E9-17955. Defense Federal Acquisition Regulation Supplement; Management of Unpriced Change Orders (DFARS Case 2008-D034)

AGENCY:

Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION:

Proposed rule with request for comments.

SUMMARY:

DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to address requirements for DoD management and oversight of unpriced change orders in a manner consistent with the management and oversight requirements that apply to other undefinitized contract actions.

DATES:

Comments on the proposed rule should be submitted in writing to the address shown below on or before September 28, 2009, to be considered in the formation of the final rule.

ADDRESSES:

You may submit comments, identified by DFARS Case 2008-D034, using any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

E-mail: [e-mail]. Include DFARS Case 2008-D034 in the subject line of the message.

Fax: [phone].

Mail: Defense Acquisition Regulations System, Attn: Ms. Cassandra Freeman, OUSD (AT&L) DPAP (DARS), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062.

Hand Delivery/Courier: Defense Acquisition Regulations System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.

Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT:

Ms. Cassandra Freeman, 703-602-8383.

SUPPLEMENTARY INFORMATION:

A. Background

DFARS Subpart 217.74 prescribes policies and procedures for the management and oversight of undefinitized contract actions. Unpriced change orders, issued in accordance with FAR Part 43 and DFARS Part 243, are presently excluded from the scope of DFARS Subpart 217.74. In recognition of the need for full accountability of unpriced change orders, this proposed rule adds policy addressing management, oversight, and limitations on the use of unpriced change orders, similar to the policy that applies to other undefinitized contract actions.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

DoD does not expect this proposed rule to have a 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., because the proposed rule reinforces existing requirements for appropriate management and timely definitization of contract actions. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subparts in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2008-D034.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply, because the proposed rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 215, 217, and 243

• Government procurement

Michele P. Peterson,

Editor, Defense Acquisition Regulations System.

Therefore, DoD proposes to amend 48 CFR Parts 215, 217, and 243 as follows:

1. The authority citation for 48 CFR Parts 215, 217, and 243 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 215—CONTRACTING BY NEGOTIATION

215.404-71-3

[Amended]

2. Section 215.404-71-3 is amended in paragraph (d)(2), in the first sentence, by revising the parenthetical to read “(also see 217.7404-6(a) and 243.204-70-6)”.

PART 217—SPECIAL CONTRACTING METHODS

3. Section 217.7401 is amended in paragraph (a)(2) by adding a second sentence and in paragraph (d) by adding a third sentence to read as follows:

217.7401

Definitions.

* * * * *

(a) * * *

(2) * * * For policy relating to definitization of change orders, see 243.204-70.

* * * * *

(d) * * * For policy relating to definitization of change orders, see 243.204-70.

4. Section 217.7402 is revised to read as follows:

217.7402

Exceptions.

(a) The following undefinitized contract actions (UCAs) are not subject to this subpart. However, the contracting officer shall apply the policy and procedures to them to the maximum extent practicable (also see paragraph (b) of this section):

(1) UCAs for foreign military sales.

(2) Purchases at or below the simplified acquisition threshold.

(3) Special access programs.

(4) Congressionally mandated long-lead procurement contracts.

(b) If the contracting officer determines that it is impracticable to adhere to the policy and procedures of this subpart for a particular contract action in one of the categories in paragraph (a)(1), (3), or (4) of this section, the contracting officer shall provide prior notice, through agency channels, to the Deputy Director, Defense Procurement and Acquisition Policy (Contract Policy and International Contracting), 3060 Defense Pentagon, Washington, DC 20301-3060.

PART 243—CONTRACT MODIFICATIONS

5. Section 243.204 is revised to read as follows:

243.204

Administration.

Follow the procedures at PGI 243.204 for administration of change orders.

243.204-70

[Redesignated as 243.204-71]

6. Section 243.204-70 is redesignated as section 243.204-71.

7. A new section 243.204-70 is added to read as follows:

243.204-70

Definitization of change orders.

8. Sections 243.204-70-1 through 243.204-70-7 are added to read as follows:

243.204-70-1

Scope.

(a) This subsection applies to unpriced change orders with an estimated value exceeding $5 million.

(b) Unpriced change orders for foreign military sales and special access programs are not subject to this subsection, but the contracting officer shall apply the policy and procedures to them to the maximum extent practicable. If the contracting officer determines that it is impracticable to adhere to the policy and procedures of this subsection for an unpriced change order for a foreign military sale or a special access program, the contracting officer shall provide prior notice, through agency channels, to the Deputy Director, Defense Procurement and Acquisition Policy (Contract Policy and International Contracting), 3060 Defense Pentagon, Washington, DC 20301-3060.

243.204-70-2

Price ceiling.

Unpriced change orders shall include a not-to-exceed price.

243.204-70-3

Definitization schedule.

(a) Unpriced change orders shall contain definitization schedules that provide for definitization by the earlier of—

(1) The date that is 180 days after issuance of the change order (this date may be extended but may not exceed the date that is 180 days after the contractor submits a qualifying proposal); or

(2) The date on which the amount of funds obligated under the change order is equal to more than 50 percent of the not-to-exceed price.

(b) Submission of a qualifying proposal in accordance with the definitization schedule is a material element of the contract. If the contractor does not submit a timely qualifying proposal, the contacting officer may suspend or reduce progress payments under FAR 32.503-6, or take other appropriate action.

243.204-70-4

Limitations on obligations.

(a) The Government shall not obligate more than 50 percent of the not-to-exceed price before definitization. However, if a contractor submits a qualifying proposal before 50 percent of the not-to-exceed price has been obligated by the Government, the limitation on obligations before definitization may be increased to no more than 75 percent (see 232.102-70 for coverage on provisional delivery payments).

(b) Obligations should be consistent with the contractor's requirements for the undefinitized period.

243.204-70-5

Exceptions.

(a) The limitations in 243.204-70-2, 243.204-70-3, and 243.204-70-4 do not apply to unpriced change orders for the purchase of initial spares.

(b) The head of the agency may waive the limitations in 243.204-70-2, 243.204-70-3, and 243.204-70-4 for unpriced change orders if the head of the agency determines that the waiver is necessary to support—

(1) A contingency operation; or

(2) A humanitarian or peacekeeping operation.

243.204-70-6

Allowable profit.

When the final price of an unpriced change order is negotiated after a substantial portion of the required performance has been completed, the head of the contracting activity shall ensure the profit allowed reflects—

(a) Any reduced cost risk to the contractor for costs incurred during contract performance before negotiation of the final price;

(b) The contractor's reduced cost risk for costs incurred during performance of the remainder of the contract; and

(c) The extent to which costs have been incurred prior to definitization of the contract action (see 215.404-71-3(d)(2)). The risk assessment shall be documented in the contract file.

243.204-70-7

Plans and reports.

To provide for enhanced management and oversight of unpriced change orders, departments and agencies shall—

(a) Include in the Consolidated Undefinitized Contract Action (UCA) Management Plan required by 217.7405, the actions planned and taken to ensure that unpriced change orders are definitized in accordance with this subsection; and

(b) Include in the Consolidated UCA Management Report required by 217.7405, each unpriced change order with an estimated value exceeding $5 million.