[Federal Register: March 21, 2006 (Volume 71, Number 54)]
[Rules and Regulations]               
[Page 14104-14106]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr06-11]                         

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 207, 210, and 219

[DFARS Case 2003-D109]

 
Defense Federal Acquisition Regulation Supplement; Consolidation 
of Contract Requirements

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD has adopted as final, with changes, an interim rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to implement Section 801 of the National Defense Authorization Act for 
Fiscal Year 2004. Section 801 places restrictions on the consolidation 
of two or more requirements of a DoD department, agency, or activity 
into a single solicitation and contract with a total value exceeding 
$5,000,000.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Deborah Tronic, Defense 
Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 
3062 Defense Pentagon, Washington, DC 20301-3062; telephone (703) 602-
0289; facsimile (703) 602-0350. Please cite DFARS Case 2003-D109.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD published an interim rule at 69 FR 55986 on September 17, 2004, 
to implement 10 U.S.C. 2382, as added by Section 801 of the National 
Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). 10 
U.S.C. 2382 places restrictions on the consolidation of two or more 
requirements of a DoD department, agency, or activity into a single 
solicitation and contract with a total value exceeding $5,000,000. 
Twenty-two respondents submitted comments on the interim rule. A 
discussion of the comments is provided below.
    1. Comment: Four respondents indicated that the difference between 
consolidation of contract requirements and contract bundling is 
unclear.
    DoD Response: The definitions of the two terms are similar, because 
all bundles are consolidations. However, not all consolidations are 
bundles. The definition of ``bundle'' requires that previous contracts 
for the item were either performed by small business concerns or were 
suitable for small business concerns, whereas the definition of 
``consolidation'' does not contain this requirement.
    2. Comment: One respondent requested clarification regarding the 
definition of ``consolidation.'' The respondent interpreted the phrase 
``two or more separate contracts lower in cost than the total cost of 
the contract for which the offers are solicited'' to mean that, if the 
cost of one contract for two or more requirements is less than the cost 
of two or more separate contracts, the acquisition would be outside the 
definition of consolidation.
    DoD Response: Agree that the phrase could lead to multiple 
interpretations. To ensure that the rule is applied where appropriate, 
the phrase has been excluded from the final rule.
    3. Comment: One respondent stated that the rule does not consider 
varying quantities between the previous buy and the current 
acquisition; and does not consider when the previous buys were made, 
i.e., a year ago or five years ago. This could make a big difference in 
comparing costs.
    DoD Response: The definition included in the final rule eliminates 
the need for cost comparisons.
    4. Comment: Four respondents stated that the term ``consolidation 
of contract requirements'' is not clear with regard to what is meant by 
``requirements'' and whether or not a different acquisition strategy 
would be considered a new requirement, such as combining sustaining 
engineering with system maintenance of the same system.
    DoD Response: The DFARS rule follows the legislative definition for 
consolidation of contract requirements, which addresses a single award 
covering requirements previously provided under more than one award. 
DoD believes that the definition is clear, but exercise of judgment may 
be necessary in some cases to determine whether the requirement has 
previously been provided.
    5. Comment: One respondent asked for clarification regarding 
whether the rule applies to orders.
    DoD Response: Under GSA Schedules, DoD activities place orders, but 
the actual contract (Schedule) is put in place by GSA. A literal 
reading of the interim rule would be that the DoD senior procurement 
executive's determination must be made when the Schedule itself is 
awarded. The final rule clarifies that the rule applies to orders 
placed under GSA Schedules.
    6. Comment: One respondent asked who the senior procurement 
official is.
    DoD Response: The rule uses the term ``senior procurement 
executive.'' This term is defined at DFARS 202.101, which specifies the 
department/agency officials that hold this title.
    7. Comment: Seven respondents recommended delegation of the senior 
procurement executive's authority to determine that contract 
consolidation is necessary and justified.
    DoD Response: The rule does not prohibit delegation of this 
authority. Therefore, in accordance with FAR 1.108(b), departments and 
agencies may delegate this authority as deemed appropriate.
    8. Comment: One respondent stated that the requirement to file the 
determination in the contract file is unnecessary and should be 
deleted, because the contracting officer would do this without having 
it be required.
    DoD Response: Due to the specific requirement of 10 U.S.C. 2382 to 
ensure that decisions regarding consolidation are necessary and 
justified, DoD believes it is appropriate for this DFARS rule to 
address the need for supporting documentation.
    9. Comment: One respondent requested that the requirement for 
inclusion of the senior procurement executive's determination in the 
contract file be satisfied by including the determination in the 
acquisition plan.
    DoD Response: The senior procurement executive may, if desired,

[[Page 14105]]

document and sign the acquisition plan to satisfy the requirement for 
the determination, provided it addresses all the elements in DFARS 
207.170-3.
    10. Comment: One respondent requested additional guidance with 
respect to permissible contents of the determination. Absent such 
guidance, the regulation should at least make clear that the scenario 
identified in 207.170-3(a)(i), i.e., ``the benefits of the acquisition 
strategy substantially exceed the benefits of each of the possible 
alternative contracting approaches'' is simply an example of an 
adequate determination.
    DoD Response: The DFARS language is sufficiently clear. However, a 
possible source for additional guidance is the DoD Office of the Small 
and Disadvantaged Business Utilization Benefit Analysis Guidebook--
Reference to Assist Department of Defense Acquisition Strategy Teams in 
Performing a Benefit Analysis before Bundling Contract Requirements. 
Although this guidebook's focus is on bundling, there are some 
similarities to the measurably substantial benefits descriptions that 
may be helpful. A copy of this guidebook is available at http://www.acq.osd.mil/sadbu/news/guidebook.htm.
 DoD will be revising this 

guidebook to address consolidation.
    11. Comment: One respondent recommended that market research 
requirements for consolidation be added to DFARS 210.001.
    DoD Response: The final rule adds a new section at DFARS 210.001 to 
address market research requirements.
    12. Comment: Nine respondents recommended a higher dollar threshold 
for application of the rule.
    DoD Response: DoD is unable to increase this threshold, as the $5 
million threshold is specified in 10 U.S.C. 2382(b).
    13. Comment: Five respondents indicated that the DFARS rule is in 
conflict with acquisition reform initiatives that include such tools as 
strategic sourcing, corporate contracts, and commodity councils.
    DoD Response: The DFARS rule may make it more administratively 
burdensome to pursue such strategies; however, the rule does not 
preclude pursuing acquisition strategies that involve consolidation 
when it is determined that such consolidation is necessary and 
justified.
    14. Comment: One respondent indicated that consolidation limits 
competitive opportunities and that DoD should not impede competition.
    DoD Response: DoD agrees that competition should not be impeded. 
The rule is intended to ensure that consolidation decisions are made 
with a view toward providing small business concerns with appropriate 
opportunities to participate in DoD procurements at both the prime and 
subcontract level. It is noted, however, that consolidation will not in 
all cases result in a less competitive situation than what previously 
existed. There may be instances where firms that competed for previous 
separate contracts can still compete for the consolidated contract. In 
addition, when two contracts that were previously awarded on a sole 
source basis result in a new contract that is also sole source, 
competition has not been affected.
    15. Comment: One respondent stated that the requirements of this 
rule could result in additional workload to the Government, since it 
could result in two or three procurements instead of one procurement.
    DoD Response: Agree that the rule could increase the number of DoD 
procurement actions. However, the intent of the rule is to ensure that 
small business concerns are provided with appropriate opportunities to 
participate in DoD procurements.
    16. Comment: One respondent stated that the rule could burden small 
businesses by requiring them to respond to multiple solicitations 
instead of just one.
    DoD Response: As required by the statute, the application of the 
rule will preclude the issuance of consolidated acquisitions that 
cannot be justified, thus protecting the interests of small businesses. 
The appropriate issuance of multiple solicitations will provide 
multiple opportunities for small business concerns to compete.
    17. Comment: Four respondents indicated that there are no 
exceptions to the rule for small business set-asides, sole source 
awards, foreign military sales, etc., and suggests there should be 
exceptions.
    DoD Response: 10 U.S.C. 2382 does not provide for any exceptions to 
the policy stated in the rule.
    18. Comment: One respondent recommended the removal of the DFARS 
rule based on the fact that contracting officers are trained in and 
evaluated on properly applying small business rules to ensure small 
businesses get appropriate opportunities. In addition, the contracting 
officer is already required, in some cases, to provide all information 
relevant to the justification of contract bundling, including the 
acquisition plan, and to address bundling if applicable.
    DoD Response: This DFARS rule is necessary to implement the 
requirements of 10 U.S.C. 2382, which are separate from the 
requirements applicable to bundling at 15 U.S.C. 644(e)(2).
    19. Comment: One respondent stated that an annual review and 
assessment of contract consolidations is an undue administrative 
burden.
    DoD Response: In accordance with FAR 19.201(d)(11), the Office of 
Small and Disadvantaged Business Utilization is already required to 
conduct annual reviews regarding contract bundling actions. The 
consolidation review will be a part of this annual review process, and 
is needed to comply with Section 801(b) of Public Law 108-136, which 
requires DoD to conduct periodic reviews to determine the extent of 
consolidation and the impact on small business concerns.
    20. Comment: One respondent recommended adding a threshold to the 
review requirement at DFARS 219.201(d)(11), since no documentation 
requirements exist for contract consolidations valued at less than $5 
million.
    DoD Response: DoD does not believe it is necessary to restate the 
documentation threshold at 219.201(d)(11).
    21. Comment: One respondent suggested modification of the DD Form 
350 to collect information on consolidations.
    DoD Response: The DD Form 350 data collection system has been 
revised to identify procurements involving consolidation of contract 
requirements.
    22. Comment: One respondent asked if the rule applies to 
acquisitions already in process as of the effective date of the rule, 
September 17, 2004.
    DoD Response: In accordance with FAR 1.108(d), the rule applies to 
solicitations issued on or after September 17, 2004.
    23. Comment: Two respondents requested clarification as to whether 
the rule would apply to a procurement that was under the $5 million 
threshold initially, but exceeded the threshold after offers were 
received.
    DoD Response: The determination occurs before the solicitation is 
released, based on the estimated total value of the contract. If the 
value exceeded $5 million after offers were received, no further 
documentation and approval would be necessary at that time. The DFARS 
rule has been amended at 207.170-3(a) to clarify that application of 
the rule is based on estimated dollar value.
    24. Comment: One respondent stated that, if the previous contract 
contained two or more requirements, the follow-on

[[Page 14106]]

contract action for the same requirement would not be considered 
consolidation.
    DoD Response: If two or more items were previously acquired under a 
single contract, and the follow-on acquisition is for the same 
requirement, the follow-on acquisition would not meet the definition of 
consolidation, unless it is further combined with other requirements.
    25. Comment: One respondent asked whether a contract for support 
services at a dining facility that includes mess attendant services and 
full food (cooking) is covered by the DFARS rule.
    DoD Response: Whether this situation is covered depends upon how 
the requirements were previously performed. The DFARS rule applies when 
the required supplies or services previously were acquired under two or 
more separate contracts, but now will be acquired under one.
    26. Comment: Two respondents recommended that coverage be included 
in the DoD 5000 series publications as to what an acquisition strategy 
must include before contracts with a total value exceeding $5,000,000 
can be consolidated.
    DoD Response: DoD considers the comment to be outside the scope of 
this DFARS rule. However, this recommendation has been forwarded to the 
Defense Acquisition Policy Working Group for consideration.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
point of contact specified herein. The analysis is summarized as 
follows:
    This final rule amends the DFARS to implement Section 801 of the 
National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-
136). Section 801 added 10 U.S.C. 2382, which places restrictions on 
the consolidation of two or more requirements of a DoD department, 
agency, or activity into a single solicitation and contract, when the 
total value of the requirements exceeds $5,000,000. The objective of 
the rule is to ensure that decisions regarding consolidation of 
contract requirements are made with a view toward providing small 
business concerns with appropriate opportunities to participate in DoD 
procurements as prime contractors and subcontractors. DoD received no 
public comments in response to the initial regulatory flexibility 
analysis. As a result of public comments received on the interim rule, 
the final rule contains changes that clarify the applicability of the 
rule and the requirements for market research. The rule will apply to 
small entities that are interested in providing supplies or services 
under DoD contracts or subcontracts. There are no known alternatives 
that would accomplish the objectives of 10 U.S.C. 2382. The impact on 
small entities is expected to be positive.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply, because the rule does 
not impose any information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 207, 210, and 219

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Accordingly, the interim rule amending 48 CFR parts 207 and 219, which 
was published at 69 FR 55986 on September 17, 2004, is adopted as a 
final rule with the following changes:
0
1. The authority citation for 48 CFR parts 207 and 219 continues to 
read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 207--ACQUISITION PLANNING

0
2. Section 207.170-2 is revised to read as follows:


207.170-2  Definitions.

    As used in this section--
    Consolidation of contract requirements means the use of a 
solicitation to obtain offers for a single contract or a multiple award 
contract to satisfy two or more requirements of a department, agency, 
or activity for supplies or services that previously have been provided 
to, or performed for, that department, agency, or activity under two or 
more separate contracts.
    Multiple award contract means-
    (1) Orders placed using a multiple award schedule issued by the 
General Services Administration as described in FAR Subpart 8.4;
    (2) A multiple award task order or delivery order contract issued 
in accordance with FAR Subpart 16.5; or
    (3) Any other indefinite-delivery, indefinite-quantity contract 
that an agency enters into with two or more sources for the same line 
item under the same solicitation.

0
3. Section 207.170-3 is amended by revising paragraph (a) introductory 
text and paragraph (a)(3)(i) introductory text to read as follows:


207.170-3  Policy and procedures.

    (a) Agencies shall not consolidate contract requirements with an 
estimated total value exceeding $5,000,000 unless the acquisition 
strategy includes--
* * * * *
    (3) * * *
    (i) Market research may indicate that consolidation of contract 
requirements is necessary and justified if the benefits of the 
acquisition strategy substantially exceed the benefits of each of the 
possible alternative contracting approaches. Benefits may include costs 
and, regardless of whether quantifiable in dollar amounts--
* * * * *

0
4. Part 210 is added to read as follows:

PART 210--MARKET RESEARCH

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.


210.001  Policy.

    (a) In addition to the requirements of FAR 10.001(a), agencies 
shall--
    (i) Conduct market research appropriate to the circumstances before 
soliciting offers for acquisitions that could lead to a consolidation 
of contract requirements as defined in 207.170-2; and
    (ii) Use the results of market research to determine whether 
consolidation of contract requirements is necessary and justified in 
accordance with 207.170-3.

[FR Doc. 06-2646 Filed 3-20-06; 8:45 am]

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