[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]

[Rules and Regulations]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2015-32870]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 229, and 252

[Docket DARS-2014-0046]

RIN 0750-AI26

Defense Federal Acquisition Regulation Supplement: Taxes--Foreign Contracts in Afghanistan (DFARS Case 2014-D003)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to notify contractors of requirements relating to Afghanistan taxes for contracts performed in Afghanistan.

DATES: Effective December 30, 2015.

FOR FURTHER INFORMATION CONTACT: Ms. Julie Hammond, telephone 571-372-6174.

SUPPLEMENTARY INFORMATION:

I. Background

DoD published a proposed rule in the Federal Register at 79 FR 35715 on June 24, 2014, to revise the DFARS to add two new clauses that notify contractors of requirements relating to Afghanistan taxes when contracts are being performed in Afghanistan. Three respondents submitted public comments in response to the proposed rule.

II. Discussion and Analysis

DoD reviewed the public comments in the development of the final rule. A discussion of the comments is provided below:

A. Summary of Significant Changes From the Proposed Rule

The final rule amends DFARS clause 252.229-7014, Taxes--Foreign Contracts in Afghanistan, to reference the bilateral security agreement entitled ``The Security and Defense Cooperation Agreement between the Islamic Republic of Afghanistan and the United States of America'' signed on September 30, 2014. The reference to the bilateral security agreement replaces the reference to the prior Agreement entered into between the United States and Afghanistan on May 28, 2003, regarding the ``Status of United States Military and Civilian Personnel of the U.S. Department of Defense Present in Afghanistan,'' which was concluded by an exchange of diplomatic notes (U.S. Embassy Kabul note No. 202, dated September 26, 2002; Afghanistan Ministry of Foreign Affairs notes 791 and 93, dated December 12, 2002, and May 28, 2003, respectively). The clause is also amended to change ``Government of the United States of America'' to the ``Department of Defense'' to more accurately represent the new agreement.

The final rule also amends DFARS clause 252.229-7015, Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement), to reference the North Atlantic Treaty Organization (NATO) Status of Forces Agreement (SOFA) signed on September 30, 2014, instead of the Military Technical Agreement (MTA) entered into between the NATO International Security Assistance Force (ISAF) and Interim Administration of Afghanistan in April 2002. As a result of the new SOFA, the reference to the 2011 NATO ISAF Letter of Interpretation that modified the MTA's tax exemption is also removed, including the language allowing contractors to include taxes on profits earned by local contractors in the contract price.

The final rule also clarifies at DFARS 212.301 that the clauses apply to solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items.

B. Analysis of Public Comments

1. Taxes in Afghanistan

Comment: A respondent commented that the Afghan Ministry of Forces interprets Diplomatic Note (DN) 202 to apply only to prime contractors, while industry practice is to treat subcontractors in Afghanistan as subject to taxation. The respondent asked how DoD will enforce paragraph (b) of DFARS clause 252.225-7014, which exempts subcontractors from any taxes assessed in Afghanistan in accordance with DN 202.

Response: The final rule has been updated to reference the new bilateral security agreement between the United States and Afghanistan signed on September 30, 2014. Article 17.3 of the new agreement states that United States subcontractors shall not be liable to pay any tax assessed by the government of Afghanistan within the territory of Afghanistan on their activities under a contract or subcontract with, or in support of, United States Forces.

Comment: A respondent recommended Afghan contractors not be allowed to include Afghan tax on profits earned from NATO ISAF contracts in accordance with DFARS clause 252.225-7015(d). Another respondent asked about DoD's expectations regarding documentation of the price markup for Afghan income taxes as part of the contract price and whether United States Government contractors will be required to refund the United States Government if the Afghan contractors do not owe income taxes due to losses.

Response: The language that allowed contractors to include Afghan taxes on profits earned by local contractors in the contract price is removed from the final rule.

2. Bilateral Security Agreement

Comment: A respondent commented that clarifying language is needed in the pending bilateral security agreement between the United States and Afghanistan to affirm that all non-Afghan national employees working on DoD contracts are tax exempt and will not be treated as Afghan residents.

Response: This comment concerns the content of the bilateral security agreement, which is outside the scope of this rule.

Comment: Two respondents requested that implementation of the proposed rule be delayed until resolution is reached between the United States and the Afghanistan government in a bilateral security agreement. If implementation of the rule is not delayed, one respondent requested that the proposed rule be revised to allow contracting officers to relieve defense contractors and subcontractors of the risks and responsibilities when denied a tax exemption by the Afghan Ministry of Finance.

Response: A resolution has been reached between the United States and the Afghanistan government in a bilateral security agreement. The final rule has been updated to reference the new bilateral security agreement.

3. General

Comment: A respondent stated that the new tax law may limit the amount of contractors willing to work for the United States Government and may hurt future business relations between Afghanistan and the United States.

Response: This comment concerns Afghanistan tax law and is outside the scope of this rule.

Comment: A respondent recommended that the United States Government reduce costs by minimizing the use of military personnel and employing more Afghans.

Response: The comment is outside the scope of this rule.

Comment: One respondent suggested that clauses, similar to those included in the proposed rule, be added to specifically address and make the rule equally applicable to local Afghan contractors, vendors, and landlords.

Response: The final rule has been updated to reference the new bilateral security agreement. Article 17.3 of the new agreement states that United States contractors that are Afghan entities shall not be exempt from corporate profits tax that may be assessed by the Afghanistan government within the territory of Afghanistan on income received due to their status as United States contractors.

III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT) and for Commercial Items, Including Commercially Available Off-the-Shelf (COTS) Items

This rule creates two new clauses: (1) DFARS 252.229-7014, Taxes--Foreign Contracts in Afghanistan, and (2) DFARS 252.229-7015, Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement). The objective of the rule is to exempt DoD contracts performed in Afghanistan from payment liability for Afghan taxes pursuant to the bilateral security agreement entitled ``The Security and Defense Cooperation Agreement between the Islamic Republic of Afghanistan and the United States of America'' signed on September 30, 2014, and the North Atlantic Treaty Organization (NATO) Status of Forces Agreement (SOFA) signed on September 30, 2014.

DoD is applying these two clauses to solicitations and contracts below the SAT and to the acquisition of commercial items, including COTS items, as defined at FAR 2.101. This rule clarifies the application of requirements relating to treatment of taxes for contracts performed in Afghanistan. Not applying this guidance to contracts below the SAT and for the acquisition of commercial items, including COTS items, would exclude contracts intended to be covered by this rule and undermine the overarching purpose of the rule. Consequently, DoD is applying the rule to contracts below the SAT and for the acquisition of commercial items, including COTS items.

IV. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

V. Regulatory Flexibility Act

A final regulatory flexibility analysis has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., and is summarized as follows:

DoD is amending the Defense Federal Acquisition Regulation Supplement (DFARS) to add two new clauses in order to notify DoD contractors of requirements relating to Afghanistan taxes when DoD contracts are being performed in Afghanistan. The clause at DFARS 252.229-7014, Taxes-Foreign Contracts in Afghanistan, will be required to be included in solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, with performance in Afghanistan, unless the clause at 252.229-7015 is used. The clause at DFARS 252.229-7015, Taxes-Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement), will be required to be included in all solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, with performance in Afghanistan awarded on behalf of NATO, which are governed by the NATO Status of Forces Agreement, if approval from the Director, Defense Procurement and Acquisition Policy, Office of the Under Secretary of Defense for Acquisitions, Technology, and Logistics, is obtained prior to each use.

No comments were received from the public relative to the initial regulatory flexibility analysis.

DoD does not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because this rule merely provides notice of the tax exemption for DoD contracts where performance is in Afghanistan. According to data in the Federal Procurement Data System, a total of thirty-five small business vendors received contract awards where performance was in Afghanistan during fiscal year 2015.

There are no new projected reporting, recordkeeping, or other compliance requirements projected for this rule.

There are no known significant alternatives to the rule. The impact of this rule on small business is not expected to be significant.

VI. Paperwork Reduction Act

The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 212, 229, and 252

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR parts 212, 229, and 252 are amended as follows:

1. The authority citation for 48 CFR parts 212, 229, and 252 continue to read as follows:

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

PART 212--ACQUISITION OF COMMERCIAL ITEMS

2. Amend section 212.301 by--

a. Redesignating paragraphs (f)(xiii) through (xix) as (f)(xiv) through (xx); and

b. Adding a new paragraph (f)(xiii).

The addition reads as follows:

212.301 Solicitation provisions and contract clauses for acquisition of commercial items.

* * * * *

(f) * * *

(xiii) Part 229--Taxes.

(A) Use the clause at 252.229-7014, Taxes--Foreign Contracts in Afghanistan, as prescribed at 229.402-70(k).

(B) Use the clause at 252.229-7015, Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement), as prescribed at 229.402-70(l).

* * * * *

PART 229--TAXES

3. In section 229.402-70, revise the section heading and add new paragraphs (k) and (l) to read as follows:

229.402-70 Additional provisions and clauses.

* * * * *

(k) Use the clause at 252.229-7014, Taxes--Foreign Contracts in Afghanistan, in solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, with performance in Afghanistan, unless the clause at 252.229-7015 is used.

(l) Use the clause at 252.229-7015, Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement), instead of the clause at 252.229-7014, Taxes--Foreign Contracts in Afghanistan, in solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, with performance in Afghanistan awarded on behalf of the North Atlantic Treaty Organization (NATO), which are governed by the NATO Status of Forces Agreement (SOFA), if approval from the Director, Defense Procurement and Acquisition Policy, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, has been obtained prior to each use.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

4. Add sections 252.229-7014 and 252.229-7015 to read as follows:

252.229-7014 Taxes--Foreign Contracts in Afghanistan.

As prescribed in 229.402-70(k), use the following clause:

Taxes--Foreign Contracts in Afghanistan (DEC 2015)

(a) This acquisition is covered by the Security and Defense Cooperation Agreement (the Agreement) between the Islamic Republic of Afghanistan and the United States of America signed on September 30, 2014, and entered into force on January 1, 2015.

(b) The Agreement exempts the Department of Defense (DoD), and its contractors and subcontractors (other than those that are Afghan legal entities or residents), from paying any tax or similar charge assessed on activities associated with this contract within Afghanistan. The Agreement also exempts the acquisition, importation, exportation, reexportation, transportation, and use of supplies and services in Afghanistan, by or on behalf of DoD, from any taxes, customs, duties, fees, or similar charges in Afghanistan.

(c) The Contractor shall exclude any Afghan taxes, customs, duties, fees, or similar charges from the contract price, other than those charged to Afghan legal entities or residents.

(d) The Agreement does not exempt Afghan employees of DoD contractors and subcontractors from Afghan tax laws. To the extent required by Afghan law, the Contractor shall withhold tax from the wages of these employees and remit those payments to the appropriate Afghanistan taxing authority. These withholdings are an individual's liability, not a tax against the Contractor.

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

(End of clause)

252.229-7015 Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement).

As prescribed in 229.402-70(l), use the following clause:

Taxes--Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement) (DEC 2015)

(a) This acquisition is covered by the Status of Forces Agreement (SOFA) entered into between the North Atlantic Treaty Organization (NATO) and the Islamic Republic of Afghanistan issued on September 30, 2014, and entered into force on January 1, 2015.

(b) The SOFA exempts NATO Forces and its contractors and subcontractors (other than those that are Afghan legal entities or residents) from paying any tax or similar charge assessed within Afghanistan. The SOFA also exempts the acquisition, importation, exportation, reexportation, transportation and use of supplies and services in Afghanistan from all Afghan taxes, customs, duties, fees, or similar charges.

(c) The Contractor shall exclude any Afghan taxes, customs, duties, fees or similar charges from the contract price, other than those that are Afghan legal entities or residents.

(d) Afghan citizens employed by NATO contractors and subcontractors are subject to Afghan tax laws. To the extent required by Afghan law, the Contractor shall withhold tax from the wages of these employees and remit those withholdings to the Afghanistan Revenue Department. These withholdings are an individual's liability, not a tax against the Contractor.

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

(End of clause)

[FR Doc. 2015-32870 Filed 12-29-15; 8:45 am]

BILLING CODE 5001-06-P

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[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]

[Rules and Regulations]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2015-32875]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225 and 252

[Docket DARS-2015-0066]

RIN 0750-AI79

Defense Federal Acquisition Regulation Supplement: Trade Agreements Thresholds (DFARS Case 2016-D003)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to incorporate increased thresholds for application of the World Trade Organization Government Procurement Agreement and the Free Trade Agreements, as determined by the United States Trade Representative.

DATES: Effective: January 1, 2016.

FOR FURTHER INFORMATION CONTACT: Ms. Amy G. Williams, telephone 571-372-6106.

SUPPLEMENTARY INFORMATION:

I. Background

Every two years, the trade agreements thresholds are escalated according to a predetermined formula set forth in the agreements. The United States Trade Representative has specified the following new thresholds in the Federal Register (80 FR 77694, December 15, 2015):

Trade agreement

Supply contract (equal to or exceeding)

Construction contract (equal to or exceeding)

WTO GPA

191,000

7,358,000

FTAs:

   

Australia FTA

77,533

7,358,000

Bahrain FTA

191,000

10,079,365

CAFTA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua)

77,533

7,358,000

Chile FTA

77,533

7,358,000

Colombia FTA

77,533

7,358,000

Korea FTA

100,000

7,358,000

Morocco FTA

191,000

7,358,000

NAFTA

   

--Canada

25,000

10,079,365

--Mexico

77,533

10,079,365

Panama FTA

191,000

7,358,000

Peru FTA

191,000

7,358,000

Singapore FTA

77,533

7,358,000

II. Discussion and Analysis

This final rule implements the new thresholds in DFARS part 225, Foreign Contracting, for sections that include trade agreements thresholds (i.e., 225.1101, 225.7017-3, 225.7017-4, and 225.7503). Additionally, the rule updates clauses 252.225-7017, Photovoltaic Devices, and 252.225-7018, Photovoltaic Devices--Certificate, with conforming changes. A minor technical amendment corrects cross references at 225.1101(10)(i) and paragraphs (b)(1)(i) and (ii) of the clause at 252.225-7018.

III. Publication of This Final Rule for Public Comment Is Not Required by Statute

The statute that applies to the publication of the Federal Acquisition Regulation (FAR) is 41. U.S.C. entitled ``Publication of Proposed Regulations.'' Paragraph (a)(1) of the statute requires that a procurement policy, regulation, procedure or form (including an amendment or modification thereof) must be published for public comment if it relates to the expenditure of appropriated funds, and has either a significant effect beyond the internal operating procedures of the agency issuing the policy, regulation, procedure or form, or has a significant cost or administrative impact on contractors or offerors. This final rule is not required to be published for public comment, because it only adjusts the thresholds according to predetermined formulae to adjust for changes in economic conditions, thus maintaining the status quo, without significant effect beyond the internal operating procedures of the Government.

IV. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

V. Regulatory Flexibility Act

The Regulatory Flexibility Act does not apply to this rule because this final rule does not constitute a significant FAR revision within the meaning of FAR 1.501-1, and 41 U.S.C. 1707 does not require publication for public comment.

VI. Paperwork Reduction Act

The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply, because the final rule affects the prescriptions for use of the certification and information collection requirements in the provision at DFARS 252.225-7035 and the certification and information collection requirements in the provision at DFARS 252.225-7018 (both currently approved under OMB Control #0704-0229), Defense Federal Acquisition Regulation Supplement Part 225, Foreign Acquisition and Related Clauses. However, there is no impact on the estimated burden hours, because the threshold changes are in line with inflation and maintain the status quo.

List of Subjects in 48 CFR Parts 225 and 252

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

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

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

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

PART 225--FOREIGN CONTRACTING

225.1101 [Amended]

2. Amend section 225.1101--

a. In paragraph (6) introductory text, by removing ``$204,000'' and adding ``$191,000'' in its place;

b. In paragraph (10)(i) introductory text, by removing ``$204,000'' and adding ``$191,000'' in its place, and removing ``at 25.401 applies'' and adding ``at FAR 25.401 or 225.401 applies'' in its place;

c. In paragraphs (10)(i)(A), by removing ``$204,000'' and adding ``$191,000'' in its place;

d. In paragraph (10)(i)(B), by removing ``$79,507'' and adding ``$77,533'' in its place;

e. In paragraph (10)(i)(C), by removing ``$204,000'' and adding ``$191,000'' in its place; and

f. In paragraphs (10)(i)(D) through (F), by removing ``$79,507'' wherever it appears and adding ``$77,533)'' in its place.

225.7017-3 [Amended]

3. Amend section 225.7017-3 in paragraph (b) by removing ``$204,000'' and adding ``$191,000'' in its place.

225.7017-4 [Amended]

4. Amend section 225.7017-4 in paragraphs (a)(1) and (b)(1) by removing ``$204,000'' and adding ``$191,000'' in both places.

225.7503 [Amended]

5. Amend section 225.7503--

a. In paragraphs (a) and (b) introductory text, by removing ``$7,864,000'' and adding ``$7,358,000'' in both places;

b. In paragraph (b)(1), by removing ``$10,335,931'' and adding ``$10,079,365'' in its place;

c. In paragraph (b)(2), by removing ``$7,864,000'' and adding ``$7,358,000'' in its place, and removing ``$10,335,931'' and adding ``$10,079,365'' in its place;

d. In paragraph (b)(3) by removing, ``$10,335,931'' and adding ``$10,079,365'' in its place; and

e. In paragraph (b)(4), by removing ``$7,864,000'' and adding ``$7,358,000'' in its place, and removing ``$10,335,931'' and adding ``$10,079,365'' in its place.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

252.225-7017 [Amended]

6. Amend section 252.225-7017--

a. By removing clause date ``(NOV 2015)'' and adding ``(JAN 2016)'' in its place;

b. In paragraphs (c)(2) and (3), by removing ``$79,507'' and adding ``$77,533'' in its place; and

c. In paragraphs (c)(4) and (5), by removing ``$204,000'' and adding ``$191,000'' in its place.

252.225-7018 [Amended]

7. Amend section 252.225-7018--

a. By removing clause date ``(NOV 2015)'' and adding ``(JAN 2016)'' in its place;

b. In paragraph (b)(1) introductory text, by removing ``$204,000'' and adding ``$191,000'' in its place;

c. In paragraph (b)(1)(i), by removing ``DFARS 225.217-4(b)'' and adding ``DFARS 225.7017-4(b)'' in its place;

d. In paragraph (b)(1)(ii), by removing ``DFARS 225.217-4(a)'' and adding ``DFARS 225.7017-4(a)'' in its place;

e. In paragraph (b)(2), by removing ``$204,000'' and adding ``$191,000'' in its place;

f. In paragraphs (d)(3) and (4) introductory text, by removing ``$79,507'' and adding ``$77,533'' in both places; and

g. In paragraphs (d)(5) and (6) introductory text, by removing ``$204,000'' and adding ``$191,000'' in both places.

[FR Doc. 2015-32875 Filed 12-29-15; 8:45 am]

BILLING CODE 5001-06-P

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[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]

[Rules and Regulations]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2015-32869]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 252

[Docket DARS-2015-0039]

RIN 0750-AI61

Defense Federal Acquisition Regulation Supplement: Network Penetration Reporting and Contracting for Cloud Services (DFARS Case 2013-D018)

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

ACTION: Interim rule.

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SUMMARY: DoD is issuing an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to provide contractors with additional time to implement security requirements specified by a National Institute of Standards and Technology Special Publication.

DATES: Effective date: December 30, 2015.

Comment date: Comments on the interim rule should be submitted in writing to the address shown below on or before February 29, 2016 to be considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2013-D018, using any of the following methods:

[cir] Regulations.gov: http://www.regulations.gov. Submit comments via the Federal eRulemaking portal by entering ``DFARS Case 2013-D018'' under the heading ``Enter keyword or ID'' and selecting ``Search.'' Select the link ``Submit a Comment'' that corresponds with ``DFARS Case 2013-D018.'' Follow the instructions provided at the ``Submit a Comment'' screen. Please include your name, company name (if any), and ``DFARS Case 2013-D018'' on your attached document.

[cir] Email: osd.dfars@mail.mil. Include DFARS Case 2013-D018 in the subject line of the message.

[cir] Fax: 571-372-6094.

[cir] Mail: Defense Acquisition Regulations System, Attn: Mr. Dustin Pitsch, OUSD(AT&L)DPAP/DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.

Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To confirm receipt of your comment(s), please check www.regulations.gov, approximately two to three days after submission to verify posting (except allow 30 days for posting of comments submitted by mail).

FOR FURTHER INFORMATION CONTACT: Mr. Dustin Pitsch, telephone 571-372-6090.

SUPPLEMENTARY INFORMATION:

I. Background

DoD published an interim rule under this case number in the Federal Register (80 FR 51739) on August 26, 2015, to implement section 941 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 (Pub. L. 112-239), section 1632 of the NDAA for FY 2015, and DoD policies and procedures with regard to cloud computing. The first interim rule expanded safeguarding requirements to cover the safeguarding of covered defense information, and required compliance with the security requirements in the National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, ``Protecting Controlled Unclassified Information in Nonfederal Information Systems and organizations,'' to replace the table based on NIST SP 800-53. The security requirements in NIST SP 800-171 are specifically tailored for use in protecting sensitive information residing in contractor information systems and generally reduce the burden placed on contractors by eliminating Federal-centric processes and requirements.

To address concerns from industry with regard to implementation of the first interim rule, DoD held a public meeting on Monday, December 14, 2015 (80 FR 72712, November 20, 2015). There were 85 registered attendees. Various topics were discussed with industry at the public meeting, such as scope, applicability, training, subcontractor flowdown, and implementation issues. Industry representatives specifically expressed to DoD, both prior to and at the public meeting, the need for additional time to implement the security requirements specified by NIST SP 800-171.

II. Discussion and Analysis

This second interim rule amends DFARS provision 252.204-7008, Compliance with Safeguarding and Covered Defense Information Controls, and DFARS clause 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting, to provide offerors additional time to implement the security requirements specified by NIST SP 800-171, which will be required to be in place not later than December 31, 2017. The clause is also amended to require contractors to notify the DoD Chief Information Officer (CIO) of any NIST SP 800-171 security requirements that are not implemented at the time of contract award, within 30 days of contract award. The status provided by the contractor to the DoD CIO on implementation of the NIST SP 800-171 security requirements will enable the Department to monitor progress across the Defense industrial base, identify trends in the implementation of these requirements and, in particular, identify issues with industry implementation of specific requirements that may require clarification or adjustment. Additionally, this information will inform the Department in assessing the overall risk to DoD covered defense information on unclassified contractor systems and networks.

The second interim rule makes the following additional changes:

The subcontractor flowdown requirements in DFARS provision 252.204-7009 and clause 252.204-7012 are amended to require, when applicable, inclusion of the clause without alteration, except to identify the parties.

The subcontractor flowdown requirement in DFARS clause 252.204-7012 is further amended to limit the requirement to flow down the clause only to subcontractors where their efforts will involve covered defense information or where they will provide operationally critical support.

DFARS clause 252.204-7012 is amended to remove the requirement for DoD CIO acceptance of alternative but equally effective security measures prior to award.

This rule is part of DoD's retrospective plan, completed in August 2011, under Executive Order 13563, ``Improving Regulation and Regulatory Review.'' DoD's full plan and updates can be accessed at: http://www.regulations.gov/#!docketDetail;D=DOD-2011-OS-0036.

III. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

DoD expects that the additional implementation period provided by this interim rule may have a significant beneficial economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act 5 U.S.C. 601, et seq. Therefore, an initial regulatory flexibility analysis has been prepared and is summarized as follows:

This rule allows contractors until December 31, 2017, to implement the security requirements specified by the National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, ``Protecting Controlled Unclassified Information in Nonfederal Information Systems and organizations,'' for safeguarding sensitive information residing in contractor information systems, contained in Defense Federal Acquisition Regulation Supplement clause 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting.

The objective of this rule is to allow contractors additional time to implement the security requirements necessary to improve protection for DoD information stored on or transiting contractor systems.

This rule will apply to all contractors with covered defense information transiting their information systems. DoD estimates that this rule may apply to 10,000 contractors and that less than half of those are small businesses.

This second interim rule requires contractors, within 30 days of contract award, to notify the DoD Chief Information Officer of any NIST SP 800-171 security requirements that are not implemented at the time of contract award. This new reporting requirement affects the existing information collection requirements approved under the first interim rule under OMB Control number 0704-0478, titled ``Enhanced Safeguarding and Cyber Incident Reporting of Unclassified DoD Information Within Industry,'' but the effect on the total burden hours is negligible.

The rule does not duplicate, overlap, or conflict with any other Federal rules.

No significant alternatives, that would minimize the economic impact of the rule on small entities, were determined.

DoD invites comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

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 2013-D018), in correspondence.

V. Paperwork Reduction Act

This rule affects the information collection requirements in the clause at DFARS 252.204-7012, currently approved under OMB Control Number 0704-0478, titled ``Enhanced Safeguarding and Cyber Incident Reporting of Unclassified DoD Information Within Industry,'' in accordance with the Paperwork Reduction Act (44 U.S.C. chapter 35). The impact, however, is negligible, because the new reporting requirement is not anticipated to increase the estimate of total burden hours.

VI. Determination To Issue an Interim Rule

A determination has been made under the authority of the Secretary of Defense that urgent and compelling reasons exist to promulgate this interim rule without prior opportunity for public comment.

The proliferation of information technology and increased information access has exposed DoD and DoD contractor information systems and networks to greater vulnerability of attacks. The first interim rule under this case number and title was necessary because of the urgent need to protect covered defense information and gain awareness of the full scope of cyber incidents being committed against defense contractors. That rule addressed the requirement for contractors and subcontractors to report cyber incidents that result in an actual or potentially adverse effect on a covered contractor information system or covered defense information residing therein, or on a contractor's ability to provide operationally critical support. However, since issuance of the first interim rule, industry has expressed to DoD the need for additional time to implement one part of the first interim rule, specifically the NIST SP 800-171 security requirements for covered contractor information systems.

This second interim rule is being issued without the benefit of public comment to provide immediate relief from the requirement to have NIST 800-171 security requirements implemented at the time of contract award. Contractors are at risk of not being able to comply with the terms of contracts that require the handling of covered defense information. Contractors will be given until December 31, 2017 for implementation of the NIST 800-171 security requirements, thereby limiting the burden imposed on industry in the first interim rule. This rule grants additional time for contractors to assess their information systems and to set forth an economically efficient strategy to implement the new security requirements at a pace that fits within normal information technology lifecycle timelines. However, pursuant to 41 U.S.C. 1707 and FAR 1.501-3(b), DoD will consider public comments received in response to this interim rule in the formation of the final rule.

List of Subjects in 48 CFR Part 252

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 252 is amended as follows:

1. The authority citation for 48 CFR part 252 continues to read as follows:

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

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

2. Amend section 252.204-7008 by--

a. Removing clause date ``(AUG 2015)'' and adding ``(DEC 2015)'' in its place;

b. Revising paragraph (c); and

c. Removing paragraph (d).

The revision reads as follows:

252.204-7008 Compliance with Safeguarding Covered Defense Information Controls.

* * * * *

(c) For covered contractor information systems that are not part of an information technology (IT) service or system operated on behalf of the Government (see 252.204-7012(b)(1)(ii))--

(1) By submission of this offer, the Offeror represents that it will implement the security requirements specified by National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, ``Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations'' (see http://dx.doi.org/10.6028/NIST.SP.800-171), not later than December 31, 2017.

(2)(i) If the Offeror proposes to vary from any of the security requirements specified by NIST SP 800-171 that is in effect at the time the solicitation is issued or as authorized by the Contracting Officer, the Offeror shall submit to the Contracting Officer, for consideration by the DoD Chief Information Officer (CIO), a written explanation of--

(A) Why a particular security requirement is not applicable; or

(B) How an alternative but equally effective, security measure is used to compensate for the inability to satisfy a particular requirement and achieve equivalent protection.

(ii) An authorized representative of the DoD CIO will adjudicate offeror requests to vary from NIST SP 800-171 requirements in writing prior to contract award. Any accepted variance from NIST SP 800-171 shall be incorporated into the resulting contract.

* * * * *

3. Amend section 252.204-7009 by--

a. Removing clause date ``(AUG 2015)'' and adding ``(DEC 2015)'' in its place;

b. In paragraph (a), adding in alphabetical order a definition for ``Compromise''; and

c. Revising paragraph (c).

The addition and revision read as follows:

252.204-7009 Limitations on the Use or Disclosure of Third-Party Contractor Reported Cyber Incident Information.

* * * * *

(a) * * *

Compromise means disclosure of information to unauthorized persons, or a violation of the security policy of a system, in which unauthorized intentional or unintentional disclosure, modification, destruction, or loss of an object, or the copying of information to unauthorized media may have occurred.

* * * * *

(c) Subcontracts. The Contractor shall include this clause, including this paragraph (c), in subcontracts, or similar contractual instruments, for services that include support for the Government's activities related to safeguarding covered defense information and cyber incident reporting, including subcontracts for commercial items, without alteration, except to identify the parties.

* * * * *

4. Amend section 252.204-7012 by--

a. Removing clause date ``(SEP 2015)'' and adding ``(DEC 2015)'' in its place;

b. In paragraph (a), in the definition of ``Cyber incident,'' adding ``a compromise or'' after ``that result in'';

c. Revising paragraphs (b)(1)(ii)(A) and (B); and

d. Revising paragraphs (m)(1) and (2).

The revisions read as follows:

252.204-7012 Safeguarding Covered Defense Information and Cyber Incident Reporting.

* * * * *

(b) * * *

(1) * * *

(ii) * * *

(A) The security requirements in National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, ``Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations,'' http://dx.doi.org/10.6028/NIST.SP.800-171 that is in effect at the time the solicitation is issued or as authorized by the Contracting Officer, as soon as practical, but not later than December 31, 2017. The Contractor shall notify the DoD CIO, via email at osd.dibcsia@mail.mil, within 30 days of contract award, of any security requirements specified by NIST SP 800-171 not implemented at the time of contract award; or

(B) Alternative but equally effective security measures used to compensate for the inability to satisfy a particular requirement and achieve equivalent protection accepted in writing by an authorized representative of the DoD CIO; and

* * * * *

(m) * * *

(1) Include this clause, including this paragraph (m), in subcontracts, or similar contractual instruments, for operationally critical support, or for which subcontract performance will involve a covered contractor information system, including subcontracts for commercial items, without alteration, except to identify the parties; and

(2) When this clause is included in a subcontract, require subcontractors to rapidly report cyber incidents directly to DoD at http://dibnet.dod.mil and the prime Contractor. This includes providing the incident report number, automatically assigned by DoD, to the prime Contractor (or next higher-tier subcontractor) as soon as practicable.

* * * * *

[FR Doc. 2015-32869 Filed 12-29-15; 8:45 am]

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