Defense Federal Acquisition Regulation Supplement: Data Requirements for Commercial Products for Major Weapon Systems (DFARS Case 2023-D010)

<RULE> DEPARTMENT OF DEFENSE <SUBAGY>Defense Acquisition Regulations System</SUBAGY> <CFR>48 CFR Parts 212, 215, 234, and 252</CFR> <DEPDOC>[Docket DARS-2023-0047]</DEPDOC> <RIN>RIN 0750-AL83</RIN> <SUBJECT>Defense Federal Acquisition Regulation Supplement: Data Requirements for Commercial Products for Major Weapon Systems (DFARS Case 2023-D010)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Defense Acquisition Regulations System, Department of Defense (DoD). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 that clarifies the data to be provided for certain procurements related to major weapon systems. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective May 30, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Ms. Jeanette Snyder, telephone 703-508-7524. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> DoD published a proposed rule in the <E T="04">Federal Register</E> at 88 FR 88554 on December 22, 2023, to implement section 803 of the James M. Inhofe National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023 (Pub. L. 117-263). Section 803 modifies 10 U.S.C. 3455 to provide additional guidance regarding data requirements to support a determination of commerciality and price reasonableness for certain procurements associated with major weapon systems. Two respondents submitted public comments in response to the proposed rule. <HD SOURCE="HD1">II. Discussion and Analysis</HD> DoD reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments is provided as follows: <HD SOURCE="HD2">A. Summary of Significant Changes From the Proposed Rule</HD> There are no significant changes from the proposed rule. <HD SOURCE="HD2">B. Analysis of Public Comments</HD> <HD SOURCE="HD3">1. Negative Impacts of the Rule</HD> <E T="03">Comment:</E> One respondent indicated that the requirement to provide expanded data in support of commercial products added by section 803 presents a significant burden and risk to contractors. Many defense industrial base suppliers are commercial companies that also offer their products and services to DoD. For these suppliers, the statutory obligation to comply with the expanded data requirements will force commercial businesses to implement a compliance infrastructure to segregate and archive business data. The additional cost associated with this cannot be offset by raising product prices in a competitive commercial marketplace and is of no value to commercial buyers. As such, many of these suppliers may simply forgo the opportunity to enter into contracts with DoD. In addition, the requirements for disclosure increase the risk that highly sensitive commercial sales data will be disclosed to competitors, which creates a significant business risk for small and medium-sized suppliers. <E T="03">Response:</E> This rule implements the additional guidance provided in section 803 of the NDAA for FY 2023 regarding data requirements to support a determination of commerciality and a determination of price reasonableness for certain procurements associated with major weapon systems. For the commerciality determination, section 803, as implemented in this rule, allows contractors to, for example, identify the comparable commercial product it sells or that is sold in the commercial market and provide the contracting officer a comparison between the physical characteristics and functionality of such a product and the subsystem, component, or spare part, if available. For the price reasonableness determination, section 803, as implemented in this rule, allows the offeror to provide or give the contracting officer access to a representative sample of prices paid for the same or similar commercial products under comparable terms and conditions and, if not feasible, to provide the prices paid for the same or similar commercial products sold under different terms and conditions. In addition, offerors may redact customer information, which alleviates any business risk. This information should be readily available to commercial companies via their sales records, so companies should not need to establish a compliance infrastructure to segregate and archive business data. Therefore, this rule does not impose additional administrative costs or recordkeeping burdens on commercial companies that would cause them to no longer be willing to do business with DoD. <E T="03">Comment:</E> One respondent indicated that the significant compliance burden and business risk levied by section 803 will give commercial companies a choice of: (1) establishing and maintaining separate production lines for commercial and defense products; or (2) exiting the defense industrial base. Isolating defense production from commercial production requires substantial upfront investment in facilities and workforce and drives significant inefficiency in production. Given recent instability in DoD's budget processes and timing, expanding capacity in this way may be unfeasible for many companies in today's defense industrial base. The cause and effect of the changes made by section 803 will likely not only result in protracted acquisition cycle times but also adversely affect the cost of products sold to DoD and industry's ability to deliver timely requirements in support of the warfighters. In addition, it is likely to increase sole-source suppliers and compound DoD's current challenges in accessing the most innovative technologies, products, and services, which is not in the interest of the taxpayer, the warfighter, or the industrial base. <E T="03">Response:</E> Section 803 of the NDAA for FY 2023 provides additional guidance regarding data requirements to support a determination of commerciality and a determination of price reasonableness for certain procurements associated with major weapon systems. The additional guidance provides clarity to offerors and contracting officers regarding what is required for such determinations to simplify and expedite procurements. This information should be readily available to commercial companies via their product information and sales records, so commercial companies should not need to establish separate production lines or exit the DoD market. This rule should not result in an increase in sole-source suppliers, nor should it affect DoD's ability to access innovative technologies, products, and services. <E T="03">Comment:</E> One respondent indicated that section 803 struck sections of law (10 U.S.C. 3455(d)(1)(B)(i-iv)) that provide for an incremental approach to seeking data to determine reasonableness of price for commercial products. In determining price reasonableness, this long-standing framework required contracting officers to start with the least expensive and most reliable, relevant data ( <E T="03">e.g.,</E> price data) and move down the spectrum to data that is most expensive and time-consuming to collect and analyze ( <E T="03">e.g.,</E> cost data). This incremental approach was intended to keep acquisitions efficient, prices low, and decisions unbiased. In striking this incremental approach, section 803 sets conditions for contracting officers to start the process with an immediate demand for cost data, likely leading to increased acquisition cycle times, as well as increased tensions during contract negotiations, not only between DoD and the contractor but also between the contractor and their suppliers. <E T="03">Response:</E> Section 803, as implemented in this rule at DFARS 234.7002(e)(1) and (2), continues to require contracting officers to first request price data. DFARS 234.7002(e)(3) directs contracting officers to only request additional information from the offeror if the price data is insufficient to determine price reasonableness and approval to do so has been obtained. As such, this rule maintains the long-standing framework for contracting officers to first request price data from offerors and, therefore, should not affect acquisition cycle time or contract negotiations. <E T="03">Comment:</E> One respondent indicated that implementation of section 803 will likely compound DoD's current challenges in leveraging multi-use technologies, stimulating expansion of domestic production and investment in advanced manufacturing technologies, and potentially accelerate growing fragility of suppliers, particularly small businesses. As noted in the National Defense Industrial Strategy, DoD-unique requirements make DoD an unattractive customer, particularly for small businesses and nontraditional defense contractors, thus impeding competition and increasing the likelihood of sole-source situations. The respondent indicated that the compliance cost and the risk of exposure of business-sensitive data jeopardizes the ability of small businesses, in particular, to remain viable in the commercial marketplace. This may leave them no choice but to exit the defense market, which will increase the fragility of the defense industrial base. The loss of these suppliers will also lead to time-consuming and expensive processes to requalify new vendors if they can be found. Aerospace prime contractors would be uniquely impacted by such departures, as many suppliers are subject to specific airworthiness standards and Federal Aviation Administration qualifications. As such, the increased burden, compliance cost and risk of exposure imposed by the implementation of section 803 may result in the need to identify and qualify new suppliers, which may increase costs on current programs, drive delays ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 48k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━