`[Federal Register Volume 86, Number 129 (Friday, July 9, 2021)]
[Rules and Regulations]
[Pages 36229-36237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14429]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 204, 212, and 252

[Docket DARS-2020-0007]
RIN 0750-AK30


Defense Federal Acquisition Regulation Supplement: Data 
Collection and Inventory for Services Contracts (DFARS Case 2018-D063)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement to implement a section of the United 
States Code that requires the collection of data on certain DoD service 
contracts.

DATES: Effective July 9, 2021.

FOR FURTHER INFORMATION CONTACT: Ms. Carrie Moore, telephone 571-372-
6093.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 85 FR 
34569 on June 5, 2020, to implement 10 U.S.C. 2330a, as amended by 
section 812 of the National Defense Authorization Act (NDAA) for Fiscal 
Year (FY) 2017 (Pub. L. 114-328), which requires DoD to establish a 
data collection system to provide certain management information with 
regard to an awarded contract or task order that is valued in excess of 
$3 million and is for the following service acquisition portfolio 
groups: Logistics management services, equipment-related services, 
knowledge-based services, or electronics and communications services.
    DoD published a prior proposed rule under DFARS Case 2012-D051 in 
the Federal Register at 79 FR 32522 on June 5, 2014, to implement 10 
U.S.C. 2330a (section 807 of the NDAA for FY 2008), which required DoD 
to establish a data collection system to provide certain data on the 
purchasing of services by DoD and to submit to Congress an annual 
inventory of services contracts awarded by or on behalf of DoD. The 
proposed rule for DFARS Case 2012-D051 required contractors to enter 
the required data into a DoD-unique system, Enterprise Contractor 
Manpower Reporting Application (ECMRA). In response to public comments 
received in response to the proposed rule for DFARS Case 2012-D051, DoD 
made the following changes in the proposed rule for DFARS Case 2018-
D063:
     DoD has adopted the service contract reporting process 
used by other Federal agencies and no longer requires contractor 
reporting in ECMRA. This change enables DoD to use the Federal 
Procurement Data System (FPDS) to obtain a majority of the information 
required by 10 U.S.C. 2330a. FPDS does not provide data on the direct 
labor hours expended and dollar amounts invoiced for contracted 
services. Therefore, both the proposed and final rules require 
applicable contractors to enter the labor hours and dollar amounts in 
SAM, which is the process used by other Federal agencies, in accordance 
with Federal Acquisition Regulation (FAR) subpart 4.17.
     To relieve burden and minimize impact for contractors and 
subcontractors, both the proposed and final rules require contractors 
to report the total number of hours worked (both contractor and 
subcontractor) under the contract for the entire fiscal year and does 
not require a breakdown of those hours by employee type or by 
subcontractor. The requirement to report subcontractor data is limited 
to first-tier subcontractors, consistent with the FAR requirement for 
service contract reporting. The proposed and final rules leave the 
process for collecting subcontractor data up to the discretion of each 
contractor; the rules do not prescribe a specific methodology that 
contractors must use to gather this data on applicable subcontracts, or 
prescribe a reporting requirement for subcontractors via the flow-down 
of the contract clause.
     The estimated burdens for respondents and responses 
published in the proposed rule for DFARS Case 2021-D051 have been 
updated to reflect the revised requirements of 10 U.S.C. 2330a, as 
amended.
    The following is a summary of the public comments received in 
response to the proposed rule for DFARS Case 2012-D051:

A. Exemptions

    Comment: Several respondents recommended that the rule exempt 
certain areas including: Research and development projects; architect 
and engineering services; telecommunications and transmission and 
internet; and actions using criteria similar to the Service Contract 
Labor Standards exemptions in FAR 22.1003-4(d)(1).
    Response: The proposed rule for DFARS Case 2018-D063 implements 10 
U.S.C. 2330a, as amended by section 812 of the NDAA for FY 2017, which

[[Page 36230]]

requires reporting for only four service acquisition portfolio groups: 
Logistics management services, equipment related services, knowledge-
based services, and electronics and communications services. No further 
exemptions are available under the law.
    Comment: Several respondents recommended that contracted services 
that meet the definition of commercial items be exempt from ECMRA 
reporting.
    Response: An exception for services that meet the definition of a 
commercial item would exclude significant sums expended by DoD on 
commercial service acquisitions intended to be covered by the law. The 
intent of the statute is to enhance DoD's ability to manage the total 
force, inclusive of military, civilian, and contractor personnel. 
Specifically, section 2330a requires the military departments and 
defense agencies to ensure that the inventory of contracts for services 
required by the statute is used to inform strategic workforce planning 
decisions under 10 U.S.C. 129a, develop budget justification materials 
for services in accordance with 10 U.S.C. 235, and ensure services 
contracts are not for the performance of inherently governmental 
functions. Therefore, services meeting the definition of a commercial 
item are not exempt from the reporting requirement.
    Comment: Several respondents recommended that firm fixed-price 
service contracts be exempt from the ECMRA reporting requirement, 
because these contracts acquire services in their entirety, not as 
individuals (full-time equivalents).
    Response: In accordance with paragraph (b) of 10 U.S.C. 2330a, the 
data required to be collected under the statute includes service 
contracts and orders that contain firm fixed-prices for the specific 
tasks to be performed. Therefore, firm fixed-price contracts for the 
applicable services are not exempt under the proposed rule for DFARS 
Case 2018-D063.
    Comment: One respondent recommended that the rule exempt DoD 
intelligence community agency contracts, because the existing exemption 
for ``classified services'' is not sufficient to cover the exempt 
contracts entered into by DoD intelligence community agencies.
    Response: The statute does not provide for exemptions to the 
reporting requirement; therefore, the proposed rule for DFARS Case 
2012-D051 does not provide for exemptions, in order to comply with the 
law.
    Comment: One respondent recommended that, due to the difficulty in 
tracking labor for service contracts where contractor employees may 
spend only small fractions of their time servicing the Government 
contract (such as refuse collection and software as a service), the 
rule should be changed to exempt such contracts by using the criteria 
similar to the Service Contract Labor Standards exemptions (see FAR 
22.1003-4(d)(1)).
    Response: Title 10 U.S.C. 2330a, as amended by section 812 of the 
NDAA for FY 2017, now limits data collection to four service 
acquisition portfolio groups: Logistics management services, equipment 
related services, knowledge-based services, and electronics and 
communications services. Under the proposed rule for DFARS Case 2018-
D063, only service contracts with a total estimated value exceeding $3 
million that are for services in one of the four portfolio groups must 
be reported in SAM.
    Comment: One respondent questioned whether Congress intended DoD to 
report contracts for services that are integrally related to supplies, 
or contracts where the services are a relatively small dollar value in 
relation to the supplies.
    Response: Title 10 U.S.C. 2330a requires the collection of data on 
``each purchase of services by a military department or Defense 
Agency'' that meets a certain dollar threshold and is for certain 
services. The proposed rule for DFARS Case 2018-D063 clarifies that the 
requirement applies to contracts or orders that have a total estimated 
value, including options, exceeding $3 million and are for services in 
one of the four service acquisition portfolio groups.

B. Expansion of Reporting Requirement

    Comment: Two respondents suggested that the ECMRA reporting 
requirement be extended to contracts for services valued at or below 
the simplified acquisition threshold (SAT). Doing so would be 
consistent with the congressional intent in 10 U.S.C. 2330a for DoD to 
provide a total inventory of contracted services.
    Response: Title 10 U.S.C. 2330a(a), as amended by section 812 of 
the NDAA for FY 2017, now only requires the collection of data on 
service contracts, under certain portfolio groups, that exceed $3 
million. The proposed rule for DFARS Case 2018-D063 implements the 
statutory threshold. Applying the rule to service contracts below $3 
million is not necessary to implement the statute and would impose an 
unnecessary burden on the public and DoD.
    Comment: One respondent suggested that the final rule clarify that 
services provided ancillary to a lease or rental contract (such as auto 
repair and maintenance services incidental to a vehicle lease) are 
subject to ECMRA reporting requirement. The respondent also recommended 
that the final rule clarify that the ECMRA reporting requirements apply 
to contracts for destruction, demolition, and removal.
    Response: Title 10 U.S.C. 2330a(a), as amended by section 812 of 
the NDAA for FY 2017, specifies that the service acquisition portfolio 
group for equipment related services is included in the required 
reporting group. It is expected that contracts for equipment-related 
services with a total estimated value, including options, exceeding $3 
million will be reported in SAM.

C. Duplicative of Existing Systems

    Comment: Two respondents indicated that the rule is duplicative of 
the existing FAR rule on service contract reporting that applies to 
civilian agencies (see FAR subpart 4.17). Respondents stated that there 
should not be two parallel systems, one for civilian agencies and 
another for defense agencies, because this situation causes confusion 
and compliance problems within industry.
    Response: FAR subpart 4.17 does not apply to DoD. The proposed rule 
for DFARS Case 2018-D063 enables DoD to fulfill its obligation under 10 
U.S.C. 2330a. Since publication of the proposed rule under DFARS Case 
2012-D051, DoD has adopted the use of FPDS to collect a majority of the 
required data, in an effort to standardize the reporting process for 
contractors across the Federal Government.
    Comment: Several respondents suggested that the ECMRA system is 
duplicative of other Government systems, such as FPDS, which can also 
be used to estimate the data provided in the annual inventory of 
contracts for services.
    Response: DoD has adopted the service contract reporting process 
used by other Federal agencies and no longer requires contractor 
reporting in ECMRA. This rule will enable DoD to use FPDS to obtain a 
majority of the information required by 10 U.S.C. 2330a. FPDS does not 
provide data on the direct labor hours expended and dollar amounts 
invoiced for contracted services. Therefore, the proposed rule for 
DFARS Case 2018-D063 requires applicable contractors to enter the labor 
hours and dollar amounts in SAM, which is the process used by other 
Federal agencies, in accordance with FAR subpart 4.17.
    Comment: Two respondents suggested that the separate instances of 
ECMRA (Army, Navy, Air Force, and other DoD

[[Page 36231]]

agencies) be combined into one DoD-wide ECMRA system.
    Response: The use of ECMRA is no longer necessary. The proposed 
rule for DFARS Case 2018-D063 requires contractors to enter information 
in SAM.
    Comment: Two respondents suggested that the rule is duplicative of 
existing DoD reporting requirements, such as: (1) The Army's contractor 
manpower reporting requirement; and (2) the Secretary of Defense 
Memorandum entitled ``Enterprise-wide Contractor Manpower Reporting 
Application,'' dated November 2012, that requires all new contracts for 
services to include a contract line item for contractor manpower 
reporting and a requirement in the performance work statement for 
contractor manpower reporting.
    Response: This rule will replace, not duplicate, the existing Army 
contract manpower reporting requirement and the requirements in the 
November 2012 Memorandum from the Under Secretary of Defense for 
Acquisition, Technology, and Logistics and the Acting Principal Deputy 
Under Secretary of Defense for Personnel and Readiness.
    Comment: Two respondents suggested that the rule exceeds the scope 
of congressional intent, because DoD is already using its internal 
records and systems to achieve the statutory objective of the inventory 
of contracts for services.
    Response: The rule does not exceed the scope of congressional 
intent, because existing systems and reports do not fully capture all 
of the data required by 10 U.S.C. 2330a.

D. Flow Down to Subcontracts

    Comment: Two respondents suggested that the requirement for 
subcontract reporting be changed. One respondent suggested that the 
prime contractor be required only to flow down the clause to 
subcontractors and relieved of the responsibility of reporting for 
subcontractors. The other respondent suggested that subcontractor data 
not be reported at all, as this is inconsistent with commercial 
practice.
    Response: The proposed rule for DFARS Case 2018-D063 does not 
contain a requirement to flow down a clause. Instead, the proposed rule 
requires contractors to include its subcontractor labor hours in the 
total number of labor hours the contractor reports annually to SAM. The 
proposed rule leaves the process for collecting subcontractor data up 
to the discretion of each contractor.

E. Need for Additional Resources

    Comment: One respondent suggested that more resources be provided 
to the Office of the Under Secretary of Defense for Personnel and 
Readiness workforce that administers and coordinates the inventory of 
contracts for services.
    Response: This suggestion is beyond the scope of the rule.

F. ECMRA Process

    Comment: One respondent noted that the ECMRA interface for the 
Fourth Estate (other DoD agencies and field activities) is not yet 
fully operational, in contrast to what is stated in the proposed rule. 
For example, there is no operational help desk support for Fourth 
Estate activities. The respondent suggests that the final rule should 
be delayed until ECMRA is consolidated into a common portal for all DoD 
agencies, or until the ECMRA instance for Fourth Estate activities is 
fully resourced.
    Response: The use of ECMRA is no longer necessary. The proposed 
rule for DFARS Case 2018-D063 requires contractors to enter information 
in SAM.
    Comment: One respondent questioned how the Government validates 
data provided by contractors in ECMRA. The respondent suggested that 
ECMRA be linked to Wide Area WorkFlow and that the contracting officer 
or the contracting officer's representative be allowed to inspect 
payroll data in order to validate contractor data entered into ECMRA.
    Response: Agencies are responsible for ensuring the contractor 
submits information in SAM that is reasonable and consistent with 
available contract information. Agencies may use any contract data 
available, as appropriate and necessary, to meet this responsibility.
    Comment: One respondent suggested that the rule be clearer about 
how the ECMRA will protect nonpublic data, such as direct labor hours 
and cost data.
    Response: The use of ECMRA is no longer necessary.
    Comment: One respondent requested clarification on the procedures 
to follow when the services under one contract support two or more DoD 
services or agencies.
    Response: The proposed rule for DFARS Case 2018-D063 requires 
contractors to enter information in SAM, which is a single system able 
to collect all requisite data under this rule.
    Comment: One respondent suggested that ECMRA should have a built-in 
capability for an overall point of contact at each agency level who can 
gather and manage the ECMRA information and that data be gathered at a 
centralized location.
    Response: The use of ECMRA is no longer necessary. The proposed 
rule for DFARS Case 2018-D063 requires contractors to enter information 
in SAM, which is a Governmentwide system.
    Comment: One respondent noted that it is unduly restrictive to 
allow only one contractor user per contract to view the data for that 
contract in ECMRA.
    Response: The use of ECMRA is no longer necessary. The proposed 
rule for DFARS case 2018-D063 requires contractors to enter information 
in SAM.
    Comment: One respondent suggested that the rule should clarify the 
contractor's responsibilities in the event that the Government-
populated information in ECMRA is incorrect.
    Response: The use of ECMRA is no longer necessary. The proposed 
rule for DFARS Case 2018-D063 requires contractors to enter information 
in SAM. Contractors may contact the SAM Helpdesk or the contracting 
officer in the event that data needs to be updated in SAM.
    Comment: One respondent suggested that the requiring activity, and 
not the contracting officer, be responsible for verifying the 
contractor's ECMRA compliance is documented.
    Response: In accordance with FAR 1.602-2, the contracting officer 
is responsible for ensuring compliance with the terms of the contract.
    Comment: A respondent suggested that a DD Form 1423, Contract Data 
Requirements List, be included as a requirement in the rule.
    Response: The proposed DFARS clauses convey the requirement for 
contractor reporting to SAM; therefore, a DD Form 1423 is not 
necessary.

G. Proposed Clause Changes

    Comment: One respondent requested clarification regarding the 
prescription for the clause at DFARS 252.237-70XX with regard to 
indefinite-delivery, indefinite-quantity contracts. The respondent 
asked whether the clause must be included only if the expected dollar 
value of the individual task or delivery orders will exceed the SAT or 
if the total dollar value of all the task or delivery orders issued 
under the contract will exceed the SAT.
    Response: The rule requires information reporting on each task 
order that meets the criteria and threshold for service contract 
reporting. The proposed rule for DFARS Case 2018-D063 does not require 
reporting at the contract level for indefinite-delivery contracts. The 
rule proposes a basic clause that

[[Page 36232]]

applies to solicitations, contracts (other than indefinite-delivery 
contracts), and task orders awarded under non-DoD indefinite-delivery 
contracts; and an alternate clause that applies to DoD issued 
solicitations and contracts for indefinite-delivery type contracts. The 
basic clause and the alternate clause implement the reporting 
requirement for contracts and/or task orders that have a total 
estimated value, including options, exceeding $3 million and are for 
services in the four specified service acquisition portfolio groups. 
The basic clause advises contractors to report on the effort performed 
under the contract or the task order awarded under a non-DoD contract. 
The alternate clause advises the contractor to report on the effort 
performed under each task order awarded under a DoD indefinite-delivery 
contract that meets the criteria and threshold for service contract 
reporting.
    Comment: One respondent suggested that the rule include a link to 
the product service code (PSC) manual available at www.acquisition.gov, 
to aid contracting personnel in determining the types of services to 
which the proposed rule applies or does not apply.
    Response: The applicable PSCs will be identified in the DFARS 
Procedures, Guidance, and Information upon publication of the final 
rule.
    Comment: One respondent suggested that the rule require the 
contracting officer to prepare a determination designating specifically 
the services to which the ECMRA reporting requirement would apply.
    Response: It is not necessary for the contracting officer to 
prepare such a determination or provide further clarification to the 
contractor. The proposed rule for DFARS Case 2018-D063 only applies the 
requirement to report in SAM, via the DFARS clause, to those contracts 
and orders that meet the thresholds and criteria for service contract 
reporting, as expressed in 10 U.S.C. 2330a.

H. Definition Clarification

    Comment: One respondent noted that many terms, including ``direct 
labor hours'' and ``cost data,'' are not defined in the proposed rule.
    Response: This proposed rule only uses the term ``direct labor 
hours,'' which is defined in FAR 2.101.
    Comment: Two respondents recommended that the term ``services'' be 
better defined for the purposes of informing both the Government and 
contractor when the proposed rule for DFARS Case 2012-D051 applies and 
when the contractor is responsible for entering data into ECMRA.
    Response: The proposed rule for DFARS Case 2018-D063 only applies 
the requirement to report in SAM, via the DFARS clause, to those 
contracts and orders that meet or are expected to meet the thresholds 
and criteria for service contract reporting, as expressed in 10 U.S.C. 
2330a. When awarded a contract, or task order placed under a non-DoD 
contract, this rule proposes a basic clause to notify contractors of 
the requirement to report in SAM on the effort performed under the 
award. When awarded an indefinite-delivery contract under which orders 
will be placed that may meet the thresholds and criteria for service 
contract reporting, this rule proposes an alternate clause to notify 
contractors of the requirement to report in SAM on the effort performed 
for a task order issued under the contract that meets the service 
contract reporting thresholds and criteria.

I. Major Rule

    Comment: One respondent suggested that the Government reconsider 
whether this is a major rule. Title 5 U.S.C. 804 defines a major rule 
as one which the Office of Management and Budget (OMB) determines will 
cause a major increase in costs or prices for individual industries, or 
have a significant adverse effect on competition, employment, 
investment, productivity, or innovation. This rule imposes new 
reporting requirements, particularly for commercial item contractors 
that provide professional services and supplies. These contractors 
would not have been previously subject to the type of manpower 
reporting required by this rule. For small businesses, the need to 
build compliant procedures and automated systems could be a barrier to 
participating in the federal market. This is particularly the case when 
the cumulative effect of multiple and duplicative data reporting 
requirements is considered. The ultimate result over time will be a 
decrease in competition and innovation in the Federal market.
    Response: This rule is not a major rule in that it does not have a 
significant impact on competition, employment, investment, 
productivity, innovation, or on the ability of U.S. enterprises to 
compete with foreign enterprises. Similar reporting requirements for 
civilian agencies have appeared in FAR subpart 4.17 since 2014, so many 
contractors already have experience with this type of reporting 
requirement. The scope of this rule has been decreased, because 10 
U.S.C. 2330a, as amended by section 812 of the NDAA for FY 2017, limits 
data collection to four service acquisition portfolios and applies only 
to contracts and task orders exceeding $3 million in total estimated 
value, including options.

J. Initial Regulatory Flexibility Analysis

    Comment: Two respondents stated that the proposed reporting system 
did not have a goal of minimizing the burden to small business and that 
the constant flow of new regulations to businesses have little regard 
for the benefit to the Government or burden on businesses.
    Response: The burden applied to small businesses is the minimum 
consistent with applicable laws, Executive orders, regulations, and 
prudent business practices. The information collection requirement has 
been narrowly tailored to maximize the use of existing records already 
maintained by contractors and by the Government. To further minimize 
the impact, DoD is adopting the existing system and process used by the 
rest of the Government to obtain the requisite information from 
contractors, which maintains a familiar and consistent reporting 
requirement for contractors; and the information is collected 
electronically, help-desk support and user guides are available for 
SAM, and reporting requirements will be limited to a small number of 
data elements to facilitate ease of reporting and reduce contractor 
burden. In addition, the NDAA for FY 2017 raised the threshold for 
reporting to $3 million from the SAT and limited the data reporting to 
four service acquisition portfolio groups.

K. Paperwork Reduction Act

1. Government Systems Already in Place
    Comment: Two respondents stated that the Government has systems in 
place for collecting the required data and the rule would require 
duplicative contractor reporting that is not necessary for compliance. 
Two respondents noted that there will be two rules, one for DoD and the 
other non-DoD, which could potentially apply under a single contract 
vehicle and that determining which set of rules apply will be 
burdensome.
    Response: The rule will not require duplicative reporting by 
contractors. The DoD and non-DoD reporting requirements are based on 
separate statutes. Further, the information collection requirement 
associated with this DFARS Case 2018-D063, once cleared by OMB, will 
supersede the reporting requirements approved under OMB Control Number 
0704-0491, entitled ``DoD Inventory of Contracts for Services 
Compliance.'' Contracts awarded by DoD, or on behalf of DoD,

[[Page 36233]]

will contain the proposed DFARS clauses.
2. Paperwork Reduction Act Constraints
    Comment: One respondent stated that the rule conflicts with 
Paperwork Reduction Act constraints on rulemaking, namely that the rule 
must: (1) Be necessary for the proper performance of the agency; (2) 
not be duplicative of information otherwise reasonably accessible to 
the agency; and (3) reduce, to the extent practicable and appropriate, 
the burden on persons who shall provide information to or for the 
agency.
    Response: The rule complies with the Paperwork Reduction Act. The 
information collection is necessary in order for DoD to meet the 
requirement of 10 U.S.C. 2330a, as amended, to collect certain service 
contract data and report annually to Congress. The rule is not 
duplicative of information otherwise reasonably accessible to DoD. DoD 
systems do not currently collect all of the data elements required by 
the statute.
    The information collection requirement has been narrowly tailored 
to minimize the impact of reporting and maximize the use of existing 
records already maintained by contractors and by the Government. To 
minimize the impact, the information will be collected electronically, 
help-desk support will be provided to users, and reporting requirements 
will be limited to a small number of data elements.
3. Burden Estimates
    Comment: Two respondents commented that the rule underestimates the 
number of contractors that will be impacted. One respondent indicated 
that the total estimated number of respondents of 13,269, including 
7,962 for small businesses, seems low, since the GSA Schedules alone 
have 20,000 contractors and 80% of the contractors are small 
businesses. One respondent stated that the estimate for the total 
number of annual responses of approximately 54,000 appears low. In 
addition, several respondents commented that the estimate of an average 
of 1.4 hours per response is too low, citing reasons such as: (1) The 
billions of dollars in services for which DoD contracts for annually 
and the corresponding volume of data required to be entered, (2) the 
limitation of the ECMRA bulk upload capability, or (3) the impact on 
response time resulting from the flow down of the reporting requirement 
to subcontractors. One respondent stated that the burden is 
disproportionally high for small businesses that are less likely to 
have the necessary internal infrastructure.
    Response: The estimated burdens for respondents and responses 
published in the previously proposed rule have been updated to reflect 
the revised requirements of 10 U.S.C. 2330a, as amended.
    As a result, this final rule amends the DFARS to require 
contractors to annually report certain data on applicable contracts in 
order to meet the data requirements of the statute and DoD's total 
workforce management efforts. Three respondents submitted public 
comments in response to this second 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

    No significant changes were made to the rule as a result of public 
comments. Minor changes were made to clarify the intent of the rule in 
regard to the requirement to report subcontract data. Public comments 
requested clarification on whether the rule required contractors to 
report direct labor hours and costs for all subcontracts that support 
the contract or just those subcontracts awarded to directly perform 
services under the contract, otherwise referred to as ``first-tier 
subcontracts'' under the similar service contract inventory reporting 
requirements at Federal Acquisition Regulation (FAR) 4.17. The intent 
of the rule is to require contractors to report the direct labor hours 
only for subcontracts the contractor directly awarded for the purpose 
of acquiring services for performance of the prime contract, similar to 
the subcontract reporting requirement at FAR 4.17. As a result, the 
term ``first-tier'' was added as a modifier to the definition of 
``subcontract'' and a definition of ``first-tier subcontract'' was 
added to section 204.1701 and DFARS clause 252.204-7023, Reporting 
Requirements for Contracted Services, and its alternate I.

B. Analysis of Public Comments

    A discussion of the comments is provided as follows:
a. General Support
    Comment: Two respondents expressed general support for the rule.
    Response: DoD acknowledges support for the rule.
b. Exemptions to Rule
    Comment: Two respondents recommended that commercial service 
contracts be exempt from the rule, as companies providing commercial 
services may not have a system to track labor hours by contract and/or 
by subcontractor and may need to implement a new system to comply with 
the rule. Alternately, a respondent recommended that specific contracts 
or certain types of commercial contracts be exempt from the reporting 
requirements for the rule.
    Response: The statute requires DoD to collect data on specific 
service purchases in excess of $3 million, regardless of contract type, 
and does not provide for exemptions to the reporting requirement. As a 
result, the rule applies to all contracts that meet the criteria at 10 
U.S.C. 2330a(a) and does not provide for exemptions.
c. Usefulness of Data
    Comment: A respondent advised that the rule weakens the utility of 
service contract inventories by limiting them to staff augmentation 
contracts and contracts closely associated with inherently governmental 
functions, and preventing the adoption of the Enterprise-wide 
Contractor Manpower Reporting Application (ECMRA).
    Response: The rule implements the statute and supports DoD total 
workforce management efforts by requiring reporting on contracts valued 
in excess of $3 million for logistics management services, equipment-
related services, knowledge-based services, or electronics and 
communications services. The rule does not further limit the reporting 
requirement to only those contracts that are also staff augmentation 
contracts or contracts for services closely associated with inherently 
governmental functions.
    The rule also incorporates the policy of Secretary of Defense 
Memorandum, Revised Department of Defense Contractor Manpower Reporting 
Initiative, dated October 16, 2019, jointly signed by the Under 
Secretary of Defense (USD) for Acquisition and Sustainment and Acting 
USD for Personnel and Readiness. The memo requires reporting of 
manpower data relating to the performance of services be done in the 
System for Award Management (SAM), instead of ECMRA, in order to be 
consistent with the existing service contract reporting requirements of 
the FAR.
    Comment: A respondent expressed concern that the rule only requires 
reporting on the aggregate labor hours performed under the contract 
annually

[[Page 36234]]

and, because of this, DoD will not have the detailed information it 
needs to determine whether contractors are performing inherently 
governmental functions.
    Response: The rule requires the collection of data that supplements 
information already available to DoD. The rule assists in the 
evaluation of DoD's workforce mix and the extent to which the 
Department's needs are being met through contracted support. It is not 
necessary to distinguish between the contractor and subcontractor labor 
hours performed under a contract in order to meet the requirements of 
the statute or support DoD's total workforce management efforts.
    Comment: A respondent expressed concern that the rule's collection 
of labor data cannot be meaningfully used by officials, as the annual 
reporting cycle will not produce the timely, relevant data needed to 
inform decision making.
    Response: The rule implements the reporting cycle required by 10 
U.S.C. 2330a. The statute requires DoD, by the end of the third quarter 
of each fiscal year, to prepare an annual inventory of the activities 
performed during the preceding fiscal year pursuant to staff 
augmentation contracts and contracts closely associated with inherently 
governmental functions. To support this requirement, the rule requires 
contractors to input contract data for the preceding fiscal year in SAM 
no later than October 31 of each fiscal year. The rule's October 31 
deadline facilitates DoD's compilation and submission of the annual 
inventory and summary before the third quarter of each fiscal year, as 
required by 10 U.S.C. 2330a.
d. Difficulties Reporting Direct Labor Hour Data
    Comment: Two respondents advised that the reporting requirement of 
the rule may be difficult to meet, because many commercial services are 
offered at a fixed price and are not broken down into direct labor 
hours, and subcontractors may consider the data sensitive or 
proprietary and be hesitant to provide it to contractors. A respondent 
advised that, as a result of these issues, the rule may create cost and 
competition implications for the supply chain because contractors may 
have to create and price contractual requirements to obtain the 
information from their subcontractors, and the number of available 
vendors may be restricted if they choose not to provide the data 
required by the rule.
    As an alternative solution, two respondents recommended that the 
rule limit the collection of data to the list explicitly identified at 
10 U.S.C. 2330a(b). Respondents suggested that DoD could apply the 
methodology used to determine military or civilian full-time 
equivalents to the data at 10 U.S.C. 2330a(b) in order to fulfill the 
inventory summary required by 10 U.S.C. 2330a(c).
    Response: The statute requires that ``the number of contractor 
employees, expressed as full-time equivalents for direct labor, using 
direct labor hours and associated cost data collected from 
contractors'' be provided for each contract included in the annual 
inventory. This information is not included in the list of data at 10 
U.S.C. 2330a(b).
    While the Federal Procurement Data System provides DoD with a 
majority of the requisite data, DoD cannot meet all of the statutory 
data requirements of the inventory summary, or support the needs of 
DoD's total workforce management efforts, using only the data listed at 
10 U.S.C. 2330a(b). Therefore, this rule requires contractors to 
provide direct labor hour and cost data to implement the statute and 
support DoD workforce planning and analysis.
    To relieve burden and minimize impact for contractors and 
subcontractors, the rule requires contractors to report the total 
number of hours (both contractor and subcontractor) worked under the 
contract for the entire fiscal year and does not require a breakdown of 
those hours by employee type or by subcontractor.
e. Reporting of Subcontractor Data
    Comment: A respondent recommended that the requirement to report 
subcontractor data be limited to first-tier subcontractors, which is 
consistent with the current FAR requirements for civilian agencies.
    Response: Concur. To reduce burden on and maintain consistency for 
contractors, DoD intends for the reporting requirements and procedures 
of this rule to be as similar as possible to the existing service 
contract reporting requirements of the FAR. The intent of the rule is 
for contractors to report the total number of direct labor hours 
expended in performing the contracted services during the preceding 
fiscal year. The total number of hours reported to SAM should represent 
a combined total of the number of direct labor hours the contractor 
itself expended performing the contracted services, and the total 
number of direct labor hours any of the contractor's subcontractors 
expended performing the contracted services. To clarify this intent, 
the rule is amended to replace the term ``subcontract'' with ``first-
tier subcontract,'' based on the definition at FAR 4.1701.
    Comment: A respondent recommended the rule be revised to 
specifically authorize contractors to rely on the direct labor hour 
data received from subcontractors when reporting total labor hours 
annually in SAM.
    Response: The rule simply requires the reporting of the direct 
labor hours expended on the contracted service for the preceding fiscal 
year. The rule does not prescribe or suggest a specific methodology 
that contractors must use to gather this data on its applicable 
subcontracts, or prescribe a reporting requirement for subcontractors 
via the flow-down of the contract clause. Therefore, an amendment to 
the rule to authorize a specific methodology for gathering the data is 
not necessary.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    This rule does not apply the requirements of 10 U.S.C. 2330a, as 
amended by section 812 of the NDAA for FY 2017, to contracts at or 
below the simplified acquisition threshold (SAT) or for commercially 
available off-the-shelf items (COTS) items, but does apply the rule to 
contracts for the acquisition of commercial items.

A. Background

    Section 812 of the NDAA for FY 2017 is silent on applicability to 
contracts and subcontracts in amounts no greater than the SAT or for 
the acquisition of commercial items. 10 U.S.C. 2330a(a), as amended by 
section 812 of the NDAA for FY 2017, only requires the collection of 
data on service contracts, under certain portfolio groups, that exceed 
$3 million, which effectively precludes application to acquisitions 
under the SAT. Also, the statute does not provide for civil or criminal 
penalties. Therefore, the statute does not apply to contracts or 
subcontracts in amounts not greater than the SAT or to the acquisition 
of commercial items unless the Principal Director, Defense Pricing and 
Contracting, makes a written determination as provided in 41 U.S.C. 
1905 and 10 U.S.C. 2375.

B. Applicability To Contracts for the Acquisition of Commercial Items, 
Excluding COTS Items

    10 U.S.C. 2375 exempts contracts and subcontracts for the 
acquisition of commercial items, including COTS items, from provisions 
of law enacted after October 13, 1994, that, as

[[Page 36235]]

determined by the Under Secretary of Defense for Acquisition and 
Sustainment (USD(A&S)), set forth policies, procedures, requirements, 
or restrictions for the acquisition of property or services unless--
     The provision of law--
    [cir] Provides for criminal or civil penalties;
    [cir] Requires that certain articles be bought from American 
sources pursuant to 10 U.S.C. 2533a or that strategic materials 
critical to national security be bought from American sources pursuant 
to 10 U.S.C. 2533b;
    [cir] Specifically refers to 10 U.S.C. 2375 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial items (including COTS items); or
    [cir] USD(A&S) determines in writing that it would not be in the 
best interest of the Government to exempt contracts or subcontracts for 
the acquisition of commercial items from the applicability of the 
provision.
    This authority has been delegated to the Principal Director, 
Defense Pricing and Contracting.
    Consistent with 10 U.S.C. 2375, DoD has determined that it is in 
the best interest of the United States to apply the requirements of 10 
U.S.C. 2330a to the acquisition of commercials items, excluding COTS 
items. The intent of the statute is to enhance DoD's ability to manage 
the total force, inclusive of military, civilian, and contractor 
personnel. Specifically, section 2330a, as amended, requires the 
military departments and defense agencies to ensure that the inventory 
of contracts for services required by the statute is used to inform 
strategic workforce planning decisions under 10 U.S.C. 129a and develop 
budget justification materials for services in accordance with 10 
U.S.C. 235. An exception for services that meet the definition of a 
commercial item would exclude significant sums expended by DoD on 
contracted services intended to be covered by the law, thereby 
undermining the overarching public policy purpose of the law. 
Therefore, this rule will apply to the acquisition of commercial items, 
excluding COTS items.

IV. 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.

V. 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(2).

VI. Regulatory Flexibility Act

    A final regulatory flexibility analysis (FRFA) has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
The FRFA is summarized as follows:
    The objective of this rule is to implement 10 U.S.C. 2330a, as 
modified by section 812 of the National Defense Authorization Act 
(NDAA) for Fiscal Year (FY) 2017 (Pub. L. 114-328), which requires DoD 
to establish a data collection system that provides management 
information on each purchase of services by a military department or 
defense agency in excess of $3 million for the following service 
acquisition portfolio groups: Logistics management services; equipment-
related services; knowledge-based services; and electronics and 
communications services.
    As a result, DoD is amending the Defense Federal Acquisition 
Regulation Supplement (DFARS) to require contractors to annually report 
certain data on applicable contracts in order to meet the data 
requirements of the statute and DoD's total workforce management 
efforts. No public comments were received in response to the initial 
regulatory flexibility analysis.
    Based on data from the Federal Procurement Data System for FY 2016 
through 2018, DoD awards annually an average of 4,386 service contracts 
and orders to 1,934 unique entities that have an estimated value 
greater than $3 million and are within the four portfolio groups 
outlined in the rule. Of the 4,386 contracts and orders awarded 
annually, approximately 2,059 (47 percent) are made to 1,227 (63 
percent) unique small entities.
    This rule requires all contractors that are awarded a contract or 
order in excess of $3 million for services in any of the four service 
acquisition portfolio groups to report contract data in the System for 
Award Management (SAM). The contractor is required to report the total 
amount invoiced for services performed during the preceding fiscal year 
and the number of direct labor hours, including first-tier 
subcontractor hours, expended on services performed during the 
preceding fiscal year. The Government estimates that a journeyman level 
contractor employee with basic knowledge of the contract would be 
required to enter the data. The contractor employee may also need to 
gather additional billing information from the organization in order to 
complete the data input in SAM.
    While this rule does not impose a significant economic impact on 
small entities, DoD has taken steps to minimize the impact of the rule 
on both small and large entities. Specifically, DoD now requires 
reporting under the rule to be done in SAM, instead of the Enterprise-
wide Contractor Manpower Reporting Application (ECMRA). This change 
permits contractors to report fewer data elements under the rule and 
implements a data collection system that is familiar to contractors 
under the existing service contract reporting requirements of the 
Federal Acquisition Regulation.

VII. Paperwork Reduction Act

    This rule contains information collection requirements that have 
been approved by the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35). This information 
collection requirement has been assigned OMB Control Number 0704-0519, 
entitled ``Defense Federal Acquisition Supplement (DFARS); Subpart 
204.17, Service Contracts Inventory, and Associated Clause.''

List of Subjects in 48 CFR Parts 204, 212, and 252

    Government procurement.

Jennifer D. Johnson,
Regulatory Control Officer, Defense Acquisition Regulations System.
    Therefore, 48 CFR parts 204, 212, and 252 are amended as follows:

0
1. The authority citation for parts 204, 212, and 252 continues to read 
as follows:

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

[[Page 36236]]

PART 204--ADMINISTRATION AND INFORMATION MATTERS

0
2. Add subpart 204.17, consisting of 204.1700, 204.1701, 204.1703, and 
204.1705, to read as follows:
SUBPART 204.17--SERVICE CONTRACTS INVENTORY
Sec.
204.1700 Scope of subpart.
204.1701 Definitions.
204.1703 Reporting Requirements.
204.1705 Contract clauses.

SUBPART 204.17--SERVICE CONTRACTS INVENTORY


204.1700   Scope of subpart.

    This subpart prescribes the requirement to report certain 
contracted services in accordance with 10 U.S.C. 2330a.


204.1701   Definitions.

    As used in this subpart--
    First-tier subcontract means a subcontract awarded directly by the 
contractor for the purpose of acquiring services for performance of a 
prime contract. It does not include the contractor's supplier 
agreements with vendors, such as long-term arrangements for materials 
or supplies or services that benefit multiple contracts and/or the 
costs of which are normally applied to a contractor's general and 
administrative expenses or indirect costs.


204.1703   Reporting requirements.

    (a) Thresholds. Service contractor reporting of information is 
required in the System for Award Management (SAM) when a contract or 
order--
    (i) Has a total estimated value, including options, that exceeds $3 
million; and
    (ii) Is for services in the following service acquisition portfolio 
groups (see PGI 204.1703 for a list of applicable product and service 
codes):
    (A) Logistics management services.
    (B) Equipment-related services.
    (C) Knowledge-based services.
    (D) Electronics and communications services.
    (b) Agency reporting responsibilities. In the event the agency 
believes that revisions to the contractor-reported information are 
warranted, the agency shall notify the contractor.
    (S-70) Contractor reporting. (1) The basic and the alternate of the 
clause at 252.204-7023, Reporting Requirements for Contracted Services, 
require contractors to report annually, by October 31, on the services 
performed under the contract or order, including any first-tier 
subcontracts, during the preceding Government fiscal year.
    (2) For indefinite-delivery contracts, basic ordering agreements, 
and blanket purchase agreements--
    (i) Contractor reporting is required for each order issued under 
the contract or agreement that meets the requirements of paragraph (a) 
of this section; and
    (ii) Service contract reporting is not required for the basic 
contract or agreement.


204.1705   Contract clauses.

    (a)(i) Use the basic or the alternate of the clause 252.204-7023, 
Reporting Requirements for Contracted Services, in solicitations, 
contracts, agreements, and orders, including solicitations and 
contracts using FAR part 12 procedures for the acquisition of 
commercial items, that--
    (A) Have a total estimated value, including options, that exceeds 
$3 million; and
    (B) Are for services in the following service acquisition portfolio 
groups:
    (1) Logistics management services.
    (2) Equipment-related services.
    (3) Knowledge-based services.
    (4) Electronics and communications services.
    (ii) Use the basic clause in solicitations and contracts, except 
solicitations and resultant awards of indefinite-delivery contracts, 
and orders placed under non-DoD contracts that meet the criteria in 
paragraph (a)(i) of this section.
    (iii) Use the alternate I clause in solicitations and resultant 
awards of indefinite-delivery contracts, basic ordering agreements, and 
blanket purchase agreements, when one or more of the orders under the 
contract or agreement are expected to meet the criteria in paragraph 
(a)(i) of this section.

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
3. Amend section 212.301 by adding paragraph (f)(ii)(N) to read as 
follows:
* * * * *


212.301   Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (f) * * *
    (ii) * * *
    (N) Use the clause at 252.204-7023, Reporting Requirements for 
Contracted Services, to comply with 10 U.S.C. 2330a.
    (1) Use the basic clause as prescribed in 204.1705(a)(i) and (ii).
    (2) Use the alternate I clause as prescribed in 204.1705(a)(i) and 
(iii).
* * * * *

Part 252--Solicitation Provisions and Contract Clauses

0
4. Add section 252.204-7023 to read as follows:


252.204-7023   Reporting Requirements for Contracted Services.

    Basic. As prescribed in 204.1705(a)(i) and (ii), use the following 
clause:

Reporting Requirements for Contracted Services--Basic (Jul 2021)

    (a) Definition. As used in this clause--
    First-tier subcontract means a subcontract awarded directly by 
the contractor for the purpose of acquiring services for performance 
of a prime contract. It does not include the contractor's supplier 
agreements with vendors, such as long-term arrangements for 
materials or supplies or services that benefit multiple contracts 
and/or the costs of which are normally applied to a contractor's 
general and administrative expenses or indirect costs.
    (b) The Contractor shall report annually, by October 31, at 
https://www.sam.gov, on the services performed under this contract 
or order, including any first-tier subcontracts, during the 
preceding Government fiscal year (October 1-September 30).
    (c) The Contractor shall report the following information for 
the contract or order:
    (1) The total dollar amount invoiced for services performed 
during the preceding Government fiscal year under the contract or 
order.
    (2) The number of Contractor direct labor hours, to include 
first-tier subcontractor direct labor hours, as applicable, expended 
on the services performed under the contract or order during the 
previous Government fiscal year.
    (d) The Government will review the Contractor's reported 
information for reasonableness and consistency with available 
contract information. In the event the Government believes that 
revisions to the Contractor's reported information are warranted, 
the Government will notify the Contractor. Upon notification, the 
Contractor shall revise the reported information or provide the 
Government with a supporting rationale for the information.


(End of clause)
    Alternate I. As prescribed in 204.1705 (a)(i) and (iii), use the 
following clause, which substitutes ``contract or agreement for each 
order'' in lieu of ``contract or order'' in paragraph (b) and ``order'' 
in lieu of ``contract or order'' in paragraphs (c) and (c)(1) and (2), 
and identifies the dollar threshold and service acquisition portfolio 
groups for which orders under the contract or agreement require service 
contract reporting.

Reporting Requirements for Contracted Services--Alternate I (Jul 2021)

    (a) Definition. As used in this clause--

[[Page 36237]]

    First-tier subcontract means a subcontract awarded directly by 
the contractor for the purpose of acquiring services for performance 
of a prime contract. It does not include the contractor's supplier 
agreements with vendors, such as long-term arrangements for 
materials or supplies or services that benefit multiple contracts 
and/or the costs of which are normally applied to a contractor's 
general and administrative expenses or indirect costs.
    (b) The contractor shall report annually, by October 31, at 
https://www.sam.gov, on services performed during the preceding 
Government fiscal year (October 1-September 30) under this contract 
or agreement for each order, including any first-tier subcontract, 
which exceeds $3 million for services in the following service 
acquisition portfolio groups:
    (1) Logistics management services.
    (2) Equipment-related services.
    (3) Knowledge-based services.
    (4) Electronics and communications services.
    (c) The Contractor shall report the following information for 
the order:
    (1) The total dollar amount invoiced for services performed 
during the preceding Government fiscal year under the order.
    (2) The number of Contractor direct labor hours, to include 
first-tier subcontractor direct labor hours, as applicable, expended 
on the services performed under the order during the previous 
Government fiscal year.
    (d) The Government will review the Contractor's reported 
information for reasonableness and consistency with available 
contract information. In the event the Government believes that 
revisions to the Contractor's reported information are warranted, 
the Government will notify the Contractor. Upon notification, the 
Contractor shall revise the reported information or provide the 
Government with a supporting rationale for the information.


(End of clause)

[FR Doc. 2021-14429 Filed 7-8-21; 8:45 am]
BILLING CODE 5001-06-P`