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[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Rules and Regulations]
[Pages 4631-4633]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01276]

[[Page 4631]]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 207, 209, 216, and 234

RIN 0750-AI16

Defense Federal Acquisition Regulation Supplement: Limitation on 
Use of Cost-Reimbursement Line Items (DFARS Case 2013-D016)

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

ACTION: Interim rule.

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SUMMARY: DoD is issuing an interim rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a section of the 
National Defense Authorization Act for Fiscal Year 2013, which 
prohibits DoD from entering into cost-type contracts for production of 
major defense acquisition programs.

DATES: Effective January 29, 2014.
    Comment Date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before March 31, 2014 to be 
considered in the formation of the final rule.

ADDRESSES: Submit comments identified by DFARS Case 2013-D016 by any of 
the following methods:
    [cir] Regulations.gov: http://www.regulations.gov. Submit comments 
via the Federal eRulemaking portal by entering ``DFARS Case 2013-D016'' 
under the heading ``Enter Keyword or ID'' and selecting ``Search''. 
Select the link ``Submit a Comment'' that corresponds with ``DFARS Case 
2013-D016''. Follow the instructions provided at the ``Submit a 
Comment'' screen. Please include your name, company name (if any), and 
``DFARS Case 2013-D016'' on your attached document.
    [cir] Email: dfars@mail.mil. Include DFARS Case 2013-D016 in the 
subject line of the message.
    [cir] Fax: 202-501-4067.
    [cir] Mail: Defense Acquisition Regulations System, ATTN: Susan 
Williams, OUSD/AT&L/DPAP/DARS, 3060 Defense Pentagon, Room 3B855, 
Washington, DC 20301-3060.
    Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To 
confirm receipt of your comment(s), please check http://www.regulations.gov approximately two to three days after submission to 
verify posting (except allow 30 days for posting of comments submitted 
by mail).

FOR FURTHER INFORMATION CONTACT: Ms. Susan Williams, Senior Procurement 
Analyst, Defense Acquisition Regulations System, ATTN: Lesa Scott, 
OUSD/AT&L/DPAP/DARS, 3060 Defense Pentagon, Room 3B855, Washington, DC 
20301-3060, telephone 571-372-6092.

SUPPLEMENTARY INFORMATION:

I. Background

    This interim rule amends the DFARS to implement section 811 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 
(Pub. L. 112-239), which was enacted January 2, 2013. Section 811(a) 
requires DoD to modify the acquisition regulations to prohibit DoD from 
entering into cost-type contracts for the production of major defense 
acquisition programs (MDAPS) for contracts entered into on or after 
October 1, 2014, with one exception in section 811(b). Under section 
811(b), the Under Secretary of Defense for Acquisition, Technology, and 
Logistics may submit to the congressional defense committees: (1) A 
written certification that the particular cost-type contract is needed 
to provide a required capability in a timely, cost-effective manner; 
and (2) An explanation of the steps taken to ensure that the use of 
cost-type pricing is limited to only those line items or portions of 
the contact where such pricing is needed to achieve the purpose of the 
exception.
    In implementing section 811 of the NDAA for FY 2013, DoD further 
defined the prohibition on entering into cost-type contracts to 
explicitly state the prohibition also applies to entering into cost-
reimbursement line items for the production of MDAPS.

II. Discussion and Analysis

    This interim rule makes the following changes to the DFARS:
     The definition for ``major defense acquisition program'' 
is added to section 201.101, Definitions, and is removed from section 
209.571-1, Definitions.
     Section 207.106(b)(1)(S-74) adds a cross-reference to see 
section 234.004, Acquisition Strategy, when selecting contract type.
     A new policy statement is added at section 216.102, 
Policies.
     A new definition of ``production of major defense 
acquisition program'' is added to section 234.001.
     Section 234.004, Acquisition Strategy, paragraph (2) is 
revised and reformatted.

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.

IV. Regulatory Flexibility Act

    DoD does not expect this interim rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
However, an initial regulatory flexibility analysis has been performed 
and is summarized as follows:
    This interim rule implements section 811 of the National Defense 
Authorization Act for Fiscal Year 2013. Small entities are not expected 
to be directly affected by this rule as it establishes policy and sets 
parameters for DoD contracting officers concerning selection of 
appropriate contract types when entering into contracts for the 
production of major defense acquisition programs (MDAPS). Cost-type 
contracts and cost-reimbursement line items may not be employed for 
production of MDAPS on or after October 1, 2014. Generally, small 
entities are not involved as prime contractors in the production of 
MDAPS due to the complex nature of these contracts and the associated 
requirement to employ extensive business and management systems.
    DoD invites comments from small business concerns and other 
interested parties on the expected impact of this rule on small 
entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by the rule in accordance 
with 5 U.S.C. 601. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2013-D016) in 
correspondence.

V. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that

[[Page 4632]]

require the approval of the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35.

VI. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This interim 
rule implements section 811 of the National Defense Authorization Act 
for Fiscal Year 2013 (Pub. L. 112-239). Section 811(a) instructs DoD to 
modify the acquisition regulations to prohibit DoD from entering into 
cost-type contracts for the production of major defense acquisition 
programs (MDAPS) for contracts entered into on or after October 1, 
2014, with one exception in section 811(b). Under section 811(b), the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
may submit to the congressional defense committees: (1) A written 
certification that the particular cost-type contract is needed to 
provide a required capability in a timely, cost-effective manner; and 
(2) An explanation of the steps taken to ensure that the use of cost-
type pricing is limited to only those line items or portions of the 
contact where such pricing is needed to achieve the purpose of the 
exception. If implementation is delayed, contracting officers and 
program managers may be unaware of the prohibition on using cost-type 
contracts or cost-reimbursement line items for production of MDAPS on 
or after October 1, 2014, and, as a consequence, unable to perform 
appropriate acquisition planning to select a contract type that 
complies with the law. Failure to implement this rule in a timely 
manner may further harm the Government, because award of a cost-type 
contract for production of MDAPS, at this phase in the acquisition 
cycle, would inappropriately shift the responsibility for performance 
cost risk from the contractor to the Government. However, pursuant to 
41 U.S.C. 1707 and FAR 1.501-3(b), DoD will consider public comments 
received in response to this interim rule in the formation of the final 
rule.

List of Subjects in 48 CFR Parts 202, 207, 209, 216, and 234

    Government procurement.

Manuel Quinones,
Editor, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 202, 207, 209, 216, and 234 are amended as 
follows:

0
1. The authority citation for 48 CFR parts 202, 207, 209, 216, and 234 
continues to read as follows:

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

PART 202--DEFINITIONS OF WORDS AND TERMS

0
2. Amend section 202.101 by adding, in alphabetical order, the 
definition of ``Major defense acquisition program'' to read as follows:

202.101  Definitions.

* * * * *
    Major defense acquisition program is defined in 10.U.S.C. 2430(a).
* * * * *

PART 207--ACQUISITION PLANNING

0
3. Amend section 207.106 by adding paragraph (S-74) to read as follows:

207.106  Additional requirements for major systems.

* * * * *
    (S-74) When selecting contract type, see 234.004 (section 811 of 
the National Defense Authorization Act for Fiscal Year 2013 (Pub. L. 
112-239)).

PART 209--CONTRACTOR QUALIFICATIONS

209.571-1  Definitions [Amended]

0
4. Amend section 209.571-1 by removing `` `Major Defense Acquisition 
Program' is defined in 10 U.S.C. 2430.''

PART 216--TYPES OF CONTRACTS

0
5. Add section 216.102 to read as follows:

216.102  Policies.

    In accordance with section 811 of the National Defense 
Authorization Act for Fiscal Year 2013 (Pub. L. 112-239), use of any 
cost-reimbursement line item for the acquisition of production of major 
defense acquisition programs is prohibited unless the exception at 
234.004(2)(ii) applies.

PART 234--MAJOR SYSTEM ACQUISITION

0
6. Amend section 234.001 by--
0
a. Revising the section heading; and
0
b. Adding, in alphabetical order, the definition for ``Production of 
major defense acquisition program''.
    The revision and addition read as follows:

234.001  Definitions.

* * * * *
    Production of major defense acquisition program means the 
production and deployment of a major system that is intended to achieve 
an operational capability that satisfies mission needs, or an activity 
otherwise defined as Milestone C under Department of Defense 
Instruction 5000.02 or related authorities.
* * * * *

0
7. Section 234.004 is amended by revising paragraph (2) to read as 
follows:

234.004  Acquisition strategy.

* * * * *
    (2) Contract type.
    (i) In accordance with section 818 of the National Defense 
Authorization Act for Fiscal Year 2007 (Pub. L. 109-364), for major 
defense acquisition programs at Milestone B--
    (A) The Milestone Decision Authority shall select, with the advice 
of the contracting officer, the contract type for a development program 
at the time of Milestone B approval or, in the case of a space program, 
Key Decision Point B approval;
    (B) The basis for the contract type selection shall be documented 
in the acquisition strategy. The documentation--
    (1) Shall include an explanation of the level of program risk; and
    (2) If program risk is determined to be high, shall outline the 
steps taken to reduce program risk and the reasons for proceeding with 
Milestone B approval despite the high level of program risk; and
    (C) If a cost-type reimbursement contract is selected, the contract 
file shall include the Milestone Decision Authority's written 
determination that--
    (1) The program is so complex and technically challenging that it 
would not be practicable to reduce program risk to a level that would 
permit the use of a fixed-price type contract; and
    (2) The complexity and technical challenge of the program is not 
the result of a failure to meet the requirements of 10 U.S.C. 2366a.
    (ii) In accordance with section 811 of the National Defense 
Authorization Act for Fiscal Year 2013 (Pub. L. 112-239), for contracts 
entered into on or after October 1, 2014, the contracting officer 
shall--
    (A) Not use cost-reimbursement line items for the acquisition of 
production of major defense acquisition programs, unless USD(AT&L) 
submits to the congressional defense committees--
    (1) A written certification that the particular cost-reimbursement 
line times are needed to provide a required capability in a timely and 
cost effective manner; and
    (2) An explanation of the steps taken to ensure that cost-
reimbursement line

[[Page 4633]]

times are used only when to achieve the purposes of the exception; and
    (B) Include a copy of such congressional certification in the 
contract file.

0
8. Add section 234.005 heading to read as follows:

234.005  General requirements.

[FR Doc. 2014-01276 Filed 1-28-14; 8:45 am]
BILLING CODE 5001-06-P
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