD.

Section 854 of the National Defense Authorization Act for Fiscal Year 2005 (Pub. L. 108-375) placed additional restrictions on the use of contracts awarded by an agency other than DoD in amounts exceeding the simplified acquisition threshold. DoD published a second interim rule at 70 FR 29640 on May 24, 2005, containing changes resulting from public comments received on the interim rule published on October 1, 2003; changes implementing Section 854 of Public Law 108-375; and changes implementing the requirements of a DoD policy memorandum dated October 29, 2004, on the proper use of non-DoD contracts for the acquisition of supplies and services.

One industry association submitted comments on the interim rule published on May 24, 2005. The association supported the rule, but provided additional comments containing suggestions for improvement. A discussion of the comments is provided below.

1. Comment: DoD should extend the requirements of the rule to task and delivery orders placed by DoD under another defense agency's contract.

DoD Response: The rule is intended to resolve specific systemic problems regarding the use of non-DoD contracts, i.e., orders placed under non-DoD contracts were not consistent with DoD-unique statutory and regulatory requirements. DoD is not aware of any similar problems for direct or assisted buys under DoD contracts. DoD believes that the existing controls and procedures are adequate to ensure that orders placed by DoD under DoD contracts are consistent with DoD-unique statutory and regulatory requirements.

2. Comment: The rule would be stronger if the requirement at DFARS 207.105(b)(4), to document in the acquisition plan the method to be used to ensure that orders under non-DoD contracts are consistent with DoD-unique statutory and regulatory requirements, also said ``including the review and approval requirements of Subpart 217.78.''

DoD Response: DFARS Subpart 217.78 requires agencies to establish and maintain procedures for reviewing and approving orders under non-DoD contracts. It does not contain the specific review and approval requirements, which vary by department and agency. This DFARS rule requires contracting officers to address the method of ensuring that statutory and regulatory requirements will be met, which should be consistent with the agency procedures established in accordance with Subpart 217.78.

3. Comment: DoD should promptly create accompanying Procedures, Guidance, and Information (PGI) coverage, particularly for the data collection elements required by DFARS 217.7802(e).

DoD Response: DoD has established corresponding PGI coverage at http://www.acq.osd.mil/dpap/dars/pgi/index.htm (PGI 217.7802(e)) to address requirements for reporting of data on the use of assisted acquisition. In addition, DoD has amended the DFARS rule at 208.404(a)(i), 216.505(1), 217.7802(e), and 237.170-2(b) to add references to these reporting requirements.

4. Comment: The supplementary information accompanying the final rule should address the memorandum issued by the Director of Defense Procurement and Acquisition Policy on June 17, 2005, entitled ``Proper Use of Non-DoD Contracts,'' and the supplemental memoranda issued by the military departments and defense agencies.

DoD Response: The new PGI coverage contains a link to the Defense Procurement and Acquisition Policy Web site on Proper Use of Non-DoD Contract Vehicles at http://www.acq.osd.mil/dpap/specificpolicy/index.htm. This Web site contains links to the referenced memoranda and other relevant information.

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 contains internal DoD approval requirements, intended to ensure that acquisitions of supplies and services are accomplished in accordance with existing statutes and regulations.

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 Parts 207, 208, 216, 217, and 237

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

Accordingly, the interim rule amending 48 CFR part 237, which was published at 68 FR 56563 on October 1, 2003, and the interim rule amending 48 CFR parts 207, 208, 216, 217, and 237, which was published at 70 FR 29640 on May 24, 2005, are adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 207, 208, 216, 217, and 237 continues to read as follows:

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

PART 208--REQUIRED SOURCES OF SUPPLIES AND SERVICES

2. Section 208.404 is amended by revising the section heading and paragraph (a)(i) to read as follows:

208.404 Use of Federal Supply Schedules.

(a)(i) Departments and agencies shall comply with the review, approval, and reporting requirements established in accordance with subpart 217.78 when placing orders for supplies or services in amounts exceeding the simplified acquisition threshold.

* * * * *

PART 216--TYPES OF CONTRACTS

3. Section 216.505 is amended by revising paragraph (1) to read as follows:

216.505 Ordering.

(1) Departments and agencies shall comply with the review, approval, and reporting requirements established in accordance with Subpart 217.78 when placing orders under non-DoD contracts in amounts exceeding the simplified acquisition threshold.

* * * * *

PART 217--SPECIAL CONTRACTING METHODS

4. Section 217.7802 is amended by revising paragraph (e) to read as follows:

217.7802 Policy.

* * * * *

(e) Collecting and reporting data on the use of assisted acquisition for analysis. Follow the reporting requirements at PGI 217.7802.

PART 237--SERVICE CONTRACTING

5. Section 237.170-2 is amended by revising paragraph (b) to read as follows:

237.170-2 Approval requirements.

* * * * *

(b) Acquisition of services through use of a contract or task order issued by a non-DoD agency. Comply with the review, approval, and reporting requirements established in accordance with Subpart 217.78 when acquiring services through use of a contract or task order issued by a non-DoD agency.

[Federal Register: March 21, 2006 (Volume 71, Number 54)][Rules and Regulations]

From the Federal Register Online via GPO Access [wais.access.gpo.gov

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225 and 252

[DFARS Case 2003-D021]

Defense Federal Acquisition Regulation Supplement; Acquisition of Ball and Roller Bearings

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

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to update requirements pertaining to the acquisition of ball and roller bearings from domestic sources. This final rule addresses the requirements of annual DoD appropriations acts and eliminates text addressing obsolete statutory requirements.

DATES: Effective Date: March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0328; facsimile (703) 602-0350. Please cite DFARS Case 2003-D021.

SUPPLEMENTARY INFORMATION:

A. Background

DoD published a proposed rule at 70 FR 8560 on February 22, 2005. The rule proposed amendments to the restrictions on the acquisition of ball and roller bearings at DFARS 225.7009 and 252.225-7016 to (1) address only the exceptions, waivers, and waiver authority available to the contracting officer under current law; and (2) apply the exceptions to 10 U.S.C. 2534, authorized by Section 8003 of the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355; 41 U.S.C. 430), as implemented at DFARS 212.504(a)(xviii), to bearings that are commercial components of non-commercial end items or components.

The restriction of 10 U.S.C. 2534(a)(5) expired on October 1, 2005. This does not substantively change the DFARS rule, but provides further support for the rule.

Eight respondents submitted comments on the proposed rule. A discussion of the comments, grouped by subject category, is provided below.

1. Increased acquisition of nondomestic bearings. The proposed rule expanded the exception for acquisition of nondomestic bearings by allowing the purchase of nondomestic bearings that are commercial components of a noncommercial end product in acquisitions not using simplified acquisition procedures.

a. Comment: One respondent supports the rule as long as small businesses are allowed to sell nondomestic bearings that are approved. DoD Response: The DFARS rule applies equally to all businesses, large and small.

b. Comment: Another respondent is concerned that we are not supporting our troops, because it is still too difficult to purchase replacement ball and roller bearings for DoD weapon systems when those replacement bearings are of a nondomestic origin. This respondent states that few domestic companies can comply or produce a truly domestic bearing, and that the DFARS rule still prevents procuring activities from readily supporting the military as thousands of bearings are turning foreign.

DoD Response: Although DoD acknowledges the identified problems, the rule cannot allow additional purchase of nondomestic bearings due

to the restrictions of annual DoD appropriations acts.

c. Comment: Three respondents are concerned that the rule will have a negative impact on the bearing industry and national security, by allowing Government contractors to incorporate nondomestic commercial ball and roller bearings into noncommercial end products. They fear loss of domestic capacity and are concerned that the supply of components critical to the national security of the United States may become dependent on manufacturers controlled by governments with interests that are opposed to those of the United States. They object that areas vital to our national security should not be compromised, despite the benefits of global trade.

DoD Response: With the expiration of 10 U.S.C. 2534(a)(5), there is no longer a statutory basis for restricting the acquisition of bearings that are commercial components of noncommercial end products. DoD will continue to restrict the acquisition of nondomestic noncommercial ball and roller bearings and commercial ball and roller bearings that are purchased as end products, in accordance with the annual DoD appropriations acts.

d. Comment: One respondent expresses concern that the acquisition of nondomestic bearings (most likely from China) will stretch the supply chain, introducing instability into the process and extending lead times.

DoD Response: Acquiring bearings even from distant places probably adds only 2 or 3 days to the supply chain.

2. Waiver process.

Comment: Several respondents believe that the rule makes the waiver process more difficult and time-consuming and will cause delays in the acquisition of ball and roller bearings.

DoD Response: The rule does not impose new or higher level waiver requirements, but clarifies existing requirements of annual DoD appropriations acts. Heads of agencies can redelegate the waiver authority as appropriate.

3. Structure and clarity of the regulation.

a. Comment: One respondent recommends maintaining the current distinctions between the restrictions, exceptions, and waiver authority of 10 U.S.C. 2534 and annual DoD appropriations acts, because of a legal distinction between the limit on contracting authority (10 U.S.C. 2534) and the fiscal restrictions on expending funds (annual DoD appropriations acts). The respondent acknowledges that these restrictions largely overlap and have the same result, except for differences in the waiver process.

DoD Response: This comment is no longer applicable, since the restriction on ball and roller bearings at 10 U.S.C. 2534(a)(5) has expired.

b. Comment: One respondent states that the existing exception at DFARS 225.7009-2(a)(4) is necessary to acquire bearings for use overseas.

DoD Response: This comment demonstrates the need for clarification of this section. DFARS 225.7009-2(a)(4) only provided an exception to the restrictions of 10 U.S.C. 2534. The annual DoD appropriations act restrictions still applied, unless the exception at 225.7009-2(b) applied, or a waiver was granted in accordance with 225.7009-3(c). Such confusion could result in acquisitions that are not in compliance with the DoD appropriations act restrictions. However, expiration of the restriction at 10 U.S.C. 2534(a)(5), as reflected in this final rule, should eliminate such confusion.

c. Comment: One respondent believes that the language in the rule is unclear and, at times, seemingly contradictory. The respondent compares the commercial item exception at 225.7009-3 to the commercial item exception in the clause at 252.225-7016(c). The respondent considers that the clause may be interpreted many different ways and will add expense and time to those attempting to comply.

DoD Response: Although DoD finds that, upon careful reading, the text and clause are compatible, DoD has added a definition of ``component'' to the clause at DFARS 252.225-7016 and has revised paragraph (c) of the clause to more explicitly state the exceptions. This clause is used only in DoD solicitations and contracts in accordance with the prescription at DFARS 225.7009-5. It is not used if the items being acquired are commercial items other than ball or roller bearings. The exceptions to the clause apply only to ball or roller bearings that are acquired as components. Therefore, the clause requires compliance if the bearing is the end product (whether commercial or noncommercial) or the bearing is a noncommercial component of a noncommercial end product.

4. Potential legislative changes.

Comment: One respondent is concerned that, if Congress extends the restriction of 10 U.S.C. 2534 but does not impose the annual appropriations act restriction, the contracting officer would be left with an unnecessary requirement. The respondent also raises the issue that it might be better to introduce this change after there is confirmation that there are no Congressional efforts to extend the restriction at 10 U.S.C. 2534(a)(5) and the statutory limitation on contracting authority lapses in October 2005.

DoD Response: The expiration of 10 U.S.C. 2534(a)(5) is reflected in the final rule.

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. A copy of the analysis may be obtained from the point of contact specified herein. The analysis is summarized as follows:

This final rule amends the DFARS to update requirements relating to the acquisition of ball and roller bearings from domestic sources. The rule removes DFARS text relating to the requirements of 10 U.S.C. 2534(a)(5), which expired on October 1, 2005. As a result, the exceptions to domestic source requirements are expanded to permit the purchase of nondomestic bearings that are commercial components of a noncommercial end product, regardless of the dollar value of the acquisition. The rule retains other restrictions on the acquisition of ball and roller bearings, as required by annual DoD appropriations acts. There were no significant issues raised by the public comments in response to the initial regulatory flexibility analysis. As a result of comments received on the proposed rule, the final rule contains additional changes to clarify the requirements of the rule. The rule applies to manufacturers of commercial bearings, and manufacturers of noncommercial products that incorporate commercial bearings. Manufacturers of domestic commercial bearings may face increased competition from foreign commercial bearing manufacturers, but manufacturers of noncommercial products incorporating bearings will be relieved of extensive administrative burdens in tracking the source of commercial bearings and requesting waivers from domestic source requirements. All entities will benefit from the increased simplicity and clarity of the regulations.

C. Paperwork Reduction Act The information collection and record keeping requirements of the clause at 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings, are approved for use through March 31, 2007, under Office of Management and Budget Clearance 0704-0229. The final rule reduces the estimated annual burden for contractors under the clause by 301,600 hours.

List of Subjects in 48 CFR Parts 225 and 252

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

Therefore, 48 CFR parts 225 and 252 are amended as follows:

1. The authority citation for 48 CFR parts 225 and 252 continues to read as follows:

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

PART 225--FOREIGN ACQUISITION

2. Section 225.7001 is amended by revising paragraphs (a) and (b) to read as follows:

225.7001 Definitions.

* * * * *

(a) Bearing components is defined in the clause at 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings.

(b) Component is defined in the clauses at 252.225-7012, Preference for Certain Domestic Commodities, and 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings.

* * * * *

3. Section 225.7003 is amended by revising paragraph (b) introductory text to read as follows:

225.7003 Waiver of restrictions of 10 U.S.C. 2534.

* * * * *

(b) In accordance with the provisions of paragraphs (a)(1)(i) through (iii) of this section, the Under Secretary of Defense (Acquisition, Technology, and Logistics) has waived the restrictions of 10 U.S.C. 2534(a) for certain items manufactured in the United Kingdom, including air circuit breakers for naval vessels (see 225.7006). This waiver applies to--

* * * * *

4. Sections 225.7009 through 225.7009-4 are revised to read as follows:

225.7009 Restriction on ball and roller bearings.

225.7009-1 Scope.

This section implements Section 8065 of the Fiscal Year 2002 DoD Appropriations Act (Pub. L. 107-117) and the same restriction in subsequent DoD appropriations acts.

225.7009-2 Restriction.

Do not acquire ball and roller bearings or bearing components unless the bearings and bearing components are manufactured in the United States or Canada.

225.7009-3 Exception.

The restriction in 225.7009-2 does not apply to contracts or subcontracts for the acquisition of commercial items, except for commercial ball and roller bearings acquired as end items.

225.7009-4 Waiver.

The Secretary of the department responsible for acquisition or, for the Defense Logistics Agency, the Component Acquisition Executive, may waive the restriction in 225.7009-2, on a case-by-case basis, by certifying to the House and Senate Committees on Appropriations that--

(a) Adequate domestic supplies are not available to meet DoD requirements on a timely basis; and

(b) The acquisition must be made in order to acquire capability for national security purposes.

5. Section 225.7009-5 is added to read as follows:

225.7009-5 Contract clause.

Use the clause at 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings, in solicitations and contracts, unless--

(a) The items being acquired are commercial items other than ball or roller bearings acquired as end items;

(b) The items being acquired do not contain ball and roller bearings; or

(c) A waiver has been granted in accordance with 225.7009-4.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

6. Section 252.212-7001 is amended by revising the clause date and, in paragraph (b), by revising entry ``252.225-7016'' to read as follows:

252.212-7001 Contract Terms and Conditions Required To Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items.

* * * * *

Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items (Mar 2006)

* * * * *

(b) * * *

----252.225-7016 Restriction on Acquisition of Ball and Roller Bearings (MAR 2006) (Section 8065 of Public Law 107-117 and the same restriction in subsequent DoD appropriations acts).

* * * * *

7. Section 252.225-7016 is revised to read as follows:

252.225-7016 Restriction on Acquisition of Ball and Roller Bearings.

As prescribed in 225.7009-5, use the following clause:Restriction on Acquisition of Ball and Roller Bearings (Mar 2006)

(a) Definitions. As used in this clause'

(1) Bearing components means the bearing element, retainer, inner race, or outer race.

(2) Component, other than bearing components, means any item supplied to the Government as part of an end product or of another component.

(3) End product means supplies delivered under a line item of this contract.

(b) Except as provided in paragraph (c) of this clause, all ball and roller bearings and ball and roller bearing components delivered under this contract, either as end items or components of end items, shall be wholly manufactured in the United States, its outlying areas, or Canada. Unless otherwise specified in this contract, raw materials, such as preformed bar, tube, or rod stock and lubricants, need not be mined or produced in the United States, its outlying areas, or Canada.

(c) The restriction in paragraph (b) of this clause does not apply to ball or roller bearings that are acquired as--

(1) Commercial components of a noncommercial end product; or

(2) Commercial or noncommercial components of a commercial component of a noncommercial end product.

(d) The restriction in paragraph (b) of this clause may be waived upon request from the Contractor in accordance with subsection 225.7009-4 of the Defense Federal Acquisition Regulation Supplement.

(e) The Contractor shall insert the substance of this clause, including this paragraph (e), in all subcontracts, except those for--

(1) Commercial items; or

(2) Items that do not contain ball or roller bearings. (End of clause)

[Federal Register: March 21, 2006 (Volume 71, Number 54)][Rules and Regulations]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 207 and Appendix D to Chapter 2

[DFARS Case 2003-D071]

Defense Federal Acquisition Regulation Supplement; Component Breakout

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

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to remove procedures for breaking out components of end items for future acquisitions. These procedures have been relocated to the new DFARS companion resource, Procedures, Guidance, and Information. This final rule is a result of a transformation initiative undertaken by DoD to dramatically change the purpose and content of the DFARS.

DATES: Effective Date: March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0296; facsimile (703) 602-0350. Please cite DFARS Case 2003-D071.

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/dars/dfars/ transformation/index.htm.

This final rule is a result of the DFARS Transformation initiative. The rule removes DFARS Appendix D, which contains DoD policy and procedures for breakout of components of end items for future acquisitions. The portions of Appendix D containing DoD policy on component breakout have been relocated to a new section at DFARS 207.171. The portions of Appendix D containing internal DoD procedures for component breakout have 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 70 FR 14623 on March 23, 2005. One industry association submitted comments on the proposed rule. A discussion of the comments is provided below.

1. Comment: Relocation of component breakout requirements to a guidance document is not appropriate, because it would provide DoD with the option to unilaterally eliminate the breakout requirement in its entirety, without affording the public an opportunity to object.

DoD Response: Although PGI is more than a guidance document, DoD agrees that portions of Appendix D are more appropriate for retention in the DFARS. Therefore, the portions of Appendix D containing DoD policy for component breakout have been relocated to a new section at DFARS 207.171. The portions of Appendix D that have been relocated to PGI are limited to internal DoD procedures for conducting breakout reviews, documenting breakout decisions, and maintaining breakout records. These procedures are still mandatory for use, in accordance with 207.171(d) of this final rule.

2. Comment: Transfer of the component breakout requirements to a guidance document, as opposed to maintaining a regulatory requirement, would de-emphasize the importance of tracking this type of information. Without such information, DoD would not be able to ensure its compliance with existing domestic source laws and regulations. In addition, de-emphasizing the importance of this information would be inconsistent with the on-going U.S. initiative on limiting the adverse effects of offsets in defense procurement. Since the issue of offsets is integrally entwined with foreign and domestic sources of major weapons systems and components, the ability to establish a baseline for components would be impaired by de-emphasizing the requirement to track the breakout of components.

DoD Response: DoD believes that the final rule actually emphasizes the importance of component breakout since, prior to this rule, there was no reference to component breakout or Appendix D in any of the numbered sections of the DFARS. In addition, DoD's ability to ensure compliance with existing domestic source laws and regulations, or to track the effect of offsets, is not related to component breakout procedures. Appendix D does not require any breaking out of data, nor does it require tracking of data on components. While unrelated to component breakout, DFARS 225.7307 specifies that DoD does not encourage, enter into, or commit U.S. firms to foreign military sales offset arrangements. The only discernable connection between component breakout policy and offsets is that U.S. industry would not be able to offer components for manufacture in a foreign country under offset arrangements if DoD breaks out the component for direct procurement by DoD. This connection in no way affects DoD's component breakout policy or the decision regarding placement of breakout procedures in PGI.

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 rule makes no significant change to DoD policy for breakout of components of end items for future acquisitions.

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 207

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

Therefore, 48 CFR part 207 and Appendix D to Chapter 2 are amended as follows:

1. The authority citation for 48 CFR part 207 and Appendix D to subchapter I continues to read as follows:

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

PART 207--ACQUISITION PLANNING

2. Sections 207.171 through 207.171-4 are added to read as follows:

207.171 Component breakout.

207.171-1 Scope.

(a) This section provides policy for breaking out components of end items for future acquisitions so that the Government can purchase the components directly from the manufacturer or supplier and furnish them to the end item manufacturer as Government-furnished material.

(b) This section does not apply to--

(1) The initial decisions on Government-furnished equipment or contractor-furnished equipment that are made at the inception of an acquisition program; or

(2) Breakout of parts for replenishment (see Appendix E).

207.171-2 Definition.

Component, as used in this section, includes subsystems, assemblies, subassemblies, and other major elements of an end item; it does not include elements of relatively small annual acquisition value.

207.171-3 Policy.

DoD policy is to break out components of weapons systems or other major end items under certain circumstances.

(a) When it is anticipated that a prime contract will be awarded without adequate price competition, and the prime contractor is expected to acquire any component without adequate price competition, the agency shall break out that component if--

(1) Substantial net cost savings probably will be achieved; and

(2) Breakout action will not jeopardize the quality, reliability, performance, or timely delivery of the end item.

(b) Even when either or both the prime contract and the component will be acquired with adequate price competition, the agency shall consider breakout of the component if substantial net cost savings will result from--

(1) Greater quantity acquisitions; or

(2) Such factors as improved logistics support (through reduction in varieties of spare parts) and economies in operations and training (through standardization of design).

(c) Breakout normally is not justified for a component that is not expected to exceed $1 million for the current year's requirement.

207.171-4 Procedures.

Agencies shall follow the procedures at PGI 207.171-4 for component breakout.

Appendix D to Chapter 2 [Removed and Reserved]

3. Appendix D to Chapter 2 is removed and reserved.

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207, 210, and 219

[DFARS Case 2003-D109]

Defense Federal Acquisition Regulation Supplement; Consolidation of Contract Requirements

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

ACTION: Final rule.

SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 801 of the National Defense Authorization Act for Fiscal Year 2004. Section 801 places restrictions on the consolidation of two or more requirements of a DoD department, agency, or activity into a single solicitation and contract with a total value exceeding $5,000,000.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Deborah Tronic, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; telephone (703) 602-0289; facsimile (703) 602-0350. Please cite DFARS Case 2003-D109.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 69 FR 55986 on September 17, 2004, to implement 10 U.S.C. 2382, as added by Section 801 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). 10 U.S.C. 2382 places restrictions on the consolidation of two or more requirements of a DoD department, agency, or activity into a single solicitation and contract with a total value exceeding $5,000,000. Twenty-two respondents submitted comments on the interim rule. A discussion of the comments is provided below.

1. Comment: Four respondents indicated that the difference between consolidation of contract requirements and contract bundling is unclear.

DoD Response: The definitions of the two terms are similar, because all bundles are consolidations. However, not all consolidations are bundles. The definition of ``bundle'' requires that previous contracts for the item were either performed by small business concerns or were suitable for small business concerns, whereas the definition of ``consolidation'' does not contain this requirement.

2. Comment: One respondent requested clarification regarding the definition of ``consolidation.'' The respondent interpreted the phrase ``two or more separate contracts lower in cost than the total cost of the contract for which the offers are solicited'' to mean that, if the cost of one contract for two or more requirements is less than the cost of two or more separate contracts, the acquisition would be outside the definition of consolidation.

DoD Response: Agree that the phrase could lead to multiple interpretations. To ensure that the rule is applied where appropriate, the phrase has been excluded from the final rule.

3. Comment: One respondent stated that the rule does not consider varying quantities between the previous buy and the current acquisition; and does not consider when the previous buys were made, i.e., a year ago or five years ago. This could make a big difference in comparing costs.

DoD Response: The definition included in the final rule eliminates the need for cost comparisons.

4. Comment: Four respondents stated that the term ``consolidation of contract requirements'' is not clear with regard to what is meant by ``requirements'' and whether or not a different acquisition strategy would be considered a new requirement, such as combining sustaining engineering with system maintenance of the same system.

DoD Response: The DFARS rule follows the legislative definition for consolidation of contract requirements, which addresses a single award covering requirements previously provided under more than one award. DoD believes that the definition is clear, but exercise of judgment may be necessary in some cases to determine whether the requirement has previously been provided.

5. Comment: One respondent asked for clarification regarding whether the rule applies to orders.

DoD Response: Under GSA Schedules, DoD activities place orders, but the actual contract (Schedule) is put in place by GSA. A literal reading of the interim rule would be that the DoD senior procurement executive's determination must be made when the Schedule itself is awarded. The final rule clarifies that the rule applies to orders placed under GSA Schedules.

6. Comment: One respondent asked who the senior procurement official is.

DoD Response: The rule uses the term ``senior procurement executive.'' This term is defined at DFARS 202.101, which specifies the department/agency officials that hold this title.

7. Comment: Seven respondents recommended delegation of the senior procurement executive's authority to determine that contract consolidation is necessary and justified.

DoD Response: The rule does not prohibit delegation of this authority. Therefore, in accordance with FAR 1.108(b), departments and agencies may delegate this authority as deemed appropriate.

8. Comment: One respondent stated that the requirement to file the determination in the contract file is unnecessary and should be deleted, because the contracting officer would do this without having it be required.

DoD Response: Due to the specific requirement of 10 U.S.C. 2382 to ensure that decisions regarding consolidation are necessary and justified, DoD believes it is appropriate for this DFARS rule to address the need for supporting documentation.

9. Comment: One respondent requested that the requirement for inclusion of the senior procurement executive's determination in the contract file be satisfied by including the determination in the acquisition plan.

DoD Response: The senior procurement executive may, if desired, document and sign the acquisition plan to satisfy the requirement for the determination, provided it addresses all the elements in DFARS 207.170-3.

10. Comment: One respondent requested additional guidance with respect to permissible contents of the determination. Absent such guidance, the regulation should at least make clear that the scenario identified in 207.170-3(a)(i), i.e., ``the benefits of the acquisition strategy substantially exceed the benefits of each of the possible alternative contracting approaches'' is simply an example of an adequate determination.

DoD Response: The DFARS language is sufficiently clear. However, a possible source for additional guidance is the DoD Office of the Small and Disadvantaged Business Utilization Benefit Analysis Guidebook--Reference to Assist Department of Defense Acquisition Strategy Teams in Performing a Benefit Analysis before Bundling Contract Requirements. Although this guidebook's focus is on bundling, there are some similarities to the measurably substantial benefits descriptions that may be helpful. A copy of this guidebook is available at http://www.acq.osd.mil/sadbu/news/guidebook.htm. DoD will be revising this

guidebook to address consolidation.

11. Comment: One respondent recommended that market research requirements for consolidation be added to DFARS 210.001.

DoD Response: The final rule adds a new section at DFARS 210.001 to address market research requirements.

12. Comment: Nine respondents recommended a higher dollar threshold for application of the rule.

DoD Response: DoD is unable to increase this threshold, as the $5 million threshold is specified in 10 U.S.C. 2382(b).

13. Comment: Five respondents indicated that the DFARS rule is in conflict with acquisition reform initiatives that include such tools as strategic sourcing, corporate contracts, and commodity councils.

DoD Response: The DFARS rule may make it more administratively burdensome to pursue such strategies; however, the rule does not preclude pursuing acquisition strategies that involve consolidation when it is determined that such consolidation is necessary and justified.

14. Comment: One respondent indicated that consolidation limits competitive opportunities and that DoD should not impede competition. DoD Response: DoD agrees that competition should not be impeded. The rule is intended to ensure that consolidation decisions are made with a view toward providing small business concerns with appropriate opportunities to participate in DoD procurements at both the prime and subcontract level. It is noted, however, that consolidation will not in all cases result in a less competitive situation than what previously existed. There may be instances where firms that competed for previous separate contracts can still compete for the consolidated contract. In addition, when two contracts that were previously awarded on a sole source basis result in a new contract that is also sole source, competition has not been affected.

15. Comment: One respondent stated that the requirements of this rule could result in additional workload to the Government, since it could result in two or three procurements instead of one procurement.

DoD Response: Agree that the rule could increase the number of DoD procurement actions. However, the intent of the rule is to ensure that small business concerns are provided with appropriate opportunities to participate in DoD procurements.

16. Comment: One respondent stated that the rule could burden small businesses by requiring them to respond to multiple solicitations instead of just one.

DoD Response: As required by the statute, the application of the rule will preclude the issuance of consolidated acquisitions that cannot be justified, thus protecting the interests of small businesses. The appropriate issuance of multiple solicitations will provide multiple opportunities for small business concerns to compete.

17. Comment: Four respondents indicated that there are no exceptions to the rule for small business set-asides, sole source awards, foreign military sales, etc., and suggests there should be exceptions.

DoD Response: 10 U.S.C. 2382 does not provide for any exceptions to the policy stated in the rule.

18. Comment: One respondent recommended the removal of the DFARS rule based on the fact that contracting officers are trained in and evaluated on properly applying small business rules to ensure small businesses get appropriate opportunities. In addition, the contracting officer is already required, in some cases, to provide all information relevant to the justification of contract bundling, including the acquisition plan, and to address bundling if applicable.

DoD Response: This DFARS rule is necessary to implement the requirements of 10 U.S.C. 2382, which are separate from the requirements applicable to bundling at 15 U.S.C. 644(e)(2).

19. Comment: One respondent stated that an annual review and assessment of contract consolidations is an undue administrative burden.

DoD Response: In accordance with FAR 19.201(d)(11), the Office of Small and Disadvantaged Business Utilization is already required to conduct annual reviews regarding contract bundling actions. The consolidation review will be a part of this annual review process, and is needed to comply with Section 801(b) of Public Law 108-136, which requires DoD to conduct periodic reviews to determine the extent of consolidation and the impact on small business concerns.

20. Comment: One respondent recommended adding a threshold to the review requirement at DFARS 219.201(d)(11), since no documentation requirements exist for contract consolidations valued at less than $5 million.

DoD Response: DoD does not believe it is necessary to restate the documentation threshold at 219.201(d)(11).

21. Comment: One respondent suggested modification of the DD Form 350 to collect information on consolidations.

DoD Response: The DD Form 350 data collection system has been revised to identify procurements involving consolidation of contract requirements.

22. Comment: One respondent asked if the rule applies to acquisitions already in process as of the effective date of the rule, September 17, 2004.

DoD Response: In accordance with FAR 1.108(d), the rule applies to solicitations issued on or after September 17, 2004.

23. Comment: Two respondents requested clarification as to whether the rule would apply to a procurement that was under the $5 million threshold initially, but exceeded the threshold after offers were received.

DoD Response: The determination occurs before the solicitation is released, based on the estimated total value of the contract. If the value exceeded $5 million after offers were received, no further documentation and approval would be necessary at that time. The DFARS rule has been amended at 207.170-3(a) to clarify that application of the rule is based on estimated dollar value

. 24. Comment: One respondent stated that, if the previous contract contained two or more requirements, the follow-on contract action for the same requirement would not be considered consolidation.

DoD Response: If two or more items were previously acquired under a single contract, and the follow-on acquisition is for the same requirement, the follow-on acquisition would not meet the definition of consolidation, unless it is further combined with other requirements.

25. Comment: One respondent asked whether a contract for support services at a dining facility that includes mess attendant services and full food (cooking) is covered by the DFARS rule.

DoD Response: Whether this situation is covered depends upon how the requirements were previously performed. The DFARS rule applies when the required supplies or services previously were acquired under two or more separate contracts, but now will be acquired under one.

26. Comment: Two respondents recommended that coverage be included in the DoD 5000 series publications as to what an acquisition strategy must include before contracts with a total value exceeding $5,000,000 can be consolidated.

DoD Response: DoD considers the comment to be outside the scope of this DFARS rule. However, this recommendation has been forwarded to the Defense Acquisition Policy Working Group for consideration.

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. A copy of the analysis may be obtained from the point of contact specified herein. The analysis is summarized as follows:

This final rule amends the DFARS to implement Section 801 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). Section 801 added 10 U.S.C. 2382, which places restrictions on the consolidation of two or more requirements of a DoD department, agency, or activity into a single solicitation and contract, when the total value of the requirements exceeds $5,000,000. The objective of the rule is to ensure that decisions regarding consolidation of contract requirements are made with a view toward providing small business concerns with appropriate opportunities to participate in DoD procurements as prime contractors and subcontractors. DoD received no public comments in response to the initial regulatory flexibility analysis. As a result of public comments received on the interim rule, the final rule contains changes that clarify the applicability of the rule and the requirements for market research. The rule will apply to small entities that are interested in providing supplies or services under DoD contracts or subcontracts. There are no known alternatives that would accomplish the objectives of 10 U.S.C. 2382. The impact on small entities is expected to be positive.

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 Parts 207, 210, and 219

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

Accordingly, the interim rule amending 48 CFR parts 207 and 219, which was published at 69 FR 55986 on September 17, 2004, is adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 207 and 219 continues to read as follows:

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

PART 207--ACQUISITION PLANNING

2. Section 207.170-2 is revised to read as follows:

207.170-2 Definitions.

As used in this section--

Consolidation of contract requirements means the use of a solicitation to obtain offers for a single contract or a multiple award contract to satisfy two or more requirements of a department, agency, or activity for supplies or services that previously have been provided to, or performed for, that department, agency, or activity under two or more separate contracts.

Multiple award contract means-

(1) Orders placed using a multiple award schedule issued by the General Services Administration as described in FAR Subpart 8.4;

(2) A multiple award task order or delivery order contract issued in accordance with FAR Subpart 16.5; or

(3) Any other indefinite-delivery, indefinite-quantity contract that an agency enters into with two or more sources for the same line item under the same solicitation.

3. Section 207.170-3 is amended by revising paragraph (a) introductory text and paragraph (a)(3)(i) introductory text to read as follows:

207.170-3 Policy and procedures.

(a) Agencies shall not consolidate contract requirements with an estimated total value exceeding $5,000,000 unless the acquisition strategy includes--

* * * * *

(3) * * *

(i) Market research may indicate that consolidation of contract requirements is necessary and justified if the benefits of the acquisition strategy substantially exceed the benefits of each of the possible alternative contracting approaches. Benefits may include costs and, regardless of whether quantifiable in dollar amounts--

* * * * *

4. Part 210 is added to read as follows:

PART 210--MARKET RESEARCH

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

210.001 Policy.

(a) In addition to the requirements of FAR 10.001(a), agencies shall--

(i) Conduct market research appropriate to the circumstances before soliciting offers for acquisitions that could lead to a consolidation of contract requirements as defined in 207.170-2; and

(ii) Use the results of market research to determine whether consolidation of contract requirements is necessary and justified in accordance with 207.170-3.

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 208 and 216

[DFARS Case 2004-D009]

Defense Federal Acquisition Regulation Supplement; Competition Requirements for Federal Supply Schedules and Multiple Award Contracts

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

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to update and clarify requirements for competition in the placement of orders under Federal Supply Schedules and multiple award contracts.

DATES: Effective Date: March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326; facsimile (703) 602-0350. Please cite DFARS Case 2004-D009.

SUPPLEMENTARY INFORMATION:

A. Background

This final rule revises procedures for use of Federal Supply Schedules and multiple award contracts to promote competition in the placement of orders for supplies or services.

The final rule--

Revises approval requirements for placement of noncompetitive orders exceeding $100,000 under Federal Supply Schedules for consistency with those at FAR 8.405-6, and extends those requirements to orders under multiple award contracts;

Applies the same ordering procedures to both supplies and services; and

Makes additional changes to DFARS Subpart 208.4 for consistency with the policy in FAR Subpart 8.4.

DoD published a proposed rule at 70 FR 32280 on June 2, 2005. Four sources submitted comments on the proposed rule. A discussion of the comments is provided below.

1. Comment: Recommend relocating the last sentence of 208.405-70(c)(2), which references the General Services Administration's electronic quote system ``e-Buy'', to DoD's Procedures, Guidance, and Information (PGI) resource, to be consistent with DFARS Transformation.

DoD Response: DoD agrees and has relocated the referenced text to PGI, at http://www.acq.osd.mil/dpap/dars/pgi.

2. Comment: Recommend removing the requirement to obtain three proposals when ordering supplies under GSA's Federal Supply Schedule program, because the requirement is unduly burdensome and administratively wasteful.

DoD Response: Do not agree. DoD has adopted this policy to place the appropriate emphasis on competition and to ensure that DoD can continue to use Federal Supply Schedules to meet future requirements.

3. Comment: The requirement at FAR 8.405-6 for the senior procurement executive to approve proposed orders exceeding $50,000,000 for DoD, NASA, and the Coast Guard is different from the policy at FAR 6.304(a)(4) for non-schedule buys, which only requires senior procurement executive approval for orders exceeding $75,000,000.

DoD Response: Federal Acquisition Circular 2005-05 dated July 27, 2005 (70 FR 43576), amended the FAR to make the thresholds at 8.405-6 consistent with those at 6.304(a)(4).

4. Comment: Recommend clarifying the justification approval level for waivers of competition when establishing blanket purchase agreements (BPAs), because BPAs may have no estimated value, and the existing requirements are based on estimated dollar value.

DoD Response: An estimated value should be established for a BPA as part of acquisition planning, and the approval level for the BPA should be based on that estimated value.

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 strengthens and clarifies existing requirements for competition in the placement of orders under Federal Supply Schedules and multiple award contracts.

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 Parts 208 and 216

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

Therefore, 48 CFR parts 208 and 216 are amended as follows:

1. The authority citation for 48 CFR parts 208 and 216 continues to read as follows:

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

PART 208--REQUIRED SOURCES OF SUPPLIES AND SERVICES

208.404 [Amended]

2. Section 208.404 is amended by removing paragraphs (b) and (S-70).

208.404-1 through 208.405-2 [Removed]

3. Sections 208.404-1, 208.404-2, 208.404-70, 208.405, and 208.405-2 are removed.

4. Sections 208.405-70, 208.406, and 208.406-1 are added to read as follows:

208.405-70 Additional ordering procedures.

(a) This subsection--

(1) Implements Section 803 of the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. 107-107) for the acquisition of services, and establishes similar policy for the acquisition of supplies;

(2) Applies to orders for supplies or services under Federal Supply Schedules, including orders under blanket purchase agreements established under Federal Supply Schedules; and

(3) Also applies to orders placed by non-DoD agencies on behalf of DoD.

(b) Each order exceeding $100,000 shall be placed on a competitive basis in accordance with paragraph (c) of this subsection, unless this requirement is waived on the basis of a justification that is prepared and approved in accordance with FAR 8.405-6 and includes a written determination that--

(1) A statute expressly authorizes or requires that the purchase be made from a specified source; or

(2) One of the circumstances described at FAR 16.505(b)(2)(i) through (iii) applies to the order. Follow the procedures at PGI 216.505-70 if FAR 16.505(b)(2)(ii) or (iii) is deemed to apply.

(c) An order exceeding $100,000 is placed on a competitive basis only if the contracting officer provides a fair notice of the intent to make the purchase, including a description of the supplies to be delivered or the services to be performed and the basis upon which the contracting officer will make the selection, to--

(1) As many schedule contractors as practicable, consistent with market research appropriate to the circumstances, to reasonably ensure that offers will be received from at least three contractors that can fulfill the requirements, and the contracting officer--

(i)(A) Receives offers from at least three contractors that can fulfill the requirements; or

(B) Determines in writing that no additional contractors that can fulfill the requirements could be identified despite reasonable efforts to do so (documentation should clearly explain efforts made to obtain offers from at least three contractors); and

(ii) Ensures all offers received are fairly considered; or

(2) All contractors offering the required supplies or services under the applicable multiple award schedule, and affords all contractors responding to the notice a fair opportunity to submit an offer and have that offer fairly considered.

(d) See PGI 208.405-70 for additional information regarding fair notice to contractors and requirements relating to the establishment of blanket purchase agreements under Federal Supply Schedules.

Sec. 208.406 Ordering activity responsibilities.

Sec. 208.406-1 Order placement.

Follow the procedures at PGI 208.406-1 when ordering from schedules.

PART 216--TYPES OF CONTRACTS

5. Section 216.505-70 is revised to read as follows:

Sec. 216.505-70 Orders under multiple award contracts.

(a) This subsection--

(1) Implements Section 803 of the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. 107-107) for the acquisition of services, and establishes similar policy for the acquisition of supplies;

(2) Applies to orders for supplies or services exceeding $100,000 placed under multiple award contracts;

(3) Also applies to orders placed by non-DoD agencies on behalf of DoD; and

(4) Does not apply to orders for architect-engineer services, which shall be placed in accordance with the procedures in FAR Subpart 36.6.

(b) Each order exceeding $100,000 shall be placed on a competitive basis in accordance with paragraph (c) of this subsection, unless this requirement is waived on the basis of a justification that is prepared and approved in accordance with FAR 8.405-6 and includes a written determination that--

(1) A statute expressly authorizes or requires that the purchase be made from a specified source; or

(2) One of the circumstances described at FAR 16.505(b)(2)(i) through (iv) applies to the order. Follow the procedures at PGI 216.505-70 if FAR 16.505(b)(2)(ii) or (iii) is deemed to apply. (c) An order exceeding $100,000 is placed on a competitive basis only if the contracting officer--

(1) Provides a fair notice of the intent to make the purchase, including a description of the supplies to be delivered or the services to be performed and the basis upon which the contracting officer will make the selection, to all contractors offering the required supplies or services under the multiple award contract; and

(2) Affords all contractors responding to the notice a fair opportunity to submit an offer and have that offer fairly considered.

(d) When using the procedures in this subsection--

(1) The contracting officer should keep contractor submission requirements to a minimum;

(2) The contracting officer may use streamlined procedures, including oral presentations;

(3) The competition requirements in FAR part 6 and the policies in FAR Subpart 15.3 do not apply to the ordering process, but the contracting officer shall consider price or cost under each order as one of the factors in the selection decision; and

(4) The contracting officer should consider past performance on earlier orders under the contract, including quality, timeliness, and cost control.

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 207

[DFARS Case 2004-D021]

Defense Federal Acquisition Regulation Supplement; Contractor Performance of Acquisition Functions Closely Associated With Inherently Governmental Functions

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

ACTION: Final rule.

SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 804 of the National Defense Authorization Act for Fiscal Year 2005. Section 804 places limitations on the award of contracts for the performance of acquisition functions closely associated with inherently governmental functions.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326, facsimile (703) 602-0350. Please cite DFARS Case 2004-D021.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 70 FR 14572 on March 23, 2005, to implement Section 804 of the National Defense Authorization Act for Fiscal Year 2005. Section 804 places limitations on the award of contracts for the performance of acquisition functions closely associated with inherently governmental functions. Three sources submitted comments on the interim rule. A discussion of the comments is provided below.

1. Comment: One respondent recommended revision of the text at 207.503(S-70)(1) to replace the phrase ``functions closely associated with inherently governmental functions that are listed at FAR 7.503(d)'' with the phrase ``services and actions that are listed at FAR 7.503(d).'' Since 10 U.S.C. 2383(b)(3) states that the phrase ``functions closely associated with inherently governmental functions'' means those functions described in FAR 7.503(d), use of the FAR reference would meet the letter of the law and would avoid introducing a new phrase in the DFARS.

DoD Response: DoD believes that use of the phrase ``functions closely associated with inherently governmental functions,'' along with the reference to FAR 7.503(d), more clearly describes the requirements of the rule. Therefore, DoD has made no change to the rule as a result of this comment.

2. Comment: One respondent recommended amending the text at 207.503(S-70)(1)(i)(B) to remove the word ``supervise'' and replace it with the phrase ``provide oversight to'' to prevent a conflict with Office of Federal Procurement Policy (OFPP) Policy Letter 92-1, Inherently Governmental Functions. The respondent stated that OFPP Policy Letter 92-1 cautions against exercising ``such control over contractor activities to convert the contract * * * to a personal services contract,'' and that use of the word ``supervise,'' could be understood by Federal officials that they are to interact with contractor employees in the same way they supervise Federal employees.

DoD Response: It should be noted that OMB Circular No. A-76 dated May 29, 2003, supersedes OFPP Policy Letter 92-1. However, DoD agrees that the term ``supervise'' could be subject to differing interpretations and could lead to an inappropriate contract relationship. Therefore, DoD has amended the rule to replace the term ``supervise'' with the term ``oversee.''

3. Comment: One respondent stated that, given the importance of this issue, DoD should provide further guidance concerning the circumstances under which contracting officers may make a determination under 207.503(S-70)(1)(i)(A), that appropriate DoD personnel cannot reasonably be made available to perform the functions.

DoD Response: DoD does not believe that additional guidance is necessary. The availability decision must be made on a case-by-case basis, and DoD contracting officers should retain the flexibility to make informed decisions to meet mission needs.

4. Comment: One respondent expressed support for the rule, since the rule places some controls on the award of contracts for the performance of jobs closely associated with the Federal Government's purchases of goods and services. The respondent believes that the Government should protect inherently governmental functions, and recommended that DoD require contracting officers to provide written justifications of decisions made under this DFARS rule and that those justifications be made publicly available on the World Wide Web.

DoD Response: In accordance with FAR Subpart 4.8, the Government contract file should document the basis for an acquisition and the relevant decisions made by the contracting officer. DoD does not believe it is necessary to post the determinations made in accordance with this rule on the World Wide Web.

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. A copy of the analysis may be obtained from the point of contact specified herein. The analysis is summarized as follows:

The objective of the rule is to ensure proper management and oversight of contracts for functions that generally are not considered to be inherently governmental, but may approach being in that category because of the nature of the function, the manner in which the contractor performs the contract, or the manner in which the Government administers contractor performance. The impact of the rule on small entities is unknown at this time. DoD agencies will implement the requirements of the rule in making decisions whether to enter into, and in the administration of, contracts for performance of the acquisition functions closely associated with inherently governmental functions that are listed in section 7.503(d) of the Federal Acquisition Regulation. DoD received no comments on the initial regulatory flexibility analysis. As a result of comments received on the interim rule, the final rule contains a minor change to clarify that Government personnel ``oversee'' but do not ``supervise'' contractor personnel.

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 207

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

Accordingly, the interim rule amending 48 CFR part 207, which was published at 70 FR 14572 on March 23, 2005, is adopted as a final rule with the following change:

PART 207--ACQUISITION PLANNING

1. The authority citation for 48 CFR part 207 continues to read as follows:

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

207.503 [Amended]0

2. Section 207.503 is amended in paragraph (S-70)(1)(i)(B) by removing ``supervise'' and adding in its place ``oversee''.

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215 and 216

[DFARS Case 2005-D003]

Defense Federal Acquisition Regulation Supplement; Incentive Program for Purchase of Capital Assets Manufactured in the United States

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

ACTION: Final rule.

SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 822 of the National Defense Authorization Act for Fiscal Year 2004. Section 822 requires the Secretary of Defense to establish an incentive program for contractors to purchase capital assets manufactured in the United States, and to provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0328; facsimile (703) 602-0350. Please cite DFARS Case 2005-D003.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 70 FR 29643 on May 24, 2005, to implement Section 822 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). Section 822 added 10 U.S.C. 2436, which requires the Secretary of Defense to (1) establish an incentive program for contractors to purchase capital assets manufactured in the United States under contracts for major defense acquisition programs; and (2) provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.

Six respondents submitted comments on the interim rule. A discussion of the comments is provided below.

1. Comment: Some respondents expressed concern about the future of the U.S. machine tool industry and its ability to help in the defense of the United States. They discussed the severe pressure from foreign competition and asserted that the machine tool industry in particular is essential to the military industrial and critical infrastructure base of the United States.

DoD Response: DoD recognizes these concerns and considers that the incentive program in this DFARS rule provides sufficient motivation for vendors to consider the purchase of U.S. machine tools for major defense acquisition programs as well as for other defense requirements.

2. Comment: One respondent stated that the use of U.S. machine tools for fulfilling defense contracts should be mandatory.

DoD Response: The mandatory use of U.S. machine tools would severely affect DoD's ability to manage its contracts in terms of cost, schedule, and performance and would negatively impact DoD's ability to meet warfighter needs. Such an approach could deny DoD the ability to select the contractor that is most likely to provide the most effective solution to DoD needs, simply because that contractor did not possess all U.S. machine tools. Further, if defense contractors were forced to acquire U.S. machine tools in order to be responsive to DoD's needs, the expense of acquiring those tools (estimated to be in the billions) would be passed on to DoD and would diminish resources available to meet defense requirements.

3. Comment: One respondent stated that, at a minimum, the U.S. machine suppliers should be given the opportunity to match any competitive quote for foreign machine tools being procured by a defense contractor.

DoD Response: In most instances, defense contractors already have the tooling required to fulfill DoD's requirements. In those instances where additional tooling is required, the consideration to be provided during source selection/evaluation and the use of award fees should provide ample incentive to the contractor to consider U.S.-made machine tooling instead of foreign tooling and give U.S. machine tool makers the opportunity to match offers of foreign manufacturers.

4. Comment: Several respondents objected to the inclusion of the phrase ``when pertinent to the best value determination'' in the direction to consider the purchase and use of capital assets (including machine tools) manufactured in the United States, believing that the phrase is too vague and leaves too much discretion to the contractor or the DoD evaluator in deciding whether there is an advantage to purchasing U.S. machine tools. The respondents stated that such consideration should be an integral part of the evaluation.

DoD Response: The phrase ``when pertinent to the best value determination'' has been excluded from the final rule.

5. Comment: One respondent requested that the scope of the benefit be clarified, i.e., better defined for prospective purchasers of machine tools.

DoD Response: DoD's defense suppliers are aware of the concerns expressed by the U.S. machine tool industry and the provisions of Section 822 of the National Defense Authorization Act for Fiscal Year 2004. DoD has structured the incentive program so that the purchase of capital assets (including machine tools) is an integral part of the evaluation and source selection. The benefit of purchasing U.S.-made tooling has been made evident to DoD's suppliers by including U.S. tooling purchase as a consideration in source selection. Additionally, the Government's desire to motivate and reward a contractor for purchase of capital assets (including machine tools) is unmistakable in the wording of the award fee application in DFARS 216.470(a). The financial benefit associated with an award fee is clear.

6. Comment: Several respondents wanted DoD to assign objective, quantifiable, and meaningful credits or points, or measurable standards, for the evaluation of capital assets (including machine tooling) in source selection.

DoD Response: The factors and subfactors used in evaluating offerors during source selection reflect the specific procurement being undertaken and, therefore, vary from procurement to procurement. Specific credits or points are not assigned to any of these factors/subfactors. Rather, they are weighted to reflect their importance. As stated in FAR 15.101, Best value continuum:

``An agency can obtain best value in negotiated acquisitions by using any one or a combination of source selection approaches. In different types of acquisitions, the relative importance of cost or price may vary. For example, in acquisitions where the requirement is clearly definable and the risk of unsuccessful contract performance is minimal, cost or price may play a dominant role in source selection. The less definitive the requirement, the more development work required, or the greater the performance risk, the more technical or past performance considerations may play a dominant role in source selection.''

In major weapons systems acquisition, past performance will obviously be a factor, as will technical expertise, cost, and schedule. Other elements such as small business goals and purchase of U.S. machine tools will also be factors for consideration. The relative weights for these factors will vary. None will be assigned a specific ``credit'' or ``measurable standard.''

In addition to the change described in the response to Comment 4, the final rule excludes the phrase ``and use'' from the text at 215.304(c)(ii) and 216.470(a)(1) to more closely conform to the language of Section 822 of the National Defense Authorization Act for Fiscal Year 2004.

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. A copy of the analysis may be obtained from the point of contact specified herein. The analysis is summarized as follows:

The objective of the rule is to increase the purchase of capital assets (including machine tools) manufactured in the United States. The rule implements 10 U.S.C. 2436, as added by Section 822 of the National Defense Authorization Act for Fiscal Year 2004. Most prime contractors for major defense acquisition programs are large business concerns. However, the rule is expected to have a positive impact on small business manufacturers of machine tools and other capital assets used in major defense acquisition programs, as their sales to DoD prime contractors should increase. There were no issues raised by the public comments in response to the initial regulatory flexibility analysis. As a result of public comments received in response to the interim rule, the final rule contains changes that strengthen the requirement for consideration of the purchase of capital assets manufactured in the United States under contracts for major defense acquisition programs.

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 Parts 215 and 216

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

Accordingly, the interim rule amending 48 CFR parts 215 and 216, which was published at 70 FR 29643 on May 24, 2005, is adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 215 and 216 continues to read as follows:

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

PART 215--CONTRACTING BY NEGOTIATION

2. Section 215.304 is amended by revising paragraph (c)(ii) to read as follows:

215.304 Evaluation factors and significant subfactors.

(c) * * *

(ii) In accordance with 10 U.S.C. 2436, consider the purchase of capital assets (including machine tools) manufactured in the United States, in source selections for all major defense acquisition programs as defined in 10 U.S.C. 2430.

PART 216--TYPES OF CONTRACTS

3. Section 216.470 is amended by revising paragraph (a)(1) to read as follows:

216.470 Other applications of award fees.

* * * * *

(a) * * *

(1) Purchase of capital assets (including machine tools) manufactured in the United States, on major defense acquisition programs; or

* * * * *

[Federal Register: March 21, 2006 (Volume 71, Number 54)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 203, 207, 209, 229, and 252

Defense Federal Acquisition Regulation Supplement; Technical Amendments

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

ACTION: Final rule.

SUMMARY: DoD is making technical amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) to add references to the DFARS companion resource, Procedures, Guidance, and Information (PGI).

DATES: Effective Date: March 21, 2006.

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

List of Subjects in 48 CFR Parts 203, 207, 209, 229, and 252

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

Therefore, 48 CFR parts 203, 207, 209, 229, and 252 are amended as follows:

1. The authority citation for 48 CFR parts 203, 207, 209, 229, and 252 continues to read as follows:

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

PART 203--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST

2. Section 203.570-1 is revised to read as follows:

203.570-1 Scope.

This subpart implements 10 U.S.C. 2408. For information on 10 U.S.C. 2408, see PGI 203.570-1.

PART 207--ACQUISITION PLANNING

3. Section 207.105 is amended by adding paragraph (b)(19)(F) to read as follows:

207.105 Contents of written acquisition plans.

* * * * *

(b) * * *

(19) * * *

(F) CONUS Antiterrorism Considerations. Follow the procedures at PGI 207.105(b)(19)(F) for consideration of antiterrorism measures in acquisition planning.

PART 209--CONTRACTOR QUALIFICATIONS

4. Section 209.105-1 is added to read as follows:

209.105-1 Obtaining information.

For guidance on using the Excluded Parties List System, see PGI 209.105-1.

PART 229--TAXES

5. Section 229.101 is amended by revising paragraph (a) and adding paragraph (b) to read as follows:

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. For additional information on the designated legal counsels, see PGI 229.101(a).

(b) For information on fuel excise taxes, see PGI 229.101(b).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

252.225-7043 [Amended]

6. Section 252.225-7043 is amended as follows:

a. By revising the clause date to read ``(Mar 2006)''; and

b. In paragraph (d), by removing ``225.7401'' and adding in its place ``PGI 225.7403-1''.

END OF DCN 20060321