[Federal Register Volume 79, Number 227 (Tuesday, November 25, 2014)]
[Rules and Regulations]
[Pages 70344-70348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27661]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 44, 46, and 52

[FAC 2005-78; FAR Case 2012-032; Item IV; Docket No. 2012-0032, 
Sequence No. 1]
RIN 9000-AM65


Federal Acquisition Regulation; Higher-Level Contract Quality 
Requirements

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to clarify when to use higher-
level quality standards in solicitations and contracts. The rule also 
updates the examples of higher-level quality standards by removing 
obsolete standards and adding new industry standards that pertain to 
quality assurance for avoidance of counterfeit items.

DATES: Effective: December 26, 2014.

FOR FURTHER INFORMATION CONTACT: Mr. Edward Loeb, Procurement Analyst, 
at 202-501-0650, for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat Division at 202-501-4755. Please cite FAC 2005-78, FAR Case 
2012-032.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 78 FR 72620 on December 3, 2013, to revise FAR subpart 
46.2, Contract Quality Requirements. The rule sought to ensure that 
agencies assess the risk of nonconforming items when determining 
whether higher-level quality standards should be used by the Government 
and relied on by contractors. Six respondents submitted comments on the 
proposed rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the 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 are provided as 
follows:

A. Summary of Significant Changes From the Proposed Rule

    1. Revised FAR 46.202-4, Higher-level contract quality requirements 
to--
    a. Clarify that higher-level quality standards include both 
overarching quality management system standards and product or process 
specific quality standards;
    b. Delete reference to SAE AS6174; and
    c. Add the commodity specific quality management system standard 
for automotive production, ISO/TS 16949.
    2. Clarified that the contracting officer will list the title, 
number, date, and tailoring (if any) of applicable higher-

[[Page 70345]]

level quality standard(s) in the clause prescribed at FAR 46.311.
    3. Revised FAR 52.246-11, Higher-level Contract Quality 
Requirements, to clarify that the prime contractor is responsible for 
flowing down applicable requirements of the higher-level quality 
standard in subcontracts for critical and complex items at any tier.

B. Analysis of Public Comments

1. Design and Testing
    Comment: One respondent recognized the need to consider ``testing'' 
and ``design'' as considerations for identifying higher-level contract 
requirements. See FAR 42.202-4(a)(1). However, the respondent seeks 
clarification on the inclusion of control of ``design'' and ``testing'' 
for complex and critical item contracts.
    Response: Control of design and/or testing are complex processes 
that require heightened controls in many applications. While not all 
higher-level quality standards specify controls for design or testing 
some of them do, such as ISO 9001, which provides detailed 
requirements/guidelines concerning control of design and testing.
2. Agency Guidance
    Comment: One respondent recommended that agency guidance on 
implementing higher-level quality requirements be completed before any 
new FAR policy and that it should focus on larger acquisitions to avoid 
the indiscriminate use of higher-level quality requirements. This 
respondent further recommended establishing a working group with 
industry to help define Governmentwide criteria for use of higher-level 
quality requirements so as to avoid each agency having a different 
policy. The same respondent recommended that contracting officer 
higher-level quality standards determinations be made subject to 
higher-level acquisition approval authority and subject matter expert 
concurrence and that these documents should be included in the contract 
file.
    Response: The purpose of the rule is to ensure a considered 
approach to the use of higher-level quality standards so they will not 
be applied indiscriminately. Agency procedures will provide guidance to 
the contracting officer about higher-level standards to determine when 
they are necessary and which standards should apply.
3. Standards List
    Comment: One respondent recommended a collaborative approach 
between the contracting officer and the contractor when determining 
which higher-level quality standards apply to the prime and 
subcontractors. Another respondent recommended allowing contractors to 
have the flexibility to adopt systems and practices that reflect an 
appropriate standard. Another respondent recommended allowing industry 
to propose alternate quality standards or be given an opportunity to 
rebut or deviate from the standard assigned in the clause at FAR 
52.246-11.
    Response: This rule eliminates the ability for the offeror to 
indicate its selection of quality standard(s) by checking a block. This 
option of allowing the offeror to indicate its choice of standard was 
eliminated to ensure that the Government adequately assesses the 
necessity and appropriateness of the higher-level quality standard 
chosen. This rule does not change a contractor's ability to work with 
the Government acquisition team prior to receipt of proposals to 
discuss the solicitation, including higher-level quality standards, 
through exchanges such as conferences, public hearings, one-on-one 
meetings, draft requests for proposal, etc.
    Comment: One respondent recommended that FAR 46.202-4(b) state that 
if the FAR 52.246-11 clause is used, the cited standards will take 
precedence over any other higher-level quality requirements separately 
cited in any other contract document (e.g. Statement of Work (SOW), 
Contract Data Requirements).
    Response: The Order of Precedence, FAR 52.212-8, clause already 
provides the order to follow when there is an inconsistency in the 
solicitation or contract and states that the contract clause takes 
precedence over the specifications.
4. Commercial Items
    Comments: Several respondents commented that it is unclear whether 
higher-level quality requirements apply to commercial item/commercially 
available off-the-shelf item suppliers. One respondent recommended that 
FAR 46.202-4 and 46.311 be revised to clearly state that 52.246-11 is 
not to be included in contracts for commercial items.
    Response: FAR 52.246-11 does not apply to commercial items or 
commercially available off-the-shelf items.
5. Flowdown
    Comment: One respondent commented that it is unclear whether 
higher-level quality requirements flow down to subcontractors/
suppliers, and recommended that the requirements not flow down to allow 
contractors to manage their own supply chain risk.
    Response: Higher-level quality standards generally require 
contractors to apply the standards to their subcontractors. In those 
circumstances, the contractor is contractually obligated to comply with 
these standards and also ensure its subcontractors adhere. However, 
because the FAR clause 52.246-11 did not specifically address flowdown, 
the clause at 52.246-11 is being revised to clarify that the prime 
contractor is responsible for flowing down applicable requirements of 
the higher-level quality standards in subcontracts for critical and 
complex items, at any tier.
6. Obsolescence
    Comment: One respondent recommended strengthening policy associated 
with obsolescence management. Another respondent recommended including 
new DoD policies on product obsolescence, diminishing manufacturing 
sources and attempts to leverage DoD expedited process for 
identification and replacement of obsolete electronic parts.
    Response: The FAR rule does not address obsolescence management and 
diminishing manufacturing sources as these areas are outside the scope 
of this FAR case.
7. Purchasing System Review
    Comment: Respondents commented that the additional oversight of the 
quality management system as a part of the Contractor Purchasing System 
Review (CPSR) process is duplicative. One respondent indicated that 
industry already has strong self-governance in place to ensure 
compliance consisting of certification by independent bodies and 
Defense Contract Management Agency (DCMA), who routinely performs 
quality management system assessments. Also, the commenter indicated 
that the proposed rule does not provide guidance on how third party 
approvals such as AS9100 will be utilized to avoid duplication of cost 
and effort.
    Response: Review of quality management systems as a part of the 
CPSR process has been a longstanding process. A third party audit 
establishes that the contractor has a documented process in place 
whereas Government Contract Quality Assurance (QA) validates that the 
contractor is executing to their process. Attention to implementation 
of higher-level quality standards during the course of purchasing 
system reviews is consistent with Government Contract Quality Assurance 
functions and

[[Page 70346]]

responsibilities stated in FAR part 46. It is noted that third party 
audits are performed by organizations that are hired by the contractor, 
not the Government, and who do not have formal/legal responsibilities 
to represent the Government's interests.
    Comment: One respondent commented that higher-level quality 
requirements should not be part of the contractors purchasing system 
review because a single counterfeit incident could cause withdrawal of 
purchasing system approval. Another respondent recommended adding 
language that a deficiency solely related to the implementation of 
higher-level quality standards will not prevent the overall purchasing 
system from functioning as if approved.
    Response: If the contractor is subject to a QA standard covering 
detection of counterfeits and a single incidence of a counterfeit part 
is documented as delivered during a CPSR review, the administrative 
contracting officer would be required to examine the circumstances to 
determine whether it is an isolated incident and whether the occurrence 
could have been prevented by the prime contractor's proper adherence to 
its policies, procedures, and internal controls before withholding 
approval of the purchasing system (FAR 44.301 and 44.305-1).
    Comment: One respondent commented that a satisfactory purchasing 
system should obviate the need to identify standards on individual 
contracts as proposed by FAR 52.246-11.
    Response: There are four sections to a Quality Management System 
(QMS) and the purchasing system is one of six parts in one section; 
therefore, an acceptable purchasing system does not mean the entire QMS 
is acceptable.
    Comment: One respondent commented that the FAR case presents 
unbounded content for review during a CPSR process and lacks alignment 
with the Defense Acquisition Regulations System (DFARS) case, which 
added nine elements to the CPSR process.
    Response: This rule does not change the methodology for conducting 
a CPSR. It adds content in that, when higher-level QA is applicable to 
the contract, the Government will, as one part of the purchasing system 
review, confirm that the contractor is including appropriate quality 
requirements in their purchases orders. The CPSR review criteria 
pertaining to the implementation of higher-level quality requirements 
are bounded by the applicable portions of the contractor's quality 
standard(s) (e.g., ISO 9001 Clause 7.4-Purchasing). This has been a 
long-standing process to include this review in CPSRs. The elements 
added to the DFARS, mentioned by the respondent, are additional 
elements of the CPSR for DoD coverage of a contractor's counterfeit 
electronic part detection and avoidance system that are not included in 
the FAR.
8. Risk-Based Approach
    Comment: Two respondents commented that this rule takes a positive 
step in applying a risk-based approach to the assessment of materials 
entering the supply chain.
    Response: Noted.
9. Scope
    Comment: One respondent recommended excluding counterfeit parts 
standards from higher-level quality requirements.
    Response: The Councils disagree with eliminating higher-level 
quality standards that address counterfeit items due to the significant 
and growing risk, in quality, reliability, and safety that 
counterfeiting poses to the Government. This FAR rule case specifically 
removes outdated or obsolete standards and adds new examples of higher-
level quality standards, including a standard related to 
counterfeiting.
10. Small Business
    Comment: Two respondents commented that this rule will have 
unintended consequences on small businesses, including small business 
withdrawal from the market place, which will reduce competition.
    Response: This rule is not meant to limit small business 
participation in Government contracting; the purpose of the rule is to 
ensure that agencies have procedures in place to assess the risk of 
nonconforming items when determining whether higher-level quality 
standards should be used by the Government and relied on by all 
contractors. When contracting for complex or critical items where 
higher-level quality standards are necessary it would not be prudent to 
make exceptions based on business size.
11. Source Selection Process
    Comment: One respondent recommended providing source selection 
policy guidance such as choice of contract type, source selection 
process, and evaluation of performance risk and price, when using 
higher-level quality requirements.
    Response: The FAR subpart 15.1 outlines source selection processes 
and techniques that are available strategies depending on the type of 
acquisition. This approach allows the acquisition team to exercise 
discretion and use business judgment to determine the best approach for 
a particular acquisition.
12. Standards List
    Comment: One respondent supported incorporating requirements for 
detection and avoidance of counterfeit electronic parts into key 
Quality Management Systems (QMS) standards (e.g. ISO 9000 and AS9100) 
and including counterfeit electronic parts avoidance and detection 
standards among the higher-level quality standards.
    Response: Noted.
    Comment: One respondent recommended that the standards listed in 
the proposed FAR 46.202-4(b) be more generic; also, applying examples 
like nuclear standards may mislead personnel into what the minimum 
requirements are.
    Response: FAR 46.202-4(b) includes a list of examples of more 
specific standards to assist with selecting common standards.
    Comments: One respondent recommended adding ISO/TS16949 to the list 
of higher-level quality standards. Another respondent supported 
standards that are specific to quality management systems (e.g. AS9100, 
ISO9001 and AS9003) and also incorporating counterfeit parts mitigation 
strategies through AS5553. One respondent commented that there are a 
number of different standards including SAE standard AS5553, ISO 27000 
series, and Open Group Trusted Technology Provider Standard that help 
with counterfeit avoidance and supply chain risk management.
    Response: The Councils added different examples of higher-level 
quality standards at FAR 46.202-4(b) to allow agencies flexibility to 
choose the standard that best meets their quality requirements. The 
standards listed are examples that could be used by agencies but this 
list is not exhaustive. The Councils concurred with adding the 
commodity specific quality management system standard for automotive 
production, ISO/TS16949. This case further clarifies language at FAR 
46.202-4(b) that higher-level quality standards include both 
overarching quality management system standards and product or process 
specific quality standards. While the rule does not add a comprehensive 
list of higher-level quality standards, it does not preclude the use of 
standards not listed in the examples at FAR 46.202-4(b).
    Comments: Several respondents commented that SAE AS6174 should not 
be included in the list of higher-level quality requirements since the 
document does not provide guidance to industry or Government in

[[Page 70347]]

implementing meaningful counterfeit avoidance processes for material. 
Two respondents commented that AS6174 should not be cited as guidance 
as it is not mature enough to use at this stage.
    Response: The Councils have accepted this comment and have deleted 
reference to SAE AS6174 listed in FAR 46.202-4(b).
    Comments: Two respondents commented that the proposed rule extends 
beyond electronic parts, which is outside of section 818 requirements 
and recommends the Government collaborate with industry on a risk 
assessment of counterfeit trends to determine the extent that non-
electronic parts represent a counterfeiting risk. One respondent 
recommended that before expanding the scope of the rule beyond 
electronic parts, steps should be taken to (1) collect information from 
Federal agencies and departments on the extent to which counterfeit 
material other than electronics has been identified as a cause of 
product or system failure; (2) call for routine assessment of trends to 
determine the extent to which other material commodities emerge as a 
significant counterfeiting risk; and (3) encourage development of 
standards to address other material types. Another respondent 
recommended a phased-in approach to implementation to align with other 
section 818 regulatory cases.
    Response: This rule does not directly implement any specific aspect 
of section 818, but recognizes the quality, reliability, and safety 
risk that counterfeit electronic parts represent.
    This case removes outdated or obsolete standards and adds new 
examples of higher-level quality standards, including a standard 
related to counterfeiting. Contracting officers, along with technical 
personnel, are not restricted to the list of examples of higher-level 
quality standards, and may elect other standards that meet the 
Government's needs.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S. C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S. 
C. 601, et seq. The FRFA is summarized as follows:

    The Government must identify items that are critical to 
accomplishment of the agency mission and apply higher-level quality 
requirements to those items. The contractor has an obligation to 
ensure that its deliverables meet the specified quality 
requirements, which also entails ensuring that its subcontractors 
adhere to the higher level quality standard where appropriate. This 
case proposes to (a) specify the higher-level quality requirement 
and (b) add this to the list of issues to be considered during 
contractor purchasing system reviews.
    Two respondents expressed concern that this rule would have 
significant effects on small businesses, which would result in their 
withdrawal from participation in Government contracting. The FAR 
revisions made by the rule do not increase the burden on businesses, 
including small businesses, and the rule was not modified to allow 
for differing quality standards based on business size. No changes 
were made to the rule as a result of these comments. However, in 
response to another respondent, it was clarified that flowdown of 
the higher-level quality assurance standards will only apply to 
subcontracts involving critical or complex items, thus small 
business who do not comply with the higher level standards may still 
compete on other subcontracts.
    Large and small businesses provide critical items directly to 
the Government or to Government prime contractors and these 
companies may be impacted by this rule. However, there is no easy 
way to identify the number of contracts that contain higher-level 
quality standards and how many of these are awarded to both large 
and small businesses.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy 
of the FRFA to the Chief Counsel for Advocacy of the Small Business 
Administration.

V. Paperwork Reduction Act

    The 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 44, 46, and 52

    Government procurement.

    Dated: November 17, 2014.
William Clark,
Acting Director, Office of Government-wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-wide Policy.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 44, 46, and 52 as 
set forth below:

0
1. The authority citation for 48 CFR parts 44, 46, and 52 continues to 
read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 44--SUBCONTRACTING POLICIES AND PROCEDURES

0
2. Amend section 44.303 by--
0
a. Removing from the end of paragraph (i) ``and'';
0
b. Removing from the end of paragraph (j) the period and adding ``; 
and'' in its place; and
0
c. Adding paragraph (k).
    The addition reads as follows:


44.303  Extent of review.

* * * * *
    (k) Implementation of higher-level quality standards.

PART 46--QUALITY ASSURANCE

0
3. Revise section 46.202-4 to read as follows:


46.202-4  Higher-level contract quality requirements.

    (a) Agencies shall establish procedures for determining when 
higher-level contract quality requirements are necessary, for 
determining the risk (both the likelihood and the impact) of 
nonconformance, and for advising the contracting officer about which 
higher-level standards should be applied and included in the 
solicitation and contract. Requiring compliance with higher-level 
quality standards is necessary in solicitations and contracts for 
complex or critical items (see 46.203) or when the technical 
requirements of the contract require--
    (1) Control of such things as design, work operations, in-process 
controls, testing, and inspection; or
    (2) Attention to such factors as organization, planning, work 
instructions, documentation control, and advanced metrology.
    (b) Examples of higher-level quality standards include overarching 
quality management system standards such as ISO 9001, ANSI/ASQC E4, 
ASME NQA-1, SAE AS9100, SAE AS9003, and ISO/TS 16949, and product or 
process specific quality standards such as SAE AS5553.

[[Page 70348]]


0
4. Revise section 46.311 to read as follows:


46.311  Higher-level contract quality requirement.

    (a) The contracting officer shall insert the clause at 52.246-11, 
Higher-Level Contract Quality Requirement, in solicitations and 
contracts when the inclusion of a higher-level contract quality 
requirement is necessary (see 46.202-4).
    (b) For each higher-level quality standard, the contracting officer 
shall fill in the title, number, date, and tailoring (if any).

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Revise section 52.246-11 to read as follows:


52.246-11  Higher-Level Contract Quality Requirement.

    As prescribed in 46.311, insert the following clause:

Higher-Level Contract Quality Requirement (DEC 2014)

    (a) The Contractor shall comply with the higher-level quality 
standard(s) listed below.

[Contracting Officer insert the title, number, date, and tailoring 
(if any) of the higher-level quality standards.]

    (b) The Contractor shall include applicable requirements of the 
higher-level quality standard(s) listed in paragraph (a) of this 
clause and the requirement to flow down such standards, as 
applicable, to lower-tier subcontracts, in--
    (1) Any subcontract for critical and complex items (see 
46.203(b) and (c)); or
    (2) When the technical requirements of a subcontract require--
    (i) Control of such things as design, work operations, in-
process control, testing, and inspection; or
    (ii) Attention to such factors as organization, planning, work 
instructions, documentation control, and advanced metrology.


(End of clause)

[FR Doc. 2014-27661 Filed 11-24-14; 8:45 am]
BILLING CODE 6820-EP-P