[Federal Register Volume 77, Number 1 (Tuesday, January 3, 2012)]
[Rules and Regulations]
[Pages 194-197]
From the Federal Register Online via the Government Printing Office [http://www.gpo.gov/]
[FR Doc No: 2011-33418]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 8, 12, and 16
[FAC 2005-55; FAR Case 2009-043; Item IV; Docket 2010-0100, Sequence 1]
RIN 9000-AL74
Federal Acquisition Regulation; Time-and-Materials and Labor-Hour
Contracts for Commercial Items
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to implement Government
Accountability Office (GAO) recommendations to: ensure that time-and-
materials and labor-hour contracts are used to acquire commercial
services only when no other contract type is suitable; and instill
discipline in the determination of contract type with a view toward
managing the risk to the Government.
DATES: Effective Date: February 2, 2012.
FOR FURTHER INFORMATION CONTACT: Ms. Lori Sakalos, Procurement Analyst,
at (202) 208-0498, for clarification of content. For information
pertaining to status or publication schedules, contact the Regulatory
Secretariat at (202) 501-4755. Please cite FAC 2005-55, FAR Case 2009-
043.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 75 FR 59195 on September 27, 2010. The due date for public
comments was November 26, 2010.
Eleven comments were received from four respondents. The comments
are separated into eight categories, addressed in the following
sections.
II. Discussion and Analysis
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the comments in the
development of the final rule.
A. Summary of Significant Changes
Changes were made to the proposed rule as a result of the public
comments and the publication of FAR Case 2007-012 in the Federal
Register at 76 FR 14548 on March 16, 2011. Specifically, all text in
the proposed rule under FAR 8.405-2(e) has been relocated to FAR
8.404(h). FAR Case 2007-012 strengthened competition requirements for
orders placed under the Federal Supply Schedules. As a result, FAR
8.405-2(e)(2)(ii) has been deleted and references to FAR part 12 at FAR
subpart 8.4 have been removed.
Additional changes were made during deliberation of the final rule
to require these same safeguards on the use of time-and-materials (T&M)
and labor-hour (LH) orders for Blanket Purchase Agreements awarded
under the Federal Supply Schedule Program.
B. Analysis of Public Comments
Respondents submitted comments covering the following seven
categories: (1) Cross references; (2) Combine guidance from this case
with FAR Case 2007-012; (3) Eliminate redundant material; (4) Clarify
contract types; (5) Potential for rule to limit the use of T&M
contracts; (6) Requirement for determination and findings at the order
level; and (7) Address fixed-price level-of-effort (FP LOE) contracts.
[[Page 195]]
1. Cross References
Comment: One respondent stated that there is a contradiction
between FAR 12.207 and proposed FAR 16.201, which states that the
contracting officer shall use firm-fixed-price or fixed-price with
economic price adjustment contracts when acquiring commercial items.
The respondent recommended revising FAR 16.201 to reference FAR
12.207(b), which states the conditions for use of T&M or LH contracts
to acquire commercial services, which are a subset of commercial items.
Response: A cross-reference to FAR 12.207(b) has been added at FAR
16.201, to reference the exception to the required use of fixed-price
contracts for acquisition of commercial items.
Comment: A respondent noted that FAR 8.405-2(e)(2)(ii) would
require the contracting officer to follow the competitive procedures at
FAR 8.405-2(c), but, in contrast, FAR 12.207(b)(1)(i)(B) provides that
procedures for other than full and open competition may be used if the
agency receives at least two offers. The respondent believed that it
would be consistent with the latter approach to give an agency the
discretion to use other than the competitive procedures at FAR 8.405-
2(c) if at least two quotes are received for the task order.
Response: FAR Case 2007-012, which was published in the Federal
Register at 76 FR 14548 on March 16, 2011 (FAC 2005-50), provides an
interim rule that sets forth the requirements for the use of limited
sources and strengthens competition rules in FAR subpart 8.4. FAR
8.405-2(c) does not preclude the acquisition of commercial services
under T&M and LH contracts on other than a competitive basis under
8.405-2(c)(3)(i), provided the procedures outlined in FAR 8.405-6 are
followed. The references to FAR part 12 in the proposed rule will be
deleted.
Comment: One respondent stated that, with regard to orders placed
under the Federal Supply Schedule program and indefinite-delivery
contracts, FAR 12.207(c)(2) references both FAR subparts 8.4 and 16.5,
while FAR 12.207(c)(3) references only FAR subpart 16.5. The respondent
recommended that, for the sake of clarity, either (a) only FAR 12.207
should include all guidance regarding T&M or LH orders or (b) guidance
should be included in both FAR subparts 8.4 and 16.5.
Response: It is not necessary to cross-reference to FAR subpart 8.4
at FAR 12.207(c)(3) because the requirement for a determination and
findings does not apply to individual orders when the basic contract
allows only for T&M or LH orders, which is not the case for Federal
Supply Schedule contracts.
2. Combine Guidance From This Case With FAR Case 2007-012
Comment: A respondent noted that DoD, GSA, and NASA will be issuing
guidance implementing section 863 of the National Defense Authorization
Act for FY 2009 and recommended that any guidance regarding the use of
T&M or LH orders be included in that rule, not in this case, FAR Case
2009-043. Such an approach, according to the respondent, would provide
for clarity in the process and allow for a comprehensive review by all
the stakeholders.
Response: FAR Case 2007-012 implements a statutory requirement. The
basis for FAR Case 2009-043 is not statutory; rather, the case was
opened in response to a June 2009 GAO report entitled: ``Minimal
Compliance with New Safeguards for Time-and-Materials Contracts for
Commercial Services and Safeguards Have Not Been Applied to GSA
Schedules Program'' (GAO-09-579, June 2009). Given the different
purposes of the two cases, combining them would not be practical.
3. Eliminate Redundant Material
Comment: One respondent recommended deletion of the proposed
language at FAR 8.405-2(e)(2)(i), which states that a T&M or LH order
may only be used when it is not possible to accurately estimate the
extent or duration of the work or anticipated costs with any degree of
confidence. The respondent stated that the proposed language at FAR
8.405-2(e)(2)(i) is redundant to the proposed language at FAR 8.405-
2(e)(4)(ii), which describes the content requirements of a
determination and findings that, among other things, it is not possible
at the time of placing the order to accurately estimate the extent or
duration of the work or anticipate the costs with any reasonable degree
of certainty.
Response: The proposed language at FAR 8.405-2(e)(2)(i) (which has
been relocated to FAR 8.404(h)(3)(i)) is not redundant with language at
FAR 8.405-2(e)(4)(ii) (which has been relocated to
8.404(h)(3)(iii)(B)).
The proposed language at FAR 8.405-2(e)(2)(i) (relocated
to FAR 8.404(h)(3)(i)) describes one of the policy conditions that must
be met before a T&M order may be placed.
The proposed language at FAR 8.405-2(e)(4)(ii) (relocated
to FAR 8.404(h)(3)(iii)(B)) describes the circumstances under which the
T&M or LH order may be placed, and FAR 8.405-2(e)(3)(i) (relocated to
FAR 8.404(h)(3)(ii)(A)) describes an element of the documentation that
must be prepared by the contracting officer to support the decision.
Although the two sections share the same idea and similar words,
their separate citations serve two distinct purposes.
4. Clarify Contract Types
Comment: Two respondents expressed concern that the proposed
language at FAR 16.600, which states that T&M and LH contracts are not
fixed-price contracts, may create confusion or be taken out of context
because it does not state that T&M and LH contracts are not cost-
reimbursement contracts. The respondents believe that this could blur
the lines between T&M and LH contracts and cost-reimbursement
contracts, creating confusion on how to administer T&M and LH contracts
and orders. The respondents recommended revising the FAR to clarify the
nature of the T&M and LH contracts as a hybrid contract type that is
neither fixed-price nor cost-reimbursement but does include elements of
each; or to describe the attributes and cross-reference to the
applicable FAR subparts.
Response: T&M and LH contracts are neither fixed-price contracts
nor cost-reimbursement contract types. T&M and LH contracts comprise
unique contract types and are described in a separate FAR subpart,
16.6.
This rule addresses the use of T&M and LH contracts for the
acquisition of commercial services. The revisions made in this rule are
intended to clarify the requirement to use fixed-price contract types
for the acquisition of commercial items, unless specific requirements
and conditions are documented to support the decision to use the T&M
and LH contracts to acquire commercial services, a subset of commercial
items.
5. Potential for Rule To Limit the Use of T&M Contracts
Comment: One respondent expressed concern that the proposed rule
could curtail the use of T&M and LH contracts in circumstances where
those contract types would be the most advantageous to the Government.
Response: There are circumstances warranting the use of T&M and LH
contracts and orders. This rule is intended to clarify and
appropriately limit their use to those circumstances.
[[Page 196]]
6. Requirement for Determination and Findings at the Order Level
Comments: The respondents strongly recommended that the Government
reconsider requiring agencies to execute a new determination and
findings prior to issuing each T&M or LH order placed under the Federal
Supply Schedules program. The respondent noted that Congress has not
legislated such an approach. The respondent pointed out that the
Federal Acquisition Streamlining Act, as amended, requires issuance of
a determination and findings at the contract level, not at the order
level.
Response: The Federal Acquisition Streamlining Act does require the
issuance of a determination and findings at the contract level, but
note that a requirement for a determination and findings at the order
level is not precluded by that statute. In situations where the basic
contract allows for the issuance of individual orders using more than
one contract type, the over-reliance on T&M and LH pricing has resulted
in increased risk to the Government (see GAO Report 09-579, June 2009).
The GAO has recommended this change to FAR subpart 8.4 explicitly to
require the same safeguards for the acquisition of commercial services
acquired on a T&M or LH basis as required by FAR 12.207 and FAR
16.601(d) (i.e., require a detailed determination and findings stating
that no other contract type is suitable). Further, Federal Supply
Schedules generally are long-term contracts, and a determination and
findings generated at the initiation of a schedule contract may no
longer reflect current market conditions. The intent is to ensure that
this contract type is used only when no other contract type is suitable
and to instill discipline in the determination of contract type with a
view toward managing the risk to the Government.
7. Address Fixed-Price Level-of-Effort Contracts
Comment: One respondent expressed concern that the proposed
language at FAR 16.600 stating T&M and LH contracts are not fixed-price
contracts does not clarify the issue or address the fact that what is
actually happening is the contracting officer is using a FP LOE
contract without the appropriate approval. The respondent recommended
adding a definition to FAR part 16 that clearly defines a LOE contract
and identifies that a LOE contract type is considered to be either T&M/
LH, FP LOE, or a cost-plus term. Otherwise, the respondent thinks
contracting officers are likely to read the proposed change to FAR part
16 as something they already knew and continue calling LOE contracts
firm-fixed price.
Response: T&M and LH contracts are neither fixed-price contracts
nor cost-reimbursement contract types. It is for this reason that the
FAR addresses T&M and LH contracts in a separate subpart, FAR subpart
16.6. This rule addresses the use of T&M and LH contracts for
commercial items; therefore, the respondent's request to define LOE
contracts is outside the scope of this case.
C. Other Changes
The Councils have also amended the language proposed for FAR part 8
(now set forth at FAR 8.404(h)(3)(iv)) addressing increases in the
ceiling price of T&M contracts to more closely track the language set
forth in FAR 12.207(b)(1)(ii)(C). Section 1423 of the Services
Acquisition Reform Act of 2003 provides that any change in the ceiling
price of a T&M or LH contract is authorized only upon a determination,
documented in the contract file, that it is in the best interest of the
procuring agency to change such ceiling price.
The Councils have opened FAR Case 2011-025 for the purpose of
considering additional guidance addressing the actions required when
raising the ceiling price or otherwise changing the scope of work for a
T&M or LH contract or order. The case will consider appropriate
guidance to address this issue for the respective parts of the FAR
addressing T&M or LH contracts or orders, such as FAR 8.404, FAR
12.207, and FAR 16.601.
III. 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 a significant regulatory action and, therefore, was subject to
review under section 6(b) of Executive Order 12866, Regulatory Planning
and Review, dated September 30, 1993. This rule is not a major rule
under 5 U.S.C. 804.
IV. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not 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 does not
impose any requirements on small entities. An Initial Regulatory
Flexibility Analysis was not conducted. No comments were received from
small entities in response to the proposed rule.
V. Paperwork Reduction Act
The 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 8, 12, and 16
Government procurement.
Dated: December 21, 2011.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 8, 12, and 16 as
set forth below:
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1. The authority citation for 48 CFR parts 8, 12, and 16 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES
0
2. Amend section 8.404 by adding paragraph (h) to read as follows:
8.404 Use of Federal Supply Schedules.
* * * * *
(h) Type-of-order preference for services. (1) The ordering
activity shall specify the order type (i.e., firm-fixed price, time-
and-materials, or labor-hour) for the services offered on the schedule
priced at hourly rates.
(2) Agencies shall use fixed-price orders for the acquisition of
commercial services to the maximum extent practicable.
(3)(i) A time-and-materials or labor-hour order may be used for the
acquisition of commercial services only when it is not possible at the
time of placing the order to estimate accurately the extent or duration
of the work or to anticipate costs with any reasonable degree of
confidence.
(ii) Prior to the issuance of a time-and-materials or labor-hour
order, the contracting officer shall--
(A) Execute a determination and findings (D&F) for the order, in
[[Page 197]]
accordance with paragraph (h)(3)(iii) of this section that a fixed-
price order is not suitable;
(B) Include a ceiling price in the order that the contractor
exceeds at its own risk; and
(C) When the total performance period, including options, is more
than three years, the D&F prepared in accordance with this paragraph
shall be signed by the contracting officer and approved by the head of
the contracting activity prior to the execution of the base period.
(iii) The D&F required by paragraph (h)(3)(ii)(A) of this section
shall contain sufficient facts and rationale to justify that a fixed-
price order is not suitable. At a minimum, the D&F shall--
(A) Include a description of the market research conducted (see
8.404(c) and 10.002(e));
(B) Establish that it is not possible at the time of placing the
order to accurately estimate the extent or duration of the work or
anticipate costs with any reasonable degree of confidence;
(C) Establish that the current requirement has been structured to
maximize the use of fixed-price orders (e.g., by limiting the value or
length of the time-and-materials/labor-hour order; or, establishing
fixed prices for portions of the requirement) on future acquisitions
for the same or similar requirements; and
(D) Describe actions to maximize the use of fixed-price orders on
future acquisitions for the same requirements.
(iv) The contracting officer shall authorize any subsequent change
in the order ceiling price only upon a determination, documented in the
order file, that it is in the best interest of the ordering activity to
change the ceiling price.
0
3. Amend section 8.405-2 by redesignating paragraph (e) as paragraph
(f); and adding a new paragraph (e) to read as follows:
8.405-2 Ordering procedures for services requiring a statement of
work.
* * * * *
(e) Use of time-and-materials and labor-hour orders for services.
When placing a time-and-materials or labor-hour order for services, see
8.404(h).
* * * * *
0
4. Amend section 8.405-3 by revising paragraphs (b)(2)(ii) and (c)(3)
to read as follows:
8.405-3 Blanket purchase agreements (BPAs).
* * * * *
(b) * * *
(2) * * *
(ii) Type-of-order preference. The ordering activity shall specify
the order type (i.e., firm-fixed price, time-and-materials, or labor-
hour) for the services identified in the statement of work. The
contracting officer should establish firm-fixed priced orders to the
maximum extent practicable. For time-and-materials and labor-hour
orders, the contracting officer shall follow the procedures at
8.404(h).
* * * * *
(c) * * *
(3) BPAs for hourly-rate services. If the BPA is for hourly-rate
services, the ordering activity shall develop a statement of work for
each order covered by the BPA. Ordering activities should place these
orders on a firm-fixed price basis to the maximum extent practicable.
For time-and-materials and labor-hour orders, the contracting officer
shall follow the procedures at 8.404(h). All orders under the BPA shall
specify a price for the performance of the tasks identified in the
statement of work.
* * * * *
PART 12--ACQUISITION OF COMMERCIAL ITEMS
0
5. Amend section 12.207 by removing from paragraph (b)(2)(ii) ``degree
of certainty'' and adding ``degree of confidence'' in its place; and
adding paragraph (b)(4) to read as follows:
12.207 Contract type.
* * * * *
(b) * * *
(4) See 8.404(h) for the requirement for determination and findings
when using Federal Supply Schedules.
* * * * *
PART 16--TYPES OF CONTRACTS
0
6. Revise section 16.201 to read as follows:
16.201 General.
(a) Fixed-price types of contracts provide for a firm price or, in
appropriate cases, an adjustable price. Fixed-price contracts providing
for an adjustable price may include a ceiling price, a target price
(including target cost), or both. Unless otherwise specified in the
contract, the ceiling price or target price is subject to adjustment
only by operation of contract clauses providing for equitable
adjustment or other revision of the contract price under stated
circumstances. The contracting officer shall use firm-fixed-price or
fixed-price with economic price adjustment contracts when acquiring
commercial items, except as provided in 12.207(b).
(b) Time-and-materials contracts and labor-hour contracts are not
fixed-price contracts.
0
7. Add section 16.600 to read as follows:
16.600 Scope.
Time-and-materials contracts and labor-hour contracts are not
fixed-price contracts.
[FR Doc. 2011-33418 Filed 12-30-11; 8:45 am]
BILLING CODE 6820-EP-P