41172 Federal Register / Vol. 79, No. 135 / Tuesday, July 15, 2014 / Proposed Rules 

FIPS# 

Lake Michigan ........................................................................................................................................................................ 92 

Lake Huron ............................................................................................................................................................................. 93 

Lake St. Clair .......................................................................................................................................................................... 94 

Lake Erie ................................................................................................................................................................................ 96 

Lake Ontario ........................................................................................................................................................................... 97 

St. Lawrence River above St. Regis ...................................................................................................................................... 98 

1Effective May 16, 2002, analog radio and television broadcast stations, analog cable systems and wireless cable systems may upgrade their 

existing EAS equipment to add these marine area location codes on a voluntary basis until the equipment is replaced. All models of EAS equipment manufactured after August 1, 2003, must be capable of receiving and transmitting these marine area location codes. EAS Participants that 

install or replace their EAS equipment after February 1, 2004, must install equipment that is capable of receiving and transmitting these location 

codes. 

■ 4. Amend § 11.51 by revising 

paragraph (d) to read as follows: 

§ 11.51 EAS code and attention signal 

transmission requirements. 

* * * * * 

(d) Analog and digital television 

broadcast stations shall transmit a visual 

message containing the Originator, 

Event, Location and the valid time 

period of an EAS message. Effective 

June 30, 2012, visual messages derived 

from CAP-formatted EAS messages shall 

contain the Originator, Event, Location 

and the valid time period of the message 

and shall be constructed in accordance 

with section 3.6 of the ‘‘ECIG 

Recommendations for a CAP EAS 

Implementation Guide, Version 1.0’’ 

(May 17, 2010), except that if the EAS 

Participant has deployed an 

Intermediary Device to meet its CAPrelated obligations, this requirement 

shall be effective June 30, 2015, and 

until such date shall be subject to the 

general requirement to transmit a visual 

message containing the Originator, 

Event, Location and the valid time 

period of the EAS message. If the 

message is a video crawl, it shall be 

displayed: 

(1) At the top of the television screen 

or where it will not interfere with other 

visual messages or otherwise block 

other important visual content on the 

screen, 

(2) At a speed that can be read by 

viewers, 

(3) Continuously throughout the 

duration of any EAS activation, 

(4) In a font sized appropriately for 

legibility, 

(5) In a manner where lines of any 

video crawl not overlap with one 

another, and are adequately positioned 

so they do not run off the edge of the 

video screen. 

* * * * * 

■ 6. Amend § 11.61 by revising 

paragraph (a)(3)(iv) to read as follows: 

§ 11.61 Tests of EAS procedures. 

* * * * * 

(a) * * * 

(3) * * * 

(iv) Test results as required by the 

Commission shall be logged by all EAS 

Participants into the EAS Test Reporting 

System (ETRS) as follows. 

(A) EAS Participants shall provide the 

identifying information required by 

Form One initially no later than 60 days 

after the effective date of this 

Subsection, and shall renew the Form 

One information on a yearly basis or as 

required by any revision of the EAS 

Participant’s State EAS Plan filed 

pursuant to § 11.21. 

(B) ‘‘Day of test’’ data as required by 

Form Two shall be filed in the ETRS 

within 24 hours of any nationwide test 

or as otherwise required by the Public 

Safety and Homeland Security Bureau. 

(C) Detailed post-test data as required 

by Form Three shall be filed in the 

ETRS within forty five (45) days 

following any nationwide test or as 

otherwise required by the Public Safety 

and Homeland Security Bureau. 

* * * * * 

[FR Doc. 2014–16417 Filed 7–14–14; 8:45 am] 

BILLING CODE 6712–01–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 215, 242, and 252 

RIN 0750–AI20 

Defense Federal Acquisition 

Regulation Supplement; Business 

Systems Compliance (DFARS Case 

2012–D042) 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Proposed rule. 

SUMMARY: DoD is proposing to amend 

the Defense Federal Acquisition 

Regulation Supplement (DFARS) to 

ensure appropriate contractor 

accountability for adequate contractor 

business systems. In addition to the 

request for written comments on this 

proposed rule, DoD will hold a public 

meeting to hear the views of interested 

parties. 

DATES: Comment Date: Comments on 

the proposed rule should be submitted 

in writing to the address shown below 

on or before September 15, 2014, to be 

considered in the formation of a final 

rule. 

Public Meeting Date: The public 

meeting will be held at the Mark Center 

Auditorium, 4800 Mark Center Drive, 

Alexandria, VA 22350–3603, on August 

18, 2014, from 2 p.m. to 4 p.m., local 

time. 

ADDRESSES: Submission of comments: 

You may submit comments, identified 

by DFARS Case 2012–D042, using any 

of the following methods: 

Regulations.gov: http://

www.regulations.gov. Submit comments 

via the Federal eRulemaking portal by 

inserting ‘‘DFARS Case 2012–D042’’ 

under the heading ‘‘Enter keyword or 

ID’’ and selecting ‘‘Search.’’ Select the 

link ‘‘Submit a Comment’’ that 

corresponds with ‘‘DFARS Case 2012– 

D042.’’ Follow the instructions provided 

at the ‘‘Submit a Comment’’ screen. 

Please include your name, company 

name (if any), and ‘‘DFARS Case 2012– 

D042’’ on your attached document. 

Follow the instructions for submitting 

comments. 

Email: osd.dfars@mail.mil. Include 

DFARS Case 2012–D042 in the subject 

line of the message. 

Fax: 571–372–6094. 

Mail: Defense Acquisition Regulations 

System, Attn: Mr. Mark Gomersall, 

OUSD(AT&L)DPAP(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: Mr. 

Mark Gomersall, Defense Acquisition 


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Regulations System, 

OUSD(AT&L)DPAP(DARS), Room 

3B941, 3060 Defense Pentagon, 

Washington, DC 20301–3060. 

Telephone 571–372–6099. 

SUPPLEMENTARY INFORMATION: 

I. 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. In response to 

a U.S. Government Accountability 

Office report (GAO–12–83) issued on 

November 3, 2011, Defense Contract 

Management Agency: Amid Ongoing 

Efforts to Rebuild Capacity, Several 

Factors Present Challenges in Meeting 

Its Mission, DoD agreed to consider 

alternative approaches to audit 

contractor business systems. 

II. Discussion and Analysis 

To improve the efficiency and 

effectiveness of auditing contractor 

business systems, DoD is proposing to 

amend the DFARS to entrust contractors 

with the capability to demonstrate 

compliance with DFARS system criteria 

for contractors’ accounting systems, 

estimating systems, and material 

management and accounting systems, 

based on contractors’ self-evaluations 

and audits by independent Certified 

Public Accountants (CPAs) of their 

choosing. Government auditors will 

perform overviews of the results of 

contractor self-evaluations and CPA 

audits. 

Individuals wishing to attend the 

public meeting should register by 

August 11, 2014, to ensure adequate 

room accommodations and to facilitate 

entry into the Mark Center building. 

Interested parties may register at the 

Web site, http://www.acq.osd.mil/dpap/ 

dars/business_systems_

compliance.html by providing the 

following information: 

• Company or organization name. 

• Names and email addresses of 

persons planning to attend. 

• Identify if desiring to make a 

presentation; limited to a 10-minute 

presentation per company or 

organization. 

One valid government-issued photo 

identification card will be required in 

order to enter the building. Non-U.S. 

citizens may use their valid passport as 

photo identification. Attendees are 

encouraged to arrive at least one hour 

early to accommodate security 

procedures. 

Transportation information for the 

Mark Center may be obtained at http:// 

www.whs.mil/our-services/

transportation/getting-mark-center. 

Accommodations for parking at the 

Mark Center will not be available, but 

may be found in the surrounding areas. 

If you wish to make a presentation, 

please submit an electronic copy of your 

presentation to osd.dfars@mail.mil no 

later than August 13, 2014. Files must 

not exceed 19MB. Please cite ‘‘Public 

Meeting—Contractor Business Systems 

Compliance’’ in all correspondence 

related to this public meeting. When 

submitting presentations, provide the 

presenter’s name, organization 

affiliation, telephone number, and email 

address on the cover page. There will be 

no transcription of the public meeting. 

Submitted presentations will be the 

only record. 

Special accommodations: The public 

meeting is physically accessible to 

people with disabilities. Requests for 

reasonable accommodations, sign 

language interpretation or other 

auxiliary aids should be directed to 

Mark Gomersall at 571–372–6099, at 

least 10 working days prior to the 

meeting date. 

The TTY number for further 

information is: 1–800–877–8339. When 

the operator answers the call, let them 

know the agency is the Department of 

Defense; the point of contact is Mark 

Gomersall at 571–372–6099. 

III. 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, was 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. 

IV. 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 improve 

the efficiency and effectiveness of 

auditing contractor business systems by 

entrusting contractors with the 

capability to demonstrate compliance 

with the Defense Federal Acquisition 

Regulation Supplement (DFARS) system 

criteria for contractors’ accounting 

systems, estimating systems, and 

material management and accounting 

systems, based on contractors’ selfevaluations and audits by independent 

Certified Public Accountants (CPAs) of 

their choosing. The requirements of the 

rule will apply to solicitations and 

contracts that include the contract 

clause for the applicable defined 

contractor business system. 

The rule will apply to solicitations 

and contracts that are with large 

businesses for the purposes of reporting 

for estimating systems, and material 

management and accounting systems. 

For reporting on accounting systems, 

the rule will apply to contractors who 

are subject to the Cost Accounting 

Standards (CAS) under 41 U.S.C. 

chapter 15, as implemented in 

regulations found at 48 CFR 9903.201– 

1 (see the FAR Appendix), other than 

for contracts with educational 

institutions, Federally Funded Research 

and Development Centers operated by 

educational institutions, or University 

Associated Research Centers. Since 

contracts and subcontracts with small 

businesses are exempt from CAS 

requirements, DoD estimates that this 

rule will have no impact on small 

businesses. DoD, however, 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 2012–D042) in 

correspondence. 

V. Paperwork Reduction Act 

The Paperwork Reduction Act (44 

U.S.C. chapter 38) applies. The 

proposed rule contains information 

collection requirements. Accordingly, 

DoD has submitted a request for 

approval of a new information 

collection requirement concerning 

Defense Federal Acquisition Regulation 

Supplement; Business Systems 

Compliance (DFARS Case 2012–D042) 

to the Office of Management and 

Budget. 

A. Public reporting burden for this 

collection of information is estimated to 

average 2.87 hours per response, 

including the time for reviewing 

instructions, searching existing data 

sources, gathering and maintaining the 

data needed, and completing and 

reviewing the collection of information. 


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The annual reporting burden 

estimated as follows: 

Respondents: 2,953. 

Responses per respondent: 1. 

Total annual responses: 2,953. 

Average hours per response: 2.87. 

Total annual burden hours: 8,468. 

B. Request for Comments Regarding 

Paperwork Burden. Written comments 

and recommendations on the proposed 

information collection, including 

suggestions for reducing this burden, 

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, or email Jasmeet_K._Seehra@

omb.eop.gov, with a copy to the Defense 

Acquisition Regulations System, Attn: 

Mark Gomersall, OUSD(AT&L)DPAP/

DARS, Room 3B941, 3060 Defense 

Pentagon, Washington, DC 20301–3060. 

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. 

Public comments are particularly 

invited on: whether this collection of 

information is necessary for the proper 

performance of functions of the DFARS, 

and will have practical utility; whether 

our estimate of the public burden of this 

collection of information is accurate, 

and based on valid assumptions and 

methodology; ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and ways in 

which we can minimize the burden of 

the collection of information on those 

who are to respond, through the use of 

appropriate technological collection 

techniques or other forms of information 

technology. 

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: Mark 

Gomersall, OUSD(AT&L)DPAP/DARS, 

Room 3B941, 3060 Defense Pentagon, 

Washington, DC 20301–3060, or e-mail 

osd.dfars@mail.mil. Include DFARS 

Case 2012–D042 in the subject line of 

the message. 

List of Subjects in 48 CFR Parts 215, 

242, and 252 

Government procurement. 

Amy G. Williams, 

Deputy, Defense Acquisition Regulations 

System. 

Therefore, 48 CFR parts 215, 242, and 

252 are proposed to be amended as 

follows: 

■ 1. The authority citation for parts 215, 

242, and 252 continues to read as 

follows: 

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

chapter 1. 

PART 215—CONTRACTING BY 

NEGOTIATION 

■ 2. Revise section 215.407–5–70 to 

read as follows: 

215.407–5–70 Disclosure, maintenance, 

and review requirements. 

(a) Definitions. As used in this 

section— 

Acceptable estimating system, 

contractor, contractor’s certified public 

accountant (CPA), CPA audit, 

estimating system, and significant 

deficiency are defined in the clause at 

252.215–7002, Cost Estimating System 

Requirements. 

(b) Applicability. A contractor, other 

than a small business concern, is subject 

to the estimating system disclosure, 

maintenance, review, annual reporting, 

triennial CPA audit, and documentation 

requirements in the clause at 252.215– 

7002, Cost Estimating System 

Requirements, if— 

(1) In its preceding fiscal year, the 

contractor received DoD prime contracts 

or subcontracts totaling $50 million or 

more for which certified cost or pricing 

data were required; or 

(2) In its preceding fiscal year, the 

contractor received DoD prime contracts 

or subcontracts totaling $10 million or 

more (but less than $50 million) for 

which certified cost or pricing data were 

required and the contracting officer, 

with concurrence or at the request of the 

ACO, determines it to be in the best 

interest of the Government (e.g., 

significant estimating problems are 

believed to exist or the contractor’s sales 

are predominantly Government). 

(c) Policy. DoD policy is for all 

contractors to have acceptable 

estimating systems that consistently 

produce well-supported proposals that 

are acceptable as a basis for negotiation 

of fair and reasonable prices. 

(d) Procedures. (1) The contracting 

officer shall— 

(i) Through use of the clause at 

252.215–7002, Cost Estimating System 

Requirements, apply the disclosure, 

maintenance, review, annual reporting, 

triennial CPA audit, and documentation 

requirements to contractors, other than 

small business concerns, meeting the 

criteria in paragraph (b)(1) of this 

section; 

(ii) Consider whether to apply the 

disclosure, maintenance, review, annual 

reporting, triennial CPA audit, and 

documentation requirements to 

contractors, other than small business 

concerns, under paragraph (b)(2) of this 

section; and 

(iii) Not apply the disclosure, 

maintenance, review, annual reporting, 

triennial CPA audit, and documentation 

requirements to small business 

concerns. 

(2) The cognizant contracting officer, 

in consultation with the Government 

auditor, for contractors subject to 

paragraph (b) of this section, shall— 

(i) Determine the acceptability of the 

contractor’s estimating system and 

disclosure, and approve or disapprove 

the system; and 

(ii) Pursue correction of any 

deficiencies. 

(3) Triennial CPA audit requirement. 

For contractors subject to paragraph (b) 

of this section, and paragraph (d)(8) of 

the clause at 252.215–7002, the 

cognizant contracting officer shall— 

(i) Upon receipt of the contractor’s 

CPA’s audit strategy, risk assessment, 

and audit plan (program), request a 

review from the Government auditor, 

and notify the contractor of any 

potential issues identified by the 

Government auditor regarding their 

reasonableness. Early notification of 

potential issues may decrease the 

likelihood of the contractor incurring 

unreasonable costs. However, review of 

the contractor’s CPA’s audit strategy, 

risk assessment, and audit plan 

(program) does not constitute the 

contracting officer’s approval; and 

(ii) Upon receipt of the contractor’s 

CPA audit report, request the 

Government auditor’s assessment of the 

CPA audit report and related 

documentation. 

(4) In evaluating the acceptability of a 

contractor’s estimating system, the 

contracting officer, in consultation with 

the Government auditor, shall 

determine whether the contractor’s 

estimating system complies with the 

system criteria for an acceptable 

estimating system in the clause at 

252.215–7002. In making that 

determination, the contracting officer 

shall consider— 

(i) The contractor’s estimating system 

disclosure, annual report on the 

estimating system’s compliance with the 

system criteria and the audit report by 

the contractor’s CPA, as required in the 

clause at 252.215–7002, if applicable; 

and 

(ii) Any other findings and 

recommendations reported by the 

Government auditor including the 

assessment of the contractor’s CPA audit 

report and related documentation, if 

applicable. 

(e) Accelerated audit requirement. 

The contracting officer, in consultation 


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with the Government auditor, may 

require contractors subject to the 

triennial CPA audit requirement in the 

clause at 252.215–7002 to provide an 

out-of-cycle CPA audit report prior to 

the triennial CPA audit period based on 

a risk assessment of the contractor’s past 

experience and current vulnerability. 

(f) Disposition of findings—(1) 

Reporting of findings by the Government 

auditor. The Government auditor shall 

document findings and 

recommendations in a report to the 

contracting officer regarding any 

identified significant estimating system 

deficiencies. The report shall describe 

the deficiencies in sufficient detail to 

allow the contracting officer to 

understand the deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review all 

findings and recommendations from the 

Government auditor and contractor and, 

if there are no significant deficiencies 

and the contractor as complied with the 

applicable reporting and audit 

requirements in paragraphs (d)(5) and 

(6) of the clause at 252.215–7002, shall 

promptly notify the contractor, in 

writing, that the contractor’s estimating 

system is acceptable and approved; or 

(ii) If the contracting officer finds that 

there are one or more significant 

deficiencies (as defined in the clause at 

252.215–7002 due to the contractor’s 

failure to meet one or more of the 

estimating system criteria in the clause 

at 252.215–7002, or that the contractor 

has failed to comply with the applicable 

reporting and audit requirements in 

accordance with the clause at 252.215– 

7002, the contracting officer shall— 

(A)(1) Promptly make an initial 

written determination on any significant 

deficiencies and notify the contractor, in 

writing, providing a description of each 

significant deficiency in sufficient detail 

to allow the contractor to understand 

the deficiency; or 

(2) Promptly make an initial written 

determination on the contractor’s failure 

to comply with the applicable reporting 

and audit requirements and notify the 

contractor, in writing, providing 

sufficient information to allow the 

contractor to understand what action 

needs to be taken to comply; 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor’s 

responses to the initial determination, 

in consultation with the Government 

auditor or functional specialist, and 

make a final determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(A) The contractor’s estimating system 

is acceptable and approved, and no 

significant deficiencies remain, and the 

contractor has complied with the 

applicable reporting and audit 

requirements in accordance with the 

clause at 252.215–7002; or 

(B) Significant deficiencies remain, or 

the contractor has failed to comply with 

the applicable reporting and audit 

requirements. The notice shall identify 

any remaining significant deficiencies 

or noncompliance with the applicable 

reporting and audit requirements, and 

indicate the adequacy of any proposed 

or completed corrective action. The 

contracting officer shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

deficiencies or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

deficiencies and comply with the 

applicable reporting and audit 

requirements; 

(2) Disapprove the system in 

accordance with the clause at 252.215– 

7002; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005 if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of significant 

deficiencies in PGI 215.407–5–70(f). 

(g) System approval. The contracting 

officer shall promptly approve a 

previously disapproved estimating 

system and notify the contractor when 

the contracting officer determines that 

there are no remaining significant 

deficiencies or noncompliance with the 

applicable reporting and audit 

requirements. 

(h) Contracting officer notifications. 

The cognizant contracting officer shall 

promptly distribute copies of a 

determination to approve a system, to 

disapprove a system and withhold 

payments, or to approve a previously 

disapproved system and release 

withheld payments to the Government 

auditor, payment office, affected 

contracting officers at the buying 

activities, and cognizant contracting 

officers in contract administration 

activities. 

PART 242—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

242.7000 and 242.7001 [Redesignated as 

242.7001 and 242.7003] 

■ 3. Redesignate sections 242.7000 and 

242.7001 as sections 242.7001 and 

242.7003, respectively. 

■ 4. Revise newly redesignated section 

242.7001 to read as follows: 

242.7001 Definitions. 

As used in this subpart— 

Acceptable contractor business 

systems, contractor business systems, 

contractor’s certified public accountant 

(CPA), and CPA audit are defined in the 

clause at 252.242–7005, Contractor 

Business Systems. 

Covered contract means a contract 

that is subject to the Cost Accounting 

Standards under 41 U.S.C. chapter 15, 

as implemented in regulations found at 

48 CFR 9903.201–1 (see the FAR 

Appendix) (10 U.S.C. 2302 note, as 

amended by section 816 of Public Law 

112–81). 

Significant deficiency is defined in 

the clause at 252.242–7005, Contractor 

Business Systems. 

■ 5. Add section 242.7002 to read as 

follows: 

242.7002 Contractor business systems 

deficiencies. 

(a) Determination to withhold 

payments. If the contracting officer 

makes a final determination to 

disapprove a contractor’s business 

system in accordance with the clause at 

252.242–7005, Contractor Business 

Systems, the contracting officer shall— 

(1) In accordance with agency 

procedures, identify one or more 

covered contracts containing the clause 

at 252.242–7005 from which payments 

will be withheld. When identifying the 

covered contracts from which to 

withhold payments, the contracting 

officer shall ensure that the total amount 

of payment withholding under 252.242– 

7005 does not exceed 10 percent of 

progress payments, performance-based 

payments, and interim payments under 

cost-reimbursement, labor-hour, and 

time-and-materials contracts billed 

under each of the identified covered 

contracts. Similarly, the contracting 

officer shall ensure that the total amount 

of payment withholding under the 

clause at 252.242–7005 for each 

business system does not exceed five 

percent of progress payments, 

performance-based payments, and 

interim payments under costreimbursement, labor-hour, and timeand-materials contracts billed under 

each of the identified covered contracts. 

The contracting officer has the sole 

discretion to identify the covered 

contracts from which to withhold 

payments; 

(2) Promptly notify the contractor, in 

writing, of the contracting officer’s 

determination to implement payment 

withholding in accordance with the 

clause at 252.242–7005. The notice of 

payment withholding shall be included 

in the contracting officer’s written final 

determination for the contractor 


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business system and shall inform the 

contractor that— 

(i) Payments shall be withheld from 

the contract or contracts identified in 

the written determination in accordance 

with the clause at 252.242–7005 until 

the contracting officer determines that 

there are no remaining significant 

deficiencies and that the contractor has 

complied with the applicable reporting 

and audit requirements in accordance 

with the applicable business system 

clause identified in 242.7003(b); and 

(ii) The contracting officer reserves 

the right to take other actions within the 

terms and conditions of the contract; 

and 

(3) Provide all contracting officers 

administering the selected contracts 

from which payments will be withheld, 

a copy of the determination. The 

contracting officer shall also provide a 

copy of the determination to the 

Government auditor; payment office; 

affected contracting officers at the 

buying activities; and cognizant 

contracting officers in contract 

administration activities. 

(b) Monitoring contractor’s corrective 

action. The contracting officer, in 

consultation with the Government 

auditor or functional specialist, shall 

monitor the contractor’s progress in 

correcting the deficiencies. The 

contracting officer shall notify the 

contractor of any decision to decrease or 

increase the amount of payment 

withholding in accordance with the 

clause at 252.242–7005. 

(c) Correction of significant 

deficiencies and reporting. 

(1) If the contractor notifies the 

contracting officer that the contractor 

has corrected the significant 

deficiencies and, if applicable, provides 

the contractor’s CPA audit report on the 

effectiveness of the corrective actions, 

the contracting officer shall review the 

correction to verify that the deficiencies 

have been corrected. If the contracting 

officer determines that the contractor 

has corrected all significant deficiencies 

and provided the contractor’s report on 

compliance with the system criteria, 

including the CPA audit report, if 

applicable, the contracting officer shall 

discontinue the withholding of 

payments, release any payments 

previously withheld, and approve the 

system, unless other significant 

deficiencies remain. 

(2) Prior to the determination that the 

deficiencies have been corrected, the 

contracting officer may discontinue 

withholding payments pending the 

determination, and release any 

payments previously withheld, if the 

contractor submits evidence that the 

significant deficiencies have been 

corrected, and the contracting officer, in 

consultation with the Government 

auditor or functional specialist, 

determines that there is a reasonable 

expectation that the corrective actions 

have been implemented and are 

expected to correct the significant 

deficiencies. 

(3) Within 90 days of receipt of the 

contractor notification that the 

contractor has corrected the significant 

deficiencies and, if applicable, the 

contractor’s CPA audit report on the 

effectiveness of the corrective actions, 

the contracting officer shall— 

(i) Make a determination that— 

(A) The contractor has corrected all 

significant deficiencies as directed by 

the contracting officer’s final 

determination in accordance with 

paragraph (c)(1) of this section; 

(B) There is a reasonable expectation 

that the corrective actions have been 

implemented in accordance with 

paragraph (c)(2) of this section; or 

(C) The contractor has not corrected 

all significant deficiencies as directed 

by the contracting officer’s final 

determination in accordance with 

paragraph (c)(1) of this section, or there 

is not a reasonable expectation that the 

corrective actions have been 

implemented in accordance with 

paragraph (c)(2) of this section; and 

(ii) Reduce withholding directly 

related to the significant deficiencies 

covered under the corrective action plan 

by at least 50 percent of the amount 

being withheld from progress payments 

and performance-based payments, and 

direct the contractor, in writing, to 

reduce the percentage withheld on 

interim cost vouchers by at least 50 

percent, until the contracting officer 

makes a determination in accordance 

with paragraph (c)(3)(i) of this section. 

(4) If, at any time, the contracting 

officer determines that the contractor 

has failed to correct the significant 

deficiencies identified in the 

contractor’s notification, the contracting 

officer will continue, reinstate, or 

increase withholding from progress 

payments and performance-based 

payments, and direct the contractor, in 

writing, to continue, reinstate, or 

increase the percentage withheld on 

interim cost vouchers to the percentage 

initially withheld, until the contracting 

officer determines that the contractor 

has corrected all significant deficiencies 

as directed by the contracting officer’s 

final determination. 

(d) For sample formats for written 

notifications of contracting officer 

determinations to initiate payment 

withholding, reduce payment 

withholding, and discontinue payment 

withholding in accordance with the 

clause at 252.242–7005. See PGI 

242.7002. 

■ 6. In newly redsignated section 

242.7003, revise paragraph (a) to read as 

follows: 

242.7003 Contract clause. 

* * * * * 

(a) The resulting contract will be a 

covered contract as defined in 242.7001; 

and 

* * * * * 

■ 7. Revise sections 242.7201, 242.7202, 

and 242.7203 to read as follows: 

242.7201 Definitions. 

As used in this subpart— 

Acceptable material management and 

accounting system, contractor, 

contractor’s certified public accountant 

(CPA), CPA audit, material management 

and accounting system, qualifying sales, 

significant deficiency, and valid timephased requirements are defined in the 

clause at 252.242–7004, Material 

Management and Accounting System. 

242.7202 Policy. 

(a) DoD policy is for its contractors to 

have an MMAS that conforms to the 

standards in paragraph (h) of the clause 

at 252.242–7004, Material Management 

and Accounting System, so that the 

system— 

(1) Reasonably forecasts material 

requirements; 

(2) Ensures the costs of purchased and 

fabricated material charged or allocated 

to a contract are based on valid timephased requirements; and 

(3) Maintains a consistent, equitable, 

and unbiased logic for costing of 

material transactions. 

(b) Criteria for conducting reviews. 

Conduct an MMAS review in 

accordance with paragraph (d) of the 

clause at 252.242.7004, when— 

(1) The contractor is a large business; 

(2) Has $50 million in qualifying sales 

to the Government; and 

(3) The cognizant contracting officer, 

with advice from the Government 

auditor or cognizant functional 

specialist, determines an MMAS review 

is needed based on a risk assessment of 

the contractor’s past experience, current 

vulnerability, and the following risk 

factors: 

(i) FAR 42.302 surveillance activities 

indicate the contractor has not complied 

with the criteria in 252.242.7004. 

(ii) There are changes to the 

contractor’s MMAS system. 

(iii) The contractor’s MMAS system is 

new. 

(iv) The contractor’s MMAS system 

has not been reviewed within a 36- 

month period. 

(c) Contractors subject to the triennial 

CPA audit requirement in the clause at 


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252.242–7004, may be required to 

provide an out-of-cycle CPA audit 

report prior to the triennial CPA audit 

reporting period based on a risk 

assessment of the contractor’s past 

experience and current vulnerability. 

(d) The cognizant contracting officer, 

in consultation with the Government 

auditor and cognizant functional 

specialist, if appropriate, shall— 

(1) Determine the acceptability of the 

contractor’s MMAS and approve or 

disapprove the system; and 

(2) Pursue correction of any 

deficiencies. 

242.7203 Procedures. 

(a) Triennial CPA audit requirement. 

For contractors subject to paragraph (f) 

of the clause at 252.242–7004, Material 

Management and Accounting System, 

the cognizant contracting officer shall— 

(1) Upon receipt of the contractor’s 

CPA’s audit strategy, risk assessment, 

and audit plan (program), request a 

review from the Government auditor, 

and notify the contractor of any 

potential issues identified by the 

Government auditor regarding their 

reasonableness. Early notification of 

potential issues may decrease the 

likelihood of the contractor incurring 

unreasonable costs. However, review of 

the contractor’s CPA’s audit strategy, 

risk assessment, and audit plan 

(program) does not constitute the 

contracting officer’s approval; and 

(2) Upon receipt of the contractor’s 

CPA audit report, request the 

Government auditor’s assessment of the 

CPA audit report and related 

documentation. 

(b) In evaluating the acceptability of 

the contractor’s MMAS, the contracting 

officer, in consultation with the 

Government auditor and functional 

specialist, if appropriate, shall 

determine whether the contractor’s 

MMAS complies with the system 

criteria for an acceptable MMAS as 

required in the clause at 252.242–7004. 

In making that determination, the 

contracting officer shall consider— 

(1) The contractor’s report on the 

MMAS’s compliance with the system 

criteria and the audit report by the 

contractor’s CPA, as required in the 

clause at 252.242–7004; and 

(2) Any other findings and 

recommendations reported by the 

Government auditor including the 

assessment of the contractor’s CPA audit 

report and related documentation, if 

applicable. 

(c) Disposition of findings—(1) 

Reporting of findings by the Government 

auditor. The Government auditor or 

functional specialist shall document 

findings and recommendations in a 

report to the contracting officer 

regarding any identified significant 

MMAS deficiencies. The report shall 

describe the deficiencies in sufficient 

detail to allow the contracting officer to 

understand the deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review all 

findings and recommendations from the 

Government auditor and contractor and, 

if there are no significant deficiencies 

and the contractor has complied with 

the applicable reporting and audit 

requirements in paragraph (d) of the 

clause at 252.242–7004, shall promptly 

notify the contractor, in writing, that the 

contractor’s MMAS is acceptable and 

approved. 

(ii) If the contracting officer finds that 

there are one or more significant 

deficiencies (as defined in the clause at 

252.242–7004 due to the contractor’s 

failure to meet one or more of the 

MMAS system criteria in the clause at 

252.242–7004, or that the contractor has 

failed to comply with the applicable 

reporting and audit requirements in 

accordance with the clause at 252.242– 

7004, the contracting officer shall— 

(A)(1) Promptly make an initial 

written determination on any significant 

deficiencies and notify the contractor, in 

writing, providing a description of each 

significant deficiency in sufficient detail 

to allow the contractor to understand 

the deficiency; or 

(2) Promptly make an initial written 

determination on the contractor’s failure 

to comply with the applicable reporting 

and audit requirements and notify the 

contractor, in writing, providing 

sufficient information to allow the 

contractor to understand what action 

needs to be taken to comply; 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor’s 

response to the initial determination in 

consultation with the Government 

auditor or functional specialist, and 

make a final determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor 

that— 

(A) The contractor’s MMAS is 

acceptable and approved, and no 

deficiencies remain, and the contractor 

has complied with the applicable 

reporting and audit requirements in 

accordance with the clause at 252.242– 

7004; or 

(B) Significant deficiencies remain, or 

the contractor has failed to comply with 

the applicable reporting and audit 

requirements. The notice shall identify 

any remaining significant deficiencies 

or noncompliance with the applicable 

reporting and audit requirements and 

indicate the adequacy of any proposed 

or completed corrective action. The 

contracting officer shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

deficiencies or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

deficiencies and comply with the 

applicable reporting and audit 

requirements; 

(2) Disapprove the system in 

accordance with the clause at 252.242– 

7004; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of significant 

deficiencies in PGI 242.7203. 

(d) System approval. The contracting 

officer shall promptly approve a 

previously disapproved MMAS and 

notify the contractor when the 

contracting officer determines that there 

are no remaining significant deficiencies 

or noncompliance with the applicable 

reporting and audit requirements. 

(e) Contracting officer notifications. 

The cognizant contracting officer shall 

promptly distribute copies of a 

determination to approve a system, to 

disapprove a system and withhold 

payments, or to approve a previously 

disapproved system and release 

withheld payments to the Government 

auditor, payment office, affected 

contracting officers at the buying 

activities, and cognizant contracting 

officers in contract administration 

activities. 

■ 8. Revise sections 242.7501 and 

242.7502 to read as follows: 

242.7501 Definitions. 

As used in this subpart— 

Acceptable accounting system, 

accounting system, contractor’s certified 

public account (CPA), CPA audit, and 

significant deficiency are defined in the 

clause at 252.242–7006, Accounting 

System Administration. 

242.7502 Policy. 

DoD policy is for contractors receiving 

cost-reimbursement, incentive type, 

time-and-materials, or labor-hour 

contracts, or contracts which provide for 

progress payments based on costs or on 

a percentage or stage of completion, to— 

(a) Maintain an acceptable accounting 

system; and 

(b) If applicable, comply with the 

annual reporting, triennial CPA audit, 

and documentation requirements 


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required in the clause at 252.242–7006, 

Accounting System Administration. 

242.7503 [Redesignated as 242.7504] 

■ 9. Redesignate section 242.7503 as 

section 242.7504. 

■ 10. Add a new section 242.7503 to 

read as follows: 

242.7503 Procedures. 

(a) The cognizant contracting officer, 

in consultation with the Government 

auditor or functional specialist, shall— 

(1) Determine the acceptability of a 

contractor’s accounting system and 

approve or disapprove the system; and 

(2) Pursue correction of any 

deficiencies. 

(b) Triennial CPA audit requirement. 

For contractors subject to paragraph (h) 

of the clause at 252.242–7006, the 

cognizant contracting officer shall— 

(1) Upon receipt of the contractor’s 

CPA’s audit strategy, risk assessment, 

and audit plan (program), request a 

review from the Government auditor 

and notify the contractor of any 

potential issues identified by the 

Government auditor regarding their 

reasonableness. Early notification of 

potential issues may decrease the 

likelihood of the contractor incurring 

unreasonable costs. However, review of 

the contractor’s CPA’s audit strategy, 

risk assessment, and audit plan 

(program) does not constitute the 

contracting officer’s approval; and 

(2) Upon receipt of the contractor’s 

CPA audit report, request the 

Government auditor’s assessment of the 

CPA audit report and related 

documentation. 

(c) In evaluating the acceptability of a 

contractor’s accounting system, the 

contracting officer, in consultation with 

the Government auditor or functional 

specialist, shall determine whether the 

contractor’s accounting system complies 

with the system criteria for an 

acceptable accounting system in the 

clause at 252.242–7006. In making that 

determination the contracting officer 

shall consider— 

(1) The contractor’s annual report on 

the accounting system’s compliance 

with the system criteria and the audit 

report by the contractor’s CPA as 

required in the clause at 252.242–7006, 

if applicable; and 

(2) Any other findings and 

recommendations reported by the 

Government auditor including the 

assessment of the contractor’s CPA audit 

report and related documentation, if 

applicable. 

(d) Accelerated audit requirement. 

The contracting officer, in consultation 

with the Government auditor, may 

require contractors subject to the 

triennial CPA audit requirement in the 

clause at 252.242–7006 to provide an 

out-of-cycle CPA audit report prior to 

the triennial CPA audit period based on 

a risk assessment of the contractor’s past 

experience and current vulnerability. 

(e) Disposition of findings—(1) 

Reporting of findings by the Government 

auditor. The Government auditor shall 

document findings and 

recommendations in a report to the 

contracting officer regarding any 

identified significant accounting system 

deficiencies. The report shall describe 

the deficiencies in sufficient detail to 

allow the contracting officer to 

understand the deficiencies. Follow the 

procedures at PGI 242.7503 for reporting 

of deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review all 

findings and recommendations from the 

Government auditor and contractor and, 

if there are no significant deficiencies 

and the contractor has complied with 

the applicable reporting and audit 

requirements in paragraphs (e) and (f) of 

the clause at 252.242–7006, shall 

promptly notify the contractor, in 

writing, that the accounting system is 

acceptable and approved. 

(ii) If the contracting officer finds that 

there are one or more significant 

deficiencies (as defined in the clause at 

252.242–7006 due to the contractor’s 

failure to meet one or more of the 

estimating system criteria in the clause 

at 252.242–7006, or that the contractor 

has failed to comply with the applicable 

reporting and audit requirements in 

accordance with the clause at 252.242– 

7006, the contracting officer shall— 

(A)(1) Promptly make an initial 

written determination on any significant 

deficiencies and notify the contractor, in 

writing, providing a description of each 

significant deficiency in sufficient detail 

to allow the contractor to understand 

the deficiency; or 

(2) Promptly make an initial written 

determination on the contractor’s failure 

to comply with the applicable reporting 

and audit requirements and notify the 

contractor, in writing, providing 

sufficient information to allow the 

contractor to understand what action 

needs to be taken to comply; 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor‘s 

response to the initial determination, in 

consultation with the Government 

auditor or functional specialist, and 

make a final determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(A) The contractor’s accounting 

system is acceptable and approved, and 

no significant deficiencies remain, and 

the contractor has complied with the 

applicable reporting and audit 

requirements in accordance with the 

clause at 252.242–7006, or 

(B) Significant deficiencies remain, or 

the contractor has failed to comply with 

the applicable reporting and audit 

requirements. The notice shall identify 

any remaining significant deficiencies 

or noncompliance with the applicable 

reporting and audit requirements, and 

indicate the adequacy of any proposed 

or completed corrective action. The 

contracting officer shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

deficiencies or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

deficiencies and comply with the 

applicable reporting and audit 

requirements; 

(2) Disapprove the system in 

accordance with the clause at 252.242– 

7006; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of significant 

deficiencies in PGI 242.7503. 

(f) System approval. The contracting 

officer shall promptly approve a 

previously disapproved accounting 

system and notify the contractor when 

the contracting officer determines that 

there are no remaining significant 

deficiencies or noncompliance with the 

applicable reporting and audit 

requirements. 

(g) Contracting officer notifications. 

The cognizant contracting officer shall 

promptly distribute copies of a 

determination to approve a system, to 

disapprove a system and withhold 

payments, or to approve a previously 

disapproved system and release 

withheld payments to the Government 

auditor, payment office, affected 

contracting officers at the buying 

activities, and cognizant contracting 

officers in contract administration 

activities. 

(h) Mitigating the risk of accounting 

system deficiencies on specific 

proposals. (1) Field pricing teams shall 

discuss identified accounting system 

deficiencies and their impact in all 

reports on contractor proposals until the 

deficiencies are resolved. 

(2) The contracting officer responsible 

for negotiation of a proposal generated 

by an accounting system with an 


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identified deficiency shall evaluate 

whether the deficiency impacts the 

negotiations. If it does not, the 

contracting officer should proceed with 

negotiations. If it does, the contracting 

officer should consider other 

alternatives, for example— 

(i) Allowing the contractor additional 

time to correct the accounting system 

deficiency and submit a corrected 

proposal; 

(ii) Considering another type of 

contract; 

(iii) Using additional cost analysis 

techniques to determine the 

reasonableness of the cost elements 

affected by the accounting system’s 

deficiency; 

(iv) Reducing the negotiation 

objective for profit or fee; or 

(v) Including a contract (reopener) 

clause that provides for adjustment of 

the contract amount after award. 

(3) The contracting officer who 

incorporates a reopener clause into the 

contract is responsible for negotiating 

price adjustments required by the 

clause. Any reopener clause 

necessitated by an accounting system 

deficiency should— 

(i) Clearly identify the amounts and 

items that are in question at the time of 

negotiation; 

(ii) Indicate a specific time or 

subsequent event by which the 

contractor will submit a supplemental 

proposal, including certified cost or 

pricing data, identifying the cost impact 

adjustment necessitated by the deficient 

accounting system; 

(iii) Provide for the contracting officer 

to adjust the contract price unilaterally 

if the contractor fails to submit the 

supplemental proposal; and 

(iv) Provide that failure of the 

Government and the contractor to agree 

to the price adjustment shall be a 

dispute under the Disputes clause. 

242.7504 [Amended] 

■ 11. In newly redsignated section 

242.7504, remove the bracket at the end 

of paragraph (b). 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

■ 12. Amend section 252.215–7002 by— 

■ a. Removing the clause date ‘‘(DEC 

2012)’’ and adding in its place 

‘‘(DATE)’’; 

■ b. Revising paragraphs (a) and (b); 

■ c. Amending paragraph (c) 

introductory text by removing ‘‘a large 

business’’ and adding ‘‘other than a 

small business concern’’ in its place; 

■ d. Revising paragraph (d) heading and 

adding paragraphs (d)(5) through (9); 

■ e. Revising paragraphs (e) and (f); and 

■ f. Amending paragraph (g) by 

removing ‘‘252.242–7005,’’ and adding 

‘‘DFARS 252.242–7005,’’ in its place. 

The revisions read as follows: 

252.215–7002 Cost Estimating System 

Requirements. 

* * * * * 

(a) Definitions. As used in this 

clause— 

Acceptable estimating system means 

an estimating system that complies with 

the system criteria in paragraph (d) of 

this clause, and provides for a system 

that— 

(i) Is maintained, reliable, and 

consistently applied; 

(ii) Produces verifiable, supportable, 

documented, and timely cost estimates 

that are an acceptable basis for 

negotiation of fair and reasonable prices; 

(iii) Is consistent with and integrated 

with the Contractor’s related 

management systems; and 

(iv) Is subject to applicable financial 

control systems. 

Contractor means a business unit as 

defined in FAR 2.101. 

Contractor’s Certified Public 

Accountant (CPA) means an 

independent certified public 

accountant, in public practice and not 

directly employed as an employee by 

the Contractor, performing audits for the 

Contractor in accordance with U.S. 

generally accepted government auditing 

standards (GAGAS) as issued by the 

Government Accountability Office. 

CPA audit means an examination of 

the Contractor’s compliance with the 

applicable system criteria in paragraph 

(d)(4) of this clause performed by the 

Contractor’s CPA in accordance with 

GAGAS for examination attestation 

engagements. 

Estimating system means the 

Contractor’s policies, procedures, and 

practices for budgeting and planning 

controls, and generating estimates of 

costs and other data included in 

proposals submitted to customers in the 

expectation of receiving contract 

awards. Estimating system includes the 

Contractor’s— 

(i) Organizational structure; 

(ii) Established lines of authority, 

duties, and responsibilities; 

(iii) Internal controls and managerial 

reviews; 

(iv) Flow of work, coordination, and 

communication; and 

(v) Budgeting, planning, estimating 

methods, techniques, accumulation of 

historical costs, and other analyses used 

to generate cost estimates. 

Significant deficiency means a 

shortcoming in the system that 

materially affects the ability of officials 

of the Department of Defense to rely 

upon information produced by the 

system that is needed for management 

purposes. 

(b) General. The Contractor shall— 

(1) Establish, maintain, and comply 

with an acceptable estimating system; 

and 

(2) Make available to the Government, 

upon request, the results of internal or 

external reviews or monitoring that have 

been conducted to ensure compliance 

with the system criteria in (d)(4) of this 

clause and established estimating 

policies and procedures. 

* * * * * 

(d) System and reporting 

requirements. * * * 

(5) Annual reporting requirements. (i) 

The Contractor shall provide to the 

Contracting Officer and Government 

auditor within the 6-month period 

following the expiration of the 

Contractor’s fiscal year, and annually 

thereafter, a report regarding 

compliance with the system criteria in 

paragraph (d)(4) of this clause as of the 

end of the Contractor’s most recent 

fiscal year. The Contractor shall have 

the report signed by an individual of the 

Contractor’s organization at a level no 

lower than a vice president or chief 

financial officer of the reporting 

business segment. 

(ii) The report shall include— 

(A) A statement that the Contractor 

has evaluated the estimating system’s 

compliance with the system criteria in 

paragraph (d)(4) of this clause; 

(B) The Contractor’s assessment of the 

estimating system’s compliance with the 

system criteria in paragraph (d)(4) of 

this clause, including a statement as to 

whether or not the system complies in 

all material respects, and disclosure of 

any significant deficiencies with 

sufficient information for the 

Government to understand the 

deficiencies; and 

(C) The status of any significant 

deficiencies disclosed as part of the 

Contractor’s assessment or, if 

applicable, in the Contractor’s CPA 

audit report as required in paragraph 

(d)(6) of this clause, including a 

corrective action plan with milestones 

and actions to eliminate any significant 

deficiencies that have not been 

corrected as of the date of the 

Contractor’s report. 

(6) Triennial CPA audit requirement. 

(i) In the first year in which the 

Contractor is required to provide the 

annual report as required in paragraph 

(d)(5) of this clause, and every three 

years thereafter, or more frequently if 

directed by the Contracting Officer, in 

addition to the items in paragraph 


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(d)(5)(ii) of this clause, the Contractor’s 

annual report shall include an audit 

report on the Contractor’s CPA’s 

examination of the Contractor’s 

compliance with the system criteria in 

paragraph (d)(4) of this clause as of the 

end of the most recent fiscal year. 

(ii) The examination shall be 

performed in accordance with GAGAS 

for examination attestation 

engagements, and the CPA audit report 

shall include sufficient information 

regarding any reported significant 

deficiencies for the Government to 

understand the deficiencies. 

(7) CPA selection. If paragraph (d)(6) 

of this clause is applicable, the 

Contractor shall reasonably ensure that 

the CPA firm performing the audit is— 

(i) Independent and objective with 

respect to the audited entity by 

obtaining and reviewing a written 

representation from the firm that the 

firm (and the assigned engagement 

team)— 

(A) Is independent and objective with 

respect to the audited entity; 

(B) Will remain independent 

throughout the audit; 

(C) Has not performed any nonaudit 

services for the audited entity that 

impair the auditors’ independence for 

the subject audit; and 

(D) Will disclose any independence 

issues discovered; and 

(ii) Qualified to perform the audit by 

obtaining and reviewing— 

(A) Information about key engagement 

team members regarding professional 

qualifications and experience, including 

valid CPA licenses or certificates in 

good standing, and current knowledge 

and experience in the type of work to 

be done; and 

(B) The firm’s most recent peer review 

report, in accordance with the American 

Institute of Certified Public Accountants 

(AICPA) Peer Review Program, or 

equivalent. 

(8) Contractor submission of audit 

plan. The Contractor shall provide the 

Contractor’s CPA’s audit strategy, risk 

assessment, and audit plan (program), 

upon completion, for the audits 

required in paragraphs (d)(6) and (f)(2) 

of this clause, to the cognizant 

contracting officer and Government 

auditor for review if— 

(i) The Contractor has received 

Department of Defense (DoD) prime 

contracts or subcontracts, totaling $100 

million or more for which certified cost 

or pricing data were required during the 

fiscal year to which the Contractor’s 

CPA audit report applies; or 

(ii) Requested by the Contracting 

Officer, in consultation with the 

Government auditor. 

(9) Documentation requirements. (i) If 

paragraphs (d)(5) and (6) of this clause 

are applicable, the Contractor shall 

maintain and make available to the 

Government upon request— 

(A) Documentation to provide 

reasonable support for the assessment of 

the estimating system as required in 

paragraphs (d)(5)(ii)(B) of this clause; 

and 

(B) Information considered in the 

selection of a CPA as required in 

paragraph (d)(7) of this clause, if 

applicable. 

(ii) The Contractor shall arrange for 

Government access to the working 

papers supporting the CPA audit reports 

required in paragraphs (d)(6) and (f)(2) 

of this clause, and documentation 

supporting the Contractor’s CPA’s 

independence, objectivity and 

qualifications. 

(e) Significant deficiencies or failure 

to comply with applicable reporting and 

audit requirements. (1) The Contracting 

Officer will provide an initial 

determination to the Contractor, in 

writing, of any significant deficiencies 

or the Contractor’s failure to comply 

with the applicable reporting and audit 

requirements in paragraphs (d)(5) and 

(6) of this clause. The initial 

determination will describe the 

deficiency in sufficient detail to allow 

the Contractor to understand the 

deficiency and provide sufficient 

information on the noncompliance with 

the applicable reporting and audit 

requirements to allow the Contractor to 

understand what action needs to be 

taken to comply. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies significant 

deficiencies in the Contractor’s 

estimating system or the Contractor’s 

failure to comply with the applicable 

reporting and audit requirements in 

paragraphs (d)(5) and (6) of this clause. 

If the Contractor disagrees with the 

initial determination, the Contractor 

shall state, in writing, its rationale for 

disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining significant deficiencies; 

(ii) Remaining noncompliance with 

the applicable reporting and audit 

requirements; 

(iii) The adequacy of any proposed or 

completed corrective action; and 

(iv) System disapproval, if the 

Contracting Officer determines that one 

or more significant deficiencies remain 

or the Contractor has failed to comply 

with the applicable reporting and audit 

requirements. 

(f) If the Contractor receives the 

Contracting Officer’s final determination 

of significant deficiencies or the 

Contractor’s failure to comply with the 

applicable reporting and audit 

requirements in accordance with 

paragraphs (d)(5) and (6) of this clause, 

the Contractor shall— 

(1) Within 45 days of receipt of the 

final determination, either correct the 

significant deficiencies or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the significant deficiencies, 

and comply with the applicable 

reporting and audit requirements; and 

(2) If the significant deficiencies were 

reported in the Contractor’s annual 

report, or the Contractor’s CPA audit 

report, provide the Contractor’s CPA’s 

opinion regarding the effectiveness of 

the corrective actions— 

(i) As a part of the triennial CPA audit 

report as required in paragraph (d)(6) of 

this clause; or 

(ii) In a separate audit report on the 

Contractor’s CPA’s examination of the 

effectiveness of the corrective action 

performed in accordance with GAGAS 

for examination attestation 

engagements. 

* * * * * 

■ 13. Amend section 252.242–7004 by— 

■ a. Removing the clause date ‘‘(MAY 

2011)’’ and adding in its place 

‘‘(DATE)’’; 

■ b. Revising paragraph (a); 

■ c. Amending paragraph (b)(2) by 

removing ‘‘paragraph (e)’’ and adding 

‘‘paragraph (h)’’ in its place; 

■ d. Revising paragraph (c)(2); 

■ e. Redesignating paragraphs (d) 

through (g) as paragraphs (h) through 

(k), respectively, and adding new 

paragraphs (d) through (g); and 

■ f. Revising the newly redesignated 

paragraphs (i) and (j). 

The revisions and additions read as 

follows: 

252.242–7004 Material Management and 

Accounting System. 

* * * * * 

(a) Definitions. As used in this 

clause— 

Acceptable material management and 

accounting system means a MMAS that 

generally complies with the applicable 

system criteria in paragraph (h) of this 

clause. 

Contractor means a business unit as 

defined in FAR 2.101. 

Contractor’s Certified Public 

Accountant (CPA) means an 

independent certified public 

accountant, in public practice and not 

directly employed as an employee by 


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the Contractor, performing audits for the 

Contractor in accordance with U.S. 

generally accepted government auditing 

standards (GAGAS), as issued by the 

Government Accountability Office. 

CPA audit means an examination of 

the Contractor’s compliance with the 

applicable system criteria in paragraph 

(h) of this clause performed by the 

Contractor’s CPA in accordance with 

GAGAS for examination attestation 

engagements. 

Material management and accounting 

system (MMAS) means the Contractor’s 

system or systems for planning, 

controlling, and accounting for the 

acquisition, use, issuing, and 

disposition of material. Material 

management and accounting systems 

may be manual or automated. They may 

be stand-alone systems or they may be 

integrated with planning, engineering, 

estimating, purchasing, inventory, 

accounting, or other systems. 

Qualifying sales means sales for 

which cost or pricing data were required 

under 10 U.S.C. 2306a, as implemented 

in FAR 15.403, or that are contracts 

priced on other than a firm-fixed-price 

or fixed-price with economic price 

adjustment basis. Sales include prime 

contracts, subcontracts, and 

modifications to such contracts and 

subcontracts. 

Significant deficiency means a 

shortcoming in the system that 

materially affects the ability of officials 

of the Department of Defense to rely 

upon information produced by the 

system that is needed for management 

purposes. 

Valid time-phased requirements 

means material that is— 

(i) Needed to fulfill the production 

plan, including reasonable quantities for 

scrap, shrinkage, yield, etc.; and 

(ii) Charged/billed to contracts or 

other cost objectives in a manner 

consistent with the need to fulfill the 

production plan. 

* * * * * 

(c) * * * 

(2) Provide to the Administrative 

Contracting Officer (ACO), upon 

request, the results of internal or 

external reviews or monitoring that have 

been conducted to ensure compliance 

with the system criteria in paragraph (h) 

of this clause and established MMAS 

policies, procedures, and operating 

instructions; and 

* * * * * 

(d) Triennial CPA reporting and audit 

requirements. (1) If the Contractor is 

other than small business concern, has 

$50 million of qualifying sales to the 

Government during the preceding fiscal 

year, and the Contracting Officer 

requests an MMAS review, the 

Contractor shall— 

(i) Provide to the Contracting Officer 

and Government auditor within the 6- 

month period following the expiration 

of the Contractor’s fiscal year, a report 

regarding the Contractor’s compliance 

with the system criteria in paragraph (h) 

of this clause as of the end of the 

Contractor’s most recent fiscal year; and 

(ii) Have the report signed by an 

individual of the Contractor’s 

organization at a level no lower than a 

vice president or chief financial officer 

of the reporting business segment. 

(2) The report shall include— 

(i) A statement that the Contractor has 

evaluated the MMAS’s compliance with 

the system criteria in paragraph (h) of 

this clause; 

(ii) The Contractor’s assessment of the 

MMAS’s compliance with the system 

criteria in paragraph (h) of this clause, 

including a statement as to whether or 

not the system complies in all material 

respects and disclosure of any 

significant deficiencies with sufficient 

information for the Government to 

understand the deficiencies; 

(iii) An audit report on the 

Contractor’s CPA’s examination of the 

Contractor’s compliance with the 

system criteria in paragraph (h) of this 

clause as of the end of the most recent 

fiscal year. The examination shall be 

performed in accordance with GAGAS 

for examination attestation 

engagements. The CPA audit report 

shall include sufficient information 

regarding any reported significant 

deficiencies for the Government to 

understand the deficiencies; and 

(iv) The status of any significant 

deficiencies disclosed as part of the 

Contractor’s assessment or in the 

Contractor’s CPA audit report, including 

a corrective action plan with milestones 

and actions to eliminate any significant 

deficiencies that have not been 

corrected as of the date of the 

Contractor’s report. 

(e) CPA selection. If paragraph (d) of 

this clause is applicable, the Contractor 

shall reasonably ensure that the CPA 

firm performing the audit is— 

(1) Independent and objective with 

respect to the audited entity by 

obtaining and reviewing a written 

representation from the firm that the 

firm (and the assigned engagement 

team)— 

(i) Is independent and objective with 

respect to the audited entity; 

(ii) Will remain independent 

throughout the audit; 

(iii) Has not performed any nonaudit 

services for the audited entity that 

impair the auditors’ independence for 

the subject audit; and 

(iv) Will disclose any independence 

issues discovered; and 

(2) Qualified to perform the audit by 

obtaining and reviewing— 

(i) Information about key engagement 

team members regarding professional 

qualifications and experience, including 

valid CPA licenses or certificates in 

good standing, and current knowledge 

and experience in the type of work to 

be done; and 

(ii) The firm’s most recent peer review 

report, in accordance with the American 

Institute of Certified Public Accountants 

(AICPA) Peer Review Program, or 

equivalent. 

(f) Contractor submission of audit 

plan. The Contractor shall provide the 

Contractor’s CPA’s audit strategy, risk 

assessment, and audit plan (program), 

upon completion, for the audits 

required in paragraphs (d)(2)(iii) and 

(j)(2) of this clause, to the cognizant 

contracting officer and Government 

auditor for review if— 

(1) The Contractor has more than $100 

million in qualifying sales to the 

Government during the fiscal year to 

which the Contractor’s CPA audit report 

applies; or 

(2) Requested by the Contracting 

Officer, in consultation with the 

Government auditor. 

(g) Documentation requirements. (1) If 

paragraph (d) of this clause is 

applicable, the Contractor shall 

maintain and make available to the 

Government upon request— 

(i) Documentation to provide 

reasonable support for the assessment of 

the MMAS as required in paragraph 

(d)(2)(ii) of this clause; and 

(ii) Information considered in the 

selection of a CPA as required in 

paragraph (e) of this clause. 

(2) The Contractor shall arrange for 

Government access to the working 

papers supporting the CPA audit reports 

as required in paragraphs (d)(2)(iii) and 

(j)(2) of this clause, and documentation 

supporting the CPA’s independence, 

objectivity, and qualifications. 

* * * * * 

(i) Significant deficiencies or failure to 

comply with applicable reporting and 

audit requirements. (1) The Contracting 

Officer will provide an initial 

determination to the Contractor, in 

writing, of any significant deficiencies 

or the Contractor’s failure to comply 

with the applicable reporting and audit 

requirements in paragraph (d) of this 

clause. The initial determination will 

describe the deficiency in sufficient 

detail to allow the Contractor to 

understand the deficiency and provide 

sufficient information on the 

noncompliance with the applicable 


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reporting and audit requirements to 

allow the Contractor to understand what 

action needs to be taken to comply. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies significant 

deficiencies in the Contractor’s MMAS 

or the Contractor’s failure to comply 

with the applicable reporting and audit 

requirements in paragraph (d) of this 

clause. If the Contractor disagrees with 

the initial determination, the Contractor 

shall state, in writing, its rationale for 

disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining significant deficiencies; 

(ii) Remaining noncompliance with 

the applicable reporting and audit 

requirements; 

(iii) The adequacy of any proposed or 

completed corrective action; and 

(iv) System disapproval if the 

Contracting Officer determines that one 

or more significant deficiencies remain 

or the Contractor has failed to comply 

with the applicable reporting and audit 

requirements. 

(j) If the Contractor receives the 

Contracting Officer’s final determination 

of significant deficiencies or the 

Contractor’s failure to comply with the 

applicable reporting and audit 

requirements in accordance with 

paragraph (d) of this clause, the 

Contractor shall— 

(1) Within 45 days of receipt of the 

final determination, either correct the 

significant deficiencies or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the significant deficiencies, 

and comply with the applicable 

reporting and audit requirements; and 

(2) If the significant deficiencies were 

reported in the Contractor’s annual 

report, or the Contractor’s CPA audit 

report as required in paragraph (d) of 

this clause, provide the Contractor’s 

CPA’s opinion regarding the 

effectiveness of the corrective actions— 

(i) As a part of the triennial CPA audit 

report required in paragraph (d) of this 

clause; or 

(ii) In a separate audit report on the 

Contractor’s CPA’s examination of the 

effectiveness of the corrective action 

performed in accordance with GAGAS 

for examination attestation 

engagements. 

* * * * * 

■ 14. Amend section 252.242–7005 by— 

■ a. In the introductory text, removing 

‘‘242.7001’’ and adding ‘‘242.7003’’ in 

its place; 

■ b. Removing the clause date ‘‘(FEB 

2012)’’ and adding in its place 

‘‘(DATE)’’; 

■ c. Amending paragraph (b) by— 

■ i. Revising the definition of 

‘‘Contractor business systems’’; and 

■ ii. Adding, in alphabetical order, 

definitions for ‘‘Contractor’s Certified 

Public Account (CPA)’’ and ‘‘CPA 

audit’’. 

■ d. Revising paragraph (d); 

■ e. Revising paragraphs (e)(1) and (2); 

■ f. Revising paragraphs (f)(1), (f)(2) 

introductory text, and (f)(2)(i); 

■ g. Amending paragraph (f)(iv) by 

removing ‘‘Contractor has corrected the 

significant deficiencies’’ and adding 

‘‘Contractor has corrected the significant 

deficiencies and, if applicable, the 

Contractor’s CPA audit report on the 

effectiveness of the corrective actions’’ 

in its place; and 

■ h. Adding paragraph (g). 

The additions and revisions read as 

follows: 

252.242–7005 Contractor Business 

Systems. 

* * * * * 

(b) * * * 

Contractor business systems means— 

(i) Accounting system, if this contract 

includes the clause at DFARS 252.242– 

7006, Accounting System 

Administration; 

(ii) Earned value management system, 

if this contract includes the clause at 

DFARS 252.234–7002, Earned Value 

Management System; 

(iii) Estimating system, if this contract 

includes the clause at DFARS 252.215– 

7002, Cost Estimating System 

Requirements; 

(iv) Material management and 

accounting system, if this contract 

includes the clause at DFARS 252.242– 

7004, Material Management and 

Accounting System; 

(v) Property management system, if 

this contract includes the clause at 

DFARS 252.245–7003, Contractor 

Property Management System 

Administration; and 

(vi) Purchasing system, if this contract 

includes the clause at DFARS 252.244– 

7001, Contractor Purchasing System 

Administration. 

Contractor’s Certified Public 

Accountant (CPA) means an 

independent certified public 

accountant, in public practice and not 

directly employed as an employee by 

the Contractor, performing audits for the 

Contractor in accordance with U.S. 

generally accepted government auditing 

standards (GAGAS) as issued by the 

Government Accountability Office. 

CPA audit means an examination of 

the Contractor’s compliance with the 

applicable system criteria in the 

applicable business system clause in 

DFARS 242.7003(b) performed by the 

Contractor’s CPA in accordance with 

GAGAS for examination attestation 

engagements. 

* * * * * 

(d) Significant deficiencies or failure 

to comply with reporting and audit 

requirements. (1) The Contractor shall 

respond, in writing, within 30 days to 

an initial determination of— 

(i) One or more significant 

deficiencies in one or more of the 

Contractor’s business systems; or 

(ii) Failure to comply with the 

applicable reporting and audit 

requirements in the applicable business 

system clause listed in the definition of 

‘‘contractor business systems’’ in 

paragraph (b) of this clause. 

(2) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

final determination as to whether— 

(i) The Contractor’s business system 

contains significant deficiencies; or 

(ii) The Contractor has failed to 

comply with the applicable reporting 

and audit requirements in the 

applicable business system clause listed 

in the definition of ‘‘contractor business 

systems’’ in paragraph (b) of this clause. 

(3) If the Contracting Officer 

determines that the Contractor’s 

business system contains significant 

deficiencies or that the contractor has 

failed to comply with the applicable 

reporting and audit requirements, the 

final determination will include a notice 

to withhold payments. 

(e) Withholding payments. (1) If the 

Contracting Officer issues the final 

determination with a notice to withhold 

payments for significant deficiencies in 

a contractor business system, or for the 

Contractor’s failure to comply with the 

applicable reporting and audit 

requirements in the applicable business 

system clause listed in the definition of 

‘‘contractor business systems’’ in 

paragraph (b) of this clause required 

under this contract, the Contracting 

Officer will withhold five percent of 

amounts due from progress payments 

and performance-based payments, and 

direct the Contractor, in writing, to 

withhold five percent from its billings 

on interim cost vouchers on costreimbursement, labor-hour, and timeand-materials contracts until the 

Contracting Officer has determined that 

the Contractor has corrected all 

significant deficiencies and complied 

with the applicable reporting and audit 

requirements as directed by the 

Contracting Officer’s final 

determination. 


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(2) If the final determination with a 

notice to withhold payments is for 

significant deficiencies in a Contractor 

business system— 

(i) 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; and 

(ii)(A) If the Contractor submits an 

acceptable corrective action plan within 

45 days of receipt of a notice of the 

Contracting Officer’s intent to withhold 

payments, and the Contracting Officer, 

in consultation with the Government 

auditor or functional specialist, 

determines that the Contractor is 

effectively implementing such plan, the 

Contracting Officer will reduce 

withholding directly related to the 

significant deficiencies covered under 

the corrective action plan, to two 

percent from progress payments and 

performance-based payments, and direct 

the Contractor, in writing, to reduce the 

percentage withheld on interim cost 

vouchers to two percent until the 

Contracting Officer determines the 

Contractor has corrected all significant 

deficiencies as directed by the 

Contracting Officer’s final 

determination. 

(B) If at any time the Contracting 

Officer determines that the Contractor 

has failed to follow the accepted 

corrective action plan, the Contracting 

Officer will increase withholding from 

progress payments and performancebased payments, and direct the 

Contractor, in writing, to increase the 

percentage withheld on interim cost 

vouchers to the percentage initially 

withheld, until the Contracting Officer 

determines that the Contractor has 

corrected all significant deficiencies as 

directed by the Contracting Officer’s 

final determination. 

* * * * * 

(f) Correction of deficiencies. (1) The 

Contractor shall notify the Contracting 

Officer, in writing, when the Contractor 

has corrected the business system’s 

deficiencies, and shall provide the 

Contractor’s CPA audit report on the 

effectiveness of the corrective actions, if 

required by the applicable business 

system clause listed in the definition of 

‘‘contractor business systems’’ in 

paragraph (b) of this clause. 

(2) Once the Contractor has notified 

the Contracting Officer that all 

deficiencies have been corrected and, if 

applicable, provided the Contractor’s 

CPA audit report on the effectiveness of 

the corrective actions, the Contracting 

Officer will take one of the following 

actions: 

(i) If the Contracting Officer 

determines that the Contractor has 

corrected all significant deficiencies as 

directed by the Contracting Officer’s 

final determination, the Contracting 

Officer will, as appropriate, discontinue 

the withholding of progress payments 

and performance-based payments, and 

direct the Contractor, in writing, to 

discontinue the payment withholding 

from billings on interim cost vouchers 

under this contract associated with the 

Contracting Officer’s final 

determination, and authorize the 

Contractor to bill for any monies 

previously withheld that are not also 

being withheld due to other significant 

deficiencies, or noncompliance with 

applicable reporting and audit 

requirements in the applicable business 

system clause listed in the definition of 

‘‘contractor business systems’’ in 

paragraph (b) of this clause. Any 

payment withholding under this 

contract due to other significant 

deficiencies or noncompliance with 

applicable reporting and audit 

requirements, will remain in effect until 

the Contracting Officer determines that 

those significant deficiencies and 

noncompliances are corrected. 

* * * * * 

(g) Compliance with applicable 

reporting and audit requirements. When 

the Contractor has, as directed by the 

Contracting Officer’s final 

determination, provided the 

Contractor’s report on compliance with 

the system criteria, including, if 

applicable, the Contractor’s CPA audit 

report as required in the applicable 

business system clause listed in the 

definition of ‘‘contractor business 

systems’’ in paragraph (b) of this clause, 

the Contracting Officer will, as 

appropriate, discontinue the 

withholding of progress payments and 

performance-based payments, and direct 

the Contractor, in writing, to 

discontinue the payment withholding 

from billings on interim cost vouchers 

under this contract associated with the 

Contracting Officer’s final 

determination, and authorize the 

Contractor to bill for any monies 

previously withheld that are not also 

being withheld due to significant 

deficiencies or other noncompliance 

with applicable reporting and audit 

requirements. Any payment 

withholding under this contract due to 

significant deficiencies or other 

noncompliance with applicable 

reporting and audit requirements, will 

remain in effect until the Contracting 

Officer determines that those significant 

deficiencies and noncompliances are 

corrected. 

■ 15. Amend section 252.242–7006 by— 

■ a. In the introductory text, removing 

‘‘242.7503’’ and adding ‘‘242.7504’’ in 

its place; 

■ b. Removing the clause date ‘‘(FEB 

2012)’’ and adding in its place 

‘‘(DATE)’’; 

■ c. In paragraph (a) removing the 

numerical paragraph designations of (1) 

through (3) for the definition 

paragraphs, and adding, in alphabetical 

order, definitions for ‘‘Contractor’s 

Certified Public Account (CPA)’’ and 

‘‘CPA audit’’; 

■ d. Revising paragraph (b); 

■ e. Redesignating paragraphs (d), (e) 

and (f) as paragraphs (j), (k) and (l), 

respectively; 

■ f. Adding new paragraphs (d) through 

(i); 

■ g. Revising the newly redesignated 

paragraphs (j) and (k); and 

■ h. Amending the newly redesignated 

paragraph (l) by removing ‘‘252.242– 

7005’’ and adding ‘‘DFARS 252.242– 

7005’’ in its place. 

The revisions and additions read as 

follows: 

252.242–7006 Accounting System 

Administration. 

* * * * * 

(a) * * * 

Contractor’s Certified Public 

Accountant (CPA) means an 

independent certified public 

accountant, in public practice and not 

directly employed as an employee by 

the Contractor, performing audits for the 

Contractor in accordance with U.S. 

generally accepted government auditing 

standards (GAGAS) as issued by the 

Government Accountability Office. 

CPA audit means an examination of 

the Contractor’s compliance with the 

applicable system criteria in paragraph 

(c) of this clause performed by the 

Contractor’s CPA in accordance with 

GAGAS for examination attestation 

engagements. 

* * * * * 

(b) General. The Contractor shall— 

(1) Establish and maintain an 

acceptable accounting system; and 

(2) Make available to the Government, 

upon request, the results of internal or 

external reviews or monitoring that have 

been conducted to ensure compliance 

with the system criteria in (c) and 

established accounting system policies 

and procedures. 

* * * * * 

(d) Applicability. (1) Paragraph (e) of 

this clause applies if, in the Contractor’s 

fiscal year preceding the period in 

which the annual report as required in 

paragraph (e) is due to the Government, 

the Contractor had a covered contract as 

defined in DFARS 242.7001 (other than 


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contracts with educational institutions 

or Federally Funded Research and 

Development Centers (FFRDCs) 

operated by educational institutions). 

(2) Paragraph (f) of this clause applies 

if, in the Contractor’s fiscal year 

preceding the period in which the 

Contractor’s CPA audit report as 

required in paragraph (f) is due to the 

Government, the Contractor had a 

covered contract as defined in DFARS 

242.7001 (other than contracts with 

educational institutions or Federally 

Funded Research and Development 

Centers (FFRDCs) operated by 

educational institutions). 

(e) Annual reporting requirements. (1) 

The Contractor shall provide to the 

Contracting Officer and Government 

auditor within the 6-month period 

following the expiration of the 

Contractor’s fiscal year, and annually 

thereafter, a report regarding 

compliance with the system criteria in 

paragraph (c) of this clause as of the end 

of the Contractor’s most recent fiscal 

year. The Contractor shall have the 

report signed by an individual of the 

Contractor’s organization at a level no 

lower than a vice president or chief 

financial officer of the reporting 

business segment. 

(2) The report shall include— 

(i) A statement that the Contractor has 

evaluated the accounting system’s 

compliance with the system criteria in 

paragraph (c) of this clause; 

(ii) The Contractor’s assessment of the 

accounting system’s compliance with 

the system criteria in paragraph (c) of 

this clause, including a statement as to 

whether or not the system complies in 

all material respects, and disclosure of 

any significant deficiencies with 

sufficient information for the 

Government to understand the 

deficiencies; and 

(iii) The status of any significant 

deficiencies disclosed as part of the 

Contractor’s assessment or, if 

applicable, in the Contractor’s CPA 

audit report required in paragraph (f) of 

this clause, including a corrective action 

plan with milestones and actions to 

eliminate any significant deficiencies 

that have not been corrected as of the 

date of the Contractor’s report. 

(f) Triennial CPA audit requirement. 

(1) In the first year in which the 

Contractor is required to provide the 

annual report as required in paragraph 

(e) of this clause, and every three years 

thereafter, or more frequently if directed 

by the Contracting Officer, in addition 

to the items in paragraphs (e)(2)(i), (ii), 

and (iii) of this clause, the Contractor’s 

annual report shall include an audit 

report on the Contractor’s CPA’s 

examination of the Contractor’s 

compliance with the system criteria in 

paragraph (c) of this clause as of the end 

of the Contractor’s most recent fiscal 

year. 

(2) The examination shall be 

performed in accordance with GAGAS 

for examination attestation 

engagements, and the CPA audit report 

shall include sufficient information 

regarding any reported significant 

deficiencies for the Government to 

understand the deficiencies. 

(g) CPA selection. If paragraph (f) of 

this clause is applicable, the Contractor 

shall reasonably ensure that the CPA 

firm performing the audit is— 

(1) Independent and objective with 

respect to the audited entity by 

obtaining and reviewing a written 

representation from the firm that the 

firm (and the assigned engagement 

team)— 

(i) Is independent and objective with 

respect to the audited entity; 

(ii) Will remain independent 

throughout the audit; 

(iii) Has not performed any nonaudit 

services for the audited entity that 

impair the auditors’ independence for 

the subject audit; and 

(iv) Will disclose any independence 

issues discovered; and 

(2) Qualified to perform the audit by 

obtaining and reviewing— 

(i) Information about key engagement 

team members regarding professional 

qualifications and experience, including 

valid CPA licenses or certificates in 

good standing, and current knowledge 

and experience in the type of work to 

be done; and 

(ii) The firm’s most recent peer review 

report, in accordance with the American 

Institute of Certified Public Accountants 

(AICPA) Peer Review Program, or 

equivalent. 

(h) Contractor submission of audit 

plan. The Contractor shall provide the 

Contractor’s CPA’s audit strategy, risk 

assessment, and audit plan (program), 

upon completion, for the audits as 

required in paragraphs (f) and (k)(2) of 

this clause to the cognizant contracting 

officer and Government auditor for 

review if— 

(1) The Contractor has more than $100 

million in cost incurred on costreimbursement and incentive type 

contracts, and amounts billed on time 

and material and labor hour contracts 

during the Contractor’s fiscal year to 

which the Contractor’s CPA audit report 

applies; or 

(2) Requested by the Contracting 

Officer, in consultation with the 

Government auditor. 

(i) Documentation requirements. (1) If 

paragraphs (e) and (f) of this clause are 

applicable, the Contractor shall 

maintain and make available to the 

Government upon request— 

(i) Documentation to provide 

reasonable support for the assessment of 

the accounting system as required in 

paragraph (e)(2)(ii) of this clause; and 

(ii) Information considered in the 

selection of a CPA as required in 

paragraph (g) of this clause, if 

applicable. 

(2) The Contractor shall arrange for 

Government access to the working 

papers supporting the CPA audit reports 

as required in paragraphs (f) and (k)(2) 

of this clause, and documentation 

supporting the CPA’s independence, 

objectivity, and qualifications. 

(j) Significant deficiencies or failure to 

comply with applicable reporting and 

audit requirements. (1) The Contracting 

Officer will provide an initial 

determination to the Contractor, in 

writing, of any significant deficiencies 

or the Contractor’s failure to comply 

with the applicable reporting and audit 

requirements in paragraphs (e) and (f) of 

this clause. The initial determination 

will describe the deficiency in sufficient 

detail to allow the Contractor to 

understand the deficiency and provide 

sufficient information on the 

noncompliance with the applicable 

reporting and audit requirements to 

allow the Contractor to understand what 

action needs to be taken to comply. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies significant 

deficiencies in the Contractor’s 

accounting system or the Contractor’s 

failure to comply with the applicable 

reporting and audit requirements in 

paragraphs (e) and (f) of this clause. If 

the Contractor disagrees with the initial 

determination, the Contractor shall 

state, in writing, its rationale for 

disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining significant deficiencies; 

(ii) Remaining noncompliance with 

the applicable reporting and audit 

requirements; 

(iii) The adequacy of any proposed or 

completed corrective action; and 

(v) System disapproval, if the 

Contracting Officer determines that one 

or more significant deficiencies remain 

or the Contractor has failed to comply 

with the applicable reporting and audit 

requirements. 

(k) If the Contractor receives the 

Contracting Officer’s final determination 

of significant deficiencies or the 

Contractor’s failure to comply with the 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 79, No. 135 / Tuesday, July 15, 2014 / Proposed Rules 41185 

applicable reporting and audit 

requirements in accordance with 

paragraphs (e) and (f) of this clause, the 

Contractor shall— 

(1) Within 45 days of receipt of the 

final determination, either correct the 

significant deficiencies or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the significant deficiencies, 

and comply with the applicable 

reporting and audit requirements; and 

(2) If the significant deficiencies were 

reported in the Contractor’s annual 

report, or the Contractor’s CPA audit 

report, provide the Contractor’s CPA’s 

opinion regarding the effectiveness of 

the corrective actions— 

(i) As a part of the triennial CPA audit 

report as required in paragraph (f) of 

this clause; or 

(ii) In a separate audit report on the 

Contractor’s CPA’s examination of the 

effectiveness of the corrective action 

performed in accordance with GAGAS 

for examination attestation 

engagements. 

* * * * * 

[FR Doc. 2014–16390 Filed 7–11–14; 4:15 pm] 

BILLING CODE 5001–06–P 

DEPARTMENT OF TRANSPORTATION 

Pipeline and Hazardous Materials 

Safety Administration 

49 CFR Parts 171, 172, 173, and 177 

[Docket No. PHMSA–2011–0345 (HM–233D)] 

RIN 2137–AE86 

Hazardous Materials: Requirements for 

the Safe Transportation of Bulk 

Explosives (RRR) 

AGENCY: Pipeline and Hazardous 

Materials Safety Administration 

(PHMSA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The Pipeline and Hazardous 

Materials Safety Administration is 

proposing to amend the Hazardous 

Materials Regulations by establishing 

standards for the safe transportation of 

bulk explosives. This rulemaking would 

be responsive to two petitions for 

rulemaking submitted by industry 

representatives: P–1557 concerning the 

continued use of renewal applications, 

and P–1583 concerning the 

incorporation of an industry standard 

publication. Further, developing these 

requirements would provide wider 

access to the regulatory flexibility 

currently only offered by special permit 

and competent authorities. 

The requirements of this proposed 

rule would mirror the majority of 

provisions contained in nine widely 

used or longstanding special permits 

that have established safety records. 

These proposed revisions are intended 

to eliminate the need for future renewal 

requests, thus reducing paperwork 

burdens and facilitating commerce 

while maintaining an appropriate level 

of safety. As proposed, the requirements 

would authorize the transportation of 

certain explosives, ammonium nitrates, 

ammonium nitrate emulsions, and other 

specific hazardous materials in bulk 

packagings, which are not otherwise 

authorized under the regulations. These 

hazardous materials are used in blasting 

operations on specialized vehicles, 

known as multipurpose bulk trucks, 

which are used as mobile work 

platforms to create blends of explosives 

that are unique for each blast site. 

Finally, this rulemaking addresses the 

construction of new multipurpose bulk 

trucks. 

DATES: Comments must be submitted by 

September 15, 2014. To the extent 

possible, PHMSA will consider latefiled comments as a final rule is 

developed. 

ADDRESSES: You may submit comments 

by identification of the docket number 

(PHMSA–2011–0345 (HM–233D)) by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

• Fax: 1–202–493–2251. 

• Mail: Docket Operations, U.S. 

Department of Transportation, West 

Building, Ground Floor, Room W12– 

140, Routing Symbol M–30, 1200 New 

Jersey Avenue SE., Washington, DC 

20590. 

• Hand Delivery: To Docket 

Operations, Room W12–140 on the 

ground floor of the West Building, 1200 

New Jersey Avenue SE., Washington, 

DC 20590, between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. 

Instructions: All submissions must 

include the agency name and docket 

number for this notice at the beginning 

of the comment. All comments received 

will be posted without change to the 

Federal Docket Management System 

(FDMS), including any personal 

information. 

Docket: For access to the dockets to 

read background documents (including 

the Regulatory Impact Analysis (RIA)) or 

comments received, go to http://

www.regulations.gov or DOT’s Docket 

Operations Office (see ADDRESSES). 

FOR FURTHER INFORMATION CONTACT: 

Matthew Nickels, Standards and 

Rulemaking Division, Office of 

Hazardous Materials Safety, Pipeline 

and Hazardous Materials Safety 

Administration, U.S. Department of 

Transportation, telephone (202) 366– 

8553, 1200 New Jersey Avenue SE., 

Washington, DC 20590. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Executive Summary 

II. Background 

III. Summary Review of Proposed 

Amendments 

IV. Regulatory Analyses and Notices 

A. Statutory/Legal Authority for this 

Rulemaking 

B. Executive Order 13610, Executive Order 

13563, Executive Order 12866, and DOT 

Regulatory Policies and Procedures 

C. Executive Order 13132 

D. Executive Order 13175 

E. Regulatory Flexibility Act, Executive 

Order 13272, and DOT Procedures and 

Policies 

F. Paperwork Reduction Act 

G. Regulatory Identifier Number (RIN) 

H. Unfunded Mandates Reform Act 

I. Environmental Assessment and Finding 

of No Significant Impact 

J. Privacy Act 

K. Executive Order 13609 and International 

Trade Analysis 

L. National Technology Transfer and 

Advancement Act 

V. List of Subjects 

I. Executive Summary 

In this notice of proposed rulemaking 

(NPRM), the Pipeline and Hazardous 

Materials Safety Administration 

(PHMSA) proposes to amend the 

Hazardous Materials Regulations (HMR) 

by establishing standards for the safe 

transportation of bulk explosives. This 

rulemaking would be responsive to two 

petitions for rulemaking submitted by 

industry representatives: P–1557, 

concerning the continued use of 

renewal applications, and P–1583, 

concerning the incorporation of an 

industry standard publication. Further, 

developing these requirements would 

provide wider access to the regulatory 

flexibility currently offered only by 

special permit and competent authority 

approvals. These proposed revisions are 

intended to eliminate the need for 

future renewal requests of nine special 

permits (the transportation of certain 

explosives, ammonium nitrates, 

ammonium nitrate emulsions, and other 

specific hazardous materials in bulk 

packaging) that have established safety 

records. The revisions would reduce 

paperwork burdens and facilitate 

commerce while maintaining a 

appropriate level of safety. 


sroberts on DSK5SPTVN1PROD with PROPOSALS