[Federal Register Volume 60, Number 39 (Tuesday, February 28, 1995)]
[Proposed Rules]
[Pages 10826-10828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4574]



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DEPARTMENT OF DEFENSE

Defense Logistics Agency

48 CFR Part 5416


DLA Acquisition Regulation; Type of Contracts

AGENCY: Defense Logistics Agency, DoD.

ACTION: Proposed rule and request for comments.

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SUMMARY: The Defense Logistics Agency proposes to add coverage by 
adding a new part to 48 CFR Chapter 54, the Defense Logistics 
Acquisition Regulation (DLAR) Part 5416. The proposed coverage affects 
regulations on the use of solicitation provisions and contract clauses 
for Economic Price Adjustments (EPA). Comments are hereby requested on 
the proposed rule. The proposed DLAR coverage expands 
[[Page 10827]] the use of EPA based on established prices to encompass 
industry-wide and geographically based market price references, expands 
the use of EPA based on indexes to encompass indexes for commercial 
products or services which are identical or similar to the end products 
to be provided under the contract, and authorizes the development and 
use, subject to established agency review and approval procedures, of 
clauses using EPA references described above. The proposed coverage is 
being published because it is expected to have an effect beyond the 
internal operating procedures of DLA and to provide an opportunity for 
public participation and comment.

DATES: Comments on the proposed DLAR rule must be submitted in writing 
to the address shown below on or before May 1, 1995, to be considered 
in the formulation of the final rules.

ADDRESSES: Interested parties should submit written comments to Defense 
Logistics Agency, Directorate of Procurement, Contract Policy Team 
(AQPLL), Ms. Melody Reardon, Cameron Station, Alexandria, Virginia 
22304-6100 FAX: (703) 274-0310.

FOR FURTHER INFORMATION CONTACT:
Melody Reardon, Defense Logistics Agency, AQPLL, (703) 274-6431.

SUPPLEMENTARY INFORMATION:

A. Background

    The Defense Fuel Supply Center, a major contracting activity of 
DLA, has historically utilized a method of price adjustment in the bulk 
petroleum area using price indexes for the same or similar end products 
(most recently, actual monthly sales price averages published by the 
Department of Energy in the Petroleum Marketing Monthly) and using 
market price assessments for commercial products published in industry 
trade journals. For the past few years, these EPA clauses have either 
been approved by the Director, Defense Procurement, or authorized under 
individual deviations granted by the Executive Director, Procurement, 
DLA. Deviations were requested because the types of EPA references used 
in these clause are not specifically recognized under the three general 
types of EPA references at FAR 16.203. Currently, FAR 16.203-1(a) and 
its related coverage and clauses, recognize EPA references based on 
established market or catalog prices of the individual contractor only. 
The proposed DLAR coverage will expand this to include industry-wide 
and geographically specific market price assessments and authorize the 
development and use of clauses on that basis. FAR 16.203-1(c) and its 
related coverage recognize EPA references based only on indexes for 
labor or materials. The proposed DLAR coverage would expand this to 
include indexes for the same or similar commercial end products and 
authorize the development and use of clauses on that basis.
    None of the three EPA types currently encompassed by the FAR are 
appropriate for many of the competitive procurements of commercial 
products undertaken by DFSC and other DLA contracting offices. The use 
of an EPA reference based on an individual contractor's established 
price or cost of materials is impractical for procurements under which 
indefinite quantity contracts will be issued. Unique EPA references for 
each offeror engender relative price variations during the delivery 
period, making it impossible to determine the most favorable offer at 
time of award. This creates a significant price risk for the Government 
and undermines the competitive process. Use of an index based on raw 
material cost ignores the effect of market conditions which affect 
producer margins. This creates a price risk for the Government in 
periods where margins are contracting and for the contractors in 
periods where the margins are expanding. Such fluctuations can be 
significant in petroleum markets. Given the need for a common EPA 
reference, a reference that more closely follows market prices for the 
end item reduces price risk for both the Government and the contractor. 
Such references are also more in conformance with commercial practice.

B. Regulatory Flexibility Act

    The proposed change is not expected to have significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. The primary user 
of the new DLAR coverage will be the Defense Fuel Supply Center, which 
has been utilizing these types of EPA references since the early 1980s. 
The proposed rule will therefore not represent a change for small 
entities doing business with the DFSC. Flexibility is also limited by 
the need to establish a common EPA reference for competing offerors, as 
discussed above. Given this need, establishing the reference based on 
the same or similar end products as being provided under the contract, 
as opposed to labor or material costs, minimizes the price risk 
experienced by small entities. An initial regulatory flexibility 
analysis has not been performed. Comments are invited from small 
businesses and other interested parties. Comments will also be 
considered concerning the effect of the proposed rule on small entities 
in accordance with section 612 of the Act. Such comments must be 
submitted separately and cite this case in correspondence.

C. Paperwork Reduction Act

    The proposed rules do not impose any reporting or record keeping 
requirements which require the approval of OMB under 44 U.S.C. 3501, et 
seq.

List of Subjects in 48 CFR Part 5416

    Government procurement.

    Therefore, it is proposed that 48 CFR Chapter 54, as proposed in 
the Federal Register (59 FR 21954, April 28, 1994) be amended by adding 
part 5416 to read as follows:

PART 5416--TYPES OF CONTRACTS

Subpart 5416.2--Fixed Price Contracts

5416.203  Fixed-Price Contracts with Economic Price Adjustment
5416.203-1  Description
5416.203-3  Limitations
5416.203-4  Contract Clauses

    Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR Part 1, subpart 
1.3 and 48 CFR Part 201, subpart 201.3.

Subpart 5416.2--Fixed Price Contracts


5416.203  Fixed Price Contracts with Economic Price Adjustment


5416.203-1  Description.

    (a)(S-90) Adjustments based on established prices. Established 
prices may reflect industry-wide and/or geographically based market 
price fluctuations for commodity groups, specific supplies or services, 
or contract end items.
    (c)(S-90) Adjustments based on cost indexes of labor or materials. 
These price adjustments may also be based on increases or decreases in 
indexes for commodity groups specific supplies or services, or contract 
end items.


5416.203-3  Limitations.

    (S-90) A fixed price contract with economic price adjustment may 
also be used to provide for price adjustments authorized in this 
section.


5416.203-4  Contract clauses.

    (S-90) When the contracting officer determines that an existing EPA 
clause is not appropriate, the contracting officer may develop and use 
another EPA clause in accordance with 5416.203-1 (a)(S-90) or (c)(S-
90). Established prices in such clauses need not be verifiable using 
the criteria in 48 CFR (FAR) 15.804-3. Established prices 
[[Page 10828]] and cost indexes need not reflect changes in the costs 
or established prices of a specific contractor. The established price 
or cost index may be derived from sales prices in the marketplace, 
quotes, or assessments as reported or made available in a consistent 
manner in a publication, electronic database, or other form, by an 
independent trade association, Governmental body, or other third party 
independent of the contractor. More than one established price or cost 
index may be combined in a formula for economic price adjustment 
purposes in the absence of an appropriate single price or cost index.

    Dated: February 15, 1995.
Margaret J. Janes,
Assistant Executive Director (Procurement Policy).
[FR Doc. 95-4574 Filed 2-27-95; 8:45 am]
BILLING CODE 5000-04-M