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[Federal Register Volume 77, Number 12 (Thursday, January 19, 2012)]
[Rules and Regulations]
[Pages 2653-2655]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-970]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212 and 252

RIN 0750-AH27

Defense Federal Acquisition Regulation Supplement; Pilot Program 
for Acquisition of Military-Purpose Nondevelopmental Items (DFARS Case 
2011-D034)

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

ACTION: Final rule.

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SUMMARY: DoD is adopting as final, without change, an interim rule 
amending the Defense Federal Acquisition Regulation Supplement 
establishing a pilot program to assess the feasibility and advisability 
of acquiring military-purpose nondevelopmental items in accordance with 
streamlined procedures.

DATES: Effective date: January 19, 2012.

FOR FURTHER INFORMATION CONTACT: Manuel Quinones, telephone (703) 602-
8383.

SUPPLEMENTARY INFORMATION: 

I. Background

    To implement section 866 of the National Defense Authorization Act 
for Fiscal Year 2011, DoD published an interim rule in the Federal 
Register at 76 FR 38048 on June 29, 2011, establishing a pilot program 
to assess the feasibility and advisability of acquiring military-
purpose nondevelopmental items in accordance with streamlined 
procedures. The authority for this pilot program expires on January 6, 
2016. Under this pilot program, DoD may enter into contracts

[[Page 2654]]

with nontraditional defense contractors for the purpose of--

--Enabling DoD to acquire items that otherwise might not have been 
available to DoD;
--Assisting DoD in the rapid acquisition and fielding of capabilities 
needed to meet urgent operational needs; and
--Protecting the interests of the United States in paying fair and 
reasonable prices for the item or items acquired.

    This pilot program is designed to test whether the streamlined 
procedures, similar to those available for commercial items, can serve 
as an effective incentive for nontraditional defense contractors to (1) 
channel investment and innovation into areas that are useful to DoD and 
(2) provide items developed exclusively at private expense to meet 
validated military requirements.

II. Discussion and Analysis of the Public Comments

    DoD reviewed the public comments received from three respondents in 
the development of the final rule. Two of the three respondents are 
supportive of both the congressional intent and the interim rule. The 
respondents submitted comments covering the following three categories: 
(A) Definition of nontraditional defense contractor; (B) definition of 
military-purpose nondevelopmental item; and (C) flow down of provision 
to subcontractors. A discussion of the comments and responses are 
provided as follows.

A. Definition of Nontraditional Defense Contractor

    Two of the three respondents recommended revisions to the 
definition of nontraditional defense contractor.
    Comment: One respondent suggested expanding the definition of a 
nontraditional defense contractor to mean an entity to include a 
business unit, segment or wholly-owned subsidiary of an entity. The 
respondent asserted that such clarifying language would permit a 
commercial company that occasionally accepts a contract with certified 
cost or pricing data requirements to participate in the pilot program 
without being burdened by what are recognized to be onerous contractual 
requirements.
    Response: With regard to expanding the meaning of an entity to 
include ``a business unit, segment or wholly-owned subsidiary of an 
entity,'' the entity referred to in the interim rule is, in essence, 
the legal entity that signs the contract with the Government. This 
entity must meet all of the statutory requirements included in the 
definition for a nontraditional defense contractor contained in the 
contract clause, and changing the definition as requested would not be 
consistent with that definition. Therefore, no changes have been made 
to the final rule as a result of the comment.
    Comment: Another respondent stated that the definitions are not 
clear as to whether Congress intended to allow subcontractors of prime 
contractors to be considered nontraditional defense contractors for 
purposes of the rule. The respondent asked, in situations where the 
prime contractor does not meet the definition of a nontraditional 
defense contractor, whether each of the subcontractors to the prime 
contractor will fail to meet the definition as well due to the 
definition of nontraditional defense contractor applying to contracts 
or subcontracts.
    Response: The statutory definition of a nontraditional defense 
contractor (10 U.S.C. 2302) outlines the criteria that must be met by a 
prospective contractor to be eligible for the pilot program, which only 
covers award to prime contractors. One criterion states the entity may 
not be currently performing or has not performed ``any contract or 
subcontracts'' for DoD that is subject to full coverage under cost 
accounting standards. Entities that have performed as subcontractors to 
traditional defense contractors are not necessarily excluded from 
participating as a prime contractor under this pilot so long as the 
subcontract requirements did not entail the disqualifying criteria 
(i.e., full CAS coverage and certified cost and pricing data) and the 
entity otherwise meets the criteria. No changes have been made to the 
final rule as a result of this comment.

B. Definition of Military-Purpose Nondevelopmental Item

    Comment: A respondent recommended amending the definition of the 
term ``military-purpose nondevelopmental item'' by revising the 
definitional criteria for determining whether an item meets the 
definition, including the extent to which independent research and 
development (IR&D) costs, and bid and proposal (B&P) costs, are 
considered in such a determination. The respondent cited section 
824(b)(2) of the National Defense Authorization Act (NDAA) for Fiscal 
Year (FY) 2011, Pub. L. 111-383, as the basis for the recommended 
change.
    Response: The interim rule uses the statutory definition of the 
term ``military purpose nondevelopmental item'' required by section 866 
of the NDAA for FY 2011 and used only for purposes of this pilot 
program. The substantive revisions to the definition as proposed by the 
respondent would result in the Defense Federal Acquisition Regulation 
Supplement (DFARS) definition being noncompliant with the statutory 
definition and the criteria for applying the specialized procedures 
authorized for this pilot program. It is also important to note that 
the requirements for treatment of IR&D and B&P costs that are 
established by section 824 of the NDAA for FY2011 are being addressed 
through DFARS Case 2011-D022. No changes have been made to the final 
rule as a result of this comment.

C. Flow Down of Provision to Subcontractors

    Comment: A respondent stated that the interim rule (published as 
DFARS subpart 212.71) fails to clearly address the common situation in 
which a nontraditional defense contractor may simultaneously be a 
subcontractor or supplier to a traditional defense contractor. The 
respondent recommended the new DFARS rule make clear that it may and 
should flow down through any prime contract, to the suppliers/
subcontractors.
    Response: Unlike certain clauses, provisions are not flowed down to 
subcontractors. Solicitation provisions are to be completed and 
submitted by the prospective prime contractor with its offer. 
Furthermore, it is irrelevant to the program if a nontraditional 
defense contractor is simultaneously a subcontractor or supplier to a 
traditional defense contractor. As previously stated, section 866 only 
covers award to a prime contractor. No changes have been made to the 
final rule as a result of this comment.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

[[Page 2655]]

IV. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 604, and is 
summarized as follows:
    This rule implements a statutory requirement under section 866 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 
2011. Section 866 authorized the Secretary of Defense to establish a 
pilot program to assess the feasibility and advisability of acquiring 
military-purpose nondevelopmental items.
    The objective of this new DoD program is to permit DoD to enter 
into contracts with nontraditional defense contractors for the purpose 
of (1) Enabling DoD to acquire items that otherwise might not have been 
available to DoD; (2) assisting DoD in the rapid acquisition and 
fielding of capabilities needed to meet urgent operational needs; and 
(3) protecting the interests of the United States in paying fair and 
reasonable prices for the item or items acquired.
    No public comments were received in response to the initial 
regulatory flexibility analysis. The Chief Counsel for Advocacy of the 
Small Business Administration did not file any comments in response to 
this rule.
    DoD is unable to estimate at this time the number of small entities 
impacted by the rule, since this is a new pilot program and its purpose 
is to identify and attract nontraditional defense contractors as 
defined within the rule and section 866 of the National Defense 
Authorization Act for Fiscal Year 2011.
    There are no reporting, recordkeeping, or other compliance 
requirements to small entities associated with this rule. Additionally, 
there were no significant alternatives considered that met the stated 
objectives of the applicable statute.

V. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 212 and 252

    Government procurement.

Mary Overstreet,
Editor, Defense Acquisition Regulations System.

Interim Rule Adopted as Final Without Change

    Accordingly, the interim rule amending 48 CFR parts 212 and 252, 
which was published at 76 FR 38048 on June 29, 2011, is adopted as a 
final rule without change.

[FR Doc. 2012-970 Filed 1-18-12; 8:45 am]
BILLING CODE 5001-06-P
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