[Federal Register Volume 81, Number 214 (Friday, November 4, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-26366]

Vol. 81

Friday,

No. 214

November 4, 2016

Part V

Department of Defense

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Defense Acquisition Regulations System

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48 CFR Parts 202, 212, 215, et al.

Federal Acquisition Regulations; Final and Proposed Rules

Federal Register / Vol. 81 , No. 214 / Friday, November 4, 2016 / Rules and Regulations

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 231 and 242

[Docket DARS-2015-0070]

RIN 0750-AI81

Defense Federal Acquisition Regulation Supplement: Enhancing the Effectiveness of Independent Research and Development (DFARS Case 2016-D002)

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 improve the effectiveness of independent research and development (IR&D) investments by the defense industrial base, by requiring contractors to engage in technical interchanges with DoD before costs are generated.

DATES: Effective November 4, 2016.

FOR FURTHER INFORMATION CONTACT: Mr. Tom Ruckdaschel, telephone 571-372-6088.

SUPPLEMENTARY INFORMATION:

I. Background

DoD published a proposed rule in the Federal Register at 81 FR 7723 on February 16, 2016, to revise DFARS 231.205-18, Independent Research and Development and Bid and Proposal Costs, to require that proposed new IR&D efforts be communicated to appropriate DoD personnel prior to the initiation of these investments, and that results be shared with appropriate DoD personnel. Nine respondents submitted public comments in response to the proposed rule.

II. Discussion and Analysis

DoD reviewed the public comments in the development of this final rule. A discussion of the comments and the changes made to the rule as a result of those comments is provided, as follows:

A. Summary of Changes From the Proposed Rule in Response to Public Comments

1. The requirement at DFARS 231.205-18(c)(iii)(C)(2) to include a ``summary of results'' with the annual update to online inputs is removed in the final rule.

2. DFARS 231.205-18(c)(iii)(C)(4)(i) is revised to cite the Office of the Assistant Secretary of Defense for Research and Engineering (OASD R&E) as a resource for contractors who do not have a point of contact for the technical interchange. Contact information for OASD R&E can be found at http://www.acq.osd.mil/rd/contacts/.

B. Analysis of Public Comments

1. Support for the Rule

Comment: Three respondents expressed positive support of the rule and DoD's effort to enhance communications between industry and DoD regarding IR&D efforts.

Response: DoD acknowledges the respondents' support for the rule.

2. Favor Certain Projects/Different Priorities

Comment: One respondent, though generally supportive of the goals of the rulemaking effort, believed the proposed rule will make it more difficult to pursue IR&D projects at their infancy for the following reason: ``. . . by requiring technical interchange with Government employees before generating IR&D costs, defense contractors will shift toward IR&D projects that are of perceived interest to identifiable DoD officials.'' One respondent stated that the rule will favor companies that have their IR&D (efforts) preapproved. One respondent, though supportive of technical interchanges, was concerned that DoD individuals participating in the interchanges may not share the long-term priorities outlined in Better Buying Power 3.0. Another respondent is concerned that ``bona fide'' technical interchanges exist outside of the contractor's controls and that the proposed rule penalizes contractors without an ``ARDEC like'' agency as their customer.

Response: DoD anticipates that defense contractors will pursue IR&D projects intended to advance their ability to develop and deliver a superior and more competitive product to the warfighter. The requirement to hold a technical interchange is not a de facto approval process and will not favor one company over another. These technical interchanges are informal engagements designed to promote transparency, communication, and dialogue between IR&D participants and DoD. The intended outcome is to ensure that both IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and to provide industry with some feedback on the relevance of proposed and completed IR&D work. Consistent with that objective, the rule requires only that a technical interchange take place and that the date of the interchange and name of the DoD personnel contacted be reported to the defense innovation marketplace.

3. Existing Regulations and Practices

Comment: One respondent stated that the rule is not necessary and that the current text at DFARS 231.205-18 is sufficient. Another respondent questioned the proposed rule's statement that ``there are no known significant approaches to the rule that would meet the requirements'' when agencies are already successfully holding voluntary technical interchanges that are achieving the regulation's goals.

Response: The existing language at DFARS 231.205-18 does not include a requirement for technical interchanges. These technical interchanges are key to ensuring that both IR&D performers and their potential DoD customers have sufficient awareness of each other's effort. The fact that voluntary technical interchanges already exist, and are successfully achieving the regulation's goals, is consistent with the overall approach to the rulemaking effort.

4. Adverse Impact on Innovation

Comment: Several respondents stated that the proposed rule will adversely impact innovative ideas. Another respondent cautioned that the rule will create a barrier to innovation and entry to the marketplace.

Response: DoD believes that this rule supports and promotes innovative ideas and technologies, and will incentivize entry into the marketplace by ensuring that IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and that DoD can provide industry with feedback on the relevance of proposed and completed IR&D work.

5. Cost/Administrative Burden

Comment: A number of respondents stated that the rule will cost taxpayers more. One respondent stated that the rule will impose an administrative burden on contractors, administrative contracting officers (ACOs), and DoD personnel. Another respondent expressed concern with the significant costs associated with planning and conducting technical interchanges and the costs accrued prior to the technical interchange.

Response: While acknowledging that this rule imposes a slight administrative burden on contractors, ACOs, and DoD personnel, such burdens are overshadowed by the net benefit of ensuring that IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and that DoD can provide industry with feedback on the relevance of proposed and completed IR&D work. Moreover, the long-term priorities outlined in Better Buying Power 3.0 are a strategic imperative for DoD.

6. Process Issues and Practicality

Comment: A number of respondents stated that the rule will create an unnecessary bureaucracy, citing concerns that the rule will create a ``bottleneck'' that will slow down industry IR&D efforts and require the shifting of DoD technical resources to evaluate the IR&D projects and respond to contractors. The respondents claimed that the requirement to conduct and document the interchange of information between contractor and DoD personnel with respect to IR&D projects prior to their commencement is not practical.

Response: The rule does not establish a requirement for DoD to evaluate or approve IR&D projects; rather, the rule requires contractors to communicate new IR&D efforts to appropriate DoD personnel via a technical interchange prior to the initiation of the investment. The requirement for technical interchanges is an extension of DoD's long-standing policy to engage in robust communication with all entities supporting the defense industrial base and promote transparent engagement with IR&D participants regarding research and development, including basic research, applied research, and development. This policy is outlined in DoD Instruction 3204.01, ``DoD Policy for Oversight of Independent Research and Development (IR&D).'' The technical interchanges are intended to be informal communications between IR&D participants and DoD. Their objective is to ensure that both IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and to provide industry with some feedback on the relevance of proposed and completed IR&D work. Note, the requirement for including a summary of results in the annual update on IR&D projects is removed in the final rule, thus easing any administrative burden.

7. Statutory Concerns

Comment: A number of respondents stated that the rule is in violation of existing statute and recreates the historic DoD technical reviews rejected by Congress.

Response: This rule is consistent with 10 U.S.C 2372 subsection (a), Regulations, which states that the Secretary of Defense shall prescribe regulations governing the payment, by the Department of Defense, of expenses incurred by contractors for independent research and development and bid and proposal (B&P) costs. To that extent, subsection (c), Additional Controls, states that the regulations prescribed pursuant to subsection (a) may include implementation of regular methods for transmission from contractors to the Department of Defense, in a reasonable manner, of information regarding progress by the contractor on the contractor's independent research and development programs.

8. DoD Responsiveness

Comment: A number of respondents expressed concern with DoD responsiveness to requests for technical interchanges, citing that the rule fails to outline DoD's obligations and unfairly saddles contractors with the full consequence of DoD's failure to take part in a technical interchange. One respondent is concerned that the proposed rule creates practical, time, resource, and data disclosure challenges for conducting technical interchanges, and that DoD Components will not have an adequate number of personnel designated to conduct the technical interchanges in the time mandated. Another respondent questioned the recourse contractors will have if DoD personnel refuse to engage.

Response: To assist contractors in ensuring that technical interchanges take place in a timely manner, the rule has been revised to identify the primary DoD focal point for technical interchanges as OASD R&E. Contact information for this office is available at http://www.acq.osd.mil/rd/contacts/. If a Contractor experiences difficulties scheduling a technical interchange, or does not have a point of contact for the technical interchange, the contractor may contact OASD R&E.

9. Protection of Data

Comment: Several respondents were concerned about reporting and protection of proprietary and classified information.

Response: This rule merely requires reporting of the name of the technical or operational DoD Government employee and the date of the technical interchange. The requirement to include a summary of results of the technical interchange in the annual update is removed in the final rule. There is an existing requirement at DFARS 231.205-18(c)(iii)(C) for submission of project summaries and annual updates to the DTIC Web site. It remains DoD policy to protect proprietary information in accordance with applicable laws and agency regulations. Firms have discretion regarding presentation of information they regard as sensitive when they submit project summaries; however, only unclassified IR&D project summary information should be provided. Both database screens and printouts will be marked ``Proprietary.'' Any markings on attachments provided by a contractor will not be altered.

Adequate controls are in place to protect information from compromise. It is DoD policy to protect national security information in accordance with national-level policy issuances. In accordance with DoD Instruction 5200.01, DoD Information Security Program and Protection of Sensitive Compartmented Information, DoD shall--

Identify and protect national security information and controlled unclassified information (CUI) in accordance with national level policy issuances.

Promote information sharing, facilitate judicious use of resources, and simplify management through implementation of uniform and standardized processes.

Protect CUI from unauthorized disclosure by appropriately marking, safeguarding, disseminating, and destroying such information.

10. Additional Information

Comment: One respondent stated that DFARS language should be added stating that the Government may require additional information from the contractor.

Response: The objective of the technical interchanges is to ensure that both IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and to provide industry with some feedback on the relevance of proposed and completed IR&D work. Within that framework, the DoD personnel involved in technical interchanges will not be seeking additional information, i.e., formal documentation from the contractor.

11. Reporting Burden

Comment: One respondent stated that the proposed rule inaccurately suggests that it does not require changes to reporting or recordkeeping. Another respondent stated that the rule adds to the contractor's existing reporting burden.

Response: As stated in the proposed rule, the impact of this rule on a contractor's reporting burden is negligible. Currently, contractors are required to (1) report IR&D projects to the Defense Technical Information Center (DTIC) using the DTIC's online IR&D database and (2) update these inputs at least annually and when the project is completed. This rule merely changes the web address for submission of this report and requires major contractors to include in the report the name of the Government employee with which a technical interchange was held prior to initiation of the IR&D effort and the date of such interchange. In addition, the requirement to include a summary of results in the annual update on IR&D projects is removed in the final rule.

12. DoD Government Employee

Comment: One respondent stated that the rule does not specify the needed level of detail for the technical interchange or ``who'' in DoD should receive the technical information. Another respondent is concerned that the proposed rule does not adequately define the term ``DoD Government employee.''

Response: In accordance with the rule, contractors shall engage in technical interchanges with a technical or operational DoD Government employee who is informed of related ongoing and future potential interest opportunities. If the contractor does not have a point of contact for the technical interchange, the contractor may contact OASD R&E. Contact information for OASD R&E can be found at http://www.acq.osd.mil/rd/contacts/.

13. Advance Approval Requirement

Comment: One respondent recommended eliminating the DoD advance approval requirement of contractor's IR&D efforts.

Response: The rule does not contain a requirement for DoD to approve a contractor's IR&D efforts in advance.

14. Administrative Guidance/Standards for Technical Interchanges

Comment: One respondent asked if DoD will write additional administrative rules to outline DoD's obligation to participate in technical interchanges. Another respondent suggested that DoD adopt administrative rules, best practices, and guidance to counter the inconsistent support among DoD agencies and provide uniformity to the technical interchange process.

Response: The rule is intentionally crafted to allow informal technical interchanges to ensure that IR&D performers and their potential DoD customers have sufficient awareness of each other's efforts and that DoD can provide industry with feedback on the relevance of proposed and completed IR&D work.

15. Cost Allowability

Comment: One respondent recommended DoD reconsider the prerequisite for a determination of allowability. Another recommended the rule include a proviso allowing costs expended before the effective date of the final rule. One respondent states that DoD should not make allowability of IR&D costs contingent on the timing of technical exchange meetings. One respondent was concerned that the proposed rule restricts the allowability of costs related to mandatory technical interchanges; specifically, the proposed rule states that the contractor must engage in a technical interchange ``before IR&D costs are generated.'' Another respondent was concerned of the lack of specificity regarding verification for purposes of allowability determinations.

Response: The requirement to determine the allowability of IR&D costs is a preestablished requirement in DFARS 231.205-18(c)(iii)(C), which sets forth the requirement that for a contractor's annual IR&D costs to be allowable, the IR&D projects generating the costs must be reported to DTIC using the DTIC's online input form. This rule merely adds the requirement that contractors also engage in a technical interchange with a technical or operational DoD Government employee, and record the name of the employee and the date the technical interchange occurred using DTIC's online form. The rule applies to IR&D projects initiated in the contractor's fiscal year 2017 and later. However, as with all DFARS rules, unless otherwise stated, the rule is only effective upon publication. Therefore, IR&D costs incurred prior to the effective date of this rule are not subject to the requirements of this rule.

16. Dollar Threshold

Comment: Two respondents suggested DoD establish a dollar threshold for requiring technical interchanges.

Response: The requirements of this rule only apply to major contractors. Establishing an IR&D project dollar threshold would require speculative estimate of the IR&D project costs and, as such, would be impossible to administer, thus defeating the purpose of the technical interchange.

17. Cost Bases and Pools

Comment: Two respondents stated that the rule will require contractors to establish multiple accounting costs bases and pools.

Response: This rule does not impose new cost accounting requirements. The IR&D cost principle at Federal Acquisition Regulation (FAR) 31.205-18(b) states, ``The requirements of 48 CFR 9904.420, Accounting for independent research and development costs and B&P costs, are incorporated in their entirety. . . .'' The cost accounting standard at 48 CFR 9904.420-40, Fundamental requirement, paragraph (a) states, ``The basic unit for identification and accumulation of IR&D and B&P costs shall be the individual IR&D or B&P project.''

18. Annual Briefings/Frequency

Comment: A number of respondents questioned the frequency of the technical interchanges and whether they will be required annually. One respondent stated that many IR&D projects span several years, changing and evolving through the process, and that it is not clear whether these projects would need to be stopped and briefed annually. One respondent noted that one of the benefits of contractor IR&D is the ability to rapidly change direction as result of discovery or in response to a shifting market or defense environment.

Response: There is no requirement to brief IR&D projects annually. The rule requires the technical interchange to occur at the onset of the IR&D project, prior to generating any costs, for the annual IR&D costs to be considered allowable.

C. Other Changes

This final rule includes the following technical amendments:

1. The proposed paragraph regarding contractors that do not meet the threshold of major contractor is renumbered as DFARS 231.205-18(c)(iv) in the final rule.

2. At DFARS 242.771-3, the entity responsible for a regular method for communication is changed from the ``Director, Defense Research and Engineering (USD(A&T)DDR&E)'' to the ``Office of the Assistant Secretary of Defense for Research and Engineering (OASD R&E).''

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

This rule does not add any new provisions or clauses or impact any existing provisions or clauses.

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:

The objective of this final rule is to (1) ensure that both independent research and development (IR&D) performers and their potential DoD customers have sufficient awareness of each other's efforts and (2) provide industry with feedback on the relevance of proposed and completed IR&D work.

There were no significant issues raised by the public in response to the initial regulatory flexibility analysis.

DoD does not expect this final rule to have a significant economic impact on a substantial number of small entities, because DFARS 231.205-18(c)(iii) applies only to major contractors, which are defined as those whose covered segments allocated a total of more than $11 million in IR&D and bid and proposal costs to covered contracts during the preceding fiscal year. The final rule requires major contractors to communicate proposed new IR&D efforts to DoD personnel in a technical interchange prior to the initiation of such investments.

This rule impacts existing reporting and recordkeeping requirements in a very minor way. Only one element is being added to the existing reporting requirement to require major contractors to include the name of the DoD employee with which a technical interchange was held and the date of such interchange.

There are no known significant alternatives to the rule. The rule impacts major contractors and, as such, will have minimal impact on small entities.

VI. Paperwork Reduction Act

The final rule affects the information collection requirements at Defense Federal Acquisition Regulation Supplement (DFARS) 231.205-18, currently approved under the Office of Management and Budget (OMB) Control Number 0704-0483, entitled ``Independent Research and Development Technical Descriptions,'' in accordance with the Paperwork Reduction Act (44 U.S.C. chapter 35); however, the impact of this rule is negligible. Currently, contractors are required to (1) report IR&D projects to DTIC using the DTIC's online IR&D database and (2) update these inputs at least annually and when the project is completed. This rule merely changes the web address for submission of this report and requires major contractors to include in the report the name of the DoD Government employee with which a technical interchange was held and the date of such interchange.

List of Subjects in 48 CFR Parts 231 and 242

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR parts 231 and 242 are amended as follows:

1. The authority citation for 48 CFR parts 231 and 242 continues to read as follows:

Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

2. Amend section 231.205-18 by--

a. Revising paragraph (c)(iii)(C);

b. Redesignating paragraphs (c)(iv) and (v) as paragraphs (c)(v) and (vi), respectively; and

c. Adding a new paragraph (c)(iv).

The revision and addition read as follows:

231.205-18 Independent research and development and bid and proposal costs.

* * * * *

(c) * * *

(iii) * * *

(C) For annual IR&D costs to be allowable--

(1) The IR&D projects generating the costs must be reported to the Defense Technical Information Center (DTIC) using the DTIC's online input form and instructions at http://www.defenseinnovationmarketplace.mil/;

(2) The inputs must be updated at least annually and when the project is completed;

(3) Copies of the input and updates must be made available for review by the cognizant administrative contracting officer (ACO) and the cognizant Defense Contract Audit Agency auditor to support the allowability of the costs; and

(4) For IR&D projects initiated in the contractor's fiscal year 2017 and later, as a prerequisite for the subsequent determination of allowability, the contractor shall--

(i) Engage in a technical interchange with a technical or operational DoD Government employee before IR&D costs are generated so that contractor plans and goals for IR&D projects benefit from the awareness of and feedback by a DoD Government employee who is informed of related ongoing and future potential interest opportunities. If the contractor does not have a point of contact for the technical interchange, the contractor may contact the Office of the Assistant Secretary of Defense for Research and Engineering (OASD R&E). Contact information for OASD R&E can be found at http://www.acq.osd.mil/rd/contacts/; and

(ii) Use the online input form for IR&D projects reported to DTIC to document the technical interchange, which includes the name of the DoD Government employee and the date the technical interchange occurred.

(iv) Contractors not meeting the threshold of a major contractor are encouraged to use the DTIC online input form to report IR&D projects to provide DoD with visibility into the technical content of the contractors' IR&D activities.

* * * * *

PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES

242.771-3 [Amended]

3. In section 242.771-3, amend paragraph (d) introductory text by removing ``Director, Defense Research and Engineering (OUSD(AT&L)DDR&E)'' and adding ``Office of the Assistant Secretary of Defense for Research and Engineering (OASD R&E)'' in its place.

[FR Doc. 2016-26366 Filed 11-3-16; 8:45 am]

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[Federal Register Volume 81, Number 214 (Friday, November 4, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-26367]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 247

[Docket DARS-2016-0036]

RIN 0750-AJ09

Defense Federal Acquisition Regulation Supplement: Contiguous United States (DFARS Case 2016-D005)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to remove the acronym for contiguous United States.

DATES: Effective November 4, 2016.

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

SUPPLEMENTARY INFORMATION:

I. Background

DoD is amending the DFARS to remove the acronym for contiguous United States (CONUS). While the term ``contiguous United States (CONUS)'' is defined in Federal Acquisition Regulation (FAR) 2.101, the acronym is sometimes misinterpreted as ``continental United States.'' Spelling out the acronym in the DFARS will eliminate any confusion.

II. Discussion and Analysis

DFARS 274.301 is amended to update the reference to transportation guidance in DFARS Procedures, Guidance, and Information and, as a result, remove the acronym CONUS.

DFARS 274.301-71 is amended to spell out ``the contiguous United States'' in lieu of CONUS.

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 case does not add any new provisions or clauses or impact any existing provisions or clauses.

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

The statute that applies to the publication of the FAR is 41 U.S.C. 1707 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 is just removing and spelling out the acronym for ``contiguous United States''.

V. 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.

VI. Regulatory Flexibility Act

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

VII. 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 Part 247

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 247 is amended as follows:

PART 247--TRANSPORTATION

1. The authority citation for 48 CFR part 247 continues to read as follows:

Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

247.301 [Amended]

2. In section 247.301, remove the phrase ``that require shipments to destinations outside CONUS''.

247.301-71 [Amended]

3. In section 247.301-71, remove ``outside CONUS'' and add ``outside the contiguous United States'' in its place.

[FR Doc. 2016-26367 Filed 11-3-16; 8:45 am]

BILLING CODE 5001-06-P

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[Federal Register Volume 81, Number 214 (Friday, November 4, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-26368]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212 and 252

[Docket DARS-2016-0015]

RIN 0750-AI93

Defense Federal Acquisition Regulation Supplement: Pilot Program on Acquisition of Military Purpose Nondevelopmental Items (DFARS Case 2016-D014)

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

ACTION: Final rule.

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SUMMARY: DoD is adopting as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2016 that changes the criteria for the pilot program for acquisition of military purpose nondevelopmental items.

DATES: Effective November 4, 2016.

FOR FURTHER INFORMATION CONTACT: Ms. Carrie Moore, telephone 571-372-6093.

SUPPLEMENTARY INFORMATION:

I. Background

DoD published an interim rule in the Federal Register at 80 FR 42557 on June 30, 2016, to implement section 892 of the National Defense Authorization Action (NDAA) for Fiscal Year (FY) 2016 (Pub. L. 114-92). Section 892 removes the requirements under the pilot program for the use of competitive procedures and for awards to be made to nontraditional defense contractors. Section 892 also increases the threshold for use of the pilot program to contracts up to $100 million. Two respondents submitted public comments in response to the interim rule.

II. Discussion and Analysis

DoD reviewed the public comments in the development of the final rule. A discussion of the comments received and the changes made to the rule as a result of those comments is provided, as follows:

A. Summary of Significant Changes From the Interim Rule

One change is made in the final rule as a result of a public comment. The prescription at DFARS 212.7103 for DFARS provision 252.212-7002, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, is revised to clarify its use in solicitations when use of the pilot program is planned and the applicability criteria are met.

B. Analysis of Public Comments

1. General

Comment: One respondent recommended rewording the prescription at DFARS 212.7103 to clarify proper use of the provision.

Response: The prescription at DFARS 212.7103 is revised to state, ``Use the provision at 252.212-7002, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, in solicitations when use of the pilot program is planned and the applicability criteria of

212.7102-1 are met.''

2. Implementation

Comment: One respondent suggested revising the text at DFARS 212.7102-1(d) to capture the removal of the requirement to use competitive procedures under the pilot program by adding, ``Each contract entered into under the pilot program shall be exempt from the requirement for the use of competitive procedures.''

Response: The respondent's suggestion is outside the scope of the authority provided by section 892. The statute removes the requirement that each contract under the pilot program be awarded using the competitive procedures at 10 U.S.C. chapter 137. Section 892 does not provide any further exemptions to the competition requirements outlined in the FAR and DFARS. The interim rule accomplishes the goal of section 892 by removing from the applicability criteria for the pilot program at DFARS 212.7102-1 the requirement to award using competitive procedures. No additional text is required.

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

The requirements of section 892 of the NDAA for FY 2016 do not apply to contracts at or below the SAT. Additionally, while FAR part 12 commercial procedures may be used to acquire military purpose nondevelopmental items under this pilot program, the rule does not apply to 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 (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

This final rule amends the Defense Federal Acquisition Regulation Supplement (DFARS) to implement section 892 of the National Defense Authorization Act for Fiscal Year 2016. The objective of the rule is to modify the criteria for the pilot program at DFARS 212.71, Pilot Program for the Acquisition of Military Purpose Nondevelopmental Items, to increase the opportunities for use of the program. The rule removes the criteria that contracts must be awarded to ``nontraditional defense contractors'' and awards must be made using competitive procedures. The rule also increases the dollar threshold for the program to allow use on procurements up to $100 million.

There were no significant issues raised by the public in response to the initial regulatory flexibility analysis provided in the interim rule.

The changes to the pilot program will have a positive economic impact on small businesses that did not meet the definition of ``nontraditional defense contractors'' and have developed products that could be applied to a military purpose. According to data available in the Federal Procurement Data System for FY 2015, 6,514 unique small businesses were awarded a DoD contract in excess of the certified cost and pricing threshold ($750,000) and therefore did not meet the definition of ``nontraditional defense contractor.'' Prior to the changes made by this rule these small businesses were not eligible for an award under the pilot program. These small businesses will now be able to participate in the pilot program if they are developing a military purpose nondevelopmental item.

This rule does not impose any new reporting, recordkeeping, or other compliance requirements. No significant alternatives were identified during the development of this rule.

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 and 252

Government procurement.

Jennifer L. Hawes,

Editor, Defense Acquisition Regulations System.

Accordingly, the interim rule amending 48 CFR parts 212 and 252, which was published in the Federal Register at 80 FR 42557 on June 30, 2016, is adopted as a final rule with the following change:

PART 212--ACQUISITION OF COMMERCIAL ITEMS

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

Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

2. Revise section 212.7103 to read as follows:

212.7103 Solicitation provision.

Use the provision at 252.212-7002, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, in solicitations when use of the pilot program is planned and the applicability criteria of 212.7102-1 are met.

[FR Doc. 2016-26368 Filed 11-3-16; 8:45 am]

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