[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Proposed Rules]
[Pages 75550-75572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30072]
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Part II
Department of Defense
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Defense Acquisition Regulations System
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48 CFR Parts 215, 234, 242, et al.
Defense Federal Acquisition Regulation Supplement; Business Systems--
Definition and Administration (DFARS Case 2009-D038); Proposed Rule
Federal Register / Vol. 75 , No. 232 / Friday, December 3, 2010 /
Proposed Rules
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 215, 234, 242, 244, 245, and 252
RIN 0750-AG58
Defense Federal Acquisition Regulation Supplement; Business
Systems--Definition and Administration (DFARS Case 2009-D038)
AGENCY: Defense Acquisition Regulations System, Department of Defense.
ACTION: Proposed rule with request for comments.
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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition
Regulation Supplement (DFARS) to improve the effectiveness of DoD
oversight of contractor business systems.
DATES: Comment Date: Interested parties should submit comments in
writing to the address shown below on or before January 3, 2011.
ADDRESSES: You may submit comments, identified by DFARS Case 2009-D038,
using any of the following methods:
[cir] Regulations.gov: http://www.regulations.gov. Submit comments
via the Federal eRulemaking portal by inputting ``DFARS Case 2009-
D038'' under the heading ``Enter keyword or ID'' and selecting
``Search.'' Select the link ``Submit a Comment'' that corresponds with
``DFARS Case 2009-D038.'' Follow the instructions provided at the
``Submit a Comment'' screen. Please include your name, company name (if
any), and ``DFARS Case 2009-D038'' on your attached document.
E-mail: [email protected]. Include DFARS Case 2009-D038 in the subject
line of the message.
Fax: 703-602-0350.
Mail: Defense Acquisition Regulations System, Attn: Mr. Mark
Gomersall, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon,
Washington, DC 20301-3060.
Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To
confirm receipt of your comment, please check http://www.regulations.gov approximately two to three days after submission to
verify posting (except allow 30 days for posting of comments submitted
by mail).
FOR FURTHER INFORMATION CONTACT:
Mr. Mark Gomersall, 703-602-0302.
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule for Business Systems--Definition and
Administration (DFARS Case 2009-D038) in the Federal Register on
January 15, 2010 (75 FR 2457). The public comment period closed March
16, 2010. Based on the comments received and subsequent revisions to
the proposed rule, DoD is publishing this rule again as a proposed rule
with request for comments.
Contractor business systems and internal controls are the first
line of defense against waste, fraud, and abuse. Weak control systems
increase the risk of unallowable and unreasonable costs on Government
contracts. To improve the effectiveness of Defense Contract Management
Agency (DCMA) and Defense Contract Audit Agency (DCAA) oversight of
contractor business systems, DoD is considering a rule to clarify the
definition and administration of contractor business systems as
follows:
1. DoD is proposing to define contractor business systems as
accounting systems, estimating systems, purchasing systems, earned
value management systems (EVMS), material management and accounting
systems (MMAS), and property management systems.
2. DoD is proposing to implement compliance enforcement mechanisms
in the form of a business systems clause which includes payment
withholding that allows contracting officers to withhold a percentage
of payments, under certain conditions, when a contractor's business
system contains deficiencies. Payments could be withheld on--
Interim payments under--
[cir] Cost-reimbursement contracts;
[cir] Incentive-type contracts;
[cir] Time-and-materials contracts;
[cir] Labor-hour contracts;
[cir] Construction contracts that include FAR clause 52.232-27,
Prompt Payment for Construction Contracts.
Progress payments; and
Performance-based payments.
II. Discussion and Analysis
A. Analysis of Public Comments
The 370 comments received from 25 respondents have been
dispositioned as discussed below. The comments received were grouped
under 46 general topics. A summary of the comments follows:
1. 100 Percent Withholds
Comment: Respondents suggested that the proposed rule provides
administrative contracting officers (ACOs) insufficient standards to
make 100 percent withhold determinations, and does not provide adequate
provisions for contractor responses.
Response: DoD notes the concerns expressed by the respondents, and
has revised the rule to remove the language from clause 252.242-7XXX,
which set forth procedures for withholding up to 100 percent.
2. Accounting System
Comment: A number of respondents expressed concern about the
criteria to be used to determine if a contractor has an acceptable
accounting system.
Response: The language at clause 252.242-7YYY has been revised to
clarify the criteria to be used to determine if a contractor has an
acceptable accounting system and to delete vague criteria modifiers
such as ``including but not limited to'' and ``as applicable.''
3. Applicability of Rule
Comment: A number of respondents questioned the application of this
rule against certain cost-type contracts. Additionally, some
respondents expressed concern about the application of the rule to
commercial contracts. Other respondents suggested the rule be applied
to only a single contract instead of against all contracts that are
dependent upon the deficient business system, and that the rule
establish a minimum dollar threshold for the rule to be applicable.
Response: The Government may be at risk when a contractor's
business systems contain deficiencies, regardless of contract type.
Accordingly, it is appropriate for the ACO to withhold payments to
protect the interest of the Government. Contracts awarded under FAR
part 12 regulations will generally be exempt from the requirements of
this rule. A system deficiency will result in application of a withhold
against all contracts that contain the business system clause. However,
DoD agrees with the recommendation for the establishment of a $50
million threshold for application of the business system clause.
4. Arbitrary Withhold Percentages
Comment: A number of respondents expressed concern that the rule
invokes mandatory withholds on payments to Government contractors that
are arbitrary and punitive and have no relationship with actual harm to
the Government.
Response: When contractors fail to maintain business systems, as is
required by the terms and conditions of
[[Page 75551]]
their contracts, the withhold provisions help to protect the Government
from the risks of overpayment, increased property losses, or
nonconforming goods, among others, against which business systems are
designed to ensure. The proposed rule would protect the Government by
reducing contract payments temporarily during performance in an amount
sufficient to mitigate the Government's risk. DoD is relying on the
percentage withhold amount, not as a penalty for a deficiency, but as
representing a good-faith estimate of the potential loss that is at
risk where the actual amounts are difficult to estimate or quantify.
5. Assignment of Payments
Comment: If the contractor has assigned the right to receive
payments to a financial institution under the Assignment of Claims Act,
will payments be withheld from the assignee financial institution? If
so, this would severely hamper the ability of small- to medium-sized
businesses from obtaining financing to bid on contracts.
Response: This rule does not change any rights of the assignee of
the assignment of claims provision at FAR subpart 32.8 or FAR clause
52.232-23. Assignees will continue to have the same rights and
obligations that they had prior to the implementation of this rule.
Therefore, if the contractor has assigned the right to receive
payments, and deficiencies in the contractor's business systems
necessitate the implementation of withholds, in accordance with the
contract, payments will be withheld from the assignee. The mitigation
of the impact on small businesses is discussed under comment topic
number 42.
6. Audits
Comment: A number of respondents expressed concern that DCAA lacks
the resources to perform required audits timely and adequately; that
the proposed rule does not establish a business system approval
duration, which essentially declares perpetual open-season on all
contractor business system internal controls, and that the DCAA follow-
up audit is not limited or otherwise focused upon the previously
identified specific deficiency and the specific corrective actions, and
therefore, will result in an endless cycle of deficiency reports and
follow-up audits; that DCAA audit guidance on the reporting of internal
control deficiencies, which requires all deficiencies to be considered
significant, effectively ensures that all contractor business systems
subject to audit will be found inadequate; that audit reports are not
informative enough to help the contracting officer make effective
decisions, and that DCAA needs to expand its audit reports to go beyond
rendering a pass/fail opinion, and include an analysis of the
materiality of any deficiency.
Response: DCAA has committed to making follow-up business system
audits a priority. However, DCAA recognizes that resources are limited,
and has taken steps to address staffing challenges. A business system
approval duration and/or narrowly focused DCAA follow-up audit would
not be appropriate since, at any time after approval, contractor
conditions could change, rendering the previously-reported opinion as
not current. DCAA policy is to report only deficiencies determined to
be significant deficiencies or material weaknesses in accordance with
generally accepted Government auditing standards. The proposed rule
language has been revised to state that ``the report shall describe the
deficiencies in sufficient detail to allow the contracting officer to
understand the deficiencies and potential adverse impact to the
Government.''
7. Breach of Contract
Comment: One respondent believed that the failure of the United
States Government to pay for goods and services provided could be a
material breach of contract that would permit the contractor to stop
work. The respondent stated that the requirement to compensate
contractors for providing goods and services flows from the United
States Constitution itself in the Fifth Amendment, and viewing failure
to pay as a breach of contract has been recognized by the courts.
Response: DoD does not agree that failure to pay amounts withheld
would be a breach of contract, and that the Fifth Amendment to the
Constitution is implicated. The proposed rule would create an explicit
contract term, and withholding will be authorized pursuant to that
term. Execution of that contract term would not be a breach of
contract. Similarly, there is no ``taking'' of property that could
implicate the Fifth Amendment when a contractor is paid the amount it
is entitled to under the clear terms of a valid contract.
8. Cash Flow
Comment: A number of respondents were concerned that the withholds
would negatively impact cash flow for contractors, and are also likely
to remain in effect for periods long beyond completion of any
corrective action performed by contractors.
Response: The application of the payment withhold will impact and
reduce a contractor's cash flow. However, the proposed rule would
protect the Government by temporarily reducing contract payments during
performance in an amount sufficient to mitigate the Government's risk
when contractors fail to maintain business systems, as is required by
the terms and conditions of their contracts. The revised language
provides for the contracting officer, in consultation with the auditor
or functional specialist, to discontinue withholding payments prior to
audit verification if the contractor submits evidence that the
deficiencies have been corrected. The sooner the contractor corrects
the deficiencies, the sooner the cash flow will be restored.
9. Compliance Criteria
Comment: A number of respondents believe the compliance criteria in
the proposed rule are subjective. These respondents believe that the
proposed rule prematurely defines business systems without resolving
the most critical component, which is the actual criteria against which
contractor compliance will be measured, and that such criteria should
be vetted with the public. The respondents assert that the proposed
rule should define objective measurements by which to judge a system as
deficient, and limit the criteria to a few well-defined metrics that
cannot be embellished by subjective interpretation.
Response: DoD partially agrees with the respondents. The rule
incorporates criteria that are already used by the Government under
existing authority to evaluate the adequacy of contractor business
systems. Furthermore, to reduce the subjectivity of the criteria,
phrases such as ``including but not limited to'' and ``as applicable''
have been removed. The public is encouraged to comment on these
criteria.
10. Consistency: Correction of All Deficiencies or Substantial
Correction of Deficiencies
Comment: A number of respondents pointed out that some sections of
the proposed rule indicate that a finding of system noncompliance will
be withdrawn when the contractor has ``substantially corrected'' the
system deficiencies. However, elsewhere, the proposed rule also states
that the withhold will not be released until ``all deficiencies have
been corrected.'' The respondents suggested that the proposed rule
should be revised so that it is consistent.
Response: DoD concurs with the respondents' recommendation, and has
[[Page 75552]]
revised the rule to state that the withholds will not be released until
``all deficiencies have been corrected.''
11. Contracting Officer Discretion
Comment: One respondent believed that the proposed rule
inappropriately and unnecessarily limits the discretion of the
contracting officer to make critical determinations about these systems
specifically, and about the relationship of these systems
determinations to overall contract performance generally.
Response: The rule does not in any way limit the authority of
contracting officers. Although the auditor is required to document the
deficiencies in a report, the contracting officer has the authority to
make all initial and final determinations of system deficiencies,
implement and remove withholds, make determinations to approve,
disapprove, and reapprove systems, and to take any other appropriate
actions deemed in the best interests of the Government.
12. Contractor Appeal
Comment: A number of respondents expressed concern that there is no
provision in the proposed rule to provide contractors with due process
or alternative resolution, such as negotiation or alternate disputes
resolution procedures, and that withholds are at the sole discretion of
the ACO.
Response: DoD agrees that the final deficiency determination is at
the sole discretion of the contracting officer. However, DoD disagrees
that additional due process remedies are necessary. Contractors are
afforded an opportunity to respond in writing within 30 days to an
initial determination of deficiencies from the ACO that identifies
deficiencies in any of the contractor's business systems. Furthermore,
DoD does not believe there is a need, or is it appropriate, to develop
a dispute resolution process beyond that which is already available by
statute and regulation. Additionally, other avenues of dispute
resolution outside of the Contract Disputes Act are available for
resolving disputes that may arise over determinations of system
deficiencies. The policy set forth in FAR 33.204 still applies, so that
informal negotiation and alternate disputes resolution remain
available, and, in fact, are encouraged as alternative methods of
resolving disputes.
13. DCAA/DCMA Policies
Comment: One respondent believed that the ultimate impact of this
rule is dependent on current and future DCAA/DCMA policies that are not
subject to the public comment process. According to the respondent,
because the DCMA and DCAA policies will have a significant cost or
administrative impact on contractors, a strong argument can be made
that such policies are not just internal agency policies, but policies
that must be published for public comment, pursuant to the requirements
of the Office of Federal Procurement Policy (OFPP) Act. Another
respondent stated that DCAA's current position on reporting system
results is that if a system opinion is more than three years old, DCAA
reports that there is ``no audit on file,'' and that DCAA has no
opinion on the system. This respondent believed that procurement
contracting officers and ACOs should be permitted to decide for
themselves what they consider to be ``too old'' or ``not relevant'' for
purposes of these system reviews, rather than permitting DCAA to simply
avoid reporting on known information.
Response: DoD does not agree. The OFPP Act (41 U.S.C. 418b) is
applicable to procurement policy, regulation, procedure, or form
relating to the expenditure of appropriated funds that has (1) a
significant effect beyond the internal operating procedures of the
agency issuing the procurement policy, et al., and (2) a significant
increased cost or administrative impact on contractors or offerors.
DCAA/DCMA internal policies and procedures that are referenced in this
rule are internal policies and procedures and are not regulatory.
Therefore, the OFPP Act public comment process is not applicable. DoD
believes that contracting officers must rely on current and relevant
information in order to make an appropriate determination as to whether
to notify a contractor of a system deficiency and possible payment
withhold. DoD does not believe that an audit report noting a deficiency
that is in excess of three years old would constitute current
information.
14. DCMA/DCAA Oversight
Comment: A number of respondents believe that the Commission on
Wartime Contracting (CWC) hearings demonstrated that greater
cooperation must be achieved between DCMA and DCAA to oversee
Government contractors properly, and that this issue should be
addressed before imposing more regulations on contractors, especially
as severe and broad as those proposed.
Response: DoD is currently taking measures to improve coordination
between DCMA and DCAA. Concurrent with these measures, DoD is issuing
this rule to further improve the effectiveness of DCMA and DCAA
oversight of business systems as recommended by the Commission on
Wartime Contracting.
15. DCMA/DCAA Resources
Comment: A couple of respondents suggested that DCMA and DCAA are
under-resourced to execute the requirements of the rule, and that ACOs
do not have the training to determine if a deficiency makes a system
inadequate.
Response: The need to have effective oversight mechanisms is
unrelated to resources. This rule does not add additional oversight
responsibilities onto DCAA and DCMA; it merely provides provisions to
help protect the Government from the risks of loss due to a
contractor's failure to maintain business systems, as is required by
the terms and conditions of their contracts. DoD has confidence that
contracting personnel will make appropriate determinations in
accordance with this rule.
16. Deficiency Correction
Comment: A number of respondents expressed concern that the
proposed rule provides incomplete guidance for ACOs to approve systems
when deficiencies previously have been identified. These respondents
question whether the ACO's determination to reduce or discontinue the
withholding of payments is discretionary, even if the contractor has
corrected all deficiencies. One respondent is concerned that there is
no measurable standard for the Government to decide to increase or
decrease the payment withholds based on the monitoring of the
contractor's progress in correcting deficiencies.
Response: The revised rule language states that the contracting
officer shall discontinue the withholding of payments and release any
payments previously withheld when the contracting officer determines
that the contractor has corrected all system deficiencies after receipt
of auditor or functional specialist verification. Furthermore, the
revised language provides for the contracting officer, in consultation
with the auditor or functional specialist, to discontinue withholding
payments prior to audit verification if the contractor submits evidence
that the deficiencies have been corrected. DoD relies on the judgment
of the ACO to make determinations to decrease or subsequently increase
the withholding of payments, in accordance with the rule language, on a
case-by-case basis.
17. Definition of Business System
Comment: Two respondents requested that the rule include a precise
definition of an acceptable business system.
[[Page 75553]]
Response: The definition of the term ``acceptable business
systems'' in clause 252.242-7XXX has been revised for clarity. The
precise criteria for determining the acceptability of the six business
systems are contained in the individual business systems clauses.
18. Definition of Deficiency
Comment: A number of respondents encouraged DoD to provide a clear
and precise definition of a ``deficiency.''
Response: The definition of ``deficiency'' used throughout the rule
means a failure to maintain one or more system criteria of an
acceptable business system. The criteria for each business system have
been revised to provide more specificity.
19. Definition of Standards and System Requirements
Comment: One respondent noted that 242.7502 requires that the audit
report contain sufficient information so that the ACO will be able to
understand what the contractor must do to comply with the applicable
``standard or system requirement.'' The respondent was unsure what
``standard'' means in this context, since clause 252.242-7YYY (relating
to accounting system administration) only refers to ``system
requirements,'' and does not mention any standards.
Response: The language in 242.7502 has been revised to require the
audit report to ``describe the deficiencies in sufficient detail to
allow the contracting officer to understand the deficiencies and the
potential impact to the Government.'' Additionally, the language in
both 242.7502 and clause 252.242-7YYY has been revised to refer to
``system criteria'' to be consistent.
20. Estimating System
Comment: A number of respondents questioned whether contracting
officers had the authority to make determinations on whether system
deficiencies warrant withholds and to consider the impact of
deficiencies on contractor proposals. Other respondents expressed
concern with the criteria against which contractor estimating system
compliance will be measured. One respondent expressed concern with the
requirements that the estimating system include comparisons of
projected results to actual results and an analysis of any differences.
Response: This rule is very clear that contracting officers have
the authority to make determinations on whether system deficiencies
warrant withholds and shall consider the impact of deficiencies on
contractor proposals. This revised proposed rule sets forth specific
criteria for maintaining an acceptable estimating system. DoD does not
believe it is unreasonable for a contractor to establish and maintain
an acceptable estimating system that would include controls for the
contractor to compare projected results to actual results and analyze
any differences. This existing requirement was relocated from 215.407-
5-70 into clause 252.215-7002.
21. Earned Value Management System (EVMS)
Comment: A number of respondents questioned how non-compliance with
ANSI/EIA-748 fits into this rule because deficiencies in EVMS do not
result in the billing of unallowable costs to the Government.
Response: A key DoD concern is the reliability of the contractor's
EVMS monthly reports. Even though the EVMS system may not directly
result in the billing of unallowable costs to the Government, it does
provide important information to senior-level Government officials to
use when making management decisions regarding major weapon systems.
Consequently, EVMS was included in the rule to ensure that DoD is
receiving accurate and reliable EVMS information used to identify
current and potential cost overruns, etc.; and if there are
deficiencies with the contractors' EVMS, that they are promptly
corrected.
22. Failure To Follow Corrective Action Plan
Comment: One respondent recommended that the contracting officer be
given the discretion to increase the amount of the withhold under the
contract if the contractor inexcusably fails to follow the corrective
action plan accepted by the Government or an acceptable alternative to
that plan.
Response: The contracting officer has the discretion in determining
whether the contractor is following its corrective action plan, and
whether to increase the withholding percentage in accordance with
clause 252.242-7XXX. The reason the contracting officer may decrease
the withholding percentage from five percent to two percent (one
percent for small businesses) is that an approved corrective action
plan mitigates the Government's risk by increasing the probability that
system deficiencies will be corrected in a timely manner. Conversely,
the reason for increasing the withhold back to five percent (two
percent for small businesses) is to reinstate the appropriate
protection for the Government, since the contractor has not adhered to
its corrective action plan. The contracting officer has complete
discretion to make these determinations.
23. Financial Impact
Comment: Several respondents expressed concern that the proposed
rule will increase administrative costs (to correct deficiencies)
significantly and destabilize contractor cash management, which could
have such financial impacts as to affect how the industrial base can
support the warfighter and national security.
Response: DoD acknowledges that the application of the payment
withhold will impact and reduce a contractor's cash flow. Further, DoD
acknowledges that the initial administrative costs to ensure business
system compliance may increase. However, in the long run, both the
contractor's and Government's administrative costs should be reduced
with the reliance on efficient contractor business systems. Based on
comments received, DoD has removed the 100 percent withhold from the
rule and lowered the compounding of deficiency percentages to a maximum
of 20 percent. However, DoD does not anticipate that the rule will
cause long-term harm to the industrial base supporting our warfighter
and national security. The intent of the proposed rule is to strengthen
contractor business systems and provide a protection for the Government
from the risks of deficient systems while contractors resolve their
system deficiencies.
24. Formatting of Rule Language
Comment: A number of respondents believe the language of the
proposed rule needs clarifying for more uniform application.
Response: DoD acknowledges the respondents' comment and has
clarified the language of the rule in accordance with public comments
received.
25. General Agreement
Comment: A number of respondents expressed agreement with the rule,
citing the necessity for contractors to maintain adequate business
systems.
Response: DoD acknowledges the respondents' support of the rule.
26. General Disagreement
Comment: A number of respondents expressed concern with the rule
and requested it be withdrawn, citing claims that the rule (a) is
biased against DoD contractors, (b) does not address problems with
business system oversight with Government agencies, (c) will have
unfavorable consequences to industry and Government agencies, and (d)
is an unnecessary intrusion on the contractual relationship between
[[Page 75554]]
industry and Government. Specifically, respondents suggested that
adequacy of business systems should be addressed as part of the
preaward contracting phase rather than through payment withholds, and
that many of the problems or deficiencies identified in supplier
systems are traceable to ill-defined contracts, unstable funding, and
individual interpretations of policy or guidance by inexperienced audit
personnel. Finally, one respondent was concerned that this proposed
rule uses a broad-brush approach to what appears to be a narrow problem
growing out of battlefield contingency contracting and that, contrary
to its intended purpose, this proposed rule will do little or nothing
to assist the Government in achieving its goal of reducing fraud,
waste, and abuse.
Response: DoD acknowledges the respondents' concern with the rule.
However, the need to mitigate the Government's risk when contractors
fail to comply with the terms and conditions of their contracts by
failing to maintain adequate business systems necessitates this rule.
DoD partially agrees that the adequacy of business systems should be
addressed as part of the preaward contracting phase. However, this fact
does not relieve the contractors' contractual obligations to maintain
adequate business systems throughout the life of the contract. DoD
disagrees with the respondent that system deficiencies are traceable to
ill-defined contracts, unstable funding, and individual interpretations
of policy or guidance. Business systems are company-wide or segment-
wide systems with established policies and procedures that are applied
across multiple contracts. This rule mitigates the Government's risk
when contractors fail to maintain adequate business systems after
contract award. While DoD acknowledges that issues with contractor
business systems were discovered through reviews of contractors
involved with battlefield contingency contracting, DoD does not believe
that these issues are strictly confined therein. However, DoD notes
that contractors outside of the contingency contracting arena will not
be impacted by withholds implemented under this rule if failure to
maintain adequate business systems, in accordance with the terms and
conditions of their Government contracts, is limited to being a narrow
problem growing out of battlefield contingency contracting, as the
respondent suggests.
27. Impact on Government Systems
Comment: One respondent believed that the proposed rule will
require additional resources at Defense Finance and Accounting Service
and modifications of the Mechanization of Contract Administration
Services system because all payments for contracts with withholds must
be processed manually. Furthermore, one respondent suggested that
contracting officers be granted the authority to release withholds
under situations where funds are at risk of expiring or being canceled,
or the contract is being closed.
Response: The Government is fully capable of modifying its
automated systems to implement the rule. Contracting officers are the
only ones granted the authority to release withholds. Withholds will be
released once the system deficiency has been corrected, or a final
audit has determined which costs are allowable under the contract.
28. Increased Litigation
Comment: A number of respondents believe the withholds will result
in increased litigation that will drain the resources of both
contractors and the Government, especially since the proposed rule
states that Prompt Payment Act interest does not accrue on the
withhold, and prudent contractors will immediately appeal the withhold
pursuant to the Contract Disputes Act, where interest would accrue on
the withhold if the Government's position is not sustained.
Furthermore, most of the issues with deficient business systems could
be resolved through the exercise of reasonable contracting officer
discretion if the rule allowed it.
Response: DoD is uncertain whether the rule, in its final form,
will lead to increased litigation. It would be unwieldy to establish a
separate informal process for handling disagreements involving alleged
system deficiencies, given that the Contract Disputes Act already is an
established methodology for resolving disagreements, large and small.
Furthermore, not every claim presented to the contracting officer under
the Contract Disputes Act results in litigation. In fact, FAR 33.204
establishes the Government's policy to try to resolve all contractual
issues in controversy by mutual agreement, even prior to the submission
of a claim. The contracting officer has the authority to make all
initial and final determinations of system deficiencies, implement and
remove withholds, make determinations to approve, disapprove, and
reapprove systems, and to take any other appropriate actions deemed in
the best interests of the Government.
29. Information Collection
Comment: One respondent believed that the information collection
estimate that DoD included with the proposed rule is understated
substantially.
Response: DoD does not agree with the respondent's comment. DoD
notes that the supporting data referenced by the respondent exceeds the
information collection requirements established under this rule. DoD
believes the Paperwork Reduction Act estimates published with the
proposed rule accurately reflect the contractors' costs to fulfill the
information collection requirements of this rule. The hours and costs
cited by the respondent with regard to EVMS do not reflect the
Paperwork Reduction Act requirements of this rule.
30. Interest on Withholds
Comment: One respondent disagreed that the withholdings under
clause 252.242-7XXX, Business Systems, are not subject to the interest
penalty provisions of the Prompt Payment Act. While contract financing
payments are generally not subject to the interest penalty, the Prompt
Payment Act specifically makes the interest penalty applicable to
interim vouchers under cost-reimbursement contracts for services. This
statutory provision is implemented in FAR 52.232-25, Alternate I.
Similarly, FAR 52.232-7 explicitly makes the interest penalty
applicable to interim vouchers under time-and-materials and labor-hour
contracts for services. Another respondent suggested that the rule
allow for Prompt Payment Act interest on amounts withheld if later it
is determined that the Government incorrectly applied the withhold.
Response: FAR 52.232-25(a)(5)(ii) states ``The prompt payment
regulations at 5 CFR 1315.10(c) do not require the Government to pay
interest penalties if payment delays are due to disagreement between
the Government and the Contractor over the payment amount or other
issues involving contract compliance, or on amounts temporarily
withheld or retained in accordance with the terms of the contract.''
Since amounts withheld pursuant to clause 252.242-7XXX are temporarily
withheld in accordance with the terms of the contract, they are not
subject to the interest penalty provisions of the Prompt Payment Act.
[[Page 75555]]
31. Internal Audits and Management Reviews
Comment: A number of respondents recommended that the Government be
provided complete access to contractors' internal control systems,
including internal audit reports and management reviews, to ensure a
contractor has implemented appropriate corrections in response to
audits and reviews. Further, one respondent suggested that this
requirement should be based on the comprehensive internal control
framework of the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Response: Auditors have access to contractors' records, as provided
for under the FAR, to ensure contractors have implemented internal
audits and management reviews. DoD does not agree with implementing the
COSO internal control framework since COSO is a voluntary private-
sector organization. It would be inappropriate to tie Government
regulations to the COSO internal control framework since such policies
are not subject to the Government's rulemaking process.
32. Legality of Withholds
Comment: Respondents believe the withholds set forth in the rule
are arbitrary, punitive, contrary to public policy that requires the
Government withholds to be reasonably related to Government risk, and
could lead to a cessation of contract payments without any showing of
actual harm to the Government. The respondents believe the rule would
not survive legal challenge.
Response: Contract terms explicitly require contractors to maintain
the business systems in question as a condition of contracting
responsibility and, in some cases, eligibility for award. Contract
prices are negotiated on the basis that contractors will maintain such
systems, so that the Government does not need to maintain far more
extensive inspection and audit functions than it already does. Failure
of the contractor to maintain acceptable systems during contract
performance deprives the Government of assurances for which it pays
fair value. While not ``deliverable'' services under specific contract
line items, these business systems are material terms, performance of
which is required to ensure contracts will be performed on time, within
cost estimates, and with appropriate standards of quality. The
withholding remedy provides a measure of the overall contract
performance of which the Government is deprived during the performance
period, and for which the contractor should not receive the full
financing payments. DoD is relying on the temporary percentage withhold
amount, not as a penalty for a deficiency, but as representing a good-
faith estimate sufficient to mitigate the Government's risk, where the
actual amounts are difficult to estimate or quantify.
33. Materiality of Deficiencies
Comment: Some respondents believe the quality and utility of
contractor business system information could be greatly enhanced by
requiring a clear segregation between system conditions that relate
solely to policy enhancements, especially when the contractor has
agreed to the policy enhancements or has already made the policy
enhancements but DCAA has not yet reviewed them, and those system
conditions that relate to unallowable or unreasonable costs being
charged to Government contracts. Other respondents are concerned that
the proposed rule does not make a distinction between minor
deficiencies that likely pose no threat of significant harm to the
Government, and material deficiencies that potentially pose such a
threat. These respondents are concerned that current DCAA guidance
requires reporting of any perceived deficiency that could directly or
indirectly result in any amount, no matter how small, of unallowable
costs being charged to a contract. To avoid such circumstances, it is
absolutely necessary to impose a materiality requirement in regard to
system deficiencies. One respondent stated that, although the rule
requires the auditor or other cognizant functional specialist to assess
the potential magnitude of the risk to the Government posed by the
deficiency, the rule fails to establish objective criteria for such an
assessment, including the need for evidence demonstrating a logical
nexus between the deficiency and the risk. Finally, one respondent
suggested the rule should focus on risk management rather than risk
avoidance. As such, the pass-or-fail assessment of business systems in
the rule does not adequately address relative degrees of impact or
risk.
Response: DoD does not believe that it would be in the Government's
best interest to attempt to segregate between system deficiencies that
relate solely to system policy and those system deficiencies that
relate directly to unallowable or unreasonable costs. Deficiencies that
do not directly relate to unallowable or unreasonable costs still pose
risks to the Government, and may lead to harm that may not be
calculated readily when the deficiencies are discovered. Furthermore,
DoD disagrees with the assertion that business systems will be deemed
inadequate and payments withheld for minor deficiencies. The intent of
the rule is to withhold payments when a deficiency exists that impairs
the Government's ability to rely on the system's outputs. DoD has
revised the rule to set forth objective business system criteria. DoD
believes there is a logical nexus between system deficiencies and risk
to the Government. The intent of the rule is to withhold payments when
a deficiency exists that impairs the Government's ability to rely on
the system's outputs. A system must provide reasonable assurance that
the relevant system criteria are satisfied and that the risk of
material misstatements caused by error or fraud is low. The rule has
been revised to clarify that the contracting officer has the discretion
to determine whether withholding is warranted to protect the
Government. Accordingly, DoD disagrees that the rule is based on pass-
fail criteria.
34. Material Management and Accounting System (MMAS)
Comment: Three respondents questioned the language at clause
252.242-7004 which requires a contractor's MMAS to have adequate
internal controls to ensure system and data integrity. The respondents
contend that internal controls (i.e., policies and procedures) cannot
provide absolute assurance as required here; the standard is reasonable
assurance. The respondents cited the requirement that a contractor's
MMAS shall have adequate internal controls to ensure system and data
integrity, and shall ``establish and maintain adequate levels of record
accuracy, and include reconciliation of recorded inventory quantities
to physical inventory by part number on a periodic basis.'' The
respondents question what is an adequate level.
Response: The proposed rule does not require absolute assurance of
compliance with any of the business system standards or criteria. The
intent of the rule is to provide reasonable assurance that the system
criteria are satisfied and that the risk of material misstatements
caused by error or fraud is low. DoD further notes that this existing
language in clause 252.242-7004 sets forth a desired 95 percent
accuracy level.
35. Multiple Withholdings
Comment: The respondent stated that many of the contractor systems
covered by this rule are, appropriately, implemented on a corporate-
wide basis.
[[Page 75556]]
As a result, the respondent believed that that a deficiency finding
would impact all proposals and contracts held by that company,
including those that are not directly affected by the ``deficient''
system, and those that are outside DoD and not covered by this rule.
Response: This payment withholding requirement set forth in this
rule applies only to contracts that contain clause 252.242-7XXX,
Business Systems. The withholding is not necessarily limited to a
single contract, but would apply to multiple contracts that are covered
by clause 252.242-7XXX. A contractor's respective business systems are
relied upon by the Government for all contracts that contain the
respective clauses pertaining to the individual business systems.
Therefore, it is appropriate for withholds to be applied to multiple
contracts that rely on the fidelity of the contractor's respective
business systems.
36. Property Management System
Comment: One respondent believed that withholding against all of a
contractor's financing payments would be grossly out of proportion with
the damage because FAR also already protects the Government's interest
for deficiencies in a property management system by specifically
addressing remediation for individual pieces of lost, damaged,
destroyed, or stolen Government property.
Response: FAR 45.105 provides that if the contractor does not
correct property management system deficiencies, the contracting
officer may revoke the Government's assumption of risk for loss,
damage, destruction, or theft; and/or the exercise of other rights or
remedies available to the contracting officer. However, these remedies
do not mitigate the Government's risk that the contractor could fail to
perform on the contract. The proposed rule further mitigates the
Government's risk by withholding payments temporarily when the
contractor's property management system has deficiencies.
37. Purchasing System
Comment: A number of respondents expressed concern with the
purchasing system criteria against which contractor compliance will be
measured. A number of respondents questioned the criteria in the
proposed rule that required a purchasing system that procures materials
``at the most economical cost.'' One respondent asserted that the DoD
purchasing system requirement should be limited to verification that
FAR/DFARS required flow downs from the prime or higher-tier contract
have been included in the purchase order or subcontract. One respondent
questioned whether it is possible to grant system approval while
corrective actions are being pursued, and whether withholds would apply
in this circumstance.
Response: This revised proposed rule sets forth specific criteria
for maintaining an acceptable purchasing system. DoD has revised the
language under clause 252.244-7XXX to require ``An organizational and
administrative structure that ensures effective and efficient
procurement of required quality materials and parts at the best value
from responsible and reliable sources,'' consistent with current
Federal acquisition policy. Compliance with the policy and procedures
requirements in clause 252.244-7XXX is necessary to provide reasonable
assurance to the contracting officer that the purchasing system does
not contain any deficiencies. The contracting officer is responsible
for determining whether all required flow-down clauses, including terms
and conditions, and any other clauses needed to meet the requirements
of the prime contract, are included in the contractor's purchasing
system policies and procedures for letting subcontracts. Additionally,
the Government reviews the contractor's purchasing system to ensure
that subcontract clauses required under the contractor's purchasing
system policies are not contrary to Government law or regulation.
Deficiencies that may result in a withhold may not be significant
enough to result in a system disapproval. In a scenario in which a
system has been disapproved and withholds have been implemented, all
deficiencies must be corrected before the temporary withholds are
discontinued. For system reapproval, the deficiencies must be corrected
substantially in the judgment of the contracting officer. The
contracting officer has the discretion to make both system approval and
withhold determinations separately on a case-by-case basis.
38. Resolution Timing
Comment: Respondents believe that the Government should have a time
limitation requirement to follow up on corrective actions, make system
approval decisions, and remove withholds.
Response: DoD acknowledges the respondents' concern regarding the
timing of follow-up audits. Therefore, the rule has been revised so
that ``If, prior to the receipt of verification, the contractor submits
evidence that the deficiencies have been corrected, and the contracting
officer, in consultation with the auditor or functional specialist,
determines that there is a reasonable expectation that the corrective
actions have been implemented, the contracting officer may discontinue
withholding payments pending receipt of verification and release any
payments previously withheld.''
39. Risk-based Withholding
Comment: A number of respondents suggested that any reductions in
payment should be in proportion to the potential damage/risk to the
Government and should be imposed only after demonstrating a reasonable
basis for the actual damage suffered by the Government.
Response: The intent of the rule is to authorize payment
withholding when the contracting officer determines there are one or
more system deficiencies that adversely affect a contractor's business
system, leading to a potential risk of harm to the Government. The
potential risk of harm may be a risk that cannot be quantified in terms
of dollars, such as a deficiency that would compromise contract
performance. Contract terms explicitly require contractors to maintain
the business systems in question as a condition of contracting
responsibility and, in some cases, eligibility for award. Contract
prices are negotiated on the basis that contractors will maintain such
systems, so that the Government does not need to maintain far more
extensive inspection and audit functions than it already does. Failure
of the contractor to maintain acceptable systems during contract
performance deprives the Government of assurances for which it pays
fair value. While not ``deliverable'' services under specific contract
line items, these business systems are material terms, performance of
which is required to ensure contracts will be performed on time, within
cost estimates, and with appropriate standards of quality. The
withholding remedy provides a measure of the overall contract
performance of which the Government is deprived during the performance
period, and for which the contractor should not receive the full
financing payments. DoD is relying on the temporary percentage withhold
amount, not as a penalty for a deficiency, but as representing a good-
faith estimate sufficient to mitigate the Government's risk where the
actual amounts are difficult to estimate or quantify.
40. Roles of DCAA/DCMA
Comment: A number of respondents were concerned that most
contracting officers will not have the requisite training and expertise
to reach independent conclusions relative to
[[Page 75557]]
auditor/contractor disagreements over internal controls. The
respondents expect contracting officers will, more often than not,
simply concur with auditor conclusions out of expediency and safety to
avoid being reported to the DoD IG for investigation, which will
greatly endanger equity and fairness. These respondents suggested that
DoD first addresses the adjudication process and the independence of
DCAA. The respondent stated that DFARS must be absolutely clear with
regard to the roles and authority of the ACO and the auditor.
Response: The DoD memo dated December 4, 2009, ``Resolving Contract
Audit Recommendations,'' clearly defines the roles and responsibilities
of DCAA and DCMA and provides procedures for adjudicating differences.
DoD has confidence that contracting officers possess the technical
knowledge, skills, and experience necessary to reach independent
determinations on business systems based on sound judgment as required
by FAR 1.602-2, Responsibilities.
41. Rule Application
Comment: Two respondents suggested that since the information cited
in the CWC testimony concerned companies that were involved with
contingency contracting in Afghanistan and Iraq, that the proposed rule
is overly broad and should be limited only to contingency contracting.
Response: DoD notes that while the issues surrounding contractor
business systems came to light under the findings of the CWC hearings,
it is a longstanding DoD policy to rely upon effective and efficient
contractor business systems beyond the realm of the contingency
contracting arena. DoD does not believe that these issues are limited
strictly to contingency contracting.
42. Small Business Impact
Comment: Several respondents commented that the proposed rule
imposes potentially burdensome requirements on small businesses, since
with the exception of EVMS and estimating system requirements, business
system requirements apply to all contractors and contracts, regardless
of size. Thus, small businesses would be required to implement and
maintain the same business systems as those systems implemented by the
largest contractors. The respondents recommended the rule impose
reasonable limitations on the applicability of the requirements for
contractor business systems based on the size of the contractor or
contract.
Response: DoD agrees that the rule could potentially have an
adverse impact on small business and has established thresholds
designed to limit the impact on small business. Additionally, the rule
has been revised to reduce the percentage of payments withheld if a
small business has a deficiency that poses a potential risk of harm to
the Government.
43. Withhold Alternatives
Comment: A number of respondents believe the proposed rule is
unnecessary because the Government already has a number of enforcement
mechanisms to ensure that material deficiencies in contractor systems
do not result in unchecked fraud, waste, or abuse in Government
contracting and to provide contractors with appropriate incentives to
quickly address any deficiencies. Some of the respondents recommended
that the rule be revised to state that contracting officers should not
impose duplicative remedies or sanctions.
Response: The existing regulatory remedies are not an effective
substitute for a contract clause that will mitigate the Government's
risk while contractors correct business system deficiencies. The
proposed rule is required to supplement existing enforcement mechanisms
and protect the Government's interests while the contractor completes
correction of system deficiencies. DoD does not wish to limit the
contracting officer's discretion to apply any and all regulatory
measures, as warranted by the circumstances. For example, if a
contractor has a deficiency in its property management system, the
contracting officer may implement a withhold to protect the
Government's risk of the contractor failing to perform on the contract,
and may also revoke the Government's assumption of liability to protect
the Government from risk of loss of the Government's furnished
property.
44. Withhold Impacts
Comment: Several respondents believe the proposed rule would have
unintended consequences such as establishing a barrier to entry for new
contractors, harming the cash flow of existing contractors and hurting
their ability to obtain financing, prompting unnecessary administrative
cost and improvements to business systems, adversely impacting
financial performance metrics of return on investment and return on
sales, and impacting the ability of contractors to attract debt and
equity investment at beneficial rates. One respondent believed that the
unintended consequences could directly result in loss of jobs and would
be contrary to supporting our warfighters and our national security,
both of which depend on a healthy industrial base.
Response: DoD does not believe that the rule will cause long-term
harm to the defense industrial base or national security. DoD
recognizes that there may be a short-term financial impact on a
contractor who fails to maintain adequate business systems in
accordance with the terms of its contract. However, the Government has
the responsibility to protect the taxpayers. DoD believes that
contractors who maintain adequate systems will not be impacted by this
rule and, in fact, will benefit from effective business systems.
45. Withhold Impacts on Government Oversight Costs
Comment: One respondent recommended that DoD abandon the proposed
clause 252.242-7XXX because it will increase the Government's oversight
and enforcement costs.
Response: DoD appreciates the respondent's concern. However,
acceptable contractor business systems are the first line of defense
against fraud, waste, and abuse. As such, it is in the Government's,
and ultimately the taxpayers', best interest to ensure contractors
maintain adequate business systems.
46. Withhold Percentages
Comment: A number of respondents expressed concern over the
percentages to be withheld, that the rule does not establish a maximum
dollar amount that may be withheld, and that cumulative withholds of up
to 50 percent per contract are inappropriate.
Response: DoD appreciates the respondents' concerns regarding the
withhold percentages. Accordingly, the proposed rule has been revised
to reduce the amount that can be withheld for business system
deficiencies from ten percent to five percent (two percent for small
business). If the Contractor submits an acceptable corrective action
plan, the contracting officer will, as appropriate, reduce the
withholding to two percent (one percent for small businesses). The
contracting officer will authorize the contractor to bill for amounts
previously withheld when the contracting officer determines all
deficiencies have been corrected. Additionally, DoD has revised the
rule to reduce the cumulative percentage of payments that can be
withheld on one or more business systems to 20 percent (10 percent for
small businesses). This limitation refers to the amount that can be
withheld on any payment if deficiencies exist in one or more business
systems. The establishment of
[[Page 75558]]
a maximum dollar amount that may be withheld across multiple contracts
would be inappropriate.
B. Summary of Proposed Rule Changes
As a result of the public comments received, the following changes
were made to the proposed rule:
1. To the extent practicable, the rule has been reorganized to
provide consistency across each of the business systems. Additionally,
throughout the rule, the term ``ACO'' has been replaced by
``contracting officer'' for accuracy.
2. The definition of ``deficiency'' used throughout the rule means
a failure to maintain one or more system criteria of an acceptable
business system. This definition has been set forth within each of the
specific business system clauses 252.215-7002, 252.234-7002, 252.242-
7004, 252.242-7XXX, 252.242-7YYY, 252.244-7XXX, and 252.245-7XXX.
3. The system criteria for each of the business systems have been
set forth in clause 252.242-7XXX, Business Systems, as well as in each
of the individual business system clauses, 252.215-7002, 252.234-7002,
252.242-7004, 252.242-7YYY, 252.244-7XXX, and 252.245-7XXX.
4. In the ``policy'' paragraphs for each of the business systems,
215.407-5-70(c)(2), 234.201(5), 242.7203(c), 242.7502(b), 244.305-
70(a), and 245.105(b), cognizant contracting officers, in consultation
with the auditor and, where applicable, the functional specialist,
shall determine the acceptability of the contractor's business systems
and approve or disapprove the system.
5. The ``disposition of findings'' paragraphs for each of the
business systems, 215.407-5-70(e)(2), 234.201(7), 242.7203(c),
242.7502(d), 244.305-70(c), and 245.105(d), have been reorganized and
revised to set forth procedures for reporting of findings, and making
initial and final determinations as follows:
(a) If there are system deficiencies, the auditor's or functional
specialist's report to the contracting officer shall describe the
deficiencies in sufficient detail to allow the contracting officer to
understand the deficiencies and the potential adverse impact to the
Government; and
(b) Revised initial and final determination procedures have been
set forth.
6. The business system approval paragraphs, 215.407-5-70(f),
234.201(8), 242.7203(d), 242.7502(e), 244.305-70(d), and 245.105(e),
are established to provide procedures for contracting officers to
promptly approve a previously unapproved business system and notify the
contractor when the contracting officer determines, in consultation
with the auditor and/or functional specialist, that the contractor has
substantially corrected the system deficiencies, removing any potential
risk of harm to the Government.
7. The contracting officer notifications paragraphs, 215.407-5-
70(g), 234.201(9), 242.7203(e), 242.7502(f), 244.305-70(e), and
245.105(f), are established to provide procedures for contracting
officers to promptly distribute copies of a determination to withhold,
remove withholds, and approve or disapprove a system to the auditor,
payment office, contracting officers at the buying activities, and
cognizant contracting officers in contract administration activities.
8. Paragraphs 242.7502(g) and 244.305-70(f), on mitigating risk of
accounting system and purchasing system deficiencies on specific
proposals, are established to provide contracting officers with
procedures for evaluating whether a deficiency impacts the
negotiations, and if so, what alternatives the contracting officer
should consider.
9. Section 245.105 is rewritten in its entirety as previously
noted, and for consistency with the other business systems covered
under this rule.
10. Section 242.70X1 Business system deficiencies, has been revised
in its entirety to set forth policy and procedures for contracting
officers to make a determination to withhold payments; provide
appropriate notifications; monitor and verify the correction of
contractor deficiencies; and implement, reduce, increase, and
discontinue payment withholding.
11. Section 242.70X2 Contract clause, has been revised to set forth
a $50 million threshold and revise the companion clauses that set forth
the requirements for the use of clause 252.242-7XXX, Business Systems.
12. In each of the clauses revised under this rule, 252.215-7002,
252.234-7002, 252.242-7004, 252.242-7YYY, and 252.244-7XXX, the
language has been revised to replace the phrase and paragraph headings
entitled ``system requirements'' with ``system criteria,'' and to
delete from the clauses the phrases ``but is not limited to'' and ``but
not limited to.''
13. The ``System deficiencies'' paragraphs in each of the
individual business systems clauses, 252.215-7002(e), 252.234-7002(i),
252.242-7004(e), 252.242-7YYY(d), and 252.244-7XXX(d), have been
revised for consistency and clarity.
14. In each of the individual business system clauses revised under
this rule, the following language has been added under paragraphs
252.215-7002(f), 252.234-7002(i)(4), 252.242-7004(f), 252.242-7YYY(e),
and 252.244-7XXX(e): ``If the Contractor receives the Contracting
Officer's final determination of system deficiencies, the Contractor
shall, within 45 days of receipt of the final determination, either
correct the deficiencies or submit an acceptable corrective action plan
showing milestones and actions to eliminate the deficiencies.''
15. In each of the individual business system clauses revised under
this rule, the ``Withholding payments'' paragraphs, 252.215-7002(g),
252.234-7002(k), 252.242-7004(g), 252.242-7YYY(f), and 252.244-7XXX(f),
are revised as follows: ``If the Contracting Officer determines that
there are one or more system deficiencies that adversely affect the
Contractor's purchasing system, leading to a potential risk of harm to
the Government, and the contract includes the clause at 252.242-7XXX,
Business Systems, the Contracting Officer will withhold payments in
accordance with that clause.''
16. Clause 252.215-7002 is revised as follows:
(a) The definition of an ``estimating system'' has been revised to
include the phrase ``budgeting and planning controls,'' and under
subparagraph (5), to add the phrase ``budgeting and planning'' and the
phrase ``and budgets.''
(b) Minor revisions to paragraph (d) system criteria, include the
addition of the phrase ``and budgets'' in subparagraphs (i), (ii), and
(v); the addition of the phrase ``and budgeting'' in subparagraphs
(iii), (iv), and (xii); replacement of the word ``appropriate'' with
``adequate'' in subparagraph (v); deletion of the phrase ``where
appropriate'' in subparagraph (xi); replacement of the phrase ``comply
with this regulation'' with ``ensure timely follow-up actions are taken
on the management review recommendations'' in subparagraph (xii);
replacement of the phrase ``the comparison'' with ``budgetary data
supporting indirect cost estimates and comparisons'' in subparagraph
(xiii); addition of the phrase ``and notify the Contracting Officer''
in subparagraph (xiv); deletion of subparagraph (xv) and its
replacement with new subparagraphs (xv), (xvi), and (xvii).
17. Clause 252.234-7002 is revised as follows:
(a) Definitions of ``acceptable earned value management system''
and ``earned value management system'' are added.
(b) Paragraph (c) is revised as follows: ``If this contract has a
value of $50 million or more, the Contractor shall use
[[Page 75559]]
an EVMS that has been determined to be acceptable by the cognizant
Federal agency.'' The phrase ``to be in compliance with the EVMS
guidelines as stated in paragraph (a)(1) of this clause'' is hereby
deleted.
(c) Paragraphs (c) and (g) are revised to replace the references to
paragraph (a)(1) with references to paragraph (b)(1).
(d) Paragraph (j), System disapproval, is hereby added to set forth
when a contracting officer will disapprove a contractor's EVMS.
(e) Paragraph (h) is renumbered as paragraph (l) and is revised to
provide the following qualifying phrase: ``With the exception of
paragraphs (i) through (k) of this clause * * *'' Additionally, the
reference to paragraph (b) is replaced by a reference to paragraph (c).
18. Clause 252.242-7002 is revised to add the definition of
``acceptable material management and accounting system.''
19. Clause 252.242-7XXX is revised as follows:
(a) The definition of ``acceptable business systems'' has been
revised to delete the words ``this contract'' such that acceptable
business systems ``means business systems that comply with the terms
and conditions of the applicable business system clauses listed in the
definition of ``business systems'' in this clause.''
(b) The definition of ``business systems'' has been revised to
update the references to the applicable clauses for the property
management system, 252.245-7XXX, Contractor Property Management System
Administration, and purchasing system, 252.244-7XXX, Contractor
Purchasing System Administration.
(c) Paragraph (c), System deficiencies, has been revised for
clarity to state under subparagraph (1) that ``The Contractor shall
respond in writing within 30 days to an initial determination that
there are one or more system deficiencies that adversely affect the
Contractor's business system leading to a potential risk of harm to the
Government.'' Furthermore, the phrase ``that adversely affect the
Contractor's business system leading to a potential risk of harm to the
Government'' is also added for clarity.
(d) Paragraph (d) is revised for clarity, as well, to--
(i) Reduce the withhold percentage from 10 percent to five percent
(two percent for small businesses) and from five percent to two percent
(one percent for small businesses) if the Contractor submits an
acceptable corrective action plan within 45 days of a notice of the
Contracting Officer's intent to withhold payments;
(ii) Set forth procedures for Contracting Officers to withhold
payments from progress payments and performance-based payments, or
issue a contract modification requiring the Contractor to implement the
withholding on interim cost vouchers on cost, labor-hour, and time-and-
materials contracts;
(iii) Reduce the cumulative percentage of payments withheld on one
or more business systems from 50 percent to 20 percent (10 percent for
small businesses);
(iv) Delete the potential 100 percent withhold for deficiencies
that are highly likely to lead to improper contract payments or
represent an unacceptable risk of loss to the Government;
(v) Add construction contracts that include FAR clause 52.232-27 to
the list of interim payments applicable to this clause; and
(vi) Add subparagraph (5) to set forth that ``Payment withholding
shall not apply to payments on fixed-price line items where performance
is complete and the items were accepted by the Government.''
(e) Paragraph (e) is revised for clarity, as well, to--
(i) Revise procedures for Contracting Officers to discontinue
withhold payments from progress payments and performance-based
payments, and unilaterally issue a contract modification to discontinue
the payment withholding from billings on interim cost vouchers, and
authorize the Contractor to appropriately bill for any monies
previously withheld if the Contracting Officer determines the
Contractor has corrected all deficiencies in a business system; and
(ii) Revise procedures for Contracting Officers to continue to
withhold payments from progress payments and performance-based
payments, or require the Contractor to continue the withholding from
its billings on interim cost vouchers if the Contracting Officer
determines the Contractor has not corrected all deficiencies in a
business system.
20. Clause 252.242-7YYY is revised as follows:
(a) The definition of ``acceptable accounting system'' is revised
to replace the phrase ``requirements under'' with the phrase ``system
criteria in,'' and replace the word ``invoice'' with the word
``billing.''
(b) The definition of ``accounting system'' is revised to replace
``reporting data'' with ``reporting'' and to add the phrase ``and may
include subsystems for specific areas such as indirect and other direct
costs, compensation, billing, labor, and general information
technology.''
(c) Paragraph (b), General, is revised to clarify that ``Failure to
maintain an acceptable accounting system, as defined in this clause,
shall result in the withholding of payments if the contract includes
the clause at 252.242-7XXX, Business Systems, and also may result in
disapproval of the system.''
21. Clause 252.244-7XXX is revised as follows:
(a) The definition of an ``acceptable purchasing system'' is added.
(b) The definition of ``purchasing system'' is revised to delete
the purchasing system criteria language in subparagraphs (1) through
(6), which has been relocated to the system criteria paragraph (c).
22. New clause 252.245-7XXX, Contractor Property System
Administration, has been added for consistency with the other business
system clauses, 252.215-7002, 252.234-7002, 252.242-7004, 252.242-7YYY,
and 252.244-7XXX.
III. Executive Order 12866
This is a significant regulatory action and, therefore, was subject
to review under section 6(b) of Executive Order 12866, Regulatory
Planning and Review, dated September 30, 1993. This rule is not a major
rule under 5 U.S.C. 804.
IV. Regulatory Flexibility Act
DoD has prepared an initial regulatory flexibility analysis
consistent with 5 U.S.C. 603. A copy of the analysis may be obtained
from the point of contact specified herein. The analysis is summarized
as follows:
The objective of the rule is to establish a definition for
contractor business systems and implement compliance mechanisms to
improve DoD oversight of those contractor business systems. The
requirements of the rule will apply to entities contractually required
to maintain one or more of the defined contractor business systems.
While DoD did not receive comments with specific impacts on small
businesses, based on comments received, DoD has revised the proposed
rule to establish a $50 million threshold designed to limit the impact
on small business. Additionally, the rule has been revised to reduce
the percentage of payment withholding if a small business has a
deficiency that poses a potential risk of harm to the Government.
At this time, DoD is unable to estimate the number of small
entities to which this rule will apply. Therefore, DoD invites comments
from small
[[Page 75560]]
business concerns and other interested parties on the expected impact
of this rule on small entities.
DoD will also consider comments from small entities concerning the
existing regulations in subparts affected by this rule in accordance
with 5 U.S.C. 610. Interested parties must submit such comments
separately and should cite 5 U.S.C. 610 (DFARS Case 2009-D038) in
correspondence.
V. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35) applies because
the proposed rule contains information collection requirements. In
accordance with 5 CFR 1320.8, DoD invited comments regarding the
information collection estimate that DoD included with the initial
proposed rule published on January 15, 2010, at 75 FR 2457. In
response, DoD received one comment. The respondent asserted that DoD's
estimates are substantially understated. However, the supporting data
referenced by the respondent exceeds the information collection
requirements established under this rule. The hours and costs cited by
the respondent with regard to EVMS do not reflect the Paperwork
Reduction Act requirements of this rule. With no further specific
Paperwork Reduction Act comments received, and no further revisions in
this proposed rule to the information collection requirements, DoD
believes the estimates published with the proposed rule accurately
reflect the contractors' costs to fulfill the information collection
requirements of this rule.
Written comments and recommendations on the proposed information
collection should be sent to Ms. Jasmeet Seehra at the Office of
Management and Budget, Desk Officer for DoD, Room 10236, New Executive
Office Building, Washington, DC 20503, or e-mail [email protected], with a copy to the Defense Acquisition Regulations
System, Attn: Mr. Mark Gomersall, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060
Defense Pentagon, Washington, DC 20301-3060. Comments can be received
from 30 to 60 days after the date of this notice, but comments to OMB
will be most useful if received by OMB within 30 days after the date of
this notice.
To request more information on this proposed information collection
or to obtain a copy of the proposal and associated collection
instruments, please write to the Defense Acquisition Regulations
System, Attn: Mr. Mark Gomersall, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060
Defense Pentagon, Washington, DC 20301-3060, or e-mail [email protected].
Include DFARS Case 2009-D038 in the subject line of the message.
List of Subjects in 48 CFR Parts 215, 234, 242, 244, 245, and 252
Government procurement.
Ynette R. Shelkin,
Editor, Defense Acquisition Regulations System.
Therefore, DoD proposes to amend 48 CFR parts 215, 234, 242, 244,
245, and 252 as follows:
1. The authority citation for 48 CFR parts 215, 234, 242, 244, 245,
and 252 continues to read as follows:
Authority: 41 U.S.C. 421 and 48 CFR chapter 1.
PART 215--CONTRACTING BY NEGOTIATION
2. Amend section 215.407-5-70 by:
a. Adding introductory text to paragraph (a);
b. Revising paragraph (a)(4);
c. Revising the heading of paragraph (c);
d. Revising paragraphs (c)(2) and (c)(3);
e. Removing paragraph (c)(4);
f. Redesignating paragraphs (d)(1), (d)(2), and (d)(3) as
paragraphs (c)(4), (c)(5), and (c)(6);
g. Revising newly designated paragraphs (c)(4) and (c)(5);
h. Removing the heading of paragraph (d);
i. Removing paragraphs (e), and (f);
j. Redesignating paragraph (g) as paragraph (d); and
k. Adding new paragraphs (e) through (g) to read as follows:
215.407-5-70 Disclosure, maintenance, and review requirements.
(a) Definitions. As used in this subsection--
* * * * *
(4) Deficiency is defined in 252.215-7002, Cost Estimating System
Requirements.
(b) * * *
(c) Policy.
* * * * *
(2) The cognizant contracting officer, in consultation with the
auditor, for contractors subject to paragraph (b)(2) of this subsection
shall--
(i) Determine the acceptability of the disclosure and approve or
disapprove the system; and
(ii) Pursue correction of any deficiencies.
(3) The auditor conducts estimating system reviews.
(4) An acceptable system shall provide for the use of appropriate
source data, utilize sound estimating techniques and good judgment,
maintain a consistent approach, and adhere to established policies and
procedures.
(5) In evaluating the acceptability of a contractor's estimating
system, the contracting officer, in consultation with the auditor,
shall determine whether the contractor's estimating system complies
with the system criteria for an acceptable estimating system as
prescribed in 252.215-7002, Cost Estimating System Requirements.
* * * * *
(e) Disposition of findings--(1) Reporting of findings. The auditor
shall document findings and recommendations in a report to the
contracting officer. If the auditor identifies any estimating system
deficiencies, the report shall describe the deficiencies in sufficient
detail to allow the contracting officer to understand the deficiencies
and the potential adverse impact to the Government.
(2) Initial determination. (i) The contracting officer shall review
all findings and recommendations and, if there are no deficiencies that
adversely affect the system, shall promptly notify the contractor in
writing that the contractor's estimating system is acceptable and
approved; or
(ii) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's
estimating system, leading to a potential risk of harm to the
Government, the contracting officer shall----
(A) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing, providing a
description of the deficiency in sufficient detail to allow the
contractor to understand the deficiency and its potential harm to the
Government;
(B) Request the contractor to respond in writing to the initial
determination within 30 days; and
(C) Promptly evaluate the contractor's responses to the initial
determination, in consultation with the auditor or functional
specialist, and make a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor in writing that--
(A) The contractor's estimating system is acceptable and approved,
or
(B) System deficiencies still remain. The notice shall indicate the
adequacy of any proposed or completed corrective action. The
contracting officer shall--
[[Page 75561]]
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(2) Disapprove the system in accordance with 252.215-7002, Cost
Estimating System Requirements, if the contracting officer determines
that one or more deficiencies warrant system disapproval based on the
risk to the Government; and
(3) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's estimating system, leading to a
potential risk of harm to the Government.
(ii) Follow the procedures relating to a correction of system
deficiencies in PGI 215.407-5-70(e)(3).
(f) System approval. The contracting officer shall promptly approve
a previously disapproved estimating system and notify the contractor
when the contracting officer determines that the contractor has
substantially corrected the system deficiencies removing the potential
risk of harm to the Government.
(g) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
PART 234--MAJOR SYSTEM ACQUISITION
2A. Add section 234.001 to read as follows:
234.001 Definition.
As used in this subpart--
Acceptable earned value management system and earned value
management system are defined in 252.234-7002, Earned Value Management
System.
Deficiency is defined in 252.234-7002, Earned Value Management
System, and is synonymous with noncompliance.
3. Amend section 234.201 by adding paragraphs (5) through (9) to
read as follows:
234.201 Policy.
* * * * *
(5) The cognizant contracting officer, in consultation with the
functional specialist and auditor, shall--
(i) Determine the acceptability of the contractor's earned value
management system and approve or disapprove the system; and
(ii) Pursue correction of any deficiencies.
(6) In evaluating the acceptability of a contractor's earned value
management system, the contracting officer, in consultation with the
functional specialist and auditor, shall determine whether the
contractor's earned value management system complies with the system
criteria for an acceptable earned value management system as prescribed
in 252.234-7002, Earned Value Management System.
(7) Disposition of findings--(i) Reporting of findings. The
functional specialist or auditor shall document findings and
recommendations in a report to the contracting officer. If the
functional specialist or auditor identifies any deficiencies in the
contractor's earned value management system, the report shall describe
the deficiencies in sufficient detail to allow the contracting officer
to understand the deficiencies and the potential adverse impact to the
Government.
(ii) Initial determination. (A) The contracting officer shall
review all findings and recommendations and, if there are no
deficiencies that adversely affect the system, shall promptly notify
the contractor, in writing, that the contractor's earned value
management system is acceptable and approved; or
(B) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's earned
value management system, leading to a potential risk of harm to the
Government, the contracting officer shall--
(1) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing, providing a
description of the deficiency in sufficient detail to allow the
contractor to understand the deficiencies and the potential adverse
impact to the Government;
(2) Request the contractor to respond in writing to the initial
determination within 30 days; and
(3) Evaluate the contractor's response to the initial
determination, in consultation with the auditor or functional
specialist, and make a final determination.
(iii) Final determination. (A) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(1) The contractor's earned value management system is acceptable
and approved, or
(2) Systems deficiencies still remain. The notice shall indicate
the adequacy of any proposed or completed corrective action. The
contracting officer shall--
(i) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(ii) Disapprove the system in accordance with 252.234-7002, Earned
Value Management System, when initial validation is not successfully
completed within a 16 month period from contract award, or the existing
earned value management system contains one or more deficiencies in
high-risk guidelines in ANSI/EIA-748 standards (guidelines 1, 3, 6, 7,
8, 9, 10, 12, 16, 21, 23, 26, 27, 28, 30, or 32). For the remaining 16
guidelines in ANSI/EIA-748 standards, the contracting officer shall use
discretion to disapprove the system based on input received from
functional specialists and the auditor; and
(iii) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's earned value management system,
leading to a potential risk of harm to the Government.
(B) Follow the procedures relating to correction of system
deficiencies at PGI 234.201(7)(iii).
(8) System approval. The contracting officer shall promptly approve
a previously disapproved earned value management system and notify the
contractor when the contracting officer determines that the contractor
has substantially corrected the system deficiencies, removing the
potential risk of harm to the Government.
(9) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES
4. Add subpart 242.70 to read as follows:
[[Page 75562]]
Subpart 242.70--Business Systems
Sec.
242.70X1 Business system deficiencies.
242.70X2 Contract clause.
Subpart 242.70--Business Systems
242.70X1 Business system deficiencies.
(a) Definition. As used in this subpart----
Acceptable business systems and business systems are defined in
252.242-7XXX, Business Systems.
Deficiency is defined in 252.242-7XXX, Business Systems.
(b) Determination to withhold payments. If the contracting officer
determines that one or more system deficiencies adversely affect the
contractor's business systems included in 252.242-7XXX, Business
Systems, that lead to a potential risk of harm to the Government, the
contracting officer will--
(1) Promptly notify the contractor, in writing, of the contracting
officer's determination to implement payment withholding in accordance
with 252.242-7XXX, Business Systems. The notice of payment withhold
shall be included in the contracting officer's written final
determination for the business system and shall inform the contractor
that--
(i) Payments shall be withheld in accordance with 252.242-7XXX,
Business Systems, until the contracting officer determines that all
system deficiencies have been corrected; and
(ii) The contracting officer reserves the right to take other
actions within the terms and conditions of the contract.
(2) Provide all contracting officers administering contracts
containing 252.242-7XXX, Business Systems, a copy of the determination
and instructions for issuing unilateral contract modifications to
withhold payments on those contracts, and reducing progress payments
and performance-based payments, as applicable. The contracting officer
shall also provide a copy of the determination to the auditor; payment
office; affected contracting officers at the buying activities; and
cognizant contracting officers in contract administration activities.
(3) Contracting officers shall use a format substantially the same
as the following for unilateral modifications for making an initial
payment withholding, reducing the payment withholding, and
discontinuing the payment withholding in accordance with 252.242-7XXX,
Business Systems:
(i) Use this format for unilateral modifications for implementing
payment withholding:
Payment Withholding
(A) The purpose of this unilateral modification is to implement a
payment withholding per the terms of 252.242-7XXX, Business Systems,
and as a result of the Contracting Officer's determination, dated YYYY/
MM/DD, with respect to the deficiencies found in the Contractor's
system(s).
(B) Effective immediately, five percent (two percent for small
businesses) of each request for payment under this contract will be
withheld as described below. Upon receipt of an acceptable corrective
action plan from the Contractor, a determination will be made with
respect to reducing the percentage being withheld to two percent (one
percent for small businesses) until the Contracting Officer determines
that the Contractor has corrected all system deficiencies, as
identified in the Contracting Officer's determination. Failure to
follow the accepted corrective action plan will result in an increase
in the percentage withheld against each payment under this contract to
five percent (two percent for small businesses). Such reduction or
increase will be made by contract modification.
(C) For payments under cost, labor-hour, or time-and-materials
contracts: The Contractor shall apply a five percent (two percent for
small businesses) withhold to the amount being billed and prepare a
cost voucher in Wide Area WorkFlow (WAWF) for the net amount due. The
Contractor shall show the amount withheld on the current billing, as
well as the cumulative amount withheld to date on this contract in
accordance with 252.242-7XXX, in the Comments block of the
Miscellaneous Info Tab in WAWF.
(D) For progress payments: The Contractor shall prepare the request
in WAWF without applying any withhold percentage. The Contracting
Officer will reduce the approved amount by five percent (two percent
for small businesses) and record the amount being withheld on the
progress payment request, as well as the cumulative amount withheld on
this contract in accordance with 252.242-7XXX, in the Comments block of
the Miscellaneous Info Tab in WAWF.
(E) For performance-based payments: The Contractor shall prepare
the request in WAWF without applying any withhold percentage to the
performance-based payment event schedule amounts. The Contracting
Officer will reduce the amount approved by five percent (two percent
for small businesses)and record the amount being withheld on the
performance-based payment, as well as the cumulative amount withheld on
this contract, in accordance with 252.242-7XXX, in the Comments block
of the of the Miscellaneous Info Tab in WAWF.
(F) These payment withhold amounts will not be recorded in
Mechanization of Contract Administration Services as withholds and
there is no ACTION required on the part of the payment office to effect
the withhold.
(ii) Use this format for unilateral modifications for reducing
payment withholding:
Reduction of Temporary Payment Withholding
(A) The purpose of this unilateral modification is to reduce the
payment withholding percentage per the terms of 252.242-7XXX, Business
Systems, as a result of receiving an acceptable corrective action plan
from the contractor, dated YYYY/MM/DD, for resolving deficiencies in
its system(s) as identified in the Contracting Officer's determination,
dated YYYY/MM/DD. This reduction is prospective and previous amounts
withheld will not be reduced or released at this time.
(B) Effective immediately, two percent (one percent for small
businesses) of each request for payment under this contract will be
withheld as described below. The two percent (one percent for small
businesses) being withheld will remain in effect until the Contracting
Officer determines that the Contractor has corrected all system
deficiencies as identified in the Contracting Officer's determination.
Failure to follow the accepted corrective action plan will result in an
increase in the percentage withheld against each payment under this
contract to five percent (two percent for small businesses). Such
increase will be made by contract modification.
(C) For payments under cost, labor-hour, or time-and-materials
contracts: The Contractor shall apply a two percent (one percent for
small businesses) withhold to the amount being billed and prepare a
cost voucher in Wide Area WorkFlow (WAWF) for the net amount due. The
Contractor shall show the amount withheld on the current billing, as
well as the cumulative amount withheld to date on this contract in
accordance with 252.242-7XXX, in the Comments block of the
Miscellaneous Info Tab in WAWF.
(D) For progress payments: The Contractor shall prepare the request
in WAWF without applying any withhold percentage. The Contracting
Officer will reduce the approved amount by two percent (one percent for
small
[[Page 75563]]
businesses) and record the amount being withheld on the progress
payment request, as well as the cumulative amount withheld on this
contract, in accordance with 252.242-7XXX, in the Comments block of the
Miscellaneous Info Tab in WAWF.
(E) For performance-based payments: The Contractor shall prepare
the request in WAWF without applying any withhold percentage to the
performance-based payment event schedule amounts. The Contracting
Officer will reduce the amount approved by two percent (one percent for
small businesses) and record the amount being withheld on the
performance-based payment, as well as the cumulative amount withheld on
this contract, in accordance with 252.242-7XXX, in the Comments block
of the of the Miscellaneous Info Tab in WAWF.
(F) These payment withhold amounts will not be recorded in
Mechanization of Contract Administration Services as withholds and
there is no ACTION required on the part of the payment office to effect
the withhold.
(iii) Use the format below if payment withholding is discontinued
pending receipt of auditor or functional specialist verification and
based on evidence that the contractor has corrected all system
deficiencies, in accordance with 252.242-7XXX, Business Systems:
Discontinuation of Payment Withholding
(A) The purpose of this unilateral modification is to discontinue
the payment withhold as identified in Modification XXXXX and release
previous amounts withheld on this contract, in accordance with 252.242-
7XXX, Business Systems.
(B) The discontinuation of the payment withhold is made pending
receipt of verification and based on evidence submitted by the
Contractor that all the Contractor's system(s) deficiencies identified
in the Contracting Officer's determination, dated YYYY/MM/DD, have been
corrected.
(C) The Contractor is authorized to submit a bill in the amount of
$XXXXXXXX. The billed amount should be submitted on the same type of
invoice as the withhold was originally taken, as appropriate.
(iv) Use the format below if payment withholding is discontinued
after auditor or functional specialist verification that the contractor
has corrected all system deficiencies, in accordance with 252.242-7XXX,
Business Systems:
Discontinuation of Payment Withholding
(A) The purpose of this unilateral modification is to discontinue
the payment withhold as identified in Modification XXXXX and release
previous amounts withheld on this contract, in accordance with 252.242-
7XXX, Business Systems.
(B) The discontinuation of the payment withhold is made based on
verification that all the contractor's system(s) deficiencies
identified in the Contracting Officer's final determination, dated
YYYY/MM/DD, have been corrected.
(C) The Contractor is authorized to submit a bill in the amount of
$XXXXXXXX. The billed amount should be submitted on the same type of
invoice as the withhold was originally taken, as appropriate.
(c) If the contracting officer determines that none of the system
deficiencies adversely affect any of the contractor's business systems
included in 252.242-7XXX, Business Systems, that lead to potential risk
of harm to the Government, the contracting officer shall promptly
notify the contractor in writing of the contracting officer's
determination not to implement payment withholds in accordance with
252.242-7XXX, Business Systems.
(d) Monitoring contractor's corrective action. The contracting
officer, in consultation with the auditor or functional specialist,
shall monitor the contractor's progress in correcting the deficiencies.
The contracting officer shall notify the contractor of any decision to
decrease or increase the amount of payment withholding in accordance
with 252.242-7XXX, Business Systems.
(e) Correction of system deficiencies. (1) If the contractor
notifies the contracting officer that the contractor has corrected the
system deficiencies, the contracting officer shall request the auditor
or functional specialist to review the correction to verify that the
deficiencies have been corrected. If, after receipt of verification,
the contracting officer determines that the contractor has corrected
all system deficiencies, the contracting officer shall discontinue the
withholding of payments and release any payments previously withheld.
(2) Prior to the receipt of verification, the contracting officer
may discontinue withholding payments pending receipt of verification,
and release any payments previously withheld, if the contractor submits
evidence that the deficiencies have been corrected, and the contracting
officer, in consultation with the auditor or functional specialist,
determines that there is a reasonable expectation that the corrective
actions have been implemented.
242.70X2 Contract clause.
Use the clause at 252.242-7XXX, Business Systems, in solicitations
and contracts when the expected contract value is equal to or greater
than $50 million, and when the solicitation or contract includes any of
the following clauses:
(a) 252.215-7002, Cost Estimating System Requirements.
(b) 252.234-7002, Earned Value Management System.
(c) 252.242-7004, Material Management and Accounting System.
(d) 252.242-7YYY, Accounting System Administration.
(e) 252.244-7XXX, Contractor Purchasing System Administration.
(f) 252.245-7XXX, Contractor Property Management System
Administration.
5. Revise section 242.7201 to read as follows:
242.7201 Definitions.
As used in this subpart--
Acceptable material management and accounting system, material
management and accounting system, and valid time-phased requirements
are defined in 252.242.7004, Material Management and Accounting System.
Deficiency is defined in 252.242.7004, Material Management and
Accounting System.
6. Amend section 242.7202 by:
a. Redesignating the introductory text as paragraph (a);
b. Redesignating existing paragraphs (a) through (c) as paragraphs
(a)(1) through (a)(3), respectively; and
c. Adding new paragraphs (b) and (c) to read as follows:
242.7202 Policy.
* * * * *
(b) The cognizant contracting officer, in consultation with the
auditor and functional specialist, shall--
(1) Determine the acceptability of the contractor's MMAS and
approve or disapprove the system; and
(2) Pursue correction of any deficiencies.
(c) In evaluating the acceptability of the contractor's MMAS, the
contracting officer, in consultation with the auditor and functional
specialist, shall determine whether the contractor's MMAS complies with
the system criteria for an acceptable MMAS as prescribed in 252.242-
7004, Material Management and Accounting System.
7. Amend section 242.7203 by:
[[Page 75564]]
a. Removing paragraph (c);
b. Redesignating paragraph (d) as paragraph (c);
c. Revising newly designated paragraph (c); and
d. Adding new paragraphs (d) and (e) to read as follows:
242.7203 Review procedures.
* * * * *
(c) Disposition of findings--(1) Reporting of findings. The auditor
or functional specialist shall document findings and recommendations in
a report to the contracting officer. If the auditor or functional
specialist identifies any MMAS deficiencies, the report shall describe
the deficiencies in sufficient detail to allow the contracting officer
to understand the deficiencies and the potential adverse impact to the
Government.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and if there are no deficiencies that
adversely affect the system, shall promptly notify the contractor, in
writing, that the contractor's MMAS is acceptable and approved; or
(ii) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's MMAS,
leading to a potential risk of harm to the Government, the contracting
officer shall--
(A) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing, providing a
description of deficiencies in sufficient detail to allow the
contractor to understand the deficiencies and the potential adverse
impact to the Government;
(B) Request the contractor to respond in writing to the initial
determination within 30 days; and
(C) Promptly evaluate the contractor's response to the initial
determination in consultation with the auditor or functional
specialists, and make a final determination.
(3) Final determination. (i) The ACO shall make a final
determination and notify the contractor that--
(A) The contractor's MMAS is acceptable and approved, or
(B) System deficiencies still remain. The notice shall indicate the
adequacy of any proposed or completed corrective action. The
contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(2) Make a determination to disapprove the system in accordance
with 252.242-7004, Material Management and Accounting System, if the
contracting officer determines that one or more deficiencies warrant
system disapproval based on the risk to the Government; and
(3) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's MMAS, leading to a potential risk of
harm to the Government.
(ii) Follow the procedures relating to correction of system
deficiencies in PGI 242.7203.
(d) System approval. The contracting officer shall promptly approve
a previously disapproved MMAS and notify the contractor when the
contracting officer determines that the contractor has substantially
corrected the system deficiencies, removing the potential risk of harm
to the Government.
(e) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
8. Revise subpart 242.75 to read as follows:
Subpart 242.75--Contractor Accounting Systems
Sec.
242.7501 Definitions.
242.7502 Policy.
242.7503 Contract clause.
Subpart 242.75--Contractor Accounting Systems
242.7501 Definitions.
As used in this subpart--
Acceptable accounting system, and accounting system are defined in
252.242-7YYY, Accounting System Administration.
Deficiency is defined in 252.242-7YYY, Accounting System
Administration.
242.7502 Policy.
(a) Contractors receiving cost-reimbursement, incentive-type, time-
and-materials, or labor-hour contracts, contracts which provide for
progress payments based on costs or on a percentage or stage of
completion, or construction contracts that include the clause at FAR
52.232-27, Prompt Payment for Construction Contracts, shall maintain an
acceptable accounting system.
(b) The cognizant contracting officer, in consultation with the
auditor, shall--
(1) Determine the acceptability of a contractor's accounting system
and approve or disapprove the system; and
(2) Pursue correction of any deficiencies.
(c) In evaluating the acceptability of a contractor's accounting
system, the contracting officer, in consultation with the auditor,
shall determine whether the contractor's accounting system complies
with the system criteria for an acceptable accounting system as
prescribed in 252.242-7YYY, Accounting System Administration.
(d) Disposition of findings--(1) Reporting of findings. The auditor
shall document findings and recommendations in a report to the
contracting officer. If the auditor identifies any accounting system
deficiencies, the report shall describe the deficiencies in sufficient
detail to allow the contracting officer to understand the deficiencies
and the potential adverse impact to the Government. Follow the
procedures at PGI 242.70X1(b) for reporting of deficiencies.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and, if there are no deficiencies that
adversely affect the system, shall promptly notify the contractor, in
writing, that the contractor's accounting system is acceptable and
approved; or
(ii) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's
accounting system, leading to a potential risk of harm to the
Government, the contracting officer shall--
(A) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing;
(B) Request the contractor to respond in writing to the initial
determination within 30 days; and
(C) Evaluate the contractor`s response to the initial
determination, in consultation with the auditor or functional
specialist and make a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's accounting system is acceptable and approved,
or
(B) System deficiencies still remain. The notice shall indicate the
adequacy
[[Page 75565]]
of any proposed or completed corrective action. The contracting officer
shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(2) Make a determination to disapprove the system in accordance
with 252.242-7YYY, Accounting System Administration, if the contracting
officer determines that one or more deficiencies warrant system
disapproval based on the risk to the Government; and
(3) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's accounting system, leading to a
potential risk of harm to the Government.
(ii) Follow the procedures relating to correction of system
deficiencies in PGI 242.7502.
(e) System approval. The contracting officer shall promptly approve
a previously disapproved accounting system and notify the contractor
when the contracting officer determines that the contractor has
substantially corrected the system deficiencies, removing the potential
risk of harm to the Government.
(f) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
(g) Mitigating the risk of accounting system deficiencies on
specific proposals. (1) Field pricing teams shall discuss identified
accounting system deficiencies and their impact in all reports on
contractor proposals until the deficiencies are resolved.
(2) The contracting officer responsible for negotiation of a
proposal generated by an accounting system with an identified
deficiency shall evaluate whether the deficiency impacts the
negotiations. If it does not, the contracting officer should proceed
with negotiations. If it does, the contracting officer should consider
other alternatives, e.g.--
(i) Allowing the contractor additional time to correct the
accounting system deficiency and submit a corrected proposal;
(ii) Considering another type of contract, e.g., a fixed-price
incentive (firm target) contract instead of a firm-fixed price;
(iii) Using additional cost analysis techniques to determine the
reasonableness of the cost elements affected by the accounting system's
deficiency;
(iv) Segregating the questionable areas as a cost-reimbursable line
item;
(v) Reducing the negotiation objective for profit or fee; or
(vi) Including a contract (reopener) clause that provides for
adjustment of the contract amount after award.
(3) The contracting officer who incorporates a reopener clause into
the contract is responsible for negotiating price adjustments required
by the clause. Any reopener clause necessitated by an accounting system
deficiency should--
(i) Clearly identify the amounts and items that are in question at
the time of negotiation;
(ii) Indicate a specific time or subsequent event by which the
contractor will submit a supplemental proposal, including cost or
pricing data, identifying the cost impact adjustment necessitated by
the deficient accounting system;
(iii) Provide for the contracting officer to unilaterally adjust
the contract price if the contractor fails to submit the supplemental
proposal; and
(iv) Provide that failure of the Government and the contractor to
agree to the price adjustment shall be a dispute under the Disputes
clause.
242.7503 Contract clause.
Use the clause at 252.242-7YYY, Accounting System Administration,
in solicitations and contracts when contemplating--
(a) A cost-reimbursement, incentive-type, time-and-materials, or
labor-hour contract;
(b) A fixed-price contract with progress payments made on the basis
of costs incurred by the contractor or on a percentage or stage of
completion; or
(c) A construction contract that includes the clause at FAR 52.232-
27, Prompt Payment for Construction Contracts.
PART 244--SUBCONTRACTING POLICIES AND PROCEDURES
9. Add subpart 244.1 to read as follows:
Subpart 244.1--General
Sec.
244.101 Definitions.
Subpart 244.1--General
244.101 Definitions.
As used in this subpart--
Acceptable purchasing system, and purchasing system are defined in
252.244-7XXX, Purchasing System Administration.
Deficiency is defined in 252.244-7XXX, Purchasing System
Administration.
10. Revise section 244.305-70 to read as follows:
244.305-70 Policy.
Use the procedures of this subsection instead of FAR 44.305-2(c)
and 44.305-3(b).
(a) The cognizant contracting officer, in consultation with the
purchasing system analyst or auditor, shall--
(1) Determine the acceptability of the contractor's purchasing
system and approve or disapprove the system; and
(2) Pursue correction of any deficiencies.
(b) In evaluating the acceptability of the contractor's purchasing
system, the contracting officer, in consultation with the purchasing
system analyst and auditor, shall determine whether the contractor's
purchasing system complies with the system criteria for an acceptable
purchasing system as prescribed in 252.244-7XXX, Contractor Purchasing
System Administration.
(c) Disposition of findings--(1) Reporting of findings. The
purchasing system analyst or auditor shall document findings and
recommendations in a report to the contracting officer. If the
purchasing system analyst or auditor identifies any purchasing system
deficiencies, the report shall describe the deficiencies in sufficient
detail to allow the contracting officer to understand the deficiencies
and the potential adverse impact to the Government.
(2) Initial determination. (i) The contracting officer shall review
all findings and recommendations and, if there are no deficiencies that
adversely affect the system, shall promptly notify the contractor that
the contractor's purchasing system is acceptable and approved; or
(ii) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's
purchasing system, leading to a potential risk of harm to the
Government, the contracting officer shall--
(A) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing, providing a
description of the deficiencies in sufficient detail to allow
[[Page 75566]]
the contractor to understand the deficiencies and the potential adverse
impact to the Government;
(B) Request the contractor to respond in writing to the initial
determination within 30 days; and
(C) Evaluate the contractor's response to the initial determination
in consultation with the auditor or functional specialist, and make a
final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's purchasing system is acceptable and approved,
or
(B) System deficiencies still remain. The notice shall indicate the
adequacy of any proposed or completed corrective action. The
contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(2) Make a determination to disapprove the system in accordance
with 252.244-7XXX, Contractor Purchasing System Administration, if the
contracting officer determines that one or more deficiencies warrant
system disapproval based on the risk to the Government; and
(3) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's purchasing system, leading to a
potential risk of harm to the Government.
(ii) Follow the procedures in accordance with 252.244-7XXX,
Contractor Purchasing System Administration, and PGI 244.305-70 for
disposition of report findings.
(d) System approval. The contracting officer shall promptly approve
a previously disapproved purchasing system and notify the contractor
when the contracting officer determines that the contractor has
substantially corrected the system deficiencies, removing the potential
risk of harm to the Government.
(e) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
(f) Mitigating the risk of purchasing system deficiencies on
specific proposals. (1) Source selection evaluation teams shall discuss
identified purchasing system deficiencies and their impact in all
reports on contractor proposals until the deficiencies are resolved.
(2) The contracting officer responsible for negotiation of a
proposal generated by a purchasing system with an identified deficiency
shall evaluate whether the deficiency impacts the negotiations. If it
does not, the contracting officer should proceed with negotiations. If
it does, the contracting officer should consider other alternatives,
e.g.--
(i) Allowing the contractor additional time to correct the
purchasing system deficiency and submit a corrected proposal;
(ii) Considering another type of contract, e.g., a fixed-price
incentive (firm target) contract instead of firm-fixed price;
(iii) Using additional cost analysis techniques to determine the
reasonableness of the cost elements affected by the purchasing system's
deficiency;
(iv) Segregating the questionable areas as a cost-reimbursable line
item;
(v) Reducing the negotiation objective for profit or fee; or
(vi) Including a contract (reopener) clause that provides for
adjustment of the contract amount after award.
(3) The contracting officer who incorporates a reopener clause into
the contract is responsible for negotiating price adjustments required
by the clause. Any reopener clause necessitated by a purchasing system
deficiency should--
(i) Clearly identify the amounts and items that are in question at
the time of negotiation;
(ii) Indicate a specific time or subsequent event by which the
contractor will submit a supplemental proposal, including cost or
pricing data, identifying the cost impact adjustment necessitated by
the deficient purchasing system;
(iii) Provide for the contracting officer to unilaterally adjust
the contract price if the contractor fails to submit the supplemental
proposal; and
(iv) Provide that failure of the Government and the contractor to
agree to the price adjustment shall be a dispute under the Disputes
clause.
11. Add new section 244.305-7X to read as follows:
244.305-7X Contract clause.
Use the clause at 252.244-7XXX, Contractor Purchasing System
Administration, in solicitations and contracts containing the clause at
FAR 52.244-2, Subcontracts.
PART 245--GOVERNMENT PROPERTY
12. Revise section 245.105 to read as follows:
245.105 Contractor's property management system compliance.
(a) Definitions--(1) Acceptable property management system and
property management system are defined in 252.242-7XXX, Contractor
Property Management System Administration.
(2) Deficiency is defined in 252.242-7XXX, Contractor Property
Management System Administration.
(b) Policy. The cognizant contracting officer, in consultation with
the property administrator, shall--
(1) Determine the acceptability of the system and approve or
disapprove the system; and
(2) Pursue correction of any deficiencies.
(c) In evaluating the acceptability of a contractor's property
management system, the contracting officer, in consultation with the
property administrator, shall determine whether the contractor's
property management system complies with the system criteria for an
acceptable property management system as prescribed in 252.242-7XXX,
Contractor Property Management System Administration.
(d) Disposition of findings--(1) Reporting of findings. The
property administrator shall document findings and recommendations in a
report to the contracting officer. If the property administrator
identifies any property system deficiencies, the report shall describe
the deficiencies in sufficient detail to allow the contracting officer
to understand the deficiencies and the potential adverse impact to the
Government.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and, if there are no deficiencies that
adversely affect the system, shall promptly notify the contractor, in
writing, that the contractor's property management system is acceptable
and approved; or
(ii) If the contracting officer determines that there are one or
more system deficiencies that adversely affect the contractor's
property management system, leading to a potential risk of harm to the
Government, the contracting officer shall--
(A) Promptly make an initial determination on any system
deficiencies and notify the contractor, in writing, providing a
description of
[[Page 75567]]
deficiencies in sufficient detail to allow the contractor to understand
the deficiencies and the potential adverse impact to the Government;
(B) Request the contractor to respond in writing to the initial
determination within 30 days and;
(C) Evaluate the contractor's response to the initial
determination, in consultation with the property administrator and make
a final determination;
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's property management system is acceptable and
approved, or
(B) System deficiencies still remain. The notice shall indicate the
adequacy of any proposed or completed corrective action. The
contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the deficiencies;
(2) Promptly make a determination to disapprove the system if the
contracting officer determines that one or more deficiencies warrant
the system disapproval based on the risk to the Government; and
(3) Withhold payments in accordance with 252.242-7XXX, Business
Systems, if the clause is included in the contract and the contracting
officer determines that there are one or more system deficiencies that
adversely affect the contractor's property system, leading to a
potential risk of harm to the Government.
(ii) Follow the procedures in PGI 245.105 for disposition of report
findings.
(e) System Approval. The contracting officer shall promptly approve
a previously unapproved property management system and notify the
contractor when the contracting officer determines, in consultation
with the property administrator, that the contractor has substantially
corrected the system deficiencies, removing the potential risk of harm
to the Government.
(f) Contracting officer notifications. The cognizant contracting
officer shall promptly distribute copies of a determination to
withhold, remove withholds, and approve or disapprove a system to the
auditor; payment office; affected contracting officers at the buying
activities; and cognizant contracting officers in contract
administration activities.
12A. Add new section 245.105-7X to read as follows:
245.105-7X Contract clause.
Use the clause at 252.245-7XXX, Contractor Property System
Administration, in solicitations and contracts containing the clause at
FAR 52.245-1, Government Property.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
13. Revise section 252.215-7002 to read as follows:
252.215-7002 Cost estimating system requirements.
As prescribed in 215.408(2), use the following clause:
COST ESTIMATING SYSTEM REQUIREMENTS (DATE)
(a) Definitions. As used in this clause--
Acceptable estimating system means an estimating system that
complies with the system criteria in paragraph (d) of this clause,
and provides for a system that--
(1) Is maintained, reliable, and consistently applied;
(2) Produces verifiable, supportable, and documented cost
estimates that are an acceptable basis for negotiation of fair and
reasonable prices;
(3) Is consistent with and integrated with the Contractor's
related management systems; and
(4) Is subject to applicable financial control systems.
Deficiency means a failure to meet one or more system criteria
of an acceptable estimating system.
Estimating system means the Contractor's policies, procedures,
and practices for budgeting and planning controls, and generating
estimates of costs and other data included in proposals submitted to
customers in the expectation of receiving contract awards.
Estimating system includes the Contractor's--
(1) Organizational structure;
(2) Established lines of authority, duties, and
responsibilities;
(3) Internal controls and managerial reviews;
(4) Flow of work, coordination, and communication; and
(5) Budgeting, planning, and estimating methods, techniques,
accumulation of historical costs, and other analyses used to
generate cost estimates and budgets.
(b) General. The Contractor shall establish, maintain, and
comply with an acceptable estimating system.
(c) Applicability. Paragraphs (d) and (e) of this clause apply
if the Contractor is a large business and either--
(1) In its fiscal year preceding award of this contract,
received Department of Defense (DoD) prime contracts or
subcontracts, totaling $50 million or more for which cost or pricing
data were required; or
(2) In its fiscal year preceding award of this contract--
(i) Received DoD prime contracts or subcontracts totaling $10
million or more (but less than $50 million) for which cost or
pricing data were required; and
(ii) Was notified in writing by the Contracting Officer that
paragraphs (d) and (e) of this clause apply.
(d) System criteria. (1) The Contractor shall disclose its
estimating system to the Administrative Contracting Officer (ACO) in
writing. If the Contractor wishes the Government to protect the
information as privileged or confidential, the Contractor must mark
the documents with the appropriate legends before submission.
(2) An estimating system disclosure is acceptable when the
Contractor has provided the ACO with documentation that--
(i) Accurately describes those policies, procedures, and
practices that the Contractor currently uses in preparing cost
proposals; and
(ii) Provides sufficient detail for the Government to reasonably
make an informed judgment regarding the acceptability of the
Contractor's estimating practices.
(3) The Contractor shall--
(i) Comply with its disclosed estimating system; and
(ii) Disclose significant changes to the cost estimating system
to the ACO on a timely basis.
(4) The Contractor's estimating system shall provide for the use
of appropriate source data, utilize sound estimating techniques and
good judgment, maintain a consistent approach, and adhere to
established policies and procedures. An acceptable estimating system
shall accomplish the following functions--
(i) Establish clear responsibility for preparation, review, and
approval of cost estimates and budgets;
(ii) Provide a written description of the organization and
duties of the personnel responsible for preparing, reviewing, and
approving cost estimates and budgets;
(iii) Ensure that relevant personnel have sufficient training,
experience, and guidance to perform estimating and budgeting tasks
in accordance with the contractor's established procedures;
(iv) Identify and document the sources of data and the
estimating methods and rationale used in developing cost estimates
and budgets;
(v) Provide for adequate supervision throughout the estimating
and budgeting process;
(vi) Provide for consistent application of estimating and
budgeting techniques;
(vii) Provide for detection and timely correction of errors;
(viii) Protect against cost duplication and omissions;
(ix) Provide for the use of historical experience, including
historical vendor pricing information, where appropriate;
(x) Require use of appropriate analytical methods;
(xi) Integrate information available from other management
systems;
(xii) Require management review, including verification of the
company's estimating and budgeting policies, procedures, and
practices;
[[Page 75568]]
(xiii) Provide for internal review of, and accountability for,
the acceptability of the estimating system, including the budgetary
data supporting indirect cost estimates and comparisons of projected
results to actual results, and an analysis of any differences;
(xiv) Provide procedures to update cost estimates and notify the
Contracting Officer in a timely manner throughout the negotiation
process;
(xv) Provide procedures that ensure subcontract prices are
reasonable based on a documented review and analysis;
(xvi) Provide estimating and budgeting practices that
consistently generate sound proposals that are compliant with the
provisions of the solicitation and are adequate to serve as a basis
to reach a fair and reasonable price; and
(xvii) Have an adequate system description, including policies,
procedures, and estimating and budgeting practices that comply with
the Federal Acquisition Regulation and Defense Federal Acquisition
Regulation Supplement.
(e) System deficiencies. (1) The Contracting Officer will
provide an initial determination to the Contractor, in writing, on
any system deficiencies. The initial determination will describe the
deficiency in sufficient detail to allow the Contractor to
understand the deficiency and its potential harm to the Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's estimating system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval, if the Contracting Officer determines
that one or more deficiencies warrant system disapproval based on
the risk to the Government.
(f) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(g) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's estimating system, leading to a potential risk of
harm to the Government, and the contract includes 252.242-7XXX,
Business Systems, the Contracting Officer will withhold payments in
accordance with that clause.
(End of clause)
14. Revise section 252.234-7002 to read as follows:
252.234-7002 Earned Value Management System.
As prescribed in 234.203(2), use the following clause:
EARNED VALUE MANAGEMENT SYSTEM (DATE)
(a) Definitions. As used in this clause--
Acceptable earned value management system means an earned value
management system that generally complies with system criteria in
paragraph (b) of this clause.
Deficiency means a failure to meet one or more system criteria
of an acceptable earned value management system.
Earned value management system means an earned value management
system that complies with the earned value management system
guidelines in the ANSI/EIA-748.
(b) System Criteria. In the performance of this contract, the
Contractor shall use--
(1) An Earned Value Management System (EVMS) that complies with
the EVMS guidelines in the American National Standards Institute/
Electronic Industries Alliance Standard 748, Earned Value Management
Systems (ANSI/EIA-748); and
(2) Management procedures that provide for generation of timely,
reliable, and verifiable information for the Contract Performance
Report (CPR) and the Integrated Master Schedule (IMS) required by
the CPR and IMS data items of this contract.
(c) If this contract has a value of $50 million or more, the
Contractor shall use an EVMS that has been determined to be
acceptable by the cognizant Federal agency. If, at the time of
award, the Contractor's EVMS has not been determined by the
cognizant Federal agency to be in compliance with the EVMS
guidelines as stated in paragraph (b)(1) of this clause, the
Contractor shall apply its current system to the contract and shall
take necessary actions to meet the milestones in the Contractor's
EVMS plan.
(d) If this contract has a value of less than $50 million, the
Government will not make a formal determination that the
Contractor's EVMS complies with the EVMS guidelines in ANSI/EIA-748
with respect to the contract. The use of the Contractor's EVMS for
this contract does not imply a Government determination of the
Contractor's compliance with the EVMS guidelines in ANSI/EIA-748 for
application to future contracts. The Government will allow the use
of a Contractor's EVMS that has been formally reviewed and
determined by the cognizant Federal agency to be in compliance with
the EVMS guidelines in ANSI/EIA-748.
(e) The Contractor shall submit notification of any proposed
substantive changes to the EVMS procedures and the impact of those
changes to the cognizant Federal agency. If this contract has a
value of $50 million or more, unless a waiver is granted by the
cognizant Federal agency, any EVMS changes proposed by the
Contractor require approval of the cognizant Federal agency prior to
implementation. The cognizant Federal agency will advise the
Contractor of the acceptability of such changes as soon as
practicable (generally within 30 calendar days) after receipt of the
Contractor's notice of proposed changes. If the cognizant Federal
agency waives the advance approval requirements, the Contractor
shall disclose EVMS changes to the cognizant Federal agency at least
14 calendar days prior to the effective date of implementation.
(f) The Government will schedule integrated baseline reviews as
early as practicable, and the review process will be conducted not
later than 180 calendar days after contract award, the exercise of
significant contract options, and the incorporation of major
modifications. During such reviews, the Government and the
Contractor will jointly assess the Contractor's baseline to be used
for performance measurement to ensure complete coverage of the
statement of work, logical scheduling of the work activities,
adequate resourcing, and identification of inherent risks.
(g) The Contractor shall provide access to all pertinent records
and data requested by the Contracting Officer or duly authorized
representative as necessary to permit Government surveillance to
ensure that the EVMS complies, and continues to comply, with the
performance criteria referenced in paragraph (b) of this clause.
(h) When indicated by contract performance, the Contractor shall
submit a request for approval to initiate an over-target baseline or
over-target schedule to the Contracting Officer. The request shall
include a top-level projection of cost and/or schedule growth, a
determination of whether or not performance variances will be
retained, and a schedule of implementation for the rebaselining. The
Government will acknowledge receipt of the request in a timely
manner (generally within 30 calendar days).
(i) System deficiencies. (1) The Contracting Officer will
provide an initial determination to the Contractor, in writing, on
any system deficiencies. The initial determination will describe the
deficiency in sufficient detail to allow the Contractor to
understand the deficiency and its potential harm to the Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's EVMS. If the Contractor disagrees
with the initial determination, the Contractor shall state in
writing its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System non-compliance, when the Contractor's existing EVMS
contains one or more deficiencies in any of the 32 foundational
guidelines in ANSI/EIA-748.
(4) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(j) System disapproval. The Contracting Officer will disapprove
the Contractor's EVMS when--
(1) Initial validation is not successfully completed within a 16
month period from contract award; or
(2) The existing EVMS contains one or more deficiencies in high-
risk guidelines in ANSI/EIA-748 standards (guidelines 1, 3, 6,
[[Page 75569]]
7, 8, 9, 10, 12, 16, 21, 23, 26, 27, 28, 30 or 32). For the
remaining 16 guidelines in ANSI/EIA-748 standards, the Contracting
Officer will use discretion to disapprove the system based on input
received from functional specialists and the auditor.
(k) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's EVMS, leading to a potential risk of harm to the
Government, and the contract includes 252.242-7XXX, Business
Systems, the Contracting Officer will withhold payments in
accordance with that clause.]
(l) With the exception of paragraphs (i) through (k) of this
clause, the Contractor shall require its subcontractors to comply
with EVMS requirements as follows:
(1) For subcontracts valued at $50 million or more, the
following subcontractors shall comply with the requirements of this
clause:
[Contracting Officer to insert names of subcontractors (or
subcontracted effort if subcontractors have not been selected)
designated for application of the EVMS requirements of this clause.]
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(2) For subcontracts valued at less than $50 million, the
following subcontractors shall comply with the requirements of this
clause, excluding the requirements of paragraph (c) of this clause:
[Contracting Officer to insert names of subcontractors (or
subcontracted effort if subcontractors have not been selected)
designated for application of the EVMS requirements of this clause.]
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(End of clause)
15. Amend section 252.242-7004 by:
a. Revising the section heading, clause title, and the clause date;
b. Adding paragraphs (a)(4) and (a)(5);
c. Removing paragraph (d);
d. Redesignating existing paragraph (e) as paragraph (d); and
e. Adding new paragraphs (e) through (g) to read as follows:
252.242-7004 Material management and accounting system (MMAS).
* * * * *
MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM (MMAS) (DATE)
(a) * * *
(4) Acceptable material management and accounting system means a
MMAS that generally complies with the system criteria in paragraph
(d) of this clause.
(5) Deficiency means a failure to meet one or more system
criteria of an acceptable material management and accounting system.
* * * * *
(e) System deficiencies. (1) The Contracting Officer will
provide an initial determination to the Contractor, in writing, on
any system deficiencies. The initial determination will describe the
deficiency in sufficient detail to allow the Contractor to
understand the deficiency and its potential harm to the Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's MMAS. If the Contractor disagrees
with the initial determination, the Contractor shall state, in
writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval if the Contracting Officer determines
that one or more deficiencies warrants system disapproval based on
the risk to the Government.
(f) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(g) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's MMAS, leading to a potential risk of harm to the
Government, and the contract includes 252.242-7XXX, Business
Systems, the Contracting Officer will withhold payments in
accordance with that clause.
(End of clause)
16. Add section 252.242-7XXX to read as follows:
252.242-7XXX Business systems.
As prescribed in 242.70X2, use the following clause:
BUSINESS SYSTEMS (DATE)
(a) Definitions. As used in this clause--
Acceptable business systems means business systems that comply
with the terms and conditions of the applicable business system
clauses listed in the definition of ``Business Systems'' in this
clause.
Business systems means--
(1) Accounting system, if this contract includes 252.242-7YYY,
Accounting System Administration;
(2) Earned value management system, if this contract includes
252.234-7002, Earned Value Management System;
(3) Estimating system, if this contract includes 252.215-7002,
Cost Estimating System Requirements;
(4) Material management and accounting system, if this contract
includes 252.242-7004, Material Management and Accounting System;
(5) Property management system, if this contract includes
252.245-7XXX, Contractor Property System Administration; and
(6) Purchasing system, if this contract includes 252.244-7XXX,
Contractor Purchasing System Administration.
Deficiency means a failure to meet one or more system criteria
of an acceptable business system.
(b) General. The Contractor shall establish and maintain
acceptable business systems in accordance with the terms and
conditions of this contract.
(c) System deficiencies. (1) The Contractor shall respond, in
writing, within 30 days to an initial determination that there are
one or more system deficiencies that adversely affect the
Contractor's business system leading to a potential risk of harm to
the Government.
(2) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the final
determination as to whether the business system contains
deficiencies that adversely affect the Contractor's business system
leading to a potential risk of harm to the Government. If the
Contracting Officer determines that the Contractor's business system
contains such deficiencies, the final determination will include a
notice to withhold payments.
(d) Withholding of payments. (1) If the Contracting Officer
issues the final determination with a notice to withhold payments
for deficiencies in a business system required under this contract,
the Contracting Officer will, as applicable, withhold five percent
(two percent for small businesses) of amounts due from progress
payments and performance-based payments, and unilaterally issue a
contract modification requiring the Contractor to withhold five
percent (two percent for small businesses) from its billings on
interim cost vouchers on cost, labor-hour, and time-and-materials
contracts until all deficiencies have been corrected. The Contractor
shall, within 45 days of receipt of the notice, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(2) If the Contractor submits an acceptable corrective action
plan within 45 days of receipt of a notice of the Contracting
Officer's intent to withhold payments, the Contracting Officer will,
as appropriate, reduce withholding to two percent (one percent for
small businesses) from progress payments and performance-based
payments, and issue a unilateral modification to reduce the
percentage withheld on interim cost vouchers to two percent (one
percent for small businesses) until the Contracting Officer
determines that the Contractor has corrected all deficiencies
identified in the final determination. However, if at any time, the
Contracting Officer determines that the Contractor has failed to
follow the accepted corrective action plan, the Contracting Officer
will issue a unilateral modification to increase the percentage
withheld to the percentage initially withheld, until the Contracting
Officer determines that the Contractor has corrected all
deficiencies identified in the final determination.
(3) The total percentage of payments withheld on amounts due
under each progress payment, performance-based payment, or interim
cost voucher, for deficiencies on one or more business systems,
shall not exceed 20 percent (10 percent for small businesses) on
this contract.
[[Page 75570]]
(4) For the purpose of this clause, payment means any of the
following payments authorized under this contract:
(i) Interim payments under--
(A) Cost-reimbursement contracts;
(B) Incentive-type contracts;
(C) Time-and-materials contracts;
(D) Labor-hour contracts;
(E) Construction contracts that include the clause at Federal
Acquisition Regulation 52.232-27, Prompt Payment for Construction
Contracts.
(ii) Progress payments.
(iii) Performance-based payments.
(5) Payment withholding shall not apply to payments on fixed-
price line items where performance is complete and the items were
accepted by the Government.
(6) The withholding of any amount or subsequent payment to the
Contractor shall not be construed as a waiver of any rights or
remedies the Government has under this contract.
(7) Notwithstanding the provisions of any clause in this
contract providing for interim, partial, or other payment
withholding on any basis, the Contracting Officer may withhold
payment in accordance with the provisions of this clause.
(8) The payment withholding authorized in this clause is not
subject to the interest-penalty provisions of the Prompt Payment
Act.
(e) Correction of deficiencies. (1) The Contractor shall notify
the Contracting Officer, in writing, when the Contractor has
corrected the business system's deficiencies.
(2) Once the Contractor has notified the Contracting Officer
that all deficiencies have been corrected, the Contracting Officer
shall take one of the following actions:
(i) If the Contracting Officer determines the Contractor has
corrected all deficiencies in a business system, the Contracting
Officer will, as appropriate, discontinue the withholding of
progress payments and performance-based payments, and unilaterally
issue a contract modification to discontinue the payment withholding
from billings on interim cost vouchers under this contract
associated with that business system, and authorize the contractor
to bill for any monies previously withheld that are not also being
withheld due to deficiencies on other business systems under this
contract. Any payment withholding in effect on other business
systems under this contract will remain in effect until the
deficiencies for those business systems are corrected.
(ii) If the Contracting Officer determines the Contractor has
not corrected all system deficiencies, the Contracting Officer will
continue the withholding of progress payments and performance-based
payments, and the Contractor shall continue withholding amounts from
its billings on interim cost vouchers in accordance with paragraph
(d) of this clause, and not bill for any monies previously withheld.
(End of clause)
17. Add section 252.242-7YYY to read as follows:
252.242-7YYY Accounting system administration.
As prescribed in 242.7503, use the following clause:
ACCOUNTING SYSTEM ADMINISTRATION (DATE)
(a) Definitions. As used in this clause--
(1) Acceptable accounting system means a system that complies
with the system criteria in paragraph (c) of this clause to provide
reasonable assurance that--
(i) Applicable laws and regulations are complied with;
(ii) The accounting system and cost data are reliable;
(iii) Risk of misallocations and mischarges are minimized; and
(iv) Contract allocations and charges are consistent with
billing procedures.
(2) Accounting system means the Contractor's system or systems
for accounting methods, procedures, and controls established to
gather, record, classify, analyze, summarize, interpret, and present
accurate and timely financial data for reporting in compliance with
applicable laws, regulations, and management decisions, and may
include subsystems for specific areas such as indirect and other
direct costs, compensation, billing, labor, and general information
technology.
(3) Deficiency means a failure to meet one or more system
criteria of an acceptable accounting system.
(b) General. The Contractor shall establish and maintain an
acceptable accounting system. Failure to maintain an acceptable
accounting system, as defined in this clause, shall result in the
withholding of payments if the contract includes 252.242-7XXX,
Business Systems, and also may result in disapproval of the system.
(c) System criteria. The Contractor's accounting system shall
provide for--
(1) A sound internal control environment and accounting
framework and organizational structure that is adequate for
producing accounting data that is reliable and costs that are
recorded, accumulated, and billed on Government contracts in
accordance with contract terms;
(2) Proper segregation of direct costs from indirect costs;
(3) Identification and accumulation of direct costs by contract;
(4) A logical and consistent method for the accumulation and
allocation of indirect costs to intermediate and final cost
objectives;
(5) Accumulation of costs under general ledger control;
(6) Reconciliation of subsidiary cost ledgers and cost
objectives to general ledger;
(7) Approval and documentation of adjusting entries;
(8) Periodic monitoring of the system;
(9) A timekeeping system that identifies employees' labor by
intermediate or final cost objectives;
(10) A labor distribution system that charges direct and
indirect labor to the appropriate cost objectives;
(11) Interim (at least monthly) determination of costs charged
to a contract through routine posting of books of account;
(12) Exclusion from costs charged to Government contracts of
amounts which are not allowable in terms of Federal Acquisition
Regulation (FAR) part 31, Contract Cost Principles and Procedures,
and other contract provisions;
(13) Identification of costs by contract line item and by units
(as if each unit or line item were a separate contract), if required
by the contract;
(14) Segregation of preproduction costs from production costs,
as applicable;
(15) Cost accounting information, as required--
(i) By contract clauses concerning limitation of cost (FAR
52.232-20), limitation on payments (FAR 52.216-16), or allowable
cost and payment (FAR 52.216-7); and
(ii) To readily calculate indirect cost rates from the books of
accounts;
(16) Billings that can be reconciled to the cost accounts for
both current and cumulative amounts claimed and comply with contract
terms;
(17) Adequate, reliable data for use in pricing follow-on
acquisitions; and
(18) Accounting practices in accordance with standards
promulgated by the Cost Accounting Standards Board, if applicable,
otherwise, Generally Accepted Accounting Principles.
(d) System deficiencies. (1) The Contracting Officer will
provide an initial determination to the Contractor, in writing, on
any system deficiencies. The initial determination will describe the
deficiency in sufficient detail to allow the Contractor to
understand the deficiency and its potential harm to the Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's accounting system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval, if the Contracting Officer determines
that one or more deficiencies warrant system disapproval based on
the risk to the Government.
(e) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(f) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's accounting system, leading to a potential risk of
harm to the Government, and the contract includes 252.242-7XXX,
Business Systems, the Contracting Officer shall withhold payments in
accordance with that clause.
(End of clause)
18. Add section 252.244-7XXX to read as follows:
[[Page 75571]]
252.244-7XXX Contractor purchasing system administration.
As prescribed in 244.305-7X, insert the following clause:
CONTRACTOR PURCHASING SYSTEM ADMINISTRATION (DATE)
(a) Definitions. As used in this clause--
Acceptable purchasing system means a purchasing system that
complies with the system criteria in paragraph (c) of this clause.
Deficiency means a failure to meet one or more system criteria
of an acceptable purchasing system.
Purchasing system means the Contractor's system or systems for
purchasing and subcontracting, including make or buy decisions, the
selection of vendors, analysis of quoted prices, negotiation of
prices with vendors, placing and administering of orders, and
expediting delivery of materials.
(b) General. The Contractor shall establish and maintain an
acceptable purchasing system. Failure to maintain an acceptable
purchasing system, as defined in this clause, may result in
disapproval of the system by the Contracting Officer and/or
withholding of payments.
(c) System criteria. The Contractor's purchasing system shall--
(1) Have an adequate system description including policies,
procedures, and purchasing practices that comply with the Federal
Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS);
(2) Ensure that all applicable purchase orders and subcontracts
contain all flow-down clauses, including terms and conditions and
any other clauses needed to carry out the requirements of the prime
contract;
(3) Maintain an organization plan that establishes clear lines
of authority and responsibility;
(4) Ensure all purchase orders are based on authorized
requisitions and include a complete and accurate history of purchase
transactions to support vendor selected, price paid, and document
the subcontract/purchase order files which are subject to Government
review;
(5) Establish and maintain adequate documentation to provide a
complete and accurate history of purchase transactions to support
vendors selected and prices paid;
(6) Apply a consistent make-or-buy policy that is in the best
interest of the Government;
(7) Use competitive sourcing to the maximum extent practicable,
and ensure debarred or suspended contractors are properly excluded
from contract award;
(8) Evaluate price, quality, delivery, technical capabilities,
and financial capabilities of competing vendors to ensure fair and
reasonable prices;
(9) Require management level justification and adequate cost or
price analysis, as applicable, for any sole or single source award;
(10) Perform adequate cost or price analysis and technical
evaluation for each subcontractor and supplier proposal or quote to
ensure fair and reasonable subcontract prices;
(11) Document negotiations in accordance with FAR 15.406-3;
(12) Seek, take, and document economically feasible purchase
discounts, including cash discounts, trade discounts, quantity
discounts, rebates, freight allowances, and company-wide volume
discounts;
(13) Ensure proper type of contract selection and prohibit
issuance of cost-plus-a-percentage-of-cost subcontracts;
(14) Maintain subcontract surveillance to ensure timely delivery
of an acceptable product and procedures to notify the Government of
potential subcontract problems that may impact delivery, quantity,
or price;
(15) Document and justify reasons for subcontract changes that
affect cost or price;
(16) Notify the Government of the award of all subcontracts that
contain the FAR and DFARS flow-down clauses that allow for
Government audit of those subcontracts, and ensure the performance
of audits of those subcontracts;
(17) Enforce adequate policies on conflict of interest, gifts,
and gratuities, including the requirements of the Anti-Kickback Act;
(18) Perform internal audits or management reviews, training,
and maintain policies and procedures for the purchasing department
to ensure the integrity of the purchasing system;
(19) Establish and maintain policies and procedures to ensure
purchase orders and subcontracts contain mandatory and applicable
flow-down clauses, as required by the FAR and DFARS, including terms
and conditions required by the prime contract and any clauses
required to carry out the requirements of the prime contract;
(20) Provide for an organizational and administrative structure
that ensures effective and efficient procurement of required quality
materials and parts at the best value from responsible and reliable
sources;
(21) Establish and maintain selection processes to ensure the
most responsive and responsible sources for furnishing required
quality parts and materials and to promote competitive sourcing
among dependable suppliers so that purchases are reasonably priced
and from sources that meet contractor quality requirements;
(22) Ensure performance of adequate price or cost analysis on
purchasing actions; and
(23) Establish and maintain procedures to ensure that proper
types of subcontracts are selected, and that there are controls over
subcontracting, including oversight and surveillance of
subcontracted effort.
(d) System deficiencies. (1) The Contracting Officer will
provide notification of initial determination to the Contractor, in
writing, of any system deficiencies. The initial determination will
describe the deficiency in sufficient detail to allow the Contractor
to understand the deficiency and its potential harm to the
Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's purchasing system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval, if the Contracting Officer determines
that one or more deficiencies warrant system disapproval based on
the risk to the Government.
(e) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(f) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's purchasing system, leading to a potential risk of
harm to the Government, and the contract includes 252.242-7XXX,
Business Systems, the Contracting Officer will withhold payments in
accordance with that clause.
(End of clause)
19. Add section 252.245-7XXX to read as follows:
252.245-7XXX Contractor property management system administration.
As prescribed in 245.105-7X, insert the following clause:
CONTRACTOR PROPERTY MANAGEMENT SYSTEM ADMINISTRATION (DATE)
(a) Definitions. As used in this clause--
Acceptable property management system means a property system
that complies with the system criteria in paragraph (c) of this
clause.
Deficiency means a failure to meet one or more system criteria
of an acceptable property management system.
Property management system means the Contractor's system or
systems for managing and controlling Government property.
(b) General. The Contractor shall establish and maintain an
acceptable property management system. Failure to maintain an
acceptable property management system, as defined in this clause,
may result in disapproval of the system by the Contracting Officer
and/or withholding of payments.
(c) System criteria. The Contractor's property management system
shall be in accordance with paragraph (f) of the contract clause at
Federal Acquisition Regulation 52.245-1.
(d) System deficiencies. (1) The Contracting Officer will
provide an initial determination to the Contractor, in writing, of
any system deficiencies. The initial determination will describe the
deficiency in sufficient detail to allow the Contractor to
understand the deficiency and its potential harm to the Government.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
deficiencies in the Contractor's property management system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
[[Page 75572]]
(3) The contracting officer will evaluate the Contractor's
response and notify the Contractor, in writing, of the Contracting
Officer's final determination concerning--
(i) Remaining deficiencies;
(ii) The adequacy of any proposed or completed corrective
action; and
(iii) System disapproval, if the Contracting Officer determines
that one or more deficiencies warrant system disapproval based on
the risk to the Government.
(e) If the Contractor receives the Contracting Officer's final
determination of system deficiencies, the Contractor shall, within
45 days of receipt of the final determination, either correct the
deficiencies or submit an acceptable corrective action plan showing
milestones and actions to eliminate the deficiencies.
(f) Withholding payments. If the Contracting Officer determines
that there are one or more system deficiencies that adversely affect
the Contractor's property management system, leading to a potential
risk of harm to the Government, and the contract includes 252.242-
7XXX, Business Systems, the Contracting Officer will withhold
payments in accordance with that clause.
(End of clause)
[FR Doc. 2010-30072 Filed 12-2-10; 8:45 am]
BILLING CODE 5001-08-P