[Federal Register: August 21, 2003 (Volume 68, Number 162)]
[Rules and Regulations]
[Page 50477-50478]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au03-15]
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DEPARTMENT OF DEFENSE
48 CFR Part 252
[DFARS Case 2002-D016]
Defense Federal Acquisition Regulation Supplement; Liability for
Loss Under Vessel Repair and Alteration Contracts
AGENCY: Department of Defense (DoD).
ACTION: Final rule.
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SUMMARY: DoD has issued a final rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to increase a contractor's
liability for loss or damage under vessel repair and alteration
contracts, from $5,000 to $50,000 per incident. The increased dollar
ceiling is based on adjustments for inflation, the need to provide a
financial incentive for contractors to minimize loss and damage, and
common insurance practices.
EFFECTIVE DATE: August 21, 2003.
FOR FURTHER INFORMATION CONTACT: Mr. Euclides Barrera, Defense
Acquisition Regulations Council, OUSD(AT&L)DPAP(DAR), IMD 3C132,
[[Page 50478]]
3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-
0296; facsimile (703) 602-0350. Please cite DFARS Case 2002-D016.
SUPPLEMENTARY INFORMATION:
A. Background
DoD uses the clause at DFARS 252.217-7012, Liability and Insurance,
in master agreements for repair and alteration of vessels. The clause
holds a contractor liable for loss or damage resulting from defective
contractor workmanship and materials, and contains a liability ceiling
for any other contractor-incurred loss or damage. This rule increases
the contractor's liability ceiling from $5,000 to $50,000 per incident.
DoD published a proposed rule at 68 FR 7491 on February 14, 2003.
One respondent submitted comments on the proposed rule. A summary of
DoD's analysis of the comments is provided below:
Comment: The respondent took issue with the increase in the
contractor's liability ceiling from $5,000 to $50,000, and instead
recommended a ceiling of $7,465 based on actual inflation experienced
by the shipbuilding industry since 1982 when the $5,000 ceiling was
established.
DoD Response: Do not concur. The increase was not based solely on
inflation factors. The increase from $5,000 to $50,000 was determined
to be appropriate as a result of a Navy study of incidents of
contractor-incurred damages under vessel repair and alteration
contracts during a recent 3-year period, which indicated that 70
percent of the incidents were for amounts below $50,000, whereas only
30 percent of the incidents were for amounts of $5,000 or less. The
objective of the increase is to provide a financial incentive for
contractors to minimize loss and damage.
Comment: The respondent does not agree with DoD's position that the
increased dollar ceiling is necessary to provide a financial incentive
for contractors to minimize loss or damage. The clause at DFARS
252.217-7012 already provides a strong financial incentive for
contractors to minimize loss or damage. Under the clause, the
Government's assumption of risk is essentially limited to loss or
damage resulting from accidents. To require contractors to assume more
of the costs associated with accidental damage to vessels will not
necessarily result in a reduced number of occurrences, but will force
contractors to price the costs of assumption of additional risks (due
to higher ceilings) into their cost proposals for Navy ship repair
work.
DoD Response: Do not concur. Increasing the ceiling is consistent
with the commercial insurance practice of setting a deductible that
lowers claim frequency, eliminates insubstantial claims, and provides
an incentive for the insured to avoid losses. Any increased contract
costs that might result from the higher ceiling should be offset by the
reduced number of claims submitted to the Government.
This rule was not subject to Office of Management and Budget review
under Executive Order 12866, dated September 30, 1993.
B. Regulatory Flexibility Act
This rule may 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. DoD has prepared a final
regulatory flexibility analysis, which is summarized as follows:
This rule increases a contractor's liability for loss or damage to
a Government vessel, materials, or equipment, from $5,000 to $50,000
per incident. The rule will apply to small entities that have a master
agreement with DoD for repair and alteration of vessels. There is no
available estimate of the total number of small entities that will be
subject to the rule. However, the Naval Sea Systems Command (NAVSEA),
which is responsible for the maintenance and repair of the majority of
vessels, has collected data indicating that, during the period from May
1997 to October 2002, there were 61 occurrences of contractor-caused
damages. Of those, 13 occurrences (21 percent) were attributed to small
entities. Entities with master agreements for repair and alteration of
vessels will need to increase their insurance coverage from $5,000 to
$50,000. DoD considered using a liability ceiling of less than $50,000,
but believes the $50,000 ceiling to be appropriate because--
1. This ceiling should capture a majority of claims, since a NAVSEA
study has shown that 70 percent of incidents of contractor-incurred
damages during a recent 3-year period were for amounts less than
$50,000;
2. The increase should provide an incentive for contractors to
reduce the number of such occurrences, thereby reducing vessel ``down-
time'' for maintenance and repair and making more efficient use of
scarce maintenance dollars; and
3. The increase is consistent with the commercial insurance
practice of setting a deductible that lowers claim frequency,
eliminates insubstantial claims, and provides an incentive for the
insured to avoid losses.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the rule does
not impose any information collection requirements that require the
approval of the Office of Management and Budget under 44 U.S.C. 3501,
et seq.
List of Subjects in 48 CFR Part 252
Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
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Therefore, 48 CFR Part 252 is amended as follows:
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1. The authority citation for 48 CFR Part 252 continues to read as
follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
252.217-7012 [Amended]
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2. Section 252.217-7012 is amended as follows:
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a. By revising the clause date to read ``(AUG 2003)''; and
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b. In paragraph (b)(6), by removing ``$5,000'' and adding in its place
``$50,000''.
[FR Doc. 03-21311 Filed 8-20-03; 8:45 am]
BILLING CODE 5001-08-P