[Federal Register Volume 72, Number 172 (Thursday, September 6, 2007)]
[Rules and Regulations]
[Pages 51189-51191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-17423]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 216 and 252
RIN 0750-AF44
Defense Federal Acquisition Regulation Supplement; Labor
Reimbursement on DoD Non-Commercial Time-and-Materials and Labor-Hour
Contracts (DFARS Case 2006-D030)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Final rule.
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SUMMARY: DoD has adopted as final, without change, an interim rule
amending the Defense Federal Acquisition Regulation Supplement (DFARS)
to provide policy for reimbursing labor costs on competitively awarded
DoD non-commercial time-and-materials and labor-hour contracts.
EFFECTIVE DATE: September 6, 2007.
FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition
Regulations System, OUSD (AT&L) DPAP (CPF), IMD 3D139, 3062 Defense
Pentagon, Washington, DC 20301-3062.
[[Page 51190]]
Telephone (703) 602-0326; facsimile (703) 602-7887. Please cite DFARS
Case 2006-D030.
SUPPLEMENTARY INFORMATION:
A. Background
DoD published an interim rule at 71 FR 74469 on December 12, 2006,
to clarify payment procedures for non-commercial time-and-materials and
labor-hour contracts. Two sources submitted comments on the interim
rule. A discussion of the comments is provided below.
1. Comment: One source stated that DoD should not require separate
hourly rates for each category of labor performed by the contractor and
each subcontractor on every competitively awarded non-commercial time-
and-materials and labor-hour contract, since price competition will
ensure the hourly rates are fair and reasonable and will eliminate
potential abuses. The source also stated that the rationale cited in
the interim rule for requiring separate hourly rates failed to address
the benefits of adequate price competition and was not relevant to the
requirement for separate rates. While not cited as rationale for
requiring separate rates, the source stated that DoD may have adopted
the rule to ensure subcontract labor meets the qualifications for the
labor categories specified in the contract. If this is part of the
rationale, DoD already has the ability to accomplish that objective
through the subcontract consent provisions of FAR clause 52.244-2,
which is mandatory for all time-and-materials contracts that exceed the
simplified acquisition threshold. Another source stated that the rule
eliminates the flexibility to select the proper approach, considering
the advantages and disadvantages of the pricing options for hourly
rates.
DoD Response: The FAR provisions authorize agencies to select, and
make mandatory, one of the three options for pricing hourly rates. DoD
believes it is in the best interest of the Department to select, and
make mandatory, the FAR option that requires separate fixed hourly
rates for each category of labor performed by the contractor and each
subcontractor. DoD believes the rationale cited in the interim rule
adequately supports the requirement for separate rates. That rationale
is not based on the benefits of adequate price competition, because
those benefits are not affected by the requirement for separate hourly
rates. The rationale is also not based on a need to ensure the
subcontract labor meets the qualifications for the labor categories
specified in the contract.
2. Comment: One source stated that the requirement for separate
fixed hourly rates for each category of labor performed by the
contractor and each subcontractor will slow the acquisition process by
requiring lengthy contract negotiations to establish separate hourly
rates and contract modifications to add new subcontractors. In
addition, the requirement will hinder contract performance, will tax
DoD's acquisition workforce, and will likely prejudice qualified small
and small disadvantaged businesses that only become known to the prime
contractor after contract formation. Another source stated that the
requirement for separate fixed hourly rates for each category of labor
performed by the contractor and each subcontractor will negatively
impact contractor invoicing. Hours will have to be billed separately
for each subcontractor and the prime for each fund cite. As a result,
contractor indirect rates will increase to absorb the additional
administrative costs. In addition, the administrative time and expense
required to modify the contract to add new subcontractors will be
substantial.
DoD Response: The FAR authorizes separate fixed hourly rates for
each category of labor performed by the contractor and each
subcontractor to recognize there may be circumstances when separate
rates are required to adequately protect the Government. As stated in
the preamble to the interim rule, DoD believes it is in the best
interest of the Department to require separate fixed hourly rates for
each category of labor performed by the contractor and each
subcontractor. When making that determination, DoD considered the
potential administrative burden and costs that may result from the
rule. In addition, the rule is not intended to prejudice small and
small disadvantaged businesses. If additional subcontractors, including
small and small disadvantaged businesses, are needed to perform on the
contract after the initial contract award, the contract can be modified
to add the hourly rates for the new subcontractors.
3. Comment: One source stated that the requirement for separate
fixed hourly rates for each category of labor performed by the
contractor and each subcontractor makes it difficult to evaluate
competing offers during source selection. Offerors will propose
separate hourly rates for the prime contractor and each subcontractor
by labor category. Offerors will then apply those rates to the
projected mix of labor (prime and/or subcontract) to determine the
overall estimated price for each labor category. The Government will
then use the average labor rate for the labor categories to evaluate
competing offers. However, after contract award, the prime contractor
can change the mix of labor performed by the prime and subcontractors
for each labor category. As a result, the actual rates that will be
paid for a labor category may be significantly different than the
estimated rates used to evaluate the offer during source selection. The
source also stated that the rule does not provide guidance on how to
ensure the benefits of competition are maintained and whether cost or
pricing data is required when new subcontractors are proposed. With
blended fixed hourly rates, competition establishes the reasonableness
of the fixed hourly rates, and those rates are used for payment
regardless of whether the prime or any subcontractors perform the work.
With the required separate fixed hourly rates for each category of
labor performed by the contractor and each subcontractor, the benefits
of competition may be lost, since the rates on the contract apply only
to the labor identified during the proposal stage.
DoD Response: DoD acknowledges that certain pricing challenges will
arise from the use of separate fixed hourly rates for each category of
labor performed by the contractor and each subcontractor. DoD notes the
pricing challenges do not originate with this rule. The FAR provisions
also authorize the use of separate hourly rates for labor performed by
the contractor and each subcontractor. While the DFARS rule requires
reimbursement using a different rate for the prime versus the
subcontractor, a similar difference existed prior to the rule. Under
the prior FAR provisions, offerors could project a mix of labor (prime
and subcontractor). After contract award, the prime could change the
actual mix of labor, potentially resulting in significantly different
costs than the estimated costs that were used to evaluate the offer
during source selection. While there are pricing challenges associated
with time-and-materials contracts, those challenges were not created by
this rule.
4. Comment: One source stated that the rule could lead to the
Government directing subcontract orders to reduce contract costs when
subcontractors' fixed hourly rates are lower than the prime
contractor's fixed hourly rates. If the Government directs subcontract
orders, the prime contractor will lose its ability and responsibility
to manage its resources and the Government may forfeit certain contract
remedies.
DoD Response: In promulgating regulations, the assumption is that
contracting personnel will follow the
[[Page 51191]]
regulations. Nothing in the rule encourages contracting officers to
wrongly direct subcontract orders.
5. Comment: One source stated that some of the subcontractors under
the prime contract may compete with the prime for other prime
contracts. The prime contractor may gain a competitive advantage over
these other contractors on future competitions, since the prime will
have insight into the composition of their rates.
DoD Response: Nothing in the rule provides prime contractors
insight into the composition of their subcontract rates. The prime
contractor will bill for subcontract labor using its negotiated fixed
hourly rates for the subcontractor.
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 DFARS rule contains a substitute paragraph for use with the
solicitation provision at FAR 52.216-29. The FAR provision contains
three options for establishing fixed hourly rates on competitively
awarded non-commercial time-and-materials and labor-hour contracts. The
DFARS rule requires use of the FAR option that provides for the
establishment of separate fixed hourly rates for each category of labor
performed by the contractor and each subcontractor. The objective of
the rule is to use the FAR option for establishing labor rates that is
the most suitable for DoD contracts. The rule will apply to all
entities interested in receiving DoD competitively awarded non-
commercial time-and-materials and labor-hour contracts. The impact on
small entities is unknown at this time.
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 Parts 216 and 252
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
PART 216--[AMENDED]
Interim Rule Adopted as Final Without Change
0
Accordingly, the interim rule amending 48 CFR parts 216 and 252, which
was published at 71 FR 74469 on December 12, 2006, is adopted as a
final rule without change.
[FR Doc. E7-17423 Filed 9-5-07; 8:45 am]
BILLING CODE 5001-08-P