DATE: June 3, 2003

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Follow-On Production Contracts to Awardees of "Other Transactions"

SOURCE: Federal Register, June 3, 2003, Vol. 68, No. 106, page 33057

AGENCIES: Department of Defense (DOD)

ACTION: Proposed Rule

SYNOPSIS: DOD is proposing to amend DFARS 206.001, Applicability, to provide an exception from competition to participants in an "other transaction" (OT) agreement for a prototype project, if the OT agreement was entered into through competitive procedures and it provided for at least one-third non-federal cost share. This change would implement Section 822 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107).

EDITOR'S NOTE: The regulations for OTs ("transactions other than contracts, grants, or cooperative agreements for prototype projects") are in Title 32 of the Code of Federal Regulations (CFR), Chapter 1, Office of the Secretary of Defense, Part 3, Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects. Additional guidance on OTs can be found on the Defense Procurement website at http://www.acq.osd.mil/dp/dsps/ot/dspsot.htm.

For more on the proposed revision to Title 32 of the CFR that necessitates this proposed amendment to the DFARS, see the May 20, 2003, FEDERAL CONTRACTS DISPATCH "Department of Defense; Follow-On Production Contracts to Awardees of 'Other Transactions'."

For more on the acquisition-related provisions of Public Law 107-107, see the January 2, 2002, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2002."

DATES: Comments on the proposed rule must be received by August 4, 2003.

ADDRESSES: Respondents may submit comments directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. As an alternative, respondents may e-mail comments to: dfars@acq.osd.mil. Also, respondents who cannot submit comments through the web site or by e-mail may submit comments to Defense Acquisition Regulations Council, Attn: Susan Schneider, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062, or by fax to 703-602-0350. Cite "DFARS Case 2002-D023" when making comments on this proposed rule.

FOR FURTHER INFORMATION CONTACT: Susan Schneider, 703-602-0326.

SUPPLEMENTAL INFORMATION: Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Public Law 103-160) authorized the secretary of a military department, the director of Defense Advanced Research Projects Agency (DARPA), and any other official designated by the Secretary of Defense, to enter into "transactions other than contracts, grants or cooperative agreements for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense." These are commonly referred to as "other transactions" (OTs) and they are generally exempt from all the statutes and regulations that govern federal contracts and grants. The purpose of OTs is to overcome the reluctance of many firms with significant technological advances and innovations to share their innovations with the government because of the significant statutory and regulatory requirements involved in government contracts and grants. When using OTs, DOD contracting officials are not required to include standard contract provisions that typically address such issues as financial management or intellectual property rights, but may structure the agreements as they consider appropriate.

Use of OT authority is authorized by law in the absence of the significant participation of a nontraditional defense contractor, and when at least one-third of the costs of the prototype project are to be provided by non-federal parties to the agreement. The authority granted by Section 822 of Public Law 107-107 provides the authority to continue such prototype projects into production without competition under the following conditions:

  1. The OT agreement provided for a follow-on production contract;

  2. The OT agreement provided for at least one-third non-federal cost share for the prototype project;

  3. Competitive procedures were used for the selection of parties for participation in the OT agreement;

  4. The participants in the OT agreement successfully completed the prototype project;

  5. The number of units provided for in the follow-on production contract does not exceed the number of units specified in the OT agreement for such a follow-on production contract; and

  6. The prices established in the follow-on production contract do not exceed the target prices specified in the OT agreement for such a follow-on production contract.

On May 20, 2003, DOD published a proposed rule to add 32 CFR 3.9, Follow-On Production Contracts, to its regulations to implement Section 822 of Public Law 107-107. To provide the corresponding exemption from DFARS Part 206, Competition Requirements, for follow-on production contracts awarded under the authority of Section 822, this proposed rule would amend DFARS 206.001 by exempting follow-on production contracts for products developed under the OT authority for prototype projects when the OT agreement includes provisions for a follow-on production contract; the contracting officer establishes quantities and prices for the follow-on production contract that do not exceed the quantities and target prices established in the OT agreement; and the contracting officer receives sufficient information from the agreements officer and the project manager for the prototype OT agreement documenting that all the other conditions have been met.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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