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###### Department of Defense

###### Defense Acquisition Regulations System 

          - 48 CFR Parts 216 and 252 
          - RIN 0750-AF44 

# AGENCY:

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

# ACTION:

Interim rule with request for comments. 

# SUMMARY:

                        DoD has issued an interim rule amending the Defense Federal Acquisition Regulation Supplement                               ( print page 74470)                            (DFARS) to provide policy for reimbursing labor costs on competitively awarded DoD non-commercial time-and-materials and labor-hour contracts.                     

# DATES:

*Effective Date:*                         February 12, 2007.                     

*Comment Date:*                         Comments on the interim rule should be submitted to the address shown below on or before February 12, 2007, to be considered in the formation of the final rule.                     

# ADDRESSES:

You may submit comments, identified by DFARS Case 2006-D030, using any of the following methods: 
      -  Federal eRulemaking Portal: http://www.regulations.gov . Follow the instructions for submitting comments.                     
      -  E-mail: dfars@osd.mil . Include DFARS Case 2006-D030 in the subject line of the message.                     
      -  Fax:                          (703) 602-0350.                     
      -  Mail:                          Defense Acquisition Regulations System, Attn: Ms. Robin Schulze, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062.                     
      -  Hand Delivery/Courier:                          Defense Acquisition Regulations System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.                     

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

# FOR FURTHER INFORMATION CONTACT:

Ms. Robin Schulze, (703) 602-0326. 

# SUPPLEMENTARY INFORMATION:

## A. Background 

This interim DFARS rule supplements the final Federal Acquisition Regulation (FAR) rule published in Federal Acquisition Circular 2005-15, under FAR Case 2004-015. The FAR rule clarifies payment procedures for non-commercial time-and-materials and labor-hour contracts, and prescribes the following three options for establishing fixed hourly rates on competitively awarded non-commercial time-and-materials and labor-hour contracts: 

(1) Separate rates that include profit for each category of labor performed by the contractor and each subcontractor, and for each category of labor transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. 

(2) Blended rates that include profit for each category of labor performed by the contractor and its subcontractors, and labor transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. 

(3) Any combination of separate and blended rates for each category of labor. 

The FAR rule also authorizes agencies to select, and make mandatory, one of the three options at the agency level. DoD believes it is in the best interests of the Department to select, and make mandatory, the option requiring separate fixed hourly rates that include profit for each category of labor performed by the contractor and each subcontractor, and for each category of labor transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. The reasons for selection of this option include— 

(1) The relatively large dollar value of many DoD non-commercial time-and-materials and labor-hour contracts; 

(2) The significant oversight and legislative initiatives that have focused on DoD in recent years; and 

(3) The preponderance of DoD non-commercial time-and-materials and labor-hour contracts performed by traditional DoD contractors and subcontractors, who already have the necessary mechanisms in place to establish separate fixed hourly rates for each performing entity without significant administrative burden. 

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. In accordance with established rulemaking procedures, DoD will coordinate with the Office of Management and Budget regarding public comments received in response to this interim rule prior to the issuance of a final rule. 

## B. Regulatory Flexibility Act 

This rule may impact a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. DoD has prepared an initial regulatory flexibility analysis, which is summarized as follows: 

The objective of the rule is to select the FAR option for establishing labor rates that is the most suitable for DoD competitively awarded, non-commercial time-and-materials and labor-hour contracts. The legal basis for the rule is 41 U.S.C. 421. The rule will apply to all entities interested in receiving DoD competitively awarded non-commercial time-and-materials and labor-hour contracts. The impact on small entities is unknown at this time. DoD believes that, for non-commercial time-and-materials and labor-hour contracts, it is in the best interests of the Department to require use of the FAR option that provides for the establishment of separate fixed hourly rates for each category of labor performed by the contractor and each subcontractor, and for each category of labor transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. 

A copy of the analysis may be obtained from the point of contact specified herein. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subparts in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2006-D030. 

## C. Paperwork Reduction Act 

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

## D. Determination To Issue an Interim Rule 

A determination has been made under the authority of the Secretary of Defense that urgent and compelling reasons exist to publish an interim rule prior to affording the public an opportunity to comment. This interim rule provides policy for reimbursing labor costs on competitively awarded DoD non-commercial time-and-materials and labor-hour contracts. DoD believes it is in the best interests of the Department to require the establishment of separate fixed hourly rates for each category of labor performed by the contractor and each subcontractor, and for each category of labor transferred between divisions, subsidiaries, or affiliates of the contractor under a common control. The reasons for this decision include—

(1) The relatively large dollar value of many DoD non-commercial time-and-materials and labor-hour contracts; 

(2) The significant oversight and legislative initiatives that have focused on DoD in recent years; and 

(3) The preponderance of DoD non-commercial time-and-materials and labor-hour contracts performed by traditional DoD contractors and subcontractors, who already have the necessary mechanisms in place to establish separate fixed hourly rates for each performing entity without significant administrative burden. 

Comments received in response to this interim rule will be considered in the formation of the final rule. 

      ( print page 74471)    

# List of Subjects in 48 CFR Parts 216 and 252

      - Government procurement

Michele P. Peterson, 

Editor, Defense Acquisition Regulations System. 

Therefore, 48 CFR parts 216 and 252 are amended as follows:

1. The authority citation for 48 CFR parts 216 and 252 continues to read as follows: 

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

# PART 216—TYPES OF CONTRACTS 

2. Section 216.601 is added to read as follows: 

216.601 

                            (e)                             *Solicitation provisions.*                             Use the provision at FAR 52.216-29, Time-and-Materials/Labor-Hour Proposal Requirements—Non-Commercial Item Acquisition with Adequate Price Competition, with 252.216-7002, Alternate A, in solicitations contemplating the use of a time-and-materials or labor-hour contract type for non-commercial items if the price is expected to be based on adequate competition.                         

# PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 

3. Section 252.216-7002 is added to read as follows: 

252.216-7002 

As prescribed in 216.601(e), substitute the following paragraph (c) for paragraph (c) of the provision at FAR 52.216-29: 

## ALTERNATE A, TIME-AND-MATERIALS/LABOR-HOUR PROPOSAL REQUIREMENTS—NON-COMMERCIAL ITEM ACQUISITION WITH ADEQUATE PRICE COMPETITION (FEB. 2007) 

(c) The offeror must establish fixed hourly rates using separate rates for each category of labor to be performed by each subcontractor and for each category of labor to be performed by the offeror, and for each category of labor to be transferred between divisions, subsidiaries, or affiliates of the offeror under a common control. 

[FR Doc. 06-9602 Filed 12-6-06; 9:16 am] 

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