SUPPLEMENTARY INFORMATION:

A. Background

Section 1431 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136) enacts Governmentwide authority to treat certain performance-based contracts or task orders for services as commercial items if the—

(1) Value of the contract or task order is estimated not to exceed $25,000,000;

(2) Contract or task order sets forth specifically each task to be performed and, for each task—

a. Defines the task in measurable, mission-related terms;

b. Identifies the specific end products or output to be achieved; and

c. Contains firm, fixed prices for specific tasks to be performed or outcomes to be achieved; and

(3) Source of the services provides similar services to the general public under terms and conditions similar to those offered to the Federal Government.

Implementation of section 1431 also requires agencies to collect and maintain reliable data sufficient to identify the contracts or task orders treated as contracts for commercial items using the authority of this section. The data will be collected using the Federal Procurement Data System-Next Generation (FPDS-NG). By November 24, 2006, OMB will be required to report to the Committees on Governmental Affairs and on Armed Services of the Senate and the Committees on Government Reform and on Armed Services of the House of Representatives on the implementation of Section 1431. The report shall include data on the use of such authority both Governmentwide and for each department and agency. The authority of section 1431 expires on November 24, 2013, ten years after enactment. Section 1433 also amends the definition of commercial services to conform to the language added by section 1431 by inserting performance-based terms for clarification. The implementation of sections 1431 and 1433 will—

• Revise the commercial items definition in FAR 2.101 and 52.202-1;
• Add a new record requirement for reporting commercial performance-based contracts or task orders to FAR 4.601;
• Incorporate the conditions for using FAR Part 12 for any performance-based contract or task order for services in FAR 12.102; and
• Add performance-based terms as required by section 1433, and
• Add a cross reference to FAR 12.102(g) in FAR 37.601.

The reference to the definition of performance-based contracting in the proposed language is a change from the statutory requirement. Section 1431 provides for a contract or task order to be treated as a contract for commercial items if: “The contract or task order sets forth specifically each task to be performed and for each task—defines the task in measurable, mission-related terms; identifies the specific end products or output to be achieved; and contains firm, fixed prices for specific tasks to be performed or outcomes to be achieved.” However, the two requirements of law regarding how tasks, products, or outputs are described are being implemented by requiring contracts or task orders to meet the definition of performance-based contracting at FAR 2.101. This language and that at 12.102 paragraphs (g)(1)(iv) and (v) and in (g)(2) are to ensure consistency with the overarching policy in FAR 37.601 that applies to performance-based contracting for services.

Section 1431 recommends that the Federal Procurement Data System (FPDS) or other reporting mechanism collect this data. The FPDS is the only Governmentwide system that can potentially collect this data. This system currently tracks performance-based contracts and task orders awarded. A petition was made to the FPDS-NG Change Control Board to incorporate a change to report data on services treated as commercial items under the conditions stated in section 1431 when using performance-based contracting techniques.

This is not a significant regulatory action and, therefore, was not 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.

B. Regulatory Flexibility Act

The changes may 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 we have changed procedures for award and ( printed page 34227) administration of contracts or task orders enabling the Government to treat certain services as commercial items when the contract or task order—

• Is entered into on or before November 24, 2013;
• Has a value of $25 million or less;
• Meets the definition of performance-based contracting at FAR 2.101;
• Includes a quality assurance surveillance plan;
• Includes performance incentives where appropriate;
• Specifies a firm-fixed price for specific tasks to be performed or outcomes to be achieved; and
• Is awarded to an entity that provides similar services to the general public under terms and conditions similar to those in the contract or task order.

Therefore, we have prepared an Initial Regulatory Flexibility Analysis that is summarized as follows:

The rule (1) amends the commercial items definition in FAR 2.101 and 52.202-1; (2) adds a new record requirement for reporting commercial performance-based contracts or task orders to FAR 4.601; (3) incorporates the conditions for using FAR Part 12 for any performance-based contract or task order for services in FAR 12.102; and (4) adds performance-based terms as required by section 1433, and (5) adds a cross reference to FAR 12.102(g) in FAR 37.601. The rule will apply to all large and small entities that seek award of performance-based service contracts that are not commercial services as defined by FAR 2.101 and 52.202-1. Although these changes were made to implement section 1431 and 1433 of the National Defense Authorization Act for Fiscal Year 2004 (P.L. 108-136), the impact of these changes are positive and may provide (1) new contracting opportunities to small businesses that otherwise would not have been available if their services did not meet the definition of commercial item in FAR 2.101 and 52.202-1; and (2) contracting flexibility for the acquisition community when using PBC techniques.

The FAR Secretariat has submitted a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. Interested parties may obtain a copy from the FAR Secretariat. The Councils will consider comments from small entities concerning the affected FAR Parts 2, 4, 12, 37, and 52 in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C 601, et seq. (FAC 2001-24, FAR case 2004-004), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the changes to the FAR do not impose information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

D. 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. This action is necessary to implement sections 1431 and 1433 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136) which became effective November 24, 2003. However, pursuant to Public Law 98-577 and FAR 1.501, the Councils will consider public comments received in response to this interim rule in the formation of the final rule.

Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 4, 12, 37, and 52 as set forth below:

1. The authority citation for 48 CFR parts 2, 4, 12, 37, and 52 is revised to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).

2. Amend section 2.101 in paragraph (b) in the definition “Commercial item” by revising the introductory text of paragraph (6) to read as follows:

3. Amend section 4.601 by adding paragraph (d)(6) to read as follows:

4. Amend section 12.102 by adding paragraph (g) to read as follows:

5. Revise section 37.601 to read as follows:

6. Amend section 52.202-1 by revising the date of the clause and the introductory text of paragraph (c)(6) of the clause to read as follows: