[Federal Register Volume 69, Number 110 (Tuesday, June 8, 2004)]
[Rules and Regulations]
[Pages 31907-31909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12939]
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DEPARTMENT OF DEFENSE
48 CFR Part 206
[DFARS Case 2002-D023]
Defense Federal Acquisition Regulation Supplement; Follow-On
Production Contracts for Products Developed Pursuant to Prototype
Projects
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 provide an exception from
competition requirements to apply to contracts awarded under the
authority of section 822 of the National Defense
[[Page 31908]]
Authorization Act for Fiscal Year 2002. Section 822 provides for award
of a follow-on production contract, without competition, to
participants in an ``other transaction'' agreement for a prototype
project, if the agreement was entered into through use of competitive
procedures, provided for at least one-third non-Federal cost share, and
meets certain other conditions of law.
EFFECTIVE DATE: June 8, 2004.
FOR FURTHER INFORMATION CONTACT: Mr. Thaddeus Godlewski, Defense
Acquisition Regulations Council, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062
Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-2022;
facsimile (703) 602-0350. Please cite DFARS Case 2002-D023.
SUPPLEMENTARY INFORMATION:
A. Background
Section 845 of the National Defense Authorization Act for Fiscal
Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note) provides authority for
DoD to enter into transactions other than contracts, grants, or
cooperative agreements, in certain situations, for prototype projects
that are directly relevant to weapons or weapon systems proposed to be
acquired or developed by DoD. Such transactions are commonly referred
to as ``other transaction'' (OT) agreements for prototype projects.
Section 822 of the National Defense Authorization Act for Fiscal
Year 2002 (Pub. L. 107-107) permits award of a follow-on production
contract, without competition, to participants in an OT agreement for a
prototype project if--
(1) The OT agreement provided for a follow-on production contract;
(2) The OT agreement provided for at least one-third non-Federal
cost share for the prototype project;
(3) Competitive procedures were used for the selection of parties
for participation in the OT agreement;
(4) The participants in the OT agreement successfully completed the
prototype project;
(5) The number of units provided for in the follow-on production
contract does not exceed the number of units specified in the OT
agreement for such a follow-on production contract; and
(6) The prices established in the follow-on production contract do
not exceed the target prices specified in the OT agreement for such a
follow-on production contract.
DoD published amendments to the ``Other Transactions'' regulations
at 32 CFR part 3 on March 30, 2004 (69 FR 16481), to implement section
822. This DFARS rule provides the corresponding exemption from
competition requirements for follow-on production contracts awarded
under the authority of section 822.
DoD published a proposed DFARS rule at 68 FR 33057 on June 3, 2003.
Two sources submitted comments on the proposed rule. A discussion of
the comments is provided below. The difference between the proposed and
final rules is addressed in the discussion of Comment 3 below.
1. Comment: A company may submit a proposal below cost for
production during the initial competition in hopes of recovering costs
in a sole source environment. The Government should not facilitate
recovery of these costs, and this should be addressed prior to
finalizing the rule.
DoD Response: This concern is not unique to this rule, but exists
in any competition where only one offeror is selected for award. The
companion rule at 32 CFR 3.9 requires that the offered prices for
production be evaluated during the original competition. This, coupled
with the inherent responsibility of a contracting officer to ensure
that contractors honor their commitments, obviates the need for any
special DFARS text regarding this concern.
2. Comment: The requirement for production may change such that the
prototype no longer represents a clear solution to the Government's
needs and, in such a case, other companies should be afforded the
opportunity to offer solutions for the production phase. The rule
should specify the procedures to be used for such a follow-on
competition (e.g., solicit only original competitors, open
solicitation).
DoD Response: The companion rule at 32 CFR 3.9 outlines the upfront
limitations for use of this authority and specifies in paragraph (c)
that the authority should be used only when the risk of the prototype
project permits realistic production pricing without placing undue
risks on the awardee. This limits use of the authority for higher-risk
prototype projects where the production requirement, and thus the
pricing, may be less certain. This limitation, coupled with the
inherent responsibility of a contracting officer regarding scope
determinations, obviates the need to specify any unique scope
determination for use of this follow-on authority. Additionally, if the
contracting officer determines that the follow-on production is beyond
the scope of that originally contemplated, the contracting officer must
then develop an acquisition strategy for the new requirement. The
contracting officer must determine, in accordance with the FAR and the
particulars of the acquisition, the appropriate acquisition strategy.
It is not practicable to stipulate in regulation what constitutes a new
requirement, nor the nature of any follow-on competition for such a new
requirement.
3. Comment: The reference in the parenthetical at 206.001(S-70)(2)
should be corrected from ``32 CFR 3.9(c)'' to ``32 CFR 3.9(d)''.
DoD Response: Concur. The correction has been incorporated into the
final rule.
This rule was not subject to Office of Management and Budget review
under Executive Order 12866, dated September 30, 1993.
B. Regulatory Flexibility Act
DoD certifies that this final rule will not 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 applies only to production contracts for DoD weapons
and weapon systems. Such contracts typically are not awarded to small
business concerns.
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 206
Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
0
Therefore, 48 CFR part 206 is amended as follows:
0
1. The authority citation for 48 CFR part 206 continues to read as
follows:
Authority: 41 U.S.C. 421 and 48 CFR chapter 1.
PART 206--COMPETITION REQUIREMENTS
0
2. Section 206.001 is amended by adding, after paragraph (b), a new
paragraph (S-70) to read as follows:
206.001 Applicability.
* * * * *
(S-70) Also excepted from this part are follow-on production
contracts for products developed pursuant to the ``other transactions''
authority of 10 U.S.C. 2371 for prototype projects when--
(1) The other transaction agreement includes provisions for a
follow-on production contract;
(2) The contracting officer receives sufficient information from
the
[[Page 31909]]
agreements officer and the project manager for the prototype other
transaction agreement, which documents that the conditions set forth in
10 U.S.C. 2371 note, subsections (f)(2) (A) and (B) (see 32 CFR
3.9(d)), have been met; and
(3) The contracting officer establishes quantities and prices for
the follow-on production contract that do not exceed the quantities and
target prices established in the other transaction agreement.
[FR Doc. 04-12939 Filed 6-7-04; 8:45 am]
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