63050 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

(3) Not require the contractor to revise

its accounting system to account for or

accumulate costs by ACRN.

(F) The overall limit on progress

payments on a contract, established

through application of the contract

progress payment rate and, if applicable,

a loss ratio, shall continue to govern the

total amount of progress payments that

may be paid on a contract. These limits

should continue to be applied on a total

contract basis. Progress payments will

be liquidated at the ACRN level.

[FR Doc. 97–31111 Filed 11–25–97; 8:45 am]

BILLING CODE 5000–04–M

DEPARTMENT OF DEFENSE

48 CFR Parts 215 and 252

[DFARS Case 97–D018]

Defense Federal Acquisition

Regulation Supplement: Contracting

by Negotiation; Part 215 Rewrite

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for

comments.

SUMMARY: The Director of Defense

Procurement is proposing to amend the

Defense Federal Acquisition Regulation

Supplement (DFARS) to revise

procedures pertaining to contracting by

negotiation. These amendments

conform with amendments made to the

Federal Acquisition Regulation (FAR) in

Federal Acquisition Circular 97–02,

which was published in the Federal

Register on September 30, 1997.

DATES: Comments on the proposed rule

should be submitted in writing to the

address shown below on or before

January 26, 1998 to be considered in the

formulation of the final rule.

ADDRESSES: Interested parties should

submit written comments to: Defense

Acquisition Regulations Council, Attn:

Ms. Melissa Rider, PDUSD (A&T) DP

(DAR), IMD 3D139, 3062 Defense

Pentagon, Washington DC 20301–3062.

Telefax number (703) 602–0350.

E-mail comments submitted over the

Internet should be addressed to:

dfars@acq.osd.mil

Please cite DFARS Case 97–D018 in

all correspondence related to this issue.

E-mail comments should cite DFARS

Case 97–D018 in the subject line.

FOR FURTHER INFORMATION CONTACT:

Ms. Melissa Rider, (703) 602–0131.

SUPPLEMENTARY INFORMATION:

A. Background

This proposed rule revises DFARS

part 215 to align it with the reorganized

format of FAR part 15 (FAR Case 95–

029, FAR part 15 Rewrite) that was

published as a final rule in the Federal

Register on September 30, 1997 (62 FR

51224). In addition to changes related to

format, the following changes have been

made:

• DFARS guidance on the four-step

source selection process and the

alternate source selection process have

been removed, as the new guidance at

FAR 15.101, best value continuum,

clearly allows such source selection

processes.

• DFARS requirements for obtaining

approvals before requesting second or

subsequent best and final offers have

been removed in view of the new

guidance on proposal revisions at FAR

15.307.

• DFARS guidance on cost realism

analysis has been revised to reflect the

new guidance on cost realism analysis

at FAR 15.404–1(d).

• Thresholds for requesting field

pricing assistance have been added at

DFARS 215.404–2. Similar guidance

was removed from the FAR, but is still

considered to be appropriate for DoD

activities.

• DFARS guidance on field pricing

support has been revised to conform

with the FAR revisions that eliminated

standard content requirements for field

pricing reports.

B. Regulatory Flexibility Act

The proposed rule is not expected 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 the rule primarily consists of

conforming DFARS amendments to

reflect existing FAR guidance on

contracting by negotiation. Therefore, an

Initial Regulatory Flexibility Analysis

has not been performed. Comments are

invited from small businesses and other

interested parties. Comments from small

entities concerning the affected DFARS

subparts also will be considered in

accordance with 5 U.S.C. 610. Such

comments should be submitted

separately and should cite DFARS Case

97–D018 in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because the proposed rule

does not impose any information

collection requirements that require

approval by the Office of Management

and Budget under 44 U.S.C. 3501, et

seq.

List of Subjects in 48 CFR Parts 215 and

252

Government procurement.

Michele P. Peterson,

Executive Editor, Defense Acquisition

Regulations Council.

Therefore, 48 CFR Parts 215 and 252

are proposed to be amended as follows:

1. The authority citation for 48 CFR

parts 215 and 252 continues to read as

follows:

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

Chapter 1.

PART 215—CONTRACTING BY

NEGOTIATION

2. Part 215 is revised to read as

follows:

PART 215—CONTRACTING BY

NEGOTIATION

Sec.

215.000 Scope of part.

Subpart 215.2—Solicitation and Receipt of

Proposals and Information

215.204–2 Part I—The Schedule.

Subpart 215.3—Source Selection

215.304 Evaluation factors and significant

subfactors.

215.305 Proposal evaluation.

Subpart 215.4—Contract Pricing

215.403 Obtaining cost or pricing data.

215.403–1 Prohibition on obtaining cost or

pricing data.

215.403–1–70 Waivers and exemptions.

215.403–5 Instructions for submission of

cost or pricing data or information other

than cost or pricing data.

215.404 Proposal analysis.

215.404–1 Proposal analysis techniques.

215.404–2 Information to support proposal

analysis.

215.404–3 Subcontract pricing

considerations.

215.404–4 Profit.

215.404–70 DD Form 1547, Record of

Weighted Guidelines Method

Application.

215.404–71 Weighted guidelines method.

215.404–71–1 General.

215.404–71–2 Performance risk.

215.404–71–3 Contract type risk and

working capital adjustment.

215.404–71–4 Facilities capital employed.

215.404–72 Modified weighted guidelines

method for nonprofit organizations.

215.404–73 Alternative structured

approaches.

215.404–74 Fee requirements for cost-plusaward-fee contracts.

215.404–75 Reporting profit and fee

statistics.

215.406–1 Prenegotiation objectives.

215.406–3 Documenting the negotiation.

215.407–1 Defective cost or pricing data.

215.407–2 Make-or-buy programs.

215.407–3 Forward pricing rate agreements.

215.407–4 Should-cost review.

215.407–4 Estimating systems.
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63051

215.407–5–70 Disclosure, maintenance, and

review requirements.

215.408 Solicitation provisions and

contract clauses.

215.470 Estimated data prices.

215.000 Scope of part.

See 225.872 for additional guidance

on procedures for purchasing from

qualifying countries.

Subpart 215.2—Solicitation and

Receipt of Proposals and Information

215.204–2 Part I—The Schedule.

(g) When a contract contains both

fixed-priced and cost-reimbursement

line items or subline items, the

contracting officer shall provide, in

Section B, Supplies or Services and

Prices/Costs, an identification of

contract type specified for each contract

line item or subline item to facilitate

appropriate payment.

Subpart 215.3—Source Selection

215.304 Evaluation factors and significant

subfactors.

(d)(i) In acquititions that require use

of the clause at FAR 52.219–9, Small,

Small Disadvantaged and WomenOwned Small Business Subcontracting

Plan, the extent of participation of small

and small disadvantaged businesses in

performance of the contract shall be

addressed in source selection.

(A) For acquititions other than those

based only on cost or price competition,

the contracting officer shall evaluate the

extent which offerors identify and

commit to small business and to small

disadvantaged business, historically

black college and university, or minority

institution performance of the contract,

whether as a joint venture, teaming

arrangements, or subcontractors.

(B) Evaluation factory may include—

(1) The extent of which such firms are

specifically identified in proposals;

(2) The extent to commitment to use

such firms (for example, enforceable

commitments are to be weighted more

heavily than non-enforceable ones);

(3) The complexity and variety of the

work small firms are to perform;

(4) The realism of the proposal;

(5) When not otherwise required by

215.305(a)(2), past performance of the

offerors in complying with requirements

of the clauses at FAR 52.219–8,

Utilization of Small, Small

Disadvantaged and Women-Owned

Small Business Concerns, and 52.219–9,

Small, Small Disadvantaged and

Women-Owned Small Business

Subcontracting Plan; and

(6) The extent of participation of such

firms in terms of the value of the total

acquisition.

(C) Proposals addressing the extent of

small and small disadvantaged business

performance may be separate from

subcontracting plans submitted

pursuant to the clause at FAR 52.219–

9 and should be structured to allow for

consideration of offers from small

businesses.

(D) When an evaluation includes the

factors in paragraph (d)(i)(B)(1) of this

section, the small, small disadvantaged,

or women-owned small businesses

considered in the evaluation shall be

listed in any subcontracting plan

submitted pursuant to FAR 52.219–9 to

facilitate compliance with 252.219–

7003(g).

(ii) The costs or savings related to

contract administration and audit may

be considered when the offeror’s past

performance or performance risk is

likely to result in significant costs or

savings.

(iii) In competitive acquisition of

services—

(A) Evaluation and award should be

based, to the maximum extent

practicable, on best overall value to the

Government in terms of quality and

other factors.

(B) The weighting of costs must be

commensurate with the nature of the

services being acquired.

(1) It may be appropriate to award to

an offeror, based on technical and

quality considerations, at other than the

lowest price when—

(i) The effort being contracted for

departs from clearly defined efforts; or

(ii) Highly skilled personnel are

required.

(2) It may be appropriate to award to

the technically acceptable offeror with

the lowest price when—

(i) Services being acquired are of a

routine or simple nature;

(ii) Highly skilled personnel are not

required; or

(iii) The product to be delivered is

clearly defined at the outset of the

acquisition.

215.305 Proposal evaluation.

(a)(1) Contracting officers shall ensure

that the use of uncompensated overtime

in contracts to acquire services on the

basis of the number of hours provided

(see 237.170) will not degrade the level

of technical expertise required to fulfill

the Government’s requirements. When

acquiring such services, contracting

officers shall conduct a risk assessment,

and evaluate for award on that basis,

any proposals received that reflect

factors such as—

(A) Unrealistically low labor rates or

other costs that may result in quality or

service shortfalls; and

(B) Unbalanced distribution of

uncompensated overtime among skill

levels and its use in key technical

positions.

(2) When a past performance

evaluation is required by FAR 15.304,

and the solicitation includes the clause

at FAR 52.219–8, Utilization of Small,

Small Disadvantaged and WomenOwned Small Business Concerns, the

evaluation factors shall include the past

performance of offerors in complying

with requirements of that clause. When

a past performance evaluation is

required by FAR 15.304, and the

solicitation includes the clause at FAR

52.219–9, Small, Small Disadvantaged

and Women-Owned Small Business

Subcontracting Plan, the evaluation

factors shall include the past

performance of offerors in complying

with requirements of that clause.

(b) Any determination to reject a

proposal based on a violation or

possible violation of Section 27 of the

OFPP Act shall be made as specified in

FAR 3.104.

Subpart 215.4—Contract Pricing

215.403 Obtaining cost or pricing data.

215.403–1 Prohibition on obtaining cost or

pricing data.

(c) Standards for exceptions from cost

or pricing data requirements.

(1) Adequate price competition.

(A) An example of a price ‘‘based on’’

adequate price competition is a priced

option in a contract where adequate

price competition existed, if the

contracting officer has determined that

the option price is reasonable in

accordance with FAR 17.207(d);

(B) Dual or multiple source programs.

(1) In dual or multiple source

programs, the determination of adequate

price competition must be made on a

case-by-case basis. Even when adequate

price competition exists, in certain cases

it may be appropriate to obtain

additional information to assist in price

analysis.

(2) Adequate price competition

normally exists when—

(i) Prices are solicited across a full

range of step quantities, normally

including a 0–100 percent split, from at

least two offerors that are individually

capable of producing the full quantity;

and

(ii) The reasonableness of all prices

awarded is clearly established on the

basis of price analysis (see FAR 15.404–

1(b)).

215.403–1–70 Waivers and exemptions.

(a) The DoD has exempted the

Canadian Commercial Corporation and

its subcontractors from submission and

certification of cost or pricing data on

all acquisitions.
63052 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

(b) The DoD has waived certain cost

or pricing data requirements for

nonprofit organizations (including

educational institutions) on costreimbursement-no-fee contracts. The

contracting officer shall require—

(1) Submission of information other

than cost or pricing data to the extent

necessary to determine price

reasonableness and cost realism; and

(2) Cost or pricing data from

subcontractors that are not nonprofit

organizations.

215.403–5 Instructions for submission of

cost or pricing data or information other

than cost or pricing data.

(b)(1)(A) Contracting officers may

develop contract pricing proposal

supporting schedules for use by offerors

in providing supporting data for their

pricing proposals. Schedules should

only request data that are necessary and

reasonable based on industry, company,

or commodity practices.

(B) When the solicitation requires

contractor compliance with the

Contractor Cost Data Reporting (CCDR)

System (Army—AMCP 715–8, Navy—

NAV PUB P–5241, and Air Force—

AFMCP 800–15), require the contractor

to submit DD Form 1921 or 1921–1 with

its pricing proposal.

215.404 Proposal analysis.

215.404–1 Proposal analysis techniques.

(d) Cost realism analysis.

The contracting officer should

determine what information other than

cost or pricing data is necessary for the

cost realism analysis during acquisition

planning and development of the

solicitation. Unless such information is

available from sources other than the

offerors (see FAR 15.402(a)(2)), the

contracting officer will need to request

data from the offerors. The contracting

officer—

(i) Should request only necessary

data; and

(ii) May not request submission of

cost or pricing data.

(f) Unit prices.

For spare parts or support equipment,

perform an analysis of—

(i) Those line items where the

proposed price exceeds by 25 percent or

more the lowest price the Government

has paid within the most recent 12-

month period;

(ii) Those line items where a

comparison of the item description and

the proposed price indicates a potential

for overpricing;

(iii) Significant high-dollar-value

items. If there are no obvious highdollar-value items, include an analysis

of a random sample of items; and

(iv) A random sample of the

remaining low-dollar value items.

Sample size may be determined by

subjective judgment, e.g., experience

with the offeror and the reliability of its

estimating and accounting systems.

215.404–2 Information to support proposal

analysis.

(a) Field pricing assistance.

(i) The contracting officer should

consider requesting field pricing

assistance for—

(A) Fixed-price proposals exceeding

the cost or pricing data threshold;

(B) Cost-type proposals exceeding the

cost or pricing data threshold from

offerors with significant estimating

system deficiencies (see 215.407–5–70

(a)(4) and (c)(2)(i)); or

(C) Cost-type proposals exceeding $10

million from offerors without significant

estimating system deficiencies.

(ii) The contracting officer should not

request field pricing support for

proposed contracts or modifications in

an amount less than that specified in

paragraph (a)(i) of this subsection. An

exception may be made when a

reasonable pricing result cannot be

established, because of—

(A) A lack of knowledge of the

particular offeror;

(B) Sensitive conditions (e.g., a

change in, or unusual problems with, an

offeror’s internal systems); or

(C) An inability to evaluate the price

reasonableness through price analysis or

cost analysis of existing data.

(c) Audit assistance for prime

contracts or subcontracts.

(i) If, in the opinion of the contracting

officer or auditor, the review of a prime

contractor’s proposal requires further

review of subcontractors’ cost estimates

at the subcontractors’ plants (after due

consideration of reviews performed by

the prime contractor), the contracting

officer should inform the administrative

contracting officer (ACO) having

cognizance of the prime contractor

before the review is initiated.

(ii) Notify the appropriate contract

administration activities when

extensive, special, or expedited field

pricing assistance will be needed to

review and evaluate subcontractors’

proposal under a major weapon system

acquisition. Where audit reports are

received on contracting actions that are

subsequently cancelled, notify the

cognizant auditor in writing.

215.404–3 Subcontract pricing

considerations.

(a)(i) When obtaining field pricing

assistance on a prime contractor’s

proposal, the contracting officer should

request audit or field pricing assistance

to analyze and evaluate the proposal of

a subcontractor at any tier

(notwithstanding availability of data or

analyses performed by the prime

contractor) if the contracting officer

believes that such assistance is

necessary to ensure the reasonableness

of the total proposed price. Such

assistance may be appropriate when, for

example—

(A) There is a business relationship

between the contractor and

subcontractor not conducive to

independence and objectivity;

(B) The contractor is a sole source

supplier and the subcontract costs

represent a substantial part of the

contract cost;

(C) The contractor has been denied

access to the subcontractor’s records;

(D) The contracting officer determines

that, because of factors such as the size

of the proposed subcontract price, audit

or field pricing assistance for a

subcontract at any tier is critical to a

fully detailed analysis of the prime

contractor’s proposal;

(E) The contractor or higher-tier

subcontractor has been cited for having

significant estimating system

deficiencies in the area of subcontract

pricing, especially the failure to perform

adequate cost analyses of proposed

subcontract costs or to perform

subcontract analyses prior to negotiation

of the Government; or

(F) A lower-tier subcontractor has

been cited as having significant

estimating system deficiencies.

(ii) It may be appropriate for the

contracting officer or the ACO to

provide assistance to a contractor at any

tier where the contractor has been

denied access to a subcontractor’s

records in carrying out the contractor’s

responsibilities under FAR 15.404–3 to

conduct price or cost analysis to

determine subcontractor price

reasonableness. Under these

circumstances, the contracting officer or

the ACO should consider whether

providing audit or field pricing

assistance will serve a valid

Government interest.

(iii) When DoD performs the

subcontract analysis, DoD shall furnish

to the prime contractor or higher-tier

subcontractor, with the consent of the

subcontractor reviewed, a summary of

the analysis performed in determing any

unacceptable costs included in the

subcontract proposal. If the

subcontractor withholds consent, DoD

shall furnish a range of unacceptable

costs for each element in such a way as

to prevent disclosure of subcontractor

proprietary data.

(iv) When possible, the contracting

officer should notify the appropriate
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63053

contract administration activities in

advance when extensive, special, or

expedited field pricing assistance will

be needed to review and evaluate

subcontractor proposals under a major

weapon system acquisition.

(v) Price redeterminable or fixed-price

incentive contracts may include

subcontracts placed on the same basis.

When the contracting officer wants to

reprice the prime contract even though

the contractor has not yet established

final prices for the subcontracts, the

contracting officer may negotiate a firm

contract price—

(A) If cost or pricing data on the

subcontracts show the amounts to be

reasonable and realistic; or

(B) If cost or pricing data on the

subcontracts are too indefinite to

determine whether the amounts are

reasonable and realistic, but—

(1) Circumstances require prompt

negotiation; and

(2) A statement substantially as

follows is included in the repricing

modification of the prime contract:

As soon as the Contractor establishes

firm prices for each subcontract listed

below, the Contractor shall submit (in

the format and with the level of detail

specified by the Contracting Officer) to

the Contracting Officer the

subcontractor’s cost incurred in

performing the subcontract and the final

subcontract price. The Contractor and

Contracting Officer shall negotiate an

equitable adjustment in the total amount

paid or to be paid under this contract to

reflect the final subcontract price.

(vi) If the selection of the

subcontractor is based on a trade-off

among cost or price and other non-cost

factors rather than lowest price, the

analysis supporting subcontractor

selection should include a discussion of

the factors considered in the selection

(see also FAR 15.101 and 15.304 and

215.304). If the contractor’s analysis is

not adequate, return it for correction of

deficiencies.

(vii) The contracting officer shall

make every effort to ensure that fees

negotiated by contractors for cost-plusfixed-fee subcontracts do not exceed the

fee limitations in FAR 15.404–4(c)(4)(i).

215.404–4 Profit.

(b) Policy.

(1) Departments and agencies shall

use a structured approach for

developing a prenegotiation profit or fee

objective (profit objective) on any

negotiated contract action that requires

cost analysis, except on cost-plusaward-fee contracts (but see 215.404–

74). There are three approaches—

(A) The weighted guidelines method;

(B) The modified weighted guidelines

method; and

(C) An alternate structured approach.

(c) Contracting officer responsibilities.

(1) Also, do not perform a profit

analysis when assessing cost realism in

competitive acquisitions.

(2) The contracting officer—

(A) Shall use the weighted guidelines

method (see 215.404–71), unless—

(1) The modified weighted guidelines

method applies; or

(2) An alternate approach is justified.

(B) Shall use the modified weighted

guidelines method (see 215.404–72) on

contract actions with nonprofit

organizations.

(C) May use an alternate structured

approach (see 215.404–73) when—

(1) The contract action is—

(i) Under $500,000;

(ii) For architect-engineer or

construction work;

(iii) Primarily for delivery of material

from subcontractors; or

(iv) A termination settlement; or

(2) The weighted guidelines method

does not produce a reasonable overall

profit objective and the head of the

contracting activity approves use of the

alternate approach in writing.

(D) Shall use the weighted guidelines

method to establish a basic profit rate

under a formula-type pricing agreement,

and may then use the basic rate on all

actions under the agreement, provided

that conditions affecting profit do not

change.

(E) Shall document the profit analysis

in the price negotiation memorandum.

(5) Although specific agreement on

the applied weights or values for

individual profit factors shall not be

attempted, the contracting officer may

encourage the contractor to—

(A) Present the details of its proposed

profit amounts in the weighted

guidelines format or similar structured

approach; and

(B) Use the weighted guidelines

method in developing profit objectives

for negotiated subcontracts.

(6) The contracting officer must also

verify that relevant variables have not

materially changed (e.g., performance

risk, interest rates, progress payment

rates, distribution of facilities capital).

(d) Profit-analysis factors.

(1) Common factors. The common

factors are embodied in the DoD

structured approaches and need not be

further considered by the contracting

officer.

215.404–70 DD Form 1547, Record of

Weighted Guidelines Method Application.

(a) The DD Form 1547—

(1) Provides a vehicle for performing

the analysis necessary to develop a

profit objective;

(2) Provides a format for summarizing

profit amounts subsequently negotiated

as part of the contract price; and

(3) Serves as the principal source

document for reporting profit statistics

to DoD’s management information

system.

(b) The military departments are

responsibilities for establishing policies

and procedures for feeding the DoDwide management information system

on profit and fee statistics (see 215.404–

75).

(c) The contracting officer shall—

(1) Use and prepare a DD Form 1547

whenever a structured approach to

profit analysis is required by 215.404–

4(b) (see 215.404–71, 215.404–72, and

215.404–73 for guidance on using the

structured approaches). Administrative

instructions for completing the form are

in 253.215–70.

(2) Ensure that the DD Form 1547 is

accurately completed. The contracting

officer is responsible for the correction

of any errors detected by the

management system auditing process.

215.404–71 Weighted guidelines method.

215.404–71–1 General.

(a) The weighted guidelines method

focuses on three profit factors—

(1) Performance risk;

(2) Contract type risk; and

(3) Facilities capital employed.

(b) The contracting officer assigns

values to each profit factor; the value

multiplied by the base results in the

profit objective for that factor. Each

profit factor has a normal value and a

designated range of values. The normal

value is representative of average

conditions on the prospective contract

when compared to all goods and

services acquired by DoD. The

designated range provides values based

on above normal or below normal

conditions. In the price negotiation

memorandum, the contracting officer

need not explain assignment of the

normal value, but should address

conditions that justify assignment of

other than the normal value.

215.404–71–2 Performance risk.

(a) Description.

This profit factor addresses the

contractor’s degree of risk in fulfilling

the contract requirements. The factor

consists of three parts—

(1) Technical—the technical

uncertainties of performance.

(2) Management—the degree of

management effort necessary to ensure

that contract requirements are met.

(3) Cost control—the contractor’s

efforts to reduce and control costs.

(b) Determination.
63054 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

The following extract from the DD Form 1547 is annotated to describe the process.

Item Contractor risk factors Assigned

weighting

Assigned

value

Base (item

18)

Profit objective

21 ........................................ Technical ......................................................................... (1) (2) N/A N/A

22 ........................................ Management ................................................................... (1) (2) N/A N/A

23 ........................................ Cost Control .................................................................... (1) (2) N/A N/A

24 ........................................ Performance Risk Composite ......................................... N/A (3) (4) (5)

(1) Assign a weight (percentage) to each element according to its input to the total performance risk. The total

of the three weights equals 100%.

(2) Select a value for each element from the list in paragraph (c) of this subsection using the evaluation criteria

in paragraphs (d), (e), and (f) of this subsection.

(3) Compute the composite as shown in the following example—

Assigned

weighting

(percent)

Assigned

value (percent)

Weighted

value (percent)

Technical .................................................................................................................................................. 30 5.0 1.5

Management ............................................................................................................................................. 30 4.0 1.2

Cost Control ............................................................................................................................................. 40 4.5 1.8

Composite Value ...................................................................................................................................... 100 4.5

(4) Insert the amount from Block 18 of

the DD Form 1547. Block 18 is total

contract costs, excluding general and

administrative expenses, contractor

independent research and development/

bid and proposal expenses, and

facilities capital cost of money.

(5) Multiply (3) by (4).

(c) Values: Normal and designated

ranges.

Normal

value

(percent)

Designated

range

(percent)

Standard ....................... 4 2 to 6.

Alternate ........................ 6 4 to 8.

(1) Standard.

The standard designated range should

apply to most contracts.

(2) Alternate.

Contracting officers may use the

alternate designated range for research

and development and service

contractors when these contractors

require relatively low capital investment

in buildings and equipment when

compared to the defense industry

overall. If the alternate designated range

is used, do not give any profit for

facilities capital employed (see 215.404–

71–4(c)(3)).

(d) Evaluation criteria for technical.

(1) Review the contract requirements

and focus on the critical performance

elements in the statement of work or

specifications. Factors to consider

include—

(i) Technology being applied or

developed by the contractor;

(ii) Technical complexity;

(iii) Program maturity;

(iv) Performance specifications and

tolerances;

(v) Delivery schedule; and

(vi) Extent of a warranty or guarantee.

(2) Above normal conditions.

(i) The contracting officer may assign

a higher than normal value in those

cases where there is a substantial

technical risk. Indicators are—

(A) The contractor is either

developing or applying advanced

technologies;

(B) Items are being manufactured

using specifications with stringent

tolerance limits;

(C) The efforts require highly skilled

personnel or require the use of state-ofthe-art machinery;

(D) The services and analytical efforts

are extremely important to the

Government and must be performed to

exacting standards;

(E) The contractor’s independent

development and investment has

reduced the Government’s risk or cost;

(F) The contractor has accepted an

accelerated delivery schedule to need

DoD requirements; or

(G) The contractor has assumed

additional risk through warranty

provisions.

(ii) Extremely complex, vital efforts to

overcome difficult technical obstacles

that require personnel with exceptional

abilities, experience, and professional

credentials may justify a value

significantly above normal.

(iii) The following may justify a

maximum value—

(A) Development or initial production

of a new item, particularly if

performance or quality specifications

are tight; or

(B) A high degree of development or

production concurrency.

(3) Below normal conditions.

(i) The contracting officer may assign

a lower than normal value in those cases

where the technical risk is low.

Indicators are—

(A) Acquisition is for off-the-shelf

items;

(B) Requirements are relatively

simple;

(C) Technology is not complex;

(D) Efforts do not require highly

skilled personnel;

(E) Efforts are routine;

(F) Programs are mature; or

(G) Acquisition is a follow-on effort or

a repetitive type acquisition.

(ii) The contracting officer may assign

a value significantly below normal for—

(A) Route services;

(B) Production of simple items;

(C) Rote entry or routine integration of

Government-furnished information; or

(D) Simple operations with

Government-furnished property.

(e) Evaluation criteria for

management.

(1) The contracting officer should—

(i) Assess the contractor’s

management and internal control

systems using contracting office

information and reviews made by field

contract administration offices or other

DoD field offices;

(ii) Assess the management

involvement expected on the

prospective contract action;

(iii) Consider the degree of cost mix

as an indication of the types of

resources applied and value added by

the contractor; and

(iv) Consider the contractor’s support

of Federal socioeconomic programs.

(2) Above normal conditions.

(i) The contracting officer may assign

a higher than normal value when the
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63055

management effort is intense. Indicators

of this are—

(A) The contractor’s value added is

both considerable and reasonably

difficult;

(B) The effort involves a high degree

of integration or coordination; or

(C) The contractor has a substantial

record of active participation in Federal

socioeconomic programs.

(ii) The contracting officer may justify

a maximum value when the effort—

(A) Requires large scale integration of

the most complex nature;

(B) Involves major international

activities with significant management

coordination (e.g., offsets with foreign

vendors); or

(C) Has critically important

milestones.

(3) Below normal conditions.

(i) The contracting officer may assign

a lower than normal value when the

management effort is minimal.

Indicators of this are—

(A) The program is mature and many

end item deliveries have been made;

(B) The contractor adds minimum

value to an item;

(C) The efforts are routine and require

minimal supervision;

(D) The contractor provides poor

quality, untimely proposals;

(E) The contractor fails to provide an

adequate analysis of subcontractor costs;

or

(F) The contractor does not cooperate

in the evaluation and negotiation of the

proposal.

(ii) The following may justify a value

significantly below normal—

(A) Reviews performed by the field

contract administration offices disclose

unsatisfactory management and internal

control systems (e.g., quality assurance,

property control, safety, security); or

(B) The effort requires an unusually

low degree of management involvement.

(f) Evaluation criteria for cost control.

(1) The contracting officer should

evaluate—

(i) The expected reliability of the

contractor’s cost estimates (including

the contractor’s cost estimating system);

(ii) The contractor’s cost reduction

initiatives (e.g., competition advocacy

programs, dual sourcing, spare parts

pricing reform, value engineering);

(iii) The adequacy of the contractor’s

management approach to controlling

cost and schedule; and

(iv) Any other factors that affect the

contractor’s ability to meet the cost

targets, e.g., foreign currency exchange

rates and inflation rates.

(2) Above normal conditions.

The contracting officer may assign a

higher than normal value if the

contractor can demonstrate a highly

effective cost control program.

Indicators of this are—

(i) The contractor provides fully

documented and reliable cost estimates;

(ii) The contractor has an aggressive

cost reduction program that has

demonstrable benefits;

(iii) The contractor uses a high degree

of subcontract competition (e.g.,

aggressive dual sourcing); or

(iv) The contractor has a proven

record of cost tracking and control.

(3) Below normal conditions.

The contracting officer may assign a

lower than normal value if the

contractor demonstrates minimal

concern for cost control. Indicators

are—

(i) The contractor’s cost estimating

system is marginal;

(ii) The contractor has made minimal

effort to initiate cost reduction

programs;

(iii) The contractor’s cost proposal is

inadequate;

(iv) The contractor has a record of cost

overruns or other indication of

unreliable cost estimates and lack of

cost control.

215.404–71–3 Contract type risk and

working capital adjustment.

(a) Description. The contract type risk

factor focuses on the degree of cost risk

accepted by the contractor under

varying contract types. The working

capital adjustment is an adjustment

added to the profit objective for contract

type risk. It only applies to fixed-price

contracts that provide for progress

payments. Though it uses a formula

approach, it is not intended to be an

exact calculation of the cost of working

capital. Its purpose is to give general

recognition to the contractor’s cost of

working capital under varying contract

circumstances, financing policies, and

the economic environment.

(b) Determination.

The following extract from the DD

1547 is annotated to explain the

process.

Item Contractor risk factors Assigned value Base (item 18) Profit objective

25. ........................... Contract Type Risk ................................ (1) .......................... (2) .......................... (3)

Cost Financed ....... Length Factor ........ Interest Rate ..........

26. ........................... Working Capital (4) ................................ (5) .......................... (6) .......................... (7) .......................... (8)

(1) Select a value from the list of

contract types in paragraph (c) of this

subsection using the evaluation criteria

in paragraph (d) of this subsection.

(2) Insert the amount from Block 18,

i.e., the total allowable costs excluding

general and administrative expenses,

independent research and development

and bid and proposal expenses, and

facilities capital cost of money.

(3) Multiply (1) by (2).

(4) Only complete this block when the

prospective contract is a fixed-price

contract containing provisions for

progress payments.

(5) Insert the amount computed per

paragraph (e) of this subsection.

(6) Insert the appropriate figure from

paragraph (f) of this subsection.

(7) Use the interest rate established by

the Secretary of the Treasury (230.7101–

1(a)). Do not use any other interest rate.

(8) Multiply (5) by (6) by (7). This is

the working capital adjustment. It shall

not exceed 4 percent of the contract

costs in Block 20.

(c) Values: Normal and designated

ranges.

Contract type Notes Normal value

(percent)

Designated

range

(percent)

Firm fixed-price, no financing ..................................................................................................................... (1) 5 4 to 6.

Firm fixed-price, with financing .................................................................................................................. (2) 3 2 to 4.

Fixed-price-incentive, no financing ............................................................................................................ (1) 3 2 to 4.

Fixed-price with redeterminable provision ................................................................................................. (3) ......................

Fixed-price-incentive, with financing .......................................................................................................... (2) 1 0 to 2.
63056 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

Contract type Notes Normal value

(percent)

Designated

range

(percent)

Cost-plus-incentive-fee ............................................................................................................................... (4) 1 0 to 2.

Cost-plus-fixed-fee ..................................................................................................................................... (4) .5 0 to 1.

Time and material contracts (including overhaul contracts priced on time and material basis) ............... (5) .5 0 to 1.

Labor-hour contracts .................................................................................................................................. (5) .5 0 to 1.

Firm fixed-price-level-of-effort-term ............................................................................................................ (5) .5 0 to 1.

(1) ‘‘No financing’’ means that the

contract either does not provide

progress payments, or provides them

only on a limited basis, such as

financing of first articles. Do not

compute a working capital adjustment.

(2) ‘‘With financing’’ means progress

payments. When progress payments are

present, compute a working capital

adjustment (Block 26).

(3) For the purposes of assigning

profit values, treat a fixed-price contract

with redeterminable provisions as if it

were a fixed-price-incentive contract

with below normal conditions.

(4) Cost-plus contracts shall not

receive the working capital adjustment.

(5) These types of contracts are

considered cost-plus-fixed-fee contracts

for the purposes of assigning profit

values. They shall not receive the

working capital adjustment in Block 26.

However, they may receive higher than

normal values within the designated

range to the extent that portions of cost

are fixed.

(d) Evaluation criteria—(1) General.

The contracting officer should consider

elements that affect contract type risk

such as—

(i) Length of contract;

(ii) Adequacy of cost data for

projections;

(iii) Economic environment;

(iv) Nature and extent of

subcontracted activity;

(v) Protection provided to the

contractor under contract provisions

(e.g., economic price adjustment

clauses);

(vi) The ceilings and share lines

contained in incentive provisions; and

(vii) Risks associated with contracts

for foreign military sales (FMS) that are

not funded by U.S. appropriations.

(2) Mandatory. The contracting officer

shall assess the extent to which costs

have been incurred prior to

definitization of the contract action (see

also 217.7404–6(a)). The assessment

shall include any reduced contractor

risk on both the contract before

definitization and the remaining portion

of the contract. When costs have been

incurred prior to definitization,

generally regard the contract type risk to

be in the low end of the designated

range. If a substantial portion of the

costs have been incurred prior to

definitization, the contracting officer

may assign a value as low as 0%,

regardless of contract type.

(3) Above normal conditions. The

contracting officer may assign a higher

than normal value when there is

substantial contract type risk. Indicators

of this are—

(i) Efforts where there is minimal cost

history;

(ii) Long-term contracts without

provisions protecting the contractor,

particularly when there is considerable

economic uncertainty;

(iii) Incentive provisions (e.g., cost

and performance incentives) that place

a high degree of risk on the contractor;

or

(iv) FMS sales (other than those under

DoD cooperative logistics support

arrangements or those made from U.S.

Government inventories or stocks)

where the contractor can demonstrate

that there are substantial risks above

those normally present in DoD contracts

for similar items.

(4) Below normal conditions. The

contracting officer may assign a lower

than normal value when the contract

type risk is low. Indicators of this are—

(i) Very mature product line with

extensive cost history;

(ii) Relatively short-term contracts;

(iii) Contractual provisions that

substantially reduce the contractor’s

risk; or

(iv) Incentive provisions that place a

low degree of risk on the contractor.

(e) Costs financed. (1) Costs financed

equal total costs multiplied by the

portion (percent) of costs financed by

the contractor.

(2) Total costs equal Block 20 (i.e., all

allowable costs, including general and

administrative and independent

research and development and bid and

proposal, but excluding facilities capital

cost of money), reduced as appropriate

when—

(i) The contractor has little cash

investment (e.g., subcontractor progress

payments liquidated late in period of

performance);

(ii) Some costs are covered by special

financing provisions, such as advance

payments; or

(iii) The contract is multiyear and

there are special funding arrangements.

(3) The portion financed by the

contractor is generally the portion not

covered by progress payments, i.e.,

100% minus the customary progress

payment rate (FAR 32.501). For

example, if a contractor receives

progress payments at 75%, the portion

financed by the contractor is 25%. On

contracts that provide flexible progress

payments (252.232–7003) or progress

payments to small businesses, use the

customary progress payment rate for

large businesses.

(f) Contract length factor. (1) This is

the period of time that the contractor

has a working capital investment in the

contract. It—

(i) Is based on the time necessary for

the contractor to complete the

substantive portion of the work;

(ii) Is not necessarily the period of

time between contract award and final

delivery (or final payment), as periods

of minimal effort should be excluded;

(iii) Should not include periods of

performance contained in option

provisions; and

(iv) Should not, for multiyear

contracts, include periods of

performance beyond that required to

complete the initial program year’s

requirements.

(2) The contracting officer—

(i) Should use the following table to

select the contract length factor;

(ii) Should develop a weighted

average contract length when the

contract has multiple deliveries; and

(iii) May use sampling techniques,

provided they produce a representative

result.

TABLE

Peirod to perform substantive

portion

Contract

length factor

21 or less .................................. .40

22 to 27 ..................................... .65

28 to 33 ..................................... .90

34 to 39 ..................................... 1.15

40 to 45 ..................................... 1.40

46 to 51 ..................................... 1.65

52 to 57 ..................................... 1.90

58 to 63 ..................................... 2.15

64 to 69 ..................................... 2.40

70 to 75 ..................................... 2.65
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63057

TABLE—Continued

Peirod to perform substantive

portion

Contract

length factor

76 or more ................................ 2.90

(3) Example: A prospective contract

has a performance period of 40 months

with end items being delivered in the

34th, 36th, 38th, and 40th months of the

contract. The average period is 37

months and the contract length factor is

1.15.

215.404–71.4 Facilities capital employed.

(a) Description. This factor focuses on

encouraging and rewarding aggressive

capital investment in facilities that

benefit DoD. It recognizes both the

facilities capital that the contractor will

employ in contract performance and the

contractor’s commitment to improving

productivity.

(b) Determination.

The following extract from the DD

Form 1547 has been annotated to

explain the process.

Item Contractor facilities capital

employed Assigned Amountemployed

Profit

objective

27. ............................................... Land ................................................................................................ N/A (2) N/A

28. ............................................... Buildings .......................................................................................... (1) (2) (3)

29. ............................................... Equipment ....................................................................................... (1) (2) (3)

(1) Select a value from the list in

paragraph (c) of this subsection using

the evaluation criteria in paragraph (d)

of this subsection.

(2) Use the allocated facilities capital

attributable to land, buildings, and

equipment, as derived in DD Form 1861,

‘‘Contract Facilities Capital Cost of

Money’’ (see 230.7001).

(i) In addition to the net book value

of facilities capital employed, consider

facilities capital that is part of a formal

investment plan if the contractor

submits reasonable evidence that—

(A) Achievable benefits to DoD will

result from the investment; and

(B) The benefits of the investment are

included in the forward pricing

structure.

(ii) If the value of intracompany

transfers has been included in Block 18

at cost (i.e., excluding general and

administrative (G&A) expenses and

profit), add to the contractor’s allocated

facilities capital, the allocated facilities

capital attributable to the buildings and

equipment of those corporate divisions

supplying the intracompany transfers.

Do not make this addition if the value

of intracompany transfers has been

included in Block 18 at price (i.e.,

including G&A expenses and profit).

(3) Multiply (1) by (2).

(c) Values: Normal and designated

ranges.

Notes Asset type

Normal

value (percent)

Designated

range

(percent)

(1) ......................................................... Land .................................................................................................................. 0 N/A

(1) ......................................................... Buildings ............................................................................................................ 15 10 to 20

(1) ......................................................... Equipment ......................................................................................................... 35 20 to 50

(2) ......................................................... Land .................................................................................................................. 0 N/A

(2) ......................................................... Buildings ............................................................................................................ 5 0 to 10

(2) ......................................................... Equipment ......................................................................................................... 20 15 to 25

(3) ......................................................... Land .................................................................................................................. 0 N/A

(3) ......................................................... Buildings ............................................................................................................ 0 0

(3) ......................................................... Equipment ......................................................................................................... 0 0

(1) These are the normal values and

ranges. They apply to all situations

except those noted in (2) and (3).

(2) These alternate values and ranges

apply to situations where a highly

facilitized manufacturing firm will be

performing a research and development

or services contract. They balance the

method used to allocate facilities capital

cost of money, which may produce

disproportionate allocation of assets to

these types of efforts.

(3) When using a value from the

alternate designated range for the

performance risk factor (215.404–71–

2(c)(2)), do not allow profit on facilities

capital employed.

(d) Evaluation criteria.

(1) In evaluating facilities capital

employed, the contracting officer—

(i) Should relate the usefulness of the

facilities capital to the goods or services

being acquired under the prospective

contract;

(ii) Should analyze the productivity

improvements and other anticipated

industrial base enhancing benefits

resulting from the facilities capital

investment, including—

(A) The economic value of the

facilities capital, such as physical age,

undepreciated value, idleness, and

expected contribution to future defense

needs; and

(B) The contractor’s level of

investment in defense related facilities

as compared with the portion of the

contractor’s total business that is

derived from DoD;

(iii) Should consider any contractual

provisions that reduce the contractor’s

risk of investment recovery, such as

termination protection clause, capital

investment indemnification, and

productivity saving rewards; and

(iv) Shall ensure that increases in

facilities capital investments are not

merely asset revaluations attributable to

mergers, stock transfers, take-overs,

sales of corporate entities, or similar

actions.

(2) Above normal conditions. (i) The

contracting officer may assign a higher

than normal value if the facilities capital

investment has direct, identifiable, and

exceptional benefits. Indicators are—

(A) New investments in state-of-theart technology that reduce acquisition

cost or yield other tangible benefits such

as improved product quality or

accelerated deliveries;

(B) Investments in new equipment for

research and development applications;

or

(C) Contractor demonstration that the

investments are over and above the

normal capital investments necessary to
63058 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

support anticipated requirements of

DoD programs.

(ii) The contracting officer may assign

a value significantly above normal when

there are direct and measurable benefits

in efficiency and significantly reduced

acquisition costs on the effort being

priced. Maximum values apply only to

those cases where the benefits of the

facilities capital investment are

substantially above normal.

(3) Below normal conditions. (i) The

contracting officer may assign a lower

than normal value if the facilities capital

investment has little benefit to DoD.

Indicators are—

(A) Allocations of capital apply

predominantly to commercial item

lines;

(B) Investments are for such things as

furniture and fixtures, home or group

level administrative offices, corporate

aircraft and hangars, gymnasiums; or

(C) Facilities are old or extensively

idle.

(ii) The contracting officer may assign

a value significantly below normal

when a significant portion of defense

manufacturing is done in an

environment characterized by outdated,

inefficient, and labor-intensive capital

equipment.

215.404–72 Modified weighted guidelines

method for nonprofit organizations.

(a) Definition. As used in this subpart,

a nonprofit organization is a business

entity—

(1) That operates exclusively for

charitable, scientific, or educational

purposes;

(2) Whose earnings do not benefit any

private shareholder or individual;

(3) Whose activities do not involve

influencing legislation or political

campaigning for any candidate for

public office; and

(4) That is exempted from Federal

income taxation under section 501 of

the Internal Revenue Code.

(b) For nonprofit organizations that

are Federally Funded Research and

Development Centers (FFRDCs), the

contracting officer—

(1) Should consider whether any fee

is appropriate. Considerations shall

include the FFRDC’s—

(i) Proportion of retained earnings (as

established under generally accepted

accounting methods) that relates to DoD

contracted effort;

(ii) Facilities capital acquisition plans;

(iii) Working capital funding as

assessed on operating cycle cash needs;

(iv) Contingency funding; and

(v) Provision for funding

unreimbursed costs deemed ordinary

and necessary to the FFRDC.

(2) Shall, when a fee is considered

appropriate, compute the fee objective

using the weighted guidelines method

in 215.404–71, with the following

modifications—

(i) Modifications to performance risk

(Blocks 21–24 of the DD Form 1547).

(A) If the contracting officer assigns a

value from the standard designated

range (215.404–71–2(c)), reduce the fee

objective by an amount equal to 1% of

the costs in Block 18 of the DD Form

1547. Show the net (reduced) amount

on the DD Form 1547.

(B) If the contracting officer assigns a

value from the alternate designated

range, reduce the fee objective by an

amount equal to 2% of the costs in

Block 18 of the DD Form 1547. Show

the net (reduced) amount on the DD

Form 1547.

(ii) Modifications to contract type risk

(Block 25 of the DD Form 1547). Use a

designated range of ¥1% to 8% in lieu

of the values in 215.404–71–3. There is

no normal value.

(c) For nonprofit organizations that

are entities that have been identified by

the Secretary of Defense or a Secretary

of a Department as receiving sustaining

support on a cost-plus-fixed-fee basis

from a particular DoD department or

agency, compute a fee objective for

covered actions using the weighted

guidelines method in 215.404–71,

modified as described in paragraph

(b)(2) of this subsection.

(d) For all other nonprofit

organizations, compute a fee objective

for covered actions using the weighted

guidelines method in 215.404–71,

modified as described in paragraph

(b)(2)(i) of this subsection.

215.404–73 Alternative structured

approaches.

(a) The contracting officer may use an

alternate structured approach under

215.404–4(c).

(b) The contracting officer may design

the structure of the alternate, but it shall

include—

(1) Consideration of the three basic

components of profit—performance risk,

contract type risk (including working

capital), and facilities capital employed.

However, the contracting officer is not

required to complete Blocks 21 through

30 of the DD Form 1547.

(2) Offset for facilities capital cost of

money.

(i) The contracting officer shall reduce

the overall prenegotiation profit

objective by the lesser of 1% of total

cost or the amount of facilities capital

cost of money. The profit amount in the

negotiation summary of the DD Form

1547 must be net of the offset.

(ii) This adjustment is needed for the

following reason: The values of the

profit factors used in the weighted

guidelines method were adjusted to

recognize the shift in facilities capital

cost of money from an element of profit

to an element of contract cost (see FAR

31.205–10) and reductions were made

directly to the profit factors for

performance risk. In order to ensure that

this policy is applied to all DoD

contracts that allow facilities capital

cost of money, similar adjustments shall

be made to contracts that use alternate

structured approaches.

215.404–74 Fee requirements for costplus-award-fee contracts.

In developing a fee objective for costplus-award-fee contracts, the

contracting officer shall—

(a) Follow the guidance in FAR

16.404–2 and 216.404–2;

(b) Not use the weighted guidelines

method or alternate structured

approach;

(c) Apply the offset policy in 215.404–

73(b)(2) for facilities capital cost of

money, i.e., reduce the base fee by the

lesser of 1% of total costs or the amount

of facilities capital cost of money; and

(d) Not complete a DD Form 1547.

215.404–75 Reporting profit and fee

statistics.

(a) Contracting officers in contracting

offices that participate in the

management information system for

profit and fee statistics shall send

completed DD Forms 1547 on actions of

$500,000 or more, where the contracting

officer used either the weighted

guidelines method, an alternate

structured approach, or the modified

weighted guidelines method, to their

designated office within 30 days after

contract award.

(b) Participating contracting offices

and their designated offices are—
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63059

Contracting office Designated office

Army

All .............................................................................................................. Army Procurement Research and Analysis Office, Attn: SFRD–KPR

(WGL), Bldg 12500, C Wing, Ft. Lee, VA 23801–6045.

Navy

*Naval Air Systems Command ................................................................. Commander, Fleet and Industrial Supply Center, Norfolk, Washington

Detachment, Code 402, Washington Navy Yard, Washington, DC

20374.

*Naval Sea Systems Command

*Space and Naval Warfare Systems Command

*Naval Facilities Engineering Command

*Naval Supply Systems Command

*Office of Naval Research

*Headquarters, United States Marine Corps

*Strategic Systems Programs Office

*Military Sealift Command

*Automatic Data Processing Selection Office

*Navy Regional Data Automation Center

*Naval Research Laboratory

*Navy Commercial Communications Center

*Naval Aviation Depot Operations Center

*Includes all subordinate field offices

Air Force

Air Force Materiel Command, (all field offices) ........................................ Air Force Materiel Command, 645 CCSG/SCOS, Attn: J010 Clerk,

2721 Sacramento Street, Wright-Patterson Air Force Base, OH

45433.

(c) When negotiation of a contract

action over $500,000 has been delegated

to another contracting agency (e.g., to an

administrative contracting officer), that

agency shall ensure that a copy of the

DD Form 1547 is provided to the

delegating office for reporting purposes

within 30 days from negotiation of the

contract action.

(d) Contracting offices outside the

United States, its possessions, and

Puerto Rico are exempt from reporting.

(e) Designated offices send a quarterly

(non-cumulative) report of DD Form

1547 data to—

Washington Headquarters Service,

Directorate for Information Operations

and Reports, (WHS/DIOR), 1215

Jefferson Davis Highway, Suite 1204,

Arlington, VA 22202–4302

(f) In preparing and sending the

quarterly report, designated offices—

(1) Perform the necessary audits to

ensure information accuracy;

(2) Do not enter classified

information;

(3) Transmit the report via computer

magnetic tape using the procedures,

format, and editing process issued by

the Director of Defense Procurement;

and

(4) Send the reports not later than the

30th day after the close of the quarterly

reporting periods.

(g) These reporting requirements have

been assigned report control symbol:

P&L(Q)1751.

215.406–1 Prenegotiation objectives.

(a) Also consider—

(i) Data resulting from application of

work measurement systems in

developing prenegotiation objectives;

and

(ii) Field pricing assistance personnel

participation in planned prenegotiation

and negotiation activities.

(b) Prenegotiation objectives,

including objectives related to

disposition of findings and

recommendations contained in

preaward and postaward contract audit

and other advisory reports, shall be

documented and reviewed in

accordance with Departmental

procedures.

215.406–3 Documenting the negotiation.

(a)(7) Include the principal factors

related to the disposition of findings

and recommendations contained in

preaward and postaward contract audit

and other advisory reports.

(10) The documentation—

(A) Must address significant

deviations from the prenegotiation

profit objectives;

(B) Should include the DD Form 1547,

Record of Weighted Guidelines

Application (see 215.404–70), if used,

with supporting rationale; and

(C) Must address the rationale for not

using the weighted guidelines method

when its use would otherwise be

required by 215.404–70.

215.407–1 Defective cost or pricing data.

(b)(2) Unless there is clear evidence to

the contrary, the contracting officer may

presume the defective data were relied

on and resulted in a contract price

increase equal to the amount of the

defect plus related overhead and profit

or fee. The contracting officer is not

expected to reconstruct the negotiation

by speculating as to what would have

been considered by the negotiating

parties if the nondefective data had been

known.

215.407–2 Make-or-buy programs.

(e) Program requirements.—(1) Items

and work included. The minimum

dollar amount is $1 million.

215.407–3 Forward pricing rate

agreements.

(b)(i) Use forward pricing rate

agreement (FPRA) rates when such rates

are available, unless waived on a caseby-case basis by the head of the

contracting activity.

(ii) Advise the ACO of each case

waived.

(iii) Contact the ACO for questions on

FPRAs or recommended rates.

215.407–4 Should-cost review.

(b) Program should-cost review. (2)

DoD contracting activities should

consider performing a program shouldcost review before award of a definitive

major systems contract exceeding $100

million.
63060 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

(c) Overhead should-cost review. (1)

Contact the DCMC/DLA Overhead

Center, Fort Belvoir, VA 22060–6221, at

(703) 767–3387, for questions on

overhead should-cost analysis.

(2)(A) The Defense Contract

Management Command/Defense

Logistics Agency (DCMC/DLA), or the

military department responsible for

performing contract administration

functions (e.g., Navy SUPSHIP), should

consider, based on risk assessment,

performing an overhead should-cost

review of a contractor business unit (as

defined in FAR 31.001) when all of the

following conditions exist:

(1) Projected annual sales to DoD

exceed $1 billion;

(2) Projected DoD versus total

business exceeds 30 percent;

(3) Level of sole-source DoD contracts

is high;

(4) Significant volume of proposal

activity is anticipated;

(5) Production or development of a

major weapon system or program is

anticipated; and

(6) Contractor cost control/reduction

initiatives appear inadequate.

(B) The head of the contracting

activity may request an overhead

should-cost review for a business unit

that does not meet the criteria in

paragraph (b)(1) of this subsection.

(C) Overhead should-cost reviews are

labor intensive. These reviews generally

involve participation by the contracting,

contract administration, and contract

audit elements. The extent of

availability of military department,

contract administration, and contract

audit resources to support DCMC/DLAled teams should be considered when

determining whether a review will be

conducted. Overhead should-cost

reviews generally shall not be

conducted at a contractor business

segment more frequently than every

three years.

215.407–5 Estimating systems.

215.407–5–70 Disclosure, maintenance,

and review requirements.

(a) Definitions.

(1) ‘‘Adequate estimating system’’

means an estimating system that—

(i) Is established, maintained, reliable,

and consistently applied; and

(ii) Produces verifiable, supportable,

and documented cost estimates.

(2) ‘‘Contractor’’ means a business

unit as defined in FAR 31.001.

(3) ‘‘Estimating system’’ is as defined

in the clause at 252.215–7002, Cost

Estimating System Requirements.

(4) ‘‘Significant estimating system

deficiency’’ means a shortcoming in the

estimating system that is likely to

consistently result in proposal estimates

for total cost or a major cost element(s)

that do not provide an acceptable basis

for negotiation of fair and reasonable

prices.

(b) Applicability.

(1) DoD policy is that all contractors

have estimating systems that—

(i) Are adequate;

(ii) Consistently produce wellsupported proposals that are acceptable

as a basis for negotiation of fair and

reasonable prices;

(iii) Are consistent with and

integrated with the contractor’s related

management systems; and

(iv) Are subject to applicable financial

control systems.

(2) A large business contractor is

subject to estimating system disclosure,

maintenance, and review requirements

if—

(i) In its preceding fiscal year the

contractor received DoD prime contracts

or subcontracts totaling $50 million or

more for which cost or pricing data were

required; or

(ii) 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 cost or pricing data were required

and the contracting officer, with

concurrence or at the request of the

administrative contracting officer

(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) Responsibilities.

(1) The contracting officer shall—

(i) Through use of the clause at

252.215–7002, Cost Estimating System

Requirements, apply the disclosure,

maintenance, and review requirements

to large business contractors meeting the

criteria in paragraph (b)(2)(i) of this

subsection;

(ii) Consider whether to apply the

disclosure, maintenance, and review

requirements to large business

contractors under paragraph (b)(2)(ii) of

this subsection; and

(iii) Not apply the disclosure,

maintenance, and review requirement to

other than large business contractors.

(2) The cognizant ACO, for

contractors subject to paragraph (b)(2) of

this subsection, shall—

(i) Determine the adequacy of the

disclosure and system; and

(ii) Pursue correction of any

deficiencies.

(3) The cognizant auditor, on behalf of

the ACO, serves as team leader in

conducting estimating system reviews.

(4) A contractor subject to estimating

system disclosure, maintenance, and

review requirements shall—

(i) Maintain an adequate system;

(ii) Describe its system to the ACO;

(iii) Provide timely notice of changes

in the system; and

(iv) Correct system deficiencies

identified by the ACO.

(d) Characteristics of an adequate

estimating system.

(1) General. An adequate system

should provide for the use of

appropriate source data, utilize sound

estimating techniques and good

judgment, maintain a consistent

approach, and adhere to estimated

policies and procedures.

(2) Evaluation. In evaluating the

adequacy of a contractor’s estimating

system, the ACO should consider

whether the contractor’s estimating

system, for example—

(i) Establishes clear responsibility for

preparation, review, and approval of

cost estimates;

(ii) Provides a written description of

the organization and duties of the

personnel responsible for preparing,

reviewing, and approving cost

estimates;

(iii) Assures that relevant personnel

have sufficient training, experience, and

guidance to perform estimating tasks in

accordance with the contractor’s

established procedures;

(iv) Identifies the sources of data and

the estimating methods and rationale

used in developing cost estimates;

(v) Provides for appropriate

supervision throughout the estimating

process;

(vi) Provides for consistent

application of estimating techniques;

(vii) Provides for detection and timely

correction of errors;

(viii) Protects against cost duplication

and omissions;

(ix) Provides for the use of historical

experience, including historical vendor

pricing information, where appropriate;

(x) Requires use of appropriate

analytical methods;

(xi) Integrates information available

from other management systems, where

appropriate;

(xii) Requires management review

including verification that the

company’s estimating policies,

procedures and practices comply with

this regulation;

(xiii) Provides for internal review of

and accountability for the adequacy of

the estimating system, including the

comparison of projected results to actual

results and an analysis of any

differences;

(xiv) Provides procedures to update

cost estimates in a timely manner

throughout the negotiation process; and

(xv) Addresses responsibility for

review and analysis of the

reasonableness of subcontract prices.
Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules 63061

(3) Indicators of potentially significant

estimating deficiencies. The following

examples indicate conditions that may

produce or lead to significant estimating

deficiencies—

(i) Failure to ensure that historical

experience is available to and utilized

by cost estimators, where appropriate;

(ii) Continuing failure to analyze

material costs or failure to perform

subcontractor cost reviews as required;

(iii) Consistent absence of analytical

support for significant proposed cost

amounts;

(iv) Excessive reliance on individual

personal judgment where historical

experience of commonly utilized

standards are available;

(v) Recurring significant defective

pricing findings within the same cost

element(s);

(vi) Failure to integrate relevant parts

of other management systems (e.g.,

production control or cost accounting)

with the estimating system so that the

ability to generate reliable cost estimates

is impaired; and

(vii) Failure to provide established

policies, procedures, and practices to

persons responsible for preparing and

supporting estimates.

(e) Review procedures. Cognizant

audit and contract administration

activities shall—

(1) Establish and manage regular

programs for reviewing selected

contractors’ estimating systems.

(2) Conduct reviews as a team effort.

(i) The contract auditor will be the

team leader.

(ii) The team leader will—

(A) Coordinate with the ACO to

ensure that team membership includes

qualified contract administration

technical specialists.

(B) Advise the ACO and contractor of

significant findings during the conduct

of the review and during the exit

conference.

(C) Prepare a team report.

(1) The ACO or a representative

should—

(i) Coordinate the contract

administration activity’s review;

(ii) Consolidate findings and

recommendations; and

(iii) When appropriate, prepare a

comprehensive written report for

submission to the auditor.

(2) The contract auditor will attach

the ACO’s report to the team report.

(3) Tailor reviews to take full

advantage of the day-to-day work done

by both organizations.

(4) Conduct a review every three years

of contractors subject to the disclosure

requirements. The ACO and auditor

may lengthen or shorten the three-year

period based on their joint risk

assessment of the contractor’s past

experience and current vulnerability.

(f) Disposition of survey team

findings.

(1) Reporting of survey team findings.

The auditor will document the findings

and recommendations of the survey

team in a report to the ACO. If there are

significant estimating deficiencies, the

auditor will recommend disapproval of

all or portions of the estimating system.

(2) Initial notification to the

contractor. The ACO will provide a

copy of the team report to the contractor

and, unless there are no deficiencies

mentioned in the report, ask the

contractor to submit a written response

in 30 days, or a reasonable extension.

(i) If the contractor agrees with the

report, the contractor has 60 days from

the date of initial notification to correct

any identified deficiencies or submit a

corrective action plan showing

milestones and actions to eliminate the

deficiencies.

(ii) If the contractor disagrees, the

contractor should provide rationale in

its written response.

(3) Evaluation of contractor’s

response. The ACO, in consultation

with the auditor, will evaluate the

contractor’s response to determine

whether—

(i) The estimating system contains

deficiencies that need correction;

(ii) The deficiencies are significant

estimating deficiencies that would

result in disapproval of all or a portion

of the contractor’s estimating system; or

(iii) The contractor’s proposed

corrective actions are adequate to

eliminate the deficiency.

(4) Notification of ACO

determination. The ACO will notify the

contractor and the auditor of the

determination and, if appropriate, of the

Government’s intent to disapprove all or

selected portions of the system. The

notice shall—

(i) List the cost elements covered;

(ii) Identify any deficiencies requiring

correction; and

(iii) Require the contractor to correct

the deficiencies within 45 days or

submit an action plan showing

milestones and actions to eliminate the

deficiencies.

(5) Notice of disapproval. If the

contractor has neither submitted an

acceptable corrective action plan nor

corrected significant deficiencies within

45 days, the ACO shall disapprove all or

selected portions of the contractor’s

estimating system. The notice of

disapproval must—

(i) Identify the cost elements covered;

(ii) List the deficiencies that prompted

the disapproval; and

(iii) Be sent to the cognizant auditor,

and each contracting and contract

administration office having substantial

business with the contractor.

(6) Monitoring contractor’s corrective

action. The auditor and ACO will

monitor the contractor’s progress in

correcting deficiencies. If the contractor

fails to make adequate progress, the

ACO shall take whatever action is

necessary to ensure that the contractor

corrects the deficiencies. Examples of

actions the ACO can take are: bringing

the issue to the attention of higher-level

management, reducing or suspending

progress payments (see FAR 32.503–6),

and recommending nonaward of

potential contracts.

(7) Withdrawal of estimating system

disapproval. The ACO will withdraw

the disapproval when the ACO

determines that the contractor has

corrected the significant system

deficiencies. The ACO will notify the

contractor, the auditor, and affected

contracting and contract administration

activities of the withdrawal.

(g) Impact of estimating system

deficiencies on specific proposals.

(1) Field pricing teams will discuss

identified estimating 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 estimating system with an

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, e.g.—

(i) Allowing the contractor additional

time to correct the estimating system

deficiency and submit a corrected

proposal;

(ii) Considering another type of

contract, e.g., and FPIF instead of an

FFP;

(iii) Using additional cost analysis

techniques to determine the

reasonableness of the cost elements

affected by the system’s deficiency;

(iv) Segregating the questionable areas

as a cost reimbursable line item;

(v) Reducing the negotiation objective

for profit or fee; or

(vi) 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 estimating deficiency

should—
63062 Federal Register / Vol. 62, No. 228 / Wednesday, November 26, 1997 / Proposed Rules

(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 cost or pricing data,

identifying the cost impact adjustment

necessitated by the deficient estimating

system;

(iii) Provide for the contracting officer

to unilaterally adjust the contract price

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.

215.408 Solicitation provisions and

contract clauses.

(1) Use the clause at 252.215–7000,

Pricing Adjustments, in solicitations

and contracts that contain the clause

at—

(i) FAR 52.215–11, Price Reduction

for Defective Cost or Pricing DataModifications;

(ii) FAR 52.215–12, Subcontractor

Cost or Pricing Data; or

(iii) FAR 52.215–13, Subcontractor

Cost or Pricing Data—Modifications.

(2) Use the clause at 252.215–7002,

Cost Estimating System Requirements,

in all solicitations and contracts to be

awarded on the basis of cost or pricing

data.

215.470 Estimated data prices.

(a) The Department of Defense

requires estimates of the prices of data

in order to evaluate the cost to the

Government of data items in terms of

their management, product, or

engineering value.

(b) When data are required to be

delivered under a contract, the

solicitation will include DD Form 1423,

Contract Data Requirements List. The

form and the provision included in the

solicitation request the offeror to state

what portion of the total price is

estimated to be attributable to the

production or development of the listed

data for the Government (not to the sale

of rights in the data). However, offerors’

estimated prices may not reflect all such

costs; and different offerors may reflect

these costs in a different manner, for the

following reasons:

(1) Differences in business practices

in competitive situations;

(2) Differences in accounting systems

among offerors;

(3) Use of factors or rates on some

portions of the data;

(4) Application of common effort to

two or more data items; and

(5) Differences in data preparation

methods among offerors.

(c) Data price estimates should not be

used for contract pricing purposes

without further analysis.

(d) The contracting officer shall

ensure that the contract does not

include a requirement for data that the

contractor has delivered or is obligated

to deliver to the Government under

another contract or subcontract, and that

the successful offeror identifies any

such data required by the solicitation.

However, where duplicate data are

desired, the contract price shall include

the costs of duplication, but not of

preparation, of such data.

PART 252—SOLICITATION

PROVISIONS AND CONTRACT

CLAUSES

3. Section 252.215–7000 is amended

by revising the introductory text to read

as follows:

252.215–7000 Pricing Adjustments.

As prescribed in 215.408(1), use the

following clause:

* * * * *

4. Section 252.215–7002 is amended

by revising the introductory text to read

as follows:

252.215–7002 Cost Estimating System

Requirements.

As prescribed in 215.408(2), use the

following clause:

* * * * *

5. Section 252.243–7000 is amended

by revising the clause date and

paragraph (c)(1) to read as follows:

252.243–7000 Engineering Change

Proposals.

* * * * *

Engineering Change Proposals (XXX

19XX)

* * * * *

(c) * * *

(1) A completed contract pricing

proposal; and

* * * * *

[FR Doc. 97–31109 Filed 11–25–97; 8:45 am]

BILLING CODE 5000–04–M

DEPARTMENT OF THE INTERIOR

Fish and Wildlife Service

50 CFR Part 17

RIN 1018–AE47

Endangered and Threatened Wildlife

and Plants; Proposed Rule To

Establish an Additional Manatee

Sanctuary in Kings Bay, Crystal River,

FL

AGENCY: Fish and Wildlife Service,

Interior.

ACTION: Proposed rule.

SUMMARY: The Service proposes to

establish an additional West Indian

manatee (Trichecus manatus) sanctuary

in Citrus County, Florida, adjacent to

Kings Bay/Crystal River at the

confluence of the Three Sisters Spring

run with a residential canal. All

waterborne activities in the sanctuary

would be prohibited from November 15

through March 31 of each year. The

proposed action would help prevent the

taking of manatees by harassment

resulting from waterborne activities

during the winter months. The number

of sanctuaries in Kings Bay would be

increased to seven to accommodate the

increase in the number of manatees

using the area each winter and to offset

harassment from increasing public use.

Due to insufficient time to complete

preparations for establishing a

permanent sanctuary before cold

weather arrives, an emergency rule is

published elsewhere in today’s Federal

Register to provide the manatee with

immediate protection for a period of 120

days. This action is proposed under the

authority of the Endangered Species Act

of 1973, as amended, and the Marine

Mammal Protection Act of 1972, as

amended.

DATES: Comments from all interested

parties must be received by January 26,

1998. If requested, a public hearing will

be held for the purpose of receiving

comments on the permanent

establishment of an additional manatee

sanctuary at Kings Bay, Crystal River,

Florida.

ADDRESSES: Written comments and

materials should be sent to Manatee

Coordinator, U.S. Fish and Wildlife

Service, 6620 Southpoint Drive South,

Suite 310, Jacksonville, Florida 32216–

0912.

FOR FURTHER INFORMATION CONTACT:

Robert O. Turner at the above address,

(904/232–2580 ext.117); or Vance

Eaddy, Senior Resident Agent, U.S. Fish

and Wildlife Service, 9721 Executive

Center Drive, Suite 206, St. Petersburg,

Florida 33702, (813/570–5398)