[Federal Register Volume 83, Number 245 (Friday, December 21, 2018)]
[Proposed Rules]
[Pages 65618-65621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27559]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 201, 209, 211, and 252

[Docket DARS-2018-0059]
RIN 0750-AJ85


Defense Federal Acquisition Regulation Supplement: Applicability 
of Inflation Adjustment of Acquisition Related Thresholds (DFARS Case 
2018-D023)

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

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement a section of the National 
Defense Authorization Act for Fiscal Year 2018 to require that 
inflation adjustments of statutory acquisition-related thresholds apply 
to existing contracts and subcontracts in effect on the date of the 
adjustment that contain the adjusted clauses.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before February 19, 2019, to be 
considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2018-D023, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: http://www.regulations.gov. 
Search for ``DFARS Case 2018-D023.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2018-D023'' on any attached documents.
    [cir] Email: <a href="/cdn-cgi/l/email-protection#87e8f4e3a9e3e1e6f5f4c7eae6eeeba9eaeeeb"><span class="__cf_email__" data-cfemail="48273b2c662c2e293a3b082529212466252124">[email protected]</span></a>. Include DFARS Case 2018-D023 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Ms. 
Heather Kitchens, OUSD(A&S)DPC/DARS, Room 3B941, 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(s), please check 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:  Ms. Heather Kitchens, telephone 571-
372-6104.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule proposes to revise the DFARS to implement section 821 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 
(Pub. L. 115-91). Section 821 amends 41 U.S.C. 1908(d) to require that 
the inflation adjustments of statutory acquisition-related thresholds 
under 41 U.S.C. 1908 apply to existing contracts and subcontracts in 
effect on the date of the adjustment.
    41 U.S.C. 1908, Inflation adjustment of acquisition-related dollar 
thresholds, requires an adjustment every five years of statutory 
acquisition-related thresholds for inflation using the Consumer Price 
Index for All Urban Consumers (CPI-U), except for the Construction Wage 
Rate Requirements statute (formerly known as the Davis-Bacon Act), 
Service Contract Labor Standards statute (formerly known as the Service 
Contract Act), and trade agreements thresholds. See Federal Acquisition 
Regulation (FAR) 1.109. The last DFARS case that raised the thresholds 
for inflation was 2014-D025, a final rule published in the Federal 
Register (80 FR 36903) on June 26, 2015, effective October 1, 2015. The 
next final rule to be published raising thresholds for inflation under 
41 U.S.C. 1908 will be effective October 1, 2020.

[[Page 65619]]

    Section 821 adds the words ``and shall apply, in the case of the 
procurement of property or services by contract, to a contract, and any 
subcontract at any tier under the contract, in effect on that date 
without regard to the date of award of the contract or subcontract'' at 
the end of 41 U.S.C. 1908(d). Therefore, if acquisition-related 
thresholds are adjusted under 41 U.S.C. 1908 during the life of a 
contract, then that contract and all of the subcontracts under that 
contract will now be subject to the adjusted thresholds.

II. Discussion and Analysis

    Currently, the DFARS clauses that contain thresholds subject to 
inflation adjustment provide the specific dollar amount of the 
threshold. To implement the new requirements under 41 U.S.C. 1908(d), 
DoD is proposing to replace the dollar amounts of the thresholds in 
each clause with a reference to the FAR or DFARS section that provides 
the overarching policy and the acquisition-related threshold. If the 
DFARS policy section does not currently include the acquisition-related 
threshold, this rule proposes amendments to those sections to add the 
thresholds. In addition, within the affected DFARS clauses, additional 
text is added to clarify that the threshold with which a contractor or 
subcontractor must comply is the threshold in effect at the time of 
contract or subcontract award or issuance of the notice, as 
appropriate.
    These changes not only reduce the number of places to update the 
thresholds for future inflation changes, but also ensures that future 
contracts containing these clauses always include a reference to the 
current threshold. The following is a summary of the DFARS clauses 
affected by this rule and the associated FAR or DFARS policy sections 
that include or will include the acquisition-related threshold as a 
result of this rule or the related FAR rule:

----------------------------------------------------------------------------------------------------------------
                                           FAR/DFARS policy
             DFARS clause                      section                              Threshold
----------------------------------------------------------------------------------------------------------------
252.203-7004, Display of Hotline       DFARS                    Currently includes threshold.
 Posters.                               203.1004(b)(2)(ii).
252.209-7004, Subcontracting with      FAR 9.405-2(b).........  Currently includes threshold.
 Firms That Are Owned or Controlled
 by the Government of a Country that
 is a State Sponsor of Terrorism.
252.209-7009, Organizational Conflict  DFARS 209.571-1........  Threshold to be added under this rule.
 of Interest--Major Defense
 Acquisition Program.
252.219-7003, Small Business           FAR 19.702(a)..........  Currently includes threshold.
 Subcontracting Plan (DoD Contracts).
252.219-7004, Small Business           FAR 19.702(a)..........  Currently includes threshold.
 Subcontracting Plan (Test Program).
252.225-7004, Report of Intended       DFARS 225.870-           Currently includes threshold.
 Performance Outside the United         4(c)(2)(i)(A)(1).
 States and Canada--Submission after
 Award.
252.249-7002, Notification of          DFARS 225.870-           Currently includes threshold.
 Anticipated Contract Termination or    4(c)(2)(i)(A)(1) and
 Reduction.                             225.870-4(c)(2)(i)(C).
----------------------------------------------------------------------------------------------------------------

    In order to incorporate the acquisition-related threshold in the 
DFARS policy section associated with DFARS clause 252.209-7009 and to 
be consistent with current drafting conventions, the definitions in 
DFARS 209.571-1 are proposed to be provided in full text, in lieu of 
referring to the definitions in clauses. The statutory acquisition-
related threshold in DFARS clause 252.211-7000 is proposed to be 
incorporated in a new DFARS policy section 211.7000.
    Finally, this rule proposes to add a new paragraph at 201.109(a) to 
advise contracting officers of the new requirements of 41 U.S.C. 
1908(d) with regard to the effective date of statutory acquisition-
related thresholds that are subject to adjustment based on inflation.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    This rule does not propose to create any new provisions or clauses 
or impact any existing provisions or clauses, except for moving dollar 
values of thresholds in the stated clauses and adding references in 
these clauses to the location of the threshold in the associated DFARS 
policy section. Therefore, there is no change to the applicability of 
any of the clauses to contracts at or below the simplified acquisition 
threshold, or to the acquisition of commercial items, including 
commercially available off-the-shelf items.

IV. Executive Orders 12866 and 13563

    Executive Order (E.O.s) 12866, Regulatory Planning and Review; and 
E.O. 13563, Improving Regulation and Regulatory Review, direct agencies 
to assess all costs and benefits of available regulatory alternatives 
and, if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
E.O. 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This is not a significant regulatory action and, 
therefore, was not subject to review under section 6(b) of E.O. 12866, 
Regulatory Planning and Review, dated September 30, 1993. This is not a 
major rule under 5 U.S.C. 804.

V. Executive Order 13771

    This rule is not an E.O. 13771 regulatory action, because this rule 
is not significant under E.O. 12866.

VI. 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. The 
scope of the rule relates to amending the Defense Federal Acquisition 
Regulation Supplement (DFARS) to require that inflation adjustments of 
statutory acquisition-related thresholds under 41 U.S.C. 1908 apply to 
existing contracts and subcontracts in effect on the date of the 
adjustment. However, an initial regulatory flexibility analysis has 
been performed and is summarized as follows:
    DoD is proposing to amend the DFARS to make inflation adjustments 
of statutory acquisition-related thresholds under 41 U.S.C. 1908(d) 
applicable to existing contracts and subcontracts in effect on the date 
of the adjustment that contain the revised clauses.
    The objective is to implement section 821 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2018. Section 821 amends 
41 U.S.C. 1908(d) to require inflation adjustments of statutory 
acquisition-related thresholds under 41 U.S.C. 1908 apply to existing 
contracts and subcontracts in effect on the date of the adjustment. 
Section 821 adds the words ``and shall apply, in the case of the 
procurement of property or services by contract, to a contract, and any 
subcontract at any tier under the contract, in effect on that date 
without regard to the date of award of the

[[Page 65620]]

contract or subcontract'' at the end of 41 U.S.C. 1908(d).
    This proposed rule will likely affect to some extent all small 
business concerns that submit offers or are awarded contracts by the 
Federal Government.
    However, this rule is not expected to have any significant economic 
impact on small business concerns because this rule is only 
establishing the framework to apply the inflation adjustments of 
statutory acquisition-related thresholds under 41 U.S.C. 1908 to 
existing contracts and subcontracts in effect on the date of the 
adjustment. Any impact on small business concerns will be beneficial by 
preventing burdensome requirements from applying to the smaller dollar 
value acquisitions, which are the acquisitions in which small business 
concerns are most likely to participate.
    For FY 2017, there were 106,438 unique vendors in the Federal 
Procurement Data System (FPDS) identified as small business concerns.
    As of September 30, 2017, there were 637,791 active entity 
registrations in SAM.gov. Of those active entity registrations, 452,310 
(71%) completed all four modules of the registration, in accordance 
with Federal Acquisition Regulation 52.204-7(a)(2), including 
Assertions (where they enter their size metrics and select their North 
American Industry Classification System (NAICS) Codes) and 
Representations and Certifications (where they certify to the 
information they provided and the size indicator by NAICS).
    Of the possible 452,310 active SAM.gov entity registrations, 
338,207 (75%) certified to meeting the size standard of small for their 
primary NAICS Code. Therefore, this rule may be beneficial to 338,207 
small business entities that submit proposals that may now fall under 
the micro-purchase threshold and the simplified acquisition threshold, 
which provide for the use of streamlined procedures.
    This proposed rule does not include any new reporting or 
recordkeeping requirements for small entities.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no known significant alternative approaches to the 
proposed rule that would meet the requirements of the applicable 
statute.
    DoD invites comments from small 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 2018-D023), in 
correspondence.

VII. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 201, 209, 211, and 252

    Government procurement.

Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 201, 209, 211, and 252 are proposed to be 
amended as follows:

0
1. The authority citation for parts 201, 209, 211, and 252 continues to 
read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

PART 201--FEDERAL ACQUISITION REGULATIONS SYSTEM

0
2. Amend section 201.109 by--
0
a. Designating the paragraph (a) text as paragraph (a)(ii); and
0
b. Adding paragraph (a)(i).
    The addition reads as follows:


201.109   Statutory acquisition-related dollar thresholds-adjustment 
for inflation.

    (a)(i) 41 U.S.C. 1908(d) requires the adjustment for inflation of 
all statutory acquisition-related dollar thresholds in the DFARS be 
applied to contracts and subcontracts without regard to the date of 
award of the contract or subcontract, except thresholds based on the 
Wage Rate Requirements statute, the Service Contract Labor Standards 
statute, or established by the United States Trade Representative 
pursuant to the Trade Agreement Act, which are not escalated by the 
statute.
* * * * *

PART 209--CONTRACTOR QUALIFICATION

0
3. Amend section 209.571-1 by revising the definitions of ``Lead system 
integrator'' and ``Major subcontractor'' to read as follows:


209.571-1  Definitions.

* * * * *
    ``Lead system integrator'' includes lead system integrator with 
system responsibility and lead system integrator without system 
responsibility.
    (1) Lead system integrator with system responsibility means a prime 
contractor for the development or production of a major system, if the 
prime contractor is not expected at the time of award to perform a 
substantial portion of the work on the system and the major subsystems.
    (2) Lead system integrator without system responsibility means a 
prime contractor under a contract for the procurement of services, the 
primary purpose of which is to perform acquisition functions closely 
associated with inherently governmental functions (see section 7.503(d) 
of the Federal Acquisition Regulation) with respect to the development 
or production of a major system. ``Major subcontractor'' means a 
subcontractor that is awarded a subcontract that equals or exceeds--
    (1) Both the certified cost or pricing data threshold and 10 
percent of the value of the contract under which the subcontract is 
awarded; or
    (2) $55 million.
* * * * *

PART 211--DESCRIBING AGENCY NEEDS

0
4. Add section 211.7000 to read as follows:


211.7000   Acquisition streamlining.

    Acquisition streamlining is required for all systems acquisition 
program contracts and for all subcontracts over $1.5 million awarded in 
the performance of contracts for systems acquisition programs.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Amend section 252.203-7004 by--
0
a. Removing the clause date of ``(OCT 2016)'' and adding ``(DATE)'' in 
its place;
0
b. Revising paragraph (d).
    The revision reads as follows:


252.203-7004   Display of Hotline Posters.

* * * * *
    (d) Subcontracts. The Contractor shall include the substance of 
this clause, including this paragraph (d), in all subcontracts that 
exceed the threshold specified in Defense Federal Acquisition 
Regulation Supplement 203.1004(b)(2)(ii) on the date of subcontract 
award except when the subcontract is for the acquisition of a 
commercial item.
* * * * *


252.209-7004   [Amended]

0
6. Amend section 252.209-7004 by--
0
a. Removing the clause date of ``(OCT 2015)'' and adding ``(DATE)'' in 
its place;

[[Page 65621]]

0
b. In paragraph (a), removing ``$35,000'' and adding ``the threshold 
specified in Federal Acquisition Regulation 9.405-2(b) on the date of 
subcontract award'' in its place.
0
7. Amend section 252.209-7009 by--
0
a. Removing the clause date of ``(OCT 2015)'' and adding ``(DATE)'' in 
its place; and
0
b. Revising paragraph (a).
    The revision reads as follows:


252.209-7009  Organizational Conflict of Interest--Major Defense 
Acquisition Program.

* * * * *
    (a) Definition. As used in this clause--
    Major subcontractor means a subcontractor that is awarded a 
subcontract that equals or exceeds--
    (1) Both the certified cost or pricing data threshold and 10 
percent of the value of the contract under which the subcontract is 
awarded; or
    (2) The threshold specified in the definition of ``major 
subcontractor'' at Defense Federal Acquisition Regulation Supplement 
209.571-1 on the date of subcontract award.
* * * * *
0
8. Amend section 252.219-7003 by--
0
a. Removing the clause date of ``(APR 2018)'' and adding ``(DATE)'' in 
its place;
0
b. Revising paragraph (g);
0
c. In Alternate I--
0
i. Removing the clause date of ``(APR 2018)'' and adding ``(DATE)'' in 
its place; and
0
b. Revising paragraph (g).
    The revision reads as follows:


252.219-7003   Small Business Subcontracting Plan (DoD Contracts)

* * * * *
    (g) Include the clause at Defense Federal Acquisition Regulation 
Supplement (DFARS) 252.219-7004, Small Business Subcontracting Plan 
(Test Program), in subcontracts with subcontractors that participate in 
the Test Program described in DFARS 219.702-70, if the subcontract is 
expected to exceed the applicable threshold specified in Federal 
Acquisition Regulation 19.702(a), and to have further subcontracting 
opportunities.
* * * * *
    Alternate I. * * *
    (g) Include the clause at Defense Federal Acquisition Regulation 
Supplement (DFARS) 252.219-7004, Small Business Subcontracting Plan 
(Test Program), in subcontracts with subcontractors that participate in 
the Test Program described in DFARS 219.702-70, if the subcontract is 
expected to exceed the applicable threshold specified in Federal 
Acquisition Regulation 19.702(a), and to have further subcontracting 
opportunities.
* * * * *
0
9. Amend section 252.219-7004 by--
0
a. Revising the section heading;
0
b. Removing the clause date of ``(APR 2018)'' and adding ``(DATE)'' in 
its place;
0
c. Revising paragraph (g) introductory text.
0
d. In paragraph (g)(1), removing ``252.219-7003'' and adding ``Defense 
Federal Acquisition Regulation Supplement (DFARS) 252.219-7003'' in its 
place;
0
e. In paragraph (g)(2), removing ``252.219-7003'' and adding ``DFARS 
252.219-7003'' in its place; and
0
f. In paragraph (g)(3), removing ``252.219-7004'' and adding ``DFARS 
252.219-7004'' in its place.
    The revisions read as follows:


252.219-7004   Small Business Subcontracting Plan (Test Program).

* * * * *
    (g) Subcontracts. The Contractor shall include in subcontracts that 
offer subcontracting opportunities, are expected to exceed the 
applicable threshold specified in FAR 19.702(a) on the date of 
subcontract award, and are required to include the clause at FAR 
52.219-8, Utilization of Small Business Concerns, the clauses at--
* * * * *
0
10. Amend section 252.225-7004 by--
0
a. Removing the clause date of ``(OCT 2015)'' and adding ``(DATE)'' in 
its place; and
0
b. Revising paragraphs (a) and (b)(1).
    The revisions read as follows:


252.225-7004   Report of Intended Performance Outside the United States 
and Canada--Submission after Award.

* * * * *
    (a) Definition. As used in this clause--
    United States means the 50 States, the District of Columbia, and 
outlying areas.
    (b) * * *
    (1) Exceeds the threshold specified in Defense Federal Acquisition 
Regulation Supplement 225.870-4(c)(2)(i)(A)(1) on the date of award of 
this contract; and
* * * * *
0
11. Amend section 252.249-7002 by--
0
a. Revising the section heading;
0
b. Removing the clause date of ``(OCT 2015)'' and adding ``(DATE)'' in 
its place;
0
c. Adding paragraph (a) introductory text; and
0
d. Revising paragraphs (d)(1) and (2).
    The addition and revisions read as follows:


252.249-7002   Notification of Anticipated Contract Termination or 
Reduction.

* * * * *
    (a) * * * As used in this clause--
* * * * *
    (d) * * *
    (1) Provide notice of the anticipated termination or reduction to 
each first-tier subcontractor with a subcontract that equals or exceeds 
the threshold specified in Defense Federal Acquisition Regulation 
Supplement (DFARS) 225.870-4(c)(2)(i)(A)(1) at the time of the notice; 
and
    (2) Require that each such subcontractor--
    (i) Provide notice to each of its subcontractors with a subcontract 
that equals or exceeds the threshold specified in DFARS 225.870-
4(c)(2)(i)(C) at the time of the notice; and
    (ii) Impose a similar notice and flowdown requirement to 
subcontractors with subcontracts that equal or exceed the threshold 
specified in DFARS 225.870-4(c)(2)(i)(C) at the time of the notice.
* * * * *

[FR Doc. 2018-27559 Filed 12-20-18; 8:45 am]
 BILLING CODE 5001-06-P


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