Defense Federal Acquisition Regulation Supplement; Business Systems-Definition and Administration (DFARS Case 2009-D038), 75550-75572 [2010-30072]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Proposed Rules]
[Pages 75550-75572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30072]



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Part II





Department of Defense





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Defense Acquisition Regulations System



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48 CFR Parts 215, 234, 242, et al.



Defense Federal Acquisition Regulation Supplement; Business Systems--
Definition and Administration (DFARS Case 2009-D038); Proposed Rule

Federal Register / Vol. 75 , No. 232 / Friday, December 3, 2010 / 
Proposed Rules

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215, 234, 242, 244, 245, and 252

RIN 0750-AG58


Defense Federal Acquisition Regulation Supplement; Business 
Systems--Definition and Administration (DFARS Case 2009-D038)

AGENCY: Defense Acquisition Regulations System, Department of Defense.

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 improve the effectiveness of DoD 
oversight of contractor business systems.

DATES: Comment Date: Interested parties should submit comments in 
writing to the address shown below on or before January 3, 2011.

ADDRESSES: You may submit comments, identified by DFARS Case 2009-D038, 
using any of the following methods:
    [cir] Regulations.gov: https://www.regulations.gov. Submit comments 
via the Federal eRulemaking portal by inputting ``DFARS Case 2009-
D038'' under the heading ``Enter keyword or ID'' and selecting 
``Search.'' Select the link ``Submit a Comment'' that corresponds with 
``DFARS Case 2009-D038.'' Follow the instructions provided at the 
``Submit a Comment'' screen. Please include your name, company name (if 
any), and ``DFARS Case 2009-D038'' on your attached document.
    E-mail: dfars@osd.mil. Include DFARS Case 2009-D038 in the subject 
line of the message.
    Fax: 703-602-0350.
    Mail: Defense Acquisition Regulations System, Attn: Mr. Mark 
Gomersall, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon, 
Washington, DC 20301-3060.
    Comments received generally will be posted without change to https://www.regulations.gov, including any personal information provided. To 
confirm receipt of your comment, please check https://www.regulations.gov approximately two to three days after submission to 
verify posting (except allow 30 days for posting of comments submitted 
by mail).

FOR FURTHER INFORMATION CONTACT:
    Mr. Mark Gomersall, 703-602-0302.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule for Business Systems--Definition and 
Administration (DFARS Case 2009-D038) in the Federal Register on 
January 15, 2010 (75 FR 2457). The public comment period closed March 
16, 2010. Based on the comments received and subsequent revisions to 
the proposed rule, DoD is publishing this rule again as a proposed rule 
with request for comments.
    Contractor business systems and internal controls are the first 
line of defense against waste, fraud, and abuse. Weak control systems 
increase the risk of unallowable and unreasonable costs on Government 
contracts. To improve the effectiveness of Defense Contract Management 
Agency (DCMA) and Defense Contract Audit Agency (DCAA) oversight of 
contractor business systems, DoD is considering a rule to clarify the 
definition and administration of contractor business systems as 
follows:
    1. DoD is proposing to define contractor business systems as 
accounting systems, estimating systems, purchasing systems, earned 
value management systems (EVMS), material management and accounting 
systems (MMAS), and property management systems.
    2. DoD is proposing to implement compliance enforcement mechanisms 
in the form of a business systems clause which includes payment 
withholding that allows contracting officers to withhold a percentage 
of payments, under certain conditions, when a contractor's business 
system contains deficiencies. Payments could be withheld on--
     Interim payments under--
    [cir] Cost-reimbursement contracts;
    [cir] Incentive-type contracts;
    [cir] Time-and-materials contracts;
    [cir] Labor-hour contracts;
    [cir] Construction contracts that include FAR clause 52.232-27, 
Prompt Payment for Construction Contracts.
     Progress payments; and
     Performance-based payments.

II. Discussion and Analysis

A. Analysis of Public Comments

    The 370 comments received from 25 respondents have been 
dispositioned as discussed below. The comments received were grouped 
under 46 general topics. A summary of the comments follows:
1. 100 Percent Withholds
    Comment: Respondents suggested that the proposed rule provides 
administrative contracting officers (ACOs) insufficient standards to 
make 100 percent withhold determinations, and does not provide adequate 
provisions for contractor responses.
    Response: DoD notes the concerns expressed by the respondents, and 
has revised the rule to remove the language from clause 252.242-7XXX, 
which set forth procedures for withholding up to 100 percent.
2. Accounting System
    Comment: A number of respondents expressed concern about the 
criteria to be used to determine if a contractor has an acceptable 
accounting system.
    Response: The language at clause 252.242-7YYY has been revised to 
clarify the criteria to be used to determine if a contractor has an 
acceptable accounting system and to delete vague criteria modifiers 
such as ``including but not limited to'' and ``as applicable.''
3. Applicability of Rule
    Comment: A number of respondents questioned the application of this 
rule against certain cost-type contracts. Additionally, some 
respondents expressed concern about the application of the rule to 
commercial contracts. Other respondents suggested the rule be applied 
to only a single contract instead of against all contracts that are 
dependent upon the deficient business system, and that the rule 
establish a minimum dollar threshold for the rule to be applicable.
    Response: The Government may be at risk when a contractor's 
business systems contain deficiencies, regardless of contract type. 
Accordingly, it is appropriate for the ACO to withhold payments to 
protect the interest of the Government. Contracts awarded under FAR 
part 12 regulations will generally be exempt from the requirements of 
this rule. A system deficiency will result in application of a withhold 
against all contracts that contain the business system clause. However, 
DoD agrees with the recommendation for the establishment of a $50 
million threshold for application of the business system clause.
4. Arbitrary Withhold Percentages
    Comment: A number of respondents expressed concern that the rule 
invokes mandatory withholds on payments to Government contractors that 
are arbitrary and punitive and have no relationship with actual harm to 
the Government.
    Response: When contractors fail to maintain business systems, as is 
required by the terms and conditions of

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their contracts, the withhold provisions help to protect the Government 
from the risks of overpayment, increased property losses, or 
nonconforming goods, among others, against which business systems are 
designed to ensure. The proposed rule would protect the Government by 
reducing contract payments temporarily during performance in an amount 
sufficient to mitigate the Government's risk. DoD is relying on the 
percentage withhold amount, not as a penalty for a deficiency, but as 
representing a good-faith estimate of the potential loss that is at 
risk where the actual amounts are difficult to estimate or quantify.
5. Assignment of Payments
    Comment: If the contractor has assigned the right to receive 
payments to a financial institution under the Assignment of Claims Act, 
will payments be withheld from the assignee financial institution? If 
so, this would severely hamper the ability of small- to medium-sized 
businesses from obtaining financing to bid on contracts.
    Response: This rule does not change any rights of the assignee of 
the assignment of claims provision at FAR subpart 32.8 or FAR clause 
52.232-23. Assignees will continue to have the same rights and 
obligations that they had prior to the implementation of this rule. 
Therefore, if the contractor has assigned the right to receive 
payments, and deficiencies in the contractor's business systems 
necessitate the implementation of withholds, in accordance with the 
contract, payments will be withheld from the assignee. The mitigation 
of the impact on small businesses is discussed under comment topic 
number 42.
6. Audits
    Comment: A number of respondents expressed concern that DCAA lacks 
the resources to perform required audits timely and adequately; that 
the proposed rule does not establish a business system approval 
duration, which essentially declares perpetual open-season on all 
contractor business system internal controls, and that the DCAA follow-
up audit is not limited or otherwise focused upon the previously 
identified specific deficiency and the specific corrective actions, and 
therefore, will result in an endless cycle of deficiency reports and 
follow-up audits; that DCAA audit guidance on the reporting of internal 
control deficiencies, which requires all deficiencies to be considered 
significant, effectively ensures that all contractor business systems 
subject to audit will be found inadequate; that audit reports are not 
informative enough to help the contracting officer make effective 
decisions, and that DCAA needs to expand its audit reports to go beyond 
rendering a pass/fail opinion, and include an analysis of the 
materiality of any deficiency.
    Response: DCAA has committed to making follow-up business system 
audits a priority. However, DCAA recognizes that resources are limited, 
and has taken steps to address staffing challenges. A business system 
approval duration and/or narrowly focused DCAA follow-up audit would 
not be appropriate since, at any time after approval, contractor 
conditions could change, rendering the previously-reported opinion as 
not current. DCAA policy is to report only deficiencies determined to 
be significant deficiencies or material weaknesses in accordance with 
generally accepted Government auditing standards. The proposed rule 
language has been revised to state that ``the report shall describe the 
deficiencies in sufficient detail to allow the contracting officer to 
understand the deficiencies and potential adverse impact to the 
Government.''
7. Breach of Contract
    Comment: One respondent believed that the failure of the United 
States Government to pay for goods and services provided could be a 
material breach of contract that would permit the contractor to stop 
work. The respondent stated that the requirement to compensate 
contractors for providing goods and services flows from the United 
States Constitution itself in the Fifth Amendment, and viewing failure 
to pay as a breach of contract has been recognized by the courts.
    Response: DoD does not agree that failure to pay amounts withheld 
would be a breach of contract, and that the Fifth Amendment to the 
Constitution is implicated. The proposed rule would create an explicit 
contract term, and withholding will be authorized pursuant to that 
term. Execution of that contract term would not be a breach of 
contract. Similarly, there is no ``taking'' of property that could 
implicate the Fifth Amendment when a contractor is paid the amount it 
is entitled to under the clear terms of a valid contract.
8. Cash Flow
    Comment: A number of respondents were concerned that the withholds 
would negatively impact cash flow for contractors, and are also likely 
to remain in effect for periods long beyond completion of any 
corrective action performed by contractors.
    Response: The application of the payment withhold will impact and 
reduce a contractor's cash flow. However, the proposed rule would 
protect the Government by temporarily reducing contract payments during 
performance in an amount sufficient to mitigate the Government's risk 
when contractors fail to maintain business systems, as is required by 
the terms and conditions of their contracts. The revised language 
provides for the contracting officer, in consultation with the auditor 
or functional specialist, to discontinue withholding payments prior to 
audit verification if the contractor submits evidence that the 
deficiencies have been corrected. The sooner the contractor corrects 
the deficiencies, the sooner the cash flow will be restored.
9. Compliance Criteria
    Comment: A number of respondents believe the compliance criteria in 
the proposed rule are subjective. These respondents believe that the 
proposed rule prematurely defines business systems without resolving 
the most critical component, which is the actual criteria against which 
contractor compliance will be measured, and that such criteria should 
be vetted with the public. The respondents assert that the proposed 
rule should define objective measurements by which to judge a system as 
deficient, and limit the criteria to a few well-defined metrics that 
cannot be embellished by subjective interpretation.
    Response: DoD partially agrees with the respondents. The rule 
incorporates criteria that are already used by the Government under 
existing authority to evaluate the adequacy of contractor business 
systems. Furthermore, to reduce the subjectivity of the criteria, 
phrases such as ``including but not limited to'' and ``as applicable'' 
have been removed. The public is encouraged to comment on these 
criteria.
10. Consistency: Correction of All Deficiencies or Substantial 
Correction of Deficiencies
    Comment: A number of respondents pointed out that some sections of 
the proposed rule indicate that a finding of system noncompliance will 
be withdrawn when the contractor has ``substantially corrected'' the 
system deficiencies. However, elsewhere, the proposed rule also states 
that the withhold will not be released until ``all deficiencies have 
been corrected.'' The respondents suggested that the proposed rule 
should be revised so that it is consistent.
    Response: DoD concurs with the respondents' recommendation, and has

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revised the rule to state that the withholds will not be released until 
``all deficiencies have been corrected.''
11. Contracting Officer Discretion
    Comment: One respondent believed that the proposed rule 
inappropriately and unnecessarily limits the discretion of the 
contracting officer to make critical determinations about these systems 
specifically, and about the relationship of these systems 
determinations to overall contract performance generally.
    Response: The rule does not in any way limit the authority of 
contracting officers. Although the auditor is required to document the 
deficiencies in a report, the contracting officer has the authority to 
make all initial and final determinations of system deficiencies, 
implement and remove withholds, make determinations to approve, 
disapprove, and reapprove systems, and to take any other appropriate 
actions deemed in the best interests of the Government.
12. Contractor Appeal
    Comment: A number of respondents expressed concern that there is no 
provision in the proposed rule to provide contractors with due process 
or alternative resolution, such as negotiation or alternate disputes 
resolution procedures, and that withholds are at the sole discretion of 
the ACO.
    Response: DoD agrees that the final deficiency determination is at 
the sole discretion of the contracting officer. However, DoD disagrees 
that additional due process remedies are necessary. Contractors are 
afforded an opportunity to respond in writing within 30 days to an 
initial determination of deficiencies from the ACO that identifies 
deficiencies in any of the contractor's business systems. Furthermore, 
DoD does not believe there is a need, or is it appropriate, to develop 
a dispute resolution process beyond that which is already available by 
statute and regulation. Additionally, other avenues of dispute 
resolution outside of the Contract Disputes Act are available for 
resolving disputes that may arise over determinations of system 
deficiencies. The policy set forth in FAR 33.204 still applies, so that 
informal negotiation and alternate disputes resolution remain 
available, and, in fact, are encouraged as alternative methods of 
resolving disputes.
13. DCAA/DCMA Policies
    Comment: One respondent believed that the ultimate impact of this 
rule is dependent on current and future DCAA/DCMA policies that are not 
subject to the public comment process. According to the respondent, 
because the DCMA and DCAA policies will have a significant cost or 
administrative impact on contractors, a strong argument can be made 
that such policies are not just internal agency policies, but policies 
that must be published for public comment, pursuant to the requirements 
of the Office of Federal Procurement Policy (OFPP) Act. Another 
respondent stated that DCAA's current position on reporting system 
results is that if a system opinion is more than three years old, DCAA 
reports that there is ``no audit on file,'' and that DCAA has no 
opinion on the system. This respondent believed that procurement 
contracting officers and ACOs should be permitted to decide for 
themselves what they consider to be ``too old'' or ``not relevant'' for 
purposes of these system reviews, rather than permitting DCAA to simply 
avoid reporting on known information.
    Response: DoD does not agree. The OFPP Act (41 U.S.C. 418b) is 
applicable to procurement policy, regulation, procedure, or form 
relating to the expenditure of appropriated funds that has (1) a 
significant effect beyond the internal operating procedures of the 
agency issuing the procurement policy, et al., and (2) a significant 
increased cost or administrative impact on contractors or offerors. 
DCAA/DCMA internal policies and procedures that are referenced in this 
rule are internal policies and procedures and are not regulatory. 
Therefore, the OFPP Act public comment process is not applicable. DoD 
believes that contracting officers must rely on current and relevant 
information in order to make an appropriate determination as to whether 
to notify a contractor of a system deficiency and possible payment 
withhold. DoD does not believe that an audit report noting a deficiency 
that is in excess of three years old would constitute current 
information.
14. DCMA/DCAA Oversight
    Comment: A number of respondents believe that the Commission on 
Wartime Contracting (CWC) hearings demonstrated that greater 
cooperation must be achieved between DCMA and DCAA to oversee 
Government contractors properly, and that this issue should be 
addressed before imposing more regulations on contractors, especially 
as severe and broad as those proposed.
    Response: DoD is currently taking measures to improve coordination 
between DCMA and DCAA. Concurrent with these measures, DoD is issuing 
this rule to further improve the effectiveness of DCMA and DCAA 
oversight of business systems as recommended by the Commission on 
Wartime Contracting.
15. DCMA/DCAA Resources
    Comment: A couple of respondents suggested that DCMA and DCAA are 
under-resourced to execute the requirements of the rule, and that ACOs 
do not have the training to determine if a deficiency makes a system 
inadequate.
    Response: The need to have effective oversight mechanisms is 
unrelated to resources. This rule does not add additional oversight 
responsibilities onto DCAA and DCMA; it merely provides provisions to 
help protect the Government from the risks of loss due to a 
contractor's failure to maintain business systems, as is required by 
the terms and conditions of their contracts. DoD has confidence that 
contracting personnel will make appropriate determinations in 
accordance with this rule.
16. Deficiency Correction
    Comment: A number of respondents expressed concern that the 
proposed rule provides incomplete guidance for ACOs to approve systems 
when deficiencies previously have been identified. These respondents 
question whether the ACO's determination to reduce or discontinue the 
withholding of payments is discretionary, even if the contractor has 
corrected all deficiencies. One respondent is concerned that there is 
no measurable standard for the Government to decide to increase or 
decrease the payment withholds based on the monitoring of the 
contractor's progress in correcting deficiencies.
    Response: The revised rule language states that the contracting 
officer shall discontinue the withholding of payments and release any 
payments previously withheld when the contracting officer determines 
that the contractor has corrected all system deficiencies after receipt 
of auditor or functional specialist verification. Furthermore, the 
revised language provides for the contracting officer, in consultation 
with the auditor or functional specialist, to discontinue withholding 
payments prior to audit verification if the contractor submits evidence 
that the deficiencies have been corrected. DoD relies on the judgment 
of the ACO to make determinations to decrease or subsequently increase 
the withholding of payments, in accordance with the rule language, on a 
case-by-case basis.
17. Definition of Business System
    Comment: Two respondents requested that the rule include a precise 
definition of an acceptable business system.

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    Response: The definition of the term ``acceptable business 
systems'' in clause 252.242-7XXX has been revised for clarity. The 
precise criteria for determining the acceptability of the six business 
systems are contained in the individual business systems clauses.
18. Definition of Deficiency
    Comment: A number of respondents encouraged DoD to provide a clear 
and precise definition of a ``deficiency.''
    Response: The definition of ``deficiency'' used throughout the rule 
means a failure to maintain one or more system criteria of an 
acceptable business system. The criteria for each business system have 
been revised to provide more specificity.
19. Definition of Standards and System Requirements
    Comment: One respondent noted that 242.7502 requires that the audit 
report contain sufficient information so that the ACO will be able to 
understand what the contractor must do to comply with the applicable 
``standard or system requirement.'' The respondent was unsure what 
``standard'' means in this context, since clause 252.242-7YYY (relating 
to accounting system administration) only refers to ``system 
requirements,'' and does not mention any standards.
    Response: The language in 242.7502 has been revised to require the 
audit report to ``describe the deficiencies in sufficient detail to 
allow the contracting officer to understand the deficiencies and the 
potential impact to the Government.'' Additionally, the language in 
both 242.7502 and clause 252.242-7YYY has been revised to refer to 
``system criteria'' to be consistent.
20. Estimating System
    Comment: A number of respondents questioned whether contracting 
officers had the authority to make determinations on whether system 
deficiencies warrant withholds and to consider the impact of 
deficiencies on contractor proposals. Other respondents expressed 
concern with the criteria against which contractor estimating system 
compliance will be measured. One respondent expressed concern with the 
requirements that the estimating system include comparisons of 
projected results to actual results and an analysis of any differences.
    Response: This rule is very clear that contracting officers have 
the authority to make determinations on whether system deficiencies 
warrant withholds and shall consider the impact of deficiencies on 
contractor proposals. This revised proposed rule sets forth specific 
criteria for maintaining an acceptable estimating system. DoD does not 
believe it is unreasonable for a contractor to establish and maintain 
an acceptable estimating system that would include controls for the 
contractor to compare projected results to actual results and analyze 
any differences. This existing requirement was relocated from 215.407-
5-70 into clause 252.215-7002.
21. Earned Value Management System (EVMS)
    Comment: A number of respondents questioned how non-compliance with 
ANSI/EIA-748 fits into this rule because deficiencies in EVMS do not 
result in the billing of unallowable costs to the Government.
    Response: A key DoD concern is the reliability of the contractor's 
EVMS monthly reports. Even though the EVMS system may not directly 
result in the billing of unallowable costs to the Government, it does 
provide important information to senior-level Government officials to 
use when making management decisions regarding major weapon systems. 
Consequently, EVMS was included in the rule to ensure that DoD is 
receiving accurate and reliable EVMS information used to identify 
current and potential cost overruns, etc.; and if there are 
deficiencies with the contractors' EVMS, that they are promptly 
corrected.
22. Failure To Follow Corrective Action Plan
    Comment: One respondent recommended that the contracting officer be 
given the discretion to increase the amount of the withhold under the 
contract if the contractor inexcusably fails to follow the corrective 
action plan accepted by the Government or an acceptable alternative to 
that plan.
    Response: The contracting officer has the discretion in determining 
whether the contractor is following its corrective action plan, and 
whether to increase the withholding percentage in accordance with 
clause 252.242-7XXX. The reason the contracting officer may decrease 
the withholding percentage from five percent to two percent (one 
percent for small businesses) is that an approved corrective action 
plan mitigates the Government's risk by increasing the probability that 
system deficiencies will be corrected in a timely manner. Conversely, 
the reason for increasing the withhold back to five percent (two 
percent for small businesses) is to reinstate the appropriate 
protection for the Government, since the contractor has not adhered to 
its corrective action plan. The contracting officer has complete 
discretion to make these determinations.
23. Financial Impact
    Comment: Several respondents expressed concern that the proposed 
rule will increase administrative costs (to correct deficiencies) 
significantly and destabilize contractor cash management, which could 
have such financial impacts as to affect how the industrial base can 
support the warfighter and national security.
    Response: DoD acknowledges that the application of the payment 
withhold will impact and reduce a contractor's cash flow. Further, DoD 
acknowledges that the initial administrative costs to ensure business 
system compliance may increase. However, in the long run, both the 
contractor's and Government's administrative costs should be reduced 
with the reliance on efficient contractor business systems. Based on 
comments received, DoD has removed the 100 percent withhold from the 
rule and lowered the compounding of deficiency percentages to a maximum 
of 20 percent. However, DoD does not anticipate that the rule will 
cause long-term harm to the industrial base supporting our warfighter 
and national security. The intent of the proposed rule is to strengthen 
contractor business systems and provide a protection for the Government 
from the risks of deficient systems while contractors resolve their 
system deficiencies.
24. Formatting of Rule Language
    Comment: A number of respondents believe the language of the 
proposed rule needs clarifying for more uniform application.
    Response: DoD acknowledges the respondents' comment and has 
clarified the language of the rule in accordance with public comments 
received.
25. General Agreement
    Comment: A number of respondents expressed agreement with the rule, 
citing the necessity for contractors to maintain adequate business 
systems.
    Response: DoD acknowledges the respondents' support of the rule.
26. General Disagreement
    Comment: A number of respondents expressed concern with the rule 
and requested it be withdrawn, citing claims that the rule (a) is 
biased against DoD contractors, (b) does not address problems with 
business system oversight with Government agencies, (c) will have 
unfavorable consequences to industry and Government agencies, and (d) 
is an unnecessary intrusion on the contractual relationship between

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industry and Government. Specifically, respondents suggested that 
adequacy of business systems should be addressed as part of the 
preaward contracting phase rather than through payment withholds, and 
that many of the problems or deficiencies identified in supplier 
systems are traceable to ill-defined contracts, unstable funding, and 
individual interpretations of policy or guidance by inexperienced audit 
personnel. Finally, one respondent was concerned that this proposed 
rule uses a broad-brush approach to what appears to be a narrow problem 
growing out of battlefield contingency contracting and that, contrary 
to its intended purpose, this proposed rule will do little or nothing 
to assist the Government in achieving its goal of reducing fraud, 
waste, and abuse.
    Response: DoD acknowledges the respondents' concern with the rule. 
However, the need to mitigate the Government's risk when contractors 
fail to comply with the terms and conditions of their contracts by 
failing to maintain adequate business systems necessitates this rule. 
DoD partially agrees that the adequacy of business systems should be 
addressed as part of the preaward contracting phase. However, this fact 
does not relieve the contractors' contractual obligations to maintain 
adequate business systems throughout the life of the contract. DoD 
disagrees with the respondent that system deficiencies are traceable to 
ill-defined contracts, unstable funding, and individual interpretations 
of policy or guidance. Business systems are company-wide or segment-
wide systems with established policies and procedures that are applied 
across multiple contracts. This rule mitigates the Government's risk 
when contractors fail to maintain adequate business systems after 
contract award. While DoD acknowledges that issues with contractor 
business systems were discovered through reviews of contractors 
involved with battlefield contingency contracting, DoD does not believe 
that these issues are strictly confined therein. However, DoD notes 
that contractors outside of the contingency contracting arena will not 
be impacted by withholds implemented under this rule if failure to 
maintain adequate business systems, in accordance with the terms and 
conditions of their Government contracts, is limited to being a narrow 
problem growing out of battlefield contingency contracting, as the 
respondent suggests.
27. Impact on Government Systems
    Comment: One respondent believed that the proposed rule will 
require additional resources at Defense Finance and Accounting Service 
and modifications of the Mechanization of Contract Administration 
Services system because all payments for contracts with withholds must 
be processed manually. Furthermore, one respondent suggested that 
contracting officers be granted the authority to release withholds 
under situations where funds are at risk of expiring or being canceled, 
or the contract is being closed.
    Response: The Government is fully capable of modifying its 
automated systems to implement the rule. Contracting officers are the 
only ones granted the authority to release withholds. Withholds will be 
released once the system deficiency has been corrected, or a final 
audit has determined which costs are allowable under the contract.
28. Increased Litigation
    Comment: A number of respondents believe the withholds will result 
in increased litigation that will drain the resources of both 
contractors and the Government, especially since the proposed rule 
states that Prompt Payment Act interest does not accrue on the 
withhold, and prudent contractors will immediately appeal the withhold 
pursuant to the Contract Disputes Act, where interest would accrue on 
the withhold if the Government's position is not sustained. 
Furthermore, most of the issues with deficient business systems could 
be resolved through the exercise of reasonable contracting officer 
discretion if the rule allowed it.
    Response: DoD is uncertain whether the rule, in its final form, 
will lead to increased litigation. It would be unwieldy to establish a 
separate informal process for handling disagreements involving alleged 
system deficiencies, given that the Contract Disputes Act already is an 
established methodology for resolving disagreements, large and small. 
Furthermore, not every claim presented to the contracting officer under 
the Contract Disputes Act results in litigation. In fact, FAR 33.204 
establishes the Government's policy to try to resolve all contractual 
issues in controversy by mutual agreement, even prior to the submission 
of a claim. The contracting officer has the authority to make all 
initial and final determinations of system deficiencies, implement and 
remove withholds, make determinations to approve, disapprove, and 
reapprove systems, and to take any other appropriate actions deemed in 
the best interests of the Government.
29. Information Collection
    Comment: One respondent believed that the information collection 
estimate that DoD included with the proposed rule is understated 
substantially.
    Response: DoD does not agree with the respondent's comment. DoD 
notes that the supporting data referenced by the respondent exceeds the 
information collection requirements established under this rule. DoD 
believes the Paperwork Reduction Act estimates published with the 
proposed rule accurately reflect the contractors' costs to fulfill the 
information collection requirements of this rule. The hours and costs 
cited by the respondent with regard to EVMS do not reflect the 
Paperwork Reduction Act requirements of this rule.
30. Interest on Withholds
    Comment: One respondent disagreed that the withholdings under 
clause 252.242-7XXX, Business Systems, are not subject to the interest 
penalty provisions of the Prompt Payment Act. While contract financing 
payments are generally not subject to the interest penalty, the Prompt 
Payment Act specifically makes the interest penalty applicable to 
interim vouchers under cost-reimbursement contracts for services. This 
statutory provision is implemented in FAR 52.232-25, Alternate I. 
Similarly, FAR 52.232-7 explicitly makes the interest penalty 
applicable to interim vouchers under time-and-materials and labor-hour 
contracts for services. Another respondent suggested that the rule 
allow for Prompt Payment Act interest on amounts withheld if later it 
is determined that the Government incorrectly applied the withhold.
    Response: FAR 52.232-25(a)(5)(ii) states ``The prompt payment 
regulations at 5 CFR 1315.10(c) do not require the Government to pay 
interest penalties if payment delays are due to disagreement between 
the Government and the Contractor over the payment amount or other 
issues involving contract compliance, or on amounts temporarily 
withheld or retained in accordance with the terms of the contract.'' 
Since amounts withheld pursuant to clause 252.242-7XXX are temporarily 
withheld in accordance with the terms of the contract, they are not 
subject to the interest penalty provisions of the Prompt Payment Act.

[[Page 75555]]

31. Internal Audits and Management Reviews
    Comment: A number of respondents recommended that the Government be 
provided complete access to contractors' internal control systems, 
including internal audit reports and management reviews, to ensure a 
contractor has implemented appropriate corrections in response to 
audits and reviews. Further, one respondent suggested that this 
requirement should be based on the comprehensive internal control 
framework of the Committee of Sponsoring Organizations of the Treadway 
Commission (COSO).
    Response: Auditors have access to contractors' records, as provided 
for under the FAR, to ensure contractors have implemented internal 
audits and management reviews. DoD does not agree with implementing the 
COSO internal control framework since COSO is a voluntary private-
sector organization. It would be inappropriate to tie Government 
regulations to the COSO internal control framework since such policies 
are not subject to the Government's rulemaking process.
32. Legality of Withholds
    Comment: Respondents believe the withholds set forth in the rule 
are arbitrary, punitive, contrary to public policy that requires the 
Government withholds to be reasonably related to Government risk, and 
could lead to a cessation of contract payments without any showing of 
actual harm to the Government. The respondents believe the rule would 
not survive legal challenge.
    Response: Contract terms explicitly require contractors to maintain 
the business systems in question as a condition of contracting 
responsibility and, in some cases, eligibility for award. Contract 
prices are negotiated on the basis that contractors will maintain such 
systems, so that the Government does not need to maintain far more 
extensive inspection and audit functions than it already does. Failure 
of the contractor to maintain acceptable systems during contract 
performance deprives the Government of assurances for which it pays 
fair value. While not ``deliverable'' services under specific contract 
line items, these business systems are material terms, performance of 
which is required to ensure contracts will be performed on time, within 
cost estimates, and with appropriate standards of quality. The 
withholding remedy provides a measure of the overall contract 
performance of which the Government is deprived during the performance 
period, and for which the contractor should not receive the full 
financing payments. DoD is relying on the temporary percentage withhold 
amount, not as a penalty for a deficiency, but as representing a good-
faith estimate sufficient to mitigate the Government's risk, where the 
actual amounts are difficult to estimate or quantify.
33. Materiality of Deficiencies
    Comment: Some respondents believe the quality and utility of 
contractor business system information could be greatly enhanced by 
requiring a clear segregation between system conditions that relate 
solely to policy enhancements, especially when the contractor has 
agreed to the policy enhancements or has already made the policy 
enhancements but DCAA has not yet reviewed them, and those system 
conditions that relate to unallowable or unreasonable costs being 
charged to Government contracts. Other respondents are concerned that 
the proposed rule does not make a distinction between minor 
deficiencies that likely pose no threat of significant harm to the 
Government, and material deficiencies that potentially pose such a 
threat. These respondents are concerned that current DCAA guidance 
requires reporting of any perceived deficiency that could directly or 
indirectly result in any amount, no matter how small, of unallowable 
costs being charged to a contract. To avoid such circumstances, it is 
absolutely necessary to impose a materiality requirement in regard to 
system deficiencies. One respondent stated that, although the rule 
requires the auditor or other cognizant functional specialist to assess 
the potential magnitude of the risk to the Government posed by the 
deficiency, the rule fails to establish objective criteria for such an 
assessment, including the need for evidence demonstrating a logical 
nexus between the deficiency and the risk. Finally, one respondent 
suggested the rule should focus on risk management rather than risk 
avoidance. As such, the pass-or-fail assessment of business systems in 
the rule does not adequately address relative degrees of impact or 
risk.
    Response: DoD does not believe that it would be in the Government's 
best interest to attempt to segregate between system deficiencies that 
relate solely to system policy and those system deficiencies that 
relate directly to unallowable or unreasonable costs. Deficiencies that 
do not directly relate to unallowable or unreasonable costs still pose 
risks to the Government, and may lead to harm that may not be 
calculated readily when the deficiencies are discovered. Furthermore, 
DoD disagrees with the assertion that business systems will be deemed 
inadequate and payments withheld for minor deficiencies. The intent of 
the rule is to withhold payments when a deficiency exists that impairs 
the Government's ability to rely on the system's outputs. DoD has 
revised the rule to set forth objective business system criteria. DoD 
believes there is a logical nexus between system deficiencies and risk 
to the Government. The intent of the rule is to withhold payments when 
a deficiency exists that impairs the Government's ability to rely on 
the system's outputs. A system must provide reasonable assurance that 
the relevant system criteria are satisfied and that the risk of 
material misstatements caused by error or fraud is low. The rule has 
been revised to clarify that the contracting officer has the discretion 
to determine whether withholding is warranted to protect the 
Government. Accordingly, DoD disagrees that the rule is based on pass-
fail criteria.
34. Material Management and Accounting System (MMAS)
    Comment: Three respondents questioned the language at clause 
252.242-7004 which requires a contractor's MMAS to have adequate 
internal controls to ensure system and data integrity. The respondents 
contend that internal controls (i.e., policies and procedures) cannot 
provide absolute assurance as required here; the standard is reasonable 
assurance. The respondents cited the requirement that a contractor's 
MMAS shall have adequate internal controls to ensure system and data 
integrity, and shall ``establish and maintain adequate levels of record 
accuracy, and include reconciliation of recorded inventory quantities 
to physical inventory by part number on a periodic basis.'' The 
respondents question what is an adequate level.
    Response: The proposed rule does not require absolute assurance of 
compliance with any of the business system standards or criteria. The 
intent of the rule is to provide reasonable assurance that the system 
criteria are satisfied and that the risk of material misstatements 
caused by error or fraud is low. DoD further notes that this existing 
language in clause 252.242-7004 sets forth a desired 95 percent 
accuracy level.
35. Multiple Withholdings
    Comment: The respondent stated that many of the contractor systems 
covered by this rule are, appropriately, implemented on a corporate-
wide basis.

[[Page 75556]]

As a result, the respondent believed that that a deficiency finding 
would impact all proposals and contracts held by that company, 
including those that are not directly affected by the ``deficient'' 
system, and those that are outside DoD and not covered by this rule.
    Response: This payment withholding requirement set forth in this 
rule applies only to contracts that contain clause 252.242-7XXX, 
Business Systems. The withholding is not necessarily limited to a 
single contract, but would apply to multiple contracts that are covered 
by clause 252.242-7XXX. A contractor's respective business systems are 
relied upon by the Government for all contracts that contain the 
respective clauses pertaining to the individual business systems. 
Therefore, it is appropriate for withholds to be applied to multiple 
contracts that rely on the fidelity of the contractor's respective 
business systems.
36. Property Management System
    Comment: One respondent believed that withholding against all of a 
contractor's financing payments would be grossly out of proportion with 
the damage because FAR also already protects the Government's interest 
for deficiencies in a property management system by specifically 
addressing remediation for individual pieces of lost, damaged, 
destroyed, or stolen Government property.
    Response: FAR 45.105 provides that if the contractor does not 
correct property management system deficiencies, the contracting 
officer may revoke the Government's assumption of risk for loss, 
damage, destruction, or theft; and/or the exercise of other rights or 
remedies available to the contracting officer. However, these remedies 
do not mitigate the Government's risk that the contractor could fail to 
perform on the contract. The proposed rule further mitigates the 
Government's risk by withholding payments temporarily when the 
contractor's property management system has deficiencies.
37. Purchasing System
    Comment: A number of respondents expressed concern with the 
purchasing system criteria against which contractor compliance will be 
measured. A number of respondents questioned the criteria in the 
proposed rule that required a purchasing system that procures materials 
``at the most economical cost.'' One respondent asserted that the DoD 
purchasing system requirement should be limited to verification that 
FAR/DFARS required flow downs from the prime or higher-tier contract 
have been included in the purchase order or subcontract. One respondent 
questioned whether it is possible to grant system approval while 
corrective actions are being pursued, and whether withholds would apply 
in this circumstance.
    Response: This revised proposed rule sets forth specific criteria 
for maintaining an acceptable purchasing system. DoD has revised the 
language under clause 252.244-7XXX to require ``An organizational and 
administrative structure that ensures effective and efficient 
procurement of required quality materials and parts at the best value 
from responsible and reliable sources,'' consistent with current 
Federal acquisition policy. Compliance with the policy and procedures 
requirements in clause 252.244-7XXX is necessary to provide reasonable 
assurance to the contracting officer that the purchasing system does 
not contain any deficiencies. The contracting officer is responsible 
for determining whether all required flow-down clauses, including terms 
and conditions, and any other clauses needed to meet the requirements 
of the prime contract, are included in the contractor's purchasing 
system policies and procedures for letting subcontracts. Additionally, 
the Government reviews the contractor's purchasing system to ensure 
that subcontract clauses required under the contractor's purchasing 
system policies are not contrary to Government law or regulation. 
Deficiencies that may result in a withhold may not be significant 
enough to result in a system disapproval. In a scenario in which a 
system has been disapproved and withholds have been implemented, all 
deficiencies must be corrected before the temporary withholds are 
discontinued. For system reapproval, the deficiencies must be corrected 
substantially in the judgment of the contracting officer. The 
contracting officer has the discretion to make both system approval and 
withhold determinations separately on a case-by-case basis.
38. Resolution Timing
    Comment: Respondents believe that the Government should have a time 
limitation requirement to follow up on corrective actions, make system 
approval decisions, and remove withholds.
    Response: DoD acknowledges the respondents' concern regarding the 
timing of follow-up audits. Therefore, the rule has been revised so 
that ``If, prior to the receipt of verification, the contractor submits 
evidence that the deficiencies have been corrected, and the contracting 
officer, in consultation with the auditor or functional specialist, 
determines that there is a reasonable expectation that the corrective 
actions have been implemented, the contracting officer may discontinue 
withholding payments pending receipt of verification and release any 
payments previously withheld.''
39. Risk-based Withholding
    Comment: A number of respondents suggested that any reductions in 
payment should be in proportion to the potential damage/risk to the 
Government and should be imposed only after demonstrating a reasonable 
basis for the actual damage suffered by the Government.
    Response: The intent of the rule is to authorize payment 
withholding when the contracting officer determines there are one or 
more system deficiencies that adversely affect a contractor's business 
system, leading to a potential risk of harm to the Government. The 
potential risk of harm may be a risk that cannot be quantified in terms 
of dollars, such as a deficiency that would compromise contract 
performance. Contract terms explicitly require contractors to maintain 
the business systems in question as a condition of contracting 
responsibility and, in some cases, eligibility for award. Contract 
prices are negotiated on the basis that contractors will maintain such 
systems, so that the Government does not need to maintain far more 
extensive inspection and audit functions than it already does. Failure 
of the contractor to maintain acceptable systems during contract 
performance deprives the Government of assurances for which it pays 
fair value. While not ``deliverable'' services under specific contract 
line items, these business systems are material terms, performance of 
which is required to ensure contracts will be performed on time, within 
cost estimates, and with appropriate standards of quality. The 
withholding remedy provides a measure of the overall contract 
performance of which the Government is deprived during the performance 
period, and for which the contractor should not receive the full 
financing payments. DoD is relying on the temporary percentage withhold 
amount, not as a penalty for a deficiency, but as representing a good-
faith estimate sufficient to mitigate the Government's risk where the 
actual amounts are difficult to estimate or quantify.
40. Roles of DCAA/DCMA
    Comment: A number of respondents were concerned that most 
contracting officers will not have the requisite training and expertise 
to reach independent conclusions relative to

[[Page 75557]]

auditor/contractor disagreements over internal controls. The 
respondents expect contracting officers will, more often than not, 
simply concur with auditor conclusions out of expediency and safety to 
avoid being reported to the DoD IG for investigation, which will 
greatly endanger equity and fairness. These respondents suggested that 
DoD first addresses the adjudication process and the independence of 
DCAA. The respondent stated that DFARS must be absolutely clear with 
regard to the roles and authority of the ACO and the auditor.
    Response: The DoD memo dated December 4, 2009, ``Resolving Contract 
Audit Recommendations,'' clearly defines the roles and responsibilities 
of DCAA and DCMA and provides procedures for adjudicating differences. 
DoD has confidence that contracting officers possess the technical 
knowledge, skills, and experience necessary to reach independent 
determinations on business systems based on sound judgment as required 
by FAR 1.602-2, Responsibilities.
41. Rule Application
    Comment: Two respondents suggested that since the information cited 
in the CWC testimony concerned companies that were involved with 
contingency contracting in Afghanistan and Iraq, that the proposed rule 
is overly broad and should be limited only to contingency contracting.
    Response: DoD notes that while the issues surrounding contractor 
business systems came to light under the findings of the CWC hearings, 
it is a longstanding DoD policy to rely upon effective and efficient 
contractor business systems beyond the realm of the contingency 
contracting arena. DoD does not believe that these issues are limited 
strictly to contingency contracting.
42. Small Business Impact
    Comment: Several respondents commented that the proposed rule 
imposes potentially burdensome requirements on small businesses, since 
with the exception of EVMS and estimating system requirements, business 
system requirements apply to all contractors and contracts, regardless 
of size. Thus, small businesses would be required to implement and 
maintain the same business systems as those systems implemented by the 
largest contractors. The respondents recommended the rule impose 
reasonable limitations on the applicability of the requirements for 
contractor business systems based on the size of the contractor or 
contract.
    Response: DoD agrees that the rule could potentially have an 
adverse impact on small business and has established thresholds 
designed to limit the impact on small business. Additionally, the rule 
has been revised to reduce the percentage of payments withheld if a 
small business has a deficiency that poses a potential risk of harm to 
the Government.
43. Withhold Alternatives
    Comment: A number of respondents believe the proposed rule is 
unnecessary because the Government already has a number of enforcement 
mechanisms to ensure that material deficiencies in contractor systems 
do not result in unchecked fraud, waste, or abuse in Government 
contracting and to provide contractors with appropriate incentives to 
quickly address any deficiencies. Some of the respondents recommended 
that the rule be revised to state that contracting officers should not 
impose duplicative remedies or sanctions.
    Response: The existing regulatory remedies are not an effective 
substitute for a contract clause that will mitigate the Government's 
risk while contractors correct business system deficiencies. The 
proposed rule is required to supplement existing enforcement mechanisms 
and protect the Government's interests while the contractor completes 
correction of system deficiencies. DoD does not wish to limit the 
contracting officer's discretion to apply any and all regulatory 
measures, as warranted by the circumstances. For example, if a 
contractor has a deficiency in its property management system, the 
contracting officer may implement a withhold to protect the 
Government's risk of the contractor failing to perform on the contract, 
and may also revoke the Government's assumption of liability to protect 
the Government from risk of loss of the Government's furnished 
property.
44. Withhold Impacts
    Comment: Several respondents believe the proposed rule would have 
unintended consequences such as establishing a barrier to entry for new 
contractors, harming the cash flow of existing contractors and hurting 
their ability to obtain financing, prompting unnecessary administrative 
cost and improvements to business systems, adversely impacting 
financial performance metrics of return on investment and return on 
sales, and impacting the ability of contractors to attract debt and 
equity investment at beneficial rates. One respondent believed that the 
unintended consequences could directly result in loss of jobs and would 
be contrary to supporting our warfighters and our national security, 
both of which depend on a healthy industrial base.
    Response: DoD does not believe that the rule will cause long-term 
harm to the defense industrial base or national security. DoD 
recognizes that there may be a short-term financial impact on a 
contractor who fails to maintain adequate business systems in 
accordance with the terms of its contract. However, the Government has 
the responsibility to protect the taxpayers. DoD believes that 
contractors who maintain adequate systems will not be impacted by this 
rule and, in fact, will benefit from effective business systems.
45. Withhold Impacts on Government Oversight Costs
    Comment: One respondent recommended that DoD abandon the proposed 
clause 252.242-7XXX because it will increase the Government's oversight 
and enforcement costs.
    Response: DoD appreciates the respondent's concern. However, 
acceptable contractor business systems are the first line of defense 
against fraud, waste, and abuse. As such, it is in the Government's, 
and ultimately the taxpayers', best interest to ensure contractors 
maintain adequate business systems.
46. Withhold Percentages
    Comment: A number of respondents expressed concern over the 
percentages to be withheld, that the rule does not establish a maximum 
dollar amount that may be withheld, and that cumulative withholds of up 
to 50 percent per contract are inappropriate.
    Response: DoD appreciates the respondents' concerns regarding the 
withhold percentages. Accordingly, the proposed rule has been revised 
to reduce the amount that can be withheld for business system 
deficiencies from ten percent to five percent (two percent for small 
business). If the Contractor submits an acceptable corrective action 
plan, the contracting officer will, as appropriate, reduce the 
withholding to two percent (one percent for small businesses). The 
contracting officer will authorize the contractor to bill for amounts 
previously withheld when the contracting officer determines all 
deficiencies have been corrected. Additionally, DoD has revised the 
rule to reduce the cumulative percentage of payments that can be 
withheld on one or more business systems to 20 percent (10 percent for 
small businesses). This limitation refers to the amount that can be 
withheld on any payment if deficiencies exist in one or more business 
systems. The establishment of

[[Page 75558]]

a maximum dollar amount that may be withheld across multiple contracts 
would be inappropriate.

B. Summary of Proposed Rule Changes

    As a result of the public comments received, the following changes 
were made to the proposed rule:
    1. To the extent practicable, the rule has been reorganized to 
provide consistency across each of the business systems. Additionally, 
throughout the rule, the term ``ACO'' has been replaced by 
``contracting officer'' for accuracy.
    2. The definition of ``deficiency'' used throughout the rule means 
a failure to maintain one or more system criteria of an acceptable 
business system. This definition has been set forth within each of the 
specific business system clauses 252.215-7002, 252.234-7002, 252.242-
7004, 252.242-7XXX, 252.242-7YYY, 252.244-7XXX, and 252.245-7XXX.
    3. The system criteria for each of the business systems have been 
set forth in clause 252.242-7XXX, Business Systems, as well as in each 
of the individual business system clauses, 252.215-7002, 252.234-7002, 
252.242-7004, 252.242-7YYY, 252.244-7XXX, and 252.245-7XXX.
    4. In the ``policy'' paragraphs for each of the business systems, 
215.407-5-70(c)(2), 234.201(5), 242.7203(c), 242.7502(b), 244.305-
70(a), and 245.105(b), cognizant contracting officers, in consultation 
with the auditor and, where applicable, the functional specialist, 
shall determine the acceptability of the contractor's business systems 
and approve or disapprove the system.
    5. The ``disposition of findings'' paragraphs for each of the 
business systems, 215.407-5-70(e)(2), 234.201(7), 242.7203(c), 
242.7502(d), 244.305-70(c), and 245.105(d), have been reorganized and 
revised to set forth procedures for reporting of findings, and making 
initial and final determinations as follows:
    (a) If there are system deficiencies, the auditor's or functional 
specialist's report to the contracting officer shall describe the 
deficiencies in sufficient detail to allow the contracting officer to 
understand the deficiencies and the potential adverse impact to the 
Government; and
    (b) Revised initial and final determination procedures have been 
set forth.
    6. The business system approval paragraphs, 215.407-5-70(f), 
234.201(8), 242.7203(d), 242.7502(e), 244.305-70(d), and 245.105(e), 
are established to provide procedures for contracting officers to 
promptly approve a previously unapproved business system and notify the 
contractor when the contracting officer determines, in consultation 
with the auditor and/or functional specialist, that the contractor has 
substantially corrected the system deficiencies, removing any potential 
risk of harm to the Government.
    7. The contracting officer notifications paragraphs, 215.407-5-
70(g), 234.201(9), 242.7203(e), 242.7502(f), 244.305-70(e), and 
245.105(f), are established to provide procedures for contracting 
officers to promptly distribute copies of a determination to withhold, 
remove withholds, and approve or disapprove a system to the auditor, 
payment office, contracting officers at the buying activities, and 
cognizant contracting officers in contract administration activities.
    8. Paragraphs 242.7502(g) and 244.305-70(f), on mitigating risk of 
accounting system and purchasing system deficiencies on specific 
proposals, are established to provide contracting officers with 
procedures for evaluating whether a deficiency impacts the 
negotiations, and if so, what alternatives the contracting officer 
should consider.
    9. Section 245.105 is rewritten in its entirety as previously 
noted, and for consistency with the other business systems covered 
under this rule.
    10. Section 242.70X1 Business system deficiencies, has been revised 
in its entirety to set forth policy and procedures for contracting 
officers to make a determination to withhold payments; provide 
appropriate notifications; monitor and verify the correction of 
contractor deficiencies; and implement, reduce, increase, and 
discontinue payment withholding.
    11. Section 242.70X2 Contract clause, has been revised to set forth 
a $50 million threshold and revise the companion clauses that set forth 
the requirements for the use of clause 252.242-7XXX, Business Systems.
    12. In each of the clauses revised under this rule, 252.215-7002, 
252.234-7002, 252.242-7004, 252.242-7YYY, and 252.244-7XXX, the 
language has been revised to replace the phrase and paragraph headings 
entitled ``system requirements'' with ``system criteria,'' and to 
delete from the clauses the phrases ``but is not limited to'' and ``but 
not limited to.''
    13. The ``System deficiencies'' paragraphs in each of the 
individual business systems clauses, 252.215-7002(e), 252.234-7002(i), 
252.242-7004(e), 252.242-7YYY(d), and 252.244-7XXX(d), have been 
revised for consistency and clarity.
    14. In each of the individual business system clauses revised under 
this rule, the following language has been added under paragraphs 
252.215-7002(f), 252.234-7002(i)(4), 252.242-7004(f), 252.242-7YYY(e), 
and 252.244-7XXX(e): ``If the Contractor receives the Contracting 
Officer's final determination of system deficiencies, the Contractor 
shall, within 45 days of receipt of the final determination, either 
correct the deficiencies or submit an acceptable corrective action plan 
showing milestones and actions to eliminate the deficiencies.''
    15. In each of the individual business system clauses revised under 
this rule, the ``Withholding payments'' paragraphs, 252.215-7002(g), 
252.234-7002(k), 252.242-7004(g), 252.242-7YYY(f), and 252.244-7XXX(f), 
are revised as follows: ``If the Contracting Officer determines that 
there are one or more system deficiencies that adversely affect the 
Contractor's purchasing system, leading to a potential risk of harm to 
the Government, and the contract includes the clause at 252.242-7XXX, 
Business Systems, the Contracting Officer will withhold payments in 
accordance with that clause.''
    16. Clause 252.215-7002 is revised as follows:
    (a) The definition of an ``estimating system'' has been revised to 
include the phrase ``budgeting and planning controls,'' and under 
subparagraph (5), to add the phrase ``budgeting and planning'' and the 
phrase ``and budgets.''
    (b) Minor revisions to paragraph (d) system criteria, include the 
addition of the phrase ``and budgets'' in subparagraphs (i), (ii), and 
(v); the addition of the phrase ``and budgeting'' in subparagraphs 
(iii), (iv), and (xii); replacement of the word ``appropria