[Federal Register Volume 78, Number 120 (Friday, June 21, 2013)]
[Rules and Regulations]
[Pages 37686-37689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-14614]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 12, 13, 32, 43, and 52
[FAC 2005-67; FAR Case 2013-005; Item V; Docket 2013-0005, Sequence 1]
RIN 9000-AM45
Federal Acquisition Regulation; Terms of Service and Open-Ended
Indemnification, and Unenforceability of Unauthorized Obligations
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Interim rule.
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SUMMARY: DoD, GSA, and NASA are issuing an interim rule amending the
Federal Acquisition Regulation (FAR) to address concerns raised in an
opinion from the U.S. Department of Justice (DOJ) Office of Legal
Counsel (OLC) involving the use of unrestricted, open-ended
indemnification clauses in acquisitions for social media applications.
DATES: Effective Date: June 21, 2013.
Comment Date: Interested parties should submit written comments to
the Regulatory Secretariat at one of the addresses shown below on or
before August 20, 2013 to be considered in the formation of the final
rule.
ADDRESSES: Submit comments identified by FAC 2005-67, FAR Case 2013-
005, by any of the following methods:
Regulations.gov: http://www.regulations.gov. Submit
comments via the Federal eRulemaking portal by searching for ``FAR Case
2013-005''. Select the link ``Submit a Comment'' that corresponds with
``FAR Case 2013-005.'' Follow the instructions provided at the ``Submit
a Comment'' screen. Please include your name, company name (if any),
and ``FAR Case 2013-005'' on your attached document.
Fax: 202-501-4067.
Mail: U.S. General Services Administration, Regulatory
Secretariat Division (MVCB), ATTN: Hada Flowers, 1800 F Street NW., 2nd
Floor, Washington, DC 20405.
Instructions: Please submit comments only and cite FAC 2005-67, FAR
Case 2013-005, in all correspondence related to this case. All comments
received will be posted without change to http://www.regulations.gov,
including any personal and/or business confidential information
provided.
FOR FURTHER INFORMATION CONTACT: Ms. Marissa Petrusek, Procurement
Analyst, at 202-501-0136 for clarification of content. For information
pertaining to status or publication schedules, contact the Regulatory
Secretariat at 202-501-4755. Please cite FAC 2005-67, FAR Case 2013-
005.
SUPPLEMENTARY INFORMATION:
I. Background
In a recent opinion, DOJ's OLC noted that the Anti-Deficiency Act
(31 U.S.C. 1341) is violated when a Government contracting officer or
other employee with authority to bind the Government agrees, without
statutory authorization or other exception, to an open-ended,
unrestricted indemnification clause. See the March 27, 2012, Memorandum
for the Assistant General Counsel for Administration, United States
Department of Commerce, available at http://www.justice.gov/olc/2012/aag-ada-impls-of-consent-by-govt-empls.pdf. This opinion states that
the Anti-Deficiency Act is violated under some circumstances when
consent is given by a Government employee to online terms of service
agreements containing an open-ended indemnification clause. The
amendments made by this rule are designed to prevent violations such as
those mentioned above, and other similar types of violations, from
occurring in future Federal contracts.
The OLC opinion discusses a situation where a Government purchase
card holder consents to an online terms of service (TOS) agreement in
the course of registering for an account with a social media
application on the Internet that holds the provider of the service
harmless in the event harm is caused to a third party when the
application is used by the Government. OLC explained that an Anti-
Deficiency Act violation has occurred because an agency's agreement to
an open-ended indemnification clause could result in the agency's legal
liability for an amount in excess of the agency's appropriation.
On April 4, 2013, the Office of Management and Budget (OMB) issued
guidance outlining a series of management actions to ensure agencies
act in compliance with the Anti-Deficiency Act and in accordance with
OLC's opinion. See OMB Guidance M-13-10, Antideficiency Act
Implications of Certain Online Terms of Service Agreements, available
at http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-10.pdf. These actions include consultation with agency counsel and
review of a GSA-maintained list of social media applications governed
by TOS agreements that are compatible with Federal law, regulation, and
practice. The due diligence steps described in OMB's guidance are
designed to minimize disruption to agencies' continued use of social
media products in support of initiatives that promote greater openness,
transparency, and citizen engagement.
As a further step to help agencies maintain their ability to
purchase social media products, OMB called on the Federal Acquisition
Regulatory Council (FAR Council) to promptly develop appropriate
Governmentwide regulations to address the risk of an Anti-Deficiency
Act violation indentified in OLC's opinion. Such action is necessary to
facilitate a consistent approach across agencies for ensuring that
future Federal contract actions do not involve the type of open-ended
indemnification provisions discussed in OLC's opinion that give rise to
Anti-Deficiency Act violations.
This interim rule focuses only on open-ended indemnification
clauses to address the concern raised in OLC's opinion. However, there
are also other clauses in commercial End User License Agreement (EULA)
and TOS that could result in a violation of the Anti-Deficiency Act if
executed by a contracting officer. For instance, a clause that
automatically renews a contract, such as for subscription services, at
its expiration would violate the Anti-Deficiency Act if it obligated
the Government to pay for supplies or services in advance of the
agency's appropriation. Additional coverage may be necessary to address
these other instances of potential Anti-Deficiency Act (and other
Federal law) violations.
II. Discussion and Analysis
This FAR case amends FAR parts 12, 13, 32, 43, and 52 to provide
additional guidance and clauses to address OLC's opinion with respect
to purchases containing an EULA, TOS, or other similar agreement
containing an indemnification provision.
The objective of the interim rule is to clarify that the inclusion
of an open-ended indemnification clause in a EULA, TOS, or other
agreement, is not binding on the Government unless expressly authorized
by law, and shall
[[Page 37687]]
be deemed to be stricken from the EULA, TOS, or similar legal
instrument or agreement.
Many supplies or services are acquired subject to supplier license
agreements. These are particularly common in information technology
acquisitions, but they may apply to any supply or service. For example,
computer software and services delivered through the internet (web
services) are often subject to license agreements, referred to as EULA,
TOS, or other similar legal instruments or agreements. FAR 12.216 and
32.705, Unenforceability of Unauthorized Obligations, are added to
provide that many of these agreements contain indemnification clauses
that are inconsistent with Federal law and unenforceable, but which
could create a violation of the Anti-Deficiency Act (31 U.S.C. 1341) if
agreed to by the Government.
FAR 13.202, Unenforceability of unauthorized obligations in micro-
purchases, is added to require the clause at 52.232-39,
Unenforceability of Unauthorized Obligations, to automatically apply to
any micro-purchase, to prevent violations of the Anti-Deficiency Act.
The clause at FAR 52.212-4, Contract Terms and Conditions--
Commercial Items, is modified and clause 52.232-39, Unenforceability of
Unauthorized Obligations, is added, to address situations when there is
an unrestricted, open-ended indemnification provision in EULA, TOS, or
similar legal instruments or agreements. The changes clarify that if a
EULA, TOS, or similar legal instrument or agreement, includes a clause
requiring the Government to indemnify the contractor or any person or
entity for damages, costs, or fees, or any other loss or liability that
would create an Anti-Deficiency Act violation, such clause is
unenforceable against the Government, and is deemed to be stricken from
the agreement to prevent violations of the Anti-Deficiency Act.
FAR 12.302 is revised to prevent the contracting officer from
tailoring the Unauthorized Obligation paragraph. The Unauthorized
Obligation paragraph is added to the Order of Precedence paragraph at
paragraph 52.212-4(s)(2).
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 E.O. 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
DoD, GSA, and NASA do not expect this 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, as noted in the OLC opinion, it has always been unenforceable
for a contracting officer or other employee with the authority to bind
the Government to agree to an open-ended, unrestricted indemnification
clause, and the FAR is merely being revised to reflect this. However,
an Initial Regulatory Flexibility Analysis has been performed and is
summarized as follows:
This interim rule is required to address an opinion by the U.S.
Department of Justice Office of Legal Counsel. The changes clarify
that if a EULA, TOS, or similar legal instrument or agreement,
includes a clause requiring the Government to indemnify the
contractor or any person or entity for damages, costs, or fees, or
any other loss or liability that would create an Anti-Deficiency Act
violation, such clause is unenforceable against the Government, and
is deemed to be stricken from the agreement to prevent violations of
the Anti-Deficiency Act.
The objective of the interim rule is to clarify that the
inclusion of an open-ended indemnification clause in a EULA, TOS, or
other agreement, is not binding on the Government unless expressly
authorized by statute and specifically authorized under applicable
agency regulations and procedures, and shall be deemed to be
stricken from the EULA, TOS, or similar legal instrument or
agreement.
This rule will impact entities that contract with the Government
who have EULAs or TOS containing an indemnification clause.
This rule will impact all small entities with a supply or
service contract subject to a supplier license agreement. However,
there is no record keeping or reporting requirement. There may be a
small beneficial impact on small entities because these revisions to
the FAR will help save time and streamline processes since small
entities will no longer have to individually renegotiate, on a
prospective basis, a EULA, TOS, or similar agreement containing an
indemnification provision. Further, clauses like open-ended,
unrestricted indemnification clauses, have generally been
unenforceable against the Government, unless expressly authorized by
statute, and the FAR is being revised to reflect this.
The Councils estimate that this rule will impact approximately
3,538 small entities. Many supplies or services are acquired subject
to supplier license agreements. These are particularly common in
information technology acquisitions, but they may apply to any
supply or service. The Councils believe the majority of the
information technology purchases associated with this rule will be
purchased through the GSA Information Technology Schedule 70
contracts. As such, the Councils used, as a basis for the estimate,
the number of GSA Information-Technology Schedule 70 vendors, plus
an estimate for contractors other than information technology
acquisitions.
There are currently 4,988 GSA Information-Technology Schedule 70
vendors. The Councils estimate that this rule will impact 75
percent, or 3,741 of those vendors because they have EULAs or TOS in
their Government contracts. Of those affected entities, it is
estimated that around 86 percent, or 3,217, will be small entities.
The Councils estimate that approximately 10 percent or 321 more
small entities across the Government for information technology
acquisitions and for other than information-technology acquisition
whose Government contracts include EULAs or TOS will be impacted. As
a result it is estimated that this rule will impact approximately
3,538 small entities.
The Councils do not anticipate an impact on small entities in
acquisitions conducted through Government purchase cards. This is
because the rule does not require entities to negotiate or change
their agreement language.
The rule does not duplicate, overlap, or conflict with any other
Federal rules.
The Councils did not identify any significant alternatives that
would appropriately address the DOJ opinion. Steps have been taken
in this interim rule to minimize the impact on small entities which
help to save them time and streamline their processes; for example,
this would greatly reduce the requirement to negotiate all EULAs,
TOS, or similar arrangements on a case-by-case basis.
The Regulatory Secretariat has submitted a copy of the IRFA to the
Chief Counsel for Advocacy of the Small Business Administration. A copy
of the IRFA may be obtained from the Regulatory Secretariat. DoD, GSA
and NASA invite comments from small business concerns and other
interested parties on the expected impact of this rule on small
entities.
DoD, GSA, and NASA will also consider comments from small entities
concerning the existing regulations in subparts affected by this rule
consistent with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C. 610 (FAC 2005-67, FAR Case
2013-005) in correspondence.
V. Paperwork Reduction Act
The interim rule does not contain any information collection
requirements that
[[Page 37688]]
require the approval of the Office of Management and Budget under the
Paperwork Reduction Act (44 U.S.C. chapter 35).
VI. Determination To Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense (DoD), the Administrator of General Services (GSA), and the
Administrator of the National Aeronautics and Space Administration
(NASA) that urgent and compelling reasons exist to promulgate this
interim rule without prior opportunity for public comment. As OMB
explains in its guidance to agencies regarding the OLC opinion, an
interim rule is necessary to allow agencies to continue with
acquisitions using TOS or EULAs and minimize disruption to the timely
acquisition of supplies and services needed to accomplish critical
requirements that may otherwise arise unless immediate steps are taken
to provide regulatory guidance to help them avoid future violations of
the Anti-Deficiency Act. OLC's opinion, which was originally provided
to the Department of Commerce on March 27, 2012, was released on
November 15, 2012, putting agencies on notice at that time of the
potential risk of violation and creating a need for this prompt
Government-wide action to avoid future noncompliance with the Act and
any associated adverse impacts to Federal missions or personnel.
This Government-wide rule will facilitate a consistent approach
across agencies for addressing OLC's opinion and avoid the potential
burden and cost contractors might otherwise incur in having to
negotiate contract terms with each agency. The rule has been narrowly
crafted to address only the specific concerns identified in the OLC
opinion and OMB memorandum and to minimize changes that are promulgated
without prior public comment on this subject.
Pursuant to 41 U.S.C. 1707 and FAR 1.501-3(b), DoD, GSA, and NASA
will consider public comments received in response to this interim rule
in the formation of the final rule.
List of Subjects in 48 CFR Parts 12, 13, 32, 43, and 52
Government procurement.
Dated: June 13, 2013.
William Clark,
Acting Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy, Office of Governmentwide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 12, 13, 32, 43,
and 52 as set forth below:
0
1. The authority citation for 48 CFR parts 12, 13, 32, 43, and 52 are
revised to read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 12--ACQUISITION OF COMMERCIAL ITEMS
0
2. Amend section 12.102 by revising paragraph (e)(4) to read as
follows:
12.102 Applicability.
* * * * *
(e) * * *
(4) Using the Governmentwide commercial purchase card as a method
of purchase rather than only as a method of payment; or
* * * * *
0
3. Add section 12.216 to read as follows:
12.216 Unenforceability of unauthorized obligations.
Many supplies or services are acquired subject to supplier license
agreements. These are particularly common in information technology
acquisitions, but they may apply to any supply or service. For example,
computer software and services delivered through the internet (web
services) are often subject to license agreements, referred to as End
User License Agreements (EULA), Terms of Service (TOS), or other
similar legal instruments or agreements. Many of these agreements
contain indemnification clauses that are inconsistent with Federal law
and unenforceable, but which could create a violation of the Anti-
Deficiency Act (31 U.S.C. 1341) if agreed to by the Government.
Paragraph (u) of the clause at 52.212-4 prevents any such violations.
0
4. Amend section 12.302 by revising paragraphs (b)(5) and (b)(6); and
adding a new paragraph (b)(7) to read as follows:
12.302 Tailoring of provisions and clauses for the acquisition of
commercial items.
* * * * *
(b) * * *
(5) Other compliances;
(6) Compliance with laws unique to Government contracts; and
(7) Unauthorized obligations.
* * * * *
PART 13--SIMPLIFIED ACQUISITION PROCEDURES
13.201 [Amended]
0
5. Amend section 13.201 by removing from paragraph (d) ``at 32.1110''
and adding ``at 13.202 and 32.1110'' in its place.
13.202 [Redesignated as 13.203]
0
6. Redesignate section 13.202 as section 13.203; and add a new section
13.202 to read as follows:
13.202 Unenforceability of unauthorized obligations in micro-
purchases.
Many supplies or services are acquired subject to supplier license
agreements. These are particularly common in information technology
acquisitions, but they may apply to any supply or service. For example,
computer software and services delivered through the internet (web
services) are often subject to license agreements, referred to as End
User License Agreements (EULA), Terms of Service (TOS), or other
similar legal instruments or agreements. Many of these agreements
contain indemnification clauses that are inconsistent with Federal law
and unenforceable, but which could create a violation of the Anti-
Deficiency Act (31 U.S.C. 1341) if agreed to by the Government. The
clause at 52.232-39, Unenforceability of Unauthorized Obligations,
automatically applies to any micro-purchase, including those made with
the Governmentwide purchase card. This clause prevents such violations
of the Anti-Deficiency Act.
PART 32--CONTRACT FINANCING
32.703-2 [Amended]
0
7. Amend section 32.703-2 by--
0
a. Removing from paragraph (a) ``see 32.705-1(a)'' and adding ``see
32.706-1(a)'' in its place; and
0
b. Removing from paragraph (b)(2) ``see 32.705-1(b)'' and adding ``see
32.706-1(b)'' in its place.
32.705 through 32.705-2 [Redesignated as 32.706 through 32.706-2]
0
8. Redesignate sections 32.705 through 32.705-2 as sections 32.706
through 32-706-2, respectively.
0
9. Add a new section 32.705 to read as follows:
32.705 Unenforceability of unauthorized obligations.
Many supplies or services are acquired subject to supplier license
agreements. These are particularly common in information technology
[[Page 37689]]
acquisitions, but they may apply to any supply or service. For example,
computer software and services delivered through the internet (web
services) are often subject to license agreements, referred to as End
User License Agreements (EULA), Terms of Service (TOS), or other
similar legal instruments or agreements. Many of these agreements
contain indemnification clauses that are inconsistent with Federal law
and unenforceable, but which could create a violation of the Anti-
Deficiency Act (31 U.S.C. 1341) if agreed to by the Government.
0
10. Add section 32.706-3 to read as follows:
32.706-3 Clause for unenforceability of unauthorized obligations.
The contracting officer shall insert the clause at 52.232-39,
Unenforceability of Unauthorized Obligations in all solicitations and
contracts.
PART 43--CONTRACT MODIFICATIONS
43.201 [Amended]
0
11. Amend section 43.201 by removing from paragraph (b) ``see 32.705-
2'' and adding ``see 32.706-2'' in its place.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
12. Amend section 52.212-4 by revising the date of the clause and
paragraph (s)(2); and adding paragraph (u) to read as follows:
52.212-4 Contract Terms and Conditions--Commercial Items.
* * * * *
Contract Terms and Conditions--Commercial Items (Jun 2013)
* * * * *
(s) * * *
(2) The Assignments, Disputes, Payments, Invoice, Other
Compliances, Compliance with Laws Unique to Government Contracts,
and Unauthorized Obligations paragraphs of this clause;
* * * * *
(u) Unauthorized Obligations. (1) Except as stated in paragraph
(u)(2) of this clause, when any supply or service acquired under
this contract is subject to any End User License Agreement (EULA),
Terms of Service (TOS), or similar legal instrument or agreement,
that includes any clause requiring the Government to indemnify the
Contractor or any person or entity for damages, costs, fees, or any
other loss or liability that would create an Anti-Deficiency Act
violation (31 U.S.C. 1341), the following shall govern:
(i) Any such clause is unenforceable against the Government.
(ii) Neither the Government nor any Government authorized end
user shall be deemed to have agreed to such clause by virtue of it
appearing in the EULA, TOS, or similar legal instrument or
agreement. If the EULA, TOS, or similar legal instrument or
agreement is invoked through an ``I agree'' click box or other
comparable mechanism (e.g., ``click-wrap'' or ``browse-wrap''
agreements), execution does not bind the Government or any
Government authorized end user to such clause.
(iii) Any such clause is deemed to be stricken from the EULA,
TOS, or similar legal instrument or agreement.
(2) Paragraph (u)(1) of this clause does not apply to
indemnification by the Government that is expressly authorized by
statute and specifically authorized under applicable agency
regulations and procedures.
* * * * *
0
13. Amend section 52.213-4 by revising the date of the clause; and
adding paragraph (a)(2)(viii) to read as follows:
52.213-4 Terms and Conditions--Simplified Acquisitions (Other Than
Commercial Items)
* * * * *
Terms and Conditions--Simplified Acquisitions (Other Than Commercial
Items) (Jun 2013)
* * * * *
(a) * * *
(2) * * *
(viii) 52.232-39, Unenforceability of Unauthorized Obligations
(JUN 2013).
* * * * *
0
14. Amend section 52.232-18 by revising the introductory text to read
as follows:
52.232-18 Availability of Funds.
As prescribed in 32.706-1(a), insert the following clause:
* * * * *
0
15. Amend section 52.232-19 by revising the introductory text to read
as follows:
52.232-19 Availability of Funds for the Next Fiscal Year.
As prescribed in 32.706-1(b), insert the following clause:
* * * * *
0
16. Amend section 52.232-20 by revising the introductory text to read
as follows:
52.232-20 Limitation of Cost.
As prescribed in 32.706-2(a), insert the following clause. The 60-
day period may be varied from 30 to 90 days and the 75 percent from 75
to 85 percent. ``Task Order'' or other appropriate designation may be
substituted for ``Schedule'' wherever that word appears in the clause:
* * * * *
0
17. Amend section 52.232-22 by revising the introductory text to read
as follows:
52.232-22 Limitation of Funds.
As prescribed in 32.706-2(b), insert the following clause. The 60-
day period may be varied from 30 to 90 days and the 75 percent from 75
to 85 percent. ``Task Order'' or other appropriate designation may be
substituted for ``Schedule'' wherever that word appears in the clause:
* * * * *
0
18. Add section 52.232-39 to read as follows:
52.232-39 Unenforceability of Unauthorized Obligations.
As prescribed in 32.706-3, insert the following clause:
Unenforceability of Unauthorized Obligations (JUN 2013)
(a) Except as stated in paragraph (b) of this clause, when any
supply or service acquired under this contract is subject to any End
User License Agreement (EULA), Terms of Service (TOS), or similar
legal instrument or agreement, that includes any clause requiring
the Government to indemnify the Contractor or any person or entity
for damages, costs, fees, or any other loss or liability that would
create an Anti-Deficiency Act violation (31 U.S.C. 1341), the
following shall govern:
(1) Any such clause is unenforceable against the Government.
(2) Neither the Government nor any Government authorized end
user shall be deemed to have agreed to such clause by virtue of it
appearing in the EULA, TOS, or similar legal instrument or
agreement. If the EULA, TOS, or similar legal instrument or
agreement is invoked through an ``I agree'' click box or other
comparable mechanism (e.g., ``click-wrap'' or ``browse-wrap''
agreements), execution does not bind the Government or any
Government authorized end user to such clause.
(3) Any such clause is deemed to be stricken from the EULA, TOS,
or similar legal instrument or agreement.
(b) Paragraph (a) of this clause does not apply to
indemnification by the Government that is expressly authorized by
statute and specifically authorized under applicable agency
regulations and procedures.
(End of clause)
[FR Doc. 2013-14614 Filed 6-20-13; 8:45 am]
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