[Federal Register Volume 60, Number 39 (Tuesday, February 28, 1995)]
[Proposed Rules]
[Pages 10826-10828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4574]
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DEPARTMENT OF DEFENSE
Defense Logistics Agency
48 CFR Part 5416
DLA Acquisition Regulation; Type of Contracts
AGENCY: Defense Logistics Agency, DoD.
ACTION: Proposed rule and request for comments.
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SUMMARY: The Defense Logistics Agency proposes to add coverage by
adding a new part to 48 CFR Chapter 54, the Defense Logistics
Acquisition Regulation (DLAR) Part 5416. The proposed coverage affects
regulations on the use of solicitation provisions and contract clauses
for Economic Price Adjustments (EPA). Comments are hereby requested on
the proposed rule. The proposed DLAR coverage expands
[[Page 10827]] the use of EPA based on established prices to encompass
industry-wide and geographically based market price references, expands
the use of EPA based on indexes to encompass indexes for commercial
products or services which are identical or similar to the end products
to be provided under the contract, and authorizes the development and
use, subject to established agency review and approval procedures, of
clauses using EPA references described above. The proposed coverage is
being published because it is expected to have an effect beyond the
internal operating procedures of DLA and to provide an opportunity for
public participation and comment.
DATES: Comments on the proposed DLAR rule must be submitted in writing
to the address shown below on or before May 1, 1995, to be considered
in the formulation of the final rules.
ADDRESSES: Interested parties should submit written comments to Defense
Logistics Agency, Directorate of Procurement, Contract Policy Team
(AQPLL), Ms. Melody Reardon, Cameron Station, Alexandria, Virginia
22304-6100 FAX: (703) 274-0310.
FOR FURTHER INFORMATION CONTACT:
Melody Reardon, Defense Logistics Agency, AQPLL, (703) 274-6431.
SUPPLEMENTARY INFORMATION:
A. Background
The Defense Fuel Supply Center, a major contracting activity of
DLA, has historically utilized a method of price adjustment in the bulk
petroleum area using price indexes for the same or similar end products
(most recently, actual monthly sales price averages published by the
Department of Energy in the Petroleum Marketing Monthly) and using
market price assessments for commercial products published in industry
trade journals. For the past few years, these EPA clauses have either
been approved by the Director, Defense Procurement, or authorized under
individual deviations granted by the Executive Director, Procurement,
DLA. Deviations were requested because the types of EPA references used
in these clause are not specifically recognized under the three general
types of EPA references at FAR 16.203. Currently, FAR 16.203-1(a) and
its related coverage and clauses, recognize EPA references based on
established market or catalog prices of the individual contractor only.
The proposed DLAR coverage will expand this to include industry-wide
and geographically specific market price assessments and authorize the
development and use of clauses on that basis. FAR 16.203-1(c) and its
related coverage recognize EPA references based only on indexes for
labor or materials. The proposed DLAR coverage would expand this to
include indexes for the same or similar commercial end products and
authorize the development and use of clauses on that basis.
None of the three EPA types currently encompassed by the FAR are
appropriate for many of the competitive procurements of commercial
products undertaken by DFSC and other DLA contracting offices. The use
of an EPA reference based on an individual contractor's established
price or cost of materials is impractical for procurements under which
indefinite quantity contracts will be issued. Unique EPA references for
each offeror engender relative price variations during the delivery
period, making it impossible to determine the most favorable offer at
time of award. This creates a significant price risk for the Government
and undermines the competitive process. Use of an index based on raw
material cost ignores the effect of market conditions which affect
producer margins. This creates a price risk for the Government in
periods where margins are contracting and for the contractors in
periods where the margins are expanding. Such fluctuations can be
significant in petroleum markets. Given the need for a common EPA
reference, a reference that more closely follows market prices for the
end item reduces price risk for both the Government and the contractor.
Such references are also more in conformance with commercial practice.
B. Regulatory Flexibility Act
The proposed change is not expected to have significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. The primary user
of the new DLAR coverage will be the Defense Fuel Supply Center, which
has been utilizing these types of EPA references since the early 1980s.
The proposed rule will therefore not represent a change for small
entities doing business with the DFSC. Flexibility is also limited by
the need to establish a common EPA reference for competing offerors, as
discussed above. Given this need, establishing the reference based on
the same or similar end products as being provided under the contract,
as opposed to labor or material costs, minimizes the price risk
experienced by small entities. An initial regulatory flexibility
analysis has not been performed. Comments are invited from small
businesses and other interested parties. Comments will also be
considered concerning the effect of the proposed rule on small entities
in accordance with section 612 of the Act. Such comments must be
submitted separately and cite this case in correspondence.
C. Paperwork Reduction Act
The proposed rules do not impose any reporting or record keeping
requirements which require the approval of OMB under 44 U.S.C. 3501, et
seq.
List of Subjects in 48 CFR Part 5416
Government procurement.
Therefore, it is proposed that 48 CFR Chapter 54, as proposed in
the Federal Register (59 FR 21954, April 28, 1994) be amended by adding
part 5416 to read as follows:
PART 5416--TYPES OF CONTRACTS
Subpart 5416.2--Fixed Price Contracts
5416.203 Fixed-Price Contracts with Economic Price Adjustment
5416.203-1 Description
5416.203-3 Limitations
5416.203-4 Contract Clauses
Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR Part 1, subpart
1.3 and 48 CFR Part 201, subpart 201.3.
Subpart 5416.2--Fixed Price Contracts
5416.203 Fixed Price Contracts with Economic Price Adjustment
5416.203-1 Description.
(a)(S-90) Adjustments based on established prices. Established
prices may reflect industry-wide and/or geographically based market
price fluctuations for commodity groups, specific supplies or services,
or contract end items.
(c)(S-90) Adjustments based on cost indexes of labor or materials.
These price adjustments may also be based on increases or decreases in
indexes for commodity groups specific supplies or services, or contract
end items.
5416.203-3 Limitations.
(S-90) A fixed price contract with economic price adjustment may
also be used to provide for price adjustments authorized in this
section.
5416.203-4 Contract clauses.
(S-90) When the contracting officer determines that an existing EPA
clause is not appropriate, the contracting officer may develop and use
another EPA clause in accordance with 5416.203-1 (a)(S-90) or (c)(S-
90). Established prices in such clauses need not be verifiable using
the criteria in 48 CFR (FAR) 15.804-3. Established prices
[[Page 10828]] and cost indexes need not reflect changes in the costs
or established prices of a specific contractor. The established price
or cost index may be derived from sales prices in the marketplace,
quotes, or assessments as reported or made available in a consistent
manner in a publication, electronic database, or other form, by an
independent trade association, Governmental body, or other third party
independent of the contractor. More than one established price or cost
index may be combined in a formula for economic price adjustment
purposes in the absence of an appropriate single price or cost index.
Dated: February 15, 1995.
Margaret J. Janes,
Assistant Executive Director (Procurement Policy).
[FR Doc. 95-4574 Filed 2-27-95; 8:45 am]
BILLING CODE 5000-04-M
