Defense Federal Acquisition Regulation Supplement: Use of Fixed-Price Contracts for Certain Major Defense Acquisition Programs (DFARS Case 2023-D009), 31656-31657 [2024-08435]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Rules and Regulations]
[Pages 31656-31657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08435]



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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207 and 234

[Docket DARS-2023-0030]
RIN 0750-AL82


Defense Federal Acquisition Regulation Supplement: Use of Fixed-
Price Contracts for Certain Major Defense Acquisition Programs (DFARS 
Case 2023-D009)

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

ACTION: Final rule.

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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 2023 that limits the 
number of low-rate initial production lots associated with a major 
defense acquisition program under certain circumstances.

DATES: Effective April 25, 2024.

FOR FURTHER INFORMATION CONTACT: Mr. Jon Snyder, telephone 703-945-
5341.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 88 FR 
67611 on September 29, 2023, to implement section 808 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023 (Pub. L. 
117-263). Section 808 amends section 818 of Public Law 109-364 to limit 
the number of low-rate initial production lots associated with a major 
defense acquisition program to be procured to no more than one when the 
milestone decision authority authorizes the use of a fixed-price type 
contract at Milestone B and the scope of the work includes both 
development and low-rate initial production. This limitation may be 
waived. Two 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 discussion of the comments is provided, as follows:

A. Summary of Significant Changes From the Proposed Rule

    There are no significant changes from the proposed rule.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: One respondent indicted support for the rule.
    Response: The support for the rule is noted.
2. Clarifications
    Comment: One respondent suggested that the rule should define or 
provide a reference to the definition of a fixed-price contract. The 
rule does not specify whether fixed-price contracts include firm-fixed-
price, fixed-price-incentive, or fixed-price-with-economic-price-
adjustment, which could create ambiguity or inconsistency in the 
application of the rule and affect the level of risk and incentive for 
the Government and contractors. The respondent recommended providing a 
reference to the relevant section of the Federal Acquisition Regulation 
(FAR) that defines these types of contracts or specify the types of 
fixed-price contracts that can be used.
    Response: This rule does not stand alone; contracting officers will 
implement the rule in the context provided by the FAR and DFARS. FAR 
subpart 16.2 describes the types of fixed-price contracts that a 
contracting officer may use. The DFARS, as a supplement to the FAR, 
does not duplicate the content of the FAR.
    Comment: One respondent suggested that the rule should explain the 
rationale or purpose of the limitation on procuring more than one lot 
for low-rate initial production (LRIP) using a fixed-price type 
contract for a major defense acquisition program. The rule currently 
does not state why this limitation is necessary or beneficial, or how 
it relates to the objective of reducing cost risk and improving 
performance. This could make it difficult to evaluate the effectiveness 
or impact of the rule, or to justify its use in specific cases.
    Response: Section 808 of the NDAA for FY 2023 limits the number of 
LRIP lots to no more than one on fixed-price contracts that also 
include development. Neither section 808 nor the Joint Explanatory 
Statement provides the rationale or purpose of the limitation. However, 
the limitation may result in a reduction in risk to the contractor 
associated with proposing prices for multiple production lots of an 
item prior to the completion of development and initial production of 
the item.
    Comment: One respondent suggested that the rule should establish 
some criteria or guidelines for exercising the waiver authority for the 
limitation on LRIP procurement. The rule currently does not indicate 
how the service acquisition executive should decide whether to grant or 
deny a waiver, or what factors should be considered in making this 
decision. This could lead to arbitrary or inconsistent decisions or 
undermine the accountability or transparency of the waiver process. 
Providing examples of factors that could justify a waiver and indicate 
that the waiver authority should be used sparingly and only in 
exceptional circumstances.
    Response: Section 808 provides the service acquisition executive 
the authority to waive this limitation. It does not specify the 
criteria to be considered in making such a waiver decision. Providing 
examples of factors to consider in determining whether or not to waive 
the limitation may preclude the consideration of factors that are 
relevant to the instant acquisition and may have a negative impact on 
meeting mission needs.

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

    This final rule does not create any new solicitation provisions or 
contract clauses. It does not impact any existing solicitation 
provisions or contract clauses or their applicability to contracts 
valued at or below the simplified acquisition threshold, for commercial 
products including COTS items, or for commercial services.

IV. Expected Impact of the Rule

    As a result of this final rule, unless waived, the Government may 
not procure more than one low-rate initial production lot associated 
with a major defense acquisition program if, at the time of Milestone B 
approval, the milestone decision authority authorizes the use of a 
fixed-price type contract and the scope of work of the fixed-price 
contract includes both development and low-rate initial production of 
items associated with such major defense acquisition program. This rule 
does not impact contractor operations; however, it may limit contractor 
risk assumed under such contracts. Development and initial production 
of an item likely involve the discovery and resolution of problems that 
are unknown beforehand. Risk to a contractor is higher when the 
contractor must propose prices for multiple production lots of an item 
before the development and initial production of that item are 
complete. By limiting the number of low-rate initial production lots on 
a fixed-price contract

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that also includes development, this risk to the contractor may be 
reduced.

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 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, as amended.

VI. 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 
the interim or final 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. The Office of 
Information and Regulatory Affairs has determined that this rule is not 
a major rule as defined by 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
and is summarized as follows:
    This final rule is necessary to implement section 808 of the 
National Defense Authorization Act for Fiscal Year (FY) 2023 (Pub. L. 
117-263). Section 808 modifies section 818 of Public Law 109-364 to 
limit the number of low-rate initial production lots associated with a 
major defense acquisition program to be procured to no more than one 
when the milestone decision authority authorizes the use of a fixed-
price type contract at the time of Milestone B approval and the scope 
of the fixed-price contract includes both development and low-rate 
initial production.
    No comments were received in response to the initial regulatory 
flexibility analysis.
    Data is not available on the number of fixed-price type contracts 
for major defense acquisition programs that contain both development 
and low-rate initial production; therefore, data was obtained for 
contracts that include DFARS clause 252.234-7004, Cost and Software 
Data Reporting System, or its alternate I clause. This DFARS clause is 
required to be included in solicitations and contracts for major 
defense acquisition programs that exceed $50 million, and its alternate 
I clause is required to be included in solicitations and contracts for 
major defense acquisition programs that are greater than $20 million 
but less than or equal to $50 million under certain circumstances. 
According to the Procurement Business Intelligence Service, DoD awarded 
contracts for major defense acquisition programs to 130 unique small 
entities in FY 2021, 99 in FY 2022, and 109 in FY 2023. The average 
over the three-year period is 112 per fiscal year. Therefore, the 
number of small entities to which this rule may apply is 112.
    This final rule does not impose any new reporting, recordkeeping, 
or other compliance requirements for small entities.
    There are no known alternatives that would accomplish the stated 
objectives of the applicable statute.

VIII. Paperwork Reduction Act

    This final 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 207 and 234

    Government procurement.

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

    Therefore, 48 CFR parts 207 and 234 are amended as follows:

0
1. The authority citation for parts 207 and 234 continues to read as 
follows:

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

PART 207--ACQUISITION PLANNING

0
2. In section 207.106, revise paragraph (S-74) to read as follows:


207.106  Additional requirements for major systems.

* * * * *
    (S-74) When selecting contract type for a major defense acquisition 
program, see 234.004.

PART 234--MAJOR SYSTEM ACQUISITION

0
3. Amend section 234.004 by adding paragraph (2)(v) to read as follows:


234.004  Acquisition strategy.

* * * * *
    (2) * * *
    (v) In accordance with section 808 of the National Defense 
Authorization Act for Fiscal Year 2023 (Pub. L. 117-263)--
    (A) The contracting officer shall not procure more than one lot for 
low-rate initial production, as defined at 10 U.S.C. 4231, associated 
with a major defense acquisition program if--
    (1) The milestone decision authority authorizes the use of a fixed-
price type contract at the time of Milestone B approval; and
    (2) The scope of work of the fixed-price type contract includes 
both the development and low-rate initial production of items for such 
major defense acquisition program; and
    (B) This limitation may be waived by the service acquisition 
executive for the department concerned, delegable to no lower than one 
level above the contracting officer, if--
    (1) A written notification of the waiver, including associated 
rationale, is provided to the congressional defense committees no later 
than 30 days after issuance of the waiver in accordance with agency 
procedures; and
    (2) A copy of the waiver and such congressional notification are 
included in the contract file.
* * * * *
[FR Doc. 2024-08435 Filed 4-24-24; 8:45 am]
BILLING CODE 6001-FR-P