Rule2024-08435
Defense Federal Acquisition Regulation Supplement: Use of Fixed-Price Contracts for Certain Major Defense Acquisition Programs (DFARS Case 2023-D009)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 25, 2024
Effective
April 25, 2024
Issuing agencies
Defense DepartmentDefense Acquisition Regulations System
Abstract
DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2023 that limits the number of low-rate initial production lots associated with a major defense acquisition program under certain circumstances.
Full Text
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<title>Federal Register, Volume 89 Issue 81 (Thursday, April 25, 2024)</title>
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[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Rules and Regulations]
[Pages 31656-31657]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08435]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 207 and 234
[Docket DARS-2023-0030]
RIN 0750-AL82
Defense Federal Acquisition Regulation Supplement: Use of Fixed-
Price Contracts for Certain Major Defense Acquisition Programs (DFARS
Case 2023-D009)
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 (DFARS) to implement a section of the
National Defense Authorization Act for Fiscal Year 2023 that limits the
number of low-rate initial production lots associated with a major
defense acquisition program under certain circumstances.
DATES: Effective April 25, 2024.
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 88 FR
67611 on September 29, 2023, to implement section 808 of the National
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023 (Pub. L.
117-263). Section 808 amends section 818 of Public Law 109-364 to limit
the number of low-rate initial production lots associated with a major
defense acquisition program to be procured to no more than one when the
milestone decision authority authorizes the use of a fixed-price type
contract at Milestone B and the scope of the work includes both
development and low-rate initial production. This limitation may be
waived. Two 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 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
1. Support for the Rule
Comment: One respondent indicted support for the rule.
Response: The support for the rule is noted.
2. Clarifications
Comment: One respondent suggested that the rule should define or
provide a reference to the definition of a fixed-price contract. The
rule does not specify whether fixed-price contracts include firm-fixed-
price, fixed-price-incentive, or fixed-price-with-economic-price-
adjustment, which could create ambiguity or inconsistency in the
application of the rule and affect the level of risk and incentive for
the Government and contractors. The respondent recommended providing a
reference to the relevant section of the Federal Acquisition Regulation
(FAR) that defines these types of contracts or specify the types of
fixed-price contracts that can be used.
Response: This rule does not stand alone; contracting officers will
implement the rule in the context provided by the FAR and DFARS. FAR
subpart 16.2 describes the types of fixed-price contracts that a
contracting officer may use. The DFARS, as a supplement to the FAR,
does not duplicate the content of the FAR.
Comment: One respondent suggested that the rule should explain the
rationale or purpose of the limitation on procuring more than one lot
for low-rate initial production (LRIP) using a fixed-price type
contract for a major defense acquisition program. The rule currently
does not state why this limitation is necessary or beneficial, or how
it relates to the objective of reducing cost risk and improving
performance. This could make it difficult to evaluate the effectiveness
or impact of the rule, or to justify its use in specific cases.
Response: Section 808 of the NDAA for FY 2023 limits the number of
LRIP lots to no more than one on fixed-price contracts that also
include development. Neither section 808 nor the Joint Explanatory
Statement provides the rationale or purpose of the limitation. However,
the limitation may result in a reduction in risk to the contractor
associated with proposing prices for multiple production lots of an
item prior to the completion of development and initial production of
the item.
Comment: One respondent suggested that the rule should establish
some criteria or guidelines for exercising the waiver authority for the
limitation on LRIP procurement. The rule currently does not indicate
how the service acquisition executive should decide whether to grant or
deny a waiver, or what factors should be considered in making this
decision. This could lead to arbitrary or inconsistent decisions or
undermine the accountability or transparency of the waiver process.
Providing examples of factors that could justify a waiver and indicate
that the waiver authority should be used sparingly and only in
exceptional circumstances.
Response: Section 808 provides the service acquisition executive
the authority to waive this limitation. It does not specify the
criteria to be considered in making such a waiver decision. Providing
examples of factors to consider in determining whether or not to waive
the limitation may preclude the consideration of factors that are
relevant to the instant acquisition and may have a negative impact on
meeting mission needs.
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 does not create any new solicitation provisions or
contract clauses. It does not impact any existing solicitation
provisions or contract clauses or their applicability to contracts
valued at or below the simplified acquisition threshold, for commercial
products including COTS items, or for commercial services.
IV. Expected Impact of the Rule
As a result of this final rule, unless waived, the Government may
not procure more than one low-rate initial production lot associated
with a major defense acquisition program if, at the time of Milestone B
approval, the milestone decision authority authorizes the use of a
fixed-price type contract and the scope of work of the fixed-price
contract includes both development and low-rate initial production of
items associated with such major defense acquisition program. This rule
does not impact contractor operations; however, it may limit contractor
risk assumed under such contracts. Development and initial production
of an item likely involve the discovery and resolution of problems that
are unknown beforehand. Risk to a contractor is higher when the
contractor must propose prices for multiple production lots of an item
before the development and initial production of that item are
complete. By limiting the number of low-rate initial production lots on
a fixed-price contract
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that also includes development, this risk to the contractor may be
reduced.
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 final rule is necessary to implement section 808 of the
National Defense Authorization Act for Fiscal Year (FY) 2023 (Pub. L.
117-263). Section 808 modifies section 818 of Public Law 109-364 to
limit the number of low-rate initial production lots associated with a
major defense acquisition program to be procured to no more than one
when the milestone decision authority authorizes the use of a fixed-
price type contract at the time of Milestone B approval and the scope
of the fixed-price contract includes both development and low-rate
initial production.
No comments were received in response to the initial regulatory
flexibility analysis.
Data is not available on the number of fixed-price type contracts
for major defense acquisition programs that contain both development
and low-rate initial production; therefore, data was obtained for
contracts that include DFARS clause 252.234-7004, Cost and Software
Data Reporting System, or its alternate I clause. This DFARS clause is
required to be included in solicitations and contracts for major
defense acquisition programs that exceed $50 million, and its alternate
I clause is required to be included in solicitations and contracts for
major defense acquisition programs that are greater than $20 million
but less than or equal to $50 million under certain circumstances.
According to the Procurement Business Intelligence Service, DoD awarded
contracts for major defense acquisition programs to 130 unique small
entities in FY 2021, 99 in FY 2022, and 109 in FY 2023. The average
over the three-year period is 112 per fiscal year. Therefore, the
number of small entities to which this rule may apply is 112.
This final rule does not impose any new reporting, recordkeeping,
or other compliance requirements for small entities.
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 207 and 234
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
Therefore, 48 CFR parts 207 and 234 are amended as follows:
0
1. The authority citation for parts 207 and 234 continues to read as
follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
PART 207--ACQUISITION PLANNING
0
2. In section 207.106, revise paragraph (S-74) to read as follows:
207.106 Additional requirements for major systems.
* * * * *
(S-74) When selecting contract type for a major defense acquisition
program, see 234.004.
PART 234--MAJOR SYSTEM ACQUISITION
0
3. Amend section 234.004 by adding paragraph (2)(v) to read as follows:
234.004 Acquisition strategy.
* * * * *
(2) * * *
(v) In accordance with section 808 of the National Defense
Authorization Act for Fiscal Year 2023 (Pub. L. 117-263)--
(A) The contracting officer shall not procure more than one lot for
low-rate initial production, as defined at 10 U.S.C. 4231, associated
with a major defense acquisition program if--
(1) The milestone decision authority authorizes the use of a fixed-
price type contract at the time of Milestone B approval; and
(2) The scope of work of the fixed-price type contract includes
both the development and low-rate initial production of items for such
major defense acquisition program; and
(B) This limitation may be waived by the service acquisition
executive for the department concerned, delegable to no lower than one
level above the contracting officer, if--
(1) A written notification of the waiver, including associated
rationale, is provided to the congressional defense committees no later
than 30 days after issuance of the waiver in accordance with agency
procedures; and
(2) A copy of the waiver and such congressional notification are
included in the contract file.
* * * * *
[FR Doc. 2024-08435 Filed 4-24-24; 8:45 am]
BILLING CODE 6001-FR-P
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</html>Indexed from Federal Register on April 25, 2024.
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