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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: December 13, 2000

FROM: Barry McVay, CPCM

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Material Management and Accounting Systems (MMAS)

SOURCE: Federal Register, December 13, 2000, Vol. 65, No. 240, page 77832

AGENCIES: Department of Defense (DOD)

ACTION: Final Rule

SYNOPSIS: DOD is amending DFARS Subpart 242.72, Contractor Material Management and Accounting System, to revise the criteria for determining when review of a contractor's MMAS is needed.

EDITOR'S NOTE: For more on the proposed rule, see the July 3, 2000, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Material Management and Accounting Systems (MMAS)."

EFFECTIVE DATE: December 13, 2000.

FOR FURTHER INFORMATION CONTACT: Mr. Rick Layser, Defense Acquisition Regulations Council, OUSD (AT&L) DP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; 703-602-0293; fax: 703-602-0350. Cite DFARS Case 2000-D003 when referring to this rule.

SUPPLEMENTAL INFORMATION: On July 3, 2000, DOD published a proposed rule to revise DFARS Subpart 242.72 because of confusion regarding when DFARS 252.242-7004, Material Management and Accounting System, is to be included in a solicitation or contract. DFARS 242.7206, Contract Clause, required the inclusion of DFARS 252.242-7004 in "all solicitations and contracts exceeding the simplified acquisition threshold that are not for the acquisition of commercial items and (a) are not awarded under the set-aside or Section 8(a) procedures of FAR Part 19; and (b) are either (1) cost-reimbursement contracts; or (2) fixed price contracts with progress payments or other government financing." However, DFARS 242.7203, MMAS Disclosure, Demonstration, and Maintenance Requirements, and DFARS 252.242-7004 stated that only large businesses are subject to MMAS.

Six sources submitted comments on the proposed rule. Based on their comments, DOD has decided to finalize the proposed rule with minor editorial changes.

The following are the significant changes being made by the rule, with differences between the proposed and final versions contained in brackets ("[ ]"):

• DFARS Subpart 242.72 is reorganized into the following sections:
  
        242.7200, Scope of Subpart
        242.7201, Definitions
        242.7202, Policy
        242.7203, Review Procedures (formerly 242.7205)
        242.7204, Contract Clause (formerly 242.7206)
  
  The provisions of the old DFARS 242.7203, MMAS Disclosure, Demonstration, and Maintenance Requirements, and DFARS 242.7204, Responsibilities, have either been eliminated or moved to DFARS 242.7203, Review Procedures.
  
  
• DFARS 242.7200 is revised to add that the policies and procedures in the subpart "(1) Apply only when the contractor has contracts exceeding the [$100,000] simplified acquisition threshold that are not for the acquisition of commercial items and are either (i) cost-reimbursement contracts; or (ii) fixed-price contracts with progress payments made on the basis of costs incurred by the contractor as work progresses under the contract; and (2) Do not apply to small businesses, educational institutions, or nonprofit organizations."
  
  
• Paragraph (d) of DFARS 242.7202 is deleted because its explanation of which contracts are subject to MMAS requirements contributed to the confusion and is now more clearly explained in the revised DFARS 242.7200.
  
  
• The old DFARS 242.7203 stated that contractors receiving total annual DOD awards in excess of $70 million were subject to MMAS requirements, but that the administrative contracting officer (ACO) could require contractors that receive annual awards between $30 million and $70 million to develop and maintain a MMAS if "in the best interests of the government." In addition, the old DFARS 242.7205 required that the ACO conduct an MMAS review every three years (but the period could be lengthened or shortened "based on a risk assessment on the contractor's past experience and current vulnerability").
  
  The revised DFARS 242.7203 eliminates the requirement for an MMAS review every 3 years; raises the minimum dollar threshold for MMAS review from $30 million to $40 million (the $70 million "automatic" requirement is eliminated) to be consistent with the threshold for conducting a Contract Insurance/Pension Review (CIPR) (see DFARS Subpart 242.73); revises the basis for the dollar threshold by replacing "prior year DOD contract and subcontract awards" with the definition of "qualifying sales" from DFARS 242.7302, Requirements (same as for CIPRs); and requires the ACO to make a case-by-case determination of the need for an MMAS review.
  
  
• Paragraph (b)(4) of old DFARS 242.7206 exempted "fixed-price contracts with progress payments or other government financing" from MMAS requirements. Paragraph (b)(4) of the revised DFARS 242.7204 now exempts "fixed-price contracts with progress payments made on the basis of costs incurred by the contractor as work progresses under the contract." [The proposed paragraph (b)(4) was "fixed-price contracts with progress payments based on cost or other financing provisions based on cost."]
  
  
• DFARS 252.242-7004 is revised to conform to the changes made in DFARS Subpart 242.72. In addition, the requirement for a contractor to conduct a "demonstration" of its MMAS is replaced with a requirement that the contractor have "policies, procedures, and operating instructions that adequately describe its MMAS," and that the contractor provide the ACO with "the results of the internal reviews that it has conducted to ensure compliance with established MMAS policies, procedures, and operating instructions" [the proposed rule would have required the contractor to provide "adequate evidence that it has conducted internal audits to ensure compliance with its MMAS policies, procedures, and operating instructions"]. [In paragraph (d), which addresses the identification of MMAS deficiencies and contractor correction, the "within 30 days" and "within 60 days" deadlines for action are all revised to add "(or such other date as may be mutually agreed to by the ACO and the contractor)".]

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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