[Federal Register Volume 71, Number 70 (Wednesday, April 12, 2006)]
[Rules and Regulations]
[Pages 18667-18669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3455]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Part 212
[DFARS Case 2003-D106]
Defense Federal Acquisition Regulation Supplement; Transition of
Weapons-Related Prototype Projects to Follow-On Contracts
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Final rule.
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SUMMARY: DoD has adopted as final, with changes, an interim rule
amending the Defense Federal Acquisition Regulation Supplement (DFARS)
to implement Section 847 of the National Defense Authorization Act for
Fiscal Year 2004. Section 847 authorizes DoD to carry out a pilot
program that permits the use of streamlined contracting procedures for
the production of items or processes begun as prototype projects under
other transaction agreements.
DATES: Effective Date: April 12, 2006.
FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition
Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326;
facsimile (703) 602-0350. Please cite DFARS Case 2003-D106.
SUPPLEMENTARY INFORMATION:
A. Background
DoD published an interim rule at 69 FR 63329 on November 1, 2004,
to implement Section 847 of the National Defense Authorization Act for
Fiscal Year 2004 (Pub. L. 108-136). Section 847 authorizes DoD to carry
out a pilot program for follow-on contracting for the production of
items or processes begun as prototype projects under other transaction
agreements. Contracts and subcontracts awarded under the program may be
treated as those for the acquisition of commercial items; and items or
processes acquired under the program may be treated as developed in
part with Federal funds and in part at private expense for purposes of
negotiating rights in technical data.
One association submitted comments on the interim rule. A
discussion of the comments is provided below.
1. Comment: Definition of nontraditional defense contractor. The
respondent noted that the definition in the rule is consistent with the
statutory definition at 10 U.S.C. 2173, but stated
[[Page 18668]]
that the term ``performed on'' in paragraph (2) of the definition could
be interpreted to include commercial subcontractors that ``performed
on'' traditional defense contractors' prime contracts; this would
inappropriately exclude those contractors from the pilot program. The
respondent recommended revising paragraph (2)(ii) of the definition to
clarify that only contracts with Federal agencies subject to the FAR
for both prototype projects and basic, applied, or advanced research
projects will be considered in the determination of a nontraditional
defense contractor, because the current language could be interpreted
to include contracts not subject to the FAR.
DoD Response: The definition in the DFARS rule is consistent with
the definition provided in the statute, and the terminology referenced
by the respondent (i.e., ``performed on'') is identical to terminology
used by DoD in related longstanding policy and guidance (e.g., DoD's
audit policy for prototype projects that use other transaction
authority (32 CFR part 3) and DoD's Other Transactions Guide for
Prototype Projects). DoD is unaware of any issues with its
interpretation and believes that revising the definition could cause
unnecessary confusion. If a contractor has entered into another
transaction agreement and has not, for a period of at least 1 year
prior to the date of the other transaction agreement, been a direct
party to a contract (prime or subcontract) that was subject to full
cost accounting standards coverage or one that exceeded $500,000 to
carry out prototype projects or to perform basic, applied, or advanced
research projects for a Federal agency that is subject to the FAR, the
contractor qualifies as a nontraditional defense contractor.
2. Comment: Qualifying subcontracts. The respondent stated that the
interim rule incorrectly interprets the statute to mean that both the
prime contract and the subcontract must qualify in order for the
subcontract to be treated as a subcontract for a commercial item.
DoD Response: The statute does not require that the prime contract
also qualify; it only requires that the prime contract be a contract
for the prototype items or processes, which means a prime contract that
includes the prototype item or process, rather than one that is only
for the prototype items or processes. DoD has amended the rule to be
consistent with the statute.
3. Comment: Guidance on using fixed-price contracts. The respondent
stated that the use of firm-fixed-price contracts or fixed-price
contracts with economic price adjustment, as required by the statute,
can be very difficult for the first production contract and recommended
providing high level guidance for (i) adequately defining performance,
including addressing difficult-to-quantify risks expressly; (ii) using
interim fixed-price milestones and considering allowing later
milestones to be priced during performance as more knowledge is gained;
and (iii) ensuring that payments, including incentives, are linked to
achieving clearly defined cost and technical performance objectives.
DoD Response: Issues related to contract type are not unique to the
application of this statutory authority and are outside the scope of
this case.
4. Comment: Treating intellectual property flexibly. The respondent
stated that the final rule should expressly state that the statute
reconfirms the existing authority at DFARS 227.7103-5(d) and 227.7103-
1(a), since contracting officers already have the authority to
negotiate the minimum rights needed to satisfy the agency's needs. The
respondent also stated that the final rule should expressly state that
contractors are not required to change their accounting practices if
the Government uses this authority to agree to deem the funding mixed,
since the fact that the contractor allocates no private funding to a
``deemed'' mixed funding project should not be grounds to question
costs or the ``deemed'' mixed funding status.
DoD Response. DoD does not believe it is necessary to expressly
reconfirm this policy. However, DoD has amended the rule to add cross-
references to the appropriate sections. Adding these cross-references
introduced some potential confusion regarding the distinction between
delivery requirements and license rights. To clarify this distinction,
the text on delivery requirements (at 212.7003(d) of the interim rule)
has been relocated to 212.7003(a), including cross-references; and the
text on license rights in 212.7003 has been included in a new paragraph
(b). To further clarify that 212.7003 covers both delivery requirements
and license rights, additional changes were made to the heading and
introductory text of 212.7003, and to the cross-references in 212.7002-
1(b) and 212.7002-2(b).
It is unnecessary to expressly state that contractors are not
required to change their accounting practices when the Government uses
this statutory authority, and the statute does not mandate that these
technologies will be ``deemed'' as mixed funding in all cases. However,
the comment highlights potential confusion created by the interim rule
using the statute's permissive statement that data/software acquired
under contracts awarded using this authority ``may be treated'' as
mixed funding (former 212.7003 introductory text), combined with
imperative language that directs negotiation of special license rights
``* * * in view of the parties'' relative contributions to the
development of the items or processes'' (former 212.7003(d)). To
clarify the intent of the rule, the introductory text at 212.7003 has
been revised to state that there shall be a rebuttable presumption of
mixed funding, and 212.7003(b)(4) has been revised to specify when
special license rights should be negotiated, with cross-references to
the existing DFARS policy regarding such negotiations. This approach
preserves many of the efficiencies of the ``normal'' procedures for
acquiring commercial technologies (e.g., a rebuttable presumption
regarding the most likely funding profiles and their associated license
rights), while preserving the parties' ability to establish more
appropriate license rights when the presumption is not accurate or
equitable (e.g., by negotiating special license rights, or by using the
validation of restrictive marking procedures).
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. A copy of the analysis may be obtained from the
point of contact specified herein. The analysis is summarized as
follows:
This rule amends the DFARS to implement Section 847 of the National
Defense Authorization Act for Fiscal Year 2004. Section 847 authorizes
DoD to carry out a pilot program for follow-on contracting for the
production of items or processes begun as prototype projects under
other transaction agreements. Contracts and subcontracts awarded under
the program may be treated as those for the acquisition of commercial
items; and items or processes acquired under the program may be treated
as developed in part with Federal funds and in part at private expense
for purposes of negotiating rights in technical data.
DoD received no public comments with regard to the impact of the
rule on small entities. As a result of comments received on other
aspects of the interim rule, the final rule contains changes that
clarify the types of subcontracts that may be treated as ``commercial''
under the pilot program, and contains changes that clarify the
distinction between delivery requirements and license rights for
technical data and computer
[[Page 18669]]
software for items or processes acquired under the program.
The commercial procedures authorized by the rule are intended to
ease the transition of nontraditional defense contractors from other
transactions agreements to standard DoD contracts and, therefore, are
expected to improve opportunities for such entities to receive DoD
contract awards. In fiscal year 2005, DoD awarded 78 other transaction
agreements totaling $150 million in value. Of these, 22 were awarded to
small business concerns, totaling approximately $40 million in value.
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 212
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
0
Accordingly, the interim rule amending 48 CFR part 212, which was
published at 69 FR 63329 on November 1, 2004, is adopted as a final
rule with the following changes:
PART 212--ACQUISITION OF COMMERCIAL ITEMS
0
1. The authority citation for 48 CFR part 212 continues to read as
follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
0
2. Section 212.7002-1 is amended by revising paragraph (b) to read as
follows:
212.7002-1 Contracts under the program.
* * * * *
(b) See 212.7003 for special procedures pertaining to technical
data and computer software.
0
3. Sections 212.7002-2 and 212.7003 are revised to read as follows:
212.7002-2 Subcontracts under the program.
(a) A subcontract for an item or process that does not meet the
definition of ``commercial item'' may be treated as a subcontract for a
commercial item, if the subcontract--
(1) Is for the production of an item or process begun as a
prototype project under an other transaction agreement;
(2) Does not exceed $50,000,000;
(3) Is awarded on or before September 30, 2008;
(4) Is awarded to a nontraditional defense contractor; and
(5) Is either--
(i) A firm-fixed-price subcontract; or
(ii) A fixed-price subcontract with economic price adjustment.
(b) See 212.7003 for special procedures pertaining to technical
data and computer software.
212.7003 Technical data and computer software.
For purposes of establishing delivery requirements and license
rights for technical data under 227.7102 and for computer software
under 227.7202, there shall be a rebuttable presumption that items or
processes acquired under a contract or subcontract awarded in
accordance with 212.7002 were developed in part with Federal funds and
in part at private expense (i.e., mixed funding).
(a) Delivery requirements. Acquire only the technical data and
computer software that are necessary to satisfy agency needs. Follow
the requirements at 227.7103-1 and 227.7103-2 for technical data, and
227.7203-1 and 227.7203-2 for computer software.
(b) License rights. Acquire only the license rights in technical
data and computer software that are necessary to satisfy agency needs.
(1) For technical data, use the clauses at 252.227-7013, Rights in
Technical Data--Noncommercial Items, and 252.227-7037, Validation of
Restrictive Markings on Technical Data.
(2) For computer software, use the clauses at 252.227-7014, Rights
in Noncommercial Computer Software and Noncommercial Computer Software
Documentation, and 252.227-7019, Validation of Asserted Restrictions--
Computer Software.
(3) Require the contractor to include the clauses prescribed by
paragraphs (b)(1) and (2) of this section in subcontracts awarded in
accordance with 212.7002-2.
(4) When the standard license rights for items or processes
developed with mixed funding do not provide the minimum rights
necessary to satisfy agency needs, negotiate for special license rights
in accordance with 227.7103-5(d) and 227.7203-5(d).
[FR Doc. 06-3455 Filed 4-11-06; 8:45 am]
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