01-27182. Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects

AGENCY:

Office of the Secretary, DoD.

ACTION:

Final rule.

SUMMARY:

Representatives of the military departments, defense agencies and other DoD activities, have agreed on a final rule that amends the interim rule as a result of comments received and incorporates clarification enacted in fiscal year 2001 that limits Comptroller General access in certain situations. This final rule requires inclusion of a clause as required by law, providing for Comptroller General access to records in transactions other than contracts, grants, or cooperative agreements for prototype projects that provide for total payments in excess of $5,000,000.

DATES:

This rule is effective December 17, 2001. This final rule will apply for solicitations issued on or after December 17, 2001. This final rule may be used for new prototype awards that result from solicitations issued prior to that date.

INFORMATION CONTACT:

Teresa Brooks, [phone].

SUPPLEMENTARY INFORMATION:

Background and Purpose

Section 845 of the National Defense Authorization Act for Fiscal Year 1994, Pub. L. 103-160, as amended, authorizes the Secretary of a Military Department, the Director of Defense Advanced Research Projects Agency and any other official designated by the Secretary of Defense, to enter into transactions other than contracts, grants or cooperative agreements in certain situations for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense.

Such transactions are commonly referred to as “other transaction” agreements for prototype projects and are generally not subject to statutes or regulations limited in applicability to procurement contracts.

Section 801 of the National Defense Authorization Act for Fiscal Year 2000 establishes a requirement that an “other transaction” agreement for a prototype project that provides for payments in a total amount in excess of $5,000,000 include a clause that provides Comptroller General access to records. Section 804 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 clarified Comptroller General access when the only cooperative agreements or “other transactions” that the party, entity, or subordinate element entered into with government entities in the year prior to the date of that agreement are cooperative agreements or transactions that were entered into under 10 U.S.C. 2371 or Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note).

An interim rule was published in the Federal Register for public comment on June 5, 2000. Comments on the Interim Rule were received from one respondent.

A. Manner of Implementation

The respondent cited a September 13, 1999, Under Secretary of Defense for Acquisition and Technology letter stating that DoD was considering issuing guidance for prototype other transactions (OTs) in the form of a DoD Directive. The respondent expressed its understanding that the guidance may include changes regarding implementation of Section 801 of the National Defense Authorization Act of Fiscal Year 2000. The respondent expressed concern that there may be multiple and potentially inconsistent guidance being promulgated regarding the inclusion of the Comptroller General access clauses in these OTs. The respondent urged DoD to consolidate guidance regarding these agreements to avoid redundant and potentially inconsistent guidance.

Response: the DoD agrees that the guidance regarding these agreements should be consolidated. The DoD therefore plans for the Code of Federal Regulation coverage on Comptroller General Access to be incorporated in its entirety as an Appendix to internal DoD guidance, so that the Comptroller General requirements will not be redundant or inconsistent.

B. Revised Exclusion for Commercial Companies

The respondent expressed concern that although the language of the interim rule appears to have been drafted to exclude coverage of commercial companies, under certain circumstances, a strict reading of the regulation would cause the Comptroller General access clause to apply to the very parties they believe the Congress intended to exempt. Two scenarios were identified where the respondent thought this could occur. First, if a commercial company as a member of a consortium with traditional defense companies entered into a prototype OT that includes the Comptroller General access clause, then the commercial company has now “entered into” an agreement that provides for audit access and; therefore, would no longer be excepted from the Comptroller General access requirement. The second scenario would involve an unsophisticated commercial company that unintentionally executes a prototype OT that provides for audit access, eliminating its future exemption. The respondent recommended specific language be added that excepted any entity that has entered into only OTs or FAR Part 12 contracts.

Response: The clause excludes parties or participating entities which have not allowed Government records access in the preceding year. The applicability of the records access clause to each participant in a “mixed” consortium is required to be based on the plain language of the clause. Thus a commercial consortium member would not have entered into an agreement providing for government audit access since that clause would have been inapplicable to it in the transaction involving the consortium.

We cannot agree with the respondent's proposed change excepting any entity that has entered into only OTs or FAR Part 12 contracts. FAR Part 12 contracts provide for Comptroller General audit access. In addition, previous OTs may have also provided for audit access by a government entity. By statute, the clause is required to be included in OTs with entities that have entered into such contracts or agreements. However, to assure that there is no misunderstanding regarding this requirement, the final rule clarifies that the presence of the clause is necessary to fully implement the law by insuring flow-down to participating entities which are not parties to the agreement. The final rule also clarifies that parties or participating entities which have not entered into a contract, grant, cooperative agreement or “other transaction” that provides for audit access by a government entity in the year prior to the agreement are specifically excluded from coverage of the clause, as provided in the law.

Regulatory Evaluation

Executive Order 12866, “Regulatory Planning and Review”

It has been determined that this rule is not a significant rule as defined under section 3(f)(1) through 3(f)(4) of Executive Order 12866.

Unfunded Mandates Reform Act (Sec. 202, Pub. L. 104-4)

It has been certified that this rule does not contain a Federal mandate that may result in the expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

Pub. L. 96-354, “Regulatory Flexibility Act” (5 U.S.C. 601)

It has been certified that this part is not subject to the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. The rule requires only that the Comptroller General be provided access to records of certain projects. It does not require additional record keeping or other significant expense by project participants.

Pub. L. 96-511, “Paperwork Reduction Act of 1995” (44 U.S.C. 3501 et seq.)

It has been certified that this rule does not impose any reporting or record keeping requirements under the Paperwork Reduction Act of 1995.

Federalism (Executive Order 13132)

It has been certified that this rule does not have federalism implications, as set forth in Executive Order 13132.

List of Subjects in 32 CFR Part 3

(To be inserted by the Federal Register Liaison Officer.)

Accordingly, part 3 is revised to read as follows:

PART 3—TRANSACTIONS OTHER THAN CONTRACTS, GRANTS, OR COOPERATIVE AGREEMENTS FOR PROTOTYPE PROJECTS

3.1

Purpose.

3.2

Applicability.

3.3

Definitions.

3.4

Policy.

Authority: Section 801 of the National Defense Authorization Act for Fiscal Year 2000 (Pub. L. 106-65) and Section 804 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Pub. L. 106-398).

PART 3—TRANSACTIONS OTHER THAN CONTRACTS, GRANTS, OR COOPERATIVE AGREEMENTS FOR PROTOTYPE PROJECTS

3.1

Purpose.

This part implements section 801 of the National Defense Authorization Act for Fiscal Year 2000 (Pub. L. 106-65) and section 804 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Pub. L. 106-398). It establishes the requirement for the inclusion of a clause in transactions other than contracts, grants or cooperative agreements for prototype projects awarded under authority of 10 U.S.C. 2371 that provides Comptroller General access to records when payments total an amount in excess of $5,000,000.

3.2

Applicability.

This part applies to the Secretary of a Military Department, the Directors of the Defense Agencies, and any other official designated by the Secretary of Defense to enter into transactions other than contracts, grants or cooperative agreements for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense, under authority of 10 U.S.C. 2371. Such transactions are commonly referred to as “other transaction” agreements and are hereafter referred to as agreements.

3.3

Definitions.

Contracting activity. An element of an agency head and delegated broad authority regarding acquisition functions. It includes elements designated by the director of a defense agency which has been delegated contracting authority through its agency charter.

Head of the contracting activity. The official who has overall responsibility for managing the contracting activity.

3.4

Policy.

(a) A clause must be included in solicitations and agreements for prototype projects awarded under authority of 10 U.S.C. 2371, that provide for total government payments in excess of $5,000,000 to allow Comptroller General access to records that directly pertain to such agreements.

(b) The clause referenced in paragraph (a) of this section will not apply with respect to a party or entity, or subordinate element of a party or entity, that has not entered into any other contract, grant, cooperative agreement or “other transaction” agreement that provides for audit access by a government entity in the year prior to the date of the agreement. The clause must be included in all agreements described in paragraph (a) of this section in order to fully implement the law by covering those participating entities and their subordinate elements which have entered into prior agreements providing for Government audit access, and are therefore not exempt. The presence of the clause in an agreement will not operate to require Comptroller General access to records from any party or participating entity, or subordinate element of a party or participating entity, or subordinate element of a party or participating entity, which is otherwise exempt under the terms of the clause and the law.

(c)(1) The right provided to the Comptroller General in a clause of an agreement under paragraph (a) of this part, is limited as provided by subparagraph (c)(2) of this part in the case of a party to the agreement, an entity that participates in the performance of the agreement, or a subordinate element of that party or entity, if the only cooperative agreements or “other transactions” that the party, entity, or subordinate element entered into with government entities in the year prior to the date of that agreement are cooperative agreements or transactions that were entered into under 10 U.S.C. 2371 or Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note).

(c)(2) The only records of a party, other entity, or subordinate element referred to in subparagraph (c)(1) of this part that the Comptroller General may examine in the exercise of the right referred to in that subparagraph, are records of the same type as the records that the government has had the right to examine under the audit access clauses of the previous cooperative agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element.

(d) The head of the contracting activity (HCA) that is carrying out the agreement may waive the applicability of the Comptroller General access requirement if the HCA determines it would not be in the public interest to apply the requirement to the agreement. The waiver will be effective with respect to the agreement only if the HCA transmits a notification of the waiver to the Committees on Armed Services of the Senate and the House of Representatives, the Comptroller General, and the Director, Defense Procurement before entering into the agreement. The notification must include the rationale for the determination.

(e) The HCA must notify the Director, Defense Procurement of situations where there is evidence that the Comptroller General Access requirement caused companies to refuse to participate or otherwise restricted the Department's access to companies that typically do not do business with the Department.

(f) In no case will the requirement to examine records under the clause referenced in paragraph (a) of this section apply to an agreement where more than three years have passed after final payment is made by the government under such an agreement.

(g) The clause referenced in paragraph (a) of this section, must provide for the following:

(1) The Comptroller General of the United States, in the discretion of the Comptroller General, shall have access to and the right to examine records of any party to the agreement or any entity that participates in the performance of this agreement that directly pertain to, and involve transactions relating to, the agreement.

(2) Excepted from the Comptroller General access requirement is any party to this agreement or any entity that participates in the performance of the agreement, or any subordinate element of such party or entity, that, in the year prior to the date of the agreement, has not entered into any other contract, grant, cooperative agreement, or “other transaction” agreement that provides for audit access to its records by a government entity.

(3)(A) The right provided to the Comptroller General is limited as provided in subparagraph (B) in the case of a party to the agreement, any entity that participates in the performance of the agreement, or a subordinate element of that party or entity if the only cooperative agreements or “other transactions” that the party, entity, or subordinate element entered into with government entities in the year prior to the date of that agreement are cooperative agreements or transactions that were entered into under 10 U.S.C. 2371 or Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note).

(B) The only records of a party, other entity, or subordinate element referred to in subparagraph (A) that the Comptroller General may examine in the exercise of the right referred to in that subparagraph are records of the same type as the records that the government has had the right to examine under the audit access clauses of the previous agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element.

(4) This clause shall not be construed to require any party or entity, or any subordinate element of such party or entity, that participates in the performance of the agreement, to create or maintain any record that is not otherwise maintained in the ordinary course of business or pursuant to a provision of law.

(5) The Comptroller General shall have access to the records described in this clause until three years after the date the final payment is made by the United States under this agreement.

(6) The recipient of the agreement shall flow down this provision to any entity that participates in the performance of the agreement.

Dated: October 23, 2001.

L.M. Bynum,

Alternate OSD Federal Register Liaison Officer, Department of Defense.