[Federal Register: July 27, 2011 (Volume 76, Number 144)]
[Proposed Rules]
[Page 44884-44887]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy11-22]
[[Page 44884]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 16 and 52
[FAR Case 2011-003; Docket 2011-0003; Sequence 1]
RIN 9000-AM01
Federal Acquisition Regulation; Payments Under Time-and-Materials
and Labor-Hour Contracts
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal
Acquisition Regulation (FAR) to make necessary revisions to accommodate
the authorization to use time-and-materials and labor-hour contract
payment requirements.
DATES: Interested parties should submit written comments to the
Regulatory Secretariat at one of the addressees shown below on or
before September 26, 2011 to be considered in the formation of the
final rule.
ADDRESSES: Submit comments in response to FAR case 2011-003 by any of
the following methods:
Regulations.gov: http://www.regulations.gov. Submit
comments via the Federal eRulemaking portal by inputting ``FAR Case
2011-003'' under the heading ``Enter Keyword or ID'' and selecting
``Search.'' Select the link ``Submit a Comment'' that corresponds with
``FAR Case 2011-003.'' Follow the instructions provided at the ``Submit
a Comment'' screen. Please include your name, company name (if any),
and ``FAR Case 2011-003'' on your attached document.
Fax: (202) 501-4067.
Mail: General Services Administration, Regulatory
Secretariat (MVCB), ATTN: Hada Flowers, 1275 First Street, NE., 7th
Floor, Washington, DC 20417.
Instructions: Please submit comments only and cite FAR Case 2011-
003, 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: Mr. Edward N. Chambers, Procurement
Analyst, at (202) 501-3221 for clarification of content. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at (202) 501-4755. Please cite FAR Case 2011-
003.
SUPPLEMENTARY INFORMATION:
I. Background
On December 12, 2006, DoD, GSA, and NASA published two final FAR
rules that made significant changes to the regulations for time-and-
materials and labor-hour contracts:
(1) FAR Case 2003-027, Additional Commercial Contract Types,
published in the Federal Register at 71 FR 74667, December 12, 2006,
implemented section 1432 of the National Defense Authorization Act for
Fiscal Year 2004 (Pub. L. 108-136). Title XIV of the Act, referred to
as the Services Acquisition Reform Act of 2003, amended section 8002(d)
of the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355,
41 U.S.C. 3307) to expressly authorize the use of time-and-materials
and labor-hour contracts for commercial services under specified
conditions.
(2) FAR Case 2004-015, Payments Under Time-and-Materials and Labor-
Hour Contracts, published in the Federal Register at 71 FR 74656,
December 12, 2006, revised and clarified policies related to the award
and administration of noncommercial time-and-materials and labor-hour
contracts and the policies regarding payments made under those
contracts.
This rule proposes to make additional changes to enable the use of
appropriate payment provisions for time-and-materials and labor-hour
contracts, addressing potential problems with the new time-and-
materials regulations.
II. Discussion and Analysis
A. Commercial Time-and-Material (T&M) Contracts
Termination for Cause. FAR 52.212-4, Contract Terms and
Conditions--Commercial Items, contains the provisions on the
Government's right to terminate commercial contracts. If the Government
terminates the contract for the Government's convenience, the
Government pays the contractor for work performed prior to the
termination, plus reasonable charges resulting from the termination. If
the Government terminates the contract for cause, the Government only
pays for supplies and services ``accepted by the Government.''
Alternate I of the clause establishes the termination-for-
convenience provisions for commercial T&M contracts. Consistent with
the basic clause, the Government pays contractors for work performed
prior to the termination plus reasonable charges that result from the
termination. However, Alternate I does not provide any unique
termination-for-cause provisions for commercial T&M contracts.
Currently, without substitute/unique provisions, the termination-for-
cause provisions of the basic clause apply. Under those provisions, the
Government only pays for work ``accepted by the Government.'' However,
those provisions are inconsistent with the longstanding noncommercial
T&M termination-for-cause provisions.
Alternate IV of FAR 52.249-6, Termination (Cost-Reimbursement),
provides that the Government pays the contractor for work performed
prior to the termination for cause. For labor ``not accepted by the
Government,'' the Government pays for work performed, but does not pay
any profit on the work.
The proposed rule establishes commercial T&M termination-for-cause
provisions that are consistent with the longstanding provisions for
noncommercial T&M contracts. Under the proposed rule, the contractor
will be paid for work performed prior to the termination for cause,
including work ``not delivered to or accepted by the Government,'' less
applicable profit.
B. Payment for Nonconforming Supplies and Services
When supplies or services do not conform to contract requirements,
the Government generally rejects the supplies or services. The
Government ordinarily provides contractors an opportunity to correct or
replace nonconforming supplies or services when correction or
replacement can be accomplished within the required delivery schedule.
Correction or replacement is generally made without additional cost to
the Government. However, certain contract types, including T&M
contracts, generally require the Government to pay additional costs for
replacement or correction, but no additional fee is paid. Payment for
replacement or re-performance is consistent with the ``best efforts''
nature of T&M contracts. The Government generally pays for replacement
and re-performance on both commercial and noncommercial T&M contracts.
However, a subtle difference in the terminology used for payments
in the commercial and noncommercial T&M clauses may be causing
confusion over whether the treatment for replacement and re-performance
is the same on both commercial and noncommercial contracts. For
noncommercial T&M
[[Page 44885]]
contracts, FAR 52.232-7, Payments under Time-and-Materials and Labor-
Hour Contracts, states--
``The Government will pay the Contractor as follows upon the
submission of vouchers approved by the Contracting Officer or the
authorized representative.''
In addition to the above coverage, paragraph (i)(1) of the
commercial T&M clause (Alternate I of FAR 52.212-4, Contract Terms and
Conditions--Commercial Items) states--
``Services accepted. Payment shall be made for services accepted
by the Government that have been delivered to the delivery
destinations(s) set forth in this contract.''
Inclusion of the additional text in the commercial T&M clause is
unnecessary. Therefore, this rule proposes to delete the inappropriate
text in the commercial T&M clause.
C. Commercial Item Materials
The payment provisions for commercial item materials are
inconsistent in the commercial T&M clause and the noncommercial T&M
clause. The noncommercial T&M clause provides that the price to be paid
for commercial-item materials ``shall not exceed'' the contractor's
established catalog or market price. The commercial T&M clause provides
that the price to be paid for commercial-item materials ``shall be''
the contractor's established catalog or market price. Since commercial
item pricing is subject to negotiation, the rule revises the commercial
T&M clause to be consistent with the noncommercial clause.
D. Noncommercial Time-and-Materials
The Allowable Cost and Payment Clause, FAR 52.216-7, is a required
contract clause for noncommercial time-and-materials contracts.
However, a couple of the provisions of FAR 52.232-7, Payments Under
Time-and-Materials and Labor-Hour Contracts, are inconsistent with
provisions of the Allowable Cost and Payment FAR clause 52.216-7.
(a) Payment. The Allowable Cost and Payment FAR clause 52.216-7
authorizes bi-weekly invoicing for large businesses and more frequent
invoicing for small businesses. However, FAR 52.232-7, Payments under
Time-and-Materials Contracts and Labor-Hour Contracts, only authorizes
monthly invoicing.
By authorizing bi-weekly invoicing for time-and-materials contracts
under FAR clause 52.232-7, the proposed rule aligns invoicing under
time-and-materials contracts with invoicing under FAR 52.216-7.
However, the rule does not change the frequency of invoicing under
labor-hour contracts which remains at no more than once each month
under revised Alternate I.
(b) Completion Voucher. The Allowable Cost and Payment, FAR clause
52.216-7 requires the contractor to submit a completion voucher within
120 days after settlement of final indirect cost rates. However, Time-
and-Materials and Labor-Hour Contracts, FAR clause 52.232-7, requires
submission of a completion voucher within one year after the contract
is completed. By requiring the submission of the completion voucher
within 120 days after contract completion for time-and-materials
contracts under FAR clause 52.232-7, the proposed rule aligns the
submission of the completion voucher under time-and-materials contracts
with that prescribed under FAR clause 52.216-7. However, the rule does
not change the requirement for the submission of the completion voucher
under labor-hour contracts which remains at one year.
E. Application of FAR 52.216-7 to Time-and-Materials and Labor-Hour
Contracts
This rule proposes to amend FAR 16.307(a)(1) to clarify that for
time-and-materials contracts FAR clause 52.216-7 is used in conjunction
with FAR clause 52.232-7, and that FAR clause 52.216-7 does not apply
to labor-hour contracts.
Revision of FAR 16.307(a)(1) and creation of new subparagraphs FAR
16.307(a)(3), (a)(4), and (a)(5). Creation of new Alternate clauses II,
III, and IV at FAR 52.216-7.
Currently, FAR 16.307(a)(1) contains a series of prescriptions to
modify FAR clause 52.216-7, Allowable Cost and Payment, by changing the
particular subpart reference under part 31, Contract Cost Principles
and Procedures, depending on the characterization of the business
entity: educational institutions, State or local governments, or non-
profit organizations. Consequently, this subparagraph is extremely busy
and not reader friendly. For ease of reading and general clarity, FAR
16.307(a)(1) has been reduced significantly, and FAR subparagraphs
16.307(a)(3), (a)(4), and (a)(5) have been created. These new
subparagraphs, respectively, prescribe the use of new Alternate
clauses; II (educational institutions), III (state or local
governments), and IV (non-profit organizations) at FAR 52.216-7. Each
new alternate clause reflects the controlling subpart under part 31,
e.g., subpart 31.3 for Alternate II (educational institutions).
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
DoD, GSA, and NASA do 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 it merely clarifies the existing prescriptions and clause
prefaces relating to service contracts.
Therefore, an Initial Regulatory Flexibility Analysis has not been
performed. 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 the rule in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C 610 (FAR Case 2011-003), in
correspondence.
V. Paperwork Reduction Act
The proposed 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 16 and 52
Government procurement.
Dated: July 15, 2011.
Laura Auletta,
Acting Director, Office of Governmentwide Acquisition Policy, Office of
Acquisition Policy.
Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 16 and
52 as set forth below:
[[Page 44886]]
1. The authority citation for 48 CFR parts 16 and 52 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 16--TYPES OF CONTRACTS
2. Amend section 16.307 by revising paragraph (a) to read as
follows:
16.307 Contract Clauses.
(a)(1) The contracting officer shall insert the clause at 52.216-7,
Allowable Cost and Payment, in solicitations and contracts when a cost-
reimbursement contract or a time-and-materials contract (other than a
contract for a commercial item) is contemplated. If the contract is a
time-and-materials contract, the clause at 52.216-7 applies in
conjunction with 52.232-7, but only to the portion of the contract that
provides for reimbursement of materials (as defined in the clause at
52.232-7) at actual cost. Further, 52.216-7 does not apply to labor-
hour contracts.
(2) If the contract is a construction contract and contains the
clause at 52.232-27, Prompt Payment for Construction Contracts, the
contracting officer shall use the clause at 52.216-7 with its Alternate
I.
(3) If the contract is with an educational institution, the
contracting officer shall use the clause at 52.216-7 with its Alternate
II.
(4) If the contract is with a State or local government, the
contracting officer shall use the clause at 52.216-7 with its Alternate
III.
(5) If the contract is with a nonprofit organization other than an
educational institution, a State or local government, or a nonprofit
organization exempted under OMB Circular No. A-122, the contracting
officer shall use the clause at 52.216-7 with its Alternate IV.
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
3. Amend section 52.212-4 by amending Alternate I as follows:
a. Revising the introductory text;
b. Revising paragraph (i)(1) introductory text;
c. Removing from paragraph (i)(1)(ii)(A) ``be the contractor's''
and adding ``not exceed the Contractor's'' in its place; and
e. Adding paragraph (m).
The revised and added text reads as follows:
52.212-4 Contract Terms and Conditions--Commercial Items.
* * * * *
Alternate (I) (DATE) When a time-and-materials or labor-hour
contract is contemplated, substitute the following paragraphs (a), (e),
(i), (l), and (m) for those in the basic clause.
* * * * *
(i) * * *
(1) Work performed. The Government will pay the Contractor as
follows upon the submission of commercial invoices approved by the
Contracting Officer:
* * * * *
(m) Termination for cause. The Government may terminate this
contract, or any part hereof, for cause in the event of any default by
the Contractor, or if the Contractor fails to comply with any contract
terms and conditions, or fails to provide the Government, upon written
request, with adequate assurances of future performance. Subject to the
terms of this contract, the Contractor shall be paid an amount computed
under paragraph (i) Payments of this clause, but the ``hourly rate''
for labor hours expended in furnishing work not delivered to or
accepted by the Government shall be reduced to exclude that portion of
the rate attributable to profit. Unless otherwise specified in
paragraph (a)(3) of this clause, the portion of the ``hourly rate''
attributable to profit shall be 10 percent. In the event of termination
for cause, the Contractor shall be liable to the Government for any and
all rights and remedies provided by law. If it is determined that the
Government improperly terminated this contract for default, such
termination shall be deemed a termination for convenience.
4. Amend section 52.216-7 by adding Alternates II, III, and IV. The
added text reads as follows:
52.216-7 Allowable Cost and Payment.
* * * * *
Alternate II (DATE). As prescribed in 16.307(a)(3), substitute the
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
(1) The Government will make payments to the Contractor when
requested as work progresses, but (except for small business concerns)
not more often than once every 2 weeks, in amounts determined to be
allowable by the Contracting Officer in accordance with Federal
Acquisition Regulation (FAR) Subpart 31.3 in effect on the date of this
contract and the terms of this contract. The Contractor may submit to
an authorized representative of the Contracting Officer, in such form
and reasonable detail as the representative may require, an invoice or
voucher supported by a statement of the claimed allowable cost for
performing this contract.
Alternate III (DATE). As prescribed in 16.307(a)(4), substitute the
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
(1) The Government will make payments to the Contractor when
requested as work progresses, but (except for small business concerns)
not more often than once every 2 weeks, in amounts determined to be
allowable by the Contracting Officer in accordance with Federal
Acquisition Regulation (FAR) Subpart 31.6 in effect on the date of this
contract and the terms of this contract. The Contractor may submit to
an authorized representative of the Contracting Officer, in such form
and reasonable detail as the representative may require, an invoice or
voucher supported by a statement of the claimed allowable cost for
performing this contract.
Alternate IV (DATE). As prescribed in 16.307(a)(5), substitute the
following paragraph (a)(1) for paragraph (a)(1) of the basic clause:
(1) The Government will make payments to the Contractor when
requested as work progresses, but (except for small business concerns)
not more often than once every 2 weeks, in amounts determined to be
allowable by the Contracting Officer in accordance with Federal
Acquisition Regulation (FAR) Subpart 31.7 in effect on the date of this
contract and the terms of this contract. The Contractor may submit to
an authorized representative of the Contracting Officer, in such form
and reasonable detail as the representative may require, an invoice or
voucher supported by a statement of the claimed allowable cost for
performing this contract.
5. Amend section 52.232-7 by--
a. Revising the date of the clause;
b. Revising paragraph (a)(5) introductory text;
c. Removing from paragraph (f) ``1 year'' and adding ``120 days''
in its place; and
d. Revising Alternate I.
The revised text reads as follows:
52.232-7 Payments under Time-and-Materials and Labor-Hour Contracts.
* * * * *
Payments Under Time-and-Material and Labor-Hour Contracts (Date)
* * * * *
(a) * * *
(5) Vouchers may be submitted not more than once every two weeks to
the Contracting Officer or authorized representative. A small business
concern may receive more frequent payments than every two weeks. The
Contractor shall substantiate vouchers (including any subcontractor
hours reimbursed at the hourly rate in the
[[Page 44887]]
schedule) by evidence of actual payment and by--
* * * * *
Alternate I (DATE). If a labor-hour contract is contemplated, the
Contracting Officer shall substitute paragraphs (a)(5) and (f) and (j)
to the basic clause as follows:
(a)(5) Vouchers may be submitted not more than once each month (or
at more frequent intervals, if approved by the Contracting Officer), to
the Contracting Officer or authorized representative. The Contractor
shall substantiate vouchers (including any subcontractor hours
reimbursed at the hourly rate in the schedule) by evidence of actual
payment and by--
(i) Individual daily job timekeeping records;
(ii) Records that verify the employees meet the qualifications for
the labor categories specified in the contract; or
(iii) Other substantiation approved by the Contracting Officer.
(f) Audit. At any time before final payment under this contract,
the Contracting Officer may request audit of the vouchers and
supporting documentation. Each payment previously made shall be subject
to reduction to the extent of amounts, on preceding vouchers, that are
found by the Contracting Officer or authorized representative not to
have been properly payable and shall also be subject to reduction for
overpayments or to increase for underpayments. Upon receipt and
approval of the voucher designated by the Contractor as the
``completion voucher'' and supporting documentation, and upon
compliance by the Contractor with all terms of this contract
(including, without limitation, terms relating to patents and the terms
of paragraph (g) of this clause), the Government shall promptly pay any
balance due the Contractor. The completion voucher, and supporting
documentation, shall be submitted by the Contractor as promptly as
practicable following completion of the work under this contract, but
in no event later than 1 year (or such longer period as the Contracting
Officer may approve in writing) from the date of completion.
(j) The terms of this clause that govern reimbursement for
materials furnished are considered to have been deleted.
[FR Doc. 2011-18520 Filed 7-26-11; 8:45 am]
BILLING CODE 6820-EP-P