Defense Federal Acquisition Regulation Supplement; Lead System Integrators (DFARS Case 2006-D051), 34266-34269 [E9-16676]
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34266
Federal Register / Vol. 74, No. 134 / Wednesday, July 15, 2009 / Rules and Regulations
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 certifies that this final rule will
not have a significant economic impact
on a substantial number of small entities
within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq.,
because the rule primarily relates to
DoD planning and budget
considerations with regard to the leasing
of vessels, aircraft, and combat vehicles.
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 Part 207
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations
System.
Therefore, 48 CFR Part 207 is
amended as follows:
■
PART 207—ACQUISITION PLANNING
1. The authority citation for 48 CFR
Part 207 continues to read as follows:
■
Authority: 41 U.S.C. 421 and 48 CFR
Chapter 1.
2. Section 207.470 is amended as
follows:
■ a. By redesignating paragraphs (a) and
(b) as paragraphs (b) and (c)
respectively;
■ b. By adding a new paragraph (a); and
■ c. In newly designated paragraph (c),
by removing ‘‘Except as provided in
paragraph (a) of this section’’ and
adding in its place ‘‘Except as provided
in paragraphs (a) and (b) of this
section’’.
The new paragraph (a) reads as
follows:
■
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207.470
Statutory requirements.
(a) Requirement for authorization of
certain contracts relating to vessels,
aircraft, and combat vehicles. The
contracting officer shall not enter into
any contract for the lease or charter of
any vessel, aircraft, or combat vehicle,
or any contract for services that would
require the use of the contractor’s
vessel, aircraft, or combat vehicle,
unless the Secretary of the military
department concerned has satisfied the
requirements of 10 U.S.C. 2401, when—
(1) The contract will be a long-term
lease or charter as defined in 10 U.S.C.
2401(d)(1); or
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(2) The terms of the contract provide
for a substantial termination liability as
defined in 10 U.S.C. 2401(d)(2). Also see
PGI 207.470.
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*
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[FR Doc. E9–16650 Filed 7–14–09; 8:45 am]
BILLING CODE 5001–08–P
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations
System
48 CFR Parts 209, 237, and 252
RIN 0750–AF80
Defense Federal Acquisition
Regulation Supplement; Lead System
Integrators (DFARS Case 2006–D051)
AGENCY: Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Interim rule with request for
comments.
SUMMARY: DoD has issued an interim
rule amending the Defense Federal
Acquisition Regulation Supplement
(DFARS) to implement Section 802 of
the National Defense Authorization Act
for Fiscal Year 2008. Section 802 places
limitations on the award of new
contracts for lead system integrator
functions in the acquisition of major
DoD systems.
DATES: Effective date: July 15, 2009.
Comment date: Comments on the
interim rule should be submitted in
writing to the address shown below on
or before September 14, 2009, to be
considered in the formation of the final
rule.
ADDRESSES: You may submit comments,
identified by DFARS Case 2006–D051,
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 2006–D051 in the subject
line of the message.
• Fax: 703–602–7887.
• Mail: Defense Acquisition
Regulations System, Attn: Ms.
Cassandra Freeman, OUSD (AT&L)
DPAP (DARS), 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 https://
www.regulations.gov, including any
personal information provided.
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FOR FURTHER INFORMATION CONTACT: Ms.
Cassandra Freeman, 703–602–8383.
SUPPLEMENTARY INFORMATION:
A. Background
DoD published an interim rule at 73
FR 1823 on January 10, 2008, to
implement Section 807 of the National
Defense Authorization Act for Fiscal
Year 2007 (Pub. L. 109–364) with regard
to limitations on the performance of
lead system integrator functions by DoD
contractors. On January 28, 2008,
Section 802 of the National Defense
Authorization Act for Fiscal Year 2008
(Pub. L. 110–181) placed additional
limitations on DoD use of lead system
integrators. This second interim rule
amends the interim rule published on
January 10, 2008, to implement Section
802 of Public Law 110–181.
One source submitted comments on
the interim rule published on January
10, 2008. A discussion of the comments
is provided below.
1. Comment: Section 802 of the Fiscal
Year 2008 National Defense
Authorization Act (Pub. L. 110–181),
which was enacted after publication of
the interim rule, contains a definition of
‘‘lead system integrator’’ that renders
the interim rule definition obsolete.
DoD Response: The definition of
‘‘lead system integrator’’ in this second
interim rule has been amended for
consistency with the definition in
Section 802 of Public Law 110–181.
2. Comment: The limitations on the
award of new contracts for lead system
integrator functions, in Section 802 of
Public Law 110–181, will make any
implementing regulations applicable to
only a handful of contractors. Given the
limited duration of ongoing contracts for
programs that have been identified as
lead system integrators, the newly
created contract clauses in the interim
rule are unlikely to be incorporated into
a contract, because the fiscal year 2008
statutory prohibition effectively
precludes their use. Therefore, DoD
should withdraw or suspend the interim
rule.
DoD Response: DoD agrees that the
rule will apply only to a limited number
of contractors and only for a limited
duration. However, the law must be
implemented for those situations where
it is applicable.
3. Comment: It is inappropriate to
require contractors to represent whether
or not they propose to perform lead
system integrator functions under vague
definitions, given that the contract may
be terminated for default or other
remedies may be imposed at the sole
discretion of the contracting officer if
the contractor misrepresented its
‘‘financial interests’’ when that term is
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Federal Register / Vol. 74, No. 134 / Wednesday, July 15, 2009 / Rules and Regulations
not defined. Since a ‘‘lead system
integrator with system responsibility’’ is
essentially ‘‘as determined by the
Contracting Officer’’ at the time of
award, this presents an unacceptable
situation where a contractor may be
subject to penalty effectively for an
errant determination by the
Government. Moreover, successful
offerors risk termination for default for
misrepresenting their status at some
later time if their lead system integrator
status is found to be wrong, even if that
representation was mistakenly, rather
than knowingly or falsely, executed.
DoD Response: The definitions in the
clause at DFARS 252.209–7007, as
amended by this interim rule,
sufficiently address the compliance
requirements of a contractor certifying
as a lead system integrator. It is
incumbent upon the contractor to
ensure that certifications represent the
most current, accurate, and complete
information to avoid the
misinterpretation of information by the
contracting officer. Likewise, it is the
responsibility of the contracting officer
to ensure due diligence in the
evaluation of contractor certifications.
4. Comment: Existing regulations,
such as those governing conflicts of
interest, that are adequate to protect the
public interest in situations where a
prime contractor is responsible for
integrating subsystems into a weapon
system, are also adequate to protect the
correlating situation in which a prime
contractor is integrating systems into a
‘‘system of systems.’’ Additional policy
guidance may be warranted to advise
contracting officers to take appropriate
steps in evaluating proposals to ensure
mechanisms are in place to avoid
conflicts of interest. In that case, the
policy additions to Part 209 of the
DFARS are sufficient to implement
Section 807 of the Fiscal Year 2007
National Defense Authorization Act
without the imposition of requirements
for contractor representations and
additional clauses in solicitations and
contracts.
DoD Response: DoD considers the
rule’s provision and clause to be the
appropriate means of conveying this
specific statutory requirement to
offerors and contractors.
5. Comment: Section 209.570–1 of the
rule merely references the reader to the
clause at 252.209–7007 for a definition
of lead system integrator. The definition
should be included in section 209.570–
1 instead of referring the reader to the
clause section of the DFARS.
DoD Response: The reference to the
definition in the contract clause is
consistent with the DFARS convention
of minimizing repetition of text.
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6. Comment: The rule would benefit
in the Definitions section by the
addition of a cross-reference to the
existing statutory or regulatory
definition of a major system, so that it
is clear exactly what type of standards
(dollar threshold, etc.) apply to the rule.
DoD Response: FAR 2.101 provides a
definition of ‘‘major system.’’ It is not
necessary to include a cross-reference in
this DFARS rule, since the definitions in
FAR 2.101 apply throughout the FAR
system unless otherwise specified.
7. Comment: Clarification is needed
on the term ‘‘substantial portion’’ used
in paragraph (a)(2) of the clause at
252.209–7007.
DoD Response: Contracting officers
have the discretion to determine
whether an activity constitutes a
‘‘substantial portion’’ of the work on the
system and the major subsystems.
Factors to be considered in making this
determination are the relative dollar
value of the effort and the criticality of
the effort to be performed.
8. Comment: Section 209.570–2(b)(1)
states that the statutory prohibition does
not apply if the Secretary of Defense
certifies to both the House and Senate
Armed Services Committees that the
lead system integrator contractor was
selected through a competitive process,
and any potential organizational conflict
of interest was neutralized in the
selection process. The certification
requirement itself would benefit from
some clarity, and both the certification
level and the body to whom the
certification is made would benefit from
the flexibility to delegate the exception
authority to another approval level,
such as the head of the contracting
activity.
DoD Response: The certification
requirement is consistent with Section
807 of the National Defense
Authorization Act for Fiscal Year 2007.
In view of the limited number of
contracts to which this requirement
applies, DoD considers it unnecessary to
delegate this exception authority.
9. Comment: Section 209.570–2(b)(2),
which cites another exception to the
prohibition, is confusing. If the goal of
this section is to allow for a lead system
integrator to act as a subcontractor in
the major system development/
construction contract after completing
lead system integrator functions, the
standard for the exception is unclear.
What exactly is a ‘‘process over which
the entity exercised no control’’? The
tiering of subcontractors as an
ingredient to the selection process for an
exception requires clarification.
DoD Response: Section 209.570–
2(b)(2) of the rule is consistent with the
language in Section 807 of National
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34267
Defense Authorization Act for Fiscal
Year 2007. The record does not
document the legislative intent;
however, DoD believes that a ‘‘process
over which the entity exercised no
control’’ means that the entity was
selected to perform as a lower-tier
subcontractor as a result of an
independent selection process in which
the entity did not participate as a
decision-maker.
10. Comment: Section 235.008
contains language that is unclear. In
particular, the statement ‘‘See 209.570
for limitations on the award of contracts
to contractors acting as lead system
integrators,’’ appears to prohibit the
award of contracts for research and
development efforts to lead system
integrators.
DoD Response: The cross-reference in
DFARS 235.008 does not prohibit the
award of contracts for research and
development efforts to lead system
integrators; it advises the reader to
consider the limitations on contractors
acting as lead system integrators when
evaluating research and development
proposals for contract award.
11. Comment: Both the provision at
252.209–7006 and the clause at
252.209–7007 present problematic
interpretation issues. Both include
references to two different types of lead
system integrators: a lead system
integrator with system responsibility
and a lead system integrator without
system responsibility. The distinction
between these two types of lead system
integrators is somewhat difficult to
comprehend, but the offeror is asked to
make written representations as to its
lead system integrator status based
presumably on the type of work
statement contained in the solicitation
(which may or may not state that the
work is for integration or systems
engineering, etc.).
DoD Response: Consistent with the
statutory provisions, the definitions
recognize two categories of contracts for
major systems: development/production
contracts and service contracts. The
offeror’s representation will be based
upon the contract work statement and
any special provisions in the solicitation
in light of the limitations and
prohibitions in the provision at
252.209–7006 and the clause at
252.209–7007.
12. Comment: The definition of ‘‘lead
system integrator without system
responsibility’’ in the clause at 252.209–
7007 anticipates that the lead system
integrator understands and can make
judgments about what is meant by
inherently governmental functions. The
definition references a section of the
Federal Acquisition Regulation
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completely unaddressed elsewhere in
the rule. At no time prior to this
juncture was the prohibition against
lead system integrators receiving
development/construction contracts tied
to a determination that certain types of
lead system integrator work were
inherently governmental, a term
evolving out of the FAIR Act and
Competitive Sourcing/A–76 world of
contracting. The clause states that
contractors performing lead system
integrator functions throughout the
acquisition timeframe for a major
system will refrain from acquiring a
financial interest in any company
anywhere that might be eligible to
develop or manufacture the major
system. Without addressing the impact
on commerce by prohibiting business
enterprises doing defense-related work
for the Government from making
strategic acquisitions, the timeframes for
the complete acquisition cycle for major
systems could last for years, effectively
bringing legitimate and otherwise legal
forms of economic activity (mergers and
acquisitions) to a halt and extending the
lead system integrator limitation period
well beyond that envisioned by
Congress when crafting the law.
DoD Response: The definitions and
the requirements in the contract clause
are consistent with the statutory
provisions.
13. Comment: Paragraph (c) of the
clause at 252.209–7007 imposes an
unclear standard and undefined
timeline for notice from a lead system
integrator contractor to the contracting
officer if the lead system integrator
contractor acquires a financial interest
in a relevant major system contractor.
Additionally, the clause provides the
contracting officer the unilateral right to
impose a default termination in the
event that a conflict cannot be mitigated
or avoided after the contract has been
awarded and/or in force for some time.
Termination should not be made a
specific requirement of this clause;
rather, if a lead system integrator
contractor is acting in good faith and
otherwise complying with the
requirements of the contract, but
termination is still necessary to comport
with the principle of any final lead
system integrator limitation clause,
termination should be one of
convenience that allows the lead system
integrator contractor to recoup all costs
incurred prior to termination. Both
paragraphs (c) and (d) of the clause
should be rewritten to establish a
reasonable standard for both timely
notice and to clarify the extent of the
Government’s remedies in termination.
DoD Response: A failure to comply
with statutory prohibitions speaks to the
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lack of responsibility of a contractor,
and could be reasonable justification to
terminate a contract for default.
However, the clause does not direct a
default termination; it only provides for
it and also allows other remedial action
as may be appropriate.
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 does not expect this rule to have
a significant economic impact on a
substantial number of small entities
within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq.,
because application of the rule is
limited to contractors performing lead
system integrator functions for major
DoD systems. Therefore, DoD has not
performed an initial regulatory
flexibility analysis. 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
2006–D051.
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.
D. Determination To Issue an Interim
Rule
A determination has been made under
the authority of the Secretary of Defense
that urgent and compelling reasons exist
to publish an interim rule prior to
affording the public an opportunity to
comment. This interim rule implements
Section 802 of the National Defense
Authorization Act for Fiscal Year 2008
(Pub. L. 110–181). Section 802 places
additional limitations on the
performance of lead system integrator
functions by DoD contractors. DoD may
award a new contract for lead system
integrator functions in the acquisition of
a major system only if the major system
has not yet proceeded beyond low-rate
initial production; or if the Secretary of
Defense determines that it would not be
practicable to carry out the acquisition
without continuing to use a contractor
to perform lead system integrator
functions, and that doing so is in the
best interest of DoD. Comments received
in response to this interim rule will be
considered in the formation of the final
rule.
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List of Subjects in 48 CFR Parts 209,
237, and 252
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations
System.
Therefore, 48 CFR parts 209, 237, and
252 are amended as follows:
■ 1. The authority citation for 48 CFR
parts 209, 237, and 252 continues to
read as follows:
■
Authority: 41 U.S.C. 421 and 48 CFR
Chapter 1.
PART 209—CONTRACTOR
QUALIFICATIONS
2. Section 209.570–2 is amended by
adding paragraphs (c) and (d) to read as
follows:
■
209.570–2
Policy.
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(c) In accordance with Section 802 of
the National Defense Authorization Act
for Fiscal Year 2008 (Pub. L. 110–181),
DoD may award a new contract for lead
system integrator functions in the
acquisition of a major system only if—
(1) The major system has not yet
proceeded beyond low-rate initial
production; or
(2) The Secretary of Defense
determines in writing that it would not
be practicable to carry out the
acquisition without continuing to use a
contractor to perform lead system
integrator functions and that doing so is
in the best interest of DoD. The
authority to make this determination
may not be delegated below the level of
the Under Secretary of Defense for
Acquisition, Technology, and Logistics.
(Also see 209.570–3(b).)
(d) Effective October 1, 2010, DoD is
prohibited from awarding a new
contract for lead system integrator
functions in the acquisition of a major
system to any entity that was not
performing lead system integrator
functions in the acquisition of the major
system prior to January 28, 2008.
■ 3. Section 209.570–3 is revised to read
as follows:
209.570–3
Procedures.
(a) In making a responsibility
determination before awarding a
contract for the acquisition of a major
system, the contracting officer shall—
(1) Determine whether the prospective
contractor meets the definition of ‘‘lead
system integrator’’;
(2) Consider all information regarding
the prospective contractor’s direct
financial interests in view of the
prohibition at 209.570–2(a); and
(3) Follow the procedures at PGI
209.570–3.
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(b) A determination to use a
contractor to perform lead system
integrator functions in accordance with
209.570–2(c)(2)—
(1) Shall specify the reasons why it
would not be practicable to carry out the
acquisition without continuing to use a
contractor to perform lead system
integrator functions, including a
discussion of alternatives, such as use of
the DoD workforce or a system
engineering and technical assistance
contractor;
(2) Shall include a plan for phasing
out the use of contracted lead system
integrator functions over the shortest
period of time consistent with the
interest of the national defense; and
(3) Shall be provided to the
Committees on Armed Services of the
Senate and the House of Representatives
at least 45 days before the award of a
contract pursuant to the determination.
PART 237—SERVICE CONTRACTING
4. Section 237.102–72 is added to read
as follows:
■
237.102–72
services.
Contracts for management
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In accordance with Section 802 of the
National Defense Authorization Act for
Fiscal Year 2008 (Pub. L. 110–181), DoD
may award a contract for the acquisition
of services the primary purpose of
which is to perform acquisition support
functions with respect to the
development or production of a major
system, only if—
(a) The contract prohibits the
contractor from performing inherently
governmental functions;
(b) The DoD organization responsible
for the development or production of
the major system ensures that Federal
employees are responsible for
determining—
(1) Courses of action to be taken in the
best interest of the Government; and
(2) Best technical performance for the
warfighter; and
(c) The contract requires that the
prime contractor for the contract may
not advise or recommend the award of
a contract or subcontract for the
development or production of the major
system to an entity owned in whole or
in part by the prime contractor.
PART 252—SOLICITATION
PROVISIONS AND CONTRACT
CLAUSES
5. Section 252.209–7007 is amended
by revising the clause date and
paragraphs (a)(2), (a)(3), and (e) to read
as follows:
■
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252.209–7007 Prohibited Financial
Interests for Lead System Integrators.
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*
PROHIBITED FINANCIAL INTERESTS FOR
LEAD SYSTEM INTEGRATORS (JUL 2009)
(a) * * *
(2) Lead system integrator with system
responsibility means a prime contractor for
the development or production of a major
system, if the prime contractor is not
expected at the time of award to perform a
substantial portion of the work on the system
and the major subsystems.
(3) Lead system integrator without system
responsibility means a prime contractor
under a contract for the procurement of
services, the primary purpose of which is to
perform acquisition functions closely
associated with inherently governmental
functions (see section 7.503(d) of the Federal
Acquisition Regulation) with respect to the
development or production of a major
system.
*
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*
(e) This clause implements the
requirements of 10 U.S.C. 2410p, as
added by Section 807 of the National
Defense Authorization Act for Fiscal
Year 2007 (Pub. L. 109–364), and
Section 802 of the National Defense
Authorization Act for Fiscal Year 2008
(Pub. L. 110–181).
[FR Doc. E9–16676 Filed 7–14–09; 8:45 am]
BILLING CODE 5001–08–P
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations
System
48 CFR Parts 212 and 239
RIN 0750–AG32
Defense Federal Acquisition
Regulation Supplement; Use of
Commercial Software (DFARS Case
2008–D044)
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
AGENCY:
SUMMARY: DoD has issued a final rule
amending the Defense Federal
Acquisition Regulation Supplement
(DFARS) to implement Section 803 of
the National Defense Authorization Act
for Fiscal Year 2009. Section 803
requires DoD to identify and evaluate, at
all stages of the acquisition process,
opportunities for the use of commercial
computer software and other nondevelopmental software.
DATES: Effective Date: July 15, 2009.
FOR FURTHER INFORMATION CONTACT: Mr.
Julian Thrash, Defense Acquisition
Regulations System,
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34269
OUSD(AT&L)DPAP(DARS), IMD 3D139,
3062 Defense Pentagon, Washington, DC
20301–3062. Telephone 703–602–0310;
facsimile 703–602–7887. Please cite
DFARS Case 2008–D044.
SUPPLEMENTARY INFORMATION:
A. Background
Section 803 of the National Defense
Authorization Act for Fiscal Year 2009
(Pub. L. 110–417) requires DoD to
ensure that contracting officials identify
and evaluate, at all stages of the
acquisition process (including concept
refinement, concept decision, and
technology development), opportunities
for the use of commercial computer
software and other non-developmental
software. This final rule adds text at
DFARS 212.212 to address the
requirements of Section 803 of Public
Law 110–117. In addition, the rule adds
cross-references to existing DFARS
policy regarding the acquisition of
commercial software, software
maintenance, and software
documentation.
This rule was not subject to Office of
Management and Budget review under
Executive Order 12866, dated
September 30, 1993.
B. Regulatory Flexibility Act
This rule will not have a significant
cost or administrative impact on
contractors or offerors, or a significant
effect beyond the internal operating
procedures of DoD. Therefore,
publication for public comment under
41 U.S.C. 418b is not required.
However, DoD will consider comments
from small entities concerning the
affected DFARS subparts in accordance
with 5 U.S.C. 610. Such comments
should cite DFARS Case 2008–D044.
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 212 and
239
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations
System.
Therefore, 48 CFR parts 212 and 239
are amended as follows:
■ 1. The authority citation for 48 CFR
parts 212 and 239 continues to read as
follows:
■
Authority: 41 U.S.C. 421 and 48 CFR
Chapter 1.
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]]>Agencies
[Federal Register Volume 74, Number 134 (Wednesday, July 15, 2009)]
[Rules and Regulations]
[Pages 34266-34269]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-16676]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 209, 237, and 252
RIN 0750-AF80
Defense Federal Acquisition Regulation Supplement; Lead System
Integrators (DFARS Case 2006-D051)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Interim rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: DoD has issued an interim rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to implement Section 802 of
the National Defense Authorization Act for Fiscal Year 2008. Section
802 places limitations on the award of new contracts for lead system
integrator functions in the acquisition of major DoD systems.
DATES: Effective date: July 15, 2009.
Comment date: Comments on the interim rule should be submitted in
writing to the address shown below on or before September 14, 2009, to
be considered in the formation of the final rule.
ADDRESSES: You may submit comments, identified by DFARS Case 2006-D051,
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 2006-D051 in the
subject line of the message.
Fax: 703-602-7887.
Mail: Defense Acquisition Regulations System, Attn: Ms.
Cassandra Freeman, OUSD (AT&L) DPAP (DARS), 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 https://www.regulations.gov, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Ms. Cassandra Freeman, 703-602-8383.
SUPPLEMENTARY INFORMATION:
A. Background
DoD published an interim rule at 73 FR 1823 on January 10, 2008, to
implement Section 807 of the National Defense Authorization Act for
Fiscal Year 2007 (Pub. L. 109-364) with regard to limitations on the
performance of lead system integrator functions by DoD contractors. On
January 28, 2008, Section 802 of the National Defense Authorization Act
for Fiscal Year 2008 (Pub. L. 110-181) placed additional limitations on
DoD use of lead system integrators. This second interim rule amends the
interim rule published on January 10, 2008, to implement Section 802 of
Public Law 110-181.
One source submitted comments on the interim rule published on
January 10, 2008. A discussion of the comments is provided below.
1. Comment: Section 802 of the Fiscal Year 2008 National Defense
Authorization Act (Pub. L. 110-181), which was enacted after
publication of the interim rule, contains a definition of ``lead system
integrator'' that renders the interim rule definition obsolete.
DoD Response: The definition of ``lead system integrator'' in this
second interim rule has been amended for consistency with the
definition in Section 802 of Public Law 110-181.
2. Comment: The limitations on the award of new contracts for lead
system integrator functions, in Section 802 of Public Law 110-181, will
make any implementing regulations applicable to only a handful of
contractors. Given the limited duration of ongoing contracts for
programs that have been identified as lead system integrators, the
newly created contract clauses in the interim rule are unlikely to be
incorporated into a contract, because the fiscal year 2008 statutory
prohibition effectively precludes their use. Therefore, DoD should
withdraw or suspend the interim rule.
DoD Response: DoD agrees that the rule will apply only to a limited
number of contractors and only for a limited duration. However, the law
must be implemented for those situations where it is applicable.
3. Comment: It is inappropriate to require contractors to represent
whether or not they propose to perform lead system integrator functions
under vague definitions, given that the contract may be terminated for
default or other remedies may be imposed at the sole discretion of the
contracting officer if the contractor misrepresented its ``financial
interests'' when that term is
[[Page 34267]]
not defined. Since a ``lead system integrator with system
responsibility'' is essentially ``as determined by the Contracting
Officer'' at the time of award, this presents an unacceptable situation
where a contractor may be subject to penalty effectively for an errant
determination by the Government. Moreover, successful offerors risk
termination for default for misrepresenting their status at some later
time if their lead system integrator status is found to be wrong, even
if that representation was mistakenly, rather than knowingly or
falsely, executed.
DoD Response: The definitions in the clause at DFARS 252.209-7007,
as amended by this interim rule, sufficiently address the compliance
requirements of a contractor certifying as a lead system integrator. It
is incumbent upon the contractor to ensure that certifications
represent the most current, accurate, and complete information to avoid
the misinterpretation of information by the contracting officer.
Likewise, it is the responsibility of the contracting officer to ensure
due diligence in the evaluation of contractor certifications.
4. Comment: Existing regulations, such as those governing conflicts
of interest, that are adequate to protect the public interest in
situations where a prime contractor is responsible for integrating
subsystems into a weapon system, are also adequate to protect the
correlating situation in which a prime contractor is integrating
systems into a ``system of systems.'' Additional policy guidance may be
warranted to advise contracting officers to take appropriate steps in
evaluating proposals to ensure mechanisms are in place to avoid
conflicts of interest. In that case, the policy additions to Part 209
of the DFARS are sufficient to implement Section 807 of the Fiscal Year
2007 National Defense Authorization Act without the imposition of
requirements for contractor representations and additional clauses in
solicitations and contracts.
DoD Response: DoD considers the rule's provision and clause to be
the appropriate means of conveying this specific statutory requirement
to offerors and contractors.
5. Comment: Section 209.570-1 of the rule merely references the
reader to the clause at 252.209-7007 for a definition of lead system
integrator. The definition should be included in section 209.570-1
instead of referring the reader to the clause section of the DFARS.
DoD Response: The reference to the definition in the contract
clause is consistent with the DFARS convention of minimizing repetition
of text.
6. Comment: The rule would benefit in the Definitions section by
the addition of a cross-reference to the existing statutory or
regulatory definition of a major system, so that it is clear exactly
what type of standards (dollar threshold, etc.) apply to the rule.
DoD Response: FAR 2.101 provides a definition of ``major system.''
It is not necessary to include a cross-reference in this DFARS rule,
since the definitions in FAR 2.101 apply throughout the FAR system
unless otherwise specified.
7. Comment: Clarification is needed on the term ``substantial
portion'' used in paragraph (a)(2) of the clause at 252.209-7007.
DoD Response: Contracting officers have the discretion to determine
whether an activity constitutes a ``substantial portion'' of the work
on the system and the major subsystems. Factors to be considered in
making this determination are the relative dollar value of the effort
and the criticality of the effort to be performed.
8. Comment: Section 209.570-2(b)(1) states that the statutory
prohibition does not apply if the Secretary of Defense certifies to
both the House and Senate Armed Services Committees that the lead
system integrator contractor was selected through a competitive
process, and any potential organizational conflict of interest was
neutralized in the selection process. The certification requirement
itself would benefit from some clarity, and both the certification
level and the body to whom the certification is made would benefit from
the flexibility to delegate the exception authority to another approval
level, such as the head of the contracting activity.
DoD Response: The certification requirement is consistent with
Section 807 of the National Defense Authorization Act for Fiscal Year
2007. In view of the limited number of contracts to which this
requirement applies, DoD considers it unnecessary to delegate this
exception authority.
9. Comment: Section 209.570-2(b)(2), which cites another exception
to the prohibition, is confusing. If the goal of this section is to
allow for a lead system integrator to act as a subcontractor in the
major system development/construction contract after completing lead
system integrator functions, the standard for the exception is unclear.
What exactly is a ``process over which the entity exercised no
control''? The tiering of subcontractors as an ingredient to the
selection process for an exception requires clarification.
DoD Response: Section 209.570-2(b)(2) of the rule is consistent
with the language in Section 807 of National Defense Authorization Act
for Fiscal Year 2007. The record does not document the legislative
intent; however, DoD believes that a ``process over which the entity
exercised no control'' means that the entity was selected to perform as
a lower-tier subcontractor as a result of an independent selection
process in which the entity did not participate as a decision-maker.
10. Comment: Section 235.008 contains language that is unclear. In
particular, the statement ``See 209.570 for limitations on the award of
contracts to contractors acting as lead system integrators,'' appears
to prohibit the award of contracts for research and development efforts
to lead system integrators.
DoD Response: The cross-reference in DFARS 235.008 does not
prohibit the award of contracts for research and development efforts to
lead system integrators; it advises the reader to consider the
limitations on contractors acting as lead system integrators when
evaluating research and development proposals for contract award.
11. Comment: Both the provision at 252.209-7006 and the clause at
252.209-7007 present problematic interpretation issues. Both include
references to two different types of lead system integrators: a lead
system integrator with system responsibility and a lead system
integrator without system responsibility. The distinction between these
two types of lead system integrators is somewhat difficult to
comprehend, but the offeror is asked to make written representations as
to its lead system integrator status based presumably on the type of
work statement contained in the solicitation (which may or may not
state that the work is for integration or systems engineering, etc.).
DoD Response: Consistent with the statutory provisions, the
definitions recognize two categories of contracts for major systems:
development/production contracts and service contracts. The offeror's
representation will be based upon the contract work statement and any
special provisions in the solicitation in light of the limitations and
prohibitions in the provision at 252.209-7006 and the clause at
252.209-7007.
12. Comment: The definition of ``lead system integrator without
system responsibility'' in the clause at 252.209-7007 anticipates that
the lead system integrator understands and can make judgments about
what is meant by inherently governmental functions. The definition
references a section of the Federal Acquisition Regulation
[[Page 34268]]
completely unaddressed elsewhere in the rule. At no time prior to this
juncture was the prohibition against lead system integrators receiving
development/construction contracts tied to a determination that certain
types of lead system integrator work were inherently governmental, a
term evolving out of the FAIR Act and Competitive Sourcing/A-76 world
of contracting. The clause states that contractors performing lead
system integrator functions throughout the acquisition timeframe for a
major system will refrain from acquiring a financial interest in any
company anywhere that might be eligible to develop or manufacture the
major system. Without addressing the impact on commerce by prohibiting
business enterprises doing defense-related work for the Government from
making strategic acquisitions, the timeframes for the complete
acquisition cycle for major systems could last for years, effectively
bringing legitimate and otherwise legal forms of economic activity
(mergers and acquisitions) to a halt and extending the lead system
integrator limitation period well beyond that envisioned by Congress
when crafting the law.
DoD Response: The definitions and the requirements in the contract
clause are consistent with the statutory provisions.
13. Comment: Paragraph (c) of the clause at 252.209-7007 imposes an
unclear standard and undefined timeline for notice from a lead system
integrator contractor to the contracting officer if the lead system
integrator contractor acquires a financial interest in a relevant major
system contractor. Additionally, the clause provides the contracting
officer the unilateral right to impose a default termination in the
event that a conflict cannot be mitigated or avoided after the contract
has been awarded and/or in force for some time. Termination should not
be made a specific requirement of this clause; rather, if a lead system
integrator contractor is acting in good faith and otherwise complying
with the requirements of the contract, but termination is still
necessary to comport with the principle of any final lead system
integrator limitation clause, termination should be one of convenience
that allows the lead system integrator contractor to recoup all costs
incurred prior to termination. Both paragraphs (c) and (d) of the
clause should be rewritten to establish a reasonable standard for both
timely notice and to clarify the extent of the Government's remedies in
termination.
DoD Response: A failure to comply with statutory prohibitions
speaks to the lack of responsibility of a contractor, and could be
reasonable justification to terminate a contract for default. However,
the clause does not direct a default termination; it only provides for
it and also allows other remedial action as may be appropriate.
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 does not expect this rule to have a significant economic impact
on a substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because application
of the rule is limited to contractors performing lead system integrator
functions for major DoD systems. Therefore, DoD has not performed an
initial regulatory flexibility analysis. 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 2006-D051.
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.
D. Determination To Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense that urgent and compelling reasons exist to publish an
interim rule prior to affording the public an opportunity to comment.
This interim rule implements Section 802 of the National Defense
Authorization Act for Fiscal Year 2008 (Pub. L. 110-181). Section 802
places additional limitations on the performance of lead system
integrator functions by DoD contractors. DoD may award a new contract
for lead system integrator functions in the acquisition of a major
system only if the major system has not yet proceeded beyond low-rate
initial production; or if the Secretary of Defense determines that it
would not be practicable to carry out the acquisition without
continuing to use a contractor to perform lead system integrator
functions, and that doing so is in the best interest of DoD. Comments
received in response to this interim rule will be considered in the
formation of the final rule.
List of Subjects in 48 CFR Parts 209, 237, and 252
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
0
Therefore, 48 CFR parts 209, 237, and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 209, 237, and 252 continues
to read as follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 209--CONTRACTOR QUALIFICATIONS
0
2. Section 209.570-2 is amended by adding paragraphs (c) and (d) to
read as follows:
209.570-2 Policy.
* * * * *
(c) In accordance with Section 802 of the National Defense
Authorization Act for Fiscal Year 2008 (Pub. L. 110-181), DoD may award
a new contract for lead system integrator functions in the acquisition
of a major system only if--
(1) The major system has not yet proceeded beyond low-rate initial
production; or
(2) The Secretary of Defense determines in writing that it would
not be practicable to carry out the acquisition without continuing to
use a contractor to perform lead system integrator functions and that
doing so is in the best interest of DoD. The authority to make this
determination may not be delegated below the level of the Under
Secretary of Defense for Acquisition, Technology, and Logistics. (Also
see 209.570-3(b).)
(d) Effective October 1, 2010, DoD is prohibited from awarding a
new contract for lead system integrator functions in the acquisition of
a major system to any entity that was not performing lead system
integrator functions in the acquisition of the major system prior to
January 28, 2008.
0
3. Section 209.570-3 is revised to read as follows:
209.570-3 Procedures.
(a) In making a responsibility determination before awarding a
contract for the acquisition of a major system, the contracting officer
shall--
(1) Determine whether the prospective contractor meets the
definition of ``lead system integrator'';
(2) Consider all information regarding the prospective contractor's
direct financial interests in view of the prohibition at 209.570-2(a);
and
(3) Follow the procedures at PGI 209.570-3.
[[Page 34269]]
(b) A determination to use a contractor to perform lead system
integrator functions in accordance with 209.570-2(c)(2)--
(1) Shall specify the reasons why it would not be practicable to
carry out the acquisition without continuing to use a contractor to
perform lead system integrator functions, including a discussion of
alternatives, such as use of the DoD workforce or a system engineering
and technical assistance contractor;
(2) Shall include a plan for phasing out the use of contracted lead
system integrator functions over the shortest period of time consistent
with the interest of the national defense; and
(3) Shall be provided to the Committees on Armed Services of the
Senate and the House of Representatives at least 45 days before the
award of a contract pursuant to the determination.
PART 237--SERVICE CONTRACTING
0
4. Section 237.102-72 is added to read as follows:
237.102-72 Contracts for management services.
In accordance with Section 802 of the National Defense
Authorization Act for Fiscal Year 2008 (Pub. L. 110-181), DoD may award
a contract for the acquisition of services the primary purpose of which
is to perform acquisition support functions with respect to the
development or production of a major system, only if--
(a) The contract prohibits the contractor from performing
inherently governmental functions;
(b) The DoD organization responsible for the development or
production of the major system ensures that Federal employees are
responsible for determining--
(1) Courses of action to be taken in the best interest of the
Government; and
(2) Best technical performance for the warfighter; and
(c) The contract requires that the prime contractor for the
contract may not advise or recommend the award of a contract or
subcontract for the development or production of the major system to an
entity owned in whole or in part by the prime contractor.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
5. Section 252.209-7007 is amended by revising the clause date and
paragraphs (a)(2), (a)(3), and (e) to read as follows:
252.209-7007 Prohibited Financial Interests for Lead System
Integrators.
* * * * *
PROHIBITED FINANCIAL INTERESTS FOR LEAD SYSTEM INTEGRATORS (JUL 2009)
(a) * * *
(2) Lead system integrator with system responsibility means a
prime contractor for the development or production of a major
system, if the prime contractor is not expected at the time of award
to perform a substantial portion of the work on the system and the
major subsystems.
(3) Lead system integrator without system responsibility means a
prime contractor under a contract for the procurement of services,
the primary purpose of which is to perform acquisition functions
closely associated with inherently governmental functions (see
section 7.503(d) of the Federal Acquisition Regulation) with respect
to the development or production of a major system.
* * * * *
(e) This clause implements the requirements of 10 U.S.C. 2410p, as
added by Section 807 of the National Defense Authorization Act for
Fiscal Year 2007 (Pub. L. 109-364), and Section 802 of the National
Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110-181).
[FR Doc. E9-16676 Filed 7-14-09; 8:45 am]
BILLING CODE 5001-08-P
