Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5725 

of this chapter); and Wireless 

Communications Service (part 27, 

subpart D). 

* * * * * 

§ 90.7 [Corrected] 

■ 3. On page 100851, in the second 

column, in the last line of instruction 5 

amending § 90.7, remove ‘‘Roadside 

Units (RSU)’’ and add in its place 

‘‘Roadside Unit (RSU)’’. 

§ 90.35 [Corrected] 

■ 4. On page 100851, in the second 

column, instruction 7 ‘‘Amend § 90.35 

by revising paragraph (b)(91) to read as 

follows:’’ is corrected to read ‘‘Amend 

§ 90.35 by revising paragraph (c)(91) to 

read as follows:’’. 

■ 5. On page 100851, in the second 

column, correct the amendment text for 

§ 90.35 by redesignating paragraph 

(b)(91) as paragraph (c)(91). 

§ 90.390 [Corrected] 

■ 6. On page 100854, spanning all 

columns, correct table 1 to paragraph (a) 

in § 90.390 to read as follows: 

* * * * * 

TABLE 1 TO PARAGRAPH (a) 

10-megahertz channels: 20-megahertz channels: 30-megahertz channel: 

5895–5905 MHz ................................................. 5895–5915 MHz ............................................... 5895–5925 MHz. 

5905–5915 MHz ................................................. 5905–5925 MHz.

5915–5925 MHz.

* * * * * 

Federal Communications Commission. 

Marlene Dortch, 

Secretary. 

[FR Doc. 2025–00642 Filed 1–16–25; 8:45 am] 

BILLING CODE 6712–01–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 202, 215, 234, 242, 244, 

245, and 252 

[Docket DARS–2024–0020] 

RIN 0750–AL25 

Defense Federal Acquisition 

Regulation Supplement: Definition of 

Material Weakness (DFARS Case 

2021–D006) 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule. 

SUMMARY: DoD is issuing a final rule 

amending the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) to implement sections of the 

National Defense Authorization Acts for 

Fiscal Year 2021 that defines the term 

‘‘material weakness’’ for Government 

evaluation of contractor business 

systems. The term ‘‘material weakness’’ 

replaces the term ‘‘significant 

deficiency.’’ 

DATES: Effective January 17, 2025. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Jon Snyder, telephone 703–945–5341. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD published a proposed rule in the 

Federal Register at 89 FR 53561 on June 

27, 2024, to implement section 806 of 

the National Defense Authorization Act 

(NDAA) for Fiscal Year (FY) 2021 (Pub. 

L. 116–383), which amends section 893 

of the NDAA for FY 2011 (Pub. L. 111– 

383). Section 893 of the NDAA for FY 

2011 requires a program for the 

improvement of contractor business 

systems and provides for DoD approval 

or disapproval of contractor business 

systems. Section 806 of the NDAA for 

FY 2021 defines the term ‘‘material 

weakness’’, which replaces the term 

‘‘significant deficiency.’’ Three 

respondents submitted public 

comments in response to the proposed 

rule. 

II. Discussion and Analysis 

DoD reviewed the public comments in 

the development of the final rule. A 

discussion of the comments and the 

changes made to the rule as a result of 

those comments is provided, as follows: 

A. Summary of Significant Changes 

From the Proposed Rule 

There are no significant changes from 

the proposed rule. 

B. Analysis of Public Comments 

Comment: A respondent 

recommended DoD add experience 

requirements for administrative 

contracting officers that issue decisions 

related to business system deficiencies. 

The respondent also recommended 

clarifying that, although the terminology 

has changed, a warranted official is 

required to make the determination of 

findings of the audit or review. 

Response: Federal Acquisition 

Regulation 1.603 establishes the 

requirements for the selection, 

appointment, and termination of 

appointment for contracting officers. 

Section 806 does not require 

administrative contracting officers that 

issue decisions related to business 

system deficiencies to have a certain 

amount of experience. DFARS 242.7502 

specifies that the cognizant contracting 

officer, in consultation with the auditor 

or functional specialist, shall determine 

the acceptability of a contractor’s 

accounting system and approve or 

disapprove the system and pursue 

correction of any deficiencies as 

required. As such, it is not necessary to 

make the recommended changes. 

Comment: A respondent 

recommended adding a matrix at 

DFARS 242.7000 that aligns the types of 

Generally Accepted Accounting 

Systems internal control findings with 

the Defense Contract Management 

Agency (DCMA) corrective action 

request levels. 

Response: The creation of a reference 

matrix to pre-establish a particular level 

of a corrective action request would 

constrain the cognizant contracting 

officer’s ability to administer and 

oversee contracts. Therefore, this 

recommendation is not implemented in 

the final rule. 

Comment: A respondent 

recommended that DoD discontinue the 

use of or replace earned value 

management with a ‘‘cash on delivery’’ 

payment system. A respondent 

recommended that DoD consider a small 

business exemption from the DFARS 

business system clauses because they 

are complex systems that most small 

businesses cannot afford to invest the 

human and financial capital into 

supporting. A respondent recommended 

that DoD implement an inflation 

adjustment for each business system for 

fiscal year 2025 to mitigate the impacts 

of inflation on small businesses. 

Response: These comments are 

outside the scope of this rule. Section 

806 does not authorize DoD to 

discontinue the use of or replace earned 

value management, nor does it authorize 

DoD to establish a small business 


KHAMMOND on DSK9W7S144PROD with RULES
5726 Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 

exemption or an inflation adjustment. 

Inflation adjustments are made in 

accordance with 41 U.S.C. 1908. 

C. Other Changes 

The clause at DFARS 252.245–7003, 

Contractor Property Management 

System Administration, is amended to 

update the paragraph references to align 

with the changes made to the clause. At 

DFARS 242.7203(c)(2)(ii)(A) 

‘‘deficiency’’ is changed to ‘‘weakness or 

deficiency’’. In addition, at DFARS 

215.407–5–70(d)(1) and 244.305– 

70(c)(1) ‘‘weakness and deficiencies’’ is 

changed to ‘‘weakness or deficiencies’’. 

III. Applicability to Contracts at or 

Below the Simplified Acquisition 

Threshold (SAT), for Commercial 

Products (Including Commercially 

Available Off-the-Shelf (COTS) Items), 

and for Commercial Services 

This final rule amends the clauses at 

DFARS 252.215–7002, Cost Estimating 

System Requirements; 252.234–7002, 

Earned Value Management System; 

252.242–7004, Material Management 

and Accounting System; 252.242–7005, 

Contractor Business Systems; 252.242– 

7006, Accounting System 

Administration; 252.244–7001, 

Contractor Purchasing System 

Administration—Basic and Alternate I; 

and 252.245–7003, Contractor Property 

Management System Administration. 

However, this final rule does not impose 

any new requirements on contracts at or 

below the SAT, for commercial 

products, including COTS items, or for 

commercial services. Applicability of 

the clauses to acquisitions at or below 

the SAT, to acquisitions of commercial 

products including COTS items, and to 

acquisitions of commercial services 

remains unchanged. 

IV. Expected Impact of the Rule 

Presently, the DFARS includes a 

definition of ‘‘significant deficiency’’ in 

the context of DoD evaluation of 

contractor business systems. 

‘‘Significant deficiency’’ is defined as ‘‘a 

shortcoming in the system that 

materially affects the ability of officials 

of the Department of Defense to rely 

upon information produced by the 

system that is needed for management 

purposes.’’ This final rule replaces the 

term ‘‘significant deficiency’’ in the 

DFARS with the term ‘‘material 

weakness,’’ defined as a deficiency or 

combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is probable or more than 

remote but less than likely. 

This definition of ‘‘material 

weakness’’ provides more detail and 

clarity both to DoD and to industry in 

the context of evaluating contractor 

business systems compared to the 

definition of ‘‘significant deficiency.’’ 

This definition of ‘‘material weakness’’ 

also aligns with generally accepted 

auditing standards. Therefore, this rule 

will both create consistency with 

generally accepted auditing standards 

and minimize confusion about the 

seriousness of deficiencies, which will 

aid both DoD and industry. 

V. 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, as amended. 

VI. Congressional Review Act 

As required by the Congressional 

Review Act (5 U.S.C. 801–808) before an 

interim or final rule takes effect, DoD 

will submit a copy of the interim or 

final rule with the form, Submission of 

Federal Rules Under the Congressional 

Review Act, to the U.S. Senate, the U.S. 

House of Representatives, and the 

Comptroller General of the United 

States. A major rule under the 

Congressional Review Act cannot take 

effect until 60 days after it is published 

in the Federal Register. The Office of 

Information and Regulatory Affairs has 

determined that this rule is not a major 

rule as defined by 5 U.S.C. 804. 

VII. Regulatory Flexibility Act 

A final regulatory flexibility analysis 

has been prepared consistent with the 

Regulatory Flexibility Act, 5 U.S.C. 601, 

et seq. and is summarized as follows: 

This rule is necessary to implement 

section 806 of the National Defense 

Authorization Act (NDAA) for Fiscal 

Year (FY) 2021 (Pub. L. 116–283). 

Section 806 amends section 893 of the 

NDAA for FY 2011 (Pub. L. 111–383), 

which requires a program for the 

improvement of contractor business 

systems and provides for DoD approval 

or disapproval of contractor business 

systems. Section 806 of the NDAA for 

FY 2021 replaces the term ‘‘significant 

deficiency’’ with ‘‘material weakness’’ 

and defines the term ‘‘material 

weakness.’’ 

The objective of the rule is to 

introduce the term ‘‘material weakness’’ 

for Government evaluation of contractor 

business systems, replacing the term 

‘‘significant deficiency.’’ The definition 

of ‘‘material weakness’’ aligns with 

generally accepted auditing standards. 

This rule will help DoD maintain 

appropriate oversight over contractor 

business systems by enabling clear 

classification of deficiencies according 

to severity. 

There were no significant issues 

raised by the public in response to the 

initial regulatory flexibility analysis. 

The rule may impact small entities 

that are awarded DoD contracts. Based 

on data from the Federal Procurement 

Data System and the Electronic Data 

Access for fiscal years 2021, 2022, and 

2023, DoD estimates that an average of 

5,134 unique small entities are awarded 

an average of 22,263 contract actions 

annually that include one or more 

relevant clauses. 

This rule does not impose any new 

reporting, recordkeeping or other 

compliance requirements. 

There are no known alternatives that 

would accomplish the stated objectives 

of the applicable statute. 

VIII. Paperwork Reduction Act 

This final 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 202, 

215, 234, 242, 244, 245, and 252 

Government procurement. 

Jennifer D. Johnson, 

Editor/Publisher, Defense Acquisition 

Regulations System. 

Therefore, the Defense Acquisition 

Regulations System amends 48 CFR 

parts 202, 215, 234, 242, 244, 245, and 

252 as follows: 

■ 1. The authority citation for 48 CFR 

202, 215, 234, 242, 244, 245, and 252 

continues to read as follows: 

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

chapter 1. 


KHAMMOND on DSK9W7S144PROD with RULES
Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5727 

PART 202—DEFINITIONS OF WORDS 

AND TERMS 

■ 2. Amend section 202.101 by adding 

in alphabetical order the definition of 

‘‘Material weakness’’ to read as follows: 

202.101 Definitions. 

* * * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

■ 3. Amend section 215.407–5–70 by: 

■ a. Revising paragraph (a); 

■ b. In paragraph (c)(2)(ii) removing 

‘‘any deficiencies’’ and adding ‘‘any 

weaknesses or deficiencies’’ in its place; 

■ c. Revising and republishing 

paragraph (d); and 

■ d. In paragraph (e) removing 

‘‘significant deficiencies’’ and adding 

‘‘material weaknesses’’ in its place. 

The revisions and republications read 

as follows: 

215.407–5–70 Disclosure, maintenance, 

and review requirements. 

(a) Definitions. As used in this 

section— 

Acceptable estimating system means 

an estimating system that complies with 

the system criteria in paragraph (d) of 

252.215–7002, Cost Estimating System 

Requirements, and provides for a system 

that— 

(i) Is maintained, reliable, and 

consistently applied; 

(ii) Produces verifiable, supportable, 

documented, and timely cost estimates 

that are an acceptable basis for 

negotiation of fair and reasonable prices; 

(iii) Is consistent with and integrated 

with the contractor’s related 

management systems; and 

(iv) Is subject to applicable financial 

control systems. 

Contractor means a business unit as 

defined in FAR 2.101. 

Estimating system means the 

contractor’s policies, procedures, and 

practices for budgeting and planning 

controls and for generating estimates of 

costs and other data included in 

proposals submitted to customers in the 

expectation of receiving contract 

awards. Estimating system includes the 

contractor’s— 

(i) Organizational structure; 

(ii) Established lines of authority, 

duties, and responsibilities; 

(iii) Internal controls and managerial 

reviews; 

(iv) Flow of work, coordination, and 

communication; and 

(v) Budgeting, planning, estimating 

methods, techniques, accumulation of 

historical costs, and other analyses used 

to generate cost estimates. 

* * * * * 

(d) Disposition of findings—(1) 

Reporting of findings. The auditor shall 

document findings and 

recommendations in a report to the 

contracting officer. If the auditor 

identifies any material weaknesses, the 

report shall describe the underlying 

deficiencies in sufficient detail to allow 

the contracting officer to understand the 

weaknesses or deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review all 

findings and recommendations and, if 

there are no material weaknesses, shall 

promptly notify the contractor, in 

writing, that the contractor’s estimating 

system is acceptable and approved; or 

(ii) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

estimating system criteria in the clause 

at 252.215–7002, the contracting officer 

shall— 

(A) Promptly make an initial written 

determination on any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

deficiency (see PGI 215.407–5–70(d)(2)); 

(B) Request the contractor to respond 

in writing to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor’s 

responses to the initial determination, 

in consultation with the auditor or 

functional specialist, and make a final 

determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor 

in writing that— 

(A) The contractor’s estimating system 

is acceptable and approved, and no 

material weaknesses remain; or 

(B) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 

corrective action. The contracting officer 

shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

deficiencies or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(2) Disapprove the system in 

accordance with the clause at 252.215– 

7002; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses in PGI 215.407–5–70(d)(3). 

* * * * * 

PART 234—MAJOR SYSTEM 

ACQUISITION 

234.001 [Redesignated as 234.001–70] 

■ 4. Redesignate section 234.001 as 

section 234.001–70. 

■ 5. Revise newly redesignated section 

234.001–70 to read as follows: 

234.001–70 Definitions. 

As used in this part— 

Acceptable earned value management 

system means an earned value 

management system that generally 

complies with system criteria in 

paragraph (b) of 252.234–7002, Earned 

Value Management System. 

Earned value management system 

means an earned value management 

system that complies with the earned 

value management system guidelines in 

the ANSI/EIA–748. 

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. 

■ 6. Amend section 234.201— 

■ a. In paragraph (5)(ii) by removing 

‘‘any deficiencies’’ and adding ‘‘any 

weaknesses or deficiencies’’ in its place; 

■ b. By revising and republishing 

paragraph (7); and 

■ c. In paragraph (8) by removing 

‘‘significant deficiencies’’ and adding 

‘‘material weaknesses’’ in its place. 

The revision and republication reads 

as follows: 

234.201 Policy. 

(7) Disposition of findings—(i) 

Reporting of findings. The functional 

specialist or auditor shall document 

findings and recommendations in a 

report to the contracting officer. If the 

functional specialist or auditor 

identifies any material weakness in the 

contractor’s earned value management 

system, the report shall describe the 


KHAMMOND on DSK9W7S144PROD with RULES
5728 Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 

weaknesses or deficiencies in sufficient 

detail to allow the contracting officer to 

understand the weaknesses or 

deficiencies. 

(ii) Initial determination. (A) The 

contracting officer shall review all 

findings and recommendations and, if 

there are no material weaknesses, shall 

promptly notify the contractor, in 

writing, that the contractor’s earned 

value management system is acceptable 

and approved; or 

(B) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

earned value management system 

criteria in the clause at 252.234–7002, 

the contracting officer shall— 

(1) Promptly make an initial written 

determination of any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

weaknesses (see PGI 234.201(7)(ii)); 

(2) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(3) Evaluate the contractor’s response 

to the initial determination, in 

consultation with the auditor or 

functional specialist, and make a final 

determination. 

(iii) Final determination. (A) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(1) The contractor’s earned value 

management system is acceptable and 

approved, and no material weaknesses 

remain; or 

(2) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 

corrective action. The contracting officer 

shall— 

(i) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

deficiencies or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(ii) Disapprove the system in 

accordance with the clause at 252.234– 

7002 when initial validation is not 

successfully completed within the 

timeframe approved by the contracting 

officer, or the contracting officer 

determines that the existing earned 

value management system contains one 

or more material weaknesses in highrisk guidelines in ANSI/EIA–748 

standards (guidelines 1, 3, 6, 7, 8, 9, 10, 

12, 16, 21, 23, 26, 27, 28, 30, or 32). 

When the contracting officer determines 

that the existing earned value 

management system contains one or 

more material weaknesses in one or 

more of the remaining 16 guidelines in 

ANSI/EIA–748 standards, the 

contracting officer shall use discretion 

to disapprove the system based on input 

received from functional specialists and 

the auditor; and 

(iii) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(B) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses at PGI 234.201(7)(iii). 

* * * * * 

PART 242—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

242.302 [Amended] 

■ 7. Amend section 242.302 in 

paragraph (a)(7) by removing 

‘‘deficiencies’’ and adding ‘‘weaknesses 

or deficiencies’’ in its place. 

■ 8. Revise and republish section 

242.7000 to read as follows: 

242.7000 Contractor business system 

deficiencies. 

(a) Definitions. As used in this 

subpart— 

Acceptable contractor business 

systems means contractor business 

systems that comply with the terms and 

conditions of the applicable business 

system clauses listed in the definition of 

‘‘contractor business systems’’ in this 

section. 

Contractor business systems means— 

(i) Accounting system, if the contract 

includes the clause at 252.242–7006, 

Accounting System Administration; 

(ii) Earned value management system, 

if the contract includes the clause at 

252.234–7002, Earned Value 

Management System; 

(iii) Estimating system, if the contract 

includes the clause at 252.215–7002, 

Cost Estimating System Requirements; 

(iv) Material management and 

accounting system, if the contract 

includes the clause at 252.242–7004, 

Material Management and Accounting 

System; 

(v) Property management system, if 

the contract includes the clause at 

252.245–7003, Contractor Property 

Management System Administration; 

and 

(vi) Purchasing system, if the contract 

includes the clause at 252.244–7001, 

Contractor Purchasing System 

Administration. 

Covered contract means a contract 

that is subject to the Cost Accounting 

Standards under 41 U.S.C. chapter 15, 

as implemented in regulations found at 

48 CFR 9903.201–1 (10 U.S.C. 3841 note 

prec., as amended by section 816 of Pub. 

L. 112–81). 

(b) Determination to withhold 

payments. If the contracting officer 

makes a final determination to 

disapprove a contractor’s business 

system in accordance with the clause at 

252.242–7005, Contractor Business 

Systems, the contracting officer shall— 

(1) In accordance with agency 

procedures, identify one or more 

covered contracts containing the clause 

at 252.242–7005 from which payments 

will be withheld. When identifying the 

covered contracts from which to 

withhold payments, the contracting 

officer shall ensure that the total amount 

of payment withholding under 252.242– 

7005 does not exceed 10 percent of 

progress payments, performance-based 

payments, and interim payments under 

cost-reimbursement, labor-hour, and 

time-and-materials contracts billed 

under each of the identified covered 

contracts. Similarly, the contracting 

officer shall ensure that the total amount 

of payment withholding under the 

clause at 252.242–7005 for each 

business system does not exceed 5 

percent of progress payments, 

performance-based payments, and 

interim payments under costreimbursement, labor-hour, and timeand-materials contracts billed under 

each of the identified covered contracts. 

The contracting officer has the sole 

discretion to identify the covered 

contracts from which to withhold 

payments. 

(2) Promptly notify the contractor, in 

writing, of the contracting officer’s 

determination to implement payment 

withholding in accordance with the 

clause at 252.242–7005. The notice of 

payment withholding shall be included 

in the contracting officer’s written final 

determination for the contractor 

business system and shall inform the 

contractor that— 

(i) Payments shall be withheld from 

the contract or contracts identified in 

the written determination in accordance 

with the clause at 252.242–7005, until 

the contracting officer determines that 

there are no remaining material 

weaknesses; and 

(ii) The contracting officer reserves 

the right to take other actions within the 

terms and conditions of the contract. 

(3) Provide a copy of the 

determination to all contracting officers 

administering the selected contracts 

from which payments will be withheld. 

The contracting officer shall also 

provide a copy of the determination to 

the auditor; payment office; affected 

contracting officers at the buying 


KHAMMOND on DSK9W7S144PROD with RULES
Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5729 

activities; and cognizant contracting 

officers in contract administration 

activities. 

(c) Monitoring contractor’s corrective 

action. The contracting officer, in 

consultation with the auditor or 

functional specialist, shall monitor the 

contractor’s progress in correcting the 

weaknesses. The contracting officer 

shall notify the contractor of any 

decision to decrease or increase the 

amount of payment withholding in 

accordance with the clause at 252.242– 

7005. 

(d) Correction of material weaknesses. 

(1) If the contractor notifies the 

contracting officer that the contractor 

has corrected the material weaknesses, 

the contracting officer shall request the 

auditor or functional specialist to 

review the correction to verify that the 

weaknesses have been corrected. If, after 

receipt of verification, the contracting 

officer determines that the contractor 

has corrected all material weaknesses as 

directed by the contracting officer’s final 

determination, the contracting officer 

shall discontinue the withholding of 

payments, release any payments 

previously withheld, and approve the 

system, unless other material 

weaknesses remain. 

(2) Prior to the receipt of verification, 

the contracting officer may discontinue 

withholding payments pending receipt 

of verification, and release any 

payments previously withheld, if the 

contractor submits evidence that the 

material weaknesses have been 

corrected, and the contracting officer, in 

consultation with the auditor or 

functional specialist, determines that 

there is a reasonable expectation that 

the corrective actions have been 

implemented and are expected to 

correct the material weaknesses. 

(3) Within 90 days of receipt of the 

contractor notification that the 

contractor has corrected the material 

weaknesses, the contracting officer 

shall— 

(i) Make a determination that— 

(A) The contractor has corrected all 

material weaknesses as directed by the 

contracting officer’s final determination 

in accordance with paragraph (d)(1) of 

this section; 

(B) There is a reasonable expectation 

that the corrective actions have been 

implemented in accordance with 

paragraph (d)(2) of this section; or 

(C) The contractor has not corrected 

all material weaknesses as directed by 

the contracting officer’s final 

determination in accordance with 

paragraph (d)(1) of this section, or there 

is not a reasonable expectation that the 

corrective actions have been 

implemented in accordance with 

paragraph (d)(2) of this section; or 

(ii) Reduce withholding directly 

related to the material weaknesses 

covered under the corrective action plan 

by at least 50 percent of the amount 

being withheld from progress payments 

and performance-based payments, and 

direct the contractor, in writing, to 

reduce the percentage withheld on 

interim cost vouchers by at least 50 

percent, until the contracting officer 

makes a determination in accordance 

with paragraph (d)(3)(i) of this section. 

(4) If, at any time, the contracting 

officer determines that the contractor 

has failed to correct the material 

weaknesses identified in the 

contractor’s notification, the contracting 

officer will continue, reinstate, or 

increase withholding from progress 

payments and performance-based 

payments, and direct the contractor, in 

writing, to continue, reinstate, or 

increase the percentage withheld on 

interim cost vouchers to the percentage 

initially withheld, until the contracting 

officer determines that the contractor 

has corrected all material weaknesses as 

directed by the contracting officer’s final 

determination. 

(e) Sample formats. For sample 

formats for written notifications of 

contracting officer determinations to 

initiate payment withholding, reduce 

payment withholding, and discontinue 

payment withholding in accordance 

with the clause at 252.242–7005, see 

PGI 242.7000. 

■ 9. Revise section 242.7201 to read as 

follows: 

242.7201 Definitions. 

As used in this subpart— 

Acceptable material management and 

accounting system means a material 

management and accounting system that 

generally complies with the system 

criteria in paragraph (d) of the clause at 

252.242–7004, Material Management 

and Accounting System. 

Material management and accounting 

system (MMAS) means the contractor’s 

system or systems for planning, 

controlling, and accounting for the 

acquisition, use, issuing, and 

disposition of material. Material 

management and accounting systems 

may be manual or automated. They may 

be stand-alone systems, or they may be 

integrated with planning, engineering, 

estimating, purchasing, inventory, 

accounting, or other systems. 

Valid time-phased requirements 

means material that is— 

(1) Needed to fulfill the production 

plan, including reasonable quantities for 

scrap, shrinkage, yield, etc.; and 

(2) Charged or billed to contracts or 

other cost objectives in a manner 

consistent with the need to fulfill the 

production plan. 

242.7202 [Amended] 

■ 10. Amend section 242.7202 in 

paragraph (b)(2) by removing ‘‘any 

deficiencies’’ and adding ‘‘any 

weaknesses or deficiencies’’ in its place. 

■ 11. Amend section 242.7203 by— 

■ a. Revising and republishing 

paragraph (c); and 

■ b. Revising paragraph (d). 

The revisions and republication read 

as follows: 

242.7203 Review procedures. 

* * * * * 

(c) Disposition of findings—(1) 

Reporting of findings. The auditor or 

functional specialist shall document 

findings and recommendations in a 

report to the contracting officer. If the 

auditor or functional specialist 

identifies any material weakness, the 

report shall describe the weaknesses or 

deficiencies in sufficient detail to allow 

the contracting officer to understand the 

weaknesses or deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review findings 

and recommendations and, if there are 

no material weaknesses, shall promptly 

notify the contractor, in writing, that the 

contractor’s MMAS is acceptable and 

approved; or 

(ii) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

MMAS system criteria in the clause at 

252.242–7004, the contracting officer 

shall— 

(A) Promptly make an initial written 

determination on any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

weakness or deficiency; 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor’s 

response to the initial determination in 

consultation with the auditor or 

functional specialist, and make a final 

determination (see PGI 242.7203(c)(2)). 

(3) Final determination. (i) The ACO 

shall make a final determination and 

notify the contractor that— 

(A) The contractor’s MMAS is 

acceptable and approved, and no 

deficiencies remain; or 

(B) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 


KHAMMOND on DSK9W7S144PROD with RULES
5730 Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 

corrective action. The contracting officer 

shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

weaknesses or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(2) Disapprove the system in 

accordance with the clause at 252.242– 

7004; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses in PGI 242.7203(c)(3). 

(d) System approval. The contracting 

officer shall promptly approve a 

previously disapproved MMAS and 

notify the contractor when the 

contracting officer determines that there 

are no remaining material weaknesses. 

* * * * * 

■ 12. Revise section 242.7501 to read as 

follows: 

242.7501 Definitions. 

As used in this subpart— 

Acceptable accounting system means 

a system that complies with the system 

criteria in paragraph (c) of the clause at 

252.242–7006, Accounting System 

Administration, to provide reasonable 

assurance that— 

(1) Applicable laws and regulations 

are complied with; 

(2) The accounting system and cost 

data are reliable; 

(3) Risk of misallocations and 

mischarges are minimized; and 

(4) Contract allocations and charges 

are consistent with billing procedures. 

Accounting system means the 

contractor’s system or systems for 

accounting methods, procedures, and 

controls established to gather, record, 

classify, analyze, summarize, interpret, 

and present accurate and timely 

financial data for reporting in 

compliance with applicable laws, 

regulations, and management decisions, 

and may include subsystems for specific 

areas such as indirect and other direct 

costs, compensation, billing, labor, and 

general information technology. 

■ 13. Amend section 242.7502— 

■ a. In paragraph (b)(2) by removing 

‘‘any deficiencies’’ and adding ‘‘any 

weaknesses or deficiencies’’ in its place; 

■ b. By revising and republishing 

paragraph (d); 

■ c. By revising paragraph (e); 

■ d. In the paragraph (g) heading and 

paragraphs (g)(1) and (g)(2)(i) by 

removing ‘‘accounting system’’; 

■ e. In paragraph (g)(2)(iii) by removing 

‘‘accounting system’s’’; and 

■ f. In paragraph (g)(3) introductory text 

by removing ‘‘an accounting system 

deficiency’’ and adding ‘‘a deficiency’’ 

in its place. 

The revisions and republication read 

as follows: 

242.7502 Policy. 

* * * * * 

(d) Disposition of findings—(1) 

Reporting of findings. The auditor shall 

document findings and 

recommendations in a report to the 

contracting officer. If the auditor 

identifies any material weakness, the 

report shall describe the weaknesses or 

deficiencies in sufficient detail to allow 

the contracting officer to understand the 

weaknesses or deficiencies. Follow the 

procedures at PGI 242.7502 for reporting 

of deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review findings 

and recommendations and, if there are 

no material weaknesses, shall promptly 

notify the contractor, in writing, that the 

contractor’s accounting system is 

acceptable and approved; or 

(ii) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

accounting system criteria in the clause 

at 252.242–7006, the contracting officer 

shall— 

(A) Promptly make an initial written 

determination on any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

weakness (see PGI 242.7502(d)(2)); 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Promptly evaluate the contractor’s 

response to the initial determination, in 

consultation with the auditor or 

functional specialist, and make a final 

determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(A) The contractor’s accounting 

system is acceptable and approved, and 

no material weaknesses remain; or 

(B) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 

corrective action. The contracting officer 

shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

weaknesses or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(2) Make a determination to 

disapprove the system in accordance 

with the clause at 252.242–7006; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses in PGI 242.7502(d)(3). 

(e) System approval. The contracting 

officer shall promptly approve a 

previously disapproved accounting 

system and notify the contractor when 

the contracting officer determines that 

there are no remaining material 

weaknesses. 

* * * * * 

PART 244—SUBCONTRACTING 

POLICIES AND PROCEDURES 

■ 14. Revise section 244.101 to read as 

follows: 

244.101 Definitions. 

Acceptable purchasing system means 

a purchasing system that complies with 

the system criteria in paragraph (c) of 

the clause at 252.244–7001. 

Purchasing system means the 

contractor’s system or systems for 

purchasing and subcontracting, 

including make-or-buy decisions, the 

selection of vendors, analysis of quoted 

prices, negotiation of prices with 

vendors, placing and administering of 

orders, and expediting delivery of 

materials. 

■ 15. Amend section 244.305–70— 

■ a. In the introductory text by 

removing ‘‘subsection’’ and adding 

‘‘section’’ in its place; 

■ b. By revising and republishing 

paragraph (c); 

■ c. By revising paragraph (d); and 

■ d. In the paragraph (f) heading and 

paragraphs (f)(1) and (f)(2)(i) by 

removing ‘‘purchasing system’’; 

■ e. In paragraph (f)(2)(iii) by removing 

‘‘purchasing system’s’’; and 

■ f. In paragraph (f)(3) introductory text 

by removing ‘‘purchasing system’’. 

The revisions and republications read 

as follows: 

244.305–70 Policy. 

* * * * * 

(c) Disposition of findings—(1) 

Reporting of findings. The purchasing 

system analyst or auditor shall 

document findings and 

recommendations in a report to the 

contracting officer. If the auditor or 

purchasing system analyst identifies any 


KHAMMOND on DSK9W7S144PROD with RULES
Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5731 

material weaknesses, the report shall 

describe the underlying deficiencies in 

sufficient detail to allow the contracting 

officer to understand the weaknesses or 

deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review all 

findings and recommendations and, if 

there are no material weaknesses, shall 

promptly notify the contractor that the 

contractor’s purchasing system is 

acceptable and approved; or 

(ii) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

purchasing system criteria in the clause 

at 252.244–7001, the contracting officer 

shall— 

(A) Promptly make an initial written 

determination on any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

weakness (see PGI 244.305–70(c)(2)); 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days; and 

(C) Evaluate the contractor’s response 

to the initial determination in 

consultation with the auditor or 

purchasing system analyst and make a 

final determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(A) The contractor’s purchasing 

system is acceptable and approved, and 

no material weaknesses remain; or 

(B) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 

corrective action. The contracting officer 

shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

weaknesses or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(2) Disapprove the system in 

accordance with the clause at 252.244– 

7001; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses in PGI 244.305–70(c)(3). 

(d) System approval. The contracting 

officer shall promptly approve a 

previously disapproved purchasing 

system and notify the contractor when 

the contracting officer determines that 

there are no remaining material 

weaknesses. 

* * * * * 

PART 245—GOVERNMENT PROPERTY 

■ 16. Amend section 245.105— 

■ a. By revising paragraph (a); 

■ b. In paragraph (b)(2) by removing 

‘‘any deficiencies’’ and adding ‘‘any 

weaknesses or deficiencies’’ in its place; 

■ c. By revising and republishing 

paragraph (d); and 

■ d. In paragraph (e) by removing 

‘‘significant deficiencies’’ and adding 

‘‘material weaknesses’’ in its place. 

The revisions and republication read 

as follows: 

245.105 Contractors’ property 

management system compliance. 

(a) Definitions. As used in this 

subpart— 

Acceptable property management 

system means a property system that 

complies with the system criteria in 

paragraph (c) of the clause at 252.245– 

7003, Contractor Property Management 

Administration. 

Property management system means 

the contractor’s system or systems for 

managing and controlling Government 

property. 

* * * * * 

(d) Disposition of findings—(1) 

Reporting of findings. The property 

administrator shall document findings 

and recommendations in a report to the 

contracting officer. If the property 

administrator identifies any material 

weaknesses, the report shall describe 

the underlying deficiencies in sufficient 

detail to allow the contracting officer to 

understand the weaknesses or 

deficiencies. 

(2) Initial determination. (i) The 

contracting officer shall review findings 

and recommendations and, if there are 

no material weaknesses, shall promptly 

notify the contractor, in writing, that the 

contractor’s property management 

system is acceptable and approved; or 

(ii) If the contracting officer finds that 

there are one or more material 

weaknesses due to the contractor’s 

failure to meet one or more of the 

property management system criteria in 

the clause at 252.245–7003, the 

contracting officer shall— 

(A) Promptly make an initial written 

determination on any material 

weaknesses and notify the contractor, in 

writing, providing a description of each 

material weakness in sufficient detail to 

allow the contractor to understand the 

weakness (see PGI 245.105(d)(2)); 

(B) Request the contractor to respond, 

in writing, to the initial determination 

within 30 days and; 

(C) Evaluate the contractor’s response 

to the initial determination, in 

consultation with the property 

administrator, and make a final 

determination. 

(3) Final determination. (i) The 

contracting officer shall make a final 

determination and notify the contractor, 

in writing, that— 

(A) The contractor’s property 

management system is acceptable and 

approved, and no material weaknesses 

remain; or 

(B) Material weaknesses remain. The 

notice shall identify any remaining 

material weaknesses and indicate the 

adequacy of any proposed or completed 

corrective action. The contracting officer 

shall— 

(1) Request that the contractor, within 

45 days of receipt of the final 

determination, either correct the 

weaknesses or submit an acceptable 

corrective action plan showing 

milestones and actions to eliminate the 

weaknesses; 

(2) Disapprove the system in 

accordance with the clause at 252.245– 

7003; and 

(3) Withhold payments in accordance 

with the clause at 252.242–7005, 

Contractor Business Systems, if the 

clause is included in the contract. 

(ii) Follow the procedures relating to 

monitoring a contractor’s corrective 

action and the correction of material 

weaknesses in PGI 245.105(d)(3). 

* * * * * 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

■ 17. Amend section 252.215–7002— 

■ a. By revising the section heading and 

clause date; 

■ b. In paragraph (a) by— 

■ i. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ ii. Removing the definition of 

‘‘Significant deficiency’’; 

■ c. By revising and republishing 

paragraph (e); and 

■ d. By revising paragraph (f). 

The addition, revisions, and 

republication read as follows: 

252.215–7002 Cost Estimating System 

Requirements. 

* * * * * 

Cost Estimating System Requirements 

(Jan 2025) 

(a) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 


KHAMMOND on DSK9W7S144PROD with RULES
5732 Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(e) Material weaknesses. (1) The 

Contracting Officer will provide an 

initial determination to the Contractor, 

in writing, of any material weaknesses. 

The initial determination will describe 

the underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weakness or deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s 

estimating system. If the Contractor 

disagrees with the initial determination, 

the Contractor shall state, in writing, its 

rationale for disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval, if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(f) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the material weaknesses. 

* * * * * 

■ 18. Amend section 252.234–7002— 

■ a. By revising the clause date; 

■ b. In paragraph (a) by— 

■ i. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ ii. Removing the definition of 

‘‘Significant deficiency’’; 

■ c. By revising and republishing 

paragraph (i); and 

■ d. By adding a heading to paragraph 

(k). 

The additions, revisions, and 

republication read as follows: 

252.234–7002 Earned Value Management 

System 

* * * * * 

Earned Value Management System (Jan 

2025) 

(a) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(i) Material weaknesses. (1) The 

Contracting Officer will provide an 

initial determination to the Contractor, 

in writing, of any material weaknesses. 

The initial determination will describe 

the underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weakness or deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s EVMS. If 

the Contractor disagrees with the initial 

determination, the Contractor shall 

state, in writing, its rationale for 

disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; 

(iii) System noncompliance, when the 

Contractor’s existing EVMS fails to 

comply with the earned value 

management system guidelines in the 

ANSI/EIA–748; and 

(iv) System disapproval, if initial 

EVMS validation is not successfully 

completed within the timeframe 

approved by the Contracting Officer, or 

if the Contracting Officer determines 

that the Contractor’s earned value 

management system contains one or 

more material weaknesses in high-risk 

guidelines in ANSI/EIA–748 standards 

(guidelines 1, 3, 6, 7, 8, 9, 10, 12, 16, 

21, 23, 26, 27, 28, 30, or 32). When the 

Contracting Officer determines that the 

existing earned value management 

system contains one or more material 

weaknesses in one or more of the 

remaining 16 guidelines in ANSI/EIA– 

748 standards, the Contracting Officer 

will use discretion to disapprove the 

system based on input received from 

functional specialists and the auditor. 

(4) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the material weaknesses. 

* * * * * 

(k) Subcontracts. * * * 

* * * * * 

■ 19. Amend section 252.242–7004— 

■ a. Revising the clause date and 

paragraph (a); 

■ b. Revising and republishing 

paragraph (e); and 

■ c. Revising paragraph (f). 

The revisions and republication read 

as follows: 

252.242–7004 Material Management and 

Accounting System. 

* * * * * 

Material Management and Accounting 

System (Jan 2025) 

(a) Definitions. As used in this 

clause— 

Acceptable material management and 

accounting system means a material 

management and accounting system that 

generally complies with the system 

criteria in paragraph (d) of this clause. 

Contractor means a business unit as 

defined in Federal Acquisition 

Regulation (FAR) 2.101. 

Material management and accounting 

system (MMAS) means the Contractor’s 

system or systems for planning, 

controlling, and accounting for the 

acquisition, use, issuing, and 

disposition of material. Material 

management and accounting systems 

may be manual or automated. They may 

be stand-alone systems, or they may be 

integrated with planning, engineering, 

estimating, purchasing, inventory, 

accounting, or other systems. 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

Valid time-phased requirements 

means material that is— 

(1) Needed to fulfill the production 

plan, including reasonable quantities for 

scrap, shrinkage, yield, etc.; and 

(2) Charged or billed to contracts or 

other cost objectives in a manner 


KHAMMOND on DSK9W7S144PROD with RULES
Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5733 

consistent with the need to fulfill the 

production plan. 

* * * * * 

(e) Material weaknesses. (1) The 

Contracting Officer will provide an 

initial determination to the Contractor, 

in writing, of any material weaknesses. 

The initial determination will describe 

the underlying deficiencies in sufficient 

detail to allow the Contractor to 

understand the weaknesses or 

deficiencies. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s MMAS. 

If the Contractor disagrees with the 

initial determination, the Contractor 

shall state, in writing, its rationale for 

disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(f) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the material weaknesses. 

* * * * * 

■ 20. Amend section 252.242–7005— 

■ a. By revising the section heading and 

clause date; 

■ b. In paragraph (b) by— 

■ i. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ ii. Removing the definition of 

‘‘Significant deficiency’’; and 

■ c. By revising paragraphs (d), (e)(1) 

and (2), (e)(3)(i), and (f). 

The addition and revisions read as 

follows: 

252.242–7005 Contractor Business 

Systems. 

* * * * * 

Contractor Business Systems (Jan 2025) 

* * * * * 

(b) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(d) Material weaknesses. (1) The 

Contractor shall respond, in writing, 

within 30 days to an initial 

determination that there are one or more 

material weaknesses in one or more of 

the Contractor’s business systems. 

(2) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

final determination as to whether the 

Contractor’s business system contains 

material weaknesses. If the Contracting 

Officer determines that the Contractor’s 

business system contains material 

weaknesses, the final determination will 

include a notice to withhold payments. 

(e) * * * 

(1) If the Contracting Officer issues 

the final determination with a notice to 

withhold payments for material 

weaknesses in a contractor business 

system required under this contract, the 

Contracting Officer will withhold 5 

percent of amounts due from progress 

payments and performance-based 

payments, and direct the Contractor, in 

writing, to withhold 5 percent from its 

billings on interim cost vouchers on 

cost-reimbursement, labor-hour, and 

time-and-materials contracts until the 

Contracting Officer has determined that 

the Contractor has corrected all material 

weaknesses as directed by the 

Contracting Officer’s final 

determination. The Contractor shall, 

within 45 days of receipt of the notice, 

either correct the weaknesses or submit 

an acceptable corrective action plan 

showing milestones and actions to 

eliminate the weaknesses. 

(2) If the Contractor submits an 

acceptable corrective action plan within 

45 days of receipt of a notice of the 

Contracting Officer’s intent to withhold 

payments, and the Contracting Officer, 

in consultation with the auditor or 

functional specialist, determines that 

the Contractor is effectively 

implementing such plan, the 

Contracting Officer will reduce 

withholding directly related to the 

material weaknesses covered under the 

corrective action plan, to 2 percent from 

progress payments and performancebased payments, and direct the 

Contractor, in writing, to reduce the 

percentage withheld on interim cost 

vouchers to 2 percent until the 

Contracting Officer determines the 

Contractor has corrected all material 

weaknesses as directed by the 

Contracting Officer’s final 

determination. However, if at any time, 

the Contracting Officer determines that 

the Contractor has failed to follow the 

accepted corrective action plan, the 

Contracting Officer will increase 

withholding from progress payments 

and performance-based payments, and 

direct the Contractor, in writing, to 

increase the percentage withheld on 

interim cost vouchers to the percentage 

initially withheld, until the Contracting 

Officer determines that the Contractor 

has corrected all material weaknesses as 

directed by the Contracting Officer’s 

final determination. 

(3) * * * 

(i) The total percentage of payments 

withheld on amounts due under each 

progress payment, performance-based 

payment, or interim cost voucher on 

this contract shall not exceed— 

(A) Five percent for one or more 

material weaknesses in any single 

contractor business system; and 

(B) Ten percent for material 

weaknesses in multiple contractor 

business systems. 

* * * * * 

(f) Correction of weaknesses. (1) The 

Contractor shall notify the Contracting 

Officer, in writing, when the Contractor 

has corrected the business system’s 

weaknesses. 

(2) Once the Contractor has notified 

the Contracting Officer that all 

weaknesses have been corrected, the 

Contracting Officer will take one of the 

following actions: 

(i) If the Contracting Officer 

determines that the Contractor has 

corrected all material weaknesses as 

directed by the Contracting Officer’s 

final determination, the Contracting 

Officer will, as appropriate, discontinue 

the withholding of progress payments 

and performance-based payments, and 

direct the Contractor, in writing, to 

discontinue the payment withholding 

from billings on interim cost vouchers 

under this contract associated with the 

Contracting Officer’s final 

determination, and authorize the 

Contractor to bill for any monies 

previously withheld that are not also 

being withheld due to other material 

weaknesses. Any payment withholding 

under this contract due to other material 

weaknesses will remain in effect until 

the Contracting Officer determines that 

those material weaknesses are corrected. 

(ii) If the Contracting Officer 

determines that the Contractor still has 

material weaknesses, the Contracting 

Officer will continue the withholding of 

progress payments and performanceVerDate Sep<11>2014 09:19 Jan 17, 2025 Jkt 265001 PO 00000 Frm 00243 Fmt 4700 Sfmt 4700 E:\FR\FM\17JAR1.SGM 17JAR1

KHAMMOND on DSK9W7S144PROD with RULES
5734 Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 

based payments, and the Contractor 

shall continue withholding amounts 

from its billings on interim cost 

vouchers in accordance with paragraph 

(e) of this clause, and not bill for any 

monies previously withheld. 

(iii) If the Contracting Officer 

determines, based on the evidence 

submitted by the Contractor, that there 

is a reasonable expectation that the 

corrective actions have been 

implemented and are expected to 

correct the material weaknesses, the 

Contracting Officer will discontinue 

withholding payments, and release any 

payments previously withheld directly 

related to the material weaknesses 

identified in the Contractor notification, 

and direct the Contractor, in writing, to 

discontinue the payment withholding 

from billings on interim cost vouchers 

associated with the Contracting Officer’s 

final determination, and authorize the 

Contractor to bill for any monies 

previously withheld. 

(iv) If, within 90 days of receipt of the 

Contractor notification that the 

Contractor has corrected the material 

weaknesses, the Contracting Officer has 

not made a determination in accordance 

with paragraph (f)(2)(i), (ii), or (iii) of 

this clause, the Contracting Officer will 

reduce withholding directly related to 

the material weaknesses identified in 

the Contractor notification by at least 50 

percent of the amount being withheld 

from progress payments and 

performance-based payments, and direct 

the Contractor, in writing, to reduce the 

payment withholding from billings on 

interim cost vouchers directly related to 

the material weaknesses identified in 

the Contractor notification by a 

specified percentage that is at least 50 

percent, but not authorize the 

Contractor to bill for any monies 

previously withheld until the 

Contracting Officer makes a 

determination in accordance with 

paragraph (f)(2)(i), (ii), or (iii) of this 

clause. 

(v) At any time after the Contracting 

Officer reduces or discontinues the 

withholding of progress payments and 

performance-based payments, or directs 

the Contractor to reduce or discontinue 

the payment withholding from billings 

on interim cost vouchers under this 

contract, if the Contracting Officer 

determines that the Contractor has 

failed to correct the material weaknesses 

identified in the Contractor’s 

notification, the Contracting Officer will 

reinstate or increase withholding from 

progress payments and performancebased payments, and direct the 

Contractor, in writing, to reinstate or 

increase the percentage withheld on 

interim cost vouchers to the percentage 

initially withheld, until the Contracting 

Officer determines that the Contractor 

has corrected all material weaknesses as 

directed by the Contracting Officer’s 

final determination. 

* * * * * 

■ 21. Amend section 252.242–7006— 

■ a. Revising the section heading, clause 

date, and paragraph (a); 

■ b. Revising and republishing 

paragraph (d); and 

■ c. Revising paragraph (e). 

The revisions and republication read 

as follows: 

252.242–7006 Accounting System 

Administration. 

* * * * * 

Accounting System Administration (Jan 

2025) 

(a) Definitions. As used in this 

clause— 

Acceptable accounting system means 

a system that complies with the system 

criteria in paragraph (c) of this clause to 

provide reasonable assurance that— 

(1) Applicable laws and regulations 

are complied with; 

(2) The accounting system and cost 

data are reliable; 

(3) Risk of misallocations and 

mischarges are minimized; and 

(4) Contract allocations and charges 

are consistent with billing procedures. 

Accounting system means the 

Contractor’s system or systems for 

accounting methods, procedures, and 

controls established to gather, record, 

classify, analyze, summarize, interpret, 

and present accurate and timely 

financial data for reporting in 

compliance with applicable laws, 

regulations, and management decisions, 

and may include subsystems for specific 

areas such as indirect and other direct 

costs, compensation, billing, labor, and 

general information technology. 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(d) Material weaknesses. (1) The 

Contracting Officer will provide an 

initial determination to the Contractor, 

in writing, of any material weaknesses. 

The initial determination will describe 

the underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weakness or deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s 

accounting system. If the Contractor 

disagrees with the initial determination, 

the Contractor shall state, in writing, its 

rationale for disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval, if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(e) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the material weaknesses. 

* * * * * 

■ 22. Amend section 252.244–7001— 

■ a. By revising the section heading and 

clause date; 

■ b. In paragraph (a) by— 

■ i. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ ii. Removing the definition of 

‘‘Significant deficiency’’; 

■ c. By revising and republishing 

paragraph (d); 

■ d. By revising paragraph (e); and 

■ e. In Alternate I— 

■ i. By revising the clause date; 

■ ii. In paragraph (a) by— 

■ A. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ B. Removing the definition of 

‘‘Significant deficiency’’; 

■ iii. By revising and republishing 

paragraph (d); and 

■ iv. By revising paragraph (e). 

The additions, revisions, and 

republications read as follows: 

252.244–7001 Contractor Purchasing 

System Administration. 

* * * * * 

Contractor Purchasing System 

Administration—Basic (Jan 2025) 

(a) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 


KHAMMOND on DSK9W7S144PROD with RULES
Federal Register / Vol. 90, No. 11 / Friday, January 17, 2025 / Rules and Regulations 5735 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(d) Material weaknesses. (1) The 

Contracting Officer will provide 

notification of initial determination to 

the Contractor, in writing, of any 

material weaknesses. The initial 

determination will describe the 

underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weakness or deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s 

purchasing system. If the Contractor 

disagrees with the initial determination, 

the Contractor shall state, in writing, its 

rationale for disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval, if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(e) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the weaknesses. 

* * * * * 

Alternate I. * * * 

Contractor Purchasing System 

Administration—Alternate I (Jan 2025) 

(a) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(d) Material weaknesses. (1) The 

Contracting Officer will provide 

notification of initial determination to 

the Contractor, in writing, of any 

material weaknesses. The initial 

determination will describe the 

underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weaknesses or 

deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s 

purchasing system. If the Contractor 

disagrees with the initial determination, 

the Contractor shall state, in writing, its 

rationale for disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval, if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(e) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the weaknesses. 

* * * * * 

■ 23. Amend section 252.245–7003— 

■ a. By revising the clause date; 

■ b. In paragraph (a) by— 

■ i. Adding in alphabetical order the 

definition of ‘‘Material weakness’’; and 

■ ii. Removing the definition of 

‘‘Significant deficiency’’; 

■ c. In paragraph (c), by removing 

‘‘paragraph (f)’’ and adding ‘‘paragraphs 

(b) and (f)’’ in its place; 

■ d. By revising and republishing 

paragraph (d); and 

■ e. By revising paragraph (e). 

The addition, revisions, and 

republication read as follows: 

252.245–7003 Contractor Property 

Management System Administration. 

* * * * * 

Contractor Property Management 

System Administration (Jan 2025) 

(a) * * * 

Material weakness means a deficiency 

or combination of deficiencies in the 

internal control over information in 

contractor business systems, such that 

there is a reasonable possibility that a 

material misstatement of such 

information will not be prevented, or 

detected and corrected, on a timely 

basis. A reasonable possibility exists 

when the likelihood of an event 

occurring is— 

(1) Probable; or 

(2) More than remote but less than 

likely (section 806 of Pub. L. 116–283). 

* * * * * 

(d) Material weaknesses. (1) The 

Contracting Officer will provide an 

initial determination to the Contractor, 

in writing, of any material weaknesses. 

The initial determination will describe 

the underlying deficiency in sufficient 

detail to allow the Contractor to 

understand the weaknesses or 

deficiency. 

(2) The Contractor shall respond 

within 30 days to a written initial 

determination from the Contracting 

Officer that identifies material 

weaknesses in the Contractor’s property 

management system. If the Contractor 

disagrees with the initial determination, 

the Contractor shall state, in writing, its 

rationale for disagreeing. 

(3) The Contracting Officer will 

evaluate the Contractor’s response and 

notify the Contractor, in writing, of the 

Contracting Officer’s final determination 

concerning— 

(i) Remaining material weaknesses; 

(ii) The adequacy of any proposed or 

completed corrective action; and 

(iii) System disapproval, if the 

Contracting Officer determines that one 

or more material weaknesses remain. 

(e) If the Contractor receives the 

Contracting Officer’s final determination 

of material weaknesses, the Contractor 

shall, within 45 days of receipt of the 

final determination, either correct the 

material weaknesses or submit an 

acceptable corrective action plan 

showing milestones and actions to 

eliminate the material weaknesses. 

* * * * * 

[FR Doc. 2025–00721 Filed 1–16–25; 8:45 am] 

BILLING CODE 6001–FR–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 206, 217, 219, and 252 

[Docket DARS–2024–0001] 

Defense Federal Acquisition 

Regulation Supplement; Technical 

Amendments 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule; technical 

amendment. 


KHAMMOND on DSK9W7S144PROD with RULES