DFARS CHANGE NOTICE 20100408

FR Doc 2010-7261[Federal Register: April 8, 2010 (Volume 75, Number 67)]

[Rules and Regulations]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 206, 225, and 252

Defense Federal Acquisition Regulation Supplement; Acquisitions in Support of Operations in Iraq or Afghanistan (DFARS Case 2008-D002)

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

ACTION: Final rule.

SUMMARY: DoD is adopting as final, with minor changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement sections 886 and 892 of the National Defense Authorization Act for Fiscal Year 2008. Section 886 provides authority for DoD to limit competition when acquiring products or services in support of operations in Iraq or Afghanistan. Section 892 addresses competition requirements for the procurement of small arms for assistance to Iraq or Afghanistan.

DATES: Effective Date: April 8, 2010.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, 703-602-0328.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 73 FR 53151 on September 15, 2008, to implement sections 886 and 892 of the National Defense Authorization Act for Fiscal Year 2008. The comment period closed on November 14, 2008. Four respondents provided comments. In consideration of the public comments received, several changes were made in developing the final rule.

The final rule:

Clarifies applicability of the trade agreements (see response to comment 3.a.)

Includes a modified definition of ``service from Iraq or Afghanistan'' in the prescribed clauses, so that it reads ``a service (including construction) that is performed in Iraq or Afghanistan. * * *''. (See the DoD response to comment 4.c.)

Adds the Commander of the Joint Contracting Command--Iraq/Afghanistan as an official authorized to make a determination that applies to an individual acquisition with a value of $78.5 million or more, or to a class of acquisitions.

DoD received comments from four persons or organizations in response to the interim rule (available on the Web at regulations.gov). The comments are grouped into the following categories:

1. Concern for U.S. industrial base.

2. Concern for industrial base of Iraq and Afghanistan.

3. Applicability of trade agreements.

4. Definitions relating to sources, products, and services from Iraq or Afghanistan.

5. Clarification of contracting officer flexibility with regard to the evaluation factor.

6. Decision authority no higher than head of the contracting activity.

7. Justification for issuing an interim rule.

The following is a discussion of the comments and the changes included in this final rule as a result of the public comments:

1. Concern for the U.S. Industrial Base

a. Two respondents disagreed with the proposed DFARS statement in 225.7703-2(b)(1)(ii)(B) that the authorizing official may generally presume that there will not be an adverse effect on the U.S. industrial base as a result of using one of the procedures authorized by section 886. They advocated a change that would require that the effect on the U.S. industrial base should be considered in each contracting action, and should be presumed adverse unless otherwise documented.

Response: The industrial base supporting defense is a vehicle for achieving the ultimate objective of the Department of Defense--the development, production, and support of defense materiel necessary to provide for the nation's defense. Accordingly, DoD's overarching objective is to ensure it has access to reliable and cost-effective industrial capabilities sufficient to meet current and projected military requirements. When considering a contract's potential impact on the U.S. industrial and technological base, DoD focuses on ensuring that the contract does not result in the loss of industrial or technological capabilities essential for the nation's defense. It is extremely unlikely--because of both the relatively small size of such U.S.-funded procurements and the specific products/services associated with such U.S.-funded procurements--that any contracts issued for products or services to be used for the military forces, police, or other security personnel of Iraq or Afghanistan would result in the loss of industrial or technological capabilities essential for the nation's defense.

Additionally, utilization of non-U.S. sources for the products or services likely to be acquired for the military/security forces of Iraq and Afghanistan with U.S. funds will generally not impact the economic viability of individual elements of the U.S. national technology and industrial base because of the relatively small values of such acquisitions. To demonstrate, the first quarterly report to Congress in response to section 886 of the Fiscal Year 2008 NDAA reported 91 percent of actions (there were 22 total actions with 11 different contractors) using section 886 authority were for construction/repair or services. The two supply items were for billboards for a total of $73 million. DoD has a relatively small role in the overall U.S. economy. In 2008, the total of all DoD budget authority represented only about 4 percent of the gross domestic product. Especially in dual-use market segments, DoD's influence is very small. Additionally, DoD purchases non-U.S. materiel very judiciously; and the transactions contemplated here likely will be even smaller in value. For example--

As reported to Congress in its September 2008 report ``Foreign Sources of Supply,'' in Fiscal Year 2007, DoD awarded contracts to foreign suppliers for defense items and components totaling approximately $1.57 billion, less than one-half of one percent of all DoD contracts; and only about 1.5 percent of all DoD contracts for defense items and components. The remaining 99.5 percent of all DoD contracts and 98.5 percent of all DoD contracts for defense items and components were awarded to U.S. prime contractors.

As reported to Congress in its July 2008 report ``Department of Defense Fiscal Year 2007 Purchases of Supplies Manufactured Outside the United States,'' DoD procurement actions in Fiscal Year 2007 totaled approximately $316 billion. Of that amount, approximately $18.9 billion (5.9 percent) was expended on purchases from foreign entities. ``Weapons'' purchases totaled $106.13 million (0.57 percent) and ``subsistence'' purchases totaled $84.95 million (0.46 percent).

Finally, DoD notes that both respondents supply rations or other shelf-stable meals. Title 10 United States Code, section 2533a(d) Exception for Certain Procurements provides that requirements to buy food from U.S. suppliers are excepted for procurements outside the United States in support of combat operations. The Congress has recognized that even food for U.S. Service members need not be procured from U.S. sources when the procurements take place outside the United States and are in support of combat operations.

Therefore, an authorizing official's presumption of no adverse impact on the U.S. industrial base is an appropriate posture. In the event of uncertainty, DFARS 225.7703-2(b)(1)(ii)(B) would require that the authorizing official coordinate with the applicable subject matter expert. This is reasonable and would protect industrial and technological capabilities essential for U.S. defense in those rare cases where contemplated procurements could have a negative impact.

b. Comment: Two respondents believed that DoD should require evaluation of the impact on the U.S. industrial base for each acquisition, whether or not the products or services being acquired are to be used only by the military forces, police, or other security personnel of Iraq or Afghanistan.

Response: According to subsection (b)(1) of section 886, a determination that the products or services being acquired are to be used only by the military forces, police, or other security personnel of Iraq or Afghanistan is adequate to support use of the procedures authorized by subsection (a). The interim rule at DFARS 225.7703-2(a) implements the law appropriately by not requiring an assessment of the impact on the industrial base in such cases.

c. Comment: Two respondents requested that DoD define ``U.S. industrial base'' for the purpose of this DFARS rule narrowly enough for the impact analysis to be meaningful (e.g., as all potential U.S. contractors and subcontractors of the same or similar end product).

Response: DoD does not consider it necessary for DFARS subpart 225.77 to define ``U.S. industrial base'', nor does DoD agree that the suggested definition would be appropriate. As indicated in the response to comment 1.a., when considering a contract's potential impact on the U.S. industrial and technological base, DoD focuses on ensuring that the contract does not result in the loss of industrial or technological capabilities essential for the nation's defense. For this purpose, the term ``U.S. industrial base'' is sufficiently clear without being defined. Also, for this purpose, ``U.S. industrial base'' has a broad meaning and not the narrow meaning suggested by the respondents. U.S.-funded procurements of products or services in support of military or stability operations in Iraq or Afghanistan are not likely to result in the loss of industrial or technological capabilities essential for the nation's defense.

d. Comment: Two respondents requested that DoD define ``adversely affected'' for the purpose of the industrial base evaluation required by this DFARS rule. According to these respondents, the definition should include loss of volume for prime contractors and their supplier networks and loss of key suppliers due to reduced volume of purchases.

Response: ``Adversely affected,'' the terminology used in section 886, is sufficiently clear to enable the type of assessment required by section 886. The term does not need to be defined in DFARS subpart 225.77.

e. Comment: Two respondents recommended that DoD should not allow performance requirements to be reduced to match the potential (local) bidders' capabilities.

Response: The interim rule does not regulate the development of performance requirements. Operational users and program managers are responsible for defining requirements, and contracting officers are responsible for awarding and managing contracts that will satisfy those requirements.

f. Comment: Two respondents stated that U.S. competitors should not be excluded from any contracting action, i.e., should be allowed to participate in every procurement conducted using a procedure authorized by section 886.

Response: If the DFARS were changed as suggested, it would not include two procedures specifically authorized by section 886, and, therefore, would deprive DoD contracting officers of the flexibility provided and intended by the law. Section 886(a) authorizes two procedures that, if used, preclude U.S. firms from competing: Competition limited to products or services that are from Iraq or Afghanistan (subsection (a)(1)), and a procedure other than a competitive procedure used to award to a particular source or sources from Iraq or Afghanistan (subsection (a)(2)). Conference Report 110-477 explains that the legislation's purpose is to provide a stable source of jobs and employment in Iraq and Afghanistan in cases where the preference will not have an adverse effect on U.S. military operations or the U.S. industrial base. The interim rule, as written, appropriately implements the law and facilitates achievement of the law's intended purpose.

g. Comment: One respondent recommended that DoD should not apply the 50 percent penalty in 225.7703-1(a) to offers of U.S. products. In the respondent's view, this aspect of the DFARS rule is not stated or inferred in section 886.

Response: Section 886 is specifically intended to provide a stable source of jobs and employment in Iraq and Afghanistan. To that end, it authorizes a preference for, and only for, products or services that are from Iraq or Afghanistan. The 50 percent mark-up applied to offers of products or services that are NOT from Iraq or Afghanistan is the mechanism that provides the intended preference by putting offers of products from other countries, including the U.S., at a competitive disadvantage. If the DFARS were changed so that the mark-up was never applied to offers of U.S. products, the preference intended for Iraqi and Afghani products would also be applied to U.S. products. That would not be consistent with section 886 and would negate significantly the intended boost to the Iraqi and Afghani industrial base.

2. Concern for the Industrial Base of Iraq and Afghanistan

a. Comment: Two respondents recommended changing the interim rule to compel local bidders to work toward creation of a supplier network within Iraq and Afghanistan in order to achieve the goal of section 886. The respondents stated that this could be done by--

(1) Requiring 100 percent of the product to be from Iraq or Afghanistan, without allowances to use non-Iraqi or non-Afghani components (see 252.225-7021(a)(14)(ii)); or

(2) Specifically prohibiting award of contracts to brokers, distributors, and middlemen such that contracts must be awarded to Iraqi/Afghani producers that are part of a true Iraqi or Afghani national industrial base.

Response: The interim rule encourages rather than compels achievement of the goal of section 886, consistent with the authorities provided by section 886. Regarding 2.a.(1), even the Buy American Act allows 50 percent of the value of components of a domestic end product to be of foreign origin. See also the response regarding substantial transformation at paragraph 3.b., below. Regarding 2.a.(2), the interim rule appropriately implements the section 886 focus on products and services from Iraq or Afghanistan rather than on the national affiliation of the entity receiving the contract award. The rule has its intended effect without prohibiting award to brokers, distributors, or middlemen. If a distributor from the U.S. or a third country offers and delivers a ``product from Iraq or Afghanistan,'' as defined in section 886 and the interim rule, the procurement facilitates the development of the industrial base of Iraq or Afghanistan. On the other hand, if a distributor in Iraq or Afghanistan offered and delivered a product from other than Iraq or Afghanistan, the procurement would not strengthen the Iraqi or Afghani industrial base.

b. Comment: Two respondents recommended limiting the percentage of non-Iraqi/non-Afghani components or, alternatively, when evaluating competitive offers of products or services that are not products or services of Iraq or Afghanistan, increasing by 50 percent the prices of all non-Iraqi or non-Afghani raw materials, ingredients, components, and/or items that are part of the end product offered.

Response: Section 886 authorizes a procedure in which a preference is provided for ``products or services'' that are from Iraq or Afghanistan, and goes on to define those terms. The provision at 252.225-7023 and the clause at 252.225-7024 state that the contracting officer will increase by 50 percent the prices of offers of ``products or services'' that are not products or services from Iraq or Afghanistan. (The definition of ``product from Iraq or Afghanistan'' is identical to that in section 886, and the definition of ``service from Iraq or Afghanistan'' adds only the word ``predominantly'' to the definition from section 886.) The comment suggests that the preference be applied not only at the level of products, but also at the level of the raw materials, ingredients, components, and/or items that are part of the end product offered. DoD understands that this would create a greater competitive advantage for products with a higher proportion of Iraqi or Afghani content. However, it would also complicate significantly the rule and the submission and evaluation of offers and probably contribute to lengthening solicitation and evaluation periods. Therefore, DoD has not changed the final rule in response to this comment.

3. Applicability of Trade Agreements

a. Comment: One respondent suggested that the rule should emphasize that acquisitions under the authority of section 886 are exempt from application of the trade agreements.

Response:

i. Acquisitions with a preference for Iraqi or Afghani products. The Trade Agreements Act applies to those acquisitions in which only a preference for Iraqi or Afghani products is imposed, as authorized by 225.7703-1(a)(1). However, based on consultation with legal counsel prior to publishing the interim rule, DoD concluded that when using this new authority to provide a preference for Iraqi products, the Trade Agreements Act purchasing prohibition does not apply with regard to purchases of products or services from Iraq. Afghani end products are already acceptable in any covered procurement because Afghanistan is a ``designated country,'' as that term is defined in FAR 25.003. Therefore, the interim rule provided an Alternate I to the Trade Agreements clause at FAR 52.225-7021, and a new certification to replace the FAR Trade Agreements Certification at 52.225-7020, unless the preference applies only to the products of Afghanistan. ii. Acquisitions that are limited to products or services from Iraq or Afghanistan. FAR 25.401(a)(5) provides that the trade agreements do not apply to acquisitions not using full and open competition, if authorized by subpart 6.2 or 6.3, when the limitation of competition would preclude use of the procedures of subpart 25.4. Although the procedures at 225.7703-1(a)(2) and (a)(3) are not authorized by subpart 6.2 or 6.3, section 886 has provided comparable separate statutory authorization, which precludes the use of the procedures of subpart 25.4, since such application would be inconsistent with implementation of section 886. This principle is implemented at 225.1101(6)(iii)(B), which prohibits use of any Trade Agreements provision or clause, if the clause at 252.225-7026, Acquisition Restricted to Products or Services from Iraq or Afghanistan, is included in the solicitation and contract. However, DoD has further clarified the application of trade agreements in the final rule (see 225.401-71 and 225.7703-5(f)).

b. Comment: Two respondents recommended that DoD should not allow the ``substantial transformation'' test in 252.225-7021(a)(14)(ii) to be applied to contracting actions made under the authority of this DFARS rule.

Response: According to 225.7703-5(d) of the interim rule, contracting officers are to use the appropriate provision and clause when the Trade Agreements Act applies to the acquisition. The ``substantial transformation'' test applies in procurements covered by the Trade Agreements Act. The objective of Alternate I to 252.225-7021 is to enable the purchase of Iraqi (or Afghani) end products in such procurements, not to change the rules, such as the ``substantial transformation'' test, that otherwise apply to such procurements.

4. Definitions Relating to Sources, Products, and Services From Iraq or Afghanistan

a. Comment: One respondent recommended that DoD define or clarify ``located in Iraq or Afghanistan'' as the term is used in the DFARS 225.7701 definition of ``source from Iraq or Afghanistan.''

Response: ``Located in Iraq or Afghanistan'' is self-explanatory and does not require definition or clarification.

b. Comment: One respondent requested that DoD add ``predominantly'' to the definition of ``product from Iraq or Afghanistan.''

Response: The DFARS definition of ``product from Iraq or Afghanistan,'' taken directly from section 886, is ``a product that is mined, produced, or manufactured in Iraq or Afghanistan.'' Without a modifier, the implication is that the end product is entirely mined, produced, or manufactured in Iraq or Afghanistan. A change to ``predominantly mined, produced, or manufactured'' would reduce the standard from the implied ``entirely'' to ``predominantly.'' This would weaken rather than strengthen the effectiveness of the rule in facilitating development of the industrial base of Iraq and Afghanistan. This does not mean that all the components must be from Iraq or Afghanistan. Unlike the Buy American Act definition of ``domestic end product,'' there is no component test in the statutory definition of ``product from Iraq or Afghanistan.'' However, if the Trade Agreements Act applies, the item must be substantially transformed in Iraq or Afghanistan.

c. Comment: One respondent requested that DoD add ``construction'' as a stand-alone type of acquisition, since it does not appropriately fit in either the ``products'' or ``services'' category. Response: The interim rule makes clear that construction is included in the meaning of ``service.'' See DFARS 225.7703-1(a). However, while this is clear in the DFARS text, it is not stated in the clauses. Accordingly, the final rule includes a modified definition of ``service from Iraq or Afghanistan'' in the prescribed clauses, so that it reads ``a service (including construction) that is performed in Iraq or Afghanistan. * * *''. DoD cannot make ``construction'' a stand-alone category because the law provides these special authorizations only for the acquisition of products and services from Iraq or Afghanistan.

5. Clarify Contracting Officer Flexibility With Regard to the Evaluation Factor

Comment: One respondent requested clarification that contracting officers are allowed to determine the percentage evaluation factor to apply to non-local/national products and services and eliminate the 50 percent factor (225.7703-5; 252.225-7023).

Response: The interim rule at 225.7703-5(a)(2) clearly establishes that the contracting officer may modify the 50 percent evaluation factor in accordance with contracting office procedures. This approach is consistent with DFARS writing standards. The provision (252.225-7023) includes a default percentage, and the prescription (225.7703-5(a)) for using the provision enables the contracting officer to modify that percentage. Contracting offices are responsible for establishing procedures to be used for this purpose, and for ensuring contracting officers are aware of the discretion provided by the DFARS and how it can be applied.

6. Decision Authority No Higher Than Head of the Contracting Activity

Comment: One respondent requested that DoD add language to allow the head of the contracting agency, rather than acquisition executives, to make class determinations (225.7703-2).

Response: Although DoD is unwilling to provide this authority to all heads of contracting activities, the draft final rule adds the Commander of the Joint Contracting Command--Iraq/Afghanistan to the list of officials at 225.7703-2(b)(2)(ii) who are authorized, without power of redelegation, to make a determination in accordance with section 886 that applies to an individual acquisition of $78.5 million or more or to a class determination. Decision To Issue an Interim Rule

Comment: One respondent requested explanation of the ``urgent and compelling'' reasons that supported DoD's determination to publish an interim rule rather than a proposed rule.

Response: First, this is a statutory requirement which became effective upon enactment. Further, there was and is an urgent and compelling need to achieve stability in Iraq and Afghanistan. Section 886 authorized the use of procurement procedures that could help provide a stable source of jobs and employment in those countries and as such, the Joint Contracting Command--Iraq/Afghanistan specifically requested immediate guidance on how to implement this section. DoD had an urgent and compelling need to implement section 886 in a way that would enable contracting officers to use the new procedures as soon as possible, and thus facilitate the creation of stable jobs and employment sooner rather than later.

B. Other Changes in the Final Rule

In addition to the written responses posted on regulations.gov, DoD was informed by a telephone caller that Alternate I to DFARS clause 252.225-7021, Trade Agreements, added in the interim rule, was erroneously not added to the listing of that same clause in the commercial items clause at DFARS 252.212-7001, Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items. DoD has corrected this oversight in the final rule.

This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993.

C. 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 does not impose any requirements on small businesses and only impacts acquisitions in Iraq and Afghanistan. There were no comments received on regulatory flexibility in response to the interim rule.

D. 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 206, 225, and 252

Government procurement. Ynette R. Shelkin, Editor, Defense Acquisition Regulations System.

Accordingly, the interim rule amending 48 CFR parts 206, 225, and 252, which was published at 73 FR 53151, September 15, 2008, is adopted as a final rule with the following changes:

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 225.401-71 is revised to read as follows:

225.401-71 Products or services in support of operations in Iraq or Afghanistan.

When acquiring products or services, other than small arms, in support of operations in Iraq or Afghanistan--

(a) If using the procedure specified in 225.7703-1(a)(1), the purchase restriction at FAR 25.403(c) does not apply with regard to products or services from Iraq.

(b) If using a procedure specified in 225.7703-1(a)(2) or (3), the procedures of subpart 25.4 are not applicable.

3. Section 225.7701 is amended by revising the definition of ``service from Iraq or Afghanistan'' to read as follows:

225.7701 Definitions.

* * * * *

Service from Iraq or Afghanistan means a service (including construction) that is performed in Iraq or Afghanistan predominantly by citizens or permanent resident aliens of Iraq or Afghanistan.

* * * * *

4. Section 225.7703-2 is amended by revising paragraph (b)(2)(ii) introductory text and adding new paragraph (b)(2)(ii)(E) to read as follows:

225.7703-2 Determination requirements.

* * * * *

(b) * * *

(2) * * *

(ii) The Director, Defense Procurement and Acquisition Policy, and the following officials, without power of redelegation, are authorized to make a determination that applies to an individual acquisition with a value of $78.5 million or more or to a class of acquisitions:

* * * * *

(E) Commander of the Joint Contracting Command--Iraq/Afghanistan (JCC-I/A).

* * * * *

5. Section 225.7703-4 is amended by revising the introductory text to read as follows:

225.7703-4 Reporting requirement.

The following organizations shall submit periodic reports to the Deputy Director, Contingency Contracting & Acquisition Policy, Defense Procurement and Acquisition Policy, in accordance with PGI 225.7703-4, to address the organization's use of the procedures authorized by this section:

* * * * *

6. Section 225.7703-5 is amended by revising paragraph (d); removing paragraph (e)(4); redesignating existing paragraphs (e)(5) through (e)(8) as paragraphs (e)(4) through (e)(7), respectively; and adding paragraph (f) to read as follows:

225.7703-5 Solicitation provisions and contract clauses.

* * * * *

(d) When the Trade Agreements Act applies to the acquisition, use the appropriate clause and provision as prescribed at 225.1101 (5), (6), or (7).

(f) Do not use the following clause or provision in solicitations or contracts that include the clause at 252.225-7026:

(1) 252.225-7020, Trade Agreements Certificate.

(2) 252.225-7021, Trade Agreements.

(3) 252.225-7022, Trade Agreements Certificate--Inclusion of Iraqi End Products.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

8. Section 252.212-7001 is amended by revising the clause date and revising paragraph (b)(11) 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 (APR 2010)

* * * * *

(b) * * *

(11)(i)---- 252.225-7021, Trade Agreements (NOV 2009) (19 U.S.C. 2501-2518 and 19 U.S.C. 3301 note).

(ii) Alternate I (SEP 2008).

* * * * *

9. Section 252.225-7023 is amended by revising the clause date and revising paragraph (b)(2) to read as follows:

252.225-7023 Preference for products or services from Iraq or Afghanistan.

* * * * *

PREFERENCE FOR PRODUCTS OR SERVICES FROM IRAQ OR AFGHANISTAN (APR 2010)

* * * * *

(b) * * *

(2) Paragraph (c)(2) of the provision entitled Trade Agreements Certificate,'' or ``Trade Agreements Certificate--Inclusion of Iraqi End Products,'' if included in this solicitation.

* * * * *

10. Section 252.225-7024 is amended by revising the clause date and revising paragraph (a)(2) to read as follows:

252.225-7024 Requirement for products or services from Iraq or Afghanistan.

* * * * *

REQUIREMENT FOR PRODUCTS OR SERVICES FROM IRAQ OR AFGHANISTAN (APR 2010)

(a) * * *

(2) Service from Iraq or Afghanistan means a service (including construction) that is performed in Iraq or Afghanistan predominantly by citizens or permanent resident aliens of Iraq or Afghanistan.

* * * * *

11. Section 252.225-7026 is amended by revising the clause date and revising paragraph (a)(2) to read as follows:

252.225-7026 Acquisition restricted to products or services from Iraq or Afghanistan.

* * * * *

ACQUISITION RESTRICTED TO PRODUCTS OR SERVICES FROM IRAQ OR AFGHANISTAN (APR 2010)

(a) * * *

(2) Service from Iraq or Afghanistan means a service (including construction) that is performed in Iraq or Afghanistan predominantly by citizens or permanent resident aliens of Iraq or Afghanistan.

* * * * *

FR Doc 2010-7258[Federal Register: April 8, 2010 (Volume 75, Number 67)]

[Rules and Regulations]

Defense Federal Acquisition Regulation Supplements; Export-Controlled Items; Research and Development Contract Type Determination; Acquisitions in Support of Operations in Iraq or Afghanistan; Minimizing Use of Hexavalent Chromium; Final Rules and Proposed Rule

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 204, 235, and 252

Defense Federal Acquisition Regulation Supplement; Export-Controlled Items (DFARS Case 2004-D010)

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

ACTION: Final rule.

SUMMARY: DoD is adopting as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to address requirements for complying with export control laws and regulations when performing DoD contracts. The rule recognizes contractor responsibilities to comply with existing Department of Commerce and Department of State regulations and prescribes a contract clause to address those responsibilities.

DATES: Effective Date: April 8, 2010.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), 3060 Defense Pentagon, Room 3B855, Washington, DC 20301-3060. Telephone 703-602-0328; facsimile 703-602-0350. Please cite DFARS Case 2004-D010.

SUPPLEMENTARY INFORMATION:

A. Background

DoD published an interim rule at 73 FR 42274 on July 21, 2008, to address requirements for DoD contractors to comply with export control laws and regulations, particularly the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130) issued by the Department of State, and the Export Administration Regulations (EAR) (15 CFR parts 730-774) issued by the Department of Commerce. The rule implemented section 890(a) of the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110-181) and also adopted recommendations resulting from proposed rules published at 70 FR 39976 on July 12, 2005, and 71 FR 46434 on August 14, 2006. This final rule does not address any export control regulations that may be imposed by the Department of Energy, the Nuclear Regulatory Commission, or the Department of the Treasury.

DoD received comments from 12 persons or organizations in response to the interim rule published on July 21, 2008. The following is a discussion of the comments and the changes included in this final rule as a result of those comments:

1. Need to Simplify

a. Single-Clause Construct

Comment: One respondent indicated that the interim rule used an unnecessarily complicated way to remind contractors of their responsibilities under existing export law. The respondent stated that the new clauses impose additional administrative requirements and recommended use of just one clause indicating that export-controlled items may be involved in the performance of the contract. This would eliminate the requirement for the contractor to notify the contracting officer under 252.204-7009(c).

DoD Response: The purpose of this rule is to ensure that contractors are aware of their responsibilities to comply with export control laws and regulations. As stated in DFARS 204.7303, it is in the interest of both the Government and the contractor to be aware of export controls as they apply to contract performance. The interim rule was designed to serve this common interest, to prompt appropriate research by Government requiring activities and communication between the parties to a potential contract, and to have the resulting contract include one of two clauses, so that each contract would reflect the parties' expectation that the contractor either would or would not need access to, or would or would not generate, export-controlled items in performance of the contract.

The final rule requires the use of a single clause in every solicitation and contract, and that clause is silent with regard to the parties' expectations. By not stating specifically whether or not the parties expect performance of the contract to involve export-controlled items, the clause clearly makes the point that the contractor is responsible for understanding and complying with all applicable laws and regulations regarding export-controlled items. That responsibility exists independent of, and is not established or limited by, any information provided in the DFARS clause.

The advantages of changing to a single-clause construct include—

(1) Raising awareness, by inclusion of the appropriate words in every DoD solicitation and contract, that contractors have a responsibility to comply with all applicable laws and regulations regarding export-controlled items;

(2) Eliminating any possible ambiguities that might complicate enforcement of export control laws and regulations by the Commerce, State, and Justice Departments, since there will be no statements in DoD contract clauses that indicate a DoD assessment regarding the applicability of export controls to performance of the contract;

(3) A much simpler DFARS requirement; and

(4) Elimination of the engagement or associated work that would have been required to implement the two-clause construct. The possible disadvantages of changing to a single-clause construct include--

(1) Questionable effectiveness of the single clause in raising offeror and contractor awareness of export controls as they apply to the performance of any particular contract, since it will be a standard clause automatically included in all contracts; and

(2) Elimination of the requirement that requiring activities and contracting officers be aware, in each case, of the parties' expectations with regard to performance of a contract involving export-controlled items.

After serious consideration of the pros and cons, and after extensive internal U.S. Government consultation, DoD has determined that a single clause best serves the interests of the Government and industry.b. Contractor Obligation

Comment: Several respondents stated that the clauses at 252.225-7008 and 252.225-7009 imposed a burden on the contractor to assess whether contracted research will generate export-controlled items. The respondent suggested an approach for DoD to guide its contractors toward compliant exporting under DoD contracts. DoD Response: The suggested approach was based on the premise that it is the responsibility of DoD to guide its contractor as the contractor determines whether the results of research under its contracts are export-controlled. DoD disagrees with this premise. Export control laws and regulations already exist, and contractors are obliged to comply with them whether or not a DoD contract points out this fact to the contractor. The clause serves to remind offerors and contractors of their existing obligations.

2. Definition of ``Export-Controlled Items''

a. Broadness of Definition

Comment: One respondent stated that, since ``export-controlled items'' are defined as items subject to the EAR or the ITAR, and since EAR controls are very broad, very few contracts should include the clause at 252.204-7009, because virtually all contracts would involve an ``export-controlled item'' subject to the EAR. The example given was that commercial encryption found in most software applications is controlled by the EAR. This would mean that if a contractor needs to use certain commercial software applications in performance of the contract, the clause at 252.204-7008 would be appropriate, because the contractor would need access to ``export-controlled items.'' If the definition is intended to be this broad, there seems to be little purpose in having the two-clause construct.

DoD Response: DoD consulted with the Department of Commerce, which concluded that the EAR portion of the definition of ``export-controlled items'' is accurate and should remain broad to ensure that contractors are aware of all potential responsibilities under the EAR. For the reasons stated in the response to Comment 1a above, the two-clause construct has been eliminated.

b. Release to U.S. Persons in the United States

Comment: Several respondents were concerned that, as defined in the interim rule, ``export-controlled items'' excludes EAR-controlled commodities released to foreign persons in the United States, but does not exclude (and thus has the effect of including) EAR-controlled commodities released to U.S. persons in the United States.

Several respondents believed the intent of the rule to be that the clause at 252.204-7008 is not required when the contract will require access to Commerce Control List (CCL) commodities solely within the United States. However, as written, the unintended consequence is a requirement that the clause be included when U.S. persons need access to CCL commodities in the United States. The respondents suggested deleting the phrase ``to foreign nationals'' from the second sentence in 252.204-7008(a)(2) and 252.204-7009(a)(2) to achieve the intended result.

Another respondent pointed out that the interim rule required the clause at 252.204-7008 in contracts involving commodities that are subject to the EAR and that are used solely in the United States, which would not create an export issue under the EAR.

DoD Response: As a result of the decision to adopt a single, mandatory clause, the text related to the release of technology or software source code subject to the EAR to foreign nationals in the United States (or ``deemed exports'') has been removed from the rule. Since the single clause is silent with regard to whether the contract is or is not expected to involve export-controlled items, there is no need to include language on deemed exports. Contractors will have a responsibility to consult the EAR for all activities that may require authorization from the Department of Commerce, including the release of technology and source code subject to the EAR to foreign nationals.

c. Differentiation Between Equipment and Technical Information

Comment: One respondent recommended that DoD change the definition of ``export-controlled items'' so that it does not create confusion and allow the possibility of incorrect application of the clauses by including both controlled equipment and other tangible items, and controlled technical information, in the definition. The respondent's rationale was that export control regulations apply differently to these two categories. While export controls apply to the export abroad of both, export controls do not apply to the mere use or transfer of equipment or tangible items in the United States without providing defense services or related technical data.

DoD Response: The definition of ``export-controlled items'' has a scope that fits the scope of the DFARS rule. The rule applies to export-controlled items, including information and technology. This broadening of the rule's applicability beyond ``export-controlled information and technology'' was logical and also required by section 890(a) of Public Law 110-181. The applicable export controls may indeed operate differently for each of the two categories. However, this fact exists independent of the DFARS rule, and has no bearing on the DFARS definition of export-controlled items.

3. Relationship of the DFARS Rule to the EAR and the ITAR

a. DoD Should Identify Export-Controlled Items

Comment: One respondent recommended that the rule (1) require the contracting agency to identify, by specific provision in the applicable export control regulation, those export-controlled items to which contractors or subcontractors will have access, and (2) require the contracting officer to notify the contractor of those items prior to release. The comment appeared to be limited to a subset of export-controlled items, specifically those that would be furnished or released by the Government to the contractor.

DoD Response: The interim rule did not include a requirement for identifying in the contract clause any specific export-controlled items to be involved in contract performance. As stated in the preamble to the interim rule published on July 21, 2008, such a requirement was determined to be unacceptable to the agencies of the Federal Government (i.e., Departments of State, Commerce, and Justice) responsible for enforcing export control laws and regulations (i.e., the ITAR and the EAR). From their point of view, it is important that any contract clause be free of information that could possibly create ambiguity about the contractor's responsibility to comply with all applicable laws and regulations regarding export-controlled items, which exists independent of, and is not established or limited by, the information provided in the DFARS rule or the prescribed contract clauses. The final rule prescribes a single clause that has no such content. Additionally, authorization to release and for releasing export-controlled items is covered by export control laws and regulations and is, therefore, independent of, and beyond the scope of, this DFARS rule.

b. DoD Should Determine if Research Is Export Controlled Comment: One respondent stated that it is DoD's responsibility to determine whether the results of research under its contracts are export-controlled and that, since DoD has a leading technical input to any commodity jurisdiction action, DoD should be comfortable with advising contractors as to whether DoD considers the results of research conducted under its contracts to be export-controlled, or with providing ``DoD export direction.''

Another respondent stated that increased security benefits will be reaped if DoD diligently identifies those portions of fundamental research projects that it believes may be export-controlled. Several other respondents stated that the Government needs to convey to the universities the information that certain work is export-controlled.

DoD Response: The DFARS clauses in the interim rule did not establish the export controls with which exporters are obliged to comply. The ITAR and the EAR, not the DFARS clauses, impose the burden on exporters to know if the work they are doing, whether or not under a DoD contract, will involve export-controlled items. Exporters have strict liability to comply with the ITAR and the EAR. DoD's responsibilities under the DFARS rule in no way relieve DoD contractors of the responsibilities they have under the ITAR and the EAR. DoD does not have authority to issue ``export direction'' regarding contractor responsibilities to comply with the ITAR and the EAR.

c. Inappropriate Encouragement of the Use of Export Controls Comment: One respondent stated that the DFARS rule would encourage unintentionally the use of export controls in cases where an exclusion would apply.

DoD Response: Export controls and exclusions are established by the ITAR and the EAR independent of DFARS requirements. In providing single-clause guidance to contracting officers and contractors with reference to the operative regulations, any potential for independent interpretation or encouragement should be eliminated.

d. Contractor Liability

Comment: One respondent stated that the rule is silent on contractor liability, making it unclear as to what approach contractors must take in the event of an unauthorized export when the submittal of a voluntary disclosure to the State Department's Directorate of Defense Trade Controls or the Commerce Department's Office of Export Enforcement would be appropriate. The ITAR and the EAR lay out well-defined steps for submitting voluntary disclosures. It is not clear whether the DFARS rule would require the contractor to make disclosures with the DoD contracting officer in addition to those made under the ITAR or the EAR. The rule should clearly state that any matters related to controlled data should be addressed in accordance with existing State Department or Commerce Department regulations.

DoD Response: The interim rule's statements at 204.7302, and 252.204-7008(c), (d), and (e), were intended to make clear that the ITAR and the EAR govern the control of exports and enforcement of export controls, and that questions about the ITAR go to the State Department and questions about the EAR go to the Commerce Department. After consultation with the Departments of State and Commerce, DoD concluded that a change might enhance the clarity of the rule in this regard, without mentioning any particular ITAR or EAR requirement (such as voluntary disclosure), since mentioning one requirement could create confusion about the many requirements left unmentioned. Therefore, paragraph (d) (formerly paragraph (e)) of the clause at 252.204-7008 has been amended to state that ``nothing in the terms of this contract adds to, changes, supersedes, or waives any of the requirements of applicable Federal laws, Executive orders, and regulations * * *''

e. Process for Determining whether Export-Controlled Items are Involved

Comment: One respondent stated that the procedure prescribed by the rule can result in the Government issuing a solicitation that includes the clause at 252.204-7008, but provides no insight as to why the Government considered that clause appropriate. The rule should (1) give contractors the opportunity to consider whether the work can be performed without the contractor needing access to or generating export-controlled items, (2) provide explicitly for consultation with contractors, DoD contracting officers, and agencies responsible for the EAR and the ITAR in making a determination if export-controlled items are expected to be involved; and (3) provide for revisiting the determination after receipt of proposals but before award of the contract.

DoD Response: The single-clause construct of the final rule eliminates the concerns expressed by this comment.

4. Fundamental Research and the Clause at DFARS 252.204-7000, Disclosure of Information

Comments: The fundamental research aspect of the rule was a key focus of respondents. Ten of the twelve respondents represented a university or the university community. Two of the university respondents acknowledged that, on occasion, universities under contracts with DoD can and do have access to export-controlled items in fundamental research, noting that this is done in compliance with applicable export control laws and without publication restrictions on the results of their fundamental research. Comments associated with fundamental research had several common themes:

- Concern that the DFARS definition of ``fundamental research'' (from National Security Decision Directive (NSDD) 189) is different than the definitions in the ITAR and the EAR. The distinction between ``fundamental research'' and ``applied research'' is dealt with adequately in the ITAR and the EAR and DoD should avoid adding complexity or confusion with this DFARS rule.

- Belief that an exclusion for fundamental research exists with regard to export controls, i.e., if a contract is for fundamental research and with a university, export controls cannot possibly apply. The EAR and the ITAR were cited to support this belief.

- Focus on fundamental research rather than on the contract, to the extent that one respondent suggested identifying which export-controlled items are subject to the clause at 252.204-7008 and what part of the contract work is fundamental research subject to the clause at 252.204-7009.

- Confusion regarding, concerns about, or arguments against the assertion in the DoD statement in the preamble to the interim rule published on July 21, 2008, that there is a borderline where fundamental research meets more advanced applied research and development.

- Concern that contracting officers, in the event that export-controlled items are expected to be involved in the conduct of university research, may erroneously conclude that the results of university research must necessarily contain sensitive information or information not appropriate for public release, and may impose the clause at DFARS 252.204-7000, Disclosure of Information, or other access and dissemination restrictions on the contract. Application of publication restrictions on university research destroys the university's ability to conduct the research as fundamental research that is not subject to export control restrictions, and could lead to restrictions on the involvement of foreign researchers. Therefore, universities were concerned that the rule may restrict the conduct of fundamental research on university campuses.

- Recommendations that the rule refer to the June 26, 2008, Under Secretary of Defense (Acquisition, Technology, and Logistics) memorandum on the subject of ``Contracted Fundamental Research,'' and that the rule include the memorandum's guidance to DoD officials for contracting with universities for fundamental research.

- The need to instruct requiring activities and contracting officers to manage fundamental research projects such that they do not become subject to export controls.

DoD Response: The two-clause construct has been eliminated in the final rule, which prescribes a single clause for use in all DoD solicitations and contracts. The single clause is silent with regard to whether the contract is or is not expected to involve export-controlled items. There is no need in the revised context to mention any particular type or category of contracts, including research and development contracts. The clause puts all contractors, including universities performing contracts for fundamental research only, on notice that they are responsible for complying with all applicable export control laws and regulations.

DoD does not have the authority to establish in the DFARS a presumption that DoD contracts for fundamental research do not involve export-controlled items or that contractors performing DoD contracts for fundamental research may assume that the ITAR and the EAR do not apply to what they do or produce in the performance of the contract.

After considering the public comments associated with this aspect of the rule, DoD concluded that the rule would be improved by removing the references to fundamental research. The result is a simpler, clearer rule, with nothing that will distract the reader from the focus on the contractor's responsibility for complying with the ITAR and the EAR. Therefore, the final rule does not define or mention fundamental research. The clause is written to apply to all contracts, and there is no exception for contracts for fundamental research. The operation of the DFARS rule will be independent of, and have no bearing on, the applicability of NSDD 189, EAR, or ITAR definitions of ``fundamental research'' to a given contract. The interim rule did not, and the final rule does not, impose restrictions on the publication or dissemination of the results of research under research contracts.

5. Alternatives at 252.204-7009(c), Particularly the Alternative for Termination for Convenience of the Government

Paragraph (c) of the clause at 252.204-7009 in the interim rule required the contractor to notify the contracting officer if, during performance of the contract, the contractor became aware that it would generate or need access to export-controlled items. The contracting officer would then modify the contract to include the clause at DFARS 252.204-7008; negotiate a contract modification to eliminate the requirement for work involving export-controlled items; or terminate the contract, in whole or in part, for the convenience of the Government.

Comments: Many respondents were concerned with the alternative of terminating the contract for the convenience of the Government.

Several respondents suggested that contractors should also have the right to terminate for convenience of the contractor. Most of these respondents cite, for comparison purposes, FAR clause 52.204-2, Security Requirements, Alternate I, which, in paragraph (g), permits the contractor to request the contracting officer to terminate the contract in whole or in part in accordance with the terms of the Termination for the Convenience of the Government clause. One respondent considered that the interim rule would unnecessarily encourage a contracting officer to potentially terminate a contract for convenience rather than modify the contract.

Another respondent was concerned, in general, that the unilateral nature of these provisions and the amount of discretion left to the contracting officer increase the ambiguity and uncertainty of the rule. The respondent requested that the final rule provide explicitly for consultation with contractors as to whether the research can be conducted without using export-controlled items.

DoD Response: The final rule removes the clause at 252.204-7009, including the language that was of concern to the respondents.

6. Flow-Down of Clauses to Subcontracts

a. Flow-Down of 252.204-7008

Comment: One respondent stated that, unless the term ``foreign nationals'' is deleted from paragraph (2) of the definition of ``export-controlled items,'' contractors would be required to flow down the clause at DFARS 252.204-7008 to subcontracts in cases in which U.S. persons need access to EAR-controlled commodities, but not in which foreign persons need access to these items.

DoD Response: The statement regarding foreign nationals has been excluded from the definition of ``export-controlled items.''b. Flowdown of 252.204-7000

Comment: One respondent stated that mandatory flow down of the clause at DFARS 252.204-7000, Disclosure of Information, from industry prime contractors to universities is perhaps the single largest impediment to efficient contracting between universities and their DoD-sponsored prime contractors.

DoD Response: The clause at DFARS 252.204-7000 is not prescribed by DFARS subpart 204.73. Therefore, changes to this clause or its prescription are outside the scope of this DFARS rule.

7. Training

Comment: One respondent stated that DoD should ensure export control compliance training for all DoD personnel involved in research and development acquisitions. Another respondent stated that extensive Government training would be needed for DoD requiring and contracting personnel, to permit selection of the appropriate contract clause as well as proper administration of the clause.

DoD Response: The final rule's prescription of a single clause for use in all solicitations and contracts eliminates the aspects of the interim rule that created the greatest need for additional training for requiring and contracting personnel. Nevertheless, DoD has a continuing interest in improving the training available on export control-related matters. Web-based training on this subject is available presently to DoD personnel through the Defense Acquisition University.

This rule was reviewed by the Office of Management and Budget 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 all contractors, including small entities, are already subject to export-control laws and regulations. The requirements of this rule reinforce existing responsibilities.

DoD will also consider comments from small entities concerning the existing regulations in subparts affected by this rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (DFARS Case 2004-D010) in correspondence.

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 204, 235, and 252

Government procurement. Ynette R. Shelkin, Editor, Defense Acquisition Regulations System.

Accordingly, the interim rule amending 48 CFR parts 204, 235, and 252, which was published at 74 FR 42274, July 21, 2008, is adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 204, 235, and 252 continues to read as follows:

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

PART 204--ADMINISTRATIVE MATTERS

2. Subpart 204.73 is revised to read as follows:

Subpart 204.73--Export-Controlled Items

Sec.

204.7300 Scope of subpart.

204.7301 Definitions.

204.7302 General.

204.7303 Policy.

204.7304 Contract clauses.

Subpart 204.73--Export-Controlled Items

204.7300 Scope of subpart.

This subpart implements section 890(a) of the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110-181).

204.7301 Definitions.

Export-controlled items, as used in this subpart, is defined in the clause at 252.204-7008.

204.7302 General.

Certain types of items are subject to export controls in accordance with the Arms Export Control Act (22 U.S.C. 2751, et seq.), the International Traffic in Arms Regulations (22 CFR parts 120-130), the Export Administration Act of 1979, as amended (50 U.S.C. App. 2401, et seq.), and the Export Administration Regulations (15 CFR parts 730-774). See PGI 204.7302 for additional information.

204.7303 Policy.

(a) It is in the interest of both the Government and the contractor to be aware of export controls as they apply to the performance of DoD contracts.

(b) It is the contractor's responsibility to comply with all applicable laws and regulations regarding export-controlled items. This responsibility exists independent of, and is not established or limited by, this subpart.

204.7304 Contract clauses.

Use the clause at 252.204-7008, Export-Controlled Items, in all solicitations and contracts.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

3. Section 252.204-7008 is revised to read as follows:

252.204-7008 Export-Controlled Items.

As prescribed in 204.7304, use the following clause:

Export-Controlled Items (Apr 2010)

(a) Definition. Export-controlled items, as used in this clause, means items subject to the Export Administration Regulations (EAR) (15 CFR parts 730-774) or the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130). The term includes: (1) Defense items, defined in the Arms Export Control Act, 22 U.S.C. 2778(j)(4)(A), as defense articles, defense services, and related technical data, and further defined in the ITAR, 22 CFR part 120.

(2) Items, defined in the EAR as ``commodities, software, and technology,'' terms that are also defined in the EAR, 15 CFR 772.1.

(b) The Contractor shall comply with all applicable laws and regulations regarding export-controlled items, including, but not limited to, the requirement for Contractors to register with the Department of State in accordance with the ITAR. The Contractor shall consult with the Department of State regarding any questions relating to compliance with the ITAR and shall consult with the Department of Commerce regarding any questions relating to compliance with the EAR.

(c) The Contractor's responsibility to comply with all applicable laws and regulations regarding export-controlled items exists independent of, and is not established or limited by, the information provided by this clause.

(d) Nothing in the terms of this contract adds to, changes, supersedes, or waives any of the requirements of applicable Federal laws, Executive orders, and regulations, including but not limited to--

(1) The Export Administration Act of 1979, as amended (50 U.S.C. App. 2401, et seq.);

(2) The Arms Export Control Act (22 U.S.C. 2751, et seq.);

(3) The International Emergency Economic Powers Act (50 U.S.C. 1701, et seq.);

(4) The Export Administration Regulations (15 CFR parts 730-774);

(5) The International Traffic in Arms Regulations (22 CFR parts 120-130); and

(6) Executive Order 13222, as extended.

(e) The Contractor shall include the substance of this clause, including this paragraph (e), in all subcontracts.

(End of clause)

Section 252.204-7009 [Removed and Reserved]

4. Section 252.204-7009 is removed and reserved.

FR Doc 2010-7259[Federal Register: April 8, 2010 (Volume 75, Number 67)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 234 and 235

Defense Federal Acquisition Regulation Supplement; Research and Development Contract Type Determination (DFARS Case 2006-D053)

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

ACTION: Final rule.

SUMMARY: DoD is adopting as final, without change, an interim rule that requires the Milestone Decision Authority (MDA) for a major defense acquisition program (MDAP) to select the contract type for a development program that is consistent with the level of program risk in accordance with section 818 of the National Defense Authorization Act (NDAA) for Fiscal Year 2007.

DATES: Effective Date: April 8, 2010.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Gomersall, 703-602-0302. Please cite DFARS case 2006-D053.

SUPPLEMENTARY INFORMATION:

A. Background DoD published an interim rule at 73 FR 4117 on January 24, 2008, to implement section 818 of the National Defense Authorization Act for Fiscal Year 2007 (Pub. L. 109-364). Section 818 requires DoD to modify regulations regarding the determination of contract type for development programs. Such regulations require the Milestone Decision Authority (MDA) for a major defense acquisition program (MDAP) to select the contract type for a development program that is consistent with the level of program risk. The MDA may select a fixed-price type contract, including a fixed-price incentive contract; or a cost-type contract, provided certain written determination requirements are satisfied.

The interim rule added a new section at DFARS 234.004 to implement the requirements of section 818 of Public Law 109-364, applicable to MDAPs, and updated the policy at 235.006 to address requirements for other than MDAPs.

Two sources submitted comments on the interim rule. DoD's single response to both comments is provided following the comments.

1. Comment: One respondent suggested that the interim rule appears to be requiring written determinations on MDAPs and non-MDAPs that are exactly the opposite of one another. For MDAPS, 234.004(iii) requires a written determination by the MDA at the time of Milestone B approval if a fixed-price contract is not selected, and for non-MDAPs, 235.006(b)(i)(A)(3) requires a written determination if a fixed-price contract is selected for a developmental program. The respondent indicated that it is hard for him to understand the logic that would discourage the use of fixed-price development contracts for non-major programs, but would encourage their use for major programs. Moreover, he suggested that fixed-price development contracts are likely to be a source of numerous requests for equitable adjustments or claims, and concluded that instituting such a policy would be challenging and ill-timed even for a robust, experienced, and disciplined workforce.

2. Comment: The respondent stated that the interim rule appears to introduce additional burdens on DoD program managers and contracting personnel to justify the decision to issue a shipbuilding contract on a cost-type basis. The respondent believes that, when selecting a contract type for any program, DoD's focus should be on ``whether a product, system, or item is still developing or has reached maturity.'' Further, although they are MDAPs, the respondent believes that the first several ships of a new class should be viewed as developmental products that are procured most efficiently through cost-type contracts because of the inherently high level of risk and uncertainty associated with them. Therefore, for the first several ships of a class, the burden placed upon the MDA should most often be to explain why a fixed-price contract type is selected rather than why a cost-type contract is selected. For this reason, the respondent believes that the interim rule is flawed since the requirements should be in reverse order when applied to shipbuilding contracts.

DoD Response: For MDAPs, the procedures in DFARS 234.004 are mandated by section 818 of the FY07 NDAA. For other than MDAPs, DoD determined that it would be in the best interest of the Government to retain the policy in DFARS 235.006 for a written determination if a fixed-price contract is selected for a development program. Therefore, DoD has made no change to the language set forth in the interim rule, and is adopting 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 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 relates to internal DoD considerations and documentation requirements relating to the selection of contract type for development programs. No comments were received in response to publication of the interim rule with respect to any impact on small entities.

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 234 and 235

Government procurement. Ynette R. Shelkin, Editor, Defense Acquisition Regulations System.

Interim Rule Adopted as Final Without Change

Accordingly, the interim rule amending 48 CFR parts 234 and 235, which was published at 73 FR 4117 on January 24, 2008, is adopted as a final rule without change.

END OF DCN 20100408