SUPPLEMENTARY INFORMATION:

 

I. Background

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to revise FAR subpart 46.2, Contract Quality Requirements, to ensure that agencies assess the risk of nonconforming items when determining whether higher-level quality standards should be used by the Government and relied on by contractors. These quality standards must be designated in the solicitation and resultant contract. The contractor must also ensure its ( printed page 72621) subcontractors adhere to the quality standards, where appropriate. This case proposes to add this to the list of issues to be considered during contractor purchasing system reviews, referenced in FAR 44.303, to ensure that higher-level quality standards are implemented appropriately by the prime contractor.

Section 818, entitled “Detection and Avoidance of Counterfeit Electronic Parts,” of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2012 (Pub. L. 112-81, enacted December 31, 2011) requires DoD to issue regulations addressing contractor responsibilities for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit electronic parts. However, because of the globalization of the marketplace, the problem of counterfeits extends far beyond DoD and electronic parts, posing a supply chain challenge to both Government and industry. Globalization in the marketplace increased the risk of counterfeit items in the government's and industry's supply chain. Globalization raises the risk because of the variations in laws related to commerce and fragments the quality assurance process.

While this rule does not directly implement any specific aspect of section 818, it recognizes the quality, reliability, and safety risk that counterfeit items represent, and adds two examples of higher-level quality standards that respond to the need for quality controls in acquisitions for complex or critical items.

This proposed rule is one of three FAR system proposed rules addressing various aspects of detection and avoidance of counterfeit parts as required by section 818:

1. Defense Federal Acquisition Regulation Supplement Case 2012-D055, entitled “Detection and Avoidance of Counterfeit Electronic Parts,” which was published for public comment in the Federal Register at 78 FR 28780 on May 16, 2013.

2. FAR Case 2013-002, entitled “Expanded Reporting of Nonconforming Supplies,” is being drafted to require expanded reporting of nonconforming items in partial implementation of section 818 of the NDAA for FY 2012.

II. Discussion and Analysis

The rule proposes to make the following changes:

• FAR 44.303, Contractors' Purchasing Systems Review, would be revised to add implementation of higher-level quality standards to the areas for evaluation when conducting a contractor's purchasing system review.
• Types of contract quality requirements FAR subsections will change as follows:

○ FAR 46.202-4(a) would be revised to require agencies to establish procedures for determining when higher-level quality standards are appropriate, for determining the risk (both the likelihood and the impact) of receiving nonconforming items, and for advising the contracting officer which higher-level quality standards should be applied on the contract.

• FAR 46.202-4(a)(1) would be revised to add “design” and “testing” to the list of examples of technical requirements requiring control.

○ FAR 46.202-4(b) would be revised to remove outdated or obsolete standards and add new examples of higher-level quality standards, including those related to counterfeit electronic parts and materials. This list of standards was reviewed and revised based on subject matter experts in quality assurance from across the Government.

• FAR 46.311, Higher-level Contract Quality Requirement, would be revised to clarify that, if the clause is used, the contracting officer shall list one or more higher-level quality standard.
• The clause at FAR 52.246-11, Higher-Level Contract Quality Requirement, would be revised to remove the opportunity for the offeror to select a standard.

III. Executive Order 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

The Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (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 does not apply to acquisitions for goods or services that are not designated critical by the agency and does not add new reporting requirements.

The Initial Regulatory Flexibility Analysis (IRFA) is summarized as follows:

This case was opened to enable the Government to select appropriate quality standards based on the criticality of the requirement and the risk nonconforming items pose to the accomplishment of an agency's mission in a given acquisition. Based on this analysis, the Government will identify the appropriate quality standards for the procurement. The contractor must ensure that its deliverables meet all the specified quality standards, which also entails ensuring that its subcontractors adhere to the higher level quality standard where appropriate. This case proposes to (a) have the contracting officer specify the higher-level quality requirement(s), as opposed to the contractor selecting a standard from a list and (b) add the implementation of higher-level quality standards to the list of items to be considered during contractor purchasing system reviews. No instances were found in practice where this clause was being used to allow offerors an opportunity to opt-out of a quality standard; therefore, this change is being made, in part, to be consistent with common practice.

We estimate that small businesses that provide critical items directly to the Government or to Government prime contractors may be impacted by this rule, however, there are no statistics or databases that would identify the number of contracts that contain higher-level quality standards and how many of those contracts are awarded to small businesses.

There are no reporting, recordkeeping, or other compliance requirements associated with this proposed rule. Any such requirements for a contractor purchasing system review have already been addressed in FAR subpart 44.3. The proposed rule will not create new purchasing system review requirements beyond those that already exist. The rule does not duplicate, overlap, or conflict with any other Federal rules. The compliance and reporting requirements associated with the proposed rule have been minimized. DoD, GSA, and NASA have been unable to identify any alternatives that meet the objectives of this rule.

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 in accordance with 5 U.S.C. 610. Interested ( printed page 72622) parties must submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 2012-032) 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).

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 44, 46, and 52 as set forth below:

1. The authority citation for 48 CFR part 44 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113.

2. Amend section 44.303 by—

a. Removing from the end of paragraph (i) “and”;

b. Removing from the end of paragraph (j) the period and adding “; and” in its place; and

c. Adding paragraph (k).

The added text reads as follows:

3. The authority citation for 48 CFR part 46 is revised to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113.

4. Revise section 46.202-4 to read as follows:

5. Revise section 46.311 to read as follows:

6. The authority citation for 48 CFR part 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113.

7. Revise section 52.246-11 to read as follows: