Defense Federal Acquisition Regulation Supplement: Prompt Payments of Small Business Contractors (DFARS Case 2018-D068), 19692-19698 [2020-06727]

Download as PDF 19692 Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations U.S.C. 601, et seq. The FRFA is summarized as follows: The Department of Defense is amending the Defense Federal Acquisition Regulation Supplement (DFARS) to modify the text of DFARS clause 252.204–7002, Payment for Subline Items Not Separately Priced, to simplify and conform the clause text to current Government contract line item structure terminology. The objective of this rule is to clarify the intent of the clause for contractors, when submitting invoices under contracts that contain items that are not separately priced. The modification of this DFARS clause supports a recommendation from the DoD Regulatory Reform Task Force. No public comments were received in response to the initial regulatory flexibility analysis. Based on an average of data for fiscal year 2016 through 2018 from the Federal Procurement Data System and Electronic Document Access, DoD awards approximately 12,435 contracts annually that includes the DFARS clause 252.204–7002. Of the 12,435 awards, approximately 4,924 contracts (40%) are awarded to 1,564 unique small business entities. Based on the available data and the objective of the rule, DoD does not anticipate that this proposed rule will significantly impact small business entities. This rule does not include any new reporting, recordkeeping, or other compliance requirements for small businesses. This rule does not duplicate, overlap, or conflict with any other Federal rules. There are no known significant alternative approaches to the rule that would meet the stated objectives. VI. Paperwork Reduction Act 2. Amend section 204.7104–1: a. In paragraph (b)(3)(iii), by removing ‘‘subsection’’ and adding ‘‘section’’ in its place; and ■ b. By revising paragraph (b)(3)(iv). The revision reads as follows: ■ ■ 204.7104–1 Criteria for establishing. * * * * * (b) * * * (3) * * * (iv) When the price for items not separately priced is included in the price of another contract line or subline item, it may be necessary to withhold payment on the priced contract line or subline item until the included line or subline items that are not separately priced have been delivered. See the clause at 252.204–7002, Payment for Contract Line or Subline Items Not Separately Priced. ■ 3. Revise section 204.7109 to read as follows: 204.7109 Contract clauses. (a) Use the clause at 252.204–7002, Payment for Contract Line or Subline Items Not Separately Priced, in solicitations and contracts when the price for items not separately priced is included in the price of another contract line or subline item. (b) Use the clause at 252.204–7006, Billing Instructions, in solicitations and contracts if Section G includes— (1) Any of the standard payment instructions at PGI 204.7108(b)(2); or (2) Other payment instructions, in accordance with PGI 204.7108(d)(12), that require contractor identification of the contract line item(s) on the payment request. The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35). PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES List of Subjects in 48 CFR Parts 204 and 252 252.204–7002 Payment for Contract Line or Subline Items Not Separately Priced. Jennifer Lee Hawes, Regulatory Control Officer, Defense Acquisition Regulations System. Payment for Contract Line or Subline Items Not Separately Priced (APR 2020) Therefore, 48 CFR parts 204 and 252 are amended as follows: 1. The authority citation for 48 CFR parts 204 and 252 continues to read as follows: ■ Authority: 41 U.S.C. 1303 and 48 CFR chapter 1. VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 4. Revise section 252.204–7002 to read as follows: ■ As prescribed in 204.7109(a), use the following clause: Government procurement. lotter on DSKBCFDHB2PROD with RULES PART 204—ADMINISTRATIVE AND INFORMATION MATTERS (a) If the schedule in this contract contains any contract line or subline items identified as not separately priced (NSP), it means that the unit price for the NSP line or subline item is included in the unit price of another, related line or subline item. (b) The Contractor shall not invoice the Government for an item that includes in its price an NSP item until— PO 00000 Frm 00042 Fmt 4700 Sfmt 4700 (1) The Contractor has also delivered the NSP item included in the price of the item being invoiced; and (2) The Government has accepted the NSP item. (c) This clause does not apply to technical data. (End of clause) 252.204–7006 [Amended] 5. Amend section 252.204–7006 introductory text by removing ‘‘204.7109’’ and adding ‘‘204.7109(b)’’ in its place. ■ [FR Doc. 2020–06726 Filed 4–7–20; 8:45 am] BILLING CODE 5001–06–P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 212, 232, and 252 [Docket DARS–2019–0025] RIN 0750–AK25 Defense Federal Acquisition Regulation Supplement: Prompt Payments of Small Business Contractors (DFARS Case 2018–D068) Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. AGENCY: DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2019 that provides for accelerated payments to small business contractors and subcontractors. DATES: Effective April 8, 2020. FOR FURTHER INFORMATION CONTACT: Ms. Jennifer D. Johnson, telephone 571– 372–6100. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background DoD published a proposed rule in the Federal Register at 84 FR 25225 on May 31, 2019, to implement section 852 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115–232). Section 852 provides for accelerated payments to DoD contractors that are small businesses and to small business subcontractors by accelerating payments to their prime contractors. Thirteen respondents submitted public comments in response to the proposed rule. II. Discussion and Analysis DoD reviewed the public comments in the development of the final rule. A E:\FR\FM\08APR1.SGM 08APR1 Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations discussion of the comments and the changes made to the rule as a result of those comments is provided, as follows: A. Summary of Significant Changes From the Proposed Rule This final rule adds a definition of ‘‘accelerated payment’’ to the clause at DFARS 252.232–7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration. The definition specifies that accelerated payments are made as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later. B. Analysis of Public Comments 1. Support for the Rule Comment: Most respondents expressed support for the proposed rule. Response: DoD acknowledges the respondents’ support. lotter on DSKBCFDHB2PROD with RULES 2. Timely Payments to Small Business Subcontractors Comment: One respondent expressed overall support for the proposed rule if the rule ensures all large business prime contractors are required to pay their subcontractors within 15 days of receiving an invoice from their small business subcontractors, regardless of whether the prime has been paid by the Federal Government. Another respondent suggested an authority to enforce, and a forum to address, grievances for payments from the Government that are past due. Response: This final rule incorporates the statutory language of section 852 of the NDAA for FY 2019, as implemented via 10 U.S.C. 2307, which establishes the 15-day timeframe as a goal, rather than a firm deadline. The rule provides for prime contractors to make accelerated payments to small business subcontractors after receipt of payment from the Government because a prime contractor who subcontracts with small businesses could be a small business itself. Federal Acquisition Regulation (FAR) subpart 32.9 implements the statutory requirements concerning required documentation for invoice and acceptance, the establishment of payment due dates, and the payment of late payment interest penalties after the due date established under the Prompt Payment Act (e.g., 30 days). DoD payment offices must adhere to these requirements and make payments as quickly as possible, to the fullest extent permitted by law. Concerning the respondent’s suggestion regarding a forum to address VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 late payments, as prescribed in 5 CFR 1315.18, questions concerning delinquent payments should be directed to the designated agency office, or the office responsible for issuing the payment if different from the designated agency office. Questions about disagreements over payment amount or timing should be directed to the contracting officer for resolution. Small business concerns may obtain additional assistance on payment issues by contacting the agency’s Office of Small Business Programs. 3. Interest Penalties for Late Payments to Subcontractors Comment: One respondent suggested that the rule could be improved by also imposing an interest penalty on all small business invoices submitted to the prime contractor that are not paid within 15 days of receipt. Another respondent recommended an authority for the Government to pay interest penalties to both contractors when invoices are past due. Response: Section 852 does not provide for interest penalties to be paid by the prime contractor for late payments to a subcontractor. Therefore, this final rule does not impose interest penalties beyond those implemented in FAR subpart 32.9 under the Prompt Payment Act. The subcontract between the prime contractor and the subcontractor is a business arrangement between two private parties, and therefore Prompt Payment Act interest penalties do not apply. 4. 15-Day Payment Goal Comment: Two respondents expressed a preference for the proposed rule to mandate prompt payment instead of making it a goal, however, they commended the DoD proposal to revise the DFARS to implement section 852 of the NDAA for FY 2019 to pay small businesses within 15 days, rather than the current 30-day standard. It is viewed as an important first step for DoD small business contractors. Two other respondents stated that FAR 52.232–40 does not provide for the 15day payment goal ‘‘to the fullest extent permitted by law,’’ which creates a conflict with the specific 15-day goal that section 852 directs DoD to adopt. One of the respondents recommends a new DFARS prescription and contract clause to supplement FAR 52.232–40 be added that provides for the 15-day payment goal ‘‘to the fullest extent permitted by law.’’ The respondent supports the revision to DFARS 232.903 to comport with the provisions of section 852 with respect to small business prime contractors. PO 00000 Frm 00043 Fmt 4700 Sfmt 4700 19693 Response: DoD recognizes the respondents’ preference to mandate payment within 15 days instead of making it a goal; and agrees that the goal is an important step for small business contractors working with the DoD. DoD also affirms support for the revision to DFARS 232.903 to implement the provisions of section 852. Regarding a conflict with the FAR, this final DFARS rule provides details to supplement, rather than conflict with, the requirements of FAR 52.232–40, Providing Accelerated Payments to Small Business Subcontractors. The rule relies on the FAR clause and the DFARS clause at 252.232–7017, used together in a contract, to communicate to prime contractors the requirements concerning accelerated payments. See section III of this preamble for a more detailed explanation of how the clauses are used together. DoD agrees that it is important to clarify what constitutes an accelerated payment from a prime contractor to a small business subcontractor in the context of this DFARS rule. Therefore, the final rule revises the clause at DFARS 252.232– 7017 to define ‘‘accelerated payment’’ as a payment made to a small business subcontractor as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later. 5. Clarifications a. Small Business Subcontractors Comment: One respondent suggested that the definition of small business subcontractors be clarified for the purposes of accelerated payments as those that are directly supporting or charged to a DoD contract in which the prime contractor is receiving accelerated payments (i.e., not those supporting indirect, commercial, or foreign efforts by the prime contractor). Response: This final rule does not provide a definition of ‘‘small business subcontractor.’’ This term is defined at FAR 2.101. The definition provided in the FAR applies to the DFARS, including this rule. b. Section Heading for DFARS 232.009 Comment: One respondent suggested that the heading to DFARS 232.009 be changed to read ‘‘Providing accelerated payments to small business contractors and small business subcontractors’’ because DFARS 232.009–1 adds coverage for both small business and small business subcontractors. In addition, the respondent suggested that the term ‘‘small business primes’’ in E:\FR\FM\08APR1.SGM 08APR1 19694 Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations both DFARS 232.009 and DFARS 232.009–1 would be clearer than ‘‘small business contractor’’. Response: The final rule does not include the respondent’s suggested edits. Revising the heading of DFARS 232.009 as suggested would create a disconnect with the title of the new contract clause prescribed in this section. In addition, DFARS 232.009 is numbered to correspond to FAR 32.009, which addresses the same subject matter. This drafting convention allows contracting officers to locate more easily coverage of similar topics in the FAR and DFARS. It is not necessary to add ‘‘prime contractors’’ to the heading because, in the FAR and DFARS, the term ‘‘contractor’’ means the prime contractor. lotter on DSKBCFDHB2PROD with RULES 6. Governmentwide Application of the Rule Comment: One respondent stated that section 852 addresses two types of accelerated payments, but noted both are applicable to DoD only. The first type addresses payments to small business prime contractors; the second type addresses payments to any DoD prime contractor that subcontracts with small businesses. The respondent indicated a preference for both types of accelerated payments to be made applicable governmentwide. The respondent also stated that, at a minimum, the rule should acknowledge the governmentwide application of making accelerated payments to small business prime contractors, as provided for in FAR clause 52.232–25, Prompt Payment. Response: DoD affirms the respondent’s statement that section 852 of the NDAA for FY 2019 applies to DoD only. As such, this final DFARS rule will be applicable to DoD only. DoD notes, however, that FAR Case 2020– 007, Accelerated Payments Applicable to Contracts with Certain Small Business Concerns, is in process to implement section 873 of the NDAA for FY 2020, which modifies 31 U.S.C. 3903(a) to require accelerated payments for small business prime contractors and prime contractors that subcontract with small business concerns. 7. Definition of ‘‘small business’’ Comment: One respondent expressed concern that the rule could be improved by defining what constitutes a small business. Response: The FAR defines ‘‘small business concern’’ in subpart 2.1, Definitions. The definition of ‘‘small business concern’’ in the FAR applies throughout the DFARS, including to this rule. VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 8. Estimate of Fees Paid by Small Business Subcontractors Comment: One respondent commented on DoD’s inability to estimate the number of small business subcontractors who have been required to pay fees or provide consideration in return for accelerated payments from prime contractors, or the dollar value of these fees or consideration. The respondent asked if it was feasible to survey a sample of subcontractors to DoD prime contractors regarding the average fees paid to the prime contractors, and use that data to estimate fees paid by subcontractors to DoD prime contractors in general. The respondent also asked if the contractors could be sorted by size (i.e., small, medium, and large), with an average fee for each size contractor, to find a weighted average number of contractors and fee. Response: Resources are not available for a survey such as the respondent suggested. DoD does not have any data on which to base an estimate of the number of subcontractors required to pay fees or provide consideration to the prime contractor in return for accelerated payments, or the dollar value of the fees or consideration. Public comments did not provide insight into whether small business subcontractors had been required to pay fees or provide consideration for accelerated payments, or the dollar value of such fees or consideration. 9. Initial Regulatory Flexibility Analysis Comment: One respondent expressed concern that the initial regulatory flexibility analysis prepared for the proposed rule lacked adequate information to allow small businesses to determine the impact of the rule. Response: See section VII. of this preamble. C. Other Changes This final rule adds a reference to the statute (10 U.S.C. 2307(a) to the instruction at DFARS 212.301(f)(xiii)(G) for use of the clause at DFARS 252.232– 7017 in commercial item acquisitions. In the contract clause, this final rule adds a new paragraph (a) to provide a definition for ‘‘Accelerated payment’’ also adds the paragraph heading of ‘‘Subcontracts’’ to paragraph (c). III. Expected Impact of the Rule Current DoD policy, as stated in DFARS 232.903, is to pay small business contractors as quickly as possible after receipt of invoices and proper documentation. This rule specifies that DoD will provide payment as quickly as possible, to the fullest PO 00000 Frm 00044 Fmt 4700 Sfmt 4700 extent permitted by law, with a goal of 15 days after receipt of proper invoices and documentation, and before normal payment due dates. For items that ordinarily require payment in less than 15 days (e.g., perishable food), DoD will provide payment as quickly as possible after receipt of proper invoices and documentation, and before the normal payment due date. With few exceptions, DoD will provide accelerated payments to small business contractors and to prime contractors that agree to provide accelerated payments to their small business subcontractors without further consideration or fees. DoD will not be able to provide accelerated payments to prime contractors if such payments would result in a violation of the Antideficiency Act. An example would be a lapse in appropriated funds. This final DFARS rule relies on a FAR clause and a DFARS clause, used together in a contract, to— (1) Communicate to the prime contractor the requirement to provide accelerated payments to small business subcontractors; and (2) Obtain the prime contractor’s agreement, by signature of the contract, to provide accelerated payments without requiring further consideration from, or charging fees to, the small business subcontractor. DoD contracting officers do not use the DFARS in isolation; they use the DFARS together with the FAR. The FAR currently requires contracting officers to insert the clause at FAR 52.232–40, Providing Accelerated Payments to Small Business Subcontractors, in solicitations and contracts. This final DFARS rule will require DoD contracting officers to insert the new DFARS clause 252.232–7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, in solicitations and contracts that include FAR 52.232–40. This means both clauses will be included in DoD contracts. The FAR clause and the DFARS clause will work together to require accelerated payments to small business subcontractors when DoD provides accelerated payments to the prime contractor. FAR 52.232–40 currently requires prime contractors to provide accelerated payments to their small business subcontractors when the Government provides accelerated payments to the prime contractors. DFARS clause 252.232–7017 defines ‘‘accelerated payment’’ as ‘‘a payment made to a small business subcontractor as quickly as possible, with a goal of 15 days or less after receipt of payment E:\FR\FM\08APR1.SGM 08APR1 lotter on DSKBCFDHB2PROD with RULES Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations from the Government or receipt of a proper invoice from the subcontractor, whichever is later.’’ By using both clauses together in a contract, this final DFARS rule requires a prime contractor who receives an accelerated payment from the Government to pay its small business subcontractors as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later. DoD estimates that 40,282 contractors (including 30,498 small businesses) will receive accelerated payments each year, based on data obtained from the Federal Procurement Data System (FPDS) and input from subject matter experts from the Defense Finance and Accounting Services and the Office of the Under Secretary of Defense (Comptroller). Specifically, DoD awarded contracts to an average of 40,689 unique entities (including 30,806 small businesses) each year from FY 2016 through FY 2018. Subject matter experts estimated that DoD would not provide accelerated payments to approximately 1 percent of these contractors (407, including 308 small businesses) because such payments could result in a violation of the Antideficiency Act (e.g., during a lapse in appropriated funds). Therefore, approximately 40,282 contractors (including 30,498 small businesses) per year would receive accelerated payments. DoD estimates that there were approximately 9,483 small business subcontractors on DoD prime contracts in FY 2018, based on data from USASpending.gov cross-referenced with size representations for DoD contracts. DoD further estimates that approximately 1 percent (95) small business subcontractors may not receive accelerated payments because DoD was not able to provide accelerated payments to the prime contractor (see the previous paragraph). This rule prohibits contractors from requiring any further consideration from, or charging fees to, their small business subcontractors when making accelerated payments. This prohibition would benefit small business subcontractors who have been required to provide consideration or pay fees to the prime contractor in order to receive accelerated payments. Any costs for prime contractors to implement the prohibition on fees and consideration are expected to be de minimis since DoD expects that only a small number of contractors have required such consideration or fees from their small business subcontractors. VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 As noted in a preceding paragraph, DoD estimates there were approximately 9,483 small business subcontractors on DoD prime contracts in FY 2018. It is not possible for DoD to estimate how many of these small business subcontractors may have been required to provide consideration or pay fees to the prime contractor in order to receive accelerated payments, nor is it possible to estimate the dollar value of the consideration provided or fees paid. Despite a request for comments on this specific topic, DoD received no information from the public that would inform these estimates. If any small business subcontractors have been required to provide consideration or pay fees in return for accelerated payments, the prohibition on such consideration or fees could result in cost savings. However, if no small business subcontractors have been required to provide consideration or pay fees, there would be no cost savings as a result of this rule. IV. Applicability to Contracts at or Below the Simplified Acquisition Threshold and for Commercial Items, Including Commercially Available Offthe-Shelf Items This rule applies the requirements of section 852 of the NDAA for FY 2019 to contracts at or below the simplified acquisition threshold (SAT) and to contracts for the acquisition of commercial items, including commercially available off-the-shelf (COTS) items. A. Applicability to Contracts at or Below the Simplified Acquisition Threshold 41 U.S.C. 1905 governs the applicability of laws to contracts or subcontracts in amounts not greater than the simplified acquisition threshold. It is intended to limit the applicability of laws to such contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision of law contains criminal or civil penalties, or if the FAR Council makes a written determination that it is not in the best interest of the Federal Government to exempt contracts or subcontracts at or below the SAT, the law will apply to them. The Principal Director, Defense Pricing and Contracting (DPC), is the appropriate authority to make comparable determinations for regulations to be published in the DFARS, which is part of the FAR system of regulations. Given that the requirements of section 852 of the NDAA for FY 2019 were enacted to provide accelerated payments to small business contractors and subcontractors, and since approximately 96 percent of DoD PO 00000 Frm 00045 Fmt 4700 Sfmt 4700 19695 contracts are valued at or below the SAT, DoD has determined that it is in the best interest of the Federal Government to apply the rule to contracts at or below the SAT. An exception for contracts at or below the SAT would exclude contracts intended to be covered by the law, thereby undermining the overarching public policy purpose of the law. B. Applicability to Contracts for the Acquisition of Commercial Items, Including COTS Items 10 U.S.C. 2375 governs the applicability of laws to DoD contracts and subcontracts for the acquisition of commercial items, including COTS items, and is intended to limit the applicability of laws to contracts and subcontracts for the acquisition of commercial items, including COTS items. 10 U.S.C. 2375 provides that if a provision of law contains criminal or civil penalties, or if the Under Secretary of Defense for Acquisition and Sustainment (USD(A&S)) makes a written determination that it is not in the best interest of the Federal Government to exempt commercial item contracts, the provision of law will apply to contracts for the acquisition of commercial items. Due to delegations of authority from USD(A&S), the Principal Director, DPC, is the appropriate authority to make this determination. Given that the requirements of section 852 of the NDAA for FY 2019 were enacted to provide accelerated payments to small business contractors and subcontractors, and since more than half of DoD’s contractors are small businesses providing commercial items, including COTS items, DoD has determined that it is in the best interest of the Federal Government to apply the rule to contracts for the acquisition of commercial items, including COTS items, as defined at FAR 2.101. An exception for contracts for the acquisition of commercial items, including COTS items, would exclude the contracts intended to be covered by the law, thereby undermining the overarching public policy purpose of the law. V. Executive Orders 12866 and 13563 Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs E:\FR\FM\08APR1.SGM 08APR1 19696 Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804. lotter on DSKBCFDHB2PROD with RULES VI. Executive Order 13771 This rule is not subject to E.O. 13771, because this rule is not a significant regulatory action under E.O. 12866. VII. Regulatory Flexibility Act A final regulatory flexibility analysis (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows: This final rule is necessary in order to amend the DFARS to implement section 852 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115–232). Section 852 provides for accelerated payments to DoD contractors that are small businesses and to small business subcontractors by accelerating payments to their prime contractors. Specifically, section 852 requires DoD, to the fullest extent permitted by law, to establish an accelerated payment date for small business contractors, with a goal of 15 days after receipt of a proper invoice, if a specific payment date is not established by contract. For contractors that subcontract with small businesses, section 852 requires DoD, to the fullest extent permitted by law, to establish an accelerated payment date, with a goal of 15 days after receipt of a proper invoice, if— (a) A specific payment date is not established by contract; and (b) The contractor agrees to make accelerated payments to the subcontractor without any further consideration from, or fees charged to, the subcontractor. The objective of the rule is to implement section 852 by providing accelerated payments to small business contractors and to small business subcontractors via accelerated payments to prime contractors. DoD received comments from the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, which are summarized below: (a) Number of subcontractors required to pay fees: DoD did not provide the number of small business subcontractors who have been required to provide consideration or pay fees in return for accelerated payments from prime contractors. VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 (b) Conclusion regarding cost savings: DoD concludes, without sound data, that the rule could result in cost savings because of the proposed prohibition on fees and consideration in return for accelerated payments. (c) Conflict with FAR: The rule conflicts with FAR 52.232–40, Providing Accelerated Payments to Small Business Subcontractors, which does not require payment within 15 days. (d) Reason for not accelerating payment: According to DoD, subject matter experts have estimated that DoD would not provide accelerated payments to approximately 1 percent of contractors because such payments would put DoD at risk of a violation of law. DoD did not qualify these individuals as subject matter experts or provide the bases or assumptions that support their conclusions. DoD did not provide small businesses with information on what would constitute a violation of law that would result in DoD not providing accelerated payments to small businesses. (e) Action plan when payments are not accelerated: The rule does not provide a sound action plan for small businesses who may be denied the legal right to accelerated payments. DoD provides the following responses, including changes made to the final rule as a result of the comments: (a) Number of subcontractors required to pay fees: DoD has no data on which to base an estimate of the number of small business subcontractors who have been required to pay fees or provide consideration to prime contractors in return for accelerated payments. In the proposed rule, DoD requested public comment on the topic of consideration or fees in return for accelerated payments. However, none of the public comments addressed this topic. Therefore, in the final rule DoD has provided a rough estimate of the number of small business subcontractors on DoD contracts. DoD estimates there were approximately 9,483 small business subcontractors on DoD contracts in FY 2018. (b) Conclusion regarding cost savings: The conclusion that the rule could result in cost savings was based on a reasonable assumption that, if a small business was required to pay a fee in return for accelerated payments, and the rule prohibits that fee, then the small business will not be required to pay the fee in the future. If no small businesses have been required to pay a fee, then there would be no cost savings as a result of this rule. In the final rule, DoD PO 00000 Frm 00046 Fmt 4700 Sfmt 4700 has made this clarification in section III of the preamble for this final rule. (c) Conflict with FAR: The rule provides details to supplement, rather than conflict with, the requirements of FAR 52.232–40, Providing Accelerated Payments to Small Business Subcontractors. DoD agrees that it is important to clarify what constitutes an accelerated payment from a prime contractor to a small business subcontractor in the context of this DFARS rule. Therefore, the final rule revises the clause at DFARS 252.232– 7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, to clarify that ‘‘accelerated payment’’ means ‘‘a payment made to a small business subcontractor as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later.’’ See paragraph (e) for an explanation of how the FAR clause and the DFARS clause will be used together to provide for accelerated payments to small business subcontractors. (d) Reason for not accelerating payment: The estimate that 1 percent of contractors would not receive accelerated payments was based on DoD’s expectation that this would be a rare occurrence. DoD’s subject matter experts from the Defense Finance and Accounting Service and the Office of the Under Secretary of Defense (Comptroller) have provided clarification on the circumstances that could result in DoD not providing accelerated payments to small businesses. DoD would not be able to provide accelerated payments if such payments would result in a violation of the Antideficiency Act. An example would be a lapse in appropriated funds. DoD has made this clarification in section III of the preamble for this final rule. (e) Action plan when payments are not accelerated: DoD’s interpretation of section 852 of the NDAA for FY 2019 is that section 852 does not create a right to accelerated payments. It requires DoD, to the fullest extent permitted by law, to pay contractors on an accelerated basis, with a goal of 15 days. It also requires the prime contractor’s agreement to provide accelerated payments without requiring further consideration from, or charging fees to, the small business subcontractor. As with any issue or concern related to payments, small businesses may seek assistance from the Office of Small Business Programs for DoD or for the DoD component that awarded the prime E:\FR\FM\08APR1.SGM 08APR1 lotter on DSKBCFDHB2PROD with RULES Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations contract. This final DFARS rule relies on a FAR clause and a DFARS clause used together in a contract to— (i) Communicate to the prime contractor the requirement to provide accelerated payments to small business subcontractors; and (ii) Obtain the prime contractor’s agreement, by signature of the contract, to provide accelerated payments without requiring further consideration from, or charging fees to, the small business subcontractor. DoD contracting officers use the FAR and DFARS together to award contracts, not one or the other in isolation. The FAR currently requires contracting officers to insert FAR 52.232–40 in solicitations and contracts. This final rule will require contracting officers to insert the new DFARS clause 252.232– 7017 in solicitations and contracts that include FAR 52.232–40. This means both clauses will exist in DoD contracts and will work together to require accelerated payments to small business subcontractors when DoD provides accelerated payments to the prime contractor. FAR 52.232–40 currently requires prime contractors to make accelerated payments to their small business subcontractors upon receipt of accelerated payments from the Government. DFARS clause 252.232– 7017 defines accelerated payment as ‘‘a payment made to a small business subcontractor as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later.’’ By using both clauses together, this final DFARS rule requires a prime contractor who receives an accelerated payment from the Government to pay its small business subcontractors as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later. This rule applies to small businesses that are DoD prime contractors. According to data obtained from the Federal Procurement Data System, DoD awarded contracts to an average of 30,806 unique small entities each year from FY 2016 through FY 2018. DoD estimates that it may not be possible to provide accelerated payments to approximately 308 small business contractors (1 percent) because such payments would put DoD at risk of a violation of the Antideficiency Act (e.g., during a lapse in appropriated funds). Therefore, approximately 30,498 small contractors per year would receive accelerated payments. VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 This rule also applies to small businesses that are subcontractors on DoD prime contracts. DoD estimates that there were approximately 9,483 small business subcontractors on DoD prime contracts in FY 2018, based on data from www.USASpending.gov crossreferenced with size representations for DoD contracts. DoD estimates that approximately 95 small business subcontractors (1 percent) may not receive accelerated payments because DoD was not able to provide accelerated payments to the prime contractor. With regard to the impact of the prohibition on fees or other consideration in return for accelerated payments, it is not possible for DoD to estimate how many of these small business subcontractors may have been required to provide consideration or pay fees to the prime contractor in order to receive accelerated payments. This rule does not impose any new reporting, recordkeeping, or other compliance requirements for small entities. There are no known, significant alternatives that would accomplish the objectives of the applicable statute. VIII. Paperwork Reduction Act The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35). List of Subjects in 48 CFR Parts 212, 232, and 252 Government procurement. Jennifer Lee Hawes, Regulatory Control Officer, Defense Acquisition Regulations System. Therefore, 48 CFR parts 212, 232, and 252 are amended as follows: ■ 1. The authority citations for 48 CFR part 212, 232, and 252 continue to read as follows: 19697 prescribed in 232.009–2(2), to comply with 10 U.S.C. 2307(a). * * * * * PART 232—CONTRACT FINANCING 3. Add sections 232.009, 232–009–1, and 232.009–2 to read as follows: ■ 232.009 Providing accelerated payments to small business subcontractors. 232.009–1 General. Section 852 of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115–232) requires DoD to provide accelerated payments to small business contractors and subcontractors, to the fullest extent permitted by law, with a goal of 15 days. 232.009–2 Contract clause. Use the clause at 252.232–7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, in solicitations and contracts, including those using FAR part 12 procedures for the acquisition of commercial items, that include the clause at FAR 52.232– 40, Providing Accelerated Payments to Small Business Subcontractors. ■ 4. Revise section 232.903 to read as follows: 232.903 Responsibilities. In accordance with section 852 of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115–232), DoD shall assist small business concerns by providing payment as quickly as possible, to the fullest extent permitted by law, with a goal of 15 days after receipt of proper invoices and all required documentation, including acceptance, and before normal payment due dates established in the contract (see 232.906(a)). PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES Authority: 41 U.S.C. 1303 and 48 CFR chapter 1. ■ PART 212—ACQUISITION OF COMMERCIAL ITEMS 252.232–7017 Accelerating Payments to Small Business Subcontractors— Prohibition on Fees and Consideration. ■ 2. Amend section 212.301 by adding paragraph (f)(xiii)(G) to read as follows: As prescribed in 232.009–2, use the following clause: 212.301 Solicitation provisions and contract clauses for the acquisition of commercial items. Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration (APR 2020) * * * * * (f) * * * (xiii) * * * (G) Use the clause at 252.232–7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, as PO 00000 Frm 00047 Fmt 4700 Sfmt 4700 5. Add section 252.232–7017 to read as follows: (a) Definition. Accelerated payment, as used in this clause, means a payment made to a small business subcontractor as quickly as possible, with a goal of 15 days or less after receipt of payment from the Government or receipt of a proper invoice from the subcontractor, whichever is later. E:\FR\FM\08APR1.SGM 08APR1 19698 Federal Register / Vol. 85, No. 68 / Wednesday, April 8, 2020 / Rules and Regulations (b) In accordance with section 852 of Public Law 115–232, the Contractor shall not require any further consideration from or charge fees to the small business subcontractor when making accelerated payments, as defined in paragraph (a) of this clause, to subcontractors under the clause at FAR 52.232–40, Providing Accelerated Payments to Small Business Subcontractors. (c) Subcontracts. Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns, including those for the acquisition of commercial items. (End of clause) [FR Doc. 2020–06727 Filed 4–7–20; 8:45 am] BILLING CODE 5001–06–P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 229 and 252 [Docket DARS–2019–0036] RIN 0750–AK13 Defense Federal Acquisition Regulation Supplement: Modification of DFARS Clause ‘‘Tax Relief’’ (DFARS Case 2018–D049) Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. AGENCY: DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to modify the text of an existing DFARS clause to include the text of another DFARS clause on the same subject, in an effort to streamline contract terms and conditions for contractors, pursuant to action taken by the Regulatory Reform Task Force. DATES: Effective April 8, 2020. FOR FURTHER INFORMATION CONTACT: Ms. Carrie Moore, telephone 571–372–6093. SUPPLEMENTARY INFORMATION: lotter on DSKBCFDHB2PROD with RULES SUMMARY: I. Background DoD published a proposed rule in the Federal Register at 84 FR 48512 on September 13, 2019, to modify DFARS clause 252.229–7001, Tax Relief, to incorporate the information included in DFARS clause 252.229–7000, Invoices Exclusive of Taxes or Duties. Combining these clauses results in DFARS clause 252.229–7000 being removed from the DFARS. The rule implements a recommendation of the DoD Regulatory Reform Task Force established under Executive Order (E.O.) 13777, ‘‘Enforcing the Regulatory Reform Agenda.’’ VerDate Sep<11>2014 19:34 Apr 07, 2020 Jkt 250001 No public comments were received in response to the proposed rule. No changes from the proposed rule are made in the final rule. II. Applicability to Contracts at or Below the Simplified Acquisition Threshold and for Commercial Items, Including Commercially Available OffThe-Shelf Items This rule does not create any new provisions or clauses. The rule combines two clauses into a single clause and does not change the applicability of the affected clauses. III. Executive Orders 12866 and 13563 E.O.s 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 20, 1993. This rule is not a major rule as defined at 5 U.S.C. 804. IV. Executive Order 13771 This rule is not subject to E.O. 13771, because this rule is not a significant regulatory action under E.O. 12866. V. Regulatory Flexibility Act A final regulatory flexibility analysis (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows: DoD is amending DFARS clause 252.229–7001, Tax Relief, to incorporate the information included in DFARS clause 252.229–7000, Invoices Exclusive of Taxes or Duties. Combining these clauses will result in DFARS clause 252.229–7000 being removed from the DFARS. The objective of this rule is to streamline DoD contract terms and conditions and contractor responsibilities pertaining to foreign taxes and duties. The modification of these DFARS clauses supports a recommendation from the DoD Regulatory Reform Task Force under E.O. 13771. No public comments were received in response to the initial regulatory flexibility analysis. This rule is combines two existing clauses that address the same topic into PO 00000 Frm 00048 Fmt 4700 Sfmt 4700 a single comprehensive clause. These clauses apply to solicitations and contracts awarded to a foreign concern for contract performance in a foreign country. This rule is not expected to impact small business entities because this rule only applies to foreign entities. The Small Business Administration (SBA) identifies a ‘‘small business’’ as a ‘‘a business entity organized for profit, with a place of business located in the United States, and which operated primarily within the United States or which makes a significant contribution to the U.S. economy through the payment of taxes or use of American products, materials, or labor’’ (13 CFR 121.102(a)). This rule only applies to foreign contractors, which do not meet the SBA definition of ‘‘small business’’ entities. This rule does not include any new reporting, recordkeeping, or other compliance requirements for small businesses. This rule does not duplicate, overlap, or conflict with any other Federal rules. There are no known significant alternative approaches to the rule that would meet the stated objectives. This rule is not expected to have a significant economic impact on small entities. VI. Paperwork Reduction Act The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35). List of Subjects in 48 CFR Parts 229 and 252 Government procurement. Jennifer Lee Hawes, Regulatory Control Officer, Defense Acquisition Regulations System. Therefore, 48 CFR parts 229 and 252 are amended as follows: ■ 1. The authority citation for 48 CFR parts 229 and 252 continues to read as follows: Authority: 41 U.S.C. 1303 and 48 CFR chapter 1. PART 229—TAXES 229.402–1 ■ [Removed] 2. Remove section 229.402–1. PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 252.229–7000 [Removed and Reserved] 3. Remove and reserve section 252.229–7000. ■ E:\FR\FM\08APR1.SGM 08APR1

Agencies

[Federal Register Volume 85, Number 68 (Wednesday, April 8, 2020)]
[Rules and Regulations]
[Pages 19692-19698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06727]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 232, and 252

[Docket DARS-2019-0025]
RIN 0750-AK25


Defense Federal Acquisition Regulation Supplement: Prompt 
Payments of Small Business Contractors (DFARS Case 2018-D068)

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a section of the 
National Defense Authorization Act for Fiscal Year 2019 that provides 
for accelerated payments to small business contractors and 
subcontractors.

DATES: Effective April 8, 2020.

FOR FURTHER INFORMATION CONTACT: Ms. Jennifer D. Johnson, telephone 
571-372-6100.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD published a proposed rule in the Federal Register at 84 FR 
25225 on May 31, 2019, to implement section 852 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232). 
Section 852 provides for accelerated payments to DoD contractors that 
are small businesses and to small business subcontractors by 
accelerating payments to their prime contractors. Thirteen respondents 
submitted public comments in response to the proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. A

[[Page 19693]]

discussion of the comments and the changes made to the rule as a result 
of those comments is provided, as follows:

A. Summary of Significant Changes From the Proposed Rule

    This final rule adds a definition of ``accelerated payment'' to the 
clause at DFARS 252.232-7017, Accelerating Payments to Small Business 
Subcontractors--Prohibition on Fees and Consideration. The definition 
specifies that accelerated payments are made as quickly as possible, 
with a goal of 15 days or less after receipt of payment from the 
Government or receipt of a proper invoice from the subcontractor, 
whichever is later.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Most respondents expressed support for the proposed rule.
    Response: DoD acknowledges the respondents' support.
2. Timely Payments to Small Business Subcontractors
    Comment: One respondent expressed overall support for the proposed 
rule if the rule ensures all large business prime contractors are 
required to pay their subcontractors within 15 days of receiving an 
invoice from their small business subcontractors, regardless of whether 
the prime has been paid by the Federal Government. Another respondent 
suggested an authority to enforce, and a forum to address, grievances 
for payments from the Government that are past due.
    Response: This final rule incorporates the statutory language of 
section 852 of the NDAA for FY 2019, as implemented via 10 U.S.C. 2307, 
which establishes the 15-day timeframe as a goal, rather than a firm 
deadline. The rule provides for prime contractors to make accelerated 
payments to small business subcontractors after receipt of payment from 
the Government because a prime contractor who subcontracts with small 
businesses could be a small business itself. Federal Acquisition 
Regulation (FAR) subpart 32.9 implements the statutory requirements 
concerning required documentation for invoice and acceptance, the 
establishment of payment due dates, and the payment of late payment 
interest penalties after the due date established under the Prompt 
Payment Act (e.g., 30 days). DoD payment offices must adhere to these 
requirements and make payments as quickly as possible, to the fullest 
extent permitted by law.
    Concerning the respondent's suggestion regarding a forum to address 
late payments, as prescribed in 5 CFR 1315.18, questions concerning 
delinquent payments should be directed to the designated agency office, 
or the office responsible for issuing the payment if different from the 
designated agency office. Questions about disagreements over payment 
amount or timing should be directed to the contracting officer for 
resolution. Small business concerns may obtain additional assistance on 
payment issues by contacting the agency's Office of Small Business 
Programs.
3. Interest Penalties for Late Payments to Subcontractors
    Comment: One respondent suggested that the rule could be improved 
by also imposing an interest penalty on all small business invoices 
submitted to the prime contractor that are not paid within 15 days of 
receipt. Another respondent recommended an authority for the Government 
to pay interest penalties to both contractors when invoices are past 
due.
    Response: Section 852 does not provide for interest penalties to be 
paid by the prime contractor for late payments to a subcontractor. 
Therefore, this final rule does not impose interest penalties beyond 
those implemented in FAR subpart 32.9 under the Prompt Payment Act. The 
subcontract between the prime contractor and the subcontractor is a 
business arrangement between two private parties, and therefore Prompt 
Payment Act interest penalties do not apply.
4. 15-Day Payment Goal
    Comment: Two respondents expressed a preference for the proposed 
rule to mandate prompt payment instead of making it a goal, however, 
they commended the DoD proposal to revise the DFARS to implement 
section 852 of the NDAA for FY 2019 to pay small businesses within 15 
days, rather than the current 30-day standard. It is viewed as an 
important first step for DoD small business contractors. Two other 
respondents stated that FAR 52.232-40 does not provide for the 15-day 
payment goal ``to the fullest extent permitted by law,'' which creates 
a conflict with the specific 15-day goal that section 852 directs DoD 
to adopt. One of the respondents recommends a new DFARS prescription 
and contract clause to supplement FAR 52.232-40 be added that provides 
for the 15-day payment goal ``to the fullest extent permitted by law.'' 
The respondent supports the revision to DFARS 232.903 to comport with 
the provisions of section 852 with respect to small business prime 
contractors.
    Response: DoD recognizes the respondents' preference to mandate 
payment within 15 days instead of making it a goal; and agrees that the 
goal is an important step for small business contractors working with 
the DoD. DoD also affirms support for the revision to DFARS 232.903 to 
implement the provisions of section 852.
    Regarding a conflict with the FAR, this final DFARS rule provides 
details to supplement, rather than conflict with, the requirements of 
FAR 52.232-40, Providing Accelerated Payments to Small Business 
Subcontractors. The rule relies on the FAR clause and the DFARS clause 
at 252.232-7017, used together in a contract, to communicate to prime 
contractors the requirements concerning accelerated payments. See 
section III of this preamble for a more detailed explanation of how the 
clauses are used together. DoD agrees that it is important to clarify 
what constitutes an accelerated payment from a prime contractor to a 
small business subcontractor in the context of this DFARS rule. 
Therefore, the final rule revises the clause at DFARS 252.232-7017 to 
define ``accelerated payment'' as a payment made to a small business 
subcontractor as quickly as possible, with a goal of 15 days or less 
after receipt of payment from the Government or receipt of a proper 
invoice from the subcontractor, whichever is later.
5. Clarifications
a. Small Business Subcontractors
    Comment: One respondent suggested that the definition of small 
business subcontractors be clarified for the purposes of accelerated 
payments as those that are directly supporting or charged to a DoD 
contract in which the prime contractor is receiving accelerated 
payments (i.e., not those supporting indirect, commercial, or foreign 
efforts by the prime contractor).
    Response: This final rule does not provide a definition of ``small 
business subcontractor.'' This term is defined at FAR 2.101. The 
definition provided in the FAR applies to the DFARS, including this 
rule.
b. Section Heading for DFARS 232.009
    Comment: One respondent suggested that the heading to DFARS 232.009 
be changed to read ``Providing accelerated payments to small business 
contractors and small business subcontractors'' because DFARS 232.009-1 
adds coverage for both small business and small business 
subcontractors. In addition, the respondent suggested that the term 
``small business primes'' in

[[Page 19694]]

both DFARS 232.009 and DFARS 232.009-1 would be clearer than ``small 
business contractor''.
    Response: The final rule does not include the respondent's 
suggested edits. Revising the heading of DFARS 232.009 as suggested 
would create a disconnect with the title of the new contract clause 
prescribed in this section. In addition, DFARS 232.009 is numbered to 
correspond to FAR 32.009, which addresses the same subject matter. This 
drafting convention allows contracting officers to locate more easily 
coverage of similar topics in the FAR and DFARS. It is not necessary to 
add ``prime contractors'' to the heading because, in the FAR and DFARS, 
the term ``contractor'' means the prime contractor.
6. Governmentwide Application of the Rule
    Comment: One respondent stated that section 852 addresses two types 
of accelerated payments, but noted both are applicable to DoD only. The 
first type addresses payments to small business prime contractors; the 
second type addresses payments to any DoD prime contractor that 
subcontracts with small businesses. The respondent indicated a 
preference for both types of accelerated payments to be made applicable 
governmentwide. The respondent also stated that, at a minimum, the rule 
should acknowledge the governmentwide application of making accelerated 
payments to small business prime contractors, as provided for in FAR 
clause 52.232-25, Prompt Payment.
    Response: DoD affirms the respondent's statement that section 852 
of the NDAA for FY 2019 applies to DoD only. As such, this final DFARS 
rule will be applicable to DoD only. DoD notes, however, that FAR Case 
2020-007, Accelerated Payments Applicable to Contracts with Certain 
Small Business Concerns, is in process to implement section 873 of the 
NDAA for FY 2020, which modifies 31 U.S.C. 3903(a) to require 
accelerated payments for small business prime contractors and prime 
contractors that subcontract with small business concerns.
7. Definition of ``small business''
    Comment: One respondent expressed concern that the rule could be 
improved by defining what constitutes a small business.
    Response: The FAR defines ``small business concern'' in subpart 
2.1, Definitions. The definition of ``small business concern'' in the 
FAR applies throughout the DFARS, including to this rule.
8. Estimate of Fees Paid by Small Business Subcontractors
    Comment: One respondent commented on DoD's inability to estimate 
the number of small business subcontractors who have been required to 
pay fees or provide consideration in return for accelerated payments 
from prime contractors, or the dollar value of these fees or 
consideration. The respondent asked if it was feasible to survey a 
sample of subcontractors to DoD prime contractors regarding the average 
fees paid to the prime contractors, and use that data to estimate fees 
paid by subcontractors to DoD prime contractors in general. The 
respondent also asked if the contractors could be sorted by size (i.e., 
small, medium, and large), with an average fee for each size 
contractor, to find a weighted average number of contractors and fee.
    Response: Resources are not available for a survey such as the 
respondent suggested. DoD does not have any data on which to base an 
estimate of the number of subcontractors required to pay fees or 
provide consideration to the prime contractor in return for accelerated 
payments, or the dollar value of the fees or consideration. Public 
comments did not provide insight into whether small business 
subcontractors had been required to pay fees or provide consideration 
for accelerated payments, or the dollar value of such fees or 
consideration.
9. Initial Regulatory Flexibility Analysis
    Comment: One respondent expressed concern that the initial 
regulatory flexibility analysis prepared for the proposed rule lacked 
adequate information to allow small businesses to determine the impact 
of the rule.
    Response: See section VII. of this preamble.

C. Other Changes

    This final rule adds a reference to the statute (10 U.S.C. 2307(a) 
to the instruction at DFARS 212.301(f)(xiii)(G) for use of the clause 
at DFARS 252.232-7017 in commercial item acquisitions. In the contract 
clause, this final rule adds a new paragraph (a) to provide a 
definition for ``Accelerated payment'' also adds the paragraph heading 
of ``Subcontracts'' to paragraph (c).

III. Expected Impact of the Rule

    Current DoD policy, as stated in DFARS 232.903, is to pay small 
business contractors as quickly as possible after receipt of invoices 
and proper documentation. This rule specifies that DoD will provide 
payment as quickly as possible, to the fullest extent permitted by law, 
with a goal of 15 days after receipt of proper invoices and 
documentation, and before normal payment due dates. For items that 
ordinarily require payment in less than 15 days (e.g., perishable 
food), DoD will provide payment as quickly as possible after receipt of 
proper invoices and documentation, and before the normal payment due 
date.
    With few exceptions, DoD will provide accelerated payments to small 
business contractors and to prime contractors that agree to provide 
accelerated payments to their small business subcontractors without 
further consideration or fees. DoD will not be able to provide 
accelerated payments to prime contractors if such payments would result 
in a violation of the Antideficiency Act. An example would be a lapse 
in appropriated funds.
    This final DFARS rule relies on a FAR clause and a DFARS clause, 
used together in a contract, to--
    (1) Communicate to the prime contractor the requirement to provide 
accelerated payments to small business subcontractors; and
    (2) Obtain the prime contractor's agreement, by signature of the 
contract, to provide accelerated payments without requiring further 
consideration from, or charging fees to, the small business 
subcontractor.
    DoD contracting officers do not use the DFARS in isolation; they 
use the DFARS together with the FAR. The FAR currently requires 
contracting officers to insert the clause at FAR 52.232-40, Providing 
Accelerated Payments to Small Business Subcontractors, in solicitations 
and contracts. This final DFARS rule will require DoD contracting 
officers to insert the new DFARS clause 252.232-7017, Accelerating 
Payments to Small Business Subcontractors--Prohibition on Fees and 
Consideration, in solicitations and contracts that include FAR 52.232-
40. This means both clauses will be included in DoD contracts.
    The FAR clause and the DFARS clause will work together to require 
accelerated payments to small business subcontractors when DoD provides 
accelerated payments to the prime contractor. FAR 52.232-40 currently 
requires prime contractors to provide accelerated payments to their 
small business subcontractors when the Government provides accelerated 
payments to the prime contractors. DFARS clause 252.232-7017 defines 
``accelerated payment'' as ``a payment made to a small business 
subcontractor as quickly as possible, with a goal of 15 days or less 
after receipt of payment

[[Page 19695]]

from the Government or receipt of a proper invoice from the 
subcontractor, whichever is later.'' By using both clauses together in 
a contract, this final DFARS rule requires a prime contractor who 
receives an accelerated payment from the Government to pay its small 
business subcontractors as quickly as possible, with a goal of 15 days 
or less after receipt of payment from the Government or receipt of a 
proper invoice from the subcontractor, whichever is later.
    DoD estimates that 40,282 contractors (including 30,498 small 
businesses) will receive accelerated payments each year, based on data 
obtained from the Federal Procurement Data System (FPDS) and input from 
subject matter experts from the Defense Finance and Accounting Services 
and the Office of the Under Secretary of Defense (Comptroller). 
Specifically, DoD awarded contracts to an average of 40,689 unique 
entities (including 30,806 small businesses) each year from FY 2016 
through FY 2018. Subject matter experts estimated that DoD would not 
provide accelerated payments to approximately 1 percent of these 
contractors (407, including 308 small businesses) because such payments 
could result in a violation of the Antideficiency Act (e.g., during a 
lapse in appropriated funds). Therefore, approximately 40,282 
contractors (including 30,498 small businesses) per year would receive 
accelerated payments.
    DoD estimates that there were approximately 9,483 small business 
subcontractors on DoD prime contracts in FY 2018, based on data from 
USASpending.gov cross-referenced with size representations for DoD 
contracts. DoD further estimates that approximately 1 percent (95) 
small business subcontractors may not receive accelerated payments 
because DoD was not able to provide accelerated payments to the prime 
contractor (see the previous paragraph).
    This rule prohibits contractors from requiring any further 
consideration from, or charging fees to, their small business 
subcontractors when making accelerated payments. This prohibition would 
benefit small business subcontractors who have been required to provide 
consideration or pay fees to the prime contractor in order to receive 
accelerated payments. Any costs for prime contractors to implement the 
prohibition on fees and consideration are expected to be de minimis 
since DoD expects that only a small number of contractors have required 
such consideration or fees from their small business subcontractors.
    As noted in a preceding paragraph, DoD estimates there were 
approximately 9,483 small business subcontractors on DoD prime 
contracts in FY 2018. It is not possible for DoD to estimate how many 
of these small business subcontractors may have been required to 
provide consideration or pay fees to the prime contractor in order to 
receive accelerated payments, nor is it possible to estimate the dollar 
value of the consideration provided or fees paid. Despite a request for 
comments on this specific topic, DoD received no information from the 
public that would inform these estimates. If any small business 
subcontractors have been required to provide consideration or pay fees 
in return for accelerated payments, the prohibition on such 
consideration or fees could result in cost savings. However, if no 
small business subcontractors have been required to provide 
consideration or pay fees, there would be no cost savings as a result 
of this rule.

IV. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    This rule applies the requirements of section 852 of the NDAA for 
FY 2019 to contracts at or below the simplified acquisition threshold 
(SAT) and to contracts for the acquisition of commercial items, 
including commercially available off-the-shelf (COTS) items.

A. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold

    41 U.S.C. 1905 governs the applicability of laws to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold. It is intended to limit the applicability of laws to such 
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision 
of law contains criminal or civil penalties, or if the FAR Council 
makes a written determination that it is not in the best interest of 
the Federal Government to exempt contracts or subcontracts at or below 
the SAT, the law will apply to them. The Principal Director, Defense 
Pricing and Contracting (DPC), is the appropriate authority to make 
comparable determinations for regulations to be published in the DFARS, 
which is part of the FAR system of regulations.
    Given that the requirements of section 852 of the NDAA for FY 2019 
were enacted to provide accelerated payments to small business 
contractors and subcontractors, and since approximately 96 percent of 
DoD contracts are valued at or below the SAT, DoD has determined that 
it is in the best interest of the Federal Government to apply the rule 
to contracts at or below the SAT. An exception for contracts at or 
below the SAT would exclude contracts intended to be covered by the 
law, thereby undermining the overarching public policy purpose of the 
law.

B. Applicability to Contracts for the Acquisition of Commercial Items, 
Including COTS Items

    10 U.S.C. 2375 governs the applicability of laws to DoD contracts 
and subcontracts for the acquisition of commercial items, including 
COTS items, and is intended to limit the applicability of laws to 
contracts and subcontracts for the acquisition of commercial items, 
including COTS items. 10 U.S.C. 2375 provides that if a provision of 
law contains criminal or civil penalties, or if the Under Secretary of 
Defense for Acquisition and Sustainment (USD(A&S)) makes a written 
determination that it is not in the best interest of the Federal 
Government to exempt commercial item contracts, the provision of law 
will apply to contracts for the acquisition of commercial items. Due to 
delegations of authority from USD(A&S), the Principal Director, DPC, is 
the appropriate authority to make this determination.
    Given that the requirements of section 852 of the NDAA for FY 2019 
were enacted to provide accelerated payments to small business 
contractors and subcontractors, and since more than half of DoD's 
contractors are small businesses providing commercial items, including 
COTS items, DoD has determined that it is in the best interest of the 
Federal Government to apply the rule to contracts for the acquisition 
of commercial items, including COTS items, as defined at FAR 2.101. An 
exception for contracts for the acquisition of commercial items, 
including COTS items, would exclude the contracts intended to be 
covered by the law, thereby undermining the overarching public policy 
purpose of the law.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs

[[Page 19696]]

and benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This is not a significant regulatory action and, 
therefore, was not subject to review under section 6(b) of E.O. 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

VI. Executive Order 13771

    This rule is not subject to E.O. 13771, because this rule is not a 
significant regulatory action under E.O. 12866.

VII. Regulatory Flexibility Act

    A final regulatory flexibility analysis (FRFA) has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
The FRFA is summarized as follows:
    This final rule is necessary in order to amend the DFARS to 
implement section 852 of the National Defense Authorization Act (NDAA) 
for Fiscal Year (FY) 2019 (Pub. L. 115-232). Section 852 provides for 
accelerated payments to DoD contractors that are small businesses and 
to small business subcontractors by accelerating payments to their 
prime contractors. Specifically, section 852 requires DoD, to the 
fullest extent permitted by law, to establish an accelerated payment 
date for small business contractors, with a goal of 15 days after 
receipt of a proper invoice, if a specific payment date is not 
established by contract. For contractors that subcontract with small 
businesses, section 852 requires DoD, to the fullest extent permitted 
by law, to establish an accelerated payment date, with a goal of 15 
days after receipt of a proper invoice, if--
    (a) A specific payment date is not established by contract; and
    (b) The contractor agrees to make accelerated payments to the 
subcontractor without any further consideration from, or fees charged 
to, the subcontractor.
    The objective of the rule is to implement section 852 by providing 
accelerated payments to small business contractors and to small 
business subcontractors via accelerated payments to prime contractors.
    DoD received comments from the Chief Counsel for Advocacy of the 
Small Business Administration in response to the proposed rule, which 
are summarized below:
    (a) Number of subcontractors required to pay fees: DoD did not 
provide the number of small business subcontractors who have been 
required to provide consideration or pay fees in return for accelerated 
payments from prime contractors.
    (b) Conclusion regarding cost savings: DoD concludes, without sound 
data, that the rule could result in cost savings because of the 
proposed prohibition on fees and consideration in return for 
accelerated payments.
    (c) Conflict with FAR: The rule conflicts with FAR 52.232-40, 
Providing Accelerated Payments to Small Business Subcontractors, which 
does not require payment within 15 days.
    (d) Reason for not accelerating payment: According to DoD, subject 
matter experts have estimated that DoD would not provide accelerated 
payments to approximately 1 percent of contractors because such 
payments would put DoD at risk of a violation of law. DoD did not 
qualify these individuals as subject matter experts or provide the 
bases or assumptions that support their conclusions. DoD did not 
provide small businesses with information on what would constitute a 
violation of law that would result in DoD not providing accelerated 
payments to small businesses.
    (e) Action plan when payments are not accelerated: The rule does 
not provide a sound action plan for small businesses who may be denied 
the legal right to accelerated payments.
    DoD provides the following responses, including changes made to the 
final rule as a result of the comments:
    (a) Number of subcontractors required to pay fees: DoD has no data 
on which to base an estimate of the number of small business 
subcontractors who have been required to pay fees or provide 
consideration to prime contractors in return for accelerated payments. 
In the proposed rule, DoD requested public comment on the topic of 
consideration or fees in return for accelerated payments. However, none 
of the public comments addressed this topic. Therefore, in the final 
rule DoD has provided a rough estimate of the number of small business 
subcontractors on DoD contracts. DoD estimates there were approximately 
9,483 small business subcontractors on DoD contracts in FY 2018.
    (b) Conclusion regarding cost savings: The conclusion that the rule 
could result in cost savings was based on a reasonable assumption that, 
if a small business was required to pay a fee in return for accelerated 
payments, and the rule prohibits that fee, then the small business will 
not be required to pay the fee in the future. If no small businesses 
have been required to pay a fee, then there would be no cost savings as 
a result of this rule. In the final rule, DoD has made this 
clarification in section III of the preamble for this final rule.
    (c) Conflict with FAR: The rule provides details to supplement, 
rather than conflict with, the requirements of FAR 52.232-40, Providing 
Accelerated Payments to Small Business Subcontractors. DoD agrees that 
it is important to clarify what constitutes an accelerated payment from 
a prime contractor to a small business subcontractor in the context of 
this DFARS rule. Therefore, the final rule revises the clause at DFARS 
252.232-7017, Accelerating Payments to Small Business Subcontractors--
Prohibition on Fees and Consideration, to clarify that ``accelerated 
payment'' means ``a payment made to a small business subcontractor as 
quickly as possible, with a goal of 15 days or less after receipt of 
payment from the Government or receipt of a proper invoice from the 
subcontractor, whichever is later.'' See paragraph (e) for an 
explanation of how the FAR clause and the DFARS clause will be used 
together to provide for accelerated payments to small business 
subcontractors.
    (d) Reason for not accelerating payment: The estimate that 1 
percent of contractors would not receive accelerated payments was based 
on DoD's expectation that this would be a rare occurrence. DoD's 
subject matter experts from the Defense Finance and Accounting Service 
and the Office of the Under Secretary of Defense (Comptroller) have 
provided clarification on the circumstances that could result in DoD 
not providing accelerated payments to small businesses. DoD would not 
be able to provide accelerated payments if such payments would result 
in a violation of the Antideficiency Act. An example would be a lapse 
in appropriated funds. DoD has made this clarification in section III 
of the preamble for this final rule.
    (e) Action plan when payments are not accelerated: DoD's 
interpretation of section 852 of the NDAA for FY 2019 is that section 
852 does not create a right to accelerated payments. It requires DoD, 
to the fullest extent permitted by law, to pay contractors on an 
accelerated basis, with a goal of 15 days. It also requires the prime 
contractor's agreement to provide accelerated payments without 
requiring further consideration from, or charging fees to, the small 
business subcontractor. As with any issue or concern related to 
payments, small businesses may seek assistance from the Office of Small 
Business Programs for DoD or for the DoD component that awarded the 
prime

[[Page 19697]]

contract. This final DFARS rule relies on a FAR clause and a DFARS 
clause used together in a contract to--
    (i) Communicate to the prime contractor the requirement to provide 
accelerated payments to small business subcontractors; and
    (ii) Obtain the prime contractor's agreement, by signature of the 
contract, to provide accelerated payments without requiring further 
consideration from, or charging fees to, the small business 
subcontractor.
    DoD contracting officers use the FAR and DFARS together to award 
contracts, not one or the other in isolation. The FAR currently 
requires contracting officers to insert FAR 52.232-40 in solicitations 
and contracts. This final rule will require contracting officers to 
insert the new DFARS clause 252.232-7017 in solicitations and contracts 
that include FAR 52.232-40. This means both clauses will exist in DoD 
contracts and will work together to require accelerated payments to 
small business subcontractors when DoD provides accelerated payments to 
the prime contractor. FAR 52.232-40 currently requires prime 
contractors to make accelerated payments to their small business 
subcontractors upon receipt of accelerated payments from the 
Government. DFARS clause 252.232-7017 defines accelerated payment as 
``a payment made to a small business subcontractor as quickly as 
possible, with a goal of 15 days or less after receipt of payment from 
the Government or receipt of a proper invoice from the subcontractor, 
whichever is later.'' By using both clauses together, this final DFARS 
rule requires a prime contractor who receives an accelerated payment 
from the Government to pay its small business subcontractors as quickly 
as possible, with a goal of 15 days or less after receipt of payment 
from the Government or receipt of a proper invoice from the 
subcontractor, whichever is later.
    This rule applies to small businesses that are DoD prime 
contractors. According to data obtained from the Federal Procurement 
Data System, DoD awarded contracts to an average of 30,806 unique small 
entities each year from FY 2016 through FY 2018. DoD estimates that it 
may not be possible to provide accelerated payments to approximately 
308 small business contractors (1 percent) because such payments would 
put DoD at risk of a violation of the Antideficiency Act (e.g., during 
a lapse in appropriated funds). Therefore, approximately 30,498 small 
contractors per year would receive accelerated payments.
    This rule also applies to small businesses that are subcontractors 
on DoD prime contracts. DoD estimates that there were approximately 
9,483 small business subcontractors on DoD prime contracts in FY 2018, 
based on data from www.USASpending.gov cross-referenced with size 
representations for DoD contracts. DoD estimates that approximately 95 
small business subcontractors (1 percent) may not receive accelerated 
payments because DoD was not able to provide accelerated payments to 
the prime contractor. With regard to the impact of the prohibition on 
fees or other consideration in return for accelerated payments, it is 
not possible for DoD to estimate how many of these small business 
subcontractors may have been required to provide consideration or pay 
fees to the prime contractor in order to receive accelerated payments.
    This rule does not impose any new reporting, recordkeeping, or 
other compliance requirements for small entities.
    There are no known, significant alternatives that would accomplish 
the objectives of the applicable statute.

VIII. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 212, 232, and 252

    Government procurement.

Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.
    Therefore, 48 CFR parts 212, 232, and 252 are amended as follows:

0
1. The authority citations for 48 CFR part 212, 232, and 252 continue 
to read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
2. Amend section 212.301 by adding paragraph (f)(xiii)(G) to read as 
follows:


212.301   Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (f) * * *
    (xiii) * * *
    (G) Use the clause at 252.232-7017, Accelerating Payments to Small 
Business Subcontractors--Prohibition on Fees and Consideration, as 
prescribed in 232.009-2(2), to comply with 10 U.S.C. 2307(a).
* * * * *

PART 232--CONTRACT FINANCING

0
3. Add sections 232.009, 232-009-1, and 232.009-2 to read as follows:


232.009   Providing accelerated payments to small business 
subcontractors.


232.009-1   General.

    Section 852 of the National Defense Authorization Act for Fiscal 
Year 2019 (Pub. L. 115-232) requires DoD to provide accelerated 
payments to small business contractors and subcontractors, to the 
fullest extent permitted by law, with a goal of 15 days.


232.009-2   Contract clause.

    Use the clause at 252.232-7017, Accelerating Payments to Small 
Business Subcontractors--Prohibition on Fees and Consideration, in 
solicitations and contracts, including those using FAR part 12 
procedures for the acquisition of commercial items, that include the 
clause at FAR 52.232-40, Providing Accelerated Payments to Small 
Business Subcontractors.

0
4. Revise section 232.903 to read as follows:


232.903   Responsibilities.

    In accordance with section 852 of the National Defense 
Authorization Act for Fiscal Year 2019 (Pub. L. 115-232), DoD shall 
assist small business concerns by providing payment as quickly as 
possible, to the fullest extent permitted by law, with a goal of 15 
days after receipt of proper invoices and all required documentation, 
including acceptance, and before normal payment due dates established 
in the contract (see 232.906(a)).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Add section 252.232-7017 to read as follows:


252.232-7017   Accelerating Payments to Small Business Subcontractors--
Prohibition on Fees and Consideration.

    As prescribed in 232.009-2, use the following clause:

Accelerating Payments to Small Business Subcontractors--Prohibition on 
Fees and Consideration (APR 2020)

    (a) Definition. Accelerated payment, as used in this clause, 
means a payment made to a small business subcontractor as quickly as 
possible, with a goal of 15 days or less after receipt of payment 
from the Government or receipt of a proper invoice from the 
subcontractor, whichever is later.

[[Page 19698]]

    (b) In accordance with section 852 of Public Law 115-232, the 
Contractor shall not require any further consideration from or 
charge fees to the small business subcontractor when making 
accelerated payments, as defined in paragraph (a) of this clause, to 
subcontractors under the clause at FAR 52.232-40, Providing 
Accelerated Payments to Small Business Subcontractors.
    (c) Subcontracts. Include the substance of this clause, 
including this paragraph (c), in all subcontracts with small 
business concerns, including those for the acquisition of commercial 
items.


(End of clause)

[FR Doc. 2020-06727 Filed 4-7-20; 8:45 am]
 BILLING CODE 5001-06-P