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[Federal Register Volume 76, Number 182 (Tuesday, September 20, 2011)]
[Rules and Regulations]
[Pages 58152-58155]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23963]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 217 and 241

RIN 0750-AG89

Defense Federal Acquisition Regulation Supplement; Multiyear 
Contracting (DFARS Case 2009-D026)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to update and clarify the 
requirements for multiyear contracting.

DATES: Effective date: September 20, 2011.

FOR FURTHER INFORMATION CONTACT: Mr. Manuel Quinones, telephone (703) 
602-8383.

SUPPLEMENTARY INFORMATION: 

I. Background

    This DFARS case was initiated by DoD to perform a comprehensive 
review of DFARS subpart 217.1, Multiyear Contracting. On March 2, 2011, 
the DoD published a proposed rule to update and clarify the 
requirements relating to multiyear contracting. This final rule 
reorganizes and updates existing coverage for multiyear acquisitions.
    A minor editorial change was made to the final rule at DFARS 
217.170 to remove the redundant introductory sentence that had been 
proposed at 217.170(a) and to revert to the original paragraph 
numbering of this section. At DFARS 217.172(f)(1), the references to 
217.172(g)(4) and (5) were corrected to refer to 217.172(g)(3) and (4). 
Coverage at 217.175 was renumbered to 217.174 to follow in sequence, 
and this required a reference citation change at 241.103. No changes to 
existing DoD policy, including implementation of any statutorily 
mandated acquisition-related thresholds, are being made in this rule.

II. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 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, is not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

III. Regulatory Flexibility Act

    DoD certifies that this rule will not have a significant economic 
impact upon a substantial number of small entities within the meaning 
of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the 
rule does not change the existing requirements of subpart 217.1. 
Furthermore, these requirements are primarily internal procedures for 
DoD. No comments were received from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610.

IV. Paperwork Reduction Act

    This rule does not impose 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 217 and 241:

    Government procurement.

Mary Overstreet
Editor, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 217 and 241 are amended as follows:

0
1. The authority citation for 48 CFR parts 217 and 241 continues to 
read as follows:

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

PART 217--SPECIAL CONTRACTING METHODS

0
2. Section 217.170 is amended by--
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a. Amending paragraph (a), by removing ``Section'' and adding in its 
place ``section'' and removing ``Public Law 105-56'' and adding in its 
place ``Pub. L. 105-56,'';
0
b. Amending paragraph (b), by removing ``217.172(f)(2)'' and adding in 
its place ``217.172(g)(2)'';
0
c. Amending paragraph (c) by removing ``Section'' and adding in its 
place ``section'' and removing ``Public Law 105-56'' and adding in its 
place ``Pub. L. 105-56,'';
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d. Amending paragraph (c) by removing in the listing of references 
``;'' in two places and adding in its place ``,''; and
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e. Revising paragraph (e) to read as follows:

217.170  General.

* * * * *
    (e)(1) DoD must provide notification to the congressional defense 
committees at least 30 days before entering into a multiyear contract 
for certain procurements, including those expected to--
    (i) Employ an unfunded contingent liability in excess of $20 
million (see 10 U.S.C. 2306b(l)(1)(B)(i)(II), 10 U.S.C. 2306c(d)(1), 
and section 8008(a) of Pub. L. 105-56 and similar sections in 
subsequent DoD appropriations acts);

[[Page 58153]]

    (ii) Employ economic order quantity procurement in excess of $20 
million in any one year of the contract (10 U.S.C. 
2306b(l)(1)(B)(i)(I));
    (iii) Involve a contract for advance procurement leading to a 
multiyear contract that employs economic order quantity procurement in 
excess of $20 million in any one year (see 10 U.S.C. 306b(l)(1)(B)(ii) 
and section 8008(a) of Pub. L. 105-56 and similar sections in 
subsequent DoD appropriations acts); or
    (iv) Include a cancellation ceiling in excess of $100 million (see 
10 U.S.C. 2306c(d)(4), 10 U.S.C. 2306b(g), and section 8008(a) of Pub. 
L. 105-56 and similar sections in subsequent DoD appropriations acts).
    (2) A DoD component must submit a request for authority to enter 
into a multiyear contract described in paragraphs (e)(1)(i) through 
(iv) of this section as part of the component's budget submission for 
the fiscal year in which the multiyear contract will be initiated. DoD 
will include the request, for each candidate it supports, as part of 
the President's budget for that year and in the Appendix to that budget 
as part of proposed legislative language for the appropriations bill 
for that year (section 8008(b) of Pub. L. 105-56).
    (3) If the advisability of using a multiyear contract becomes 
apparent too late to satisfy the requirements in paragraph (e)(2) of 
this section, the request for authority to enter into a multiyear 
contract must be--
    (i) Formally submitted by the President as a budget amendment; or
    (ii) Made by the Secretary of Defense, in writing, to the 
congressional defense committees (see section 8008(b) of Pub. L. 105-
56).
    (4) Agencies must establish reporting procedures to meet the 
congressional notification requirements of paragraph (e)(1) of this 
section. The head of the agency must submit a copy of each notice to 
the Director of Defense Procurement and Acquisition Policy, Office of 
the Under Secretary of Defense (Acquisition, Technology, and Logistics) 
(OUSD(AT&L)DPAP), and to the Deputy Under Secretary of Defense 
(Comptroller) (Program/Budget) (OUSD(C)(P/B)).
    (5) If the budget for a contract that contains a cancellation 
ceiling in excess of $100 million does not include proposed funding for 
the costs of contract cancellation up to the cancellation ceiling 
established in the contract--
    (i) The notification required by paragraph (e)(1) of this section 
shall include--
    (A) The cancellation ceiling amounts planned for each program year 
in the proposed multiyear contract, together with the reasons for the 
amounts planned;
    (B) The extent to which costs of contract cancellation are not 
included in the budget for the contract; and
    (C) A financial risk assessment of not including budgeting for 
costs of contract cancellation (10 U.S.C. 2306b(g) and 10 U.S.C. 
2306c(d)); and
    (ii) The head of the agency shall provide copies of the 
notification to the Office of Management and Budget at least 14 days 
before contract award.

0
3. Amend section 217.171 by--
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(a) Removing paragraphs (a)(4) through (a)(6) and paragraph (b);
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(c) Redesignating paragraphs (a)(2), (a)(2)(i), (a)(2)(ii), and 
(a)(2)(iii) as paragraphs (b), (b)(1), (b)(2), and (b)(3), 
respectively;
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(d) Redesignating paragraphs (a)(3), (a)(3)(i), (a)(3)(ii), 
(a)(3)(ii)(A), (a)(3)(ii)(B) and (a)(3)(iii) as paragraphs (c), (c)(1), 
(c)(2), (C)(2)(i), (c)(2)(ii) and (c)(3), respectively; and
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(f) Revising paragraph (a) as set forth below. The revision reads as 
follows:

217.171  Multiyear contracts for services.

    (a) The head of the agency may enter into a multiyear contract for 
a period of not more than 5 years for the following types of services 
(and items of supply relating to such services), even though funds are 
limited by statute to obligation only during the fiscal year for which 
they were appropriated (10 U.S.C. 2306c). Covered services are--
    (1) Operation, maintenance, and support of facilities and 
installations;
    (2) Maintenance or modification of aircraft, ships, vehicles, and 
other highly complex military equipment;
    (3) Specialized training requiring high-quality instructor skills 
(e.g., training for pilots and aircrew members or foreign language 
training);
    (4) Base services (e.g., ground maintenance, in-plane refueling, 
bus transportation, and refuse collection and disposal); and
    (5) Environmental remediation services for--
    (i) An active military installation;
    (ii) A military installation being closed or realigned under a base 
closure law as defined in 10 U.S.C. 2667(h)(2); or
    (iii) A site formerly used by DoD.
* * * * *

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4. Section 217.172 is revised to read as follows:

217.172  Multiyear contracts for supplies.

    (a) This section applies to all multiyear contracts for supplies, 
including weapon systems and other multiyear acquisitions specifically 
authorized by law (10 U.S.C. 2306b).
    (b) The head of the agency may enter into a multiyear contract for 
supplies if, in addition to the conditions listed in FAR 17.105-1(b), 
the use of such a contract will promote the national security of the 
United States (10 U.S.C. 2306b(a)(6)).
    (c) Multiyear contracts in amounts exceeding $500 million must be 
specifically authorized by law (10 U.S.C. 2306b and 10 U.S.C. 2306c). A 
multiyear supply contract may be authorized by an appropriations act or 
a law other than an appropriations act (10 U.S.C. 2306b(i)(3) and 
(l)(3)).
    (d) The head of the agency shall not enter into a multiyear 
contract unless--
    (1) The Secretary of Defense has submitted to Congress a budget 
request for full funding of units to be procured through the contract; 
and
    (2) In the case of a contract for procurement of aircraft, the 
budget request includes full funding of procurement funds for 
production beyond advance procurement activities of aircraft units to 
be produced in the fiscal year covered by the budget.
    (e)(1) The head of the agency must not enter into or extend a 
multiyear contract that exceeds $500 million (when entered into or 
extended until the Secretary of Defense identifies the contract and any 
extension in a report submitted to the congressional defense committees 
(10 U.S.C. 2306b(1)(5)).
    (2) In addition, for contracts equal to or greater than $500 
million, the head of the contracting activity must determine that the 
conditions required by paragraph (g)(2)(i) through (vii) of this 
section will be met by such contract, in accordance with the 
Secretary's certification and determination required by paragraph 
(g)(2) of this section (10 U.S.C. 2306b(a)(1)(7)).
    (f) The head of the agency may enter into a multiyear contract 
for--
    (1) A weapon system and associated items, services, and logistics 
support for a weapon system; and
    (2) Advance procurement of components, parts, and materials 
necessary to manufacture a weapon system, including advance procurement 
to achieve economic lot purchases or more efficient production rates 
(see 217.172(g)(3) and (4) regarding economic order quantity 
procurements). Before initiating an advance procurement, the 
contracting officer must verify that it is consistent with DoD policy 
(e.g., the full funding policy in Volume 2A, chapter 1, of DoD 7000.14-
R, Financial Management Regulation).

[[Page 58154]]

    (g) The head of the agency shall ensure that the following 
conditions are satisfied before awarding a multiyear contract under the 
authority described in paragraph (b) of this section:
    (1) The multiyear exhibits required by DoD 7000.14-R, Financial 
Management Regulation, are included in the agency's budget estimate 
submission and the President's budget request.
    (2) The Secretary of Defense certifies to Congress in writing, by 
no later than March 1 of the year in which the Secretary requests 
legislative authority to enter into such contracts, that each of the 
conditions in paragraphs (g)(2)(i) through (vii) of this section is are 
satisfied (10 U.S.C. 2306b(i)(1)(A) through (G)).
    (i) The Secretary has determined that each of the requirements in 
FAR 17.105, paragraphs (b)(1) through (5) will be met by such contract 
and has provided the basis for such determination to the congressional 
defense committees (10 U.S.C. 2306b(i)(1)(A)).
    (ii) The Secretary's determination under paragraph (g)(2)(i) of 
this section was made after the completion of a cost analysis performed 
by the Defense Cost and Resource Center of the Department of Defense 
and such analysis supports the findings (10 U.S.C. 2306b(i)(1)(B)).
    (iii) The system being acquired pursuant to such contract has not 
been determined to have experienced cost growth in excess of the 
critical cost growth threshold pursuant to 10 USC 2433(d) within 5 
years prior to the date the Secretary anticipates such contract (or a 
contract for advance procurement entered into consistent with the 
authorization for such contract) will be awarded (10 U.S.C. 
2306b(i)(1)(C)).
    (iv) A sufficient number of end items of the system being acquired 
under such contract have been delivered at or within the most current 
estimates of the program acquisition unit cost or procurement unit cost 
for such system to determine that current estimates of such unit costs 
are realistic (10 U.S.C. 2306b(i)(1)(D)).
    (v) Sufficient funds will be available in the fiscal year in which 
the contract is to be awarded to perform the contract, and the future-
years defense program for such fiscal year will include the funding 
required to execute the program without cancellation (10 U.S.C. 
2306b(i)(1)(E)).
    (vi) The contract is a fixed price type contract (10 U.S.C. 
2306b(i)(1)(F)).
    (vii) The proposed multiyear contract provides for production at 
not less than minimum economic rates, given the existing tooling and 
facilities. The head of the agency shall submit to USD(C)(P/B) 
information supporting the agency's determination that this requirement 
has been met (10 U.S.C. 2306b(i)(1)(G)).
    (viii) The head of the agency shall submit information supporting 
this certification to USD(C)(P/B) for transmission to Congress through 
the Secretary of Defense.
    (A) The head of the agency shall, as part of this certification, 
give written notification to the congressional defense committees of--
    (1) The cancellation ceiling amounts planned for each program year 
in the proposed multiyear contract, together with the reasons for the 
amounts planned;
    (2) The extent to which costs of contract cancellation are not 
included in the budget for the contract; and
    (3) A financial risk assessment of not including the budgeting for 
costs of contract cancellation (10 U.S.C. 2306b(g)); and
    (B) The head of the agency shall provide copies of the notification 
to the Office of Management and Budget at least 14 days before contract 
award.
    (3) The contract is for the procurement of a complete and usable 
end item (10 U.S.C. 2306b(i)(4)(A)).
    (4) Funds appropriated for any fiscal year for advance procurement 
are obligated only for the procurement of those long-lead items that 
are necessary in order to meet a planned delivery schedule for complete 
major end items that are programmed under the contract to be acquired 
with funds appropriated for a subsequent fiscal year (including an 
economic order quantity of such long-lead items when authorized by law 
(10 U.S.C. 2306b(i)(4)(B)).
    (5) The Secretary may make the certification under paragraph (g)(2) 
of this section notwithstanding the fact that one or more of the 
conditions of such certification are not met if the Secretary 
determines that, due to exceptional circumstances, proceeding with a 
multiyear contract under this section is in the best interest of the 
Department of Defense and the Secretary provides the basis for such 
determination with the certification (10 U.S.C. 2306b(i)(5)).
    (6) The Secretary of Defense may not delegate this authority to 
make the certification under paragraph (g)(2) of this section or the 
determination under paragraph (g)(5) of this section to an official 
below the level of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics (10 U.S.C. 2306b(i)(6)).
    (7) The Secretary of Defense shall send a notification containing 
the findings of the agency head under FAR 17.105-1(b), and the basis 
for such findings, 30 days prior to the award of a multiyear contract 
or a defense acquisition program that has been specifically authorized 
by law to the congressional defense committees (10 U.S.C. 2306b(i)(7)).
    (8) All other requirements of law are met and there are no other 
statutory restrictions on using a multiyear contract for the specific 
system or component (10 U.S.C. 2306b(i)(2)). One such restriction may 
be the achievement of specified cost savings. If the agency finds, 
after negotiations with the contractor(s), that the specified savings 
cannot be achieved, the head of the agency shall assess the savings 
that, nevertheless, could be achieved by using a multiyear contract. If 
the savings are substantial, the head of the agency may request relief 
from the law's specific savings requirement. The request shall--
    (i) Quantify the savings that can be achieved;
    (ii) Explain any other benefits to the Government of using the 
multiyear contract;
    (iii) Include details regarding the negotiated contract terms and 
conditions; and
    (iv) Be submitted to OUSD(AT&L)DPAP for transmission to Congress 
via the Secretary of Defense and the President.
    (h) The Secretary of Defense may instruct the head of the agency 
proposing a multiyear contract to include in that contract negotiated 
priced options for varying the quantities of end items to be procured 
over the life of the contract (10 U.S.C. 2306b(j)).

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5. Section 217.173 is revised to read as follows:

217.173  Multiyear contracts for military family housing.

    The head of the agency may enter into multiyear contracts for 
periods up to 4 years for supplies and services required for 
management, maintenance, and operation of military family housing and 
may pay the costs of such contracts for each year from annual 
appropriations for that year (10 U.S.C. 2829).

217.174  [Removed]

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6. Section 217.174 is removed.

0
7. Section 217.175 is redesignated as 217.174 and the newly 
redesignated section 217.174 paragraph (b) is revised as set forth 
below.

217.174  Multiyear contracts for electricity from renewable energy 
sources.

* * * * *
    (b) Limitations. The head of the contracting activity may exercise 
the authority in paragraph (a) of this section to enter into a contract 
for a period in

[[Page 58155]]

excess of 5 years only if the head of the contracting activity 
determines, on the basis of a business case analysis (see PGI 217.174 
for a business case analysis template and guidance) prepared by the 
requiring activity, that--
    (1) The proposed purchase of electricity under such contract is 
cost effective; and
    (2) It would not be possible to purchase electricity from the 
source in an economical manner without the use of a contract for a 
period in excess of 5 years.
* * * * *

PART 241--ACQUISITION OF UTILITY SERVICES

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8. Section 241.103 paragraph (2) is revised to read as follows:

241.103  Statutory and delegated authority.

* * * * *
    (2) See 217.174 for authority to enter into multiyear contracts for 
electricity from renewable energy sources.
* * * * *
[FR Doc. 2011-23963 Filed 9-19-11; 8:45 am]
BILLING CODE 5001-08-P
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