Defense Federal Acquisition Regulation Supplement: Use of Fixed-Price Contracts (DFARS Case 2017-D024)

Published date01 April 2019
Citation84 FR 12179
Record Number2019-06246
SectionProposed rules
CourtDefense Acquisition Regulations System
Federal Register, Volume 84 Issue 62 (Monday, April 1, 2019)
[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
                [Proposed Rules]
                [Pages 12179-12182]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-06246]
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                DEPARTMENT OF DEFENSE
                Defense Acquisition Regulations System
                48 CFR Parts 202, 216, 217, 225, 234, and 235
                [Docket DARS-2019-0008]
                RIN 0750-AJ32
                Defense Federal Acquisition Regulation Supplement: Use of Fixed-
                Price Contracts (DFARS Case 2017-D024)
                AGENCY: Defense Acquisition Regulations System, Department of Defense
                (DoD).
                ACTION: Proposed rule.
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                SUMMARY: DOD is proposing to amend the Defense Federal Acquisition
                Regulation Supplement (DFARS) to implement a section of the National
                Defense Authorization Act for Fiscal Year 2017 that requires the
                preference for the use of fixed-price contracts in the determination of
                contract type, requires review and approval for certain cost-
                reimbursement contract types at specified thresholds and established
                time periods, and requires the use of firm fixed-price contract types
                for foreign military sales unless an exception or waiver applies.
                DATES: Comments on the proposed rule should be submitted in writing to
                the address shown below on or before May 31, 2019, to be considered in
                the formation of a final rule.
                ADDRESSES: Submit comments identified by DFARS Case 2017-D024, using
                any of the following methods:
                 [cir] Federal eRulemaking Portal: http://www.regulations.gov.
                Search for ``DFARS Case 2017-D024.'' Select ``Comment Now'' and follow
                the instructions provided to submit a comment. Please cite ``DFARS Case
                2017-D024'' on any attached documents.
                 [cir] Email: [email protected]. Include DFARS Case 2017-D024 in
                the subject line of the message.
                 [cir] Fax: 571-372-6094.
                 [cir] Mail: Defense Acquisition Regulations System, Attn: Ms.
                Kimberly Bass, OUSD(A&S)DPC/DARS, Room 3B941, 3060 Defense Pentagon,
                Washington, DC 20301-3060.
                [[Page 12180]]
                 Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To
                confirm receipt of your comment(s), please check www.regulations.gov,
                approximately two to three days after submission to verify posting
                (except allow 30 days for posting of comments submitted by mail).
                FOR FURTHER INFORMATION CONTACT: Ms. Kimberly Bass, telephone 571-372-
                6174.
                SUPPLEMENTARY INFORMATION:
                I. Background
                 DoD is proposing to amend the DFARS to implement sections 829 and
                830 of the National Defense Authorization Act (NDAA) for Fiscal Year
                (FY) 2017. Section 829 of the FY 2017 NDAA requires contracting
                officers to first consider fixed-price contracts, to include fixed-
                price incentive contracts, when determining contract type and to obtain
                approval from the head of the contracting activity for--
                 [cir] Cost-reimbursement contracts in excess of $50 million to be
                awarded after October 1, 2018, and before October 1, 2019; and
                 [cir] Cost-reimbursement contracts in excess of $25 million to be
                awarded on or after October 1, 2019.
                 Section 830 provides requirements, exceptions, and waiver authority
                for the use of firm-fixed-price contracts for foreign military sales
                (FMS). It requires contracting officers to use firm fixed-price
                contracts unless specified exceptions or a waiver applies. Contracting
                officers are required to use a different contract type if the FMS
                customer has established in writing a preference for a different
                contract type or has requested in writing that a different contract
                type be used for a specific FMS. The waiver authorizes contracting
                officers the ability to use other than firm-fixed-price contract type
                on a case by case basis when determined it is in the best interest of
                the United States and American taxpayers.
                II. Discussion and Analysis
                 The following changes to the DFARS are proposed to implement
                sections 829 and 830 of the NDAA for FY 2017:
                 DFARS section 202.101 adds the definition of ``milestone decision
                authority'' since the definition is used in multiple DFARS parts.
                 DFARS 216.102(1) adds a reference to section 829 to inform
                contracting officers on the new requirements when selecting contract
                types and includes a reference to DFARS 216.301-3(2) for the approval
                requirements on the use of cost-reimbursement contracts. DFARS
                216.102(3) is added to provide a reference to DFARS 225.7301-1 for the
                requirements on the use of fixed-price contracts for FMS sales in
                accordance with section 830 of the FY 2017 NDAA.
                 DFARS 216.104-70 includes a reference to DFARS 235.006(b) for the
                new research and development (R&D) contract type approval requirements.
                 DFARS 216.301-3(2) is added to incorporate the exception on the use
                of cost-reimbursement contracts for R&D as provided in DFARS
                235.006(b). Paragraph (2) also provides the statutory requirements of
                section 829 on the use of cost-reimbursement contracts over the
                established thresholds and timelines and establishes the approval level
                on the use of cost-reimbursement contracts as the head of the
                contracting activity.
                 DFARS 217.202 incorporates PGI references for guidance on the use
                of options for FMS requirements and for sole source major systems for
                U.S. and U.S./FMS combined procurements.
                 DFARS 225.7301-1 is added to implement section 830 of the NDAA for
                FY 2017. Paragraph (a) incorporates a new requirement to use firm-fixed
                price contracts for FMS requirements unless a preference for a
                different contract type is established in writing or requests in
                writing that a different contract type be used for a specific FMS. It
                also provides a reference to guidance in DFARS PGI 217.202(2) on the
                use of priced options for FMS requirements. DFARS 225.7301-1(b)
                establishes a waiver process for the use of firm-fixed-price contract
                requirements if the chief of the contracting office determines a
                different contract type is in the best interest of the Government, on a
                case by case basis.
                 DFARS 225.7301-2 provides guidance on the review requirements,
                prior to issuing a solicitation for a sole source contract for U.S./FMS
                combined requirements for a major system with a contract value
                exceeding $500 million, in accordance with the Defense Pricing and
                Contracting (DPC) (formerly Defense Procurement and Acquisition Policy)
                policy memorandum dated June 28, 2018. It also includes a reference
                link to PGI 216.403-1(1)(ii)(B) and (C) for procedures on the use of
                fixed-price incentive (firm target) (FPIF) contracts.
                 DFARS 234.004(2)(ii)(A) revises ``USD(AT&L)'' to reflect the new
                organization Under Secretary of Defense for Acquisition and Sustainment
                (USD(A&S)) (throughout the proposed rule text) and clarifies the
                existing approval and certification requirements for contract type
                selection and determination in the acquisition strategies and
                acquisition plans for MDAPs, which include the milestone decision
                authority (MDA) when the MDA is the service acquisition executive of
                the military department managing the program, as specified in section
                848 of the NDAA for FY 2017. DFARS 234.004(2)(iii) provides a reference
                to DFARS 216.301-3 for the additional approval requirements on cost-
                reimbursement contracts for major system acquisitions. DFARS
                234.004(2)(iv) provides a reference to PGI 216.403-1(1)(ii)(B) and (C)
                for procedures on the use of FPIF contracts.
                 DFARS 235.006(b)(i) incorporates the approval by USD(A&S) on the
                authority to use cost-reimbursement contracts for R&D in excess of $25
                million if the contracting officer executes a written determination and
                findings that the risk level does not permit realistic pricing and it
                is not possible to allocate that risk equitably between the Government
                and the contractor. Risks associated with a program is a major factor
                and consideration point for choosing the contract type. Since
                development efforts are inherently risky and do not lend themselves to
                a fixed[hyphen]price type of contract; a cost[hyphen]reimbursement
                contract is more appropriate and customary for most development
                programs. DFARS 235.006(b)(i)(B) is revised to reflect the revision to
                the notification requirements of an intent not to exercise a fixed-
                price production option on a development contract for a major weapon
                system prior to expiration of the option period; updated to reflect the
                MDA instead of the former USD(AT&L) now USD(A&S).
                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 propose to create any new DFARS clauses or amend
                any existing DFARS 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
                [[Page 12181]]
                rule is not a major rule under 5 U.S.C. 804.
                V. Executive Order 13771
                 This proposed rule is not expected to be an E.O. 13771 regulatory
                action, because this rule is not significant under E.O. 12866.
                VI. Regulatory Flexibility Act
                 DoD does not expect this proposed rule to have a significant
                economic impact on a substantial number of small entities within the
                meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
                because the rule is mainly impacting the internal operations of the
                government for review and approval on the use of certain contract
                types. However, an initial regulatory flexibility analysis has been
                performed and is summarized as follows:
                 DOD is proposing to amend the Defense Federal Acquisition
                Regulation Supplement (DFARS) to implement sections 829 and 830 of the
                National Defense Authorization Act for Fiscal Year 2017 that requires
                the preference for the use of firm fixed-price contract types for
                foreign military sales (FMS) with exceptions and waiver authority in
                accordance with sections 830(b) and (c). Section 829 requires review
                and approval for certain cost-reimbursement contract types at specified
                thresholds and established time periods.
                 The objective of this proposed rule is to require contracting
                officers to establish a preference for fixed-price and fixed-price
                incentive contracts during the consideration of contract type and
                require the use of firm fixed-price contracts for FMS, unless an
                exception applies or a waiver is executed.
                 Small business statistics were obtained from the Federal
                Procurement Data System for fiscal year 2017 data identifying the DoD
                cost-reimbursement awards issued, including task and delivery orders
                under single award indefinite delivery indefinite quantity (IDIQ)
                contracts as of August 8, 2018.
                 Of the 2,120 contract awards over $25 million (includes $50
                million), only 206 awards, or approximately ten percent, were made to
                unique small business entities.
                 This proposed rule does not include any new reporting,
                recordkeeping, or other compliance requirements for small businesses.
                The proposed rule does not duplicate, overlap, or conflict with any
                other Federal rules.
                 There are no known significant alternative approaches to the
                proposed rule that would meet the proposed objectives.
                 DoD invites comments from small entities and other interested
                parties on the expected impact of this rule on small entities.
                 DoD will also consider comments from small entities concerning the
                existing regulations in subparts affected by this rule in accordance
                with 5 U.S.C. 610. Interested parties must submit such comments
                separately and should cite 5 U.S.C. 610 (DFARS Case 2017-D024), in
                correspondence.
                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 Parts 202, 216, 217, 225, 234, and 235
                 Government procurement.
                Jennifer Lee Hawes,
                Regulatory Control Officer, Defense Acquisition Regulations System.
                 Therefore, 48 CFR parts 202, 216, 217, 225, 234, and 235 are
                proposed to be amended as follows:
                0
                1. The authority citation for 48 CFR parts 202, 216, 217, 225, 234, and
                235 continues to read as follows:
                 Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
                PART 202--DEFINITION OF WORDS AND TERMS
                0
                2. Amend section 202.101 by adding in alphabetical order a definition
                for ``Milestone decision authority'' to read as follows:
                202.101 Definitions.
                * * * * *
                 Milestone decision authority, with respect to a major defense
                acquisition program, major automated information system, or major
                system, means the official within the Department of Defense designated
                with the overall responsibility and authority for acquisition decisions
                for the program or system, including authority to approve entry of the
                program or system into the next phase of the acquisition process (10
                U.S.C. 2431a).
                * * * * *
                PART 216--TYPES OF CONTRACTS
                0
                3. Amend section 216.102 by--
                0
                a. Designating the text as paragraph (2); and
                0
                b. Adding paragraphs (1) and (3).
                 The additions read as follows:
                216.102 Policies.
                 (1) In accordance with section 829 of the National Defense
                Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), the
                contracting officer shall first consider the use of fixed-price
                contracts, including fixed-price incentive contracts, in the
                determination of contract type. See 216.301-3(2) for approval
                requirements for certain cost-reimbursement contracts.
                * * * * *
                 (3) See 225.7301-1 for the requirement to use fixed-price contracts
                for acquisitions for foreign military sales.
                216.104-70 [Amended]
                0
                4. Amend section 216.104-70 by removing ``contract type'' and adding
                ``contract type and see 235.006(b) for additional approval
                requirements'' in its place.
                0
                5. Amend section 216.301-3 by--
                0
                a. Designating the text as paragraph (1); and
                0
                b. Adding paragraph (2).
                 The addition reads as follows:
                216.301-3 Limitations.
                * * * * *
                 (2) Except as provided in 235.006(b), in accordance with section
                829 of the National Defense Authorization Act for Fiscal Year 2017
                (Pub. L. 114-328), approval of the head of the contracting activity is
                required prior to awarding the following:
                 (i) Cost-reimbursement contracts in excess of $50 million to be
                awarded after October 1, 2018, and before October 1, 2019.
                 (ii) Cost-reimbursement contracts in excess of $25 million to be
                awarded on or after October 1, 2019.
                PART 217--SPECIAL CONTRACTING METHODS
                0
                6. Amend section 217.202 by adding paragraphs (1)(i) and (ii) to read
                as follows:
                217.202 Use of options.
                 (1) * * *
                 (i) See PGI 217.202(1) for guidance on the use of options with
                foreign military sales (FMS).
                 (ii) See PGI 217.202(2) for the use options with sole source major
                systems for U.S. and U.S./FMS combined procurements.
                * * * * *
                PART 225--FOREIGN ACQUISITION
                0
                7. Add section 225.7301-1 to read as follows:
                [[Page 12182]]
                225.7301-1 Requirement to use firm-fixed-price contracts.
                 (a) Requirement. In accordance with section 830 of the National
                Defense Authorization Act for Fiscal Year 2017 (Pub. L. 14-328), a
                firm-fixed-price contract shall be used for FMS, unless the foreign
                country that is the counterparty to FMS--
                 (1) Has established in writing a preference for a different
                contract type; or
                 (2) Requests in writing that a different contract type be used for
                a specific FMS. See PGI 217.202(2) on the use of priced options for FMS
                requirements.
                 (b) Waiver. The requirement in paragraph (a) of this section may be
                waived, if the chief of the contracting office determines, on a case-
                by-case basis, that a different contract type is in the best interest
                of the United States and American taxpayers.
                0
                8. Add section 225.7301-2 to read as follows:
                225.7301-2 Solicitation approval for sole source contracts.
                 The contracting officer shall coordinate through agency channels
                with the Principal Director, Defense Pricing and Contracting, prior to
                issuing a solicitation for a sole source contract for U.S./FMS combined
                requirements for a major system that has an estimated contract value
                that exceeds $500 million. See also 201.170 and PGI 216.403-1(1)(ii)(B)
                and (C).
                PART 234--MAJOR SYSTEM ACQUISITION
                0
                9. Amend section 234.004--
                0
                a. In paragraphs (2)(i)(A) and (2)(i)(C) introductory text, by removing
                ``Milestone Decision Authority'' and adding ``milestone decision
                authority'' in both places;
                0
                b. By revising paragraph (2)(ii)(A) introductory text;
                0
                c. In paragraph (2)(ii)(A)(2), by removing the word ``when''; and
                0
                d. By adding paragraphs (2)(iii) and (2)(iv).
                 The revision and addition read as follows:
                234.004 Acquisition strategy.
                * * * * *
                 (2) * * *
                 (ii) * * *
                 (A) Not use cost-reimbursement line items for the acquisition of
                production of major defense acquisition programs, unless the Under
                Secretary of Defense for Acquisition and Sustainment (USD(A&S)), or the
                milestone decision authority when the milestone decision authority is
                the service acquisition executive of the military department that is
                managing the program, submits to the congressional defense committees--
                * * * * *
                 (iii) See 216.301-3 for additional contract type approval
                requirements for cost-reimbursement contracts.
                 (iv) For fixed-price incentive (firm target) contracts, contracting
                officers shall comply with the guidance provided at PGI 216.403-
                1(1)(ii)(B) and (C).
                PART 235--RESEARCH AND DEVELOPMENT CONTRACTING
                0
                10. Amend section 235.006--
                0
                a. By redesignating paragraphs (b)(i) and (b)(ii) as paragraphs (b)(ii)
                and (b)(iii);
                0
                b. In newly redesignated paragraph (b)(ii)(B) introductory text, by
                removing ``Under Secretary of Defense (Acquisition, Technology, and
                Logistics (USD(AT&L))'' and adding ``milestone decision authority'' in
                its place;
                0
                c. In newly redesignated paragraphs (b)(iii)(A)(3) introductory text
                and (b)(iii)(A)(3)(i) and (ii), by removing ``(b)(ii)(A)(1)'',
                ``USD(AT&L)'', and ``(b)(ii)(A)(3)(i)'' and adding ``(b)(iii)(A)(1),
                ``USD(A&S)'', and ``(b)(iii)(A)(3)(i)'' in their places, respectively;
                0
                d. In the newly redesignated paragraph (b)(iii)(B) introductory text,
                by removing ``USD(AT&L)'' and adding ``USD(A&S) in two places; and
                0
                e. By adding new paragraph (b)(i).
                 The addition reads as follows:
                235.006 Contracting methods and contract type.
                 (b)(i) Consistent with section 829 of the National Defense
                Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), the Under
                Secretary of Defense for Acquisition and Sustainment (USD(A&S)) has
                determined that the use of cost-reimbursement contracts for research
                and development in excess of $25 million is approved, if the
                contracting officer executes a written determination and findings
                that--
                 (A) The level of program risk does not permit realistic pricing;
                and
                 (B) It is not possible to provide an equitable and sensible
                allocation of program risk between the Government and the contractor.
                * * * * *
                [FR Doc. 2019-06246 Filed 3-29-19; 8:45 am]
                 BILLING CODE 5001-06-P
                

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