02-21267. Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects

AGENCY:

Office of the Secretary, DoD.

ACTION:

Final rule.

SUMMARY:

This final rule codifies the conditions for appropriate use and defines a nontraditional Defense contractor consistent with section 803 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001. 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. Audit policy is still being discussed and will be addressed by a separate rule, as appropriate.

EFFECTIVE DATE:

This final rule is effective August 27, 2002.

FOR FURTHER INFORMATION CONTACT:

Teresa Brooks, [phone].

SUPPLEMENTARY INFORMATION:

Background and Purpose

Section 845 of the National Defense Authorization Act for Fiscal Year 1994, Public Law 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. To the extent that a particular statute or regulation is limited in its applicability to the use of a procurement contract, it would generally not apply to “other transactions” for prototype projects.

Part 3 to 32 CFR was established to codify policy pertaining to prototype “other transactions” that have a significant impact on the public and are subject to rulemaking. Additional guidance on prototype “other transactions” directed at Government officials can be found on the Defense Procurement web site at: http://www.osd.dp.mil.

A proposed rule was published in the Federal Register for public comment on November 21, 2001 (66 FR 58422-58425). A notice of public meeting was published in the Federal Register on March 4, 2002 (67 FR 9632) and held on March 27, 2002. The proposed rule addressed conditions on use of “other transactions” for prototype projects, the nontraditional Defense contractor definition and audit policy. Comments on the proposed rule were received from five respondents and approximately 50 representatives of Government and industry attended the public meeting. The majority of the written comments and discussion at the public meeting focused on the audit policy and will be addressed in a later rule. Only one respondent commented on the conditions of law and none commented on the definition of a nontraditional Defense contractor. The following summarizes the comments regarding the conditions of law and the disposition.

A. Consistency of Terms

One respondent identified the use of undefined terms that are confusing (e.g., “subordinate element of the party or entities,” “awardee”) and recommended expanding upon defined terms such a business unit and segment. The respondent recommended defined terms be consistently used through out the rule or definitions be added for undefined terms.

Response: The DoD agrees. The final rule includes additional definitions and made changes to ensure consistent use throughout the rule.

B. Applicability of Limitations

One respondent(s) questioned whether the statement “As a matter of policy, these same restrictions apply any time cost sharing may be recognized when using OTA” was intended to apply to all OTAs, not just OTAs for prototype projects. The respondent recommended it be deleted from this rule and be included in a new rule that applies to all OTA.

Response: The DoD agrees the statement was confusing. The final rule establishes “Limitations on Cost-Sharing” as a separate section and clarifies that as a matter of policy, the cost-sharing limitations will also be applied to other OT agreements for prototype projects that provide for non-Federal cost-share.

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, Public Law 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.

Public Law 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 does not require additional record keeping or other significant expense by project participants.

Public Law 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

• Government procurement
• Transactions for prototype projects

Accordingly, part 3 of 32 CFR is amended as follows:

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

1. The authority citation for part 3 is revised to read as follows;

Authority: Sec. 845, Pub. L. 103-160, 107 Stat. 1547, as amended.

2. Section 3.1 is revised to read as follows:

§ 3.1

Purpose.

This part consolidates rules that implement section 845 of the National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, 107 Stat. 1547, as amended, and have a significant impact on the public. Section 845 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.

§§ 3.2, 3.3, and 3.4

[Redesignated as §§ 3.3, 3.4, and 3.7]

3. Section 3.2, 3.3, and 3.4 are redesignated as §§ 3.3, 3.4, and 3.7, respectively.

4. New § 3.2 is added to read as follows:

§ 3.2

Background.

“Other transactions” is the term commonly used to refer to the 10 U.S.C. 2371 authority to enter into transactions other than contracts, grants or cooperative agreements. “Other transactions” are generally not subject to the Federal laws and regulations limited in applicability to contracts, grants or cooperative agreements. As such, they are not required to comply with the Federal Acquisition Regulation (FAR) and its supplements (48 CFR).

5. Newly redesignated § 3.4 is amended to add new definitions in alphabetical order to read as follows:

§ 3.4

Definitions.

Agreements Officer. An individual with the authority to enter into, administer, or terminate OTs for prototype projects and make related determinations and findings.

Awardee. Any business unit that is the direct recipient of an OT prototype agreement.

Business unit. Any segment of an organization, or an entire business organization which is not divided into segments.

* * * * *

Nontraditional Defense contractor. A business unit that has not, for a period of at least one year prior to the date of the OT agreement, entered into or performed on:

(1) Any contract that is subject to full coverage under the cost accounting standards prescribed pursuant to section 26 of the Office of Federal Procurement Policy Act (41 U.S.C. 422) and the regulations implementing such section; or

(2) Any other contract in excess of $500,000 to carry out prototype projects or to perform basic, applied, or advanced research projects for a Federal agency, that is subject to the Federal Acquisition Regulation.

Segment. One of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service.

Senior Procurement Executive. The following individuals:

(1) Department of the Army—Assistant Secretary of the Army (Acquisition, Logistics and Technology);

(2) Department of the Navy—Assistant Secretary of the Navy (Research, Development and Acquisition);

(3) Department of the Air Force—Assistant Secretary of the Air Force (Acquisition);

(4) The Directors of Defense Agencies who have been delegated authority to act as Senior Procurement Executive for their respective agencies.

Subawardee. Any business unit of a party, entity or subordinate element performing effort under the OT prototype agreement, other than the awardee.

6. New § 3.5 is added to read as follows:

§ 3.5

Appropriate use.

In accordance with statute, this authority may be used only when:

(a) At least one nontraditional Defense contractor is participating to a significant extent in the prototype project; or

(b) No nontraditional Defense contractor is participating to a significant extent in the prototype project, but at least one of the following circumstances exists:

(1) At least one third of the total cost of the prototype project is to be paid out of funds provided by non-Federal parties to the transaction.

(2) The Senior Procurement Executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a procurement contract.

7. New § 3.6 is added to read as follows:

§ 3.6

Limitations on cost-sharing.

(a) When a nontraditional Defense contractor is not participating to a significant extent in the prototype project and cost-sharing is the reason for using OT authority, then the non-Federal amounts counted as provided, or to be provided, by the business units of an awardee or subawardee participating in the performance of the OT agreement may not include costs that were incurred before the date on which the OT agreement becomes effective. Costs that were incurred for a prototype project by the business units of an awardee or subawardee after the beginning of negotiations, but prior to the date the OT agreement becomes effective, may be counted as non-Federal amounts if and to the extent that the Agreements Officer determines in writing that:

(1) The awardee or subawardee incurred the costs in anticipation of entering into the OT agreement; and

(2) It was appropriate for the awardee or subawardee to incur the costs before the OT agreement became effective in order to ensure the successful implementation of the OT agreement.

(b) As a matter of policy, these limitations on cost-sharing apply any time cost-sharing may be recognized when using OT authority for prototype projects.

8. Newly redesignated § 3.7 is amended by revising the section heading to read as follows:

§ 3.7

Comptroller General access.

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Dated: August 14, 2002.

Patricia L. Toppings,

Alternate OSD Federal Register Liaison Officer, Department of Defense.