[Federal Register Volume 72, Number 80 (Thursday, April 26, 2007)]
[Rules and Regulations]
[Pages 20758-20761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-7905]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215, 231, and 252

RIN 0750-AF67


Defense Federal Acquisition Regulation Supplement; Excessive 
Pass-Through Charges (DFARS Case 2006-D057)

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

ACTION: Interim rule with request for comments.

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SUMMARY: DoD has issued an interim rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement Section 852 of 
the National Defense Authorization Act for Fiscal Year 2007. Section 
852

[[Page 20759]]

requires DoD to prescribe regulations to ensure that pass-through 
charges on contracts or subcontracts that are entered into for or on 
behalf of DoD are not excessive in relation to the cost of work 
performed by the relevant contractor or subcontractor.

DATES: Effective date: April 26, 2007.
    Comment date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before June 25, 2007, to be 
considered in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2006-D057, 
using any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#3d595b5c4f4e7d524e5913505451"><span class="__cf_email__" data-cfemail="503436312223103f23347e3d393c">[email protected]</span></a>. Include DFARS Case 2006-D057 in the 
subject line of the message.
    <bullet> Fax: (703) 602-0350.
    <bullet> Mail: Defense Acquisition Regulations System, Attn: Mr. 
John McPherson, OUSD(AT&L)DPAP(CPF), IMD 3C132, 3062 Defense Pentagon, 
Washington, DC 20301-3062.
    <bullet> 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: Mr. John McPherson, (703) 602-0296.

SUPPLEMENTARY INFORMATION:

A. Background

    This interim rule implements Section 852 of the National Defense 
Authorization Act for Fiscal Year 2007 (Public Law 109-364). Section 
852 requires DoD to prescribe regulations to ensure that pass-through 
charges on contracts or subcontracts (or task or delivery orders) that 
are entered into for or on behalf of DoD are not excessive in relation 
to the cost of work performed by the relevant contractor or 
subcontractor. To enable DoD to ensure that pass-through charges are 
not excessive, this interim rule contains a solicitation provision and 
a contract clause requiring offerors and contractors to identify the 
percentage of work that will be subcontracted and, when subcontract 
costs will exceed 70 percent of the total cost of work to be performed, 
to provide information on indirect costs and profit and value added 
with regard to the subcontract work.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD does not expect this rule to have a significant economic impact 
on a substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because DoD does not 
expect a significant number of entities to propose excessive pass-
through charges under DoD contracts or subcontracts, and the 
information required from offerors and contractors regarding pass-
through charges is minimal. Therefore, DoD has not performed an initial 
regulatory flexibility analysis. 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-D057.

C. Paperwork Reduction Act

    This interim rule contains a new information collection 
requirement. The Office of Management and Budget (OMB) has approved the 
information collection requirement for use through October 31, 2007, 
under OMB Control Number 0704-0443, in accordance with the emergency 
processing procedures of 5 CFR 1320.13. DoD invites comments on the 
following aspects of the interim rule: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
DoD, including whether the information will have practical utility; (b) 
the accuracy of the estimate of the burden of the information 
collection; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
the information collection on respondents, including the use of 
automated collection techniques or other forms of information 
technology. The following is a summary of the information collection 
requirement.
    Title: Defense Federal Acquisition Regulation Supplement (DFARS); 
Excessive Pass-Through Charges.
    Type of Request: New collection.
    Number of Respondents: 12,650.
    Responses per Respondent: Approximately 1.
    Annual Responses: 12,800.
    Average Burden per Response: .51 hour.
    Annual Burden Hours: 6,550.
    Needs and Uses: DoD needs this information to ensure that pass-
through charges under DoD contracts and subcontracts are not excessive, 
in accordance with Section 852 of Public Law 109-364. DoD contracting 
officers will use the information to assess the value added by a 
contractor or subcontractor in relation to proposed, billed, or claimed 
indirect costs or profit on work performed by a subcontractor.
    Affected Public: Businesses or other for-profit institutions.
    Respondent's Obligation: Required to obtain or retain benefits.
    Frequency: On occasion.
    Written comments and recommendations on the proposed information 
collection should be sent to Ms. Hillary Jaffe at the Office of 
Management and Budget, Desk Officer for DoD, Room 10236, New Executive 
Office Building, Washington, DC 20503, with a copy to the Defense 
Acquisition Regulations System, Attn: Mr. John McPherson, 
OUSD(AT&L)DPAP(CPF), IMD 3C132, 3062 Defense Pentagon, Washington, DC 
20301-3062. Comments can be received from 30 to 60 days after the date 
of this notice, but comments to OMB will be most useful if received by 
OMB within 30 days after the date of this notice.
    To request more information on this proposed information collection 
or to obtain a copy of the proposal and associated collection 
instruments, please write to the Defense Acquisition Regulations 
System, Attn: Mr. John McPherson, OUSD(AT&L)DPAP(CPF), IMD 3C132, 3062 
Defense Pentagon, Washington, DC 20301-3062.

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 implements Section 852 of the National Defense 
Authorization Act for Fiscal Year 2007 (Public Law 109-364). Section 
852 requires DoD to prescribe regulations, not later than May 1, 2007, 
to ensure that pass-through charges on contracts or subcontracts (or 
task or delivery orders) that are entered into for or on behalf of DoD 
are not excessive in relation to the cost of work performed by the 
relevant contractor or subcontractor. Comments received in response to 
this interim rule will be considered in the formation of the final 
rule.

[[Page 20760]]

List of Subjects in 48 CFR Parts 215, 231, and 252

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR parts 215, 231, and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 215, 231, and 252 continues 
to read as follows:

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

PART 215--CONTRACTING BY NEGOTIATION

0
2. Section 215.408 is amended by adding paragraph (3) to read as 
follows:


215.408  Solicitation provisions and contract clauses.

* * * * *
    (3) Use the provision at 252.215-7003, Excessive Pass-Through 
Charges--Identification of Subcontract Effort, and the clause at 
252.215-7004, Excessive Pass-Through Charges, in all solicitations and 
contracts (including task or delivery orders) except for--
    (i) Firm-fixed-price contracts awarded on the basis of adequate 
price competition;
    (ii) Fixed-price contracts with economic price adjustment, awarded 
on the basis of adequate price competition;
    (iii) Firm-fixed-price contracts for the acquisition of a 
commercial item; or
    (iv) Fixed-price contracts with economic price adjustment, for the 
acquisition of a commercial item.

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

0
3. Sections 231.201-2 and 231.203 are added to read as follows:


231.201-2  Determining allowability.

    (a) In addition to the requirements at FAR 31.201-2(a), a cost is 
allowable only when it complies with the clause at 252.215-7004, 
Excessive Pass-Through Charges.


231.203  Indirect costs.

    (d) Excessive pass-through charges, as defined in the clause at 
252.215-7004, are unallowable.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Sections 252.215-7003 and 252.215-7004 are added to read as follows:


252.215-7003  Excessive pass-through charges--identification of 
subcontract effort.

    As prescribed in 215.408(3), use the following provision:

EXCESSIVE PASS-THROUGH CHARGES--IDENTIFICATION OF SUBCONTRACT EFFORT 
(APR 2007)

    (a) Definition. Excessive pass-through charge, as used in this 
provision, is defined in the clause of this solicitation entitled 
``Excessive Pass-Through Charges'' (DFARS 252.215-7004).
    (b) General. The offeror's proposal shall exclude excessive 
pass-through charges.
    (c) Performance of work by the Contractor or a subcontractor. 
(1) The offeror shall identify in its proposal the percent of effort 
it intends to perform, and the percent expected to be performed by 
each subcontractor, under the contract, task order, or delivery 
order.
    (2) If the offeror intends to subcontract more than 70 percent 
of the total cost of work to be performed under the contract, task 
order, or delivery order, the offeror shall identify in its 
proposal--
    (i) The amount of the offeror's indirect costs and profit 
applicable to the work to be performed by the subcontractor(s); and
    (ii) A description of the value added by the offeror as related 
to the work to be performed by the subcontractor(s).
    (3) If any subcontractor proposed under the contract, task 
order, or delivery order intends to subcontract to a lower-tier 
subcontractor more than 70 percent of the total cost of work to be 
performed under its subcontract, the offeror shall identify in its 
proposal--
    (i) The amount of the subcontractor's indirect costs and profit 
applicable to the work to be performed by the lower-tier 
subcontractor(s); and
    (ii) A description of the value added by the subcontractor as 
related to the work to be performed by the lower-tier 
subcontractor(s).

    (End of provision)


252.215-7004  Excessive pass-through charges.

    As prescribed in 215.408(3), use the following clause:

EXCESSIVE PASS-THROUGH CHARGES (APR 2007)

    (a) Definitions. As used in this clause--
    Excessive pass-through charge, with respect to a Contractor or 
subcontractor that adds no or negligible value to a contract or 
subcontract, means a charge to the Government by the Contractor or 
subcontractor that is for indirect costs or profit on work performed 
by a subcontractor (other than charges for the costs of managing 
subcontracts and applicable indirect costs and profit based on such 
costs).
    No or negligible value means the Contractor or subcontractor 
cannot demonstrate to the Contracting Officer that its effort added 
substantive value to the contract or subcontract in accomplishing 
the work performed under the contract.
    (b) General. The Government will not pay excessive pass-through 
charges. The Contracting Officer shall determine if excessive pass-
through charges exist.
    (c) Performance of work by the Contractor or a subcontractor. 
(1) If the Contractor changes the amount of subcontract effort 
identified in its proposal such that it exceeds 70 percent of the 
total cost of work to be performed under the contract, task order, 
or delivery order, the Contractor shall provide the Contracting 
Officer with a description of the value added by the Contractor as 
related to the subcontract effort.
    (2) If any subcontractor identified in the proposal changes the 
amount of lower-tier subcontractor effort such that it exceeds 70 
percent of the total cost of the work to be performed under its 
subcontract, the Contractor shall provide the Contracting Officer 
with a description of the value added by the subcontractor as 
related to the work to be performed by the lower-tier 
subcontractor(s).
    (3) If any subcontractor not identified in the proposal 
subcontracts to a lower-tier subcontractor more than 70 percent of 
the total cost of work to be performed under its subcontract, the 
Contractor shall provide the Contracting Officer with a description 
of the value added by the subcontractor as related to the work to be 
performed by the lower-tier subcontractor(s).
    (d) Recovery of excessive pass-through charges. If the 
Contracting Officer determines that excessive pass-through charges 
exist--
    (1) For fixed-price contracts, the Government shall be entitled 
to a price reduction for the amount of excessive pass-through 
charges included in the contract price; and
    (2) For other than fixed-price contracts, the excessive pass-
through charges are unallowable in accordance with the provisions in 
Subpart 31.2 of the Federal Acquisition Regulation (FAR) and Subpart 
231.2 of the Defense FAR Supplement.
    (e) Access to records. (1) The Contracting Officer, or 
authorized representative, shall have the right to examine and audit 
all the Contractor's records (as defined at FAR 52.215-2(a)) 
necessary to determine whether the Contractor proposed, billed, or 
claimed excessive pass-through charges.
    (2) For those subcontracts to which paragraph (f) of this clause 
applies, the Contracting Officer, or authorized representative, 
shall have the right to examine and audit all the subcontractor's 
records (as defined at FAR 52.215-2(a)) necessary to determine 
whether the subcontractor proposed, billed, or claimed excessive 
pass-through charges.
    (f) Flowdown. The Contractor shall insert the substance of this 
clause, including this paragraph (f), in all subcontracts under this 
contract, except for--
    (1) Firm-fixed-price subcontracts awarded on the basis of 
adequate price competition;
    (2) Fixed-price subcontracts with economic price adjustment, 
awarded on the basis of adequate price competition;
    (3) Firm-fixed-price subcontracts for the acquisition of a 
commercial item; or
    (4) Fixed-price subcontracts with economic price adjustment, for 
the acquisition of a commercial item.


[[Page 20761]]


    (End of clause)

[FR Doc. E7-7905 Filed 4-25-07; 8:45 am]
BILLING CODE 5001-08-P


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