Defense Federal Acquisition Regulation Supplement; Ground and Flight Risk Clause (DFARS Case 2007-D009), 69177-69180 [E7-23657]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 72, Number 235 (Friday, December 7, 2007)]
[Proposed Rules]
[Pages 69177-69180]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-23657]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 228, 231, and 252

RIN 0750-AF72


Defense Federal Acquisition Regulation Supplement; Ground and 
Flight Risk Clause (DFARS Case 2007-D009)

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

ACTION: Proposed rule with request for comments.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to revise and combine contract clauses 
addressing assumption of risk for loss under contracts involving the 
furnishing of aircraft to the Government. The proposed rule establishes 
requirements that apply consistently to all contract types.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before February 5, 2008 to be considered 
in the formation of the final rule.

ADDRESSES: You may submit comments, identified by DFARS Case 2007-D009, 
using any of the following methods:
    Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments.
    E-mail: dfars@osd.mil. Include DFARS Case 2007-D009 in the subject 
line of the message.
    Fax: 703-602-7887.
    Mail: Defense Acquisition Regulations System, Attn: Ms. Robin 
Schulze, OUSD (AT&L) DPAP (CPF), IMD 3D139, 3062 Defense Pentagon, 
Washington, DC 20301-3062.
    Hand Delivery/Courier: Defense Acquisition Regulations System, 
Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-
3402.
    Comments received generally will be posted without change to http:/
/www.regulations.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, 703-602-0326.

SUPPLEMENTARY INFORMATION

A. Background

    The clauses at DFARS 252.228-7001, Ground and Flight Risk, and 
DFARS 252.228-7002, Aircraft Flight Risk, are presently used in 
contracts involving the furnishing of aircraft to the Government. The 
clause at 252.228-7001 is used in negotiated fixed-price contracts, and 
the clause at 252.228-7002 is used in cost-reimbursement contracts. 
This proposed rule revises and combines the two clauses into a single 
ground and flight risk clause, to establish requirements that apply 
consistently to all contract types. In addition, a new section is added 
at DFARS 231.205-19 to specifically reference the treatment of 
insurance costs under the new clause and the existing clause at DFARS 
252.217-7012, Liability and Insurance.
    The proposed changes include--
    [cir] Addition of a requirement for inclusion of the clause in all 
subcontracts;
    [cir] Addition of a statement that the Government property clause 
is not applicable if the Government withdraws its self-insurance 
coverage;
    [cir] Addition of a statement that commercial insurance costs or 
self-insurance charges that duplicate the Government's self-insurance 
are unallowable; and

[[Page 69178]]

    [cir] Establishment of a share of loss for the contractor that is 
the lesser of $100,000 or 20 percent of the estimated contract cost or 
price. This is consistent with the contractor share of loss presently 
specified in the clause at 252.228-7002. The clause at 252.228-7001 
presently prescribes a share of loss of $25,000 for the contractor.
    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 an initial regulatory flexibility analysis 
consistent with 5 U.S.C. 603. A copy of the analysis may be obtained 
from the point of contact specified herein. The analysis is summarized 
as follows:
    The objective of the proposed rule is to clearly and consistently 
address the responsibilities of the Government and the contractor with 
regard to incidents that may occur under contracts involving the 
furnishing of aircraft to the Government. The proposed rule will apply 
to DoD contractors, and their subcontractors, under contracts for the 
acquisition, development, production, or servicing of aircraft. 
Excluded are contracts for activities strictly incidental to the normal 
operations of an aircraft; contracts awarded under FAR Part 12, 
Acquisition of Commercial Items; and contracts where a non-DoD customer 
does not assume risk for loss of or damage to the aircraft. The impact 
on small entities is unknown at this time. However, historically, most 
contractors engaged in this type of contract have been large business 
concerns.
    DoD invites comments from small businesses and other interested 
parties. DoD also will consider comments from small entities concerning 
the affected DFARS subparts in accordance with 5 U.S.C. 610. Such 
comments should be submitted separately and should cite DFARS Case 
2007-D009.

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 228, 231, and 252

    Government procurement.

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

    Therefore, DoD proposes to amend 48 CFR parts 228, 231, and 252 as 
follows:
    1. The authority citation for 48 CFR parts 228, 231, and 252 
continues to read as follows:

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

PART 228--BONDS AND INSURANCE

    2. Section 228.370 is amended as follows:
    a. By revising paragraph (b);
    b. By removing paragraph (c); and
    c. By redesignating paragraphs (d) through (f) as paragraphs (c) 
through (e) respectively. The revised text reads as follows:


228.370  Additional clauses.

* * * * *
    (b)(1) Use the clause at 252.228-7001, Ground and Flight Risk, in 
solicitations and contracts for the acquisition, development, 
production, modification, maintenance, repair, or overhaul of aircraft, 
except those solicitations and contracts--
    (i) That are strictly for activities incidental to the normal 
operations of the aircraft (e.g., refueling operations, minor non-
structural actions not requiring towing such as replacing aircraft 
tires due to wear and tear);
    (ii) That use FAR Part 12 procedures and are for the development or 
production of aircraft; or
    (iii) For which a non-DoD customer (including a foreign military 
sales customer) has not agreed to assume the risk for loss or 
destruction of, or damages to, the aircraft.
    (2) The clause at 252.228-7001 may be modified only as follows:
    (i) Include a modified definition of ``aircraft'' if the contract 
covers other than conventional types of winged aircraft, i.e., 
helicopters, vertical take-off or landing aircraft, lighter-than-air 
airships, unmanned aerial vehicles, or other nonconventional aircraft. 
The modified definition should describe a stage of manufacture 
comparable to the standard definition.
    (ii) Modify ``in the open'' to include ``hush houses,'' test 
hangars and comparable structures, and other designated areas.
    (iii) Expressly define the ``contractor's premises'' where the 
aircraft will be located during and for contract performance. These 
locations may include contract premises which are owned or leased by 
the contractor or subcontractor, or premises where the contractor or 
subcontractor is a permittee or licensee or has a right to use, 
including Government airfields.
    (iv) Revise paragraph (e)(3) of the clause to provide Government 
assumption of risk for transportation by conveyance on streets or 
highways when transportation is--
    (A) Limited to the vicinity of contractor premises; and
    (B) Incidental to work performed under the contract.
    (3) Follow the procedures at PGI 228.370(b) when using the clause 
at 252.228-7001.
* * * * *

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

    3. Section 231.205-19 is added to read as follows:


231.205-19  Insurance and indemnification.

    (e) In addition to the cost limitations in FAR 31.205-19(e), self-
insurance and purchased insurance costs are subject to the requirements 
of the clauses at 252.217-7012, Liability and Insurance, and 252.228-
7001, Ground and Flight Risk.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Section 252.228-7001 is revised to read as follows:


252.228-7001  Ground and Flight Risk.

    As prescribed in 228.370(b), use the following clause:

Ground and Flight Risk (XXX 2007)

    (a) Definitions. As used in this clause--
    (1) Aircraft, unless otherwise provided in the contract 
Schedule, means--
    (i) Aircraft to be delivered to the Government under this 
contract (either before or after Government acceptance), including 
complete aircraft and aircraft in the process of being manufactured, 
disassembled, or reassembled; provided that an engine, portion of a 
wing or a wing is attached to a fuselage of the aircraft;
    (ii) Aircraft, whether in a state of disassembly or reassembly, 
furnished by the Government to the Contractor under this contract, 
including all Government property installed, in the process of 
installation, or temporarily removed; provided that the aircraft and 
property are not covered by a separate bailment agreement;
    (iii) Aircraft furnished by the Contractor under this contract 
(either before or after Government acceptance); or
    (iv) Conventional winged aircraft, as well as helicopters, 
vertical take-off or landing aircraft, lighter-than-air airships, 
unmanned aerial vehicles, or other nonconventional aircraft 
specified in this contract.
    (2) Contractor's managerial personnel means the Contractor's 
directors, officers, and any of the Contractor's managers, 
superintendents, or other equivalent representatives who supervise 
or direct all or substantially all of the Contractor's--
    (i) Business;

[[Page 69179]]

    (ii) Operations at any one plant or separate location at which 
this contract is performed; or
    (iii) Operations at a separate and complete major industrial 
operation in connection with the performance of this contract.
    (3) Contractor's premises means those premises, including 
subcontractors' premises, designated in the Schedule or in writing 
by the Contracting Officer, and any other place the aircraft is 
moved for safeguarding.
    (4) Flight means any flight demonstration, flight test, taxi 
test, or other flight made in the performance of this contract, or 
for the purpose of safeguarding the aircraft, or previously approved 
in writing by the Contracting Officer.
    (i) For land-based aircraft, ``flight'' begins with the taxi 
roll from a flight line on the Contractor's premises and continues 
until the aircraft has completed the taxi roll in returning to a 
flight line on the Contractor's premises.
    (ii) For seaplanes, ``flight'' begins with the launching from a 
ramp on the Contractor's premises and continues until the aircraft 
has completed its landing run and is beached at a ramp on the 
Contractor's premises.
    (iii) For helicopters, ``flight'' begins upon engagement of the 
rotors for the purpose of take-off from the Contractor's premises 
and continues until the aircraft has returned to the ground on the 
Contractor's premises and the rotors are disengaged.
    (iv) For vertical take-off or landing aircraft, ``flight'' 
begins upon disengagement from any launching platform or device on 
the Contractor's premises and continues until the aircraft has been 
engaged to any launching platform or device on the Contractor's 
premises.
    (v) All aircraft off the Contractor's premises shall be 
considered to be in flight when on the ground or water for 
reasonable periods of time following emergency landings, landings 
made in performance of this contract, or landings approved in 
writing by the Contracting Officer.
    (5) Flight crew member means the pilot, the co-pilot, and, 
unless otherwise provided in the Schedule, the flight engineer, 
navigator, and bombardier-navigator when assigned to their 
respective crew positions for the purpose of conducting any flight 
on behalf of the Contractor. It also includes any pilot or operator 
of an unmanned aerial vehicle. If required, a defense systems 
operator may also be assigned as a flight crew member.
    (6) In the open means located wholly outside of buildings on the 
Contractor's premises or other places described in the Schedule as 
being ``in the open.'' Government-furnished aircraft shall be 
considered to be located ``in the open'' at all times while in the 
Contractor's possession, care, custody, or control.
    (7) Operation means operations and tests of the aircraft and its 
installed equipment, accessories, and power plants, while the 
aircraft is in the open or in motion. The term does not apply to 
aircraft on any production line or in flight.
    (b) Combined regulation/instruction. The Contractor shall be 
bound by the operating procedures contained in the combined 
regulation/instruction entitled ``Contractor's Flight and Ground 
Operations'' (Air Force Instruction 10-220, Army Regulation 95-20, 
NAVAIR Instruction 3710.1 (Series), Coast Guard Instruction 
M13020.3, and Defense Contract Management Agency Instruction 8210.1) 
in effect on the date of contract award.
    (c) Government as self-insurer. Subject to the conditions in 
paragraph (d) of this clause, the Government self-insures and 
assumes the risk of damage to, or loss or destruction of aircraft 
``in the open,'' during ``operation,'' and in ``flight,'' except as 
may be specifically provided in the Schedule as an exception to this 
clause. The Contractor shall not be liable to the Government for 
such damage, loss, or destruction beyond the Contractor's share of 
loss amount under the Government's self-insurance.
    (d) Conditions for Government's self-insurance. The Government's 
assumption of risk for aircraft in the open shall continue unless 
the Contracting Officer finds that the Contractor has failed to 
comply with paragraph (b) of this clause, or that the aircraft is in 
the open under unreasonable conditions, and the Contractor fails to 
take prompt corrective action.
    (1) The Contracting Officer, when finding that the Contractor 
has failed to comply with paragraph (b) of this clause or that the 
aircraft is in the open under unreasonable conditions, shall notify 
the Contractor in writing and shall require the Contractor to make 
corrections within a reasonable time.
    (2) Upon receipt of the notice, the Contractor shall promptly 
correct the cited conditions, regardless of whether there is 
agreement that the conditions are unreasonable.
    (i) If the Contracting Officer later determines that the cited 
conditions were not unreasonable, an equitable adjustment shall be 
made in the contract price for any additional costs incurred in 
correcting the conditions.
    (ii) Any dispute as to the unreasonableness of the conditions or 
the equitable adjustment shall be considered a dispute under the 
Disputes clause of this contract.
    (3) If the Contracting Officer finds that the Contractor failed 
to act promptly to correct the cited conditions or failed to correct 
the conditions within a reasonable time, the Contracting Officer may 
terminate the Government's assumption of risk for any aircraft in 
the open under the cited conditions. The termination will be 
effective at 12:01 a.m. on the fifteenth day following the day the 
written notice is received by the Contractor.
    (i) If the Contracting Officer later determines that the 
Contractor acted promptly to correct the cited conditions or that 
the time taken by the Contractor was not unreasonable, an equitable 
adjustment shall be made in the contract price for any additional 
costs incurred as a result of termination of the Government's 
assumption of risk.
    (ii) Any dispute as to the timeliness of the Contractor's action 
or the equitable adjustment shall be considered a dispute under the 
Disputes clause of this contract.
    (4) If the Government terminates its assumption of risk pursuant 
to the terms of this clause--
    (i) The Contractor shall thereafter assume the entire risk for 
damage, loss, or destruction of the affected aircraft;
    (ii) Any costs incurred by the Contractor (including the costs 
of the Contractor's self-insurance, insurance premiums paid to 
insure the Contractor's assumption of risk, deductibles associated 
with such purchased insurance, etc.) to mitigate its assumption of 
risk are unallowable costs; and
    (iii) The Government Property clause of this contract is not 
applicable to the affected aircraft.
    (5) The Contractor shall promptly notify the Contracting Officer 
when unreasonable conditions have been corrected.
    (i) If, upon receipt of the Contractor's notice of the 
correction of the unreasonable conditions, the Government elects to 
again assume the risk of loss and relieve the Contractor of its 
liability for damage, loss, or destruction of the aircraft, the 
Contracting Officer will notify the Contractor of the Contracting 
Officer's decision to resume the Government's risk of loss. The 
Contractor shall be entitled to an equitable adjustment in the 
contract price for any insurance costs extending from the end of the 
third working day after the Government's receipt of the Contractor's 
notice of correction until the Contractor is notified that the 
Government will resume the risk of loss.
    (ii) If the Government does not again assume the risk of loss 
and the unreasonable conditions have been corrected, the Contractor 
shall be entitled to an equitable adjustment for insurance costs, if 
any, extending after the third working day after the Government's 
receipt of the Contractor's notice of correction.
    (6) The Government's termination of its assumption of risk of 
loss does not relieve the Contractor of its obligation to comply 
with all other provisions of this clause, including the combined 
regulation/instruction entitled ``Contractor's Flight and Ground 
Operations.''
    (e) Exclusions from the Government's assumption of risk. The 
Government's assumption of risk shall not extend to damage, loss, or 
destruction of aircraft which--
    (1) Results from failure of the Contractor, due to willful 
misconduct or lack of good faith of any of the Contractor's 
managerial personnel, to maintain and administer a program for the 
protection and preservation of aircraft in the open and during 
operation in accordance with sound industrial practice, including 
oversight of such a program of a subcontractor;
    (2) Is sustained during flight if either the flight or the 
flight crew members have not been approved in advance of any flight 
in writing by the Government Flight Representative, who has been 
authorized in accordance with the combined regulation/instruction 
entitled ``Contractor's Flight and Ground Operations'';
    (3) Occurs in the course of transportation by rail, or by 
conveyance on public streets, highways, or waterways, except for 
Government-furnished property;

[[Page 69180]]

    (4) Is covered by insurance;
    (5) Consists of wear and tear; deterioration (including rust and 
corrosion); freezing; or mechanical, structural, or electrical 
breakdown or failure, unless these are the result of other loss, 
damage or destruction covered by this clause. (This exclusion does 
not apply to Government-furnished property if damage consists of 
reasonable wear and tear or deterioration, or results from inherent 
vice, e.g., a known condition or design defect in the property); or
    (6) Is sustained while the aircraft is being worked on and is a 
direct result of the work unless such damage, loss, or destruction 
would be covered by insurance which would have been maintained by 
the Contractor, but for the Government's assumption of risk.
    (f) Contractor's share of loss and Contractor's deductible under 
the Government's self-insurance.
    (1) The Contractor assumes the risk of loss and shall be 
responsible for the Contractor's share of loss under the 
Government's self-insurance. That share is the lesser of--
    (i) The first $100,000 of loss or damage to aircraft in the 
open, during operation, or in flight resulting from each separate 
event, except for reasonable wear and tear and to the extent the 
loss or damage is caused by negligence of Government personnel; or
    (ii) Twenty percent of the estimated price or cost of this 
contract.
    (2) If the Government elects to require that the aircraft be 
replaced or restored by the Contractor to its condition immediately 
prior to the damage, the equitable adjustment in the price 
authorized by paragraph (j) of this clause shall not include the 
dollar amount of the risk assumed by the Contractor.
    (3) In the event the Government does not elect repair or 
replacement, the Contractor agrees to credit the contract price or 
pay the Government, as directed by the Contracting Officer, the 
lesser of--
    (i) $100,000;
    (ii) Twenty percent of the estimated price or cost of this 
contract; or
    (iii) The amount of the loss.
    (4) The costs incurred by the Contractor for its share of the 
loss and for insuring against that loss are unallowable costs, 
including but not limited to--
    (i) The Contractor's share of loss under the Government's self-
insurance;
    (ii) The costs of the Contractor's self-insurance;
    (iii) The deductible for any Contractor-purchased insurance;
    (iv) Insurance premiums paid for Contractor-purchased insurance; 
and
    (v) Costs associated with determining, litigating, and defending 
against the Contractor's liability.
    (g) Subcontractor possession or control. The Contractor shall 
not be relieved from liability for damage, loss, or destruction of 
aircraft while such aircraft is in the possession or control of its 
subcontractors, except to the extent that the subcontract, with the 
written approval of the Contracting Officer, provides for relief 
from each liability. In the absence of approval, the subcontract 
shall contain provisions requiring the return of aircraft in as good 
condition as when received, except for reasonable wear and tear or 
for the utilization of the property in accordance with the 
provisions of this contract.
    (h) Contractor's exclusion of insurance costs. The Contractor 
warrants that the contract price does not and will not include, 
except as may be authorized in this clause, any charge or 
contingency reserve for insurance covering damage, loss, or 
destruction of aircraft while in the open, during operation, or in 
flight when the risk has been assumed by the Government, including 
the Contractor share of loss in this clause, even if the assumption 
may be terminated for aircraft in the open.
    (i) Procedures in the event of loss.
    (1) In the event of damage, loss, or destruction of aircraft in 
the open, during operation, or in flight, the Contractor shall take 
all reasonable steps to protect the aircraft from further damage, to 
separate damaged and undamaged aircraft, and to put all aircraft in 
the best possible order. Except in cases covered by paragraph (f)(2) 
of this clause, the Contractor shall furnish to the Contracting 
Officer a statement of--
    (i) The damaged, lost, or destroyed aircraft;
    (ii) The time and origin of the damage, loss, or destruction;
    (iii) All known interests in commingled property of which 
aircraft are a part; and
    (iv) The insurance, if any, covering the interest in commingled 
property.
    (2) The Contracting Officer will make an equitable adjustment 
for expenditures made by the Contractor in performing the 
obligations under this paragraph.
    (j) Loss prior to delivery.
    (1) If prior to delivery and acceptance by the Government, 
aircraft is damaged, lost, or destroyed and the Government assumed 
the risk, the Government shall either--
    (i) Require that the aircraft be replaced or restored by the 
Contractor to the condition immediately prior to the damage, in 
which event the Contracting Officer will make an equitable 
adjustment in the contract price and the time for contract 
performance; or
    (ii) Terminate this contract with respect to the aircraft. 
Notwithstanding the provisions in any other termination clause under 
this contract, in the event of termination, the Contractor shall be 
paid the contract price for the aircraft (or, if applicable, any 
work to be performed on the aircraft) less any amount the 
Contracting Officer determines--
    (A) It would have cost the Contractor to complete the aircraft 
(or any work to be performed on the aircraft) together with 
anticipated profit on uncompleted work; and
    (B) Would be the value of the damaged aircraft or any salvage 
retained by the Contractor.
    (2) The Contracting Officer shall prescribe the manner of 
disposition of the damaged, lost, or destroyed aircraft, or any 
parts of the aircraft. If any additional costs of such disposition 
are incurred by the Contractor, a further equitable adjustment will 
be made in the amount due the Contractor. Failure of the parties to 
agree upon termination costs or an equitable adjustment with respect 
to any aircraft shall be considered a dispute under the Disputes 
clause of this contract.
    (k) Reimbursement from a third party. In the event the 
Contractor is reimbursed or compensated by a third party for damage, 
loss, or destruction of aircraft and has also been compensated by 
the Government, the Contractor shall equitably reimburse the 
Government. The Contractor shall do nothing to prejudice the 
Government's right to recover against third parties for damage, 
loss, or destruction. Upon the request of the Contracting Officer or 
authorized representative, the Contractor shall at Government 
expense furnish to the Government all reasonable assistance and 
cooperation (including the prosecution of suit and the execution of 
instruments of assignment or subrogation) in obtaining recovery.
    (l) Subcontracts. The Contractor shall incorporate the 
requirements of this clause, including this paragraph (l), in all 
subcontracts.


(End of clause)


252.228-7002  [Removed]

    5. Section 252.228-7002 is removed and reserved.


252.228-7003  [Amended]

    6. Section 252.228-7003 is amended in the introductory text by 
removing ``228.370(d)'' and adding in its place ``228.370(c)''.


252.228-7005  [Amended]

    7. Section 252.228-7005 is amended in the introductory text by 
removing ``228.370(e)'' and adding in its place ``228.370(d)''.


252.228-7006  [Amended]

    8. Section 252.228-7006 is amended in the introductory text by 
removing ``228.370(f)'' and adding in its place ``228.370(e)''.

[FR Doc. E7-23657 Filed 12-6-07; 8:45 am]
BILLING CODE 5001-08-P