Federal Register / Vol. 75, No. 10 / Friday, January 15, 2010 / Proposed Rules 2457 

Executive Order 12866 (58 FR 51735, 

October 4, 1993); 

• Does not impose an information 

collection burden under the provisions 

of the Paperwork Reduction Act (44 

U.S.C. 3501 et seq.); 

• Is certified as not having a 

significant economic impact on a 

substantial number of small entities 

under the Regulatory Flexibility Act (5 

U.S.C. 601 et seq.); 

• Does not contain any unfunded 

mandate or significantly or uniquely 

affect small governments, as described 

in the Unfunded Mandates Reform Act 

of 1995 (Pub. L. 104–4); 

• Does not have Federalism 

implications as specified in Executive 

Order 13132 (64 FR 43255, August 10, 

1999); 

• Is not an economically significant 

regulatory action based on health or 

safety risks subject to Executive Order 

13045 (62 FR 19885, April 23, 1997); 

• Is not a significant regulatory action 

subject to Executive Order 13211 (66 FR 

28355, May 22, 2001); 

• Is not subject to requirements of 

Section 12(d) of the National 

Technology Transfer and Advancement 

Act of 1995 (15 U.S.C. 272 note) because 

application of those requirements would 

be inconsistent with the CAA; and 

• Does not provide EPA with the 

discretionary authority to address, as 

appropriate, disproportionate human 

health or environmental effects, using 

practicable and legally permissible 

methods, under Executive Order 12898 

(59 FR 7629, February 16, 1994). 

In addition, this proposed rule 

pertaining to Delaware’s RFP Plan, 2002 

base year emissions inventory, 

contingency measures, RACM analysis, 

and transportation conformity budgets, 

does not have tribal implications as 

specified by Executive Order 13175 (65 

FR 67249, November 9, 2000), because 

the SIP is not approved to apply in 

Indian country located in the state, and 

EPA notes that it will not impose 

substantial direct costs on tribal 

governments or preempt tribal law. 

List of Subjects in 40 CFR Part 52 

Environmental protection, Air 

pollution control, Carbon monoxide, 

Nitrogen dioxide, Ozone, Reporting and 

recordkeeping requirements, Sulfur 

oxides, Volatile organic compounds. 

Authority: 42 U.S.C. 7401 et seq. 

Dated: January 6, 2010. 

William C. Early, 

Acting Regional Administrator, Region III. 

[FR Doc. 2010–745 Filed 1–14–10; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 215, 234, 242, 244, and 

252 

RIN 0750–AG58 

Defense Federal Acquisition 

Regulation Supplement; Business 

Systems—Definition and 

Administration (DFARS Case 2009– 

D038) 

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 

improve the effectiveness of DoD 

oversight of contractor business 

systems. 

DATES: Interested parties should submit 

comments in writing to the address 

shown below on or before March 16, 

2010. 

ADDRESSES: You may submit comments, 

identified by DFARS Case 2009–D038, 

using any of the following methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

E-mail: dfars@osd.mil. Include 

DFARS Case 2009–D038 in the subject 

line of the message. 

Fax: 703–602–0350. 

Mail: Defense Acquisition Regulations 

System, Attn: Mr. Mark Gomersall, 

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. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Mark Gomersall, 703–602–0302. 

SUPPLEMENTARY INFORMATION: 

A. Background 

Contractor business systems and 

internal controls are the first line of 

defense against waste, fraud, and abuse. 

Weak control systems increase the risk 

of unallowable and unreasonable costs 

on Government contracts. To improve 

the effectiveness of Defense Contract 

Management Agency (DCMA) and 

Defense Contract Audit Agency (DCAA) 

oversight of contractor business 

systems, DoD is considering a rule to 

clarify the definition and administration 

of contractor business systems as 

follows: 

1. DoD is proposing to define 

contractor business systems as 

accounting systems, estimating systems, 

purchasing systems, earned value 

management systems (EVMS), material 

management and accounting systems 

(MMAS), and property management 

systems. 

2. DoD is proposing to implement 

compliance enforcement mechanisms in 

the form of a business systems clause 

which includes payment withholding 

that allows administrative contracting 

officers to withhold a percentage of 

payments, under certain conditions, 

when a contractor’s business system 

contains deficiencies. Under such 

circumstances, payments could be 

withheld on— 

• Interim payments under— 

Æ Cost reimbursement contracts; 

Æ Incentive type contracts; 

Æ Time-and-materials contracts; 

Æ Labor-hour contracts; 

• Progress payments; and 

• Performance-based payments. 

This is not a significant regulatory 

action and therefore was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804. 

B. Regulatory Flexibility Act 

DoD has prepared an initial regulatory 

flexibility analysis consistent with 5 

U.S.C. 603. A copy of the analysis may 

be obtained from the point of contact 

specified herein. The analysis is 

summarized as follows: 

The objective of the rule is to 

establish a definition for contractor 

business systems and implement 

compliance mechanisms to improve 

DoD oversight of those contractor 

business systems. The requirements of 

the rule will apply to entities 

contractually required to maintain one 

or more of the defined contractor 

business systems. 

At this time DoD is unable to estimate 

the number of small entities to which 

this rule will apply. Therefore, 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 2009–D038) in 

correspondence. 

C. Paperwork Reduction Act 

The Paperwork Reduction Act (44 

U.S.C. chapter 35) applies because the 


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proposed rule contains information 

collection requirements. DoD invites 

comments on the following aspects of 

the proposed rule: (a) Whether the 

collection of information is necessary 

for the proper performance of the 

functions of DoD, including whether the 

information will have practical utility; 

(b) the accuracy of the estimate of the 

burden of the information collection; (c) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (d) ways to minimize the 

burden of the information collection on 

respondents, including the use of 

automated collection techniques or 

other forms of information technology. 

The following is a summary of the 

information collection requirement: 

The business systems clause in this 

proposed rule contains a requirement 

for contractors to respond to initial and 

final determinations of deficiencies. The 

information that contractors will be 

required to submit to respond to 

deficiencies in four of the six business 

systems defined in this rule has been 

approved by the Office of Management 

and Budget (OMB) as follows: 

(1) Accounting Systems—OMB 

Clearance 9000–0011; 

(2) Estimating Systems—OMB 

Clearance 0704–0232; 

(3) MMAS—OMB Clearance 0704– 

0250; and 

(4) Purchasing Systems—OMB 

Clearance 0704–0253. 

DoD is also proposing a new 

information collection requirement as 

follows: 

Title: Defense Federal Acquisition 

Regulation Supplement (DFARS) 

Business Systems—Definition and 

Administration. 

Type of Request: New request. 

The information that contractors will 

be required to submit to respond to 

deficiencies in contractors’ EVMS is 

estimated as follows: 

Number of Respondents: 186. 

Responses per Respondent: 48. 

Annual Responses: 8,928. 

Burden per Response: 40 hours. 

Annual Burden Hours: 357,120 hours. 

The information that contractors will 

be required to submit to respond to 

deficiencies in contractors’ property 

management systems is estimated as 

follows: 

Number of Respondents: 2,646. 

Responses per Respondent: 1. 

Annual Responses: 2,646. 

Average Burden per Response: 1.2 

hours. 

Annual Burden Hours: 3,175 hours. 

Needs and Uses: DoD needs the 

information required by the business 

systems clause in this proposed rule to 

mitigate the risk of unallowable and 

unreasonable costs on Government 

contracts when a contractor has one or 

more deficiencies in a business system. 

Affected Public: Businesses or other 

for-profit institutions, and not-for-profit 

institutions. 

Frequency: On occasion. 

Written comments and 

recommendations on the proposed 

information collection should be sent to 

Ms. Jasmeet Seehra at the Office of 

Management and Budget, Desk Officer 

for DoD, Room 10236, New Executive 

Office Building, Washington, DC 20503, 

with a copy to the Defense Acquisition 

Regulations System, Attn: Mr. Mark 

Gomersall, OUSD (AT&L) DPAP 

(DARS), IMD 3D139, 3062 Defense 

Pentagon, Washington, DC 20301–3062. 

Comments can be received from 30 to 60 

days after the date of this notice, but 

comments to OMB will be most useful 

if received by OMB within 30 days after 

the date of this notice. 

To request more information on this 

proposed information collection or to 

obtain a copy of the proposal and 

associated collection instruments, 

please write to the Defense Acquisition 

Regulations System, Attn: Mr. Mark 

Gomersall, OUSD (AT&L) DPAP 

(DARS), IMD 3D139, 3062 Defense 

Pentagon, Washington, DC 20301–3062. 

List of Subjects in 48 CFR Parts 215, 

234, 242, 244, and 252 

Government procurement. 

Amy G. Williams, 

Editor, Defense Acquisition Regulations 

System. 

Therefore, DoD proposes to amend 48 

CFR parts 215, 234, 242, 244, and 252 

as follows: 

1. The authority citation for 48 CFR 

parts 215, 234, 242, 244, and 252 

continues to read as follows: 

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

Chapter 1. 

PART 215—CONTRACTING BY 

NEGOTIATION 

2. Amend section 215.407–5–70 by: 

a. Revising paragraphs (a)(4), (c)(3), 

and (d); 

b. Removing paragraphs (e) and (f); 

c. Redesignating paragraph (g) as 

paragraph (e); 

d. Adding new paragraphs (f), (g), and 

(h) to read as follows: 

215.407–5–70 Disclosure, maintenance, 

and review requirements. 

(a) * * * 

(4) Deficiency means failure to 

maintain an element of an acceptable 

estimating system. 

* * * * * 

(c) * * * 

(3) The auditor conducts estimating 

system reviews. 

* * * * * 

(d) Characteristics of an acceptable 

estimating system—(1) General. An 

acceptable system shall provide for the 

use of appropriate source data, utilize 

sound estimating techniques and good 

judgment, maintain a consistent 

approach, and adhere to established 

policies and procedures. 

(2) Evaluation. In evaluating the 

acceptability of a contractor’s estimating 

system, the ACO shall consider whether 

the contractor’s estimating system 

complies with the requirements for an 

acceptable estimating system as 

contained in 252.215–7002(d). 

* * * * * 

(f) The ACO, in consultation with the 

auditor, shall— 

(1) Approve the system; and 

(2) Pursue correction of any system 

deficiencies. 

(g) Disposition of audit findings—(1) 

Reporting of audit findings. The auditor 

shall document findings and 

recommendations in a report to the 

ACO. 

(2) Notification of initial 

determination. The ACO shall— 

(i) Provide a notification of any 

system deficiencies to the contractor, 

evaluate contractor responses, and make 

determinations to disapprove the system 

in accordance with the clause at 

252.215–7002, Cost Estimating System 

Requirements; 

(ii) Withhold payments in accordance 

with 252.242–7XXX, Business Systems, 

if applicable; and 

(iii) Follow the procedures at 

252.215–7002, Cost Estimating System 

Requirements and PGI 215.407–5–70(g) 

for disposition of estimating system 

deficiencies. 

(h) The ACO shall approve the 

estimating system when the ACO 

determines that the contractor has 

substantially corrected the system 

deficiencies. The ACO shall notify the 

contractor, auditor, payment office, 

appropriate action officers responsible 

for reporting past performance at the 

requiring activities, and affected 

contracting and contract administration 

activities of the system approval and the 

ACO’s decision, as appropriate, to 

reduce or discontinue the withholding 

of payments in accordance with 

252.242–7XXX, Business Systems. 

PART 234—MAJOR SYSTEM 

ACQUISITION 

2. Amend section 234.201 by adding 

paragraphs (5), (6), and (7) to read as 

follows: 


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234.201 Policy. 

* * * * * 

(5) The cognizant ACO shall— 

(i) Determine whether the contractor 

is compliant with the contractual EVMS 

requirements; and 

(ii) Pursue correction of any 

noncompliance with the contractual 

EVMS requirements. 

(6) Disposition of system 

deficiencies—(i) Reporting of system 

deficiencies. The cognizant functional 

specialist or auditor shall document 

findings and recommendations in a 

report to the ACO. 

(ii) Notification of initial 

determination. The ACO shall— 

(A) Provide a notification of system 

deficiencies to the contractor, evaluate 

contractor responses, and make 

determinations of noncompliance in 

accordance with the clause at 252.234– 

7002, Earned Value Management 

System; 

(B) Withhold payments in accordance 

with 252.242–7XXX, Business Systems, 

if applicable; and 

(C) Follow the procedures at 252.234– 

7002(h), Earned Value Management 

System, and PGI 234.201 for disposition 

of EVMS deficiencies. 

(7) Withdrawal of finding of system 

noncompliance. The ACO shall 

withdraw the finding of system 

noncompliance when the ACO 

determines that the contractor has 

substantially corrected the system 

deficiencies. The ACO shall notify the 

contractor, auditor, payment office, and 

affected contracting and contract 

administration activities of the system 

approval and the ACO’s decision, as 

appropriate, to reduce or discontinue 

the withholding of payments in 

accordance with 252.242–7XXX, 

Business Systems. 

PART 242—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

3. Add subpart 242.70 to read as 

follows: 

Subpart 242.70—Business Systems 

242.70X1 Business system deficiencies. 

(a) Definitions. ‘‘Acceptable business 

systems’’ and ‘‘Business systems’’ are 

defined in the clause at 252.242–7XXX, 

Business Systems. 

(b) Reporting of deficiencies. The 

auditor or other cognizant functional 

specialist shall document deficiencies 

in a report to the ACO. The report shall 

describe the deficiencies in sufficient 

detail to allow the contracting officer to 

understand what the contractor would 

need to correct to comply with the 

applicable standard or system 

requirement, and the potential 

magnitude of the risk to the Government 

posed by the deficiency. Follow the 

procedures at PGI 242.70X1(b) for 

reporting of deficiencies. 

(1) Initial determination of 

deficiencies. If the ACO makes a 

determination that there is a system 

deficiency, the ACO shall provide an 

initial determination of deficiencies and 

a copy of the report to the contractor 

and require the contractor to submit a 

written response in accordance with the 

clause at 252.242–7XXX, Business 

Systems. 

(2) Evaluation of contractor’s 

response. The ACO, in consultation 

with the auditor or cognizant functional 

specialist, shall evaluate the contractor’s 

response and make a final 

determination. 

(3) Notification of ACO final 

determination. The ACO shall notify the 

contractor in writing of the ACO’s final 

determination with copies provided, as 

applicable, to the auditor; other 

cognizant functional specialists; and 

affected contracting activities and 

contract administration offices. The 

ACO shall take one of the following 

actions— 

(i) Withdraw the initial determination 

of deficiencies. The ACO shall 

withdraw the initial notification if the 

contractor has corrected all deficiencies 

or the ACO agrees with the contractor’s 

written response disagreeing with the 

initial determination of deficiencies; or 

(ii) The ACO shall notify the 

contractor of the ACO’s decision to 

implement payment withholding in 

accordance with the clause at 252.242– 

7XXX, Business Systems. The notice 

shall— 

(A) Identify any deficiencies requiring 

correction; 

(B) Inform the contractor that— 

(1) The contractor must correct the 

deficiencies; 

(2) The contractor must submit an 

acceptable corrective action plan within 

45 days if the deficiencies have not been 

corrected within that 45 day timeframe; 

(3) Payments shall be withheld in 

accordance with 252.242–7XXX, 

Business Systems, until the ACO 

determines that all deficiencies have 

been corrected; and 

(4) The ACO reserves the right to take 

other actions within the terms and 

conditions of the contract. 

(c) Monitoring contractor’s corrective 

action. The Government shall monitor 

the contractor’s progress in correcting 

the deficiencies and shall notify the 

contractor of the decision to decrease or 

increase the amount of payment 

withholding in accordance with 

252.242–7XXX, Business Systems. 

(d) Correction of system deficiencies. 

(1) If the contractor notifies the ACO 

that the contractor has corrected the 

system deficiencies, the ACO shall 

request the auditor or other cognizant 

functional specialist to review the 

correction to determine if the 

deficiencies have been resolved. 

(2) The ACO shall determine if the 

contractor has corrected the 

deficiencies. 

(3) If the ACO determines the 

contractor has corrected all deficiencies, 

the ACO shall discontinue withholding 

payments. 

(e) System review matrix. Refer to the 

matrix at PGI 242.70X1(e) to crossreference DCAA internal control 

reviews and other business system 

audits to the list of ‘‘business systems’’ 

defined at 252.242–7XXX, Business 

Systems. 

242.70X2 Contract clause. 

Use the clause at 252.242–XXXX, 

Business Systems, in solicitations and 

contracts when the solicitation or 

contract includes any of the following 

clauses: 

(a) 52.244–2, Subcontracts. 

(b) 52.245–1, Government Property. 

(c) 252.215–7002, Cost Estimating 

System Requirements. 

(d) 252.234–7002, Earned Value 

Management System. 

(e) 252.242–7004, Material 

Management and Accounting System. 

(f) 252.242–7YYY, Accounting System 

Administration. 

4. Amend section 242.7203 by: 

a. Removing paragraph (c); 

b. Redesignating paragraph (d) as 

paragraph (c); and c. Revising the newly 

designated paragraph (c) to read as 

follows: 

242.7203 Review procedures. 

* * * * * 

(c) System deficiencies—(1) Report of 

MMAS review findings. The auditor 

shall document the MMAS review 

findings and recommendations in the 

MMAS report to the ACO. If there are 

any MMAS deficiencies, the report shall 

provide an estimate of the adverse 

impact on the Government resulting 

from those deficiencies. 

(2) Notification of initial 

determination. The ACO shall— 

(i) Provide a notification of system 

deficiencies to the contractor, evaluate 

contractor responses, and make 

determinations to disapprove the system 

in accordance with the clause at 

252.242–7004, Material Management 

and Accounting System; 

(ii) Withhold payments in accordance 

with 252.242–7XXX, Business Systems, 

if applicable; and 


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(iii) Follow the procedures at 

252.242–7004(d), Material Management 

and Accounting System, and PGI 

242.7203 for disposition of MMAS 

deficiencies. 

(3) Withdrawal of MMAS disapproval. 

The ACO shall approve the MMAS 

when the ACO determines that the 

contractor has substantially corrected 

the system deficiencies. The ACO shall 

notify the contractor, auditor, payment 

office, and affected contracting and 

contract administration activities of the 

system approval and the ACO’s 

decision, as appropriate, to reduce or 

discontinue the withholding of 

payments in accordance with 252.242– 

7XXX, Business Systems. 

5. Revise the heading of subpart 

242.75 to read as follows: 

Subpart 242.75—Contractor 

Accounting Systems 

6. Revise section 242.7501 to read as 

follows: 

242.7501 Policy. 

(a) Contractors receiving costreimbursement, incentive type, timeand-materials, or labor-hour contracts, 

or contracts which provide for progress 

payments based on costs or on a 

percentage or stage of completion, shall 

maintain an acceptable accounting 

system as defined in the clause at 

252.242–7YYY, Accounting System 

Administration. 

(b) The ACO is responsible for 

approving a contractor’s accounting 

system. 

7. Revise section 242.7502 to read as 

follows: 

242.7502 Procedures. 

(a) Definitions. ‘‘Acceptable 

accounting system,’’ and ‘‘accounting 

system’’ are defined in the clause at 

252.242–7YYY, Accounting System 

Administration. 

(b) The ACO shall determine whether 

the accounting system contains 

deficiencies that need to be corrected in 

accordance with the clause 252.242– 

7YYY, Accounting System 

Administration. 

(c) Disposition of audit findings—(1) 

Reporting of audit findings. The auditor 

shall document findings and 

recommendations in a report to the 

ACO. The report shall describe the 

deficiencies in sufficient detail to allow 

the contracting officer to understand 

what the contractor would need to 

correct to comply with the applicable 

standard or system requirement, and the 

potential magnitude of the risk to the 

Government posed by the deficiency. 

Follow the procedures at PGI 

242.70X1(b) for reporting of 

deficiencies. 

(2) Notification of initial 

determination. The ACO shall— 

(i) Provide a notification of system 

deficiencies to the contractor, evaluate 

contractor responses, and make 

determinations to disapprove the system 

in accordance with the clause at 

252.242–XXXX, Accounting System 

Administration; 

(ii) Withhold payments in accordance 

with 252.242–7XXX, Business Systems, 

if applicable; and 

(iii) Follow the procedures at 

252.242–7XXX(e), Accounting System 

Administration, and PGI 242.7502(c)(2) 

for disposition of accounting system 

deficiencies. 

(d) Withdrawal of accounting system 

disapproval. The ACO shall approve the 

accounting system when the ACO 

determines that the contractor has 

substantially corrected the system 

deficiencies. The ACO shall notify the 

contractor, auditor, payment office, and 

affected contracting and contract 

administration activities of the system 

approval and the ACO’s decision, as 

appropriate, to reduce or discontinue 

the withholding of payments in 

accordance with 252.242–7XXX, 

Business Systems. 

8. Add section 242.7503 to read as 

follows: 

242.7503 Contract clause. 

Use the clause at 252.242–7YYY, 

Accounting System Administration, in 

solicitations and contracts when 

contemplating— 

(a) A cost-reimbursement, incentive 

type, time-and-materials, or labor-hour 

contract; 

(b) A fixed-price contract with 

progress payments made on the basis of 

costs incurred by the contractor or on a 

percentage or stage of completion; 

(c) A construction contract that 

includes the clause 52.232–27, Prompt 

Payment for Construction Contracts. 

PART 244—SUBCONTRACTING 

POLICIES AND PROCEDURES 

9. Revise section 244.305–70 to read 

as follows: 

244.305–70 Granting, withholding, or 

withdrawing approval. 

Use this subsection instead of FAR 

44.305–2(c) and 44.305–3(b). 

(a) The ACO, in consultation with the 

purchasing system analyst (PSA) or 

auditor, shall— 

(1) Grant, withhold, or withdraw 

system approval; and 

(2) Pursue correction of any system 

deficiencies. 

(b) Disposition of system 

deficiencies—(1) Reporting of 

deficiencies. The PSA or auditor shall 

document findings and 

recommendations in a report to the 

ACO. 

(2) Notification of initial 

determination. The ACO shall— 

(i) Provide a notification of system 

deficiencies to the contractor, evaluate 

contractor responses, and make 

determinations to disapprove the system 

in accordance with the clause at 

252.242–XXXX, Purchasing System 

Administration, and follow the 

procedures at PGI 244.305–70; and 

(ii) Withhold payments in accordance 

with 252.242–7XXX, Business Systems, 

if applicable. 

(3) The ACO shall approve the 

purchasing system when the ACO 

determines that the contractor has 

substantially corrected the system 

deficiencies. The ACO shall notify the 

contractor, auditor, payment office, and 

affected contracting and contract 

administration activities of the system 

approval and the ACO’s decision, as 

appropriate, to reduce or discontinue 

the withholding of payments in 

accordance with 252.242–7XXX, 

Business Systems. 

10. Add section 244.305–7X to read as 

follows: 

244.305–7X Contract clause. 

Use the clause at 252.244–7XXX, 

Contractor Purchasing SystemAdministration, in solicitations and 

contracts containing the clause at FAR 

52.244–2, Subcontracts. 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

11. Amend section 252.215–7002 by: 

a. Revising the clause date; 

b. Revising the definition of 

‘‘acceptable estimating system’’ in 

paragraph (a); 

c. Adding new paragraph (d)(4); 

d. Revising paragraph (e); and 

e. Adding new paragraph (f) to read as 

follows: 

252.215–7002 Cost estimating system 

requirements. 

* * * * * 

Cost Estimating System Requirements 

(Date) 

(a) Definitions. 

Acceptable estimating system means an 

estimating system that complies with, but is 

not limited to, the system requirements in 

paragraph (d) of this clause, and provides for 

a system that— 

(1) Is maintained, reliable, and consistently 

applied; 

(2) Produces verifiable, supportable, and 

documented cost estimates that are an 

acceptable basis for negotiation of fair and 

reasonable prices; 


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(3) Is consistent with and integrated with 

the Contractor’s related management systems; 

and 

(4) Is subject to applicable financial control 

systems. 

* * * * * 

(d) * * * 

(4) The Contractor’s estimating system 

shall provide for the use of appropriate 

source data, utilize sound estimating 

techniques and good judgment, maintain a 

consistent approach, and adhere to 

established policies and procedures. An 

acceptable estimating system shall 

accomplish, but not be limited to, the 

following functions— 

(i) Establish clear responsibility for 

preparation, review, and approval of cost 

estimates; 

(ii) Provide a written description of the 

organization and duties of the personnel 

responsible for preparing, reviewing, and 

approving cost estimates; 

(iii) Assure that relevant personnel have 

sufficient training, experience, and guidance 

to perform estimating tasks in accordance 

with the Contractor’s established procedures; 

(iv) Identify the sources of data and the 

estimating methods and rationale used in 

developing cost estimates; 

(v) Provide for appropriate supervision 

throughout the estimating process; 

(vi) Provide for consistent application of 

estimating techniques; 

(vii) Provide for detection and timely 

correction of errors; 

(viii) Protect against cost duplication and 

omissions; 

(ix) Provide for the use of historical 

experience, including historical vendor 

pricing information, where appropriate; 

(x) Require use of appropriate analytical 

methods; 

(xi) Integrate information available from 

other management systems, where 

appropriate; 

(xii) Require management review including 

verification that the company’s estimating 

policies, procedures, and practices comply 

with this regulation; 

(xiii) Provide for internal review of and 

accountability for the acceptability of the 

estimating system, including the comparison 

of projected results to actual results and an 

analysis of any differences; 

(xiv) Provide procedures to update cost 

estimates in a timely manner throughout the 

negotiation process; and 

(xv) Address responsibility for review and 

analysis of the reasonableness of subcontract 

prices. 

(e) System deficiencies. 

(1) The ACO will provide an initial 

notification to the Contractor of system 

deficiencies. The initial notification will 

describe the deficiency in sufficient detail to 

allow the Contractor to understand what 

actions are necessary to correct the 

deficiencies. 

(2) The Contractor shall respond within 30 

days to a written initial notification from the 

ACO that identifies deficiencies in the 

Contractor’s estimating system. If the 

Contractor disagrees with the initial 

notification, the Contractor shall state in 

writing its rationale for disagreeing. 

(3) The ACO will evaluate the Contractor’s 

response and notify the Contractor of the 

determination concerning remaining 

deficiencies, the adequacy of any proposed or 

completed corrective action, and system 

disapproval, if applicable. 

(f) Withholding payments. If the ACO 

determines the Contractor’s estimating 

system contains one or more deficiencies, 

and the contract includes the clause at 

252.242–7XXX, Business Systems, the ACO 

will withhold payments in accordance with 

that clause. 

(End of clause) 

12. Amend section 252.234–7002 by: 

a. Revising the clause date; 

b. Redesignating existing paragraph 

(h) as paragraph (j); 

c. Adding new paragraphs (h) and (i) 

to read as follows: 

252.234–7002 Earned Value Management 

System. 

* * * * * 

Earned Value Management System 

(Date) 

* * * * * 

(h) System deficiencies. (1) The ACO will 

provide an initial notification to the 

Contractor of system deficiencies. The initial 

notification will describe the deficiency in 

sufficient detail to allow the Contractor to 

understand what actions are necessary to 

correct the deficiencies. 

(2) The Contractor shall respond within 30 

days to a written initial notification from the 

ACO that identifies deficiencies in the 

Contractor’s EVMS. If the Contractor 

disagrees with the initial notification, the 

Contractor shall state in writing its rationale 

for disagreeing. 

(3) The ACO will evaluate the Contractor’s 

response and notify the Contractor of the 

determination concerning remaining 

deficiencies, the adequacy of any proposed or 

completed corrective action, and any 

portions of the system that are noncompliant 

with ANSI\EIA–748. 

(i) Withholding payments. If the ACO 

determines the Contractor’s EVMS contains 

one or more deficiencies, and the contract 

includes the clause at 252.242–7XXX, 

Business Systems, the ACO will withhold 

payments in accordance with that clause. 

* * * * * 

(End of clause) 

13. Amend section 252.242–7004 by: 

a. Revising the clause date; 

b. Revising paragraph (d); 

c. Redesignating existing paragraph 

(e) as paragraph (f); and 

d. Adding new paragraph (e) to read 

as follows: 

252.242–7004 Material management and 

accounting system. 

* * * * * 

Material Management and Accounting 

System (Date) 

* * * * * 

(d) System deficiencies. (1) The ACO will 

provide an initial notification to the 

Contractor of system deficiencies. The initial 

notification will describe the deficiency in 

sufficient detail to allow the Contractor to 

understand what actions are necessary to 

correct the deficiencies. 

(2) The Contractor shall respond within 30 

days to a written initial notification from the 

ACO that identifies deficiencies in the 

Contractor’s accounting system. If the 

Contractor disagrees with the initial 

notification, the Contractor shall state in 

writing its rationale for disagreeing. 

(3) The ACO will evaluate the Contractor’s 

response and notify the Contractor of the 

determination concerning remaining 

deficiencies, the adequacy of any proposed or 

completed corrective action, and system 

disapproval if applicable. 

(e) Withholding payments. If the ACO 

determines the Contractor’s MMAS contains 

one or more deficiencies, and this contract 

includes the clause at 252.242–7XXX, 

Business Systems, the ACO will withhold 

payments in accordance with that clause. 

* * * * * 

14. Add section 252.242–7XXX to 

read as follows: 

252.242–7XXX Business systems. 

As prescribed in 242.70X2, use the 

following clause: 

Business Systems (Date) 

(a) Definitions. As used in this clause— 

Acceptable business systems means 

business systems that comply with the terms 

and conditions of this contract. 

Business systems means— 

(1) Accounting system, if this contract 

includes the clause at 252.242–7YYY, 

Accounting System Administration; 

(2) Earned value management system, if 

this contract includes the clause at 252.234– 

7002, Earned Value Management System; 

(3) Estimating system, if this contract 

includes the clause at 252.215–7002, Cost 

Estimating System Requirements; 

(4) Material management and accounting 

system, if this contract includes the clause at 

252.242–7004, Material Management and 

Accounting System; 

(5) Property management system, if this 

contract includes the clause at 52.245–1, 

Government Property; and 

(6) Purchasing system, if this contract 

includes the clause at 52.244–2, 

Subcontracts. 

(b) General. The Contractor shall establish 

and maintain acceptable business systems in 

accordance with the terms and conditions of 

this contract. 

(c) System deficiencies. (1) The Contractor 

shall respond in writing within 30 days to an 

initial determination of deficiencies from the 

ACO that identifies deficiencies in any of the 

Contractor’s business system. 

(2) The ACO will evaluate the Contractor’s 

response and notify the Contractor in writing 

of the final determination as to whether the 

business system contains deficiencies. If the 

ACO determines that the Contractor’s 

business system contains deficiencies, the 

final determination will include a notice of 

a decision to withhold payments. 


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2462 Federal Register / Vol. 75, No. 10 / Friday, January 15, 2010 / Proposed Rules 

(d) Withholding payments. (1) If the 

Contractor receives a final determination 

with a notice of the ACO’s decision to 

withhold payments for deficiencies in a 

business system required under this contract, 

the ACO will immediately withhold ten 

percent of each of the Contractor’s payments 

under this contract. The Contractor shall, 

within 45 days of receipt of the notice, either 

correct the deficiencies or submit an 

acceptable corrective action plan showing 

milestones and actions to eliminate the 

deficiencies. 

(2) If the Contractor submits an acceptable 

corrective action plan within 45 days of 

receipt of a notice of the ACO’s intent to 

withhold, but has not completely corrected 

the identified deficiencies, the ACO will 

reduce the amount withheld to an amount 

equal to five percent of each payment until 

the ACO determines that the Contractor has 

corrected the deficiencies in the business 

system. However, if at any time the ACO 

determines that the Contractor fails to follow 

the accepted corrective action, the ACO will 

increase the amount of payment withheld to 

ten percent of each payment under this 

contract until the ACO determines that the 

Contractor has completely corrected the 

deficiencies in the business system. 

(3) If the ACO is withholding payments for 

deficiencies in more than one business 

system, the cumulative percentage of 

payments withheld shall not exceed fifty 

percent on this contract. 

(4) Notwithstanding any other rights or 

remedies of the Government under this 

contract, including paragraphs (d)(1) through 

(d)(3) of this clause, if the ACO determines 

that there are one or more system 

deficiencies that are highly likely to lead to 

improper contract payments being made, or 

represent an unacceptable risk of loss to the 

Government, then the ACO will withhold up 

to one-hundred percent of payments until the 

ACO determines that the Contractor has 

corrected the deficiencies. 

(5) For the purpose of this clause, payment 

means any of the following payments 

authorized under this contract: 

(i) Interim payments under— 

(A) Cost reimbursement contracts; 

(B) Incentive type contracts; 

(C) Time-and-materials contracts; 

(D) Labor-hour contracts. 

(ii) Progress payments. 

(iii) Performance-based payments. 

(6) The withholding of any amount or 

subsequent payment to the Contractor shall 

not be construed as a waiver of any rights or 

remedies the Government has under this 

contract. 

(7) Notwithstanding the provisions of any 

clause in this contract providing for interim, 

partial, or other payment on any basis, the 

ACO may withhold payment in accordance 

with the provisions of this clause. 

(8) The payment withholding authorized in 

this clause is not subject to the interestpenalty provisions of the Prompt Payment 

Act. 

(e) Correction of deficiencies. (1) The 

Contractor shall notify the ACO in writing 

when the Contractor has corrected the 

business system’s deficiencies. 

(2) Once the Contractor has notified the 

ACO that deficiencies have been corrected, 

the ACO will take one of the following 

actions: 

(i) If the ACO determines the Contractor 

has corrected all deficiencies in a business 

system, the ACO will discontinue the 

payment withholding under this contract 

associated with that business system and 

release any monies previously withheld that 

are not also being withheld due to 

deficiencies on other business systems under 

this contract. Any payment withholding in 

effect on other business systems under this 

contract will remain in effect until the 

deficiencies for those business systems are 

corrected. 

(ii) If the ACO determines the Contractor 

has not corrected all deficiencies, the ACO 

will continue the withholding payments in 

accordance with paragraph (d) of this clause 

and not release any monies previously 

withheld. 

(End of clause) 

15. Add section 252.242–7YYY to 

read as follows: 

252.242–7YYY Accounting system 

administration. 

As prescribed in 242.7503, use the 

following clause: 

Accounting System Administration 

(Date) 

(a) Definitions. As used in this clause— 

(1) Acceptable accounting system means a 

system that complies with the requirements 

under paragraph (d) of this clause to provide 

reasonable assurance that— 

(i) Applicable laws and regulations are 

complied with; 

(ii) The accounting system and cost data 

are reliable; 

(iii) Risk of misallocations and mischarges 

are minimized; and 

(iv) Contract allocations and charges are 

consistent with invoice procedures. 

(2) Accounting system means the 

Contractor’s system or systems for accounting 

methods, procedures, and controls 

established to gather, record, classify, 

analyze, summarize, interpret, and present 

accurate and timely financial data for 

reporting data in compliance with applicable 

laws, regulations, and management 

decisions. 

(3) Deficiency means a failure to maintain 

an element of an acceptable accounting 

system. 

(b) General. The Contractor shall establish 

and maintain an acceptable accounting 

system. Failure to maintain an acceptable 

accounting system, as defined in this clause, 

may result in disapproval of the system by 

the ACO and/or withholding of payments. 

(c) System requirements. The Contractor’s 

accounting system shall be in compliance 

with applicable laws and ensure the proper 

recording, accumulating, and billing of costs 

on Government contracts, including but not 

limited to providing, as applicable— 

(1) A basic structure that defines the form 

and nature of the organization as well as the 

management functions and reporting 

relationships; 

(2) Proper segregation of direct costs from 

indirect costs; 

(3) Identification and accumulation of 

direct costs by contract; 

(4) A logical and consistent method for the 

accumulation and allocation of indirect costs 

to intermediate and final cost objectives; 

(5) Accumulation of costs under general 

ledger control; 

(6) Reconciliation of subsidiary cost 

ledgers and cost objectives to general ledger; 

(7) Approval and documentation of 

adjusting entries; 

(8) Periodic monitoring of the system, as 

appropriate; 

(9) A timekeeping system that identifies 

employees’ labor by intermediate or final cost 

objectives; 

(10) A labor distribution system that 

charges direct and indirect labor to the 

appropriate cost objectives; 

(11) Interim (at least monthly) 

determination of costs charged to a contract 

through routine posting of books of account; 

(12) Exclusion from costs charged to 

Government contracts of amounts which are 

not allowable in terms of FAR Part 31, 

Contract Cost Principles and Procedures, and 

other contract provisions; 

(13) Identification of costs by contract line 

item and by units (as if each unit or line item 

were a separate contract) if required by the 

contract; 

(14) Segregation of preproduction costs 

from production costs; 

(15) Cost accounting information as 

required: 

(i) By contract clauses concerning 

limitation of cost (FAR 52.232–20) or 

limitation on payments (FAR 52.216–16); and 

(ii) To readily calculate indirect cost rates 

from the books of accounts; 

(16) Billings that can be reconciled to the 

cost accounts for both current and 

cumulative amounts claimed and comply 

with contract terms; and 

(17) Adequate, reliable data for use in 

pricing follow-on acquisitions. 

(d) System deficiencies. (1) The ACO will 

provide an initial notification to the 

Contractor of system deficiencies. The initial 

notification will describe the deficiency in 

sufficient detail to allow the Contractor to 

understand what actions are necessary to 

correct the deficiencies. 

(2) The Contractor shall respond within 30 

days to a written initial notification from the 

ACO that identifies deficiencies in the 

Contractor’s accounting system. If the 

Contractor disagrees with the initial 

notification, the Contractor shall state in 

writing its rationale for disagreeing. 

(3) The ACO will evaluate the Contractor’s 

response and notify the Contractor of the 

determination concerning remaining 

deficiencies, the adequacy of any proposed or 

completed corrective action, and system 

disapproval if applicable. 

(e) Withholding payments. If the ACO 

determines the Contractor’s accounting 

system contains one or more deficiencies, 

and this contract includes the clause at 

252.242–7XXX, Business Systems, the ACO 

will withhold payments in accordance with 

that clause. 

(End of clause) 

16. Add section 252.244–7XXX to 

read as follows: 


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Federal Register / Vol. 75, No. 10 / Friday, January 15, 2010 / Proposed Rules 2463 

252.244–7XXX Contractor purchasing 

system administration. 

As prescribed in 244.305–7X, insert 

the following clause: 

Contractor Purchasing System 

Administration (Date) 

(a) Definitions. As used in this clause— 

Deficiency means a failure to maintain any 

element of an acceptable purchasing system. 

Purchasing system means the Contractor’s 

system or systems for purchasing and 

subcontracting including make or buy 

decisions, the selection of vendors, analysis 

of quoted prices, negotiation of prices with 

vendors, placing and administering of orders, 

and expediting delivery of materials. 

Purchasing system includes, but is not 

limited to— 

(1) Internal audits or management reviews, 

training, and policies and procedures for the 

purchasing department to ensure the 

integrity of the purchasing system; 

(2) Policies and procedures to assure 

purchase orders and subcontracts contain all 

flow down clauses, including terms and 

conditions required by the prime contract 

and any clauses required to carry out the 

requirements of the prime contract; 

(3) An organizational and administrative 

structure that ensures effective and efficient 

procurement of required quality materials 

and parts at the most economical cost from 

responsible and reliable sources; 

(4) Selection processes to ensure the most 

responsive and responsible sources for 

furnishing required quality parts and 

materials and to promote competitive 

sourcing among dependable suppliers so that 

purchases are reasonably priced and from 

sources that meet contractor quality 

requirements; 

(5) Performance of price or cost analysis on 

purchasing actions; and 

(6) Procedures to ensure that proper types 

of subcontracts are selected and that there are 

controls over subcontracting, including 

oversight and surveillance of subcontracted 

effort. 

(b) General. The Contractor shall establish 

and maintain an acceptable purchasing 

system. Failure to maintain an acceptable 

purchasing system, as defined in this clause, 

may result in disapproval of the system by 

the ACO and/or withholding of payments. 

(c) System requirements. (1) Have an 

adequate system description including 

policies, procedures, and operating 

instructions that comply with the FAR and 

DFARS. 

(2) Ensure that all applicable purchase 

orders and subcontracts contain all flow 

down clauses, including terms and 

conditions and any other clauses needed to 

carry out the requirements of the prime 

contract. 

(3) Maintain an organization plan that 

establishes clear lines of authority and 

responsibility. 

(4) Purchase orders are based on 

authorized requisitions and include complete 

history files. 

(5) Establish and maintain adequate 

documentation to provide a complete and 

accurate history of purchase transactions to 

support vendors selected and prices paid. 

(6) Apply a consistent make or buy policy 

that is in the best interest of the Government. 

(7) Use competitive sourcing to the 

maximum extent practicable and ensure 

debarred or suspended contractors are 

properly excluded from contract award. 

(8) Evaluate price, quality, delivery, 

technical capabilities, and financial 

capabilities of competing vendors. 

(9) Require management level justification 

and cost/price analysis as applicable for any 

sole or single source award. 

(10) Perform appropriate cost or price 

analysis and technical evaluation for each 

subcontractor and supplier proposal or quote. 

(11) Document negotiations in accordance 

with FAR 15.406–3. 

(12) Seek, take, and document appropriate 

purchase discounts, including cash 

discounts, trade discounts, quantity 

discounts, rebates, freight allowances, and 

company-wide volume discounts. 

(13) Ensure proper type of contract 

selection and prohibit issuance of cost-plusa-percentage-of-cost subcontracts. 

(14) Maintain subcontract surveillance to 

ensure timely delivery of an acceptable 

product and procedures to notify the 

Government of potential subcontract 

problems that may impact delivery, quantity, 

or price. 

(15) Document and justify reasons for 

subcontract changes that affect cost or price. 

(16) Notify the Government of the award of 

an auditable subcontract and perform 

adequate audits of those subcontracts. 

(17) Enforce adequate policies on conflict 

of interest, gifts, and gratuities, including the 

requirements of the Anti-Kickback Act. 

(d) System deficiencies. (1) The ACO will 

provide an initial notification to the 

Contractor of system deficiencies. The initial 

notification will describe the deficiency in 

sufficient detail to allow the contractor to 

understand what actions are necessary to 

correct the deficiencies. 

(2) The Contractor shall respond within 30 

days to a written initial notification from the 

ACO that identifies deficiencies in the 

Contractor’s purchasing system. If the 

Contractor disagrees with the initial 

notification, the Contractor shall state in 

writing its rationale for disagreeing. 

(3) The ACO will evaluate the Contractor’s 

response and notify the Contractor of the 

determination concerning remaining 

deficiencies, the adequacy of any proposed or 

completed corrective action, and system 

disapproval, if applicable. 

(e) Withholding payments. If the ACO 

determines the Contractor’s purchasing 

system contains one or more deficiencies, 

and the contract includes the clause at 

252.242–7XXX, Business Systems, the ACO 

will withhold payments in accordance with 

that clause. 

(End of clause) 

[FR Doc. 2010–392 Filed 1–14–10; 8:45 am] 

BILLING CODE 5001–08–P 

DEPARTMENT OF DEFENSE 

Department of the Army 

48 CFR Parts 5132, 5136, and 5152 

RIN 0710–AA69 

Continuing Contract for Civil Works 

Project Managed by the United States 

Army Corps of Engineers Clauses 

AGENCY: U.S. Army Corps of Engineers, 

Department of the Army, DoD. 

ACTION: Proposed rule; request for 

comments. 

SUMMARY: The U.S. Army Corps of 

Engineers (USACE) is proposing an 

interim Continuing Contracts clause for 

use on specifically authorized Civil 

Works projects only. This proposal is in 

response to a recurring statutory 

provision that requires a change to the 

clause USACE had previously used. 

DATES: Comments must be received by 

March 16, 2010. 

ADDRESSES: You may submit comments, 

identified by docket number COE– 

2009–0065, by any of the following 

methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

E-mail: 

contract.policy@usace.army.mil. 

Include the docket number, COE–2009– 

0065, in the subject line of the message. 

Mail: U.S. Army Corps of Engineers, 

Attn: CECT–P (Robin A. Baldwin), 441 

G Street, NW., Washington, DC 20314– 

1000. 

Hand Delivery/Courier: Due to 

security requirements, we cannot 

receive comments by hand delivery or 

courier. 

Instructions: Direct your comments to 

docket number COE–2009–0065. All 

comments received will be included in 

the public docket without change and 

may be made available on-line at http:// 

www.regulations.gov, including any 

personal information provided, unless 

the commenter indicates that the 

comments includes information claimed 

to be Confidential Business Information 

(CBI) or other information whose 

disclosure is restricted by statute. Do 

not submit information that you 

consider to be CBI, or otherwise 

protected, through regulations.gov or email. The regulations.gov Web site is an 

anonymous access system, which means 

we will not know your identity or 

contact information unless you provide 

it in the body of your comment. If you 

send an e-mail directly to the U.S. Army 

Corps of Engineers without going 

though http://www.regulations.gov, your 


erowe on DSK5CLS3C1PROD with PROPOSALS-1