Defense Federal Acquisition Regulation Supplement; Payment and Billing Instructions, 58980-58983 [05-20217]

Agencies

• DEPARTMENT OF DEFENSE

[Federal Register Volume 70, Number 195 (Tuesday, October 11, 2005)]
[Rules and Regulations]
[Pages 58980-58983]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-20217]


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DEPARTMENT OF DEFENSE

48 CFR Parts 204, 215, 252, and Appendix F to Chapter 2

[DFARS Case 2003-D009]


Defense Federal Acquisition Regulation Supplement; Payment and 
Billing Instructions

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to improve payment and 
billing instructions in DoD contracts. This final rule is a result of a 
transformation initiative undertaken by DoD to dramatically change the 
purpose and content of the DFARS.

DATES: Effective October 11, 2005.

FOR FURTHER INFORMATION CONTACT: Mr. Bill Sain, Defense Acquisition 
Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0293; 
facsimile (703) 602-0350. Please cite DFARS Case 2003-D009.

SUPPLEMENTARY INFORMATION:

A. Background

    DFARS Transformation is a major DoD initiative to dramatically 
change the purpose and content of the DFARS. The objective is to 
improve the efficiency and effectiveness of the acquisition process, 
while allowing the acquisition workforce the flexibility to innovate. 
The transformed DFARS will contain only requirements of law, DoD-wide 
policies, delegations of FAR authorities, deviations from FAR 
requirements, and policies/procedures that have a significant effect 
beyond the internal operating procedures of DoD or a significant cost 
or administrative impact on contractors or offerors. Additional 
information on the DFARS Transformation initiative is available at 
https://www.acq.osd.mil/dpap/dars/dfars/transformation/index.htm.
    This final rule is a result of the DFARS Transformation initiative. 
The DFARS changes include--
    [cir] Deletion of text at DFARS 204.201, 204.202, 204.7103-2, 
204.7104-2, 204.7107, and 204.7108 addressing distribution of contracts 
and modifications; numbering of contract line items, subline items, and 
accounting classification references; and inclusion of payment 
instructions in contracts. Text on these subjects has been relocated to 
the new DFARS companion resource, Procedures, Guidance, and Information 
(PGI), available at https://www.acq.osd.mil/dpap/dars/pgi. In addition, 
the related PGI text contains a menu of standard payment instructions 
from which the contracting officer will make a selection for inclusion 
in Section G of the contract.
    [cir] Clarification of the definition of ``accounting 
classification reference number'' at DFARS 204.7101.
    [cir] Amendment of DFARS 204.7103-1 to add text addressing contract 
type in the establishment of contract line items.
    [cir] Amendment of DFARS 204.7106 to clarify that contract 
modifications decreasing the amount obligated shall not be issued 
unless sufficient unliquidated obligation exists or the purpose is to 
recover monies owed to the Government.
    [cir] Addition of a clause addressing contract line item 
information needed in contractor payment requests.
    [cir] Amendment of Material Inspection and Receiving Report 
instructions to address electronic submissions.
    DoD published a proposed rule at 69 FR 35564 on June 25, 2004. Five 
sources submitted comments on the proposed rule. A discussion of the 
comments is provided below:
    1. Comment: The proposed text at DFARS 204.7103-1 should include 
labor-hour and/or time-and-materials line items.
    DoD Response: Concur. DFARS 204.7103-1 has been expanded to include 
time-and-materials/labor-hour line items to ensure that proper payment 
is applied to each line item. Since a time-and-materials/labor-hour 
contract contains some elements of a fixed-price contract and some 
elements of a cost-reimbursement contract, specifying time-and-
materials/labor-hour line items will avoid potential confusion as to 
whether these are classified as fixed-price or cost-reimbursement.
    2. Comment: The proposed text at DFARS 204.7103-1 conflicts with 
the current text at DFARS 215.204-2(g). Recommend that the text at 
215.204-2(g) be deleted or revised to be consistent with the proposed 
text at 204.7103-1.
    DoD Response: Concur. The final rule deletes the text at DFARS 
215.204-2(g).
    3. Comment: Delete the proposed text at DFARS 204.7106(b)(3)(i) and 
(ii) concerning modification coordination and funding, because they are 
supplementing the wrong part. Per DFARS 204.7100, the scope of this 
subpart is to prescribe policies and procedures for assigning contract 
line item numbers. Further, it is recommended that the language not be 
included at all in the DFARS, because the text proposed at DFARS 
204.7106(b)(3)(i) increases the administrative burden on contracting 
officers by imposing coordination between the administrative 
contracting officer (ACO) and the procuring contracting officer (PCO) 
regardless of the authority already granted in the regulations (FAR 
1.602-1; 42.302(a)), and any contracting officer may gain additional 
information through coordination with other offices or research on the 
numerous data bases (MOCAS, NAFI, EDA). Additionally, DFARS 
204.7106(b)(3)(ii) reiterates the requirement for the contracting 
officer to ensure that sufficient funds are available before executing 
any contractual action (FAR 1.602-2(a), 32.703, 43.105(a)) and the 
processes in

[[Page 58981]]

FAR Subpart 32.6 concerning contract debt and recovered monies owed to 
the Government.
    DoD Response: Do not concur. DoD believes it is important that both 
the PCO and the ACO are aware when the amount obligated will be 
decreased, since they both play integral roles in the contracting 
process. In some cases, the PCO may be planning to decrease an 
obligation on a contract line item, but the ACO may be aware that the 
items have been or are in the process of being delivered under that 
contract line item. Furthermore, negative obligations should only exist 
if the Government is owed monies, i.e., by recouping those monies the 
negative obligation will be eliminated.
    4. Comment: The wording of proposed DFARS 204.7109 would require 
the contracting officer to do a good deal of research and 
interpretation to apply correctly. Recommend simplification of the 
language at 204.7109 to achieve the same objective with clearer, more 
easily applied criteria as follows:
    ``Use the clause at 252.204-7XXX, Billing Instructions, if:
    (a) The application of the payment instructions in Section G of the 
contract necessitates that the applicable contract line item numbers be 
identified on the contractor's payment request, and
    (b) The contract does not otherwise require that either the payment 
request or the receiving report contain the applicable contract line 
item number (e.g., contract financing payments, public vouchers).''
    DoD Response: Do not concur. DoD believes that, if the Government 
will require the contractor to bill at the contract line item level, 
there should be a contract clause that specifically delineates this 
requirement. Furthermore, any requirement for the payment request to 
contain the applicable line item number should be in Section G of the 
contract. Adopting the respondent's recommended language would imply 
that all payment instructions do not have to be included in Section G 
of the contract, which is contrary to the intent of this rule.
    5. Comment: The proposed text at DFARS 204.7109 requires 
contractors to identify the applicable contract line items when 
submitting requests for contract financing and interim payments under 
cost-reimbursement contracts for services. It is cost-prohibitive and, 
in some cases, impossible for contractors to track and bill progress 
payments based on costs at the contract line item level. It is believed 
that the authors of the payment and billing instructions addressed in 
the proposed PGI text recognized this problem, because the text 
proposed at PGI 204.7108(c)(4) provides that, for contracts that 
provide for progress payments based on costs, the contracting officer 
shall instruct the payment office to use paragraph (d)(11) instructions 
in accounting for the payment. Paragraph (d)(11) requires the payment 
office to make payment from each accounting classification reference 
number (ACRN) within the contract in the same proportion as the amount 
of funding unliquidated for each ACRN. If the payment office is 
directed to prorate payments, there is no reason for the contractor, in 
submitting progress billings, to break out payment requests by contract 
line item. Recommend that the reference in DFARS 204.7109(a), regarding 
the submission of a payment request for a contract financing payment, 
exclude payments on contracts that require progress payments based on 
costs. In addition, recommend revision of the proposed text at DFARS 
204.7109 to exclude all cost-type contracts, that are funded by a 
single appropriation, from the requirement to separately identify a 
payment amount for each contract line item included in the payment 
request. If contracts contain only one appropriation, there is no need 
to require contractors to bill at the line item level, regardless of 
the number of ACRNs that have been assigned to the contract.
    DoD Response: Concur in part. DoD recognizes the respondent's 
concern that including a requirement for billing at the contract line 
item level may not be appropriate for certain fixed-price or cost-type 
contracts. However, the respondent's recommended solution will not 
address this concern. Eliminating the requirement for a contract clause 
would not preclude a contracting officer from requiring a contractor to 
bill at the contract line item level for a particular contract. As 
previously noted, DoD believes that, if the Government requires the 
contractor to bill at the contract line item level, there should be a 
contract clause that specifically delineates this requirement.
    DoD believes the respondent has a valid concern regarding the 
circumstances under which billing at the contract line item level is 
required. When a contract uses standard payment options (d)(7) through 
(11) for a particular contract type, there is no need for the 
contractor to identify the contract line item for that particular 
contract type, since the allocations will be done on a contract-wide 
basis. However, the contractor will need to identify the contract line 
item on the payment request when the contract, for a particular 
contract type, uses standard payment options (d)(1) through (6) of PGI 
204.7108, or requires contractor identification of the contract line 
item on the payment request through use of payment instruction (d)(12) 
of PGI 204.7108. The final rule reflects this requirement.
    It is also important to note that a contractor should not be 
required to identify costs at the contract line item level if the 
contractor is simply going to use an allocation to identify such costs. 
In those cases where the contractor would simply be allocating the 
costs to obtain the contract line item billing, the contracting officer 
should select one of options (d)(7) through (11) (allocation at the 
contract level). This is preferable to the contractor allocating the 
costs to the contract line item level and having the payment office do 
a second allocation to the ACRN level.
    DoD also believes that a contractor should not be required to bill 
costs at the contract line item level unless there are significant 
benefits to the Government. Thus, the final PGI text has been revised 
to require contractor billing at the contract line item level only when 
the contracting officer documents in the contract file that such a 
requirement provides significant benefits to the Government.
    6. Comment: The proposed rule will have a significant impact on 
large and small contractors. The requirement proposed at DFARS 252.204-
7XXX(a) for the specific identification of billing amounts by contract 
line item to ``best reflect'' costs will make it necessary for 
contractors to establish new systems and processes to provide more 
detailed reporting than that which is currently necessary on interim 
billings and financing submissions. Further, the lack of a definition 
for the term ``best reflect contract work performance'' will lead to 
the establishment of unattainable compliance requirements arising from 
inconsistent interpretations by different contracting and audit 
offices. This term will be inconsistently interpreted by contractors, 
contracting officers, payment officials, and DCAA auditors who evaluate 
contractor billing systems. Recommend elimination of paragraph (a) and 
that the entire billing instructions of DFARS 252.204-7XXX include the 
following language, most of which is excerpted from proposed paragraph 
(b): ``When submitting a request for payment, the Contractor shall 
separately identify a payment amount for each contract line item that 
is included in the request.''
    DoD Response: Concur in part. DoD recognizes the concern regarding 
unattainable compliance requirements,

[[Page 58982]]

in particular the requirement to ``best'' reflect work performance. 
However, DoD believes that the contract payments should provide a 
reasonable reflection of the work performance that relates to each 
contract line item. Therefore, the final rule replaces the requirement 
for identified line items to ``best'' reflect work performance with a 
requirement for identified line items to ``reasonably'' reflect work 
performance. In addition, the final rule permits the contracting 
officer to require billing at the contract line item level only when it 
is determined that such a requirement provides significant benefits to 
the Government. DoD believes these revisions mitigate the concerns 
regarding any possible significant impact on small and large entities.
    7. Comment: The proposed invoice instructions at F-306(a) require 
electronic payment requests unless an exception in DFARS 232.7002 
applies. The electronic invoicing exceptions in DFARS 232.7002 are not 
well-defined for all scenarios alluded to in 232.7002(a)(6). This leads 
to inconsistent processing, wasted effort by all parties, and 
unnecessary delays in payment. Therefore, it is recommended that DoD 
work with industry to develop a clearly defined exception process for 
situations where electronic invoicing cannot be achieved.
    DoD Response: The recommendation is considered to be outside the 
scope of this case. However, the recommendation has been forwarded to 
the DoD office responsible for e-business matters.
    8. Comment: For payment purposes on cost-type contracts, the goal 
should be to establish the minimum number of line items and 
appropriations accounts required to satisfy applicable statutes. If 
contracts contain only one appropriation, both the billing and payment 
process can be highly automated and still meet statutory requirements. 
Only one ACRN should be assigned to the unique combination of a 
specific appropriation and program year, substantially reducing the 
current ACRN count. Additionally, the appropriation and/or the ACRN 
should be used as the sole basis for a payment on cost-type contracts 
(asset valuation can be established in unique identification and 
contract management can be achieved via Cost/Schedule Status / Earned 
Value Management reporting). Use of appropriation level billings, when 
required, would reduce the billing detail by over 80 percent when 
compared to contract line item/ACRN level billing requirements. Also, 
the requirement to accumulate cost or even develop best/reasonable 
estimates should be used as a last resort to satisfy statutory 
requirements. Therefore, to adopt this approach, recommend that the PGI 
contain a list of billing instructions for the contractor to follow.
    DoD Response: Do not concur. DoD does not believe that the PGI text 
needs to include a list of billing instructions for the contractor to 
follow. There is no need for the contractor to allocate costs among 
contract line items when one of the payment options at PGI 
204.7108(d)(7) through (11) is selected, i.e., that function can be 
better performed by the payment office. Furthermore, DoD believes that 
a contractor should not be required to identify costs at the contract 
line item level if the contractor is simply going to use an allocation 
to identify such costs. In those cases where the contractor would 
simply be allocating the costs to obtain contract line item billing, 
the contracting officer should select one of options (d)(7) through 
(11) (allocation at the contract level). This is preferable to the 
contractor allocating the costs to the contract line item level and 
having the payment office do a second allocation to the ACRN level.
    9. Comment: The draft PGI text at 204.201(3)(i)(D)(1) directs users 
to the Directory of DCAA offices available via the Internet at https://
www.dcaa.mil/directory.htm. The specific Web site address provided in 
the PGI is not current and should be updated. In addition, the text 
should include a reference to the DCAA cognizant field office locator, 
available at the same Web site.
    DoD Response: Concur. This change has been included in the final 
rule.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. The analysis is summarized as follows:
    This final rule amends the DFARS to improve payment and billing 
instructions in DoD contracts. The objective of the rule is to 
streamline payment procedures and ensure line item accountability in 
contractor payment requests. Based upon public comments, DoD has 
revised the rule to remove the requirement for contractor payment 
requests to identify the contract line items that ``best'' reflect work 
performance. Instead, the final rule includes a requirement for payment 
requests to identify the contract line items that ``reasonably'' 
reflect work performance. In addition, the final rule permits 
contracting officers to require contractor billing at the contract line 
item level only when it is determined that such a requirement provides 
significant benefits to the Government. DoD believes these revisions 
mitigate the concerns raised during the public comment period, and that 
the rule will have an overall beneficial impact on small entities.
    A copy of the analysis may be obtained from the point of contact 
specified herein.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the rule does 
not impose any information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 204, 215, and 252

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR parts 204, 215, 252, and Appendix F to Chapter 2 are 
amended as follows:
0
1. The authority citation for 48 CFR parts 204, 215, 252, and Appendix 
F to subchapter I continues to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 204--ADMINISTRATIVE MATTERS

0
2. Section 204.201 is revised to read as follows:


204.201  Procedures.

    Follow the procedures at PGI 204.201 for the distribution of 
contracts and modifications.


204.202  [Removed]

0
3. Section 204.202 is removed.
0
4. Section 204.7101 is amended by revising the definition of Accounting 
classification reference number (ACRN) to read as follows:


204.7101  Definitions.

    Accounting classification reference number (ACRN) means any 
combination of a two position alpha/numeric code used as a method of 
relating the accounting classification citation to detailed line item 
information contained in the schedule.
* * * * *

0
5. Section 204.7103-1 is amended by redesignating paragraphs (b) 
through (d) as paragraphs (d) through (f), respectively; and by adding 
new paragraphs (b) and (c) to read as follows:

[[Page 58983]]

204.7103-1  Criteria for establishing.

* * * * *
    (b) All subline items and exhibit line items under one contract 
line item shall be the same contract type as the contract line item.
    (c) For a contract that contains a combination of fixed-price line 
items, time-and-materials/labor-hour line items, and/or cost-
reimbursement line items, identify the contract type for each contract 
line item in Section B, Supplies or Services and Prices/Costs, to 
facilitate appropriate payment.
* * * * *

0
6. Section 204.7103-2 is revised to read as follows:


204.7103-2  Numbering procedures.

    Follow the procedures at PGI 204.7103-2 for numbering contract line 
items.

0
7. Section 204.7104-2 is revised to read as follows:


204.7104-2  Numbering procedures.

    Follow the procedures at PGI 204.7104-2 for numbering contract 
subline items.

0
8. Section 204.7106 is amended by adding paragraph (b)(3) to read as 
follows:


204.7106  Contract modifications.

* * * * *
    (b) * * *
    (3) If the modification will decrease the amount obligated--
    (i) There shall be coordination between the administrative and 
procuring contracting offices before issuance of the modification; and
    (ii) The contracting officer shall not issue the modification 
unless sufficient unliquidated obligation exists or the purpose is to 
recover monies owed to the Government.

0
9. Section 204.7107 is revised to read as follows:


204.7107  Contract accounting classification reference number (ACRN).

    Follow the procedures at PGI 204.7107 for assigning ACRNs.

0
10. Sections 204.7108 and 204.7109 are added to read as follows:


204.7108  Payment instructions.

    Follow the procedures at PGI 204.7108 for inclusion of payment 
instructions in contracts.


204.7109  Contract clause.

    Use the clause at 252.204-7006, Billing Instructions, in 
solicitations and contracts if Section G includes--
    (a) Any of the standard payment instructions at PGI 204.7108(d)(1) 
through (6); or
    (b) Other payment instructions, in accordance with PGI 
204.7108(d)(12), that require contractor identification of the contract 
line item(s) on the payment request.

PART 215--CONTRACTING BY NEGOTIATION


215.204-2  [Removed]

0
11. Section 215.204-2 is removed.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
12. Section 252.204-7006 is added to read as follows:


252.204-7006  Billing Instructions.

    As prescribed in 204.7109, use the following clause:

Billing Instructions (Oct 2005)

    When submitting a request for payment, the Contractor shall--
    (a) Identify the contract line item(s) on the payment request 
that reasonably reflect contract work performance; and
    (b) Separately identify a payment amount for each contract line 
item included in the payment request.

(End of clause)

Appendix F--[Amended]

0
13. Appendix F to Chapter 2 is amended in Part 3 by revising section F-
306 to read as follows:

Appendix F--Material Inspection and Receiving Report

* * * * *


F-306  Invoice instructions.

    (a) Contractors shall submit payment requests in electronic 
form, unless an exception in 232.7002 applies. Contractor submission 
of the material inspection and receiving information required by 
this appendix by using the Wide Area WorkFlow-Receipt and Acceptance 
electronic form (see paragraph (b)(1) of the clause at 252.232-7003) 
fulfills the requirement for an MIRR.
    (b) If the contracting officer authorizes the contractor to 
submit an invoice in paper form, the Government encourages, but does 
not require, the contractor to use the MIRR as an invoice, in lieu 
of a commercial form. If commercial forms are used, identify the 
related MIRR shipment number(s) on the form. If using the MIRR as an 
invoice, prepare the MIRR and forward the required number of copies 
to the payment office as follows:
    (1) Complete Blocks 5, 6, 19, and 20. Block 6 shall contain the 
invoice number and date. Column 20 shall be totaled.
    (2) Mark in letters approximately one inch high, first copy: 
``ORIGINAL INVOICE, for all invoice submissions; and three copies: 
``INVOICE COPY,'' when the payment office requires four copies. 
Questions regarding the appropriate number of copies (i.e., one or 
four) should be directed to the applicable payment office.
    (3) Forward the appropriate number of copies to the payment 
office (Block 12 address), except when acceptance is at destination 
and a Navy finance office will make payment, forward to destination.
    (4) Be sure to separate the copies of the MIRR used as an 
invoice from the copies of the MIRR used as a receiving report.
* * * * *
[FR Doc. 05-20217 Filed 10-7-05; 8:45 am]
BILLING CODE 5001-08-P