[Federal Register Volume 75, Number 135 (Thursday, July 15, 2010)]
[Rules and Regulations]
[Pages 41097-41101]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16582]
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DEPARTMENT OF HOMELAND SECURITY
48 CFR Parts 3002, 3007, 3009, 3016, 3034, 3035, and 3052
[Docket No. DHS-2009-0006]
RIN 1601-AA49
Homeland Security Acquisition Regulation; Lead System Integrators
[HSAR Case 2009-003]
AGENCY: Office of the Chief Procurement Officer, DHS.
ACTION: Interim rule with request for comments.
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SUMMARY: The Department of Homeland Security (DHS) is issuing an
interim rule amending the Homeland Security Acquisition Regulation
(HSAR) to implement section 6405 of the U.S. Troop Readiness, Veterans'
Care, Katrina Recovery, and Iraq Accountability Appropriations Act,
2007. This section of the Act and these implementing regulations
restrict contractors from acting as lead system integrators in the
acquisition of DHS major systems if they have direct financial
interests in the development or construction of any individual system
or element of any system of systems they integrate subject to stated
exceptions.
DATES: Effective Date: This rule is effective July 15, 2010.
Comments Due Date: Comments must reach the Department of Homeland
Security, Office of the Chief Procurement Officer, Acquisition Policy
and Legislation, on or before August 16, 2010.
ADDRESSES: Please submit written comments, identified by agency name
and docket number DHS-2009-0006, by one of the following methods:
(1) Federal eRulemaking Portal: http://www.regulations.gov. To
submit comments, follow instructions on www.regulations.gov and use
docket number DHS-2009-0006.
(2) By mail to the Department of Homeland Security, Office of the
Chief Procurement Officer, Acquisition Policy and Legislation, ATTN:
Timothy J. Frank, 245 Murray Drive SW., STOP 0415, Washington, DC
20528-0415.
FOR FURTHER INFORMATION CONTACT: Timothy J. Frank, Senior Procurement
Analyst, at (202) 447-5252 for clarification of content. Please cite
HSAR Case 2009-003.
SUPPLEMENTARY INFORMATION:
I. Request for Comments
II. Background
III. Discussion of Interim Rule
IV. Regulatory Analyses
A. Executive Order 12866 Assessment
B. Determination To Issue an Interim Rule
C. Regulatory Flexibility Act
D. Paperwork Reduction Act
E. National Environmental Policy Act
I. Request for Comments
Interested persons are invited to participate in this rulemaking by
submitting written comments, views, or arguments on all or any aspect
of this rule. Comments must be received by August 16, 2010. Comments
should be organized by Homeland Security Acquisition Regulation (HSAR)
Part, and address the specific section that is being commented on. All
comments received will be posted without change to http://www.regulations.gov, including any personal information provided. See
ADDRESSES above for information on how to submit comments. If you
submit comments by mail, please submit them in an unbound format, on
8\1/2\-by-11-inch paper, suitable for copying and optical character
recognition. If you would like DHS to acknowledge receipt of comments
submitted by mail, please enclose a self- addressed stamped post card
or envelope. DHS will consider all comments and material received
during the comment period. Access to the docket, including background
documents and comments received, can be obtained at http://www.regulations.gov which contains relevant instructions under the FAQs tab
on the home page.
II. Background
The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act, 2007, Public Law 110-28,
section 6405, 121 Stat. 112, 176 (2007) (codified as 6 U.S.C. 396;
hereinafter ``Section 396''), limits firms that can serve as lead
system integrators on DHS acquisitions of major systems. Such
contractors may have no direct financial interest in the development or
construction of any individual system or element of any system of
systems they would integrate, unless one of the stated exceptions has
been satisfied.
One exception applies when the contractor is selected by a
subcontractor as a lower-tier subcontractor, through a process over
which the contractor had no control, to develop or construct an
individual system or element of any system of systems the contractor
would integrate. The other exception applies where the lead system
integrator was selected using competitive procedures, DHS takes
appropriate steps to prevent any organizational conflicts of interest
in the selection process, and the Secretary of Homeland Security
certifies these facts to various committees in Congress.
Section 396 also requires DHS to update its acquisition regulations
and to include a definition of ``lead system integrators'' modeled
after that used by the Department of Defense and a specification of
various types of contracts and fee structures that are appropriate for
use with lead system integrators. This rule implements Section 396.
This rule is issued by DHS's Chief Procurement Officer, who is the
Senior Procurement Executive (SPE), see 41 U.S.C. 414 and DHS
Delegation Number 0700, under authority of 5 U.S.C. 301-302, the Office
of Federal Procurement Policy Act, Public Law 93-400, 88 Stat. 796
(1974), including sections 22 and 25, 41 U.S.C. 418b and 421, and FAR
48 CFR part 1, subpart 1.3.
III. Discussion of Interim Rule
The interim rule revises (HSAR) 48 CFR 3002.101, 3007.106, 3009.5,
3016.1, 3034.004, 3035.008, 3052.209-74 and 3052.209-75 to implement
Public Law 110-28, Title VI, Section 6405.
This rule changes the HSAR as follows:
Amends the definition of ``Major system'' in (HSAR) 48 CFR
3002.101 and removes the reference to the obsolete Management Directive
(MD) 1400, Investment Review Process. The
[[Page 41098]]
definition of ``Major system'' for DHS has been revised in accordance
with OMB Circular A-109, Major System Acquisitions, and FAR 2.101.
Removes the ``Reserved'' identification from (HSAR) 48 CFR
3007 and adds a reference to the newly-revised (HSAR) 48 CFR 3009.570
in new (HSAR) 48 CFR 3007.106-70 to address limitations on the use of
certain contractors as lead system integrators.
Amends (HSAR) 48 CFR 3009 to add new section 3009.570
which describes the limitations on the use of lead system integrators
and provides prescriptions for a new provision and clause found at
(HSAR) 48 CFR 3052.209-74 and 3052.209-75, respectively, for use in
certain solicitations and contracts.
Amends (HSAR) 48 CFR 3016 to add subpart 3016.1 to address
selection of the most appropriate contract type and fee structure.
Removes the (HSAR) 48 CFR 3034 ``Reserved'' identification
and adds a reference in new section 3034.004 pointing to 3009.570 for
the policy applicable to acquisition strategies in the use of lead
system integrators.
Amends (HSAR) 48 CFR 3035 to add section 3035.008, which
refers to 3009.570 describing limitations on the use of certain
contractors as lead system integrators.
Adds the new provision at (HSAR) 48 CFR 3052.209-74,
Limitations on Contractors Acting as Lead System Integrators.
Adds the new clause at (HSAR) 48 CFR 3052.209-75,
Prohibited Financial Interests for Lead System Integrators.
IV. Regulatory Analyses.
A. Executive Order 12866 Assessment
This is a not a significant regulatory action under Section 6 of
Executive Order 12866, Regulatory Planning and Review, dated September
30, 1993. The Office of Management and Budget has not reviewed it under
that Order. This rule is not a major rule under 5 U.S.C. 804. This rule
helps to avoid organizational conflicts of interest in the award and
performance of contracts awarded by the Department of Homeland Security
that involve the use of lead system integrators. Additionally, it
encourages the use of a larger number of contractors by establishing
limitations on the extent of work that can be performed by lead system
integrators.
B. Determination To Issue an Interim Rule
DHS has determined that urgent and compelling reasons exist to
promulgate this interim rule without prior opportunity for public
comment. This action is necessary because it implements 6 U.S.C. 396,
which specifies that the section applies to contracts entered into
after July 1, 2007, and that DHS shall update the HSAR prior to that
date. Nevertheless, pursuant to 41 U.S.C. 418(b) and FAR 1.501, DHS
will consider public comments received in response to this interim rule
with request for comment in the formation of a final rule.
C. Regulatory Flexibility Act
The Department of Homeland Security certifies that the interim rule
amending (HSAR) 48 CFR 3002.101, 3007.106, 3009.5, 3016.1, 3034.004,
3035.008, 3052.209-74 and 3052.209-75, will not have a 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. The
factual basis for certification is presented in the following analysis
of the effects of this rule. Application of the rule is limited to
offerors or contractors providing services as lead system integrators
or considering the provision of such services. Lead system integrators
are limited to contracts for the development or production of major
systems, and often involve the contractor performing functions closely
associated with inherently governmental functions.
Under this interim rule, an entity that receives a contract as a
lead system integrator cannot have any direct financial interest in the
development or construction of any individual system or element of any
system of systems while performing lead system integrator functions in
the acquisition of a major system by the Department of Homeland
Security under this contract. Lead system integrator contracts usually
extend several years, and we estimate that a limited number of such
contracts are in effect within DHS at any one time. Very few contracts
of this character are awarded in any given year.
The limitations on entities (both large and small) apply only to
contractors who choose to perform work for the Department of Homeland
Security as a lead system integrator. If an entity does believe that
participating in the particular contract as lead system integrator
would impose a significant economic impact on their operation, the
entity would make a business decision whether the revenue generated by
doing business with the Department of Homeland Security as a lead
system integrator would provide a financial return sufficient to
justify the restriction of not having a direct financial interest in
the development or construction of any individual system or element of
any system of systems while performing lead system integrator
functions. Presumably, entities which do not receive the desired return
on revenue to justify participating as lead system integrator would
choose not to propose on the particular contract. Such an entity could
still choose to propose as a subcontractor under the prime contract,
thereby mitigating the effect even further.
In addition, this rule is not discretionary; a statute requires
that DHS address these matters in its acquisition regulation.
D. 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.
E. National Environmental Policy Act
We have analyzed this rule under Department of Homeland Security
Directive 023-01, which guides the Department in complying with the
National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-
4370f), and have concluded that this action is one of a category of
actions which do not individually or cumulatively have a significant
effect on the human environment. This rule, which does not involve any
extraordinary circumstances, is categorically excluded under paragraphs
A3(b) and A3(d) in Table I of Appendix A of Directive 023-01 because it
implements legislation by amending acquisition regulations without
changing the regulation's environmental effect.
List of Subjects in 48 CFR Parts 3002, 3007, 3009, 3016, 3034,
3035, and 3052
Government procurement.
Dated: June 30, 2010.
Richard K. Gunderson,
Acting Chief Procurement Officer, Department of Homeland Security.
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Accordingly, DHS amends 48 CFR parts 3002, 3007, 3009, 3016, 3034,
3035, and 3052 as follows:
0
1. Revise the authority citation for 48 CFR parts 3002, 3007, 3009,
3016, 3034, 3035, and 3052 to read as follows:
Authority: 5 U.S.C. 301-302, 41 U.S.C. 418b(a) and (b), 41
U.S.C. 414, 48 CFR part 1, subpart 1.3, and DHS Delegation Number
0700.
[[Page 41099]]
PART 3002--DEFINITIONS OF WORDS AND TERMS
0
2. Amend section 3002.101 by revising the definition of ``major
system'' to read as follows:
3002.101 Definitions.
Major system means, for DHS, that combination of elements that will
function together to produce the capabilities required to fulfill a
mission need, including hardware, equipment, software, or any
combination thereof, but excluding construction or other improvements
to real property. A DHS major system is one where the total lifecycle
costs for the system are estimated to equal or exceed $300M (in
constant 2009 dollars), or if the Deputy Secretary has designated a
program or project as a major system. This corresponds to a DHS Level 1
or 2 capital investment acquisition.
* * * * *
0
3. Add new part 3007 to read as follows:
PART 3007--ACQUISITION PLANNING
Subpart 3007.1--Acquisition Plans
Sec.
3007.106 Additional Requirements for Major Systems.
3007.106-70 Limitations on Lead System Integrators.
Subpart 3007.1--Acquisition Plans
3007.106 Additional Requirements for Major Systems.
3007.106-70 Limitations on Lead System Integrators.
See (HSAR) 48 CFR 3009.570 for policy applicable to acquisition
strategies that consider the use of lead system integrators.
PART 3009--CONTRACTOR QUALIFICATIONS
0
4. Add sections 3009.570 through 3009.570-4 to Subpart 3009.5 to read
as follows:
Subpart 3009.5--Organizational and Consultant Conflicts of Interest
Sec.
3009.570 Limitations on contractors acting as lead system
integrators.
3009.570-1 Definitions.
3009.570-2 Policy.
3009.570-3 Procedures.
3009.570-4 Solicitation provision and contract clause.
Subpart 3009.5--Organizational and Consultant Conflicts of Interest
3009.570 Limitations on contractors acting as lead system integrators.
3009.570-1 Definitions.
``Direct Financial Interest,'' as used in this section, is defined
in the clause at HSAR 48 CFR 3052.209-75, Prohibited Financial
Interests for Lead System Integrators.
``Lead system integrator,'' as used in this section, is defined in
the clause at (HSAR) 48 CFR 3052.209-75, Prohibited Financial Interests
for Lead System Integrators.
3009.570-2 Policy.
(a) Except as provided in paragraph (b) of this subsection, under 6
U.S.C. 396, no entity performing lead system integrator functions in
the acquisition of a major system (See (HSAR) 48 CFR 3002.101) by DHS
may have any direct financial interest in the development or
construction of any individual system or element of any system of
systems under the program in which the entity is performing lead system
integrator functions.
(b) The prohibition in paragraph (a) of this subsection does not
apply if--
(1) The Secretary of Homeland Security certifies to the Committees
on Appropriations of the Senate and the House of Representatives, the
Committee on Homeland Security of the House of Representatives, the
Committee on Transportation and Infrastructure of the House of
Representatives, the Committee on Homeland Security and Governmental
Affairs of the Senate, and the Committee on Commerce, Science and
Transportation of the Senate that--
(i) The entity was selected by DHS as a contractor to develop or
construct the system or element concerned through the use of
competitive procedures, and
(ii) DHS took appropriate steps to prevent any organizational
conflict of interest in the selection process; or
(2) The entity was selected by a subcontractor to serve as a lower-
tier subcontractor, through a process over which the entity exercised
no control.
(c) CONSTRUCTION--Nothing in this section 3009.570 shall be
construed to preclude an entity described in paragraph (a) of this
subsection from performing work necessary to integrate two or more
individual systems or elements of a system of systems with each other.
3009.570-3 Procedures.
In making a responsibility determination before awarding a contract
for the acquisition of a major system, the contracting officer shall--
(a) Determine whether the prospective contractor meets the
definition of ``lead system integrator'';
(b) Consider all information regarding the prospective contractor's
direct financial interests in view of the prohibition at (HSAR) 48 CFR
3009.570-2(a); and
(c) Apply the following procedures:
(1) After assessing the offeror's direct financial interests in the
development or construction of any individual system or element of any
system of systems, if the offeror--
(i) Has no direct financial interest in such systems, the
contracting officer shall document the contract file to that effect and
may then further consider the offeror for award of the contract;
(ii) Has a direct financial interest in such systems, but the
exception in (HSAR) 3009.570-2(b)(2) applies, the contracting officer
shall document the contract file to that effect and may then further
consider the offeror for award of the contract;
(iii) Has a direct financial interest in such systems and the
exception in (HSAR) 3009.570-2(b)(2) does not apply, but the conditions
in (HSAR) 3009.570-2(b)(1)(i) and (ii) do apply, the contracting
officer--
(A) Shall document the contract file to that effect;
(B) May, in coordination with program officials, request an
exception for the offeror from the Secretary of Homeland Security, in
accordance with Homeland Security Acquisition Manual section 3009.570;
and
(C) Shall not award to the offeror unless the Secretary of Homeland
Security grants the exception and provides the required certification
to Congress; or
(iv) Has a direct financial interest in such systems and the
exceptions in (HSAR) 3009.570-2(b)(1) and (2) do not apply, the
contracting officer shall not award to the offeror.
3009.570-4 Solicitation provision and contract clause.
(a) Use the provision at (HSAR) 48 CFR 3052.209-74, Limitations on
Contractors Acting as Lead System Integrators, in solicitations for the
acquisition of a major system when the acquisition strategy envisions
the use of a lead system integrator.
(b) Use the clause at (HSAR) 48 CFR 3052.209-75, Prohibited
Financial Interests for Lead System Integrators--
(1) In solicitations that include the provision at (HSAR) 48 CFR
3052.209-74; and
(2) In contracts when the contractor will fill the role of a lead
system
[[Page 41100]]
integrator for the acquisition of a major system.
PART 3016--TYPES OF CONTRACTS
0
5. Add subpart 3016.1 to read as follows:
Subpart 3016.1--Selecting Contract Types
Sec.
3016.170 Contracts with Lead System Integrators.
Subpart 3016.1--Selecting Contract Types
3016.170 Contracts with Lead System Integrators.
The contracting officer should negotiate the most appropriate
contract type and fee structure based on risks inherent in the work to
be performed, in accordance with (FAR) 48 CFR 16.103(a). Contract type
and fee structure should be commensurate with the work to be performed
and the risks assumed. Worthwhile existing guidance on contract type
selection, pricing, and fee structures, such as exists in Vol. I, Ch. 4
of the Contract Reference Pricing Guides [http://www.acq.osd.mil/dpap/cpf/docs/contract_pricing_finance_guide/vol4_ch1.pdf] can be
consulted to determine the appropriate contract type and fee structure
for use in varied contracts with lead system integrators in the
production, fielding and sustainment of complex systems.
0
6. Add part 3034 to read as follows:
PART 3034--MAJOR SYSTEM ACQUISITION
Subpart 3034.0--General
Sec.
3034.004 Acquisition strategy.
3034.0 General
3034.004 Acquisition strategy.
See (HSAR) 48 CFR 3009.570 for policy applicable to acquisition
strategies that consider the use of lead system integrators.
PART 3035--RESEARCH AND DEVELOPMENT CONTRACTING
0
7. Add section 3035.008 to read as follows:
3035.008 Evaluation for award.
See (HSAR) 48 CFR 3009.570 for limitations on the award of
contracts to contractors acting as lead system integrators.
PART 3052--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
8. Sections 3052.209-74 and 3052.209-75 are added to read as follows:
3052.209-74 Limitations on Contractors Acting as Lead System
Integrators.
As prescribed in (HSAR) 48 CFR 3009.570-4(a), use the following
provision:
LIMITATIONS ON CONTRACTORS ACTING AS LEAD SYSTEM INTEGRATORS (JUL 2010)
(a) Definitions. ``Direct financial interest,'' ``lead system
integrator,'' ``lead system integrator with system responsibility,''
and ``lead system integrator without system responsibility,'' as
used in this provision, have the meanings given in the clause of
this solicitation entitled ``Prohibited Financial Interests for Lead
System Integrators'' ((HSAR) 48 CFR 3052.209-75).
(b) General. Unless an exception is granted, no contractor
performing lead system integrator functions in the acquisition of a
major system by the Department of Homeland Security may have any
direct financial interest in the development or construction of any
individual system or element of any system of systems.
(c) Representations. (1) The offeror represents that it does [ ]
does not [ ] propose to perform this contract as a lead system
integrator with system responsibility.
(2) The offeror represents that it does [ ] does not [ ] propose
to perform this contract as a lead system integrator without system
responsibility.
(3) If the offeror answered in the affirmative in paragraph
(c)(1) or (2) of this provision, the offeror represents that it does
[ ] does not [ ] have any direct financial interest in the
development or construction of any system(s), subsystem(s), system
of systems, element of any system of systems, or services it
proposes or intends to seek to satisfy this solicitation.
(d) If the offeror answered in the affirmative in paragraph
(c)(3) of this provision, the offeror should contact the Contracting
Officer for guidance on whether an exception may apply and what
responsibilities the offeror may have in qualifying for an
exception.
(e) If the offeror does have a direct financial interest, the
offeror shall be prohibited from receiving an award under this
solicitation, unless:
(1) The offeror submits to the Contracting Officer appropriate
evidence that the offeror was selected by a subcontractor to serve
as a lower-tier subcontractor through a process over which the
offeror exercised no control; or
(2) the conditions described in (HSAR) 48 CFR 3009.570-
2(b)(1)(i) and (ii) exist, after an opportunity is afforded to the
offeror to provide information or commitments as may be necessary to
meet (HSAR) 48 CFR 3009.570-2(b)(1)(ii), assuming any such
information or commitment will allow DHS to meet that standard.
(f) This provision implements the requirements of 6 U.S.C. 396,
as added by Section 6405 of the U.S. Troop Readiness, Veterans'
Care, Katrina Recovery, And Iraq Accountability Appropriations Act,
2007 (Pub. L. 110-28).
(End of provision)
3052.209-75 Prohibited Financial Interests for Lead System
Integrators.
As prescribed in (HSAR) 48 CFR 3009.570-4(b), use the following
clause:
PROHIBITED FINANCIAL INTERESTS FOR LEAD SYSTEM INTEGRATORS (JUL 2010)
(a) Definitions. As used in this clause--
(1) ``Direct financial interest,'' for the purpose of this
clause and contract, and subject to exceptions set forth 6 U.S.C.
396(b) as implemented, means:
(i) Developing or constructing any individual system or element
of any system of systems for which the Contractor is the lead system
integrator;
(ii) Owning or being in a position to exert corporate control
over a subcontractor at any level under the prime contract;
(iii) Owning, or being in a position to exert corporate control
over an entity that either--
(A) Is a subcontractor at any level under the prime contract, or
(B) Owns or is in a position to control another entity that is a
subcontractor at any level under the prime contract; and
(iv) Participating or sharing in the profits of another firm's
development or construction of any individual system or element of
any system of systems for which the Contractor is the lead system
integrator or agreeing to participate in the profits of the firm
from such development or construction.
(2) ``Lead system integrator'' includes ``lead system integrator
with system responsibility'' and ``lead system integrator without
system responsibility.''
(3) ``Lead system integrator with system responsibility'' means
a prime contractor for the development or production of a major
system, if the prime contractor is not expected at the time of award
to perform a substantial portion of the work on the system and the
major subsystems.
(4) ``Lead system integrator without system responsibility''
means a prime contractor under a contract for the procurement of
services, the primary purpose of which is to perform acquisition
functions closely associated with inherently governmental functions
(see section 7.503(d) of the Federal Acquisition Regulation) with
regard to the development or production of a major system.
(5) The phrase ``substantial portion of the work,'' as used in
the definition of ``lead system integrator with system
responsibility,'' may relate to the dollar value of the effort or to
the criticality of the effort performed.
(b) Limitations. The Contracting Officer has determined that the
Contractor meets the definition of lead system integrator with [ ]
without [ ] system responsibility. Unless an exception is granted,
the Contractor shall not
[[Page 41101]]
have any direct financial interest in the development or
construction of any individual system or element of any system of
systems while performing lead system integrator functions in the
acquisition of a major system by the Department of Homeland Security
under this contract.
(c) Agreement. The Contractor agrees that during performance of
this contract it will not acquire any direct financial interest as
described in paragraph (b) of this clause, or, if it does acquire or
plan to acquire such interest, it will immediately notify the
Contracting Officer. The Contractor further agrees to provide to the
Contracting Officer all relevant information regarding the change in
financial interests so that the Contracting Officer can determine
whether an exception applies or whether the Contractor will be
allowed to continue performance on this contract. If an
organizational conflict of interest in the performance of this
contract that is attributable to the Contractor's direct financial
interest cannot be avoided, eliminated, or mitigated to the
Contracting Officer's satisfaction, the Contracting Officer may
terminate this contract for default or may take other remedial
measures as appropriate in the Contracting Officer's sole
discretion.
(d) Notwithstanding any other clause of this contract, if the
Contracting Officer determines that the Contractor misrepresented
its financial interests at the time of award or has violated the
agreement in paragraph (c) of this clause, the Government may
terminate this contract for default or may take other remedial
measures as appropriate in the Contracting Officer's sole
discretion.
(e) This clause implements the requirements of 6 U.S.C. 396, as
added by Section 6405 of the U.S. Troop Readiness, Veterans' Care,
Katrina Recovery, And Iraq Accountability Appropriations Act, 2007
(Pub. L. 110-28).
(End of clause)
[FR Doc. 2010-16582 Filed 7-14-10; 8:45 am]
BILLING CODE 9110-9B-P