Defense Federal Acquisition Regulation Supplement: Requirement for Firms Used To Support Department of Defense Audits (DFARS Case 2019-D010), 59947-59951 [2021-23457]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 86, Number 207 (Friday, October 29, 2021)]
[Proposed Rules]
[Pages 59947-59951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23457]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 237, and 252

[Docket DARS-2021-0021]
RIN 0750-AK47


Defense Federal Acquisition Regulation Supplement: Requirement 
for Firms Used To Support Department of Defense Audits (DFARS Case 
2019-D010)

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

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement a section of the National 
Defense Authorization Act for Fiscal Year 2019, as amended by a section 
of the National Defense Authorization Act for Fiscal Year 2020, that 
requires accounting firms that provide financial statement auditing or 
audit remediation services in support of the Financial Improvement and 
Audit Remediation Plan to provide to DoD a statement setting forth the 
details of any disciplinary proceedings with respect to the accounting 
firm or its associated persons before any entity with the authority to 
enforce compliance with rules or laws applying to audit services 
offered by the accounting firm. DoD policy extends this requirement to 
firms other than accounting firms.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before December 28, 2021, to be 
considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2019-D010, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for ``DFARS Case 2019-D010.'' Select ``Comment'' and follow the 
instructions provided to submit a comment. Please include ``DFARS Case 
2019-D010'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2019-D010 in 
the subject line of the message.
    Comments received generally will be posted without change to 
https://www.regulations.gov, including any personal information 
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission 
to verify posting.

FOR FURTHER INFORMATION CONTACT:  Mr. David E. Johnson, telephone 571-
372-6115.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD is proposing to amend the DFARS to implement section 1006 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 
(Pub. L. 115-232), as amended by section 1011 of the NDAA for FY 2020 
(Pub. L. 116-92). Section 1006 applies to accounting firms that provide 
financial statement auditing to DoD in support of the audit under 31 
U.S.C. 3521 or audit remediation services in support of the Financial 
Improvement and Audit Remediation Plan described in 10 U.S.C. 240b. 
DoD, as a matter of policy, is extending this requirement to firms 
other than accounting firms that provide such services. Such firms, 
when responding to a solicitation or awarded

[[Page 59948]]

a contract for the acquisition of covered services, must disclose to 
DoD before any contract action (including award, renewals, and 
modifications) the details of any disciplinary proceedings with respect 
to the accounting firm or its associated persons before any entity with 
the authority to enforce compliance with rules or laws applying to 
audit services offered by the accounting firm. Section 1011 amended 
section 1006 to require any disclosures to be treated as confidential 
to the extent required by the court or agency in which the proceeding 
occurred and to be treated in a manner consistent with any protections 
or privileges established by any other provision of Federal law.
    DoD received input from one respondent in response to the early 
engagement opportunity posted on the Defense Acquisition Regulations 
System web page for the NDAA for FY 2019. The input was considered in 
the formulation of the proposed rule. The rule is expected to have a 
minor impact as it is expected to apply to approximately a dozen firms.

II. Discussion and Analysis

    DoD proposes to add a new paragraph (d) to DFARS 237.270, 
Acquisition of audit services; a new solicitation provision 252.237-
70XX, Preaward Transparency Requirements for Firms Offering to Support 
Department of Defense Audits--Representation and Disclosure; and a new 
contract clause at 252.237-70YY, Postaward Transparency Requirements 
for Firms that Support Department of Defense Audits. The provision will 
not be included in the annual representations and certifications, 
because it affects very few offerors and requires update every time an 
offer is submitted.
    For audit remediation services, both accounting and non-accounting 
firms are able to bid on and perform this work. Section 1006 of the 
NDAA for FY 2019 only requires that accounting firms providing 
financial statement auditing or audit remediation services to DoD 
provide the details on any disciplinary proceedings with respect to the 
accounting firm or its associated persons. DFARS 237.270(d)(1) 
specifies that, as a matter of policy, DoD proposes to require this 
information from any offeror responding to a DoD solicitation for such 
services, in order to have a level playing field for the competition.
    DFARS 237.270(d)(2) specifies that this requirement applies to 
solicitations and contracts for financial statement auditing required 
under 31 U.S.C. 3521(e) (as explicitly stated in the statute) and 
clarifies that the covered audit remediation services are those in 
support of the Financial Improvement and Audit Remediation Plan 
described in 10 U.S.C. 240b (based on a reading of section 1006 in 
conjunction with section 1002 of the same NDAA for FY 2019).
    DFARS 237.270(d)(3) clarifies that the ``associated persons'' 
referred to in section 1006 include principals and employees. Federal 
Acquisition Regulation (FAR) 2.101 defines ``principals'' to mean an 
officer, director, owner, partner, or a person having primary 
management or supervisory responsibilities within a business entity.
    The solicitation provision at DFARS 252.237-70XX only requires 
reporting of disciplinary proceedings within the last 3 years that are 
not yet fully adjudicated or settled or that were fully adjudicated or 
settled against the offeror. Postaward, prior to each subsequent 
contract action, the proposed clause at DFARS 252.237-70YY requires 
contractors to report any changes in previously reported proceedings 
and any newly initiated proceeding that has not yet been adjudicated or 
settled, or has been fully adjudicated or settled against the 
contractor. The provision and the clause each require that the 
disclosure shall, at a minimum, include the entity hearing the case, 
the case or file number, and a brief description of the allegation or 
conduct at issue, and if fully adjudicated or settled, a brief 
description of the outcome.
    The proposed provision and clause also include assurance that the 
Government will safeguard and treat as confidential all statements 
provided pursuant to this provision where the statement has been marked 
``confidential'' or ``proprietary'' by the offeror or contractor. 
Statements so marked will not be released by the Government to the 
public pursuant to a request under the Freedom of Information Act, 5 
U.S.C. 552, without prior notification to the offeror or contractor and 
opportunity for the offeror or contractor to claim an exemption from 
release. The Government will treat any statement provided pursuant to 
this provision and clause as confidential to the extent required by any 
other applicable law.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Items, Including Commercially 
Available Off-the-Shelf (COTS) Items

    Consistent with the determinations that DoD made with regard to 
application of the requirements of section 1006 of the NDAA for FY 
2019, as amended by section 1011 of the NDAA for FY 2020, DoD does not 
intend to apply the requirements of section 1006 of the NDAA for FY 
2019 to contracts at or below the SAT, but does intend to apply the 
rule to contracts for the acquisition of commercial items, excluding 
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 Federal 
Acquisition Regulatory 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. DoD does not intend to make that determination. Therefore, 
this rule will not apply at or below the simplified acquisition 
threshold.

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

    10 U.S.C. 2375 exempts contracts and subcontracts for the 
acquisition of commercial items (including COTS items) from provisions 
of law enacted after October 13, 1994, that, as determined by the Under 
Secretary of Defense for Acquisition and Sustainment (USD(A&S)), set 
forth policies, procedures, requirements, or restrictions for the 
acquisition of property or services unless--
     The provision of law--
    [cir] Provides for criminal or civil penalties;
    [cir] Requires that certain articles be bought from American 
sources pursuant to 10 U.S.C. 2533a or that strategic materials 
critical to national security be bought from American sources pursuant 
to 10 U.S.C. 2533b; or
    [cir] Specifically refers to 10 U.S.C. 2375 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial items (including COTS items); or
     USD(A&S) determines in writing that it would not be in the 
best interest

[[Page 59949]]

of the Government to exempt contracts or subcontracts for the 
acquisition of commercial items from the applicability of the 
provision.
    This authority has been delegated to the Principal Director, DPC.
    Although sections 1006 and 1011 do not refer to 10 U.S.C. 2375 or 
state that these sections apply to contracts and subcontracts for the 
acquisition of commercial items, the types of audit services targeted 
by the law generally are commercial services. If commercial items are 
exempted, the statutes will be without effect, undermining the 
overarching public policy purpose of the law. Therefore, 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, 
excluding COTS items, as defined at FAR 2.101.

IV. 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 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.

V. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD will submit a copy of 
interim or final the rule with the form, Submission of Federal Rules 
Under the Congressional Review Act, to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the Congressional Review Act cannot take effect until 
60 days after it is published in the Federal Register. This rule is not 
anticipated to be a major rule under 5 U.S.C. 804.

VI. Regulatory Flexibility Act

    DoD does not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule is expected to apply to approximately a dozen 
entities. However, an initial regulatory flexibility analysis has been 
performed and is summarized as follows:
    DoD is proposing to amend the DFARS to implement section 1006 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 
(Pub. L. 115-232), as amended by section 1011 of the NDAA for FY 2020 
(Pub. L. 116-92), and DoD policy to provide a level playing field among 
firms that provide audit services, whether accounting firms or other 
than accounting firms.
    Section 1006 applies to accounting firms that provide financial 
statement auditing or audit remediation services to DoD in support of 
the audit under 31 U.S.C. 3521 or audit remediation services in support 
of the Financial Improvement and Audit Remediation Plan described in 10 
U.S.C. 240b. Such firms, when responding to a solicitation or awarded a 
contract for the acquisition of covered services, must disclose to DoD 
before any contract action (including award, renewals, and 
modifications) the details of any disciplinary proceedings with respect 
to the accounting firm or its associated persons before any entity with 
the authority to enforce compliance with rules or laws applying to 
audit services offered by the accounting firm. DoD policy extends this 
requirement to firms other than accounting firms, in order to provide a 
level playing field in competitive acquisitions.
    DoD estimates there are 12 respondents that submit offers and 10 
respondents that receive award of one or more contracts covered by this 
rule. Of the estimated 12 respondents, DoD further estimates that only 
two of these respondents are small entities.
    This rule proposes to add a solicitation provision and a contract 
clause that require details of any disciplinary proceedings with 
respect to the firm or its associated persons before any contract 
action on a covered contract in support of DoD audits.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    DoD considered applying the rule to only accounting firms, but that 
would create a situation in which the rule would not apply to other 
firms that also provide these services, leading to unfair competitions. 
Applying the rule to other than accounting firms does not create a 
significant burden for small entities. DoD invites comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2019-D010), in 
correspondence.

VII. Paperwork Reduction Act

    The rule contains information collection requirements that require 
the approval of the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act (44 U.S.C. chapter 35). Accordingly, DoD has 
submitted a request for approval of a new information collection 
requirement concerning Requirement for Firms Used to Support Department 
of Defense Audits (DFARS Case 2019-D010) to OMB. The DFARS rule adds a 
new documentation submission and reporting requirement.
    A. Public reporting burden for this collection of information is 
estimated to average approximately 0.27 hour per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.
    The annual reporting burden estimated as follows:
    Respondents: 18.
    Responses per respondent: 23.
    Total annual responses: 414.
    Preparation hours per response: 0.27 hours, approximately.
    Total response burden hours: 113.
    B. Request for Comments Regarding Paperwork Burden. Written 
comments and recommendations on the proposed information collection, 
including suggestions for reducing this burden, should be sent to Ms. 
Susan Minson at the Office of Management and Budget, Desk Officer for 
DoD, Room 10236, New Executive Office Building, Washington, DC 20503, 
or email [email protected], with a copy to the Defense 
Acquisition Regulations System, Attn: Mr. David E. Johnson, 
OUSD(A&S)DPC/DARS, Room 3B938, 3060 Defense Pentagon, Washington, DC 
20301-3060. Comments can be received from 30 to 60 days after the date 
of this notice, but comments to OMB will be most useful if received by 
OMB within 30 days after the date of this notice.
    Public comments are particularly invited on: Whether this 
collection of information is necessary for the proper performance of 
functions of the DFARS, and will have practical utility; whether our 
estimate of the public burden of this collection of information is 
accurate, and based on valid assumptions and methodology; ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and ways in which we can minimize the burden of

[[Page 59950]]

the collection of information on those who are to respond, through the 
use of appropriate technological collection techniques or other forms 
of information technology.
    To request more information on this proposed information collection 
or to obtain a copy of the proposal and associated collection 
instruments, please write to the Defense Acquisition Regulations 
System, Attn: Mr. David Johnson, OUSD(A&S)DPC/DARS, Room 3B938, 3060 
Defense Pentagon, Washington, DC 20301-3060, or email 
[email protected]. Include DFARS Case 2019-D010 in the subject line of 
the message.

List of Subjects in 48 CFR Parts 212, 237, and 252

    Government procurement.

Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 212, 237, and 252 are proposed to be 
amended as follows:

0
1. The authority citation for parts 212, 237, and 252 continues 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 paragraphs (f)(xiii)(C) and (D) to 
read as follows:


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

* * * * *
    (f) * * *
    (xiii) * * *
    (C) Use the provision at 252.237-70XX, Preaward Transparency 
Requirements for Firms Offering to Support Department of Defense 
Audits--Representation and Disclosure, as prescribed in 237.270(e)(3), 
to comply with section 1006 of the National Defense Authorization Act 
for Fiscal Year 2019 (Pub. L. 115-232) and section 1011 of the National 
Defense Authorization Act for Fiscal Year 2020 (Pub. L. 116-92).
    (D) Use the clause at 252.237-70YY, Postaward Transparency 
Requirements for Firms that Support Department of Defense Audits, as 
prescribed in 237.270(e)(4), to comply with section 1006 of the 
National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-
232) and section 1011 of the National Defense Authorization Act for 
Fiscal Year 2020 (Pub. L. 116-92).
* * * * *

PART 237--SERVICE CONTRACTING

0
3. Amend section 237.270 by--
0
a. Redesignating paragraph (d) as paragraph (e);
0
b. Adding a new paragraph (d); and
0
c. Adding paragraphs (e)(3) and (4).
    The additions read as follows:


237.270   Acquisition of audit services.

* * * * *
    (d) Transparency requirement for firms used to support DoD audits. 
(1) This paragraph (d) implements the requirements of section 1006 of 
the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 
115-232) and section 1011 of the National Defense Authorization Act for 
Fiscal Year 2020 (Pub. L. 116-92) for transparency of accounting firms 
used to support DoD audits; and extends the statutory requirement, as a 
matter of DoD policy, to firms other than accounting firms in order to 
ensure consistent availability of data for contracting officer 
evaluation and appropriate use.
    (2) This requirement applies to solicitations and contracts for--
    (i) Financial statement auditing required under 31 U.S.C. 3521(e); 
or
    (ii) Audit remediation services in support of the Financial 
Improvement and Audit Remediation Plan described in 10 U.S.C. 240b.
    (3) Any firm responding to a solicitation or awarded a contract for 
the acquisition of the services described in paragraph (d)(2) of this 
section is required to represent with regard to whether it has been 
subject to disciplinary proceedings within the last 3 years and, if the 
offeror represents that is has, to disclose to DoD before any contract 
action (including award, renewals, and modifications)--
    (i) The details of any disciplinary proceedings, with respect to 
the firm or its associated persons (including principals and 
employees), before an entity with the authority to enforce compliance 
with rules or laws applying to audit services or audit remediation 
services offered by accounting firms or firms other than accounting 
firms; and
    (ii) For subsequent contract actions after contract award, whether 
there has been any change with regard to previously reported 
disciplinary proceedings since the last contract action.
    (e) * * *
    (3) Use the provision at 252.237-70XX, Preaward Transparency 
Requirements for Firms Offering to Support Department of Defense 
Audits--Representation and Disclosure, in solicitations, including 
solicitations using FAR part 12 procedures for the acquisition of 
commercial items, that include the clause at 252.237-70YY, Postaward 
Transparency Requirements for Firms that Support Department of Defense 
Audits.
    (4) Use the clause at 252.237-70YY, Postaward Transparency 
Requirements for Firms that Support Department of Defense Audits, in 
solicitations and contracts, including solicitations and contracts 
using FAR part 12 procedures for the acquisition of commercial items, 
that--
    (i) Exceed the simplified acquisition threshold; and
    (ii) Are for the acquisition of financial statement auditing or 
audit remediation services as described in paragraph (d)(2) of this 
section.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


252.237-7000   [Amended]

0
4. Amend section 252.237-7000 introductory text by removing 
``237.270(d)(1)'' and adding ``237.270(e)(1)'' in its place.


252.237-7001   [Amended]

0
5. Amend section 252.237-7001 introductory text by removing 
``237.270(d)(2)'' and adding ``237.270(e)(2)'' in its place.
0
6. Add section 252.237-70XX to read as follows:


252.237-70XX   Preaward Transparency Requirements for Firms Offering to 
Support Department of Defense Audits--Representation and Disclosure.

    As prescribed in 237.270(e)(3), use the following provision: 
PREAWARD TRANSPARENCY REQUIREMENTS FOR FIRMS OFFERING TO SUPPORT 
DEPARTMENT OF DEFENSE AUDITS--REPRESENTATION AND DISCLOSURE (DATE)

    (a) Representation. The Offeror represents that within the 3-
year period preceding this offer, the Offeror and/or any of its 
principals or employees have [ ] have not [ ] been the subject of 
disciplinary proceedings before an entity with the authority to 
enforce compliance with rules or laws applying to audit services or 
audit remediation services offered by the Offeror, that--
    (1) Are not yet fully adjudicated or settled; or
    (2) Were fully adjudicated or settled against the Offeror and/or 
its principals or employees.
    (b) Disclosure. If the Offeror checked ``have'' in the 
representation in paragraph (a) of this provision, the Offeror 
shall, at a minimum, disclose for each such proceeding--
    (1) The entity hearing the case;
    (2) The case or file number; and

[[Page 59951]]

    (3) The allegation or conduct at issue and, if fully adjudicated 
or settled, a brief description of the outcome.
    (c) The Government will safeguard and treat as confidential all 
statements provided pursuant to this provision where the statement 
has been marked ``confidential'' or ``proprietary'' by the Offeror. 
Statements so marked will not be released by the Government to the 
public pursuant to a request under the Freedom of Information Act, 5 
U.S.C. 552, without prior notification to the Offeror and 
opportunity for the Offeror to claim an exemption from release. The 
Government will treat any statement provided pursuant to this 
provision as confidential to the extent required by any other 
applicable law.


(End of provision)
0
7. Add section 252.237-70YY to read as follows:


252.237-70YY   Postaward Transparency Requirements for Firms that 
Support Department of Defense Audits.

    As prescribed in 237.270(e)(4), use the following clause: POSTAWARD 
TRANSPARENCY REQUIREMENTS FOR FIRMS THAT SUPPORT DEPARTMENT OF DEFENSE 
AUDITS (DATE)

    (a) Prior to each contract action under this contract (including 
renewal or modification), the Contractor shall disclose the details 
of any disciplinary proceedings, with respect to the firm and/or its 
principals or employees, before an entity with the authority to 
enforce compliance with rules or laws applying to audit services or 
audit remediation services offered by the Contractor, and whether 
there has been any change with regard to previously reported 
proceedings since the last contract action.
    (b) The disclosure shall, at a minimum, include--
    (1) The entity hearing the case;
    (2) The case or file number; and
    (3) A brief description of the allegation or conduct at issue 
and, if fully adjudicated or settled, a brief description of the 
outcome.
    (c) The Government will safeguard and treat as confidential all 
statements provided pursuant to this clause where the statement has 
been marked ``confidential'' or ``proprietary'' by the Contractor. 
Statements so marked will not be released by the Government to the 
public pursuant to a request under the Freedom of Information Act, 5 
U.S.C. 552, without prior notification to the Contractor and 
opportunity for the Contractor to claim an exemption from release. 
The Government will treat any statement provided pursuant to this 
clause as confidential to the extent required by any other 
applicable law.


(End of clause)

[FR Doc. 2021-23457 Filed 10-28-21; 8:45 am]
BILLING CODE 5001-06-P