[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-30212]

Vol. 81

Tuesday,

No. 244

December 20, 2016

Part VI

Department of Defense

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General Services Administration

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National Aeronautics and Space Administration

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48 CFR Chapter 1

Federal Acquisition Regulations; Rules

Federal Register / Vol. 81 , No. 244 / Tuesday, December 20, 2016 / Rules and Regulations

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Chapter 1

[Docket No. FAR 2016-0051, Sequence No. 8]

Federal Acquisition Regulation; Federal Acquisition Circular 2005-94; Introduction

AGENCY: Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Summary presentation of final rules.

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SUMMARY: This document summarizes the Federal Acquisition Regulation (FAR) rules agreed to by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) in this Federal Acquisition Circular (FAC) 2005-94. A companion document, the Small Entity Compliance Guide (SECG), follows this FAC. The FAC, including the SECG, is available via the Internet at http://www.regulations.gov.

DATES: For effective dates see the separate documents, which follow.

FOR FURTHER INFORMATION CONTACT: The analyst whose name appears in the table below in relation to the FAR case. Please cite FAC 2005-94 and the specific FAR case number. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202-501-4755.

Rules Listed in FAC 2005-94

Item

Subject

FAR Case

Analyst

I

Privacy Training

2010-013

Gray.

II

Payment of Subcontractors

2014-004

Glover.

SUPPLEMENTARY INFORMATION: Summaries for each FAR rule follow. For the actual revisions and/or amendments made by these rules, refer to the specific item numbers and subjects set forth in the documents following these item summaries. FAC 2005-94 amends the FAR as follows:

Item I--Privacy Training (FAR Case 2010-013)

This final rule amends the Federal Acquisition Regulation to clarify the training requirements for contractors whose employees will have access to a system of records on individuals or handle personally identifiable information. These training requirements are consistent with the Privacy Act of 1974, 5 U.S.C. 552a, and OMB Circular A-130, Managing Federal Information as a Strategic Resource. Prime contractors are required to flow down these requirements to all applicable subcontracts.

Item II--Payment of Subcontractors (FAR Case 2014-004)

This final rule amends the Federal Acquisition Regulation (FAR) to implement section 1334 of the Small Business Jobs Act of 2010 and the Small Business Administration's (SBA) final rule, published July 16, 2013. If a contract requires a subcontracting plan, the prime contractor must notify the contracting officer in writing if the prime contractor pays a reduced payment to a small business subcontractor, or an untimely payment if the payment to a small business subcontractor is more than 90 days past due for supplies or services for which the Government has paid the contractor. The contractor is also to include the reason for the reduction in payment or failure to pay. A contracting officer will then use his or her best judgment in determining whether the reduced or untimely payments were justified. The contracting officer must record the identity of a prime contractor with a history of three or more unjustified reduced or untimely payments to subcontractors within a 12-month period under a single contract, in the Federal Awardee Performance and Integrity Information System (FAPIIS). This regulation will benefit small business subcontractors by encouraging large business prime contractors to pay small business subcontractors in a timely manner and at the agreed upon contractual price.

Dated: December 9, 2016.

William F. Clark,

Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

Federal Acquisition Circular (FAC) 2005-94 is issued under the authority of the Secretary of Defense, the Administrator of General Services, and the Administrator for the National Aeronautics and Space Administration.

Unless otherwise specified, all Federal Acquisition Regulation (FAR) and other directive material contained in FAC 2005-94 is effective December 20, 2016 except for items I, and II, which are effective January 19, 2017.

Dated: December 9, 2016.

Claire M. Grady,

Director, Defense Procurement and Acquisition Policy.

Dated: December 8, 2016.

Jeffrey A. Koses,

Senior Procurement Executive/Deputy CAO, Office of Acquisition Policy, U.S. General Services Administration.

Dated: December 8, 2016.

William P. McNally,

Assistant Administrator, Office of Procurement, National Aeronautics and Space Administration.

[FR Doc. 2016-30212 Filed 12-19-16; 8:45 am]

BILLING CODE 6820-EP-P

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[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-30213]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR parts 1, 24, and 52

[FAC 2005-94; FAR Case 2010-013; Item I; Docket No. 2010-0013; Sequence No. 1]

RIN 9000-AM06

Federal Acquisition Regulation; Privacy Training

AGENCY: Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) to require that contractors, whose employees have access to a system of records or handle personally identifiable information, complete privacy training.

DATES: Effective: January 19, 2017.

FOR FURTHER INFORMATION CONTACT: Mr. Charles Gray, Procurement Analyst, at 703-795-6328 for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202-501-4755. Please cite FAC 2005-94, FAR Case 2010-013.

SUPPLEMENTARY INFORMATION:

I. Background

DoD, GSA, and NASA published a proposed rule in the Federal Register at 76 FR 63896 on October 14, 2011, to provide guidance to contractors regarding the requirement to complete training that addresses the protection of privacy in accordance with the Privacy Act of 1974, 5 U.S.C. 552a, as amended, and the handling and safeguarding of personally identifiable information (PII). The rule ensures that contractors identify employees who handle PII, have access to a system of records, or design, develop, maintain, or operate a system of records. These employees are required to complete initial privacy training and annual privacy training thereafter. A contractor who has employees involved in these activities is also required to maintain records indicating that its employees have completed the requisite training and provide these records to the contracting officer upon request. In addition, the prime contractor is required to flow-down these requirements to all applicable subcontracts. Fifteen respondents submitted comments, including comments regarding the Initial Regulatory Flexibility Analysis (IRFA), and the Paperwork Reduction Act (PRA) analysis.

II. Discussion and Analysis

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments is provided as follows (comments pertaining to the IRFA and PRA analysis are addressed in sections V and VI of this preamble):

A. Summary of Significant Changes

The final rule clarifies the responsibilities for contractors awarded contracts involving access to PII and streamlines the options for providing training. These clarifications include--

Alternate I of the clause is amended to replace the proposed text, which gave the option to agencies to have contractors furnish their own training materials. The final rule no longer contains this option and what was Alternate II in the proposed rule now becomes Alternate I in the final rule; and

The applicability of the rule to commercial items is clarified.

The final rule also provides a number of clarifications consistent with Office of Management and Budget (OMB) Circular A-130, which was revised on July 28, 2016. These clarifications address the substance of the minimal privacy training requirements, to include--

A revised definition for PII;

The requirement for foundational as well as more advanced levels of privacy training;

The requirement for there to be measures in place to test the knowledge level of the employee; and

The requirement for role-based privacy training.

B. Analysis of Public Comments

1. Requests To Withdraw the Proposed Rule

Comment: Several respondents suggested that the proposed rule should be withdrawn, given the ``considerable burden implications and the fact that the proposed rule does not provide compelling justification.'' These respondents stated that withdrawing the rule would ``avoid causing confusion and redundancy.'' The respondents noted that the requirements of the Privacy Act have been in place for 35 years and stated that the Councils did not explain why the Government believes ``that additional protections are now needed.''

Response: There are a number of applicable authorities, beyond the Privacy Act, that address the responsibility for Federal agencies to ensure that Government and contractor personnel are instructed on compliance requirements with the laws, rules, and guidance pertaining to handling and safeguarding PII. This rule establishes minimum requirements consistent with those authorities to ensure consistency across the Government.

Further, the increasing portability of data and various instances of loss or potential disclosure of protected information have resulted in greater scrutiny regarding the Government's information collection practices and information security management.

2. Applicability to Commercial Item Contracts

Comment: Several respondents expressed concern with the applicability to commercial item contracts. The respondents considered that excluding commercial item contracts from the privacy training requirement failed to take into account the Government's increased use of FAR part 12 purchases; that training on the improper release of Privacy Act information should not exempt FAR part 12 contracts; and, overall, the decision to exempt commercial item contracts would not serve the Government's best interests. One respondent had a different perspective on the proposed rule, and complimented the FAR Council for exempting commercial item contracts from the privacy training requirement. However, the respondent noted that this policy was not reflected in the proposed rule's clause or clause prescription. This respondent also recommended that all subcontracts for commercial items be exempted from the privacy training requirement.

Response: The final rule clarifies that the privacy training requirement applies to contracts and subcontracts for commercial items when they involve access to a system of records. Exempting commercial item contracts and subcontracts would exclude a significant portion of Government contracts that involve the design, development, operation, or maintenance of a system of records and would therefore diminish the effectiveness of the rule.

3. Training

Comment: Respondents had multiple concerns related to the content of the required training, such as whether the training would be best developed by the agency or by the contractor and which contractor employees should be required to take the training. Several respondents questioned the efficacy of having contractor employees who work under more than one agency's contracts potentially taking multiple courses. Other respondents questioned who would decide if the training would be provided by the agency or by the contractor, e.g., could the contractor decide to forego an agency course in favor of its own course? One respondent recommended that training include instruction on the Privacy Act's transparency requirements. Another respondent questioned how agencies would be held responsible for providing the training in a timely manner. Other respondents questioned which contractor employees should be required to complete the training, whether subcontractors would be required to take the training, and whether certain professional positions, such as psychologists, should be exempt from the training based on their professional training.

Response: The final rule allows the contractor flexibility to utilize privacy training from any source that meets the minimum content requirements, unless the agency specifies in the contract that only agency-provided training is acceptable (by using the clause with its Alternate I, as specified at FAR 24.302(b)). This guidance on flexibility is also provided directly in the clause at 52.224-3(c)(2). This is intended to minimize or eliminate duplicative or overlapping training. Initial training is required and annual training thereafter.

Finally, consistent with the revisions made to OMB Circular A-130, the requirements for privacy training at 24.301(b) and the clause at 52.224-3(c) are clarified to ensure privacy training is role-based, provides foundational as well as more advanced levels of training, and that measures are in place to test the knowledge level of users. At a minimum, privacy training shall cover--

The provisions of the Privacy Act of 1974 (5 U.S.C. 552a), including penalties for violations of the Act;

The appropriate handling and safeguarding of PII;

The authorized and official use of a system of records or any other PII;

Restrictions on the use of unauthorized equipment to create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise access, or store PII;

The prohibition against the unauthorized use of a system of records or unauthorized disclosure, access, handling, or use of PII or systems of records; and

Procedures to be followed in the event of a potential or confirmed breach of a system of records or unauthorized disclosure, access, handling, or use of PII.

4. Flowdown

Comment: A respondent noted that, where the prime contractor is covered by the rule, the training requirement will likely flow down to subcontractors and lower tier contractors. Accordingly, the respondent recommended that the mandatory provision at 52.224-3(d) include a provision that exempts from the mandatory flow down any subcontract(s) specific to commercial items.

Response: The requirements of this rule will flow down to all subcontractors involved with the handling and safeguarding of PII. These protections are necessary when the work requires contractor employees and subcontractor employees to have access to systems of records, handling PII, or the design, development, maintenance, or operation of a system of records on behalf of the Federal Government.

5. Definitions

Comment: A respondent recommended including definitions of ``restrictions,'' as used in FAR 24.301(c)(4) and Alternate I, and ``access,'' as used in FAR 24.301, 24.302, and the clause at 52.224-3. Response: These are not unique words. Therefore, the Councils will use the standard dictionary definitions for these terms.

6. Accountability and Audit

Comment: One respondent recommended that, during an audit, the contractor must produce a list of the individuals who completed training, or have a copy of the employee's training certificate in the employee's personnel records.

Response: The final rule requires the contractor to maintain privacy training documentation and provide it upon request to the Government agency making the request. This may be requested, when necessary, to ensure effective management and oversight of this annual privacy training requirement.

7. Other Comments

Comment: One respondent recommended that FAR 24.302 be revised to clarify who is responsible for determining whether the Statement of Work involves a system of records. Another respondent recommended that, if a final rule were promulgated, it would be appropriate to recognize a specific certification.

Response: As with all clause prescriptions, the contracting officer will determine whether the clause applies. In addition, the FAR covers all options for meeting the training requirement.

Comment: Several respondents submitted editorial comments on the proposed rule. One respondent stated that there is no need to create a separate subpart within FAR part 24. In addition, this respondent provided suggestions on the proper format for citations within the FAR. Another respondent recommended additional coverage regarding the Government-provided training method and also recommended a revision to the last sentence in FAR 24.301(b). A third respondent recommended using the term ``personally identifiable'' in lieu of ``privacy.''

Response: The Councils determined that there is a need for a separate subpart 24.3 and have retained it in the final rule. The required training does not encompass solely the Privacy Act; it is only one of the areas listed that must be addressed as part of privacy training.

Other areas include--

The appropriate handling and safeguarding of PII; the authorized and official use of systems of records or any other PII; restrictions on the use of unauthorized equipment to create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise access, or store PII; the prohibition against unauthorized access, handling, or use of PII or systems of records; and

Procedures to be followed in the event of a suspected or confirmed breach of a system of records or an unauthorized disclosure, access, handling, or use of PII.

This subject matter does not fit within either of the existing subparts of FAR part 24, therefore, a separate subpart 24.3 is needed.

The remaining editorial comments have been considered for inclusion in FAR subpart 24.

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

This rule is applicable to contracts and subcontracts at or below the simplified acquisition threshold (SAT) and to contracts and subcontracts for commercial-items, including contracts and subcontracts for commercially available off-the-shelf (COTS) items. The statutory authority for this rule, the Privacy Act of 1974, 5 U.S.C. 552a, predates the exemptions in 41 U.S.C. 1905, 1906, and 1907, which stipulate that a provision of law enacted after October 13, 1994 shall not be made applicable to contracts or subcontracts, unless the FAR Council or the Administrator of the Office of Federal Procurement Policy makes a written determination that such exemption would not be in the best interests of the Federal 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 a significant regulatory action and, therefore, was 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

DoD, GSA, and NASA have prepared a final regulatory flexibility analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

The objective of the rule is to ensure that contractor employees complete initial and annual privacy training if the employees have access to a system of records, handle personally identifiable information (PII), or design, develop, maintain, or operate a system of records involving PII on behalf of the Government.

One public comment was received in response to the Initial Regulatory Flexibility Analysis, which was published in the Federal Register at 76 FR 63896 on October 14, 2011:

Comment: The Initial Regulatory Flexibility Analysis (IRFA), which addressed the impact of the rule on small entities, should assess the impact this rule may have on the research community's funding of sponsored research, as this group is likely to be adversely affected by the proposed rule, in the respondent's opinion.

Response: Research institutions are included in the Regulatory Flexibility Act's definition of a small entity and were thus given the same consideration in the IRFA analysis as other small entities. The analysis in this FRFA has been revised to incorporate commercial item contracts. Therefore, the impact on research institutions has been accommodated whether the institution was awarded a negotiated contract or a FAR part 12 commercial item contract. Because the FAR does not address grants or cooperative agreements, the FRFA does not include consideration of such agreements in the analysis. Research institutions, or any other small entities, will not bear any significant impact resulting from this rule, given that the requirements of the Privacy Act, including training on the Act's requirements, have been in place for over 40 years and this rule just establishes minimum requirements for Privacy Act training, to ensure consistency across the Government.

The rule requires all contractors with contracts that require employees to have access to PII to complete training that addresses the statutory requirements for protection of privacy, in accordance with the Privacy Act (5 U.S.C. 552a), and the handling and safeguarding of PII.

In the IRFA, it was estimated that approximately 1,483 small businesses would be impacted. However, because the final rule clarifies its applicability to commercial item contracts, the number of small entities previously estimated to be impacted by this rule has been revised as described in the following paragraphs:

Information obtained from the Federal Procurement Data System (FPDS) for fiscal year (FY) 2015 reveals that approximately 10,607 unique vendors received contracts that most likely entailed the design, development, maintenance or operation of a system of records; required access to a system of records; or handled PII from individuals, on behalf of the Government. The estimated number of subcontractors who likewise will be involved in these activities is 21,214, or double the amount of prime contractors. In all, the total number of contractors and subcontractors (including contracts and subcontracts for commercial items) that may be subject to the requirements of this rule is 31,821. Examination of FY 2015 FPDS data also reveals that approximately 61 percent of these contractors and subcontractors are small business entities. Based on this information, the following analysis was used to determine the number of small businesses that may be impacted by this rule: Small businesses that may receive contracts = (10,607 x .61): 6,470 Small businesses that may receive subcontracts = (21,214 x .61): 12,941 Total number of small businesses that may be impacted by rule: 19,411 There is minimal recordkeeping associated with this rule. Contractors will likely maintain employee training records for privacy training similar to how they maintain their employees' other training records. There are no required formats or templates for documentation, and documentation will be retained by the contractor in most cases. The Government will likely request a firm's training documentation only when necessary to ensure effective management and oversight.

The final rule addresses several steps to minimize the economic impact on small entities, most notably by clarifying responsibilities and streamlining the options for providing privacy training. This final rule also removes from the clause consideration of agency-specific training elements, while retaining the required minimum training elements. Agency-specific training elements are provided in Alternate I of the clause.

Interested parties may obtain a copy of the FRFA from the Regulatory Secretariat Division. The Regulatory Secretariat Division has submitted a copy of the FRFA to the Chief Counsel for Advocacy of the Small Business Administration.

VI. Paperwork Reduction Act

The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The rule contains information collection requirements. OMB has cleared the information collection requirement under OMB Control Number 9000-0182, entitled Privacy Training, in the amount of 97,670 public burden hours. Two respondents submitted comments in response to the initial notice published in the preamble of the Federal Register notice published at 76 FR 63896, on October 14, 2011. Both of the respondents submitted similar comments as follows:

Comment: The respondents stated that the public's Paperwork Reduction Act estimated annual reporting burden was understated. The respondents believed that (a) requiring contractors to conduct their own privacy training and (b) requiring re-training every year created a greater burden on contractors than what was shown in the proposed rule.

Response: The information collection requirement for this rule does not address the burden associated with conducting the initial or subsequent annual privacy training. Rather, it focuses solely on the obligation of Federal contractors to maintain documentation showing that the required privacy training was completed by the employee and, upon request, provide completion documentation to the contracting officer. In this regard, the same philosophy expressed in the preamble for the proposed rule holds true for the final rule as well, i.e., the recordkeeping requirements are considered to be minor and a contracting officer will request documentation only when necessary to ensure effective management and oversight.

However, since the analysis used in the proposed rule did not consider contracts involving the acquisition of commercial items, the methodology used to derive the estimated public burden needed to be adjusted to encompass these contracts. In addition, the estimated public burden hours vary from the estimates in the notice published in the Federal Register at 79 FR 68249, on November 14, 2014, in order to reflect the use of FY 2015 data, rather than FY 2014 data.

List of Subjects in 48 CFR parts 1, 24, and 52

Government procurement.

Dated: December 9, 2016.

William Clark,

Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

Therefore, DoD, GSA, and NASA amend 48 CFR parts 1, 24, and 52 as set forth below:

1. The authority citation for 48 CFR parts 1, 24, and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113.

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

1.106 [Amended]

2. Amend section 1.106 in the table following the introductory text, by adding in numerical sequence, FAR segments ``24.3'' and ``52.224-3'' and their corresponding OMB Control Number ``9000-0182''.

PART 24--PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION

3. Amend section 24.101 by adding in alphabetical order the definition of ``personally identifiable information'' to read as follows:

24.101 Definitions.

* * * * *

Personally identifiable information means information that can be used to distinguish or trace an individual's identity, either alone or when combined with other information that is linked or linkable to a specific individual. (See Office of Management and Budget (OMB) Circular No. A-130, Managing Federal Information as a Strategic Resource).

* * * * *

4. Add subpart 24.3 to read as follows:

Subpart 24.3--Privacy Training

Sec.

24.301 Privacy training.

24.302 Contract clause.

Subpart 24.3--Privacy Training

24.301 Privacy training.

(a) Contractors are responsible for ensuring that initial privacy training, and annual privacy training thereafter, is completed by contractor employees who--

(1) Have access to a system of records;

(2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information on behalf of the agency; or

(3) Design, develop, maintain, or operate a system of records (see FAR subpart 24.1 and 39.105).

(b) Privacy training shall address the key elements necessary for ensuring the safeguarding of personally identifiable information or a system of records. The training shall be role-based, provide foundational as well as more advanced levels of training, and have measures in place to test the knowledge level of users. At a minimum, the privacy training shall cover--

(1) The provisions of the Privacy Act of 1974 (5 U.S.C. 552a), including penalties for violations of the Act;

(2) The appropriate handling and safeguarding of personally identifiable information;

(3) The authorized and official use of a system of records or any other personally identifiable information;

(4) The restriction on the use of unauthorized equipment to create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise access personally identifiable information;

(5) The prohibition against the unauthorized use of a system of records or unauthorized disclosure, access, handling, or use of personally identifiable information; and

(6) Procedures to be followed in the event of a suspected or confirmed breach of a system of records or unauthorized disclosure, access, handling, or use of personally identifiable information (see Office of Management and Budget guidance for Preparing for and Responding to a Breach of Personally Identifiable Information).

(c) The contractor may provide its own training or use the training of another agency unless the contracting agency specifies that only its agency-provided training is acceptable (see 24.302(b)).

(d) The contractor is required to maintain and, upon request, to provide documentation of completion of privacy training for all applicable employees.

(e) No contractor employee shall be permitted to have or retain access to a system of records, create, collect, use, process, store, maintain, disseminate, disclose, or dispose, or otherwise handle personally identifiable information, or design, develop, maintain, or operate a system of records, unless the employee has completed privacy training that, at a minimum, addresses the elements in paragraph (b) of this section.

24.302 Contract clause.

(a) The contracting officer shall insert the clause at FAR 52.224-3, Privacy Training, in solicitations and contracts when, on behalf of the agency, contractor employees will--

(1) Have access to a system of records;

(2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information; or

(3) Design, develop, maintain, or operate a system of records. (b) When an agency specifies that only its agency-provided training is acceptable, use the clause with its Alternate I.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

5. Amend section 52.212-5 by--

a. Revising the date of the clause;

b. Redesignating paragraphs (b)(47) through (60) as paragraphs (b)(48) through (61), respectively;

c. Adding a new paragraph (b)(47);

d. Redesignating paragraphs (e)(1)(xix) through (xx) as paragraphs (e)(1)(xx) through (xxi), respectively;

e. Adding a new paragraph (e)(1)(xix);

(f.) Revising the date of Alternate II;

(1.) Redesignating paragraphs (e)(1)(ii)(S) and (T) as paragraphs (e)(1)(ii)(T) and (U), respectively; and

(2.) Adding a new paragraph (e)(1)(ii)(S).

The revisions and additions read as follows:

52.212-5 Contract Terms and Conditions Required To Implement Statutes or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required To Implement Statues of Executive Orders--Commercial Items (JAN 2017)

* * * * *

(b) * * *

(47)(i) 52.224-3, Privacy Training (JAN 2017) (5 U.S.C. 552a).

(ii) Alternate I (JAN 2017) of 52.224-3.

* * * * *

(e)(1) * * *

(xix)(A) 52.224-3, Privacy Training (JAN 2017) (5 U.S.C. 552a).

(B) Alternate I (JAN 2017) of 52.224-3.

* * * * *

Alternate II (JAN 2017).

* * * * *

(e)(1) * * *

(ii) * * *

(S)(1) 52.224-3, Privacy Training (JAN 2017) (5 U.S.C. 552a).

(2) Alternate I (JAN 2017) of 52.224-3.

* * * * *

6. Amend section 52.213-4 by--

a. Revising the date of the clause; and

b. Revising the date in paragraph (a)(2)(viii).

The revisions read as follows:

52.213-4 Terms and Conditions--Simplified Acquisitions (Other Than Commercial Items).

* * * * *

Terms and Conditions--Simplified Acquisitions (Other Than Commercial Items) (JAN 2017)

* * * * *

(a) * * *

(2) * * *

(viii) 52.244-6, Subcontracts for Commercial Items (JAN 2017).

* * * * *

7. Add section 52.224-3 to read as follows:

52.224-3 Privacy Training.

As prescribed in 24.302(a), insert the following clause:

Privacy Training (JAN 2017)

(a) Definition. As used in this clause, personally identifiable information means information that can be used to distinguish or trace an individual's identity, either alone or when combined with other information that is linked or linkable to a specific individual. (See Office of Management and Budget (OMB) Circular A-130, Managing Federal Information as a Strategic Resource).

(b) The Contractor shall ensure that initial privacy training, and annual privacy training thereafter, is completed by contractor employees who--

(1) Have access to a system of records;

(2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information on behalf of an agency; or

(3) Design, develop, maintain, or operate a system of records (see also FAR subpart 24.1 and 39.105).

(c)(1) Privacy training shall address the key elements necessary for ensuring the safeguarding of personally identifiable information or a system of records. The training shall be role-based, provide foundational as well as more advanced levels of training, and have measures in place to test the knowledge level of users. At a minimum, the privacy training shall cover--

(i) The provisions of the Privacy Act of 1974 (5 U.S.C. 552a), including penalties for violations of the Act;

(ii) The appropriate handling and safeguarding of personally identifiable information;

(iii) The authorized and official use of a system of records or any other personally identifiable information;

(iv) The restriction on the use of unauthorized equipment to create, collect, use, process, store, maintain, disseminate, disclose, dispose or otherwise access personally identifiable information;

(v) The prohibition against the unauthorized use of a system of records or unauthorized disclosure, access, handling, or use of personally identifiable information; and

(vi) The procedures to be followed in the event of a suspected or confirmed breach of a system of records or the unauthorized disclosure, access, handling, or use of personally identifiable information (see OMB guidance for Preparing for and Responding to a Breach of Personally Identifiable Information).

(2) Completion of an agency-developed or agency-conducted training course shall be deemed to satisfy these elements.

(d) The Contractor shall maintain and, upon request, provide documentation of completion of privacy training to the Contracting Officer.

(e) The Contractor shall not allow any employee access to a system of records, or permit any employee to create, collect, use, process, store, maintain, disseminate, disclose, dispose or otherwise handle personally identifiable information, or to design, develop, maintain, or operate a system of records unless the employee has completed privacy training, as required by this clause.

(f) The substance of this clause, including this paragraph (f), shall be included in all subcontracts under this contract, when subcontractor employees will--

(1) Have access to a system of records;

(2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information; or

(3) Design, develop, maintain, or operate a system of records.

(End of clause)

Alternate I (JAN 2017). As prescribed in 24.302(b), if the agency specifies that only its agency-provided training is acceptable, substitute the following paragraph (c) for paragraph (c) of the basic clause:

(c) The contracting agency will provide initial privacy training, and annual privacy training thereafter, to Contractor employees for the duration of this contract.

8. Amend section 52.244-6 by--

a. Revising the date of the clause;

b. Redesignating paragraphs (c)(1)(xv) through (xvii) as paragraphs (c)(1)(xvi) through (xviii), respectively; and

c. Adding a new paragraph (c)(1)(xv).

The revisions and additions read as follows:

52.244-6 Subcontracts for Commercial Items.

* * * * *

Subcontracts for Commercial Items (JAN 2017)

* * * * *

(c)(1) * * *

(xv)(A) 52.224-3, Privacy Training (JAN 2017) (5 U.S.C. 552a) if flow down is required in accordance with 52.224-3(f).

(B) Alternate I (JAN 2017) of 52.224-3, if flow down is required in accordance with 52.224-3(f) and the agency specifies that only its agency-provided training is acceptable).

* * * * *

[FR Doc. 2016-30213 Filed 12-19-16; 8:45 am]

BILLING CODE 6820-EP-P

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[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-30221]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 19, 42, and 52

[FAC 2005-94; FAR Case 2014-004; Item II; Docket No. 2014-0004; Sequence No. 1]

RIN 9000-AM98

Federal Acquisition Regulations; Payment of Subcontractors

AGENCY: Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) to implement a section of the Small Business Jobs Act of 2010. This statute requires contractors to notify the contracting officer, in writing, if the contractor pays a reduced price to a small business subcontractor or if the contractor's payment to a small business subcontractor is more than 90 days past due.

DATES: Effective: January 19, 2017.

FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr., Procurement Analyst, at 202-501-1448 for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202-501-4755. Please cite FAC 2005-94, FAR Case 2014-004.

SUPPLEMENTARY INFORMATION:

I. Background

DoD, GSA, and NASA are issuing a final rule to implement section 1334 of the Small Business Jobs Act of 2010 (Pub. L. 111-240, 15 U.S.C. 637(d)(12)) and the Small Business Administration (SBA) final rule published in the Federal Register on July 16, 2013 at 78 FR 42391, which require prime contractors to self-report late or reduced payments to their small business subcontractors. The rule also requires contracting officers to record the identity of contractors with a history of late or reduced payments to small business subcontractors in the Federal Awardee Performance and Integrity System (FAPIIS). DoD, GSA, and NASA published a proposed rule in the Federal Register on January 20, 2016 at 81 FR 3087. Seven respondents submitted comments on the proposed rule.

II. Discussion and Analysis

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the public comments in the development of the final rule. A discussion of the comments and changes made to the rule as a result of those comments are provided as follows:

A. Summary of Significant Changes From the Proposed Rule

1. A reporting window of 14 days is added to FAR clause 52.242-5, Payments to Small Business Contractors, for prime contractors to report to the contracting officer an untimely or reduced payment, as defined in the rule, made to their small business subcontractors.

2. The following examples of payment and nonpayment situations not considered to be unjustified are added at FAR 42.1502(g)(2)(ii):

There is a contract dispute on performance.

Partial payment is made for amounts not in dispute.

A payment is reduced due to past overpayments.

There is an administrative mistake.

Late performance by the subcontractor leads to later payment by the prime contractor.

3. A reference to FAR clause 52.242-5 was added to paragraph (b) of the clause at FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders--Commercial Items.

B. Analysis of Public Comments

1. Definitions. Multiple respondents commented on the definitions included in the proposed rule.

a. Location of Definitions

Comment: One respondent requested the location of the definitions for ``reduced payment'' and ``untimely payment'' be moved to either FAR subpart 2.1 or included within a new definitions section in FAR subpart 42.15. The respondent also stated that the parenthetical ``see 19.701'' was contrary to FAR drafting conventions.

Response: The two definitions included in the rule are not used substantially throughout the FAR and have only an indirect connection to FAR part 42. Accordingly, the definitions are not added to either FAR part 2 or FAR part 42; they are instead retained in FAR part 19 and section 52.242-5 (as presented in the proposed rule). The reference in the proposed rule to FAR part 19 (``see 19.701'') does not run contrary to FAR drafting conventions; however, the language is changed to ``as defined in 19.701'' versus ``see 19.701.''

b. Revise Definitions

Comment: One respondent recommended that the definitions for ``reduced payment'' and ``untimely payment'' be revised to include information regarding the statutorily-mandated standards set forth in FAR 52.232-27(c) relating to payment of construction subcontractors and suppliers.

Response: The statutorily-mandated standards set forth in FAR 52.232-27(c) stand on their own, are not integral to the explanation or meaning of the terms ``reduced payment'' and ``untimely payment,'' and need not be repeated in their respective definitions.

Comment: A number of respondents recommended that the definitions of ``reduced payment'' and ``untimely payment'' be revised to reflect those instances where the subcontractor has not completed their obligations under the contract. One respondent stated that the SBA rule made this abundantly clear, that the prime contractor should be required to report only those events that arise when the small business subcontractor is otherwise entitled to full and prompt payment (as assessed by the prime contractor), but the prime contractor is unable or unwilling to make such payments. Another respondent stated that under both of these definitions, the determination of whether a prime contractor payment is either reduced or untimely ultimately hinges upon ``the terms and conditions of a subcontract.'' The terms and conditions concerning how much and when a subcontractor is paid under a subcontract can vary greatly between such contracts. Still, another respondent believed that the proposed rule should contain additional clarification that a payment should not be considered past due if the payment is delayed by the late performance of the subcontractor. According to the respondent, contractors often accept late performance of subcontracts and then accordingly pay later according to the payment terms of the subcontract, but do not necessarily modify the subcontract to reflect the later performance date. Another respondent believed that the proposed rule, as written, provides unclear guidance to contracting officers because the definition of ``unjustified reduced or untimely payments'' is vague, and asked the FAR Council to provide a more complete definition of what constitutes an unjustified payment. For example, the rule should clarify the impact of systems errors, third-party errors, or administrative errors. Still another respondent recommended that the Councils define ``unjustifiable'' late or reduced payments as a material breach of the terms and conditions of the subcontract and provide examples of what constitutes a material breach under Federal case law.

Response: The definitions of ``reduced payment'' and ``untimely payment'' are meant to convey a reasonable explanation and meaning of those terms. No additional language is necessary in the definition; however, the final rule at FAR 42.1502(g)(2)(ii) includes examples of payment and nonpayment situations that are not considered to be unjustified. Due to privity of contract it is generally not the contracting officer's responsibility to determine if a material breach of a subcontract has occurred.

2. Existing statutory and regulatory requirements.

Comment: One respondent stated that existing statutory and regulatory requirements governing prime contractor and subcontractor payments already satisfy the intent of this regulation.

Response: In accordance with section 1334 of the Small Business Jobs Act of 2010, the rule offers additional protections for the small business community in regard to payments from prime contractors and is required by statute. Accordingly, there is no reasonable basis for withdrawing the rule.

3. Reporting requirements.

Multiple respondents commented on the reporting requirements of the proposed rule.

Comment: One respondent asked if there was guidance on the time period for the prime contractor to report a late or reduced payment to the contracting officer.

Response: The final rule requires the prime contractor to report within 14 days any occurrences of untimely or reduced payments to their small business subcontractors.

Comment: Several respondents stated that a different methodology should be used to determine the number of occurrences of late or reduced payments that are reportable in the FAPIIS system. For example, one prime contractor makes 10,000 payments a year, but another makes 10. The history of unjustified payments should not be set at ``three'', but should be scalable, proportional to the number of payments made.

Response: The final rule is consistent with SBA's final rule published on July 16, 2013, which defines a history of unjustified untimely or reduced payments as three incidents within a 12-month period. This final rule clarifies at FAR 42.1502(g)(2)(ii) that the incidents are under a single contract.

4. Subcontracting plan dollar threshold.

Comment: One respondent commented the small business subcontracting plan threshold cited in the analysis for application of the rule was inconsistent (e.g., $650,000 versus $700,000).

Response: Concur.

5. Applicability (subcontractor tiers).

Comment: One respondent asked if the proposed rule applied to subcontractor payments at all tiers.

Response: The rule applies to prime contractor payments made to first-tier small business subcontractors.

6. Contracting officer's responsibilities.

Several respondents commented on the additional contracting officer responsibilities and offered alternate procedures.

Comment: Two respondents requested that the agency counsel and not the contracting officer determine whether a late or reduced payment conforms to the terms and conditions of the contract.

Response: It is the contracting officer's responsibility to ensure compliance with the terms of the contract; however, per FAR 1.602-2(c), contracting officers can request and consider the advice of specialists in audit, law, engineering, information security, transportation, and other fields, as appropriate, when making a determination regarding a late or reduced payment.

7. Additional guidance to contracting officers.

Comment: Two respondents stated the rule should provide more guidance to contracting officers in regards to issues that may arise when dealing with the reduced or late payments situation in contracts. Response: This type of additional guidance would largely be non-regulatory, falling under agency procedures and training, which are outside the scope of this rule. As stated previously, per FAR 1.602-2(c), contracting officers can request and consider the advice of specialists in audit, law, engineering, information security, transportation, and other fields, as appropriate, when making a determination regarding a late or reduced payment.

Comment: One respondent commented that adding additional responsibilities to the contracting officer while the Government is focused on ensuring the timely submittal of past performance evaluations will only lead to lesser quality evaluations.

Response: There is no basis for concluding that the requirements of this rule will impact the timely submittal of past performance evaluations.

8. Government-caused delays.

Comment: One respondent requested language to note situations in which the Government causes delays in subcontractor payments by changing the scope of the contract, by making late payments to the prime contractor, etc.

Response: The FAR already contains adequate policy on Government-caused delays and changes to contract terms and conditions. In addition, as stated previously, the final rule includes the specific examples of payment and nonpayment situations that are not considered to be unjustified.

9. Penalties.

Comment: One respondent asked what penalties prime contractors will face for failing to self-report instances of non-compliance.

Response: Government penalties are beyond the scope of this rule. However, the requirements of this rule (in addition to other Government rights and remedies) permit the contracting officer to issue an adverse past performance assessment for noncompliance with FAR 52.219-9(a)(15), based upon individual circumstances.

10. Incentivizing prime contractor compliance.

Comment: One respondent commented that prime contractors should be incentivized to make reduced payments to small business subcontractors, rather than withhold payments when a dispute arises between the prime contractor and small business subcontractor. Unlike a late payment, the proposed rule does not expressly grant a 90-day window in which to resolve a reduced payment that may arise for a legitimate reason (i.e., substandard performance or nonconforming parts).

According to the respondent, because the rule does not address when a prime contractor must report a reduced payment to the contracting officer, one might interpret the rule to require an immediate report by the prime contractor to the contracting officer upon making a reduced payment.

However, requiring the prime contractor to report a reduced payment immediately creates a disincentive for prime contractors to make a reduced rather than late payment, as the obligation to report a late payment does not arise for a minimum of 90 days past the original due date.

Response: Reduced payments as a result of a dispute on performance between a prime contractor and a small business contractor would not fall within the definition of ``reduced payment.'' However, the rule does contain a reporting window of 14 days for prime contractors to report to the contracting officer untimely or reduced payments, as defined in the rule, made to their small business subcontractors. This 14-day reporting timeline was added to the rule as a result of public comments. Moreover, the rule does not prohibit prime contractors from making reduced payments to their small business subcontractors.

11. Commercial items and commercially available off-the-shelf items.

Comment: Several respondents commented that the FAR Council should reconsider the application of this rule to commercial and COTS item providers. One respondent commented that given the Government's stated preference for ``commercial plans'' in FAR 52.219-9(g) for commercial item contractors (including commercially available off-the-shelf (COTS) contractors), it is likely that most commercial item and COTS contractors have commercial subcontracting plans. These commercial plans apply to the contractor's entire commercial organization, which in many cases, includes only a minimal amount of sales to the Federal Government. These commercial plans apply to virtually every subcontractor or supplier from which a contractor purchases supplies or services, whether or not those supplies or services are used in the performance of government contracts. Another respondent commented that over the last decade, the procurement community has seen the erosion of commercial item contracting (in accordance with 41 U.S.C. 1906) and the benefits attendant thereto, as well as layering onto the commercial item contracting process Government unique requirements that have increased costs and raised barriers to entry into the Federal marketplace. Another respondent stated that applying the rule to commercial and COTS item providers would not be in the best interests of the Government, and would run contrary to ongoing attempts by Government policy makers to streamline the acquisition process for the acquisition of commercial and COTS items to reduce the number of unique government rules applicable to large and small businesses providing commercial and COTS supplies and services, and to introduce more commercial innovation and technology into the federal business market.

Response: The FAR Council has determined that the rule should, as a matter of policy, apply to contracts for the acquisition of commercial items and COTS items. See section III of this preamble.

Comment: One respondent commented that FAR clause 52.242-5 was not added to the list of clauses in FAR 52.212-5 regarding commercial items.

Response: The final rule adds FAR clause 52.242-5 to the list of clauses in FAR 52.212-5 regarding application to commercial items.

12. Public burden.

Comment: Two respondents stated that the Councils had underestimated the public burden in regards to the proposed rule. One respondent commented that the FAR Council has greatly underestimated the implementation burden on commercial item and COTS item contractors, especially considering the broad definition of ``subcontractor'' that applies to the proposed rule. The other respondent believed that the estimate of reporting time of only two hours per respondent is grossly underestimated. This negligible amount of time assumes that all contractors can easily identify from their payment systems which subcontractors are small businesses. The respondent believed that this is often not the case, and that the small business size status of a subcontractor may be unknown to the contractor's other accounting systems. The other respondent commented that since the Small Business Jobs Act of 2010 does not specifically require that the subcontractor payment clause apply to commercial contracts, the respondent recommended that the FAR Council seek additional information about the burden on contractors before a determination is made to apply the payment of subcontractor requirements to commercial item acquisitions. The respondent did not find that the availability of limited information indicated that the burden may not be significant, as described in the proposed rule. Rather, initial feedback from contractors suggested that the burdens associated with reporting under the rule will have a significant impact.

Response: The respondents do not offer data with which to support changing the current estimated public burden hours. However, since this is a new rule without an empirical frame of reference, the public reporting burden is reviewed every three years and can be adjusted as necessary.

13. Convene industry working group.

Comment: One respondent commented that the FAR Council should convene an industry working group in order to gain a better understanding of some of the more nuanced aspects of the subcontractor payment requirement.

Response: The Councils do not concur that such a working group is necessary at this time.

C. Other Changes

The following changes were made, not as a result of public comments:

1. FAR 1.106 was amended to add the OMB Control Number associated with FAR clause 52.242-5.

2. Minor editorial changes were made for grammatical reasons or to conform to FAR drafting conventions.

III. Applicability to Contracts for Commercial Items and Commercially Available Off-the-Shelf Items

The Federal Acquisition Regulatory (FAR) Council has made the following determinations with respect to the rule's application of Section 1334 of the Small Business Jobs Act of 2010, to contracts for the acquisition of commercial items and contracts for the acquisition of commercially available off-the-shelf (COTS) items.

A. Applicability to Contracts for the Acquisition of Commercial Items

Pursuant to 41 U.S.C. 1906, acquisitions of commercial items (other than acquisitions of COTS items, which are addressed in 41 U.S.C. 1907) are exempt from a provision of law unless the law (i) contains criminal or civil penalties; (ii) specifically refers to 41 U.S.C. 1906 and states that the law applies to acquisitions of commercial items; or (iii) the FAR Council makes a written determination and finding that it would not be in the best interest of the Federal Government to exempt contracts for the procurement of commercial items from the provision of law. If none of these conditions are met, the FAR is required to include the statutory requirement(s) on a list of provisions of law that are inapplicable to acquisitions of commercial items.

The purpose of this rule is to implement section 1334 of the Small Business Jobs Act of 2010. Section 1334 requires prime contractors to self-report late or reduced payments to their small business subcontractors. The rule also requires contracting officers to record the identity of contractors with a history of late or reduced payments to small business subcontractors in the Federal Awardee Performance and Integrity System (FAPIIS).

The statutory requirements are reflected in the Small Business Administration's (SBA's) final rule published at 78 FR 42391 on July 16, 2013, which did not exempt acquisitions of commercial items.

The law is silent on the applicability of these requirements to acquisitions of commercial items and does not independently provide for criminal or civil penalties; nor does it include terms making express reference to 41 U.S.C. 1906 and its application to acquisitions of commercial items. Therefore, it does not apply to acquisitions of commercial items unless the FAR Council makes a written determination as provided in 41 U.S.C. 1906.

The law furthers the administration's goal of supporting small business and advances the interests of small business subcontractors by discouraging reduced or untimely payments to small business subcontractors. Exclusion of acquisitions for commercial items from these requirements will limit the full implementation of these subcontracting-related objectives. Further, the primary FAR clauses implementing Federal procurement policies governing subcontracting with small business, FAR 52.219-8, Utilization of Small Business Concerns, and 52.219-9, Small Business Subcontracting Plan, are currently prescribed for use in solicitations for commercial items. Exclusion of acquisitions for commercial items from these requirements would create confusion among contractors and the Federal contracting workforce. Moreover, the rule may also increase the timeliness of payments to small business subcontractors.

For these reasons, it is in the best interest of the Federal Government to apply the requirements of the rule to the acquisition of commercial items.

B. Applicability of Contracts for the Acquisition of COTS Items

Pursuant to 41 U.S.C. 1907, acquisitions of COTS items will be exempt from a provision of law unless the law (i) contains criminal or civil penalties; (ii) specifically refers to 41 U.S.C. 1907 and states that the law applies to acquisitions of COTS items; (iii) concerns authorities or responsibilities under the Small Business Act (15 U.S.C. 644) or bid protest procedures developed under the authority of 31 U.S.C. 3551 et seq., 10 U.S.C. 2305(e) and (f), or 41 U.S.C. 3706 and 3707; or (iv) the Administrator for Federal Procurement Policy makes a written determination and finding that would not be in the best interest of the Federal Government to exempt contracts for the procurement of COTS items from the provision of law. If none of these conditions are met, the FAR is required to include the statutory requirement(s) on a list of provisions of law that are inapplicable to acquisitions of COTS items.

The purpose of this rule is to implement section 1334 of the Small Business Jobs Act of 2010. Section 1334 requires prime contractors to self-report late or reduced payments to their small business subcontractors. The rule also requires contracting officers to record the identity of contractors with a history of late or reduced payments to small business subcontractors in FAPIIS.

These statutory requirements are reflected in the SBA final rule published at 78 FR 42391 on July 16, 2013, which did not exempt acquisitions of COTS items.

The law is silent on the applicability of these requirements to acquisitions of COTS items and does not independently provide for criminal or civil penalties; nor does it include terms making express reference to 41 U.S.C. 1907 and its application to acquisitions of COTS items. Therefore, it does not apply to acquisitions of COTS items unless the Administrator for Federal Procurement Policy makes a written determination as provided in 41 U.S.C. 1907.

The law furthers the Administration's goal of supporting small business and advances the interests of small business subcontractors by discouraging reduced or untimely payments to small business subcontractors. Exclusion of a large segment of Federal contracting, such as acquisitions for COTS items, will limit the full implementation of these subcontracting-related objectives. Further, the primary FAR clauses implementing Federal procurement policies governing subcontracting with small business, FAR 52.219-8, Utilization of Small Business Concerns, and 52.219-9, Small Business Subcontracting Plan, are currently prescribed for use in solicitations for COTS items. Exclusion of acquisitions for COTS items from these requirements would create confusion among contractors and the Federal contracting workforce. Moreover, the rule may also increase the timeliness of payments to small business subcontractors.

For these reasons, it is in the best interest of the Federal Government to apply the subcontracting requirements to the acquisition of 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 a significant regulatory action and, therefore, was 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

DoD, GSA, and NASA have prepared a final regulatory flexibility analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

Section 1334 of the Small Business Jobs Act of 2010 (Pub. L. 111-240) and the Small Business Administration's final rule at 78 FR 42391, Small Business Subcontracting, published July 16, 2013, require that the prime contractor self-report when the prime contractor makes reduced or untimely payments to small business subcontractors. Section 1334 also requires the contracting officer to record the identity of contractors with a history of unjustified reduced or untimely payments in the Federal Awardee Performance and Integrity System (FAPIIS).

This final rule implements the self-reporting requirements of section 1334 by requiring contracting officers to include FAR clause 52.242-5, Payments to Small Business Subcontractors, in all solicitations and contracts containing the clause at 52.219-9, Small Business Subcontracting Plan. The new FAR clause requires prime contractors to notify the contracting officer of reduced or untimely payments to small business subcontractors.

The rule also amends FAR 42.1503(h) to require contracting officers to report to FAPIIS a contractor that has a history of three or more reduced or untimely payments to small business subcontractors within a 12-month period under a single contract that are unjustified. FAR 42.1503, Table 42-2 is also amended to include unjustified reduced or untimely payments to small business subcontractors as part of the definition of ratings for the ``small business subcontracting'' past performance evaluation factors.

There were no public comments received on the initial regulatory flexibility analysis.

The final rule applies to payments made to small businesses that are first-tier subcontractors to prime government contractors. There will be no burden on small businesses, as small businesses do not have subcontracting plans. This regulation will benefit small business subcontractors by encouraging large business prime contractors to pay small business subcontractors in a timely manner and the agreed upon contractual price.

This rule imposes new recordkeeping and reporting requirements and contains information collection requirements. Small businesses are not required to report under this information collection because it only applies to prime contractors whose contracts contain the clause 52.219-9, Small Business Subcontracting Plan, which is not applicable to small businesses.

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

Interested parties may obtain a copy of the FRFA from the Regulatory Secretariat Division. The Regulatory Secretariat Division has submitted a copy of the FRFA to the Chief Counsel for Advocacy of the Small Business Administration.

VI. Paperwork Reduction Act

The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies. The rule contains information collection requirements. OMB has cleared this information collection requirement under OMB Control Number 9000-0196, titled: ``Payments to Small Business Subcontractors.''

List of Subjects in 48 CFR Parts 1, 19, 42, and 52.

Government procurement.

Dated: December 9, 2016.

William F. Clark,

Director, Office of Governmentwide Acquisition Policy, Office of Acquisition Policy, Office of Governmentwide Policy.

Therefore, DoD, GSA, and NASA are amending 48 CFR parts 1, 19, 42, and 52 as set forth below:

1. The authority citation for 48 CFR parts 1, 19, 42, and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113.

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

1.106 [Amended]

2. Amend section 1.106 by adding to the table, in numerical sequence, FAR segment ``52.242-5'' and its corresponding OMB Control No. ``9000-0196''.

PART 19--SMALL BUSINESS PROGRAMS

3. Amend section 19.701 by adding, in alphabetical order, the definitions of ``Reduced payment'' and ``Untimely payment'' to read as follows:

19.701 Definitions.

* * * * *

Reduced Payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

* * * * *

Untimely Payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract for supplies and services for which the Government has paid the prime contractor.

4. Amend section 19.704 by--

a. Removing from paragraph (a)(13) ``completion; and'' and adding ``completion;'' in its place;

b. Removing from paragraph (a)(14) ``subcontractor.'' and adding ``subcontractor; and'' in its place; and

c. Adding paragraph (a)(15).

The addition reads as follows:

19.704 Subcontracting plan requirements.

(a) * * *

(15) Assurances that the offeror will pay its small business subcontractors on time and in accordance with the terms and conditions of the subcontract, and notify the contracting officer if the offeror pays a reduced or an untimely payment to a small business subcontractor (see 52.242-5).

* * * * *

19.705-4 [Amended]

5. Amend section 19.705-4 by removing from paragraphs (b) and (c) the number ``14'' and adding ``15'' in both places.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

6. Amend section 42.1502 by revising paragraph (g) to read as follows:

42.1502 Policy.

* * * * *

(g) Past performance evaluations shall include an assessment of the contractor's--

(1) Performance against, and efforts to achieve, the goals identified in the small business subcontracting plan when the contract includes the clause at 52.219-9, Small Business Subcontracting Plan; and

(2) Reduced or untimely payments (as defined in 19.701), made to small business subcontractors, determined by the contracting officer to be unjustified. The contracting officer shall--

(i) Consider and evaluate a contractor's written explanation for a reduced or an untimely payment when determining whether the reduced or untimely payment is justified; and

(ii) Determine that a history of unjustified reduced or untimely payments has occurred when the contractor has reported three or more occasions of unjustified reduced or untimely payments under a single contract within a 12-month period (see 42.1503(h)(1)(vi) and the evaluation ratings in Table 42-2). The following payment or nonpayment situations are not considered to be unjustified:

(A) There is a contract dispute on performance.

(B) A partial payment is made for amounts not in dispute.

(C) A payment is reduced due to past overpayments.

(D) There is an administrative mistake.

(E) Late performance by the subcontractor leads to later payment by the prime contractor.

* * * * *

7. Amend section 42.1503 by--

a. Revising paragraphs (b)(2)(v) and (b)(2)(vi);

b. Revising paragraph (h)(1) introductory text;

c. Revising paragraphs (h)(1)(iv) and (h)(1)(v);

d. Adding paragraph (h)(1)(vi); and

e. Revising Table 42-2.

The revisions and addition read as follows:

42.1503 Procedures.

* * * * *

(b)(1) * * *

(2) * * *

(v) Small business subcontracting, including reduced or untimely payments to small business subcontractors when 19.702(a) requires a subcontracting plan (as applicable, see Table 42-2).

(vi) Other (as applicable) (e.g., trafficking violations, tax delinquency, failure to report in accordance with contract terms and conditions, defective cost or pricing data, terminations, suspension and debarments).

* * * * *

(h) * * *

(1) Agencies shall ensure information is accurately reported in the FAPIIS module of CPARS within 3 calendar days after a contracting officer--

* * * * *

(iv) Makes a subsequent withdrawal or a conversion of a termination for default to a termination for convenience;

(v) Receives a final determination after an administrative proceeding, in accordance with 22.1704(d)(1), that substantiates an allegation of a violation of the trafficking in persons prohibitions in 22.1703(a) and 52.222-50(b); or

(vi) Determines that a contractor has a history of three or more unjustified reduced or untimely payments to small business subcontractors under a single contract within a 12-month period (see 42.1502(g)(2)).

* * * * *

Table 42-2--Evaluation Ratings Definitions

[For the small business subcontracting evaluation factor, when 52.219-9 is used]

Rating

Definition

Note

(a) Exceptional

Exceeded all statutory goals or goals as negotiated. Had exceptional success with initiatives to assist, promote, and utilize small business (SB), small disadvantaged business (SDB), women-owned small business (WOSB), HUBZone small business, veteran-owned small business (VOSB) and service disabled veteran owned small business (SDVOSB). Complied with FAR 52.219-8, Utilization of Small Business Concerns. Exceeded any other small business participation requirements incorporated in the contract/order, including the use of small businesses in mission critical aspects of the program. Went above and beyond the required elements of the subcontracting plan and other small business requirements of the contract/order. Completed and submitted Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12-month period.

To justify an Exceptional rating, identify multiple significant events and state how they were a benefit to small business utilization. A singular benefit, however, could be of such magnitude that it constitutes an To justify an Exceptional rating, identify multiple significant events and state how they were a benefit to small business utilization. A singular benefit, however, could be of such magnitude that it constitutes an Exceptional rating. Small businesses should be given meaningful and innovative work directly related to the contract, and opportunities should not be limited to indirect work such as cleaning offices, supplies, landscaping, etc. Also, there should have been no significant weaknesses identified

(b) Very Good

Met all of the statutory goals or goals as negotiated. Had significant success with initiatives to assist, pro-mote and utilize SB, SDB, WOSB, HUBZone, VOSB, and SDVOSB. Complied with FAR 52.219–8, Utilization of Small Business Concerns. Met or exceeded any other small business participation requirements incorporated in the contract/order, including the use of small businesses in mission critical aspects of the program. Endeavored to go above and beyond the required elements of the subcontracting plan. Completed and submitted Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12-month period.

To justify a Very Good rating, identify a significant event and state how it was a benefit to small business utilization. Small businesses should be given meaningful and innovative opportunities to participate as subcontractors for work directly related to the con-tract, and opportunities should not be limited to indirect work such as cleaning offices, supplies, landscaping, etc. There should be no significant weak-nesses identified

(c) Satisfactory.

Demonstrated a good faith effort to meet all of the negotiated subcontracting goals in the various socio- economic categories for the current period. Complied with FAR 52.219–8, Utilization of Small Business Concerns. Met any other small business participation requirements included in the contract/order. Fulfilled the requirements of the subcontracting plan included in the contract/order. Completed and submitted Individual Subcontract Reports and/or Summary Sub-contract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business sub-contractors within a 12-month period.

To justify a Satisfactory rating, there should have been only minor problems, or major problems the con-tractor has addressed or taken corrective action. There should have been no significant weaknesses identified. A fundamental principle of assigning ratings is that contractors will not be assessed a rating lower than Satisfactory solely for not performing be-yond the requirements of the contract/order

(d) Marginal

Deficient in meeting key subcontracting plan elements. Deficient in complying with FAR 52.219–8, Utilization of Small Business Concerns, and any other small business participation requirements in the contract/ order. Did not submit Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate or timely manner. Failed to satisfy one or more requirements of a corrective action plan currently in place; however, does show an interest in bringing performance to a satisfactory level and has demonstrated a commitment to apply the necessary re-sources to do so. Required a corrective action plan. Did not have a history of three or more unjustified reduced or untimely payments to small business sub-contractors within a 12-month period.

To justify a Marginal rating, identify a significant event that the contractor had trouble overcoming and how it impacted small business utilization. A Marginal rating should be supported by referencing the actions taken by the Government that notified the contractor of the contractual deficiency.

(e) Unsatisfactory

Noncompliant with FAR 52.219–8 and 52.219–9, and any other small business participation requirements in the contract/order. Did not submit Individual Sub-contract Reports and/or Summary Subcontract Re-ports in an accurate or timely manner. Showed little interest in bringing performance to a satisfactory level or is generally uncooperative. Required a corrective action plan. Had a history of three or more unjustified reduced or untimely payments to small business sub-contractors within a 12-month period.

To justify an Unsatisfactory rating, identify multiple significant events that the contractor had trouble over-coming and state how it impacted small business utilization. A singular problem, however, could be of such serious magnitude that it alone constitutes an Unsatisfactory rating. An Unsatisfactory rating should be supported by referencing the actions taken by the Government to notify the contractor of the deficiencies. When an Unsatisfactory rating is justified, the contracting officer must consider whether the contractor made a good faith effort to comply with the requirements of the subcontracting plan required by FAR 52.219–9 and follow the procedures outlined in FAR 52.219–16, Liquidated Damages-Subcontracting Plan.

8. Add section 42.1504 to read as follows:

42.1504 Contract clause.

Insert the clause at 52.242-5, Payments to Small Business Subcontractors, in all solicitations and contracts containing the clause at 52.219-9, Small Business Subcontracting Plan.

PART 52--SOLICITATION AND PROVISIONS AND CONTRACT CLAUSES

9. Amend section 52.212-5 by--

a. Revising the date of the clause;

b. Revising the introductory text of paragraph (b)(17)(i);

c. Redesignating paragraph (b)(60) as (b)(61); and

d. Adding a new paragraph (b)(60).

The revisions and addition read as follows:

52.212-5 Contract Terms and Conditions Required to Implement Statutes or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required To Implement Statutes or Executive Orders--Commercial Items (JAN 2017)

(b) * * *

_(17)(i) 52.219-9, Small Business Subcontracting Plan (JAN 2017) (15 U.S.C. 637(d)(4)).

* * * * *

_(60) 52.242-5, Payments to Small Business Subcontractors (JAN 2017)(15 U.S.C. 637(d)(12)).

* * * * *

10. Amend section 52.219-9 by--

a. Revising the date of the clause;

b. Adding in paragraph (b), in alphabetical order, the definitions of ``Reduced payment'' and ``Untimely payment'';

c. Adding paragraph (d)(15);

d. In Alternate III--

1. Revising the date of the Alternate; and

2. Removing from the introductory paragraph of Alternate III ``clause;'' and adding ``clause:'' in its place; and

e. In Alternate IV--

1. Revising the date of the Alternate; and

2. Adding paragraph (d)(15).

The revisions and additions read as follows:

52.219-9 Small Business Subcontracting Plan.

* * * * *

Small Business Subcontracting Plan (JAN 2017)

(b) * * *

* * * * *

Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

* * * * *

Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract for supplies and services for which the Government has paid the prime contractor.

(d) * * *

(15) Assurances that the offeror will pay its small business subcontractors on time and in accordance with the terms and conditions of the underlying subcontract, and notify the contracting officer when the prime contractor makes either a reduced or an untimely payment to a small business subcontractor (see 52.242-5).

* * * * *

Alternate III (JAN 2017). * * *

* * * * *

Alternate IV (JAN 2017). * * *

(d) * * *

(15) Assurances that the offeror will pay its small business subcontractors on time and in accordance with the terms and conditions of the underlying subcontract, and notify the contracting officer when the prime contractor makes either a reduced or an untimely payment to a small business subcontractor (see 52.242-5).

11. Add section 52.242-5 to read as follows:

52.242-5 Payments to Small Business Subcontractors.

As prescribed in 42.1504, insert the following clause:

Payments to Small Business Subcontractors (JAN 2017)

(a) Definitions. As used in this clause--

Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

Untimely payment means a payment that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.

(b) Notice. The Contractor shall notify the Contracting Officer, in writing, not later than 14 days after--

(1) A small business subcontractor was entitled to payment under the terms and conditions of the subcontract; and

(2) The Contractor--

(i) Made a reduced or untimely payment to the small business subcontractor; or

(ii) Failed to make a payment, which is now untimely.

(c) Content of notice. The Contractor shall include the reason(s) for making the reduced or untimely payment in any notice required under paragraph (b) of this clause.

(End of clause)

[FR Doc. 2016-30221 Filed 12-19-16; 8:45 am]

BILLING CODE 6820-EP-P

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[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]

[Rules and Regulations]

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

[FR Doc No: 2016-30222]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Chapter 1

[Docket No. FAR 2016-0051, Sequence No. 8]

Federal Acquisition Regulation; Federal Acquisition Circular 2005-93; Small Entity Compliance Guide

AGENCY: Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Small Entity Compliance Guide.

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SUMMARY: This document is issued under the joint authority of DOD, GSA, and NASA. This Small Entity Compliance Guide has been prepared in accordance with section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996. It consists of a summary of the rules appearing in Federal Acquisition Circular (FAC) 2005-94, which amends the Federal Acquisition Regulation (FAR). An asterisk (*) next to a rule indicates that a regulatory flexibility analysis has been prepared. Interested parties may obtain further information regarding these rules by referring to FAC 2005-94, which precedes this document. These documents are also available via the Internet at http://www.regulations.gov.

DATES: December 20, 2016.

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact the analyst whose name appears in the table below. Please cite FAC 2005-94 and the FAR case number. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202-501-4755.

Rules Listed in FAC 2005-94

Item

Subject

FAR Case

Analyst

I

Privacy Training

2010-013

Gray.

II

Payment of Subcontractors

2014-004

Glover.

SUPPLEMENTARY INFORMATION: Summaries for each FAR rule follow. For the actual revisions and/or amendments made by these rules, refer to the specific item numbers and subjects set forth in the documents following these item summaries. FAC 2005-94 amends the FAR as follows:

Item I--Privacy Training (FAR Case 2010-013)

This final rule amends the Federal Acquisition Regulation to clarify the training requirements for contractors whose employees will have access to a system of records on individuals or handle personally identifiable information. These training requirements are consistent with the Privacy Act of 1974, 5 U.S.C. 552a, and OMB Circular A-130, Managing Federal Information as a Strategic Resource. Prime contractors are required to flow down these requirements to all applicable subcontracts.

Item II--Payment of Subcontractors (FAR Case 2014-004)

This final rule amends the Federal Acquisition Regulation (FAR) to implement section 1334 of the Small Business Jobs Act of 2010 and the Small Business Administration's (SBA) final rule, published July 16, 2013. If a contract requires a subcontracting plan, the prime contractor must notify the contracting officer in writing if the prime contractor pays a reduced payment to a small business subcontractor, or an untimely payment if the payment to a small business subcontractor is more than 90 days past due for supplies or services for which the Government has paid the contractor. The contractor is also to include the reason for the reduction in payment or failure to pay. A contracting officer will then use his or her best judgment in determining whether the reduced or untimely payments were justified. The contracting officer must record the identity of a prime contractor with a history of three or more unjustified reduced or untimely payments to subcontractors within a 12-month period under a single contract, in the Federal Awardee Performance and Integrity Information System (FAPIIS). This regulation will benefit small business subcontractors by encouraging large business prime contractors to pay small business subcontractors in a timely manner and at the agreed upon contractual price.

Dated: December 9, 2016.

William F. Clark,

Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

[FR Doc. 2016-30222 Filed 12-19-16; 8:45 am]

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