DLA Acquisition Regulation; Quality Assurance

DEPARTMENT OF DEFENSE

Defense Logistics Agency

48 CFR Parts 5446 and 5452

DLA Acquisition Regulation; Quality Assurance

AGENCY: Defense Logistics Agency, DOD.

ACTION: Proposed rule and request for comments.

-----------------------------------------------------------------------

SUMMARY: The Defense Logistics Agency proposes to add a new part to 48

CFR Chapter 54, the Defense Logistics Acquisition Regulation (DLAR)

part 5446 and add coverage to 48 CFR Chapter 54, Part 5452. The

proposed coverage implements a test under which a contractor will be

required to replace, repair or provide reimbursements for items which

do not conform with the specifications of the contract when such

nonconformances are discovered within one year after Government

acceptance. Comments are hereby requested on the proposed coverage.

[[Page 35721]]

DATES: Comments must be submitted on or before September 11, 1995, to

be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

Defense Logistics Agency, Directorate of Procurement, AQPLC, ATTN: Mary

Massaro, Room 4D175, Cameron Station, Alexandria, VA 22304-6100.

FOR FURTHER INFORMATION CONTACT:

Mary Massaro, Defense Logistics Agency, AQPLC, (703) 274-6307.

SUPPLEMENTARY INFORMATION:

Background

From 1989 to 1993, the Office of the DoD Inspector General (DoDIG)

conducted six audits dealing in some measure with the DoD product

quality deficiency reporting (PQDR) program. The DoDIG has concluded

that DoD does not have effective remedies to obtain reimbursement or

replacement for major and critical nonconforming products. Current FAR

coverage and clauses allow the Government to require contractor

corrections of latent, but not patent, nonconformances discovered after

acceptance of supplies delivered under fixed-price contracts. In order

to correct this situation, the DODIG has suggested certain regulatory

and procedural changes regarding Government acceptance. The Director of

Defense Procurement (USD(A&T)) has agreed to permit DLA to test changes

to acceptance procedures in accordance with the DoDIG's general

recommendations to determine whether such changes are effective, cost-

beneficial, and capable of widespread implementation. The proposed rule

presents such a mechanism: a clause, not unlike a warranty, which

provides that, notwithstanding acceptance of items, the Government can

require the contractor to remedy any nonconformance determined to have

been contractor-caused. Such a nonconformance must have been discovered

either via testing at a Government-designated laboratory or by a

completed, validated product quality deficiency report investigation;

even in the latter case, lab testing may be used, as appropriate, for

validation purposes. Any Government action for recoupment must have

been initiated within one year of the date of acceptance. The clause

will be used by three of DLA's buying activities, the Defense

Construction Supply Center (DCSC), the Defense Electronics Supply

Center (DESC), and the Defense Industrial Supply Center (DISC). In the

former two, the clause will be incorporated in contracting actions for

the purchase of supplies in certain federal supply classes (FSCs) that

have yielded high or disproportionate rates of nonconformance in the

recent past. At DISC, because of the wide variety and large numbers of

individual items within FSCs, that Center will implement the test for

selected national stock numbers (items) within two of the FSCs listed

below, and for all the items within a third FSC. The FSCs to be

included are:

DCSC-2520--Vehicular Power Transmission Components, 2815--Diesel

Engines and Components, 4320--Power and Hand Pumps

DESC-5965--Headsets, Handsets, Microphones and Speakers

DISC-5307--Studs (all items), 5310--Nuts & Washers (Class 3 self-

locking nuts IAW MIL-N-25027, only), 5340--Hardware, Misc. (zinc anodes

only)

The proposed coverage will be included in the Defense Logistics

Agency Acquisition Regulation (DLAR) 4105.1, which implements and

supplements the Federal Acquisition Regulation (FAR), the Defense

Federal Acquisition Regulation Supplement (DFARS), and other DOD

publications and, pursuant to FAR 1.304, establishes DLA procedures

relating to the acquisition of supplies and services under the

authority of 10 U.S.C. 301. This supplementary coverage and clause are

designed to give contracting officers an effective tool for dealing

with contractor-caused patent nonconformances.

Regulatory Flexibility Act

The proposed additions to 48 CFR parts 5446 and 5452 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 they provide a means of recoupment for patently defective

items when these nonconformances are discovered after Government

acceptance. This remedy is provided against both small and large

entities under the proposed rule. An Initial Regulatory Flexibility

Analysis has been prepared and is summarized as follows:

A limited number of procurements was selected for the test to

provide valid test results while minimizing the impact on industry.

Elminating small business from the test would invalidate the test

results. Most DLA contractors are small businesses.

The proposed coverage at 48 CFR parts 5446 and 5452 is required in

order to provide DLA with a means of recoupment for patently defective

items when these nonconformances are discovered after Government

acceptance. The proposed rule will apply to all businesses, large and

small, that enter into contracts with DLA field activities for the

covered FSCs/items. Although the rule will apply to all and cannot be

waived or relaxed for small entities, it will only have an adverse

impact on those contractors that provide items with patent

nonconformances. The proposed rule does not contain any information

collection and recordkeeping requirements which require the approval of

OMB under 44 U.S.C. 3501, et seq. Costs of compliance are dependent

upon numbers of nonconforming items/lots delivered within the affected

FSCs, and cannot be estimated at the present time. There are no

alternatives to the proposed rule that will accomplish the stated

objectives.

A copy of the Initial Regulatory Flexibility Analysis has been

submitted to the Chief Counsel for Advocacy of the Small Business

Administration. A copy of the IRFA may be obtained from the individual

listed above. Comments from small entities concerning the affected DLAR

Subparts will be considered in accordance with Section 610 of the Act.

Paperwork Reduction Act

The proposed rule does not impose any reporting or recordkeeping

requirements which require the approval of OMB under 44 U.S.C. 3501et

seq. and, therefore, the Paperwork Reduction Act does not apply.

Public Participation

Public participation in the rulemaking will be handled by means of

the Defense Logistics Agency's consideration of written comments mailed

to the address set forth above.

Government procurement.

List of Subjects in 48 CFR Parts 5446 and 5452

Therefore, it is proposed that 48 CFR chapter 54 be amended as

follows:

1. Part 5446 is added to read as follows:

PART 5446--QUALITY ASSURANCE

Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR Part 1, subpart

1.3 and 48 CFR part 201 subpart 201.3

5446.393 Remedies for post-acceptance discovery of nonconformance.

The contracting officer shall insert the clause at 5452.246-9005,

Remedies for Post-Acceptance Discovery of Nonconformances (Test), in

solicitations and contracts in accordance with 5446.590.

[[Page 35722]]

Sec. 5446.590 Post-acceptance discovery of defects (test).

(a) The purpose of this test is to determine the viability of

contract coverage which provides remedies to the Government for patent

defects discovered after acceptance. Specific procedures are set forth

in the test plan. The test will apply to designated FSCs or items at

DCSC, DESC, and DISC for which these Centers have experienced unusually

high levels of nonconformances, as evidenced by PQDR data from the

System for Analysis of Laboratory Testing (SALT) data base. The DLA

laboratory testing program and/or completed, validated PQDR

investigations will be used to uncover nonconformances and to support

determinations of contractor causation. The clause at 5452.246-9005,

Remedies for the Post-Acceptance Discovery of Nonconformances (Test),

will be used in contracts for the covered FSCs/items to provide

remedies for those nonconformances.

(b) The clause at 5452.246.9005 gives the Government the means to

pursue repair, replacement or recoupment, at Government option, for a

period of one year after the cognizant Government representative

signifies acceptance by signature on the DD250 or similar

documentation. These remedies also apply to replacements for up to one

year after their acceptance. Remedies provided under this clause do not

preclude the use of the nonconformance against the contractor in future

sources selection decisions. After one year from the acceptance date,

acceptance shall be conclusive in accordance with the FAR standard

inspection clauses (e.g., paragraph (k) of FAR 52.246-2, which states

that acceptance shall be conclusive except for latent defects, fraud,

and the like). Future discoveries of patent defects (after the twelve-

month period has ended) are subject to voluntary recoupment procedures.

(c) Receipts of the designated items will be targeted (identified/

segregated) upon their delivery to a depot. Not all items or all lots

in the designated FSCs will be subject to lab testing. However, in the

event of a lab test failure, lab personnel will report their results to

the ICP; the contracting officer will be notified through the Center

Quality element. The contracting officer shall pursue remedies

available under the clause at 5452.246-9005 when the nonconformance can

be traced to a specific contract and is contractor-caused.

(d) Even for those nonconformances not originally uncovered via

random laboratory testing, labs may be used as necessary to validate

the existence of the patent defects. Positive lab test results shall

not prohibit the Government's pursuit of remedies for nonconformances

subsequently identified by depot personnel, end-users, or others

(whether or not confirmed by lab testing) within the twelve months

after acceptance. As stated in paragraph (b) of this section after the

one-year period has passed, any discovery of patent defects in these

items shall be handled in accordance with voluntary recoupment

procedures.

(e) Like warranties, the clause requires that the items or packages

be marked with notice of coverage, and contractor-prepared shipping

documents must also carry notice of the clause's applicability to the

shipped items.

(f) During the test period, the contracting officer shall include

the clause at 5452.246-9005, Remedies for Post-Acceptance Discovery of

Nonconformances (Test), in all non-SASPS-I contracting actions for the

covered FSCs/items, except where the contracting officer determines

that the cost for inclusion of the clause is unreasonable. The cost

reasonableness will be based on evaluation of the contractor's stated

prices for the item with and without clause inclusion. (The latter is

to be expressed via ``additive CLIN.'') A determination that the cost

is unreasonable must be approved at a level above the contracting

officer and documented in the contract file. Since the purpose of the

test is to determine the viability of the clause, such determinations

must not be used customarily.

(g) Contracting officers shall maintain a separate log, in the same

fashion and containing the same data fields as the Warranty Log, for

all items covered by the Remedies for Post-Acceptance Discovery of

Nonconformances (Test) clause. The log must distinguish between patent

and latent defects.

PART 5452--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

5452.246-9005 [Added]

2. The authority citation for part 5452 continues to read as

follows:

Authority: 5 U.S.C. 301, 10 U.S.C. 2202, 48 CFR part 1, subpart

1.3 and 48 CFR part 201, subpart 201.3.

3. Part 5452, subpart 5452.2, is amended by adding section

5452.246-9005 to read as follows:

Sec. 5452.246-9005 Remedies for Post-Acceptance Discovery of

Nonconformance (test).

As prescribed in 5446.590, insert the following clause in contracts

for designated FSCs or items at DCSC, DESC, and DISC to provide

remedies for nonconformances.

5452.246-9005--Remedies for Post-Acceptance Discovery of

Nonconformances (Test) (June 1995) (DLAR)

(a) Definitions. (1) Acceptance: The word acceptance as used

herein means the execution of the acceptance block and signing of a

DD Form 250 (or similar documentation) by the authorized Government

representative.

(2) Supplies: The word supplies as used herein means the end-

item furnished by the contractor and any related services required

under this contract. The word does not include technical data.

(b) Purpose and scope. Notwithstanding Government inspection and

acceptance in accordance with any of the standard inspection clauses

of supplies furnished under this contract, or any other term or

condition of the contract concerning the conclusiveness thereof, and

notwithstanding that the contractor may already have been paid for

contractual performance and the contract otherwise closed, such

acceptance shall not be considered final for a period of one year

after the date that a cognizant Government representative signifies

acceptance by signature on the DD Form 250 or similar documentation.

Upon discovery during the one-year period of any nonconforming

supplies delivered under this contract, acceptance may be rescinded

in accordance with the terms set forth below. After one year, the

terms of the standard inspection clause concerning the

conclusiveness of acceptance shall apply.

(c) Contractor's obligations. (1) As stated above,

notwithstanding Government acceptance, the contractor agrees that at

the time of delivery of each item, lot, or shipment, and continuing

for a period of one year following acceptance:

(i) All supplies delivered under this contract shall be free

from defects in material and workmanship (and design, if it is the

contractor's, rather than the Government's, design that shall be

used), and shall conform with all requirements of this contract;

(ii) The preservation, packaging, packing and marking, and the

preparation for, and method of, shipment of all end-items shall

conform with the requirements of this contract; and

(iii) All nonconformances discovered by the Government during

the one-year period after acceptance that are determined/adjudged

not to be the fault of the Government shall subject the contractor

to the remedies set forth in (e), below.

(2) All items delivered under this contract may be subject to

post-acceptance laboratory testing by a Government-designated

laboratory in accordance with applicable sampling plans set forth

elsewhere in this contract. If either such testing or a completed,

validated product quality deficiency report investigation uncovers

or

[[Page 35723]]

confirms contractor-caused nonconformances, acceptance of the items, or

the lots or shipments of which they are representative, shall be

rescinded, and the contractor shall be obligated to provide such

remedies to the Government as are set forth in (e), below.

(3) The contractor shall make note of the existence of this

clause, and all rights and remedies afforded to the Government

thereby, on all shipping documents for items delivered under this

contract.

(4) The contractor shall be expected to quote two separate

prices for the supplies furnished under this contract: one for the

items without reference to this coverage, and another reflecting the

price increase (if any) that is a consequence of this clause's

inclusion.

(d) Notification. The contracting officer shall give written

notification to the contractor of any nonconformance within one year

after delivery of the nonconforming items.

(e) Remedies. With respect to each item or lot in which a

nonconformance is discovered and confirmed, the contracting officer

shall require the prompt repair or replacement of the item or lot.

If this remedy is impractical under the particular circumstances,

the contracting officer shall retain the item or lot and require, in

lieu of repair or replacement, monetary restitution in the form of a

decrease in contract price on any remaining open contract(s) with

the contractor, or refund of the price of the nonconforming items or

lots, at the election of the contracting officer.

(f) Transportation costs. The contractor shall bear the cost of

transportation of items for return, replacement, or correction from

the place of delivery specified in the contract to the contractor's

plant. Any additional transportation costs (e.g., shipment from

other than the original delivery site) shall be borne by the

Government. Responsibility for supplies while in transit remains

with the contractor.

(g) Contractor's failure to remedy. The contracting officer may,

by contract or otherwise, correct or replace the nonconforming

supplies with similar supplies and charge to the contractor the cost

occasioned thereby if the contractor: (1) fails to make redelivery

of the corrected or replaced supplies within the time established

for their return; or (2) fails either to accept return of the

nonconforming supplies or fails to make progress after their return;

or (3) fails to make restitution for same.

(h) Timeframe for correction, repair, replacement, or

reimbursement. Unless otherwise set forth in this contract, the

contractor shall have 90 days from the date of notification of the

defect or return of the items/lots, whichever is later, within which

to effect the required restitution.

(i) Continuing liability. Any supplies or parts thereof,

corrected or furnished in replacement under this clause, shall also

be subject to the terms of this clause to the same extent as

supplies initially delivered. The period during which the Government

can require correction of these defective replacements shall also be

one year from the date of delivery thereof.

(j) Government property. Items accepted by the Government and

subsequently returned to the contractor under the terms of this

clause remain the property of the Government. Disposal and

replacement of these items are subject to the terms and conditions

of the Government property clause(s) set forth elsewhere in this

contract.

(k) Disposition instructions from contractor. When the

Government elects the equitable adjustment remedy, in lieu of

correction or replacement, the contractor shall provide disposition

instructions for the nonconforming items within 60 days of

notification thereof.

(l) Contract closeout. Notwithstanding the contract closeout

timeframes established for contracts of this type, and

notwithstanding the fact that final payment has already been

effected, this contract shall remain open solely for purposes of

enforcement of this clause for one year subsequent to Government

acceptance of the items, lots, or shipments delivered under this

contract.

(m) Rights and remedies: scope. The rights and remedies of the

Government provided in this clause are in addition to and do not

limit any rights afforded to the Government by any other clause of

this contract.

(n) Price consequences. As stated in (c)(4), above, you must

indicate the amount, if any, by which the item price you have quoted

is affected by, or raised in response to, inclusion of this clause.

You should express any such change by means of a second quoted price

for the items that takes this coverage into account.

[End of clause]

Dated: June 30, 1995.

Margaret J. Janes,

Assistant Executive Director (Procurement Policy).

[FR Doc. 95-16846 Filed 7-10-95; 8:45 am]

BILLING CODE 5000-04-M