Defense Federal Acquisition Regulation Supplement: Prompt Payments of Small Business Contractors (DFARS Case 2018-D068), 19692-19698 [2020-06727]
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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.
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4. Revise section 252.204–7002 to
read as follows:
■
As prescribed in 204.7109(a), use the
following clause:
Government procurement.
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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—
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(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
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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.
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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
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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.
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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.
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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.
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(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
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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
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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.
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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.’’
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19:34 Apr 07, 2020
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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]
-----------------------------------------------------------------------
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
