[Federal Register Volume 70, Number 34 (Tuesday, February 22, 2005)]
[Rules and Regulations]
[Pages 8539-8543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3202]
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DEPARTMENT OF DEFENSE
48 CFR Part 246
[DFARS Case 2002-D032]
Defense Federal Acquisition Regulation Supplement; Government
Source Inspection Requirements
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 eliminate requirements for
Government contract quality assurance at source for contracts or
delivery orders valued below $250,000, unless certain conditions exist.
DATES: Effective Date: February 22, 2005.
FOR FURTHER INFORMATION CONTACT: Ms. Michele Peterson, Defense
Acquisition Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132,
3062 Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-
0311; facsimile (703) 602-0350. Please cite DFARS Case 2002-D032.
SUPPLEMENTARY INFORMATION:
A. Background
This final rule adds policy at DFARS 246.402 and 246.404 to
eliminate the requirement for Government contract quality assurance at
source for contracts or delivery orders valued below $250,000, unless
(1) mandated by DoD regulation, (2) required by a memorandum of
agreement between the acquiring department or agency and the contract
administration agency, or (3) the contracting officer determines that
certain conditions exist.
DoD published a proposed rule at 68 FR 53946 on September 15, 2003.
Thirty-seven respondents submitted comments on the proposed rule. Nine
of the respondents were in favor of the rule, noting that the change
will result in savings, will expedite deliveries, and is especially
appropriate for commercial items. A discussion of comments submitted by
the other respondents is provided below:
1. Comment: It is unclear as to why the criteria of both
242.402(3)(i) and (ii) must be met. If the Government specifies
important technical requirements (through technical documents,
specifications, drawings, etc.), there is adequate justification for
Government quality assurance at source. Paragraphs (3)(i) and (ii)
should be combined to read ``(i) Contract technical requirements are
significant (e.g., the technical requirements include drawings, test
procedures, characteristics that are critical to proper performance of
the item are identified, specific concerns have been identified with
regard to the contractors ability to meet technical requirements,
etc)''.
DoD Response: Do not agree with the proposed revision. However,
246.402(3)(ii) has been revised in the final rule for clarity.
2. Comment: Section 246.402(3)(iii), addressing manufacturers/
producers and non-manufacturers/non-producers, should be eliminated.
DoD Response: Do not agree. The delivery of supplies through a non-
manufacturer or non-producer affects the ability to perform meaningful
quality assurance at sources. The rule is intended to ensure that
contracting officers address this issue.
3. Comment: Section 246.402(3)(iii) should be clarified to explain
its meaning and how it will be defined to apply equally.
DoD Response: Do not agree. The terms in paragraph (3)(iii),
relating to manufacturers and producers, are sufficiently clear and do
not require definition.
4. Comment: One respondent posed a question regarding
246.402(3)(ii) and asked about the interpretation of critical product
features/characteristics and specific acquisition concerns at the
contract administration office level.
DoD Response: The final rule revises 246.402(3) to further clarify
the requirement for the contracting officer to ensure that critical
product features and characteristics are identified, either through
contract technical requirements or through other communications with
the provider of the Government contract quality assurance at source,
and to identify specific concerns. The contract administration office
should assist in this identification as appropriate, but is not
expected to provide the information absent the contracting officer
activities.
5. Comment: To minimize confusion that will ensue regarding
determinations for the need for source inspection, the phrase
``critical product feature'' should be clarified.
DoD Response: The final rule revises 246.402(3)(ii) for further
clarification.
6. Comment: The following subparagraphs should be added to 246.402
as exceptions to the proposed rule: (3)(iv)--``The contract will
require shipment of material OCONUS''; and (4)--``Contract is in
support of a Security Assistance or Foreign Military Sales case.'' The
comment details additional costs and export licenses associated with
free on board (f.o.b.) destination conditions for OCONUS shipments and
agreed-to letters of offer and acceptance between the U.S. Government
and foreign governments.
DoD Response: Do not agree with the recommended change. If the
conditions for Government contract quality assurance at source are met,
the additional requirements may be communicated by defining them as a
specific acquisition concern.
7. Comment: Section 246.402(3) should be revised to provide
flexibility with regard to the first two criteria and to add a fourth
criterion to allow for other circumstances determined by the
contracting officer after consultation with quality assurance
personnel.
DoD Response: Do not agree. Neither an additional criterion nor
changes to the existing criteria are needed. However, 246.402(3)(ii)
has been revised for further clarity.
8. Comment: The text at 246.402 provides differing criteria for
Government contract quality assurance at source than that found at FAR
46.404.
DoD Response: Do not agree. FAR 46.404 directs the user to FAR
46.402, which is supplemented by this DFARS change.
9. Comment: DFARS 246.405 should be reinstated to ensure that
subcontract activities parallel the proposed change.
DoD Response: Do not agree. The provisions of FAR 46.405 adequately
address required Government quality assurance activity at the
subcontract level.
10. Comment: FAR 52.213-4(d) and FAR 52.246-2 should not be used
concurrently in the same contract.
DoD Response: The comment is outside the scope of this case.
However, it is noted that FAR 46.302 specifically allows for inclusion
of the clause at FAR 52.246-2 in contracts below the simplified
acquisition threshold when it is in the Government's best interest.
11. Comment: The threshold of $250,000 could be twice that amount.
DoD Response: DoD considers a threshold of $250,000 to be
appropriate at this time.
12. Comment: The dollar threshold should be eliminated on the basis
that it is irrelevant and appears arbitrary in nature. Technical
description, complexity, and criticality are the FAR 46.203 criteria
for establishment of contract quality requirements.
DoD Response: DoD recognizes that cost is not the indicator of
requirements for Government contract quality assurance at source.
Therefore, the
[[Page 8540]]
conditions for Government contract quality assurance at source as
described in the rule are of primary importance. The establishment of a
dollar threshold is a means for ensuring that contracting offices apply
the conditions as a matter of course.
13. Comment: The words ``and delivery orders'' should be deleted
from the introductory sentence of 246.402 to support Air Force Material
Command strategic contracts.
DoD Response: Do not agree. Delivery orders under strategic
contracts must meet the conditions described in the rule in order to
receive Government contract quality assurance at source.
14. Comment: The rule should explicitly address indefinite
delivery/indefinite quantity contracts used through corporate contracts
that may mix source and destination inspection/acceptance requirements
on the same contract.
DoD Response: Do not agree. The rule already addresses delivery
orders. For delivery orders under $250,000, only contract line items
that meet the conditions specified in the rule qualify for Government
contract quality assurance at source.
15. Comment: Contracting offices are not capable of providing
critical characteristics.
DoD Response: Do not agree. A basic responsibility of the
contracting office, per FAR 46.103, is to provide technical
requirements and any specifications for inspection, testing, and other
contract quality requirements essential to ensure the integrity of the
supplies or services.
16. Comment: The contracting officer receives quality assurance
requirements from the technical activity (FAR 46.103) and is not
adequately trained to determine whether technical requirements are
significant and to identify critical product features/characteristics.
DoD Response: The technical activity provides quality assurance
requirements to the contracting officer, including inspection and
testing requirements, which are conveyed to the contractor and the
contract administration activity by the contracting officer.
17. Comment: DFARS 213.402, Conditions for Use of Fast Payment
Procedures, should be changed to accommodate direct vendor delivery
awards exceeding the $25,000 threshold for use of fast payment
procedures, and awards that combine contract line items being shipped
to stock not meeting the fast payment conditions, as well as direct
vendor delivery contract line items that do; and to provide for
instances when the best value is conditional on f.o.b. origin shipment
terms. Additionally, conflict with FAR 47.305-5 and 47.304-1(d) may be
resolved by amending DFARS 213.402 further by adding (a)(vi)--``When
the sole reason for designating inspection and acceptance at source
would be because f.o.b. origin is required in accordance with FAR
47.305-5 and 47.304-1(d).''
DoD Response: The recommended changes are outside the scope of this
case.
18. Comment: Instead of this new language, allow ``good''
contractors to deliver with limited Government contract quality
assurance at source, since adequate tools are available to the
Government quality assurance representative (i.e., alternative release
procedures, certificates of conformance, and fast pay).
DoD Response: Do not agree. The intent of the change is to
alleviate Government contract quality assurance at source for those
procurements that typically are limited to the assessments of kind,
count, and condition. With the exception of certificates of
conformance, the tools described in this comment do not alleviate
quality assurance activities at source. The tools will remain available
for use as appropriate.
19. Comment: The change to 246.402 is too broad. It should be
applied to commercial items and non-commercial items delivered via
certificate of conformance.
DoD Response: Do not agree. The scope of the rule is appropriate.
The conditions for Government contract quality assurance at source as
described are of primary importance.
20. Comment: Contractors approved for alternative release
procedures should be allowed to continue to conduct their own origin
inspections and designate contracts to approved contractors for
continued origin inspection.
DoD Response: Do not agree. The comment expresses a misapplication
of the alternative release provision as defined by DFARS 246.471(b).
21. Comment: Language should be added to provide for Government
contract quality assurance at source due to adverse manufacturer past
performance; significant changes to the supplier's quality assurance
program, manufacturing environment, or supplier base; or the previous
receipt of nonconforming material for same or similar items.
DoD Response: The events described by the respondent may
necessitate the requirement for Government contract quality assurance
at source. Circumstances such as these are adequately covered by the
provision for specific acquisition concerns at 246.402(3)(ii)(C).
22. Comment: Instead of the dollar value, the clause should be
designed to reduce Government contract quality assurance at source for
ISO-certified suppliers.
DoD Response: Do not agree. Currently, DoD does not require
certification to international standards as a contract condition,
opting to require compliance with associated contract quality
requirements. Although ISO certification/compliance is a risk
management tool considered while performing Government contract quality
assurance, the comment is not supported by current acquisition
regulations and policies.
23. Comment: The change ignores the relationship with the f.o.b.
point.
DoD Response: Do not agree. The rule affects the f.o.b. point as
specified by FAR 47.302(c)(2). However, there is no conflict. The
provisions of FAR 47.302 state that the place of performance of
Government acquisition quality assurance actions and the place of
acceptance shall not control the delivery term, except when acceptance
is at destination.
24. Comment: Contracts will need to be modified to account for
additional cost burden associated with the f.o.b. point based on the
change, per FAR 47.302. Additional costs will be incurred through
contractor liability for delivery, storage, demurrage, and other costs
prior to actual delivery; duplicate packaging and marking by the
contractor and the Government; and liability for loss/damage before
shipment receipt.
DoD Response: Do not agree. The rule affects the f.o.b. point as
specified by FAR Part 47 and, as such, will require contractors to
consider those costs when proposing on future contracts. However,
current contracts will not require modification, because this change is
not retroactive.
25. Comment: The f.o.b. points for both solicitations and contracts
(FAR 47.305-5(a)(1) and 47.302(c)(1)) conflict with the rule,
particularly when shipping to foreign military sales customers and
Naval vessels.
DoD Response: Do not agree. The rule affects the f.o.b. point as
specified by FAR 47.302(c)(2); however, there is no conflict. The
provisions of FAR 47.302 state that the place of performance of
Government acquisition quality assurance actions and the place of
acceptance shall not control the delivery term, except when acceptance
is at destination. Additionally, solicitation provisions are available
to the contracting officer with regard to FAR
[[Page 8541]]
47.305-5(b)(2) when destinations are unknown that would not result in a
conflict.
26. Comment: The phrase ``for contracts assigned administration to
the Defense Contract Management Agency'' should be added to allow for
the conduct of Government contract quality assurance at source when
conditions are not met by the contracting agency.
DoD Response: Do not agree. The initiative to reduce Government
contract quality assurance at source unless appropriate conditions
exist should not be applicable to only one DoD agency. The conditions
described allow for effective Government contract quality assurance at
source for all involved in DoD acquisition and make the best use of
resources throughout DoD.
27. Comment: The rule should exempt contractor plants with in-plant
Defense Contract Management Agency offices. It is not cost-effective to
have hardware delivered, subjected to process assessment at the plant
level, then inspected at another location. If non-exempt, assure that
the rule is only applied to future contracts.
DoD Response: The rule will result in Government contract quality
assurance at source for only those supplies that meet the conditions of
the rule. The rule is not retroactive to include current contracts.
28. Comment: The Government quality assurance representative
provides assistance in interpreting contract requirements and
facilitates corrections.
DoD Response: Agree. The revision does not preclude Government
quality assurance representatives from providing assistance to
contractors in support of Government contract interpretation as
appropriate and facilitating corrections with the contracting office.
29. Comment: The Government quality assurance representative
provides deterrence with regard to fraudulent activities.
DoD Response: Not applicable. Government contract quality assurance
is not intended to detect fraudulent activities. It is incumbent upon
all involved in Government acquisition to identify and report any
potentially fraudulent activities.
30. Comment: The Government quality assurance representative at
source rejects nonconforming parts based on more than defined critical
characteristics.
DoD Response: Agree. The revision does not preclude the rejection
of nonconforming parts based solely on critical characteristics at
destination or, when the conditions of the proposed change exist, at
source.
31. Comment: The rule should address instances where no Government
inspection is required, especially when in-process system activities
are performed.
DoD Response: Do not agree. Government contract quality assurance
activities, whether at source or destination, are required to perform
the Government acceptance function and subsequent transfer of title.
In-process assessments are a form of Government contract quality
assurance at source. At times, the quality assurance activities may be
extremely limited, such as when quality assurance is limited to kind,
count, and condition assessments (inspections); however, they
nonetheless occur.
32. Comment: DoD should implement fast payment procedures for all
contracts that require inspection at Government facilities.
DoD Response: Not applicable. Conditions for use of fast payment
procedures are outside the scope of this case.
33. Comment: Recommend acceptance at source with inspection at
destination, which will increase the fast payment procedure threshold
and the expanded use of certificates of conformance to allow invoicing
at shipment.
DoD Response: Do not agree. DoD regulations and policy do not allow
for acceptance prior to Government contract quality assurance
activities. Fast payment provisions are outside the scope of this case.
The conditions for use of certificates of conformance are not being
modified, and the certificate of conformance continues to be a valuable
acquisition tool.
34. Comment: DoD should implement a joint contractor-Government
process approach to the appropriate oversight level, with sampling
techniques or self-oversight.
DoD Response: Do not agree. Presently, Government contract quality
assurance at source activities may be performed jointly with the
contractor. The rule does not affect this activity.
35. Comment: Will surplus contracts continue to be administered by
the Defense Contract Management Agency?
DoD Response: The comment is outside the scope of this case.
Assignment of contract administration by the contracting activity is in
accordance with FAR Part 42 and DFARS Part 242. Contract administration
represents more than quality assurance services and is dependent on the
terms of the individual contract.
36. Comment: Will surplus contractors be required to re-package and
re-label items prior to shipping? If so, how will DoD ensure
traceability back to the original DoD contract and conformance to the
surplus certification?
DoD Response: Not applicable. Packaging and traceability
requirements specified by individual contracts are outside the scope of
this case.
37. Comment: The rule should be amended to clearly state that it
does not impose or otherwise change the inspection criteria currently
adhered to by surplus contractors via 52.211-9000, Government Surplus
Material DLAD (APR 2002).
DoD Response: Do not agree. The DFARS applies to DoD as a whole.
Unique department and agency implementation activities are outside the
scope of the case.
38. Comment: The memorandum of agreement provisions should be
changed to allow negotiation at the contracting activity level instead
of the department or agency.
DoD Response: Do not agree. Departments and agencies may issue
their own procedures to identify the appropriate authority for approval
of a memorandum of agreement.
39. Comment: Inspection locations should be specified in the
solicitation.
DoD Response: Not applicable. Terms of individual solicitations are
outside the scope of this case. However, it is the obligation of the
contracting officer to specify the terms and conditions that apply to a
contract.
40. Comment: The rule should be amended to require the Government
to inspect material no later than 30 days following receipt and that
payment be made no later than 60 days regardless of inspection
occurrence.
DoD Response: Not applicable. The comment relates to payment terms,
which are outside the scope of this case.
41. Comment: Provide the date when the new electronic payment
system will be implemented.
DoD Response: There is no new electronic payment system. However,
if the respondent is referring to the new Wide Area WorkFlow-Receipt
and Acceptance (WAWF-RA) system, it is available now and has already
been widely deployed. Many DoD locations are already registered in
WAWF-RA, and more are being continually added. However, because
submission under a particular contract is dependent on the acceptance
point designated for that contract being registered in WAWF-RA,
availability may vary. If a company is unsure whether a particular DoD
location is registered in WAWF-RA,
[[Page 8542]]
they should contact that activity to confirm WAWF-RA status.
42. Comment: Implementation of the policy should be deferred until
WAWF-RA is fully deployed by DoD; or the rule should be phased in to
provide for destination acceptance for locations participating in WAWF-
RA to limit invoicing delays. Some companies would be adversely
affected by delays in payment and the current cycle time (estimated as
45 days for paper invoices and 37 electronically) could increase by 10
days or more.
DoD Response: Sufficient guidance is presently available to
facilitate Government contract quality assurance at destination to
include acceptance. Achieving department-wide implementation of WAWF-
RA, although anticipated to increase efficiencies, is not necessary to
implement this rule.
43. Comment: DoD should develop detailed metrics to accumulate real
savings associated with the change.
DoD Response: Do not agree. Development of metrics is outside the
scope of this case.
44. Comment: The rule should be based on unit costs instead of
contract value.
DoD Response: Do not agree. Cost is not the indicator of
requirements for Government contract quality assurance at source.
Therefore, the conditions for Government contract quality assurance at
source as described in the rule are of primary importance.
45. Comment: Discontinuing source inspections under $250,000 sends
a clear signal that low risk equates to low value.
DoD Response: Do not agree. This change does not signal a direct
relationship between dollar value and risk, since it recognizes that
Government contract quality assurance may be necessary and appropriate
for items of any dollar value. The established criteria for
accomplishment of Government contract quality assurance at source are
intended to drive the decision.
46. Comment: One respondent remarked that it will not bid on
contracts with inspection/acceptance at destination, due to the
criticality of obtaining acceptance documentation to permit invoicing
and the difficulty of obtaining this documentation when acceptance is
at destination.
DoD Response: Sufficient guidance is currently available to
facilitate Government contract quality assurance at destination to
include acceptance. Full operational capability of Wide Area WorkFlow-
Receipt and Acceptance is expected to increase efficiencies, but is not
necessary to implement this rule.
47. Comment: The change will result in the delivery of
nonconforming material and increase the administrative burden of buying
activities.
DoD Response: Do not agree. There is no evidence to support this
assertion. Contractual obligations to provide conforming material are
not lessened by this change. Contracting offices are obligated to
ensure that contractors are responsive and responsible prior to
contracting for supplies.
48. Comment: The change increases the burden on the destination
point without the required manpower, expertise, or equipment to perform
destination inspection and acceptance.
DoD Response: Do not agree. The destination quality assurance
activities anticipated as a result of this revision should consist of
the assessment of item kind, count, and physical condition. Destination
activities normally assess kind, count, and condition of items
delivered to them, even when this assessment has already been performed
at source. If the exceptions described in the DFARS rule exist,
Government contract quality assurance at source should be designated.
49. Comment: Inspection at source decreases instances of improper
completion of DD Forms 250.
DoD Response: Do not agree. The Government quality assurance
representative provides valuable assistance in these matters; however,
accurate completion of DD Form 250 is the obligation of the contractor,
in accordance with DFARS Appendix F. There is no evidence to indicate
that instances of improper completion will increase as a result of this
change.
50. Comment: The integrity of higher-level packaging will be
destroyed at destination inspection.
DoD Response: Contracting offices will need to assess the effect
regarding the integrity of higher-level packaging when determining
where Government contract quality assurance will be performed and will
need to adjust contract terms accordingly. If the packaging is unique
to a supplier, or if the integrity of the packaging would be in
question, this may constitute a specific acquisition concern that would
meet the exception in the rule at 246.402(3)(ii)(C).
51. Comment: The change will result in the closure of Defense
Contract Management Agency offices, thus reducing activities associated
with subcontractor surveillance.
DoD Response: Do not agree. There is no evidence to support the
assertion that this change will result in the closure of Defense
Contract Management Agency offices or adversely impact abilities
associated with the surveillance of subcontractor activities.
52. Comment: The change will result in increased costs to the
Government receipt point.
DoD Response: Do not agree. Overall DoD costs will be reduced,
because duplicate ``kind, count, and condition'' inspections will be
eliminated. The only additional responsibilities imposed on destination
activities are those associated with the execution and distribution of
the DD Form 250. DoD deployment of Wide Area WorkFlow-Receipt and
Acceptance should greatly relieve this burden.
53. Comment: Delays in inspection will delay delivery to the
military user.
DoD Response: Do not agree. There is no evidence to support the
assertion.
54. Comment: Defense Contract (Criminal) Investigative Services
should be solicited to review small-dollar contractors under
investigation for fraudulent activities.
DoD Response: The comment is outside the scope of this case.
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 has prepared a final regulatory flexibility analysis consistent
with 5 U.S.C. 604. The analysis is summarized below. A copy of the
analysis may be obtained from the point of contact specified herein.
This final rule amends the DFARS to eliminate requirements for
Government contract quality assurance at source for contracts or
delivery orders valued below $250,000 unless: (1) Mandated by DoD
regulation; (2) required by a memorandum of agreement between the
acquiring department or agency and the contract administration agency;
or (3) the contracting officer determines that certain conditions exist
that make contract quality assurance at source necessary. The objective
of the rule is to reduce lower-risk contract quality assurance
workload, allowing for redirection of limited labor resources to
higher-risk work, while providing flexibility for exceptions where
special attention is needed. Several respondents expressed concern
about delays in payment that might be experienced due to the reduction
in the number of source inspections. DoD implementation of Wide Area
WorkFlow-Receipt and Acceptance, a web-based system for electronic
invoicing, receipt, and acceptance, will significantly speed up
[[Page 8543]]
the acceptance and payment process and should offset any delays due to
reductions in source inspections. Many DoD locations are already
registered in Wide Area WorkFlow-Receipt and Acceptance, and more are
being continually added. Since Wide Area WorkFlow-Receipt and
Acceptance is well on the way toward full implementation, DoD believes
that any economic impact on small entities will be minimal.
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 246
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
0
Therefore, 48 CFR Part 246 is amended as follows:
0
1. The authority citation for 48 CFR Part 246 continues to read as
follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 246--QUALITY ASSURANCE
0
2. Section 246.402 is added to read as follows:
246.402 Government contract quality assurance at source.
Do not require Government contract quality assurance at source for
contracts or delivery orders valued below $250,000, unless--
(1) Mandated by DoD regulation;
(2) Required by a memorandum of agreement between the acquiring
department or agency and the contract administration agency; or
(3) The contracting officer determines that--
(i) Contract technical requirements are significant (e.g., the
technical requirements include drawings, test procedures, or
performance requirements);
(ii) The product being acquired--
(A) Has critical characteristics;
(B) Has specific features identified that make Government contract
quality assurance at source necessary; or
(C) Has specific acquisition concerns identified that make
Government contract quality assurance at source necessary; and
(iii) The contract is being awarded to--
(A) A manufacturer or producer; or
(B) A non-manufacturer or non-producer and specific Government
verifications have been identified as necessary and feasible to
perform.
0
3. Section 246.404 is added to read as follows:
246.404 Government contract quality assurance for acquisitions at or
below the simplified acquisition threshold.
Do not require Government contract quality assurance at source for
contracts or delivery orders valued at or below the simplified
acquisition threshold unless the criteria at 246.402 have been met.
[FR Doc. 05-3202 Filed 2-18-05; 8:45 am]
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