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[Federal Register Volume 76, Number 41 (Wednesday, March 2, 2011)]
[Rules and Regulations]
[Pages 11371-11373]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4526]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 232, and 252

RIN 0750-AG56

Defense Federal Acquisition Regulation Supplement; Payments in 
Support of Emergencies and Contingency Operations (DFARS Case 2009-
D020)

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

ACTION: Final rule.

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SUMMARY: DoD is adopting as a final rule, with minor changes, an 
interim rule that amended the Defense Federal Acquisition Regulation 
Supplement (DFARS) to implement exemptions from the Prompt Payment Act. 
The interim rule exempted military payments related to contingencies 
and certain payments related to emergencies and the release or 
threatened release of hazardous substances.

DATES: Effective date: March 2, 2011.

FOR FURTHER INFORMATION CONTACT: Mr. Julian E. Thrash, 703-602-0310.

SUPPLEMENTARY INFORMATION:

I. Background

    5 CFR part 1315 exempts from Prompt Payment Act compliance payments 
related to emergencies (defined in the

[[Page 11372]]

Disaster Relief Act of 1974, Pub. L. 93-288, as amended (42 U.S.C. 
5121, et seq.); contingency operations (as defined in 10 U.S.C. 
101(a)(13)); and the release/threatened release of hazardous substances 
(as defined in 4 U.S.C. 9606, Section 106). DoD requires the 
flexibility provided by 5 CFR part 1315, Exemption from the Prompt 
Payment Act, because of the potential for unstable environments during 
emergencies and contingency operations.
    DoD published an interim rule in the Federal Register (75 FR 40712) 
on July 13, 2010, to implement the full authority granted by 5 CFR 
1315.1 for payments covered by 5 CFR 1315.1(b)(2) that are either 
certified for payment in an operational area, or are contingent upon 
the receipt of necessary supporting documentation (i.e., contract, 
invoice, receiving report) emanating from an operational area. The 
public comment period closed September 13, 2010.

II. Analysis of Public Comments

    One respondent provided comments on the interim rule. A discussion 
of the comments follows:

A. Applicability of FAR Subpart 32.9

    Comment. The respondent notes that DFARS 232.901, Applicability, 
states that FAR subpart 32.9 does not apply when the conditions therein 
are listed. However, DFARS 232.908, Contract clauses, states that the 
appropriate FAR Prompt Payment clause prescribed at FAR 32.908 should 
be included in the contract in addition to DFARS 252.232-7011, Payments 
in Support of Emergencies and Contingency Operations. Thus, FAR 32.908 
still applies when the conditions at DFARS 232.901 are met. According 
to the respondent, the statement that ``FAR subpart 32.9, Prompt 
Payment, does not apply when--'' needs to be qualified to state that 
FAR 32.908 still applies.
    Response. DoD concurs and the text has been revised accordingly.

 B. Inclusion of Two Payment Clauses

    Comment. The respondent states that it would be less confusing if 
the contract just contained either DFARS 252.232-7011, Payments in 
Support of Emergencies and Contingency Operations, or a FAR Prompt 
Payment clause. According to the respondent, if the environment became 
more stable or less stable, the contracting officer could bilaterally 
modify the contract to remove one clause and add the other. The 
respondent states that including both clauses and notifying the 
contractor which one applies by contract modification is an unusual, 
and unnecessary, way to administer a contract.
    Response. DoD does not concur as the Government requires the 
maximum flexibility provided by DFARS subpart 232.9, Prompt Payment, in 
order to operate in such austere environments as Iraq and Afghanistan. 
This flexibility requires the ability to move from the appropriate FAR 
Prompt Payment clause when normal business conditions are possible, to 
the clause at DFARS 252.232-7011, Payments in Support of Emergencies 
and Contingency Operations, when an austere environment exists. The 
conditions described at 232.901, Applicability, provide guidelines for 
when austere operations are present. Contractors that operate in 
potential environments that may go back and forth from stable to 
unstable operations are given the opportunity to price such conditions 
into their proposals. The Government reserves the right to structure 
such contracts for this flexibility, and to convert the appropriate FAR 
or DFARS clause for the given situation, rather than depending upon a 
bilateral modification, to which the contractor might not agree, and 
which would require negotiation of consideration. As currently stated, 
the contracting officer can issue a unilateral contract modification 
notifying the contractor which clause is active.
    This final rule provides DoD the needed flexibility in limited 
circumstances. The head of the contracting activity shall make 
subsequent determinations, after consultation with the cognizant 
comptroller, as the operational area evolves into a more stable 
business environment to enable the provisions of FAR 32.9 to apply.

III. Executive Order 12866

    This regulatory action was subject to review under Section 6(b) of 
Executive Order 12866, Regulatory Planning and Review, dated September 
30, 1993. This rule is not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD does not expect this final rule to have a significant economic 
impact on small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq. However, DoD has prepared a 
final regulatory flexibility analysis consistent with 5 U.S.C. 604 
which is summarized below. A copy of the analysis may be obtained from 
the point of contact.
    On May 22, 2008, the DoDIG issued the results of an audit Report 
No. D-2008-098, entitled ``Internal Controls Over Payments Made in 
Iraq, Kuwait, and Egypt.'' The audit cited inconsistencies in FAR 32.9, 
DFARS 232.9, and 5 CFR in regard to compliance with the Prompt Payment 
Act for military contingency operations. The audit further recommended 
that DoD establish procedures to address contingency operations.
    During emergencies and contingency operations, the operational area 
can be so fluid and dynamic that carrying out normal business practices 
can be extremely challenging. It is necessary for the Head of the 
Contracting Activity (HCA) to have the authority to appropriately 
respond to emergency and contingency operations accordingly whenever 
limited operational conditions exist. This includes the payment of 
contractors.
    This final rule takes advantage of the exemption provided by OMB 
implementation of the Prompt Payment Act, which exempts military 
contingencies. This rule allows the HCA to make a determination of 
whether or not stable business operations exist in theater to allow the 
Prompt Payment Act to apply in an emergency and contingency operation. 
If stable conditions don't exist, then the HCA is authorized to apply 
the clause at 252.232-7011, Payments in Support of Emergencies and 
Contingency Operations. When this clause is invoked, it will be used 
instead of one of the payment clauses at FAR 52.232-25, 52.232-26, or 
52.232-27. DFARS 232.901 will require the HCA to make subsequent 
determinations as the operational area evolves into a more stable 
environment to enable the provisions of the Prompt Payment Act to 
apply. It will also require the contracting officer to notify, by 
contract modification, each contractor that has a contract containing 
DFARS clause 252.232.7011, that it is no longer applicable, and the 
applicable FAR Prompt Payment clause in the contract applies.
    No significant issues were raised by the public in response to the 
initial regulatory flexibility analysis.
    This rule is expected to have a minimal economic impact on a 
relatively small number of small business entities. It is anticipated 
that the rule could initially be applied to contracts supporting 
Afghanistan. As of today, normal business operations are hindered in 
Afghanistan due to the uncertain environment and instability in the 
region. It may be impractical for U.S. forces to adequately match 
receipt of necessary supporting documentation (i.e., contract, invoice, 
and receiving

[[Page 11373]]

report) in such an operational area. It is expected the HCA for 
Afghanistan could exempt ``payments made in the theater of operations'' 
from Prompt Payment Act interest and interest penalties.
    In the preparation of the interim rule, a review of Federal 
Procurement Data Systems data for FY08 showed that of the 140 awards 
made to U.S. firms, only 21 were made to small business entities. This 
total represents 15 percent of all awards made during this time period. 
Therefore, the overall impact of the rule is not expected to have a 
significant aggregate economic impact on a substantial number of small 
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq. However, a regulatory flexibility analysis was completed 
because there is an economic impact to consider.
    There is no reporting requirement established by this rule. There 
are no significant alternatives which accomplish the stated objectives. 
This rule will allow DoD to utilize the exemptions provided by OMB 
implementation of the Prompt Payment Act, which exempts military 
contingencies.

V. Paperwork Reduction Act

    The rule does not impose 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, 232, and 252

    Government procurement.

Mary Overstreet,
Editor, Defense Acquisition Regulations System.

    Therefore, the Defense Acquisition Regulations System confirms as 
final the interim rule published at 75 FR 40712, July 13, 2010, with 
the following changes:

0
1. The authority citation for 48 CFR part 232 continues to read as 
follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

PART 232--CONTRACT FINANCING

0
2. Section 232.901 is amended by--
0
a. Revising the first sentence of paragraph (1) introductory text to 
read as set forth below;
0
b. Amending paragraph (1)(i)(C) by removing ``Section'' and adding in 
its place ``section''.

232.901   Applicability.

    (1) Except for FAR 32.908, FAR subpart 32.9, Prompt Payment, does 
not apply when--
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[FR Doc. 2011-4526 Filed 3-1-11; 8:45 am]
BILLING CODE 5001-08-P
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