Defense Federal Acquisition Regulation Supplement: Negotiation of Price for Technical Data and Preference for Specially Negotiated Licenses (DFARS Case 2018-D071)

Published date12 November 2019
Citation84 FR 60988
Record Number2019-24585
SectionProposed rules
CourtDefense Acquisition Regulations System
Federal Register, Volume 84 Issue 218 (Tuesday, November 12, 2019)
[Federal Register Volume 84, Number 218 (Tuesday, November 12, 2019)]
                [Proposed Rules]
                [Pages 60988-60990]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-24585]
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                DEPARTMENT OF DEFENSE
                Defense Acquisition Regulations System
                48 CFR Parts 207, 212, 215, 227, and 252
                [Docket DARS-2019-0064]
                RIN 0750-AK79
                Defense Federal Acquisition Regulation Supplement: Negotiation of
                Price for Technical Data and Preference for Specially Negotiated
                Licenses (DFARS Case 2018-D071)
                AGENCY: Defense Acquisition Regulations System, Department of Defense
                (DoD).
                ACTION: Advance notice of proposed rulemaking.
                -----------------------------------------------------------------------
                SUMMARY: DoD is seeking information that will assist in the development
                of a revision to the Defense Federal Acquisition Regulation Supplement
                to implement sections of the National Defense Authorization Acts for
                Fiscal Years 2018 and 2019. In brief, for DoD only, those provisions
                provide for the negotiation of a price for technical data to be
                delivered under contracts for the engineering and manufacturing
                development, production, or sustainment of a major weapon system; and a
                preference for specially negotiated licenses for customized technical
                data to support the product support strategy of a major weapon system
                or subsystem thereof.
                DATES: Interested parties should submit written comments to the address
                shown below on or before January 13, 2020, to be considered in the
                formation of any proposed rule.
                 DoD is also hosting public meetings to obtain the views of
                interested parties in accordance with the notice published in the
                Federal Register on August 16, 2019, at 84 FR 41953.
                ADDRESSES: Submit written comments identified by DFARS Case 2018-D071,
                using any of the following methods:
                 [cir] Federal eRulemaking Portal: http://www.regulations.gov.
                Search for ``DFARS Case 2018-D071.'' Select ``Comment Now'' and follow
                the instructions provided to submit a comment. Please include ``DFARS
                Case 2018-D071'' on any attached documents.
                 [cir] Email: [email protected]. Include DFARS Case 2018-D071 in
                the subject line of the message.
                 [cir] Fax: 571-372-6094.
                 [cir] Mail: Defense Acquisition Regulations System, Attn: Ms.
                Jennifer D. Johnson, OUSD(A-S)DPC/DARS, Room 3B941, 3060 Defense
                Pentagon, Washington, DC 20301-3060.
                 Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To
                confirm receipt of your comment(s), please check www.regulations.gov,
                approximately two to three days after submission to verify posting
                (except allow 30 days for posting of comments submitted by mail).
                FOR FURTHER INFORMATION CONTACT: Ms. Jennifer D. Johnson, telephone
                571-372-6100.
                SUPPLEMENTARY INFORMATION:
                I. Background
                 DoD is seeking information from the public, particularly experts
                and interested parties in Government and the private sector, that will
                assist in the development of a revision to the Defense Acquisition
                Regulation Supplement (DFARS) to implement section 835 of the National
                Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L.
                115-91) and section 867 of the NDAA for FY 2019 (Pub. L. 115-232). Both
                sections are for DoD only; they do not impact other Federal agencies.
                Section 835 enacted a new provision into permanent law (10 U.S.C. 2439)
                and added a new subsection (f) to 10 U.S.C. 2320. Section 867 expanded
                the scope of 10 U.S.C. 2439. As a result, 10 U.S.C. 2439 now requires
                that the Secretary of Defense ensure, to the maximum extent
                practicable, that DoD, before selecting a contractor for the
                engineering and manufacturing development of a major weapon system,
                production of a major weapon system, or sustainment of a major weapon
                system, negotiates a price for technical data to be delivered under a
                contract for such development, production, or sustainment. 10 U.S.C.
                2320(f) now provides for a preference for specially negotiated licenses
                for customized technical data to support the product support strategy
                of a major weapon system or subsystem of a major weapon system.
                II. Discussion and Analysis
                 An initial draft of the proposed revisions to the DFARS to
                implement section 835 of the NDAA for FY 2018 and section 867 of the
                NDAA for FY 2019 is available in the Federal eRulemaking Portal at
                http://www.regulations.gov, by searching for ``DFARS Case 2018-D071'',
                selecting ``Open Docket Folder'' for RIN 0750-AK79, and viewing the
                ``Supporting Documents''. The strawman is also available at https://
                www.acq.osd.mil/
                [[Page 60989]]
                dpap/dars/change_notices.html under the publication notice for November
                12, 2019, and DFARS Case 2018-D071. The following is a summary of DoD's
                proposed approach and the feedback DoD is seeking from industry and the
                public.
                A. Negotiation of Price for Technical Data (10 U.S.C. 2439)
                 DoD is considering revising the DFARS to require the contracting
                officer to negotiate a price for data (including technical data and
                computer software) and associated license rights to be delivered or
                otherwise provided under a contract for services or for the
                development, production, or sustainment of a system, subsystem, or
                component. The contracting officer would be required to negotiate this
                price to the maximum extent practicable and before making a source
                selection decision or awarding a sole-source contract. Currently, the
                DFARS does not require the contracting officer to negotiate a price for
                data and associated license rights before the source selection decision
                or award of a sole-source contract. Prices for data and associated
                license rights are often negotiated after contract award.
                 The primary proposed change regarding mandatory negotiation of
                prices for data is found in proposed DFARS 215.470(a). The primary
                proposed change seeks to apply the new statutory requirement of 10
                U.S.C. 2439 in a manner that is consistent with the implementation of
                other statutory requirements (e.g., 10 U.S.C. 2320-2321) related to
                data (including technical data and computer software) and associated
                license rights (e.g., rights to use technical data to repair damage to
                a system). DoD's intent is to foster consistency in treatment amongst
                contracts awarded by DoD that require the delivery of data (including
                technical data and computer software) and associated license rights.
                The change would clarify that price negotiations must occur whether or
                not the resulting contract is competed. Although 10 U.S.C. 2439
                requires negotiation of prices for data for major weapon systems, the
                regulatory coverage would include commercial technical data,
                noncommercial technical data, and computer software (and associated
                license rights), consistent with the manner in which DoD has
                implemented 10 U.S.C. 2320-2321 in the DFARS over the past 24 years.
                Current DoD policy is to acquire needed technical data and computer
                software and associated license rights under contracts for the
                acquisition of supplies, services, and business systems. Accordingly,
                the primary proposed change would extend the scope of regulatory
                coverage to encompass contracts other than those for engineering and
                manufacturing development, production, or sustainment (including
                services contracts).
                 The House Armed Services Committee report accompanying the
                provision of the NDAA Bill that became section 835 of the NDAA for FY
                2018 ``urge[d] program managers when seeking technical data to consider
                the particular data that is required, the level of detail necessary,
                the purpose for which it will be used, with whom the government needs
                to share it, and for how long the government needs it.'' H.Rep. No.
                115-200, at 165 (2017). Thus, Congress intended that a DoD contract
                must require the contractor to:
                 Deliver or otherwise provide (i.e., make available to the
                Government) technical data and computer software; and
                 Grant license rights to that technical data and computer
                software.
                 Accordingly, to foster consistency in treatment, the proposed DFARS
                215.470(a) would require that contracting officers negotiate a fair and
                reasonable price for all data (including technical data and computer
                software) and associated license rights to be delivered or otherwise
                provided under a DoD contract for services or for the development,
                production, or sustainment of a system, subsystem, or component. The
                requirement for price negotiation would not be limited to technical
                data to be delivered under a DoD contract for the engineering and
                manufacturing development, production, or sustainment of, a major
                weapon system.
                 The proposed DFARS 215.470(a) also seeks to address the concerns
                identified in Tension Point Papers 1, 4, and 5 of the Final Report of
                the Government-Industry Advisory Panel on Technical Data Rights
                (Section 813 Panel) submitted to the Congressional Defense Committees
                in mid-November 2018 pursuant to section 813(b) of the NDAA for FY 2016
                (Pub. L. 114-92), as amended by section 809 of the NDAA for FY 2017
                (Pub. L. 114-328). In brief, those Tension Point Papers state that
                offerors should provide in their proposals a detailed discussion of
                their intellectual property (IP) evaluation techniques and assumptions,
                and that contracting officers should be required to consider commercial
                IP valuation practices and standards when determining a fair and
                reasonable price for the requested IP.
                 The three valuation practices and standards traditionally used by
                commercial entities to calculate the value of IP for transactional and
                litigation purposes are the market method, the cost method, and the
                income method. The market method consists of a comparison of proposed
                prices to other prices for similar IP, for example, a comparison of
                proposed prices to historical prices paid. The cost method involves a
                review and evaluation of the separate cost elements and profit or fee
                that make up the proposed prices. The income method considers the
                income a contractor's IP could generate in the future and the costs of
                generating that income, i.e., the economic benefit of the IP to the
                contractor.
                 Currently, contracting officers must comply with existing
                regulations at Federal Acquisition Regulation (FAR) 15.404-1, DFARS
                212.209, and DFARS 215.404-1, which require contracting officers to use
                the market method first, followed by the cost method if it is not
                feasible to use the market method. The proposed DFARS 215.470(a)
                directs contracting officers to consult FAR 15.404-1, DFARS 212.209,
                and DFARS 215.404-1 when negotiating a fair and reasonable price for
                all data (including technical data and computer software) and
                associated license rights, delivered or otherwise provided under a DoD
                contract. Although nothing prohibits the contracting officer from using
                the income method, use of the income method is not discussed in the
                DFARS.
                B. Preference for Specially Negotiated License Rights (10 U.S.C.
                2320(f))
                 New paragraph (f) of 10 U.S.C. 2320 establishes a preference for
                specially negotiated license rights (SNLR) through two new
                requirements, both of which relate to and require revisions to existing
                DFARS coverage. The DFARS currently authorizes, but does not express a
                preference for, the use of SNLR.
                 First, new 10 U.S.C. 2320(f) requires that the assessments and
                planning for a program's long-term needs for technical data for
                sustainment (required by 10 U.S.C. 2320(e)) must now include
                consideration of the use of specially negotiated licenses for
                customized technical data that supports DoD's strategy for sustainment
                of the major weapon system or subsystem being purchased. The underlying
                requirement to assess and plan for long-term technical data needs is
                implemented at DFARS 207.106(S-70), which applies to the program's
                needs for computer software and associated license rights, as well as
                data for major weapon systems and subsystems. Accordingly, the new
                requirements of 2320(f) are
                [[Page 60990]]
                proposed to be implemented in a similar manner. Specifically, the new
                10 U.S.C. 2320(f) requirement is proposed for insertion as new DFARS
                207.106(S-70)(2)(ii), with existing paragraphs (ii)-(iv) renumbered
                accordingly.
                 Second, new 10 U.S.C. 2320(f) requires that, to the maximum extent
                practicable, programs for major weapon systems or subsystems thereof
                shall use specially negotiated licenses for technical data to support
                DoD's strategy for sustainment of the systems or subsystems. While the
                current DFARS coverage does not include a preference for specially
                negotiated licenses, the DFARS authorizes the use of SNLR for all types
                of technical data and computer software, both noncommercial and
                commercial. The current DFARS enables the parties to enter into special
                licenses only by voluntary mutual agreement, and reinforces that any
                rights granted to the Government must be enumerated in an agreement
                that is incorporated into the contract. The DFARS currently identifies
                the minimum license rights that the Government is authorized to accept.
                For example, DFARS 227.7103-5, Government rights, specifies that, when
                negotiating specific license rights for technical data, the Government
                may not accept less than limited rights.
                 The proposed approach for implementing the new statutory preference
                for SNLR is to incorporate an appropriate statement of preference into
                the existing DFARS sections and clauses that already authorize and
                address, but do not currently express a preference for, SNLR. This
                implementation requires consideration of how a ``preference'' for SNLR
                can be integrated appropriately into the current regulatory structure
                that allows for SNLR on the basis of voluntary, mutual agreement. The
                proposed approach expresses a preference for use of SNLR ``whenever
                doing so will more equitably address the parties' interests than the
                standard license rights'' provided in the applicable clause or
                allocation of rights. However, to ensure that SNLR are not merely
                authorized and encouraged, but are required to be considered, the
                approach also includes an affirmative requirement that, to the maximum
                extent practicable, the parties must enter into good faith negotiations
                whenever either party desires a special license. Thus, it is only in
                the case when neither party desires a special license agreement (e.g.,
                because neither party anticipates doing so would more equitably address
                the parties' relative interests), that the parties are not required to
                negotiate.
                 The proposed approach also maintains the existing DFARS coverage,
                which reinforces that neither party can be forced to relinquish its
                standard license rights. Additionally, the proposed approach retains
                the DFARS statement of mandatory minimum license rights, as applicable
                (e.g., currently there is no required minimum license for commercial
                computer software or commercial computer software documentation). The
                approach includes the requirement from 10 U.S.C. 2320(f) that the
                special license must support the program's strategy for sustainment of
                the major weapon system or subsystem being purchased. The proposed
                approach also states that DoD may still challenge the basis for a
                contractor's assertions upon which a special license is based. DoD may
                challenge a contractor's assertions pursuant to DFARS 252.227-7019,
                Validation of Asserted Restrictions-Computer Software, and 252.227-
                7037, Validation of Restrictive Markings on Technical Data, as
                applicable. Finally, the approach also seeks to standardize the
                nomenclature for such negotiated licenses using variations of the term
                ``special'' (e.g., special license, specially negotiated license
                rights), rather than the term ``specifically,'' which is used
                inconsistently in the current DFARS.
                 This proposed implementation resulted in revisions to the existing
                DFARS coverage regarding SNLR for all forms of technical data and
                computer software, as follows:
                 (1) For commercial technical data, at 227.7102-2(b) and the
                associated clause at 252.227-7015(c).
                 (2) For noncommercial technical data, at 227.7103-5, and -5(d), and
                the associated clause at 252.227-7013(b)(4).
                 (3) For commercial computer software, at 227.7202-3(b) (for which
                there is no associated clause).
                 (4) For noncommercial computer software, at 227.7203-5, and -5(d),
                and the associated clause at 252.227-7014(b)(4).
                 (5) For the Small Business Innovation Research (SBIR) Program, at
                new 227.7104(d), and associated clause at 252.227-7018(b)(5).
                 Note that in the case of the SBIR Program, the proposed revisions
                limit the preference and authorization to negotiate special license
                agreements to be only after contract award, in accordance with section
                8, paragraph 6, of the SBIR Program and Small Business Technology
                Transfer Program Policy Directive, published in the Federal Register on
                April 2, 2019, (84 FR 12794), and which became effective on May 2,
                2019.
                C. Seeking Public Comment on Additional Topics
                 In addition to seeking public comment on the substance of the draft
                DFARS revisions, DoD is also seeking information regarding any
                corresponding change in the burden, including associated costs or
                savings, resulting from contractors and subcontractors complying with
                the draft revised DFARS implementation. More specifically, DoD is
                seeking information regarding any anticipated increase or decrease in
                such burden and costs relative to the burden and costs associated with
                complying with the current DFARS implementing language.
                III. Executive Orders 12866 and 13563
                 Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
                all costs and benefits of available regulatory alternatives and, if
                regulation is necessary, to select regulatory approaches that maximize
                net benefits (including potential economic, environmental, public
                health and safety effects, distributive impacts, and equity). E.O.
                13563 emphasizes the importance of quantifying both costs and benefits,
                of reducing costs, of harmonizing rules, and of promoting flexibility.
                This is 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.
                IV. Executive Order 13771
                 This Advance Notice of Proposed Rulemaking is not subject to E.O.
                13771.
                List of Subjects in 48 CFR Parts 207, 212, 215, 227, and 252
                 Government procurement.
                Jennifer Lee Hawes,
                Regulatory Control Officer, Defense Acquisition Regulations System.
                [FR Doc. 2019-24585 Filed 11-8-19; 8:45 am]
                 BILLING CODE 5001-06-P
                

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