DFARS CHANGE NOTICE 20060412

[Federal Register: April 12, 2006 (Volume 71, Number 70)]

[Rules and Regulations]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 222

[DFARS Case 2003-D019]

Defense Federal Acquisition Regulation Supplement; Labor Laws

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 text regarding the application of labor laws to Government contracts. This rule is a result of a transformation initiative undertaken by DoD to dramatically change the purpose and content of the DFARS.

DATES: Effective Date: April 12, 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) 602-0326; facsimile (703) 602-0350. Please cite DFARS Case 2003-D019.

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 DFARS changes--

Update text addressing labor requirements and labor relations matters that affect DoD contracts; and

Delete text addressing procedures for referral of labor relations matters to the appropriate authorities; for reporting labor disputes and the impact of those disputes on DoD requirements; for conducting investigations of suspected violations of labor standards; and for preparation of notices and waiver requests relating to certain labor requirements. Text on these subjects 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 70 FR 39978 on July 12, 2005. DoD received no comments on the proposed rule. DoD has adopted the proposed rule as a final rule, with an additional relocation of internal DoD reporting requirements, from DFARS 222.101-3 to 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 the rule updates and streamlines DFARS text, but makes no significant change to DoD contracting policy or the application of labor laws to DoD 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 Part 222 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 222 is amended as follows:

PART 222--APPLICATION OF LABOR LAWS TO GOVERNMENT ACQUISITIONS

1. The authority citation for 48 CFR part 222 continues to read as follows:

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

2. Section 222.101-1 is revised to read as follows:

222.101-1 General.

Follow the procedures at PGI 222.101-1 for referral of labor relations matters to the appropriate authorities.

3. Section 222.101-3 is revised to read as follows:

222.101-3 General.

Follow the procedures at PGI 222.101-3 for reporting labor disputes.

4. Section 222.101-3-70 is revised to read as follows:

222.101-3-70 Impact of labor disputes on defense programs.

(a) Each department and agency shall determine the degree of impact of potential or actual labor disputes on its own programs and requirements. For guidance on determining the degree of impact, see PGI 222.101-3-70(a).

(b) Each contracting activity shall obtain and develop data reflecting the impact of a labor dispute on its requirements and programs. Upon determining that the impact of the labor dispute is significant, the head of the contracting activity shall submit a report of findings and recommendations to the labor advisor in accordance with departmental procedures. This reporting requirement is assigned Report Control Symbol DD-AT&L(AR)1153 and must include the information specified at PGI 222.101-3-70(b).

5. Section 222.101-4 is amended by revising paragraph (a)(ii) to read as follows:

222.101-4 Removal of items from contractors' facilities affected by work stoppages.

(a) * * *

(ii) Upon the recommendation of the labor advisor, provide a written request for removal of the material to the cognizant contract administration office. Include in the request the information specified at PGI 222.101-4(a)(ii).

* * * * *

6. Section 222.102-1 is revised to read as follows:

222.102-1 Policy.

(1) Direct all inquiries from contractors or contractor employees regarding the applicability or interpretation of Occupational Safety and Health Act (OSHA) regulations to the Department of Labor.

(2) Upon request, provide the address of the appropriate field office of the Occupational Safety and Health Administration of the Department of Labor.

(3) Do not initiate any application for the suspension or relaxation of labor requirements without prior coordination with the labor advisor. Any requests for variances or alternative means of compliance with OSHA requirements must be approved by the Occupational Safety and Health Administration of the Department of Labor.

222.404-2 through 222.404-11 [Removed]

7. Sections 222.404-2 through 222.404-11 are removed.

8. Section 222.406-8 is amended by revising paragraph (a), the heading of paragraph (c), and paragraph (d) to read as follows:

222.406-8 Investigations.

(a) Before beginning an investigation, the investigator shall inform the contractor of the general scope of the investigation, and that the investigation will include examining pertinent records and interviewing employees. In conducting the investigation, follow the procedures at PGI 222.406-8(a).

(c) Contractor notification.

* * * * *

(d) Contracting officer's report. Forward a detailed enforcement report or summary report to the agency head in accordance with agency procedures. Include in the report, as a minimum, the information specified at PGI 222.406-8(d).

222.407 [Removed]

9. Section 222.407 is removed.

222.804 through 222.805 [Removed]

10. Sections 222.804 through 222.805 are removed.

11. Section 222.807 is revised to read as follows:

222.807 Exemptions.

(c) Follow the procedures at PGI 222.807(c) when submitting a request for an exemption.

222.1003-7 [Removed]

12. Section 222.1003-7 is removed.

13. Section 222.1008-2 is revised to read as follows:

222.1008-2 Preparation of SF 98a.

Follow the procedures at PGI 222.1008-2 regarding use of the Service Contract Act Directory of Occupations when preparing the SF 98a.

14. Section 222.1014 is revised to read as follows:

222.1014 Delay of acquisition dates over 60 days.

Follow the procedures at PGI 222.1014 for submission of update requests to the Wage and Hour Division.

15. Subpart 222.13 is revised to read as follows:

Subpart 222.13--Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans

Sec.

222.1305 Waivers.

222.1308 Complaint procedures.

222.1310 Solicitation provision and contract clauses.

Subpart 222.13--Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans

222.1305 Waivers.

(c) Follow the procedures at PGI 222.1305(c) for submission of waiver requests.

222.1308 Complaint procedures.

The contracting officer shall--

(1) Forward each complaint received as indicated in FAR 22.1308; and

(2) Notify the complainant of the referral. The contractor in question shall not be advised in any manner or for any reason of the complainant's name, the nature of the complaint, or the fact that the complaint was received.

222.1310 Solicitation provision and contract clauses.

(a)(1) Use of the clause at FAR 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, with its paragraph (c), Listing Openings, also satisfies the requirement of 10 U.S.C. 2410k.

16. Section 222.1406 is revised to read as follows:

222.1406 Complaint procedures.

The contracting officer shall notify the complainant of such referral. The contractor in question shall not be advised in any manner or for any reason of the complainant's name, the nature of the complaint, or the fact that the complaint was received.

222.7100 and 222.7200 [Removed]

17. Sections 222.7100 and 222.7200 are removed.

[Federal Register: April 12, 2006 (Volume 71, Number 70)]

[Rules and Regulations]

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

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 212

[DFARS Case 2003-D106]

Defense Federal Acquisition Regulation Supplement; Transition of Weapons-Related Prototype Projects to Follow-On Contracts

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 847 of the National Defense Authorization Act for Fiscal Year 2004. Section 847 authorizes DoD to carry out a pilot program that permits the use of streamlined contracting procedures for the production of items or processes begun as prototype projects under other transaction agreements.

DATES: Effective Date: April 12, 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 2003-D106.

SUPPLEMENTARY INFORMATION:

A. Background

DoD published an interim rule at 69 FR 63329 on November 1, 2004, to implement Section 847 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). Section 847 authorizes DoD to carry out a pilot program for follow-on contracting for the production of items or processes begun as prototype projects under other transaction agreements. Contracts and subcontracts awarded under the program may be treated as those for the acquisition of commercial items; and items or processes acquired under the program may be treated as developed in part with Federal funds and in part at private expense for purposes of negotiating rights in technical data.

One association submitted comments on the interim rule. A discussion of the comments is provided below.

1. Comment: Definition of nontraditional defense contractor. The respondent noted that the definition in the rule is consistent with the statutory definition at 10 U.S.C. 2173, but stated that the term ``performed on'' in paragraph (2) of the definition could be interpreted to include commercial subcontractors that ``performed on'' traditional defense contractors' prime contracts; this would inappropriately exclude those contractors from the pilot program. The respondent recommended revising paragraph (2)(ii) of the definition to clarify that only contracts with Federal agencies subject to the FAR for both prototype projects and basic, applied, or advanced research projects will be considered in the determination of a nontraditional defense contractor, because the current language could be interpreted to include contracts not subject to the FAR.

DoD Response: The definition in the DFARS rule is consistent with the definition provided in the statute, and the terminology referenced by the respondent (i.e., ``performed on'') is identical to terminology used by DoD in related longstanding policy and guidance (e.g., DoD's audit policy for prototype projects that use other transaction authority (32 CFR part 3) and DoD's Other ransactions Guide for Prototype Projects). DoD is unaware of any issues with its interpretation and believes that revising the definition could cause unnecessary confusion. If a contractor has entered into another transaction agreement and has not, for a period of at least 1 year prior to the date of the other transaction agreement, been a direct party to a contract (prime or subcontract) that was subject to full cost accounting standards coverage or one that exceeded $500,000 to carry out prototype projects or to perform basic, applied, or advanced research projects for a Federal agency that is subject to the FAR, the contractor qualifies as a nontraditional defense contractor.

2. Comment: Qualifying subcontracts. The respondent stated that the interim rule incorrectly interprets the statute to mean that both the prime contract and the subcontract must qualify in order for the subcontract to be treated as a subcontract for a commercial item.

DoD Response: The statute does not require that the prime contract also qualify; it only requires that the prime contract be a contract for the prototype items or processes, which means a prime contract that includes the prototype item or process, rather than one that is only for the prototype items or processes. DoD has amended the rule to be consistent with the statute.

3. Comment: Guidance on using fixed-price contracts. The respondent stated that the use of firm-fixed-price contracts or fixed-price contracts with economic price adjustment, as required by the statute, can be very difficult for the first production contract and recommended providing high level guidance for (i) adequately defining performance, including addressing difficult-to-quantify risks expressly; (ii) using interim fixed-price milestones and considering allowing later milestones to be priced during performance as more knowledge is gained; and (iii) ensuring that payments, including incentives, are linked to achieving clearly defined cost and technical performance objectives.

DoD Response: Issues related to contract type are not unique to the

application of this statutory authority and are outside the scope of

this case.

4. Comment: Treating intellectual property flexibly. The respondent stated that the final rule should expressly state that the statute reconfirms the existing authority at DFARS 227.7103-5(d) and 227.7103-1(a), since contracting officers already have the authority to negotiate the minimum rights needed to satisfy the agency's needs. The respondent also stated that the final rule should expressly state that contractors are not required to change their accounting practices if the Government uses this authority to agree to deem the funding mixed, since the fact that the contractor allocates no private funding to a ``deemed'' mixed funding project should not be grounds to question costs or the ``deemed'' mixed funding status.

DoD Response. DoD does not believe it is necessary to expressly reconfirm this policy. However, DoD has amended the rule to add cross-references to the appropriate sections. Adding these cross-references introduced some potential confusion regarding the distinction between delivery requirements and license rights. To clarify this distinction, the text on delivery requirements (at 212.7003(d) of the interim rule) has been relocated to 212.7003(a), including cross-references; and the text on license rights in 212.7003 has been included in a new paragraph (b). To further clarify that 212.7003 covers both delivery requirements and license rights, additional changes were made to the heading and introductory text of 212.7003, and to the cross-references in 212.7002-1(b) and 212.7002-2(b).

It is unnecessary to expressly state that contractors are not required to change their accounting practices when the Government uses this statutory authority, and the statute does not mandate that these technologies will be ``deemed'' as mixed funding in all cases. However, the comment highlights potential confusion created by the interim rule using the statute's permissive statement that data/software acquired under contracts awarded using this authority ``may be treated'' as mixed funding (former 212.7003 introductory text), combined with imperative language that directs negotiation of special license rights ``* * * in view of the parties'' relative contributions to the development of the items or processes'' (former 212.7003(d)). To clarify the intent of the rule, the introductory text at 212.7003 has been revised to state that there shall be a rebuttable presumption of mixed funding, and 212.7003(b)(4) has been revised to specify when special license rights should be negotiated, with cross-references to the existing DFARS policy regarding such negotiations. This approach preserves many of the efficiencies of the ``normal'' procedures for acquiring commercial technologies (e.g., a rebuttable presumption regarding the most likely funding profiles and their associated license rights), while preserving the parties' ability to establish more appropriate license rights when the presumption is not accurate or equitable (e.g., by negotiating special license rights, or by using the validation of restrictive marking procedures).

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 rule amends the DFARS to implement Section 847 of the National Defense Authorization Act for Fiscal Year 2004. Section 847 authorizes DoD to carry out a pilot program for follow-on contracting for the production of items or processes begun as prototype projects under other transaction agreements. Contracts and subcontracts awarded under the program may be treated as those for the acquisition of commercial items; and items or processes acquired under the program may be treated as developed in part with Federal funds and in part at private expense

for purposes of negotiating rights in technical data.

DoD received no public comments with regard to the impact of the rule on small entities. As a result of comments received on other aspects of the interim rule, the final rule contains changes that clarify the types of subcontracts that may be treated as ``commercial'' under the pilot program, and contains changes that clarify the distinction between delivery requirements and license rights for technical data and computer software for items or processes acquired under the program.

The commercial procedures authorized by the rule are intended to ease the transition of nontraditional defense contractors from other transactions agreements to standard DoD contracts and, therefore, are expected to improve opportunities for such entities to receive DoD contract awards. In fiscal year 2005, DoD awarded 78 other transaction agreements totaling $150 million in value. Of these, 22 were awarded to small business concerns, totaling approximately $40 million in value.

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

Accordingly, the interim rule amending 48 CFR part 212, which was published at 69 FR 63329 on November 1, 2004, is adopted as a final rule with the following changes:

PART 212--ACQUISITION OF COMMERCIAL ITEMS

1. The authority citation for 48 CFR part 212 continues to read as follows:

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

2. Section 212.7002-1 is amended by revising paragraph (b) to read as follows:

212.7002-1 Contracts under the program.

* * * * *

(b) See 212.7003 for special procedures pertaining to technical data and computer software.

3. Sections 212.7002-2 and 212.7003 are revised to read as follows:

212.7002-2 Subcontracts under the program.

(a) A subcontract for an item or process that does not meet the definition of ``commercial item'' may be treated as a subcontract for a commercial item, if the subcontract--

(1) Is for the production of an item or process begun as a prototype project under an other transaction agreement;

(2) Does not exceed $50,000,000;

(3) Is awarded on or before September 30, 2008;

(4) Is awarded to a nontraditional defense contractor; and

(5) Is either--

(i) A firm-fixed-price subcontract; or

(ii) A fixed-price subcontract with economic price adjustment.

(b) See 212.7003 for special procedures pertaining to technical data and computer software.

212.7003 Technical data and computer software.

For purposes of establishing delivery requirements and license rights for technical data under 227.7102 and for computer software under 227.7202, there shall be a rebuttable presumption that items or processes acquired under a contract or subcontract awarded in accordance with 212.7002 were developed in part with Federal funds and in part at private expense (i.e., mixed funding).

(a) Delivery requirements. Acquire only the technical data and computer software that are necessary to satisfy agency needs. Follow the requirements at 227.7103-1 and 227.7103-2 for technical data, and 227.7203-1 and 227.7203-2 for computer software.

(b) License rights. Acquire only the license rights in technical data and computer software that are necessary to satisfy agency needs.

(1) For technical data, use the clauses at 252.227-7013, Rights in Technical Data--Noncommercial Items, and 252.227-7037, Validation of Restrictive Markings on Technical Data.

(2) For computer software, use the clauses at 252.227-7014, Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation, and 252.227-7019, Validation of Asserted Restrictions--Computer Software.

(3) Require the contractor to include the clauses prescribed by paragraphs (b)(1) and (2) of this section in subcontracts awarded in accordance with 212.7002-2.

(4) When the standard license rights for items or processes developed with mixed funding do not provide the minimum rights necessary to satisfy agency needs, negotiate for special license rights in accordance with 227.7103-5(d) and 227.7203-5(d).

[Federal Register: April 12, 2006 (Volume 71, Number 70)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225, 229, and 252

[DFARS Case 2004-D012]

Defense Federal Acquisition Regulation Supplement; Prohibition of Foreign Taxation on U.S. Assistance Programs

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

ACTION: Final rule

SUMMARY: DoD has adopted as final, without change, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a statutory prohibition on foreign taxation under contracts funded by U.S. assistance programs. The rule addresses the responsibilities of the contractor and the contracting officer regarding the prohibition.

DATES: Effective Date: April 12, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Debra Overstreet, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0310; facsimile (703) 602-0350. Please cite DFARS Case 2004-D012.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 70 FR 57191 on September 30, 2005, to implement Section 579 of Division E of the Consolidated Appropriations Act, 2003 (Pub. L. 108-7); Section 506 of Division D of the Consolidated Appropriations Act, 2004 (Pub. L. 108-199); and Section 506 of Division D of the Consolidated Appropriations Act, 2005 (Pub. L. 108-447). These statutes require that a bilateral agreement providing for U.S. assistance to a foreign country must specify that the U.S. assistance shall be exempt from taxation by the foreign government. Therefore, the foreign government is prohibited from imposing taxes on commodities acquired under contracts funded by such U.S. assistance. This DFARS rule addresses the responsibilities of the contractor and the contracting officer regarding the prohibition.

DoD received no comments on the interim rule. Therefore, DoD has adopted the interim 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 administrative notification requirements of the rule are expected to affect less than 10 contracts per year.

C. Paperwork Reduction Act The information collection requirements of the rule do not reach the threshold for requiring Office of Management and Budget approval under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 225, 229, and 252

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

Interim Rule Adopted as Final Without Change

Accordingly, the interim rule amending 48 CFR parts 225, 229, and 252, which was published at 70 FR 57191 on September 30, 2005, is adopted as a final rule without change.

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 232 and 252

[DFARS Case 1990-037]

Defense Federal Acquisition Regulation Supplement; Incremental Funding of Fixed-Price Contracts

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 address the use of incrementally funded fixed-price contracts. The rule contains a contract clause for use in those situations where incremental funding of fixed-price contracts is permitted.

DATES: Effective Date: April 12, 2006.

FOR FURTHER INFORMATION CONTACT: Mr. Bill Sain, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-2022; facsimile (703) 602-0350. Please cite DFARS Case 1990-037.

SUPPLEMENTARY INFORMATION:

A. Background This rule revises and finalizes the interim rule published at 58 FR 46091 on September 1, 1993, regarding incremental funding of fixed-price contracts. Prior to the issuance of the interim rule, incrementally funded fixed-price contracts had been used in limited situations throughout DoD for a number of years. This technique permitted DoD to award fixed-price contracts in specific circumstances where full funding was not available and incremental funding was statutorily permitted. Use of this technique precluded the need to use a cost-type contract when the nature of the requirement was more suitable for a fixed-price contract. To implement this technique, a number of nonstandard clauses had been developed for use within the military departments and defense agencies. In recognition of the need for a standard clause for such contracts, DoD issued an interim rule to specify those situations where incremental funding of fixed-price contracts is permitted. Six sources submitted comments on the interim rule. The following is a discussion of the comments and the issues relating to the development of the final rule.

1. Language permitting use of incremental funding. The interim rule permitted the use of incremental funding only when the contract was funded with research and development appropriations or when Congress had otherwise authorized incremental funding. The interim rule further required that, for either base services or hazardous/toxic waste remediation contracts for which incremental funding had been authorized by Congress, the head of the contracting activity must approve the use of incremental funding. A number of respondents expressed concern regarding this language.

DoD has revised the rule to specifically address contracts for severable services. As provided for in DFARS 232.703-3, contracts crossing fiscal years, the contracting officer may enter into a contract, exercise an option, or place an order under a contract for severable services for a period that begins in one fiscal year and ends in the next fiscal year if the period of the contract awarded, option exercised, or order placed does not exceed one year (10 U.S.C. 2410a). The public comments indicated that this provision may cause confusion with regard to the use of incremental funding for severable services. Therefore, the final rule contains a new paragraph 232.703-1(i) to specifically address incremental funding for severable services.

2. Head of the contracting activity (HCA) approval. The interim rule required the HCA to approve interim funding for base services and hazardous/toxic waste remediation contracts. DoD believes that the language in the final rule precludes the need for HCA approval. In those cases where incremental funding has been authorized by Congress, the contracting officer should have the flexibility to use such funding without requiring the administrative burden of obtaining HCA approval. This is consistent with the DoD policy of empowering contracting personnel to the maximum extent practicable. The final rule is sufficient for the contracting officer to apply the requirements without further approval, as the rule specifies exactly which contracts are eligible for incremental funding. The final rule also emphasizes the preference for full funding by requiring that incrementally funded fixed-price contracts be fully funded as soon as funds are available. Therefore, the final rule eliminates the requirement for HCA approval for base services or hazardous/toxic waste remediation contracts.

3. Work without funding. One respondent asserted that the clause at DFARS 252.232-7007 encourages contractors to work without funding. The respondent stated that the clause is intended as a vehicle for contracting officers to circumvent the Anti-Deficiency Act.

Under the requirements of DFARS 252.232-7007, the contractor agrees to perform up to the point at which the total amount payable by the Government, including reimbursement in the event of termination for convenience, approximates the total amount allotted to the contract; the contractor is not obligated to continue work on those items beyond that point, and the Government is not obligated to reimburse the contractor in excess of the amount allotted to the contract. The clause notifies the contractor that continuing work is at the sole risk of the contractor. Thus, the clause is not, nor is it intended to be, a vehicle for violating the Anti-Deficiency Act. Nevertheless, DoD agrees that it would be helpful to revise the language regarding continued contract performance to emphasize that the contractor is not authorized to continue work. Therefore, the final rule changes the phrase ``The Contractor will not be obligated to continue work'' to ``The Contractor is not authorized to continue work''. In addition, the final rule redesignates paragraph (i) of the clause as paragraph (j) and adds a new paragraph (i) to read ``Nothing in this clause shall be construed as authorization of voluntary services whose acceptance is otherwise prohibited under 31 U.S.C. 1342.''

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 rule amends the DFARS to allow incrementally funded fixed-price contracts in certain limited, and clearly defined, situations. The objective of the rule is to encourage the full funding of contracts, while recognizing that there are specific situations where full funding is not possible, and allowing incremental funding to be used in those situations. DoD received no public comments on the initial regulatory flexibility analysis. As a result of comments received on the interim rule, the final rule contains changes that clarify the applicability of the rule and the requirements of the contract clause. The rule applies to all entities with incrementally funded fixed-priced DoD contracts. DoD believes that the rule has little or no economic impact on such entities, since the rule places little cost risk on the contractor. This is especially true of the final rule, which includes revisions that clarify that a contractor is not authorized to continue performance of a contract beyond the amount incrementally funded. The final rule maintains the clear preference for fully funded fixed-priced contracts; and requires the use of a standard clause in clearly defined and limited circumstances permitting DoD to award, and the contractor to begin work under, a contract prior to the availability of full funding. The rule requires that full funding be placed on the contract as soon as funds are available; clearly states that the contractor is not authorized to perform work beyond the available funds allotted to the contract; and provides specific protections to the contractor until full funding is made available. The rule requires the contractor to notify the contracting officer at least 90 days prior to the date when, in the contractor's best judgment, the work under the contract will reach the point at which the total amount payable by the Government, including any cost for termination for convenience, will approximate 85 percent of the total amount allotted to the contract. In addition, the contractor must provide information regarding additional funding needed to continue performance. This information is the minimum needed for the Government to determine the appropriate course of action. The required information should be readily available to the contractor as part of its normal business practices. The policy in the final rule is designed to minimize any economic impact on small entities. There are no practical alternatives to the rule. The rule is consistent with statutory requirements.

C. Paperwork Reduction Act The information collection requirements of the clause at DFARS 252.232-7007, Limitation of Government's Obligation, have been approved by the Office of Management and Budget under Clearance Number 0704-0359 for use through December 31, 2007.

List of Subjects in 48 CFR Parts 232 and 252 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System.

Accordingly, the interim rule amending 48 CFR Parts 232 and 252, which was published at 58 FR 46091 on September 1, 1993, is adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 232 and 252 continues to read as follows:

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

PART 232--CONTRACT FINANCING

2. Section 232.001 is added to read as follows:

232.001 Definitions.

Incremental funding means the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time.

3. Section 232.703-1 is revised to read as follows:

232.703-1 General.

(1) A fixed-price contract may be incrementally funded only if--

(i) The contract (excluding any options) or any exercised option--

(A) Is for severable services;

(B) Does not exceed one year in length; and

(C) Is incrementally funded using funds available (unexpired) as of the date the funds are obligated; or

(ii) The contract uses funds available from multiple (two or more) fiscal years and--

(A) The contract is funded with research and development appropriations; or

(B) Congress has otherwise authorized incremental funding.

(2) An incrementally funded fixed-price contract shall be fully funded as soon as funds are available.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

4. Section 252.232-7007 is amended as follows:

a. By revising the clause date;

b. In paragraph (b), by revising the second sentence;

c. By revising paragraph (i); and

d. By adding paragraph (j) to read as follows:

252.232-7007 Limitation of Government's Obligation.

* * * * *

LIMITATION OF GOVERNMENT'S OBLIGATION (APR 2006)

* * * * *

(b) * * * The Contractor is not authorized to continue work on those item(s) beyond that point. * * *

* * * * *

(i) Nothing in this clause shall be construed as authorization of voluntary services whose acceptance is otherwise prohibited under 31 U.S.C. 1342.

(j) The parties contemplate that the Government will allot funds to this contract in accordance with the following schedule:

On execution of contract $----

(month) (day), (year) $----

(month) (day), (year) $----

(month) (day), (year) $----

* * * * *

END OF DCN 20060412