DLA Acquisition Directive; Types of Contracts

DEPARTMENT OF DEFENSE

Defense Logistics Agency

48 CFR Part 5416

DLA Acquisition Directive; Types of Contracts

AGENCY: Defense Logistics Agency, DoD.

ACTION: Final rule.

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SUMMARY: This rule adds a new part to the Defense Logistics Acquisition

Directive (DLAD) affecting regulations on the use of solicitation

provisions and contract clauses for Economic Price Adjustments (EPA).

The coverage expands the use of EPA based on market price references.

It also expands the use of EPA based on indexes, to encompass indexes

for products or services that are identical or similar to the end

products to be provided under the contract. It authorizes the

development and use, subject to established agency review and approval

procedures, of clauses using EPA references as described above. The

coverage ensures EPA references that more closely follow market prices,

are in conformance with commercial practice, and reduce price risk for

both the government and the contractor.

DATES: Effective August 2, 1999.

FOR FURTHER INFORMATION CONTACT: Ms. Helen Bailey, Procurement Analyst,

Defense Logistics Agency, DLSC-PPP, at (703) 767-1374.

SUPPLEMENTARY INFORMATION:

[[Page 41835]]

A. Background

The Defense Energy Support Center (DESC), a major contracting

activity of DLA, has historically utilized a method of price adjustment

in the bulk petroleum area using price indexes for the same or similar

end products and using market price assessments for products published

in industry trade journals.

None of the three EPA types currently encompassed by the FAR are

appropriate for many of the competitive procurements undertaken by DESC

and other DLA contracting offices. Currently, FAR 16.203 recognizes EPA

references based on established market or catalog prices of the

individual contractor only. The new DLAD coverage expands this to

include industry-wide and geographically specific market price

assessments, and authorizes the development and use of clauses on that

basis. FAR 16.203 also recognizes EPA references based only on indexes

for labor or material costs or indexes of such costs. The DLAD coverage

expands this to include indexes for the same or similar supplies,

services, or end items and authorizes the development and uses of

clauses on that basis.

The uses of an EPA reference based on an individual contractor's

established price or cost of materials is impractical for various

competitive procurements. Unique EPA references for each offeror

engender relative price variations during the delivery period, making

it impossible to determine the most favorable offer at time of award.

This creates a significant price risk for the Government in periods

where the margins are shrinking and for the contractors in periods

where the margins are expanding. such fluctuations can be significant,

for example, in petroleum markets. A reference based on the same or

similar products as provided under the contract, results in a common

EPA reference for competing offerors and minimizes the price risk for

both the Government and the contractor.

A proposed rule with request for comments was published in the

Federal Register.. (60 FR 10826, Feb. 28, 1995.) One respondent

submitted comments on the proposed rule. The respondent's comments were

considered in the development of the final rule. On October 5, 1995,

the Director, Defense Procurement, approved a permanent class deviation

for DLA to deviate from the requirements of FAR 16.203-1 and 16.203-

4(a) when using fixed price contracts with economic price adjustments.

Under this deviation, DLA was authorized to include conforming language

in the DLA supplement.

The final rule is the same as the proposed rule with one exception.

The second sentence in Subpart 5416.203-4, ``Contract clauses' of the

proposed rule, which states that ``established prices in such clauses

need not be verifiable using the criteria in 48 CFR (FAR) 15.804-3''

was removed in the final rule. The criteria referred to were deleted

from the Truth in Negotiations Act (TINA) (10 U.S.C. 2306a.) when the

statute was recently revised. Accordingly, the revised and renumbered

FAR Part 15 no longer contains these criteria. Therefore, the language

has been removed from the final rule as it is no longer applicable.

Regulatory Flexibility Act

The final rule does not have 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. An initial regulatory

flexibility analysis was not performed. The final rule does not

represent a change for small entities doing business with DLA. Comments

were requested concerning the effect of the proposed rule on small

entities in accordance with section 612 of the Act. No comments were

received.

B. Paperwork Reduction Act

This rule does not impose any new reporting or record keeping

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

seq.

List of Subjects in 48 CFR Part 5416

Government procurement.

For reasons set forth in the preamble, the Defense Logistics Agency

amends 48 CFR Chapter 54, by adding part 5416 to read as follows:

PART 5416--TYPES OF CONTRACTS

Subpart 5416.2--Fixed Price Contracts

5416.203 Fixed-Price Contracts with Economic Price Adjustment

5416.203-1 Description

5416.203-3 Limitations

5416.203-4 Contract Clauses

Authority: Fixed Price Contracts

4516.203 Fixed Price Contracts with Economic Price Adjustment

4516.203-1 Description.

(a)(S-90) Adjustments based on established prices. Established

prices may reflect industry-wide and/or geographically based market

price fluctuations for commodity groups, specific supplies or services,

or contract end items.

(c)(S-90) Adjustments based on cost indexes of labor or materials.

These price adjustments may also be based on increases or decreases in

indexes for commodity groups, specific supplies or services, or

contract end items.

4516.203-3 Limitations.

(S-90) A fixed price contract with economic price adjustment may

also be used to provide for price adjustments authorized in this

section.

4516.203-4 Contract clauses.

(S-90) When the contracting officer determines that an existing EPA

clause is not appropriate, the contracting officer may develop and use

another EPA clause in accordance with 5416.203-1 (a)(S-90) or (c)(S-

90). Established prices and cost indexes need not reflect changes in

the costs or established prices of a specific contractor. The

established price or cost index may be derived from sales prices in the

marketplace, quotes, or assessments as reported or made available in a

consistent manner in a publication, electronic database, or other form,

by an independent trade association, Governmental body, or other third

party independent of the contractor. More than one established price or

cost index may be combined in a formula for economic price adjustment

purposes in the absence of an appropriate single price or cost index.

Dated: July 23, 1999.

William J. Kenny,

Executive Director, Procurement Management.

[FR Doc. 99-19630 Filed 7-30-99; 8:45 am]

BILLING CODE 3620-01-M