[Federal Register: December 1, 2006 (Volume 71, Number 231)]
[Rules and Regulations]
[Page 69489-69492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de06-17]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 212, 232, and 252
[DFARS Case 2004-D033]
Defense Federal Acquisition Regulation Supplement; Levy on
Payments to Contractors
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 address the effect of Internal Revenue Service (IRS) levies on
contract payments. The rule requires DoD contractors to promptly notify
the contracting officer if a levy may result in an inability to perform
a contract.
DATES: Effective Date: December 1, 2006.
FOR FURTHER INFORMATION CONTACT: Mr. Bill Sain, Defense Acquisition
Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0293;
facsimile (703) 602-0350. Please cite DFARS Case 2004-D033.
SUPPLEMENTARY INFORMATION:
A. Background
DoD published an interim rule at 70 FR 52031 on September 1, 2005,
addressing policy and procedures that apply when an IRS levy may result
in a contractor's inability to perform a DoD contract. DoD received
comments from 6 sources in response to the interim rule. DoD considered
all comments and has incorporated the following changes in the final
rule:
DFARS 212.301(f)--Addition of a prescription for use of the clause
at 252.232-7010, Levies on Contract Payments, in contracts for the
acquisition of commercial items.
DFARS 232.7101 and 252.232-7010--Clarification that the requirement
for the contractor to notify the contracting officer applies in
situations where the levy may result in an ``inability to perform the
contract.'' This change eliminates the term ``jeopardize contract
performance,'' since that term may be understood as establishing a
different standard than causing an inability to perform.
DFARS 232.7102--Exclusion of micro-purchases from the requirement
to use the clause at 252.232-7010.
[[Page 69490]]
The following is a discussion of the public comments and the issues
relating to the development of the final rule:
1. Comment: One respondent recommended amendment of the rule at
232.7101 and 252.232-7010 to provide that the contractor must notify
the procuring contracting officer (PCO) in all instances when a levy is
imposed. This would ensure that the PCO is aware of potential
performance problems before they occur. Once notified of the levy, the
PCO could monitor the contractor's performance and perform surveillance
of the contractor's financial condition.
DoD Response: DoD believes that notification should be limited to
situations where the levy will be likely to cause an inability to
perform the contract. To require reporting each time a levy is imposed,
even when the contractor believes there will be no impact on the
contract, would not provide useful data to the PCO, and could lead to
unnecessary administrative effort on the part of the Government, as
well as the contractor. The Paperwork Reduction Act (44 U.S.C. 3501, et
seq.) requires that the Government minimize the reporting requirements
incorporated into regulations.
2. Comment: Two respondents recommended amendment of the rule to
require that contractors notify both the PCO and the administrative
contracting officer (ACO).
DoD Response: DoD believes that the PCO is the best point of
contact for this process, but has revised the rule to require that the
contractor notify the PCO, in writing, with a copy to the ACO.
3. Comment: One respondent commented that the rule unnecessarily
requires a mandatory report to the PCO by the contractor (including a
report of ``no effect'') regarding the assessment on national security,
even if the contractor concludes that the levy will not create an
``inability to perform'' and that the withholding will have no effect
on national security. The respondent explained that it did not
interpret the rule as requiring an automatic report under the first
requirement unless the contractor concludes that the levy will actually
jeopardize contract performance; however, the respondent believed that
there is an ambiguity in the rule concerning the extent of the
reporting requirement, particularly when the contract clause (at
252.232-7010(b)) requires a mandatory report only when ``a levy is
imposed . . . and the levy will jeopardize contract performance''
because the contractor is required to report on both the jeopardy to
contract performance and whether there will be any effect on national
security.
DoD Response: The contractor is required to report to the
contracting officer if, and only if, the contractor believes that the
levy may cause an inability to perform the contract. This reporting
requirement is necessary in order to apprise the PCO of circumstances
that create barriers to successful contract performance. The contractor
is also required (at DFARS 252.232-7010(b)(3)) to provide advice as to
whether the inability to perform may adversely affect national
security, with rationale and adequate supporting documentation.
4. Comment: One respondent commented that the tests under the rule
that apply to the two requirements are different. ``Jeopardize contract
performance'' may have a limited impact, while ``inability to perform''
is more difficult for the contractor to assess.
DoD Response: The interim rule did establish two different
standards, ``jeopardize contract performance'' and causing an
``inability to perform.'' The Government's interest is in knowing when
the levy may cause an inability to perform, not necessarily in knowing
of each impediment that may jeopardize operations and that can be
overcome in the normal course of business. To clarify this requirement,
the final rule now consistently refers to situations where the levy may
result in an ``inability to perform.''
5. Comment: One respondent commented that, while DFARS 232.7101(b)
requires the contracting officer to notify the Director, Defense
Procurement and Acquisition Policy, when the contractor's inability to
perform may adversely affect national security or may result in
significant increased costs to the Government, neither the policy
description nor the clause requests information from the contractor as
to whether the levy will have any impact on Government costs.
DoD Response: The assessment as to whether an inability to perform
on a contract will lead to significantly increased costs is an internal
one for the buying activity. The PCO and the PCO's customer would be
able to assess, based on such factors as cost/price analysis of the
affected contract, alternative sources of supply, or existing
inventories, whether a probability exists for significantly increased
costs to the Government. Therefore, the final rule does not include a
requirement for contractor information on this factor.
6. Comment: One respondent recommended that the contract clause be
revised to specify, consistent with DFARS 232.7101(c), that the
contracting officer will provide the notification described in DFARS
252.232-7010(c). The clause currently provides only that DoD will
provide a notification to the contractor.
DoD Response: DFARS 252.232-7010(c) has been revised to require
that the PCO notify the contractor, in writing, of the DoD decision.
7. Comment: One respondent recommended that DFARS Procedures,
Guidance, and Information (PGI) be expanded to require notification by
the PCO to the procuring agency's senior procurement executive,
concurrent with the notification to the Director, Defense Procurement
and Acquisition Policy, that is prescribed in the rule.
DoD Response: DoD agrees that senior agency procurement leadership,
possibly including the senior procurement executive, should be included
in the notification process. Corresponding PGI coverage provides that
the contracting officer will notify the Director, Defense Procurement
and Acquisition Policy, in accordance with agency procedures. DoD
believes that the individual DoD components should determine the
specific routing of such notifications in their internal guidance.
8. Comment: One respondent stated that DFARS 232.7100, Scope of
subpart, should cite Internal Revenue Code 6331 and 6332, since those
sections established the Federal Payment Levy Program.
DoD Response: The coverage in DFARS Subpart 232.71, Levies on
Contract Payments, addresses a narrow part of levies against payments,
specifically, the process for dealing with collections against contract
payments that may cause an inability to perform. Therefore, DoD
believes that the current citation is appropriately precise.
9. Comment: One respondent stated that the rule should indicate
when the clause needs to be included in contracts, e.g., greater than
$100,000. Similarly, another respondent recommended that contracts
below the simplified acquisition threshold be excluded.
DoD Response: While DoD understands that contracts below the
simplified acquisition threshold have a reduced likelihood of impacting
national security, the possibility exists that, in a critical
situation, a levy could lead to such a circumstance. Therefore, DoD
believes that the clause prescription should apply to contracts below
the simplified acquisition threshold, with the exception of micro-
purchases. DFARS 232.7102 has been revised to exclude micro-purchases
from the clause prescription.
[[Page 69491]]
10. Comment: Two respondents requested clarification as to whether
the clause applies to contracts for the acquisition of commercial
items.
DoD Response: While DoD understands that contracts for the
acquisition of commercial items have a reduced likelihood of impacting
national security, the scope of commercial items is very broad, and
such contracts can be very large, even including critical items.
Therefore, the possibility exists that, in a given situation, a levy
could impact contract performance that, in a certain circumstance,
could impact national security. DoD believes that the clause should be
used in contracts for commercial items above the micro-purchase
threshold. DFARS 212.301(f) has been amended to incorporate a
prescription for inclusion of the clause at 252.232-7010 in contracts
for the acquisition of commercial items.
11. Comment: One respondent recommended that the clause
prescription permit the contracting officer to waive (without
significant procedural requirements) the inclusion of the clause in
solicitations and contracts when the contracting officer believes the
risk of a levy having an adverse impact on performance is low.
DoD Response: While there may be contracts that have a reduced
likelihood of impacting national security or leading to significantly
higher costs to the Government in the event of an inability to perform,
the possibility exists that, in a critical situation, a levy could lead
to such a circumstance. Therefore, DoD did not make the suggested
change.
12. Comment: One respondent commented that the vast majority of DoD
contracts contain the clause at FAR 52.232-23, Assignment of Claims,
with Alternate I, which provides for a no-setoff commitment, and asked
how DFARS 252.232-7010, Levies on Contract Payments, would interact
with FAR 52.232-23, with Alternate I.
DoD Response: Levies cannot be applied against payments for
contracts that have been assigned in accordance with the clause at FAR
52.232-23, Assignment of Claims, with Alternate I, unless the agency or
the contracting officer has excluded the no-setoff commitment in
accordance with DFARS 232.803(d).
13. Comment: Two respondents had comments regarding the requirement
for assessing the impact of an inability to perform on national
security. One indicated that this should be a judgment for the
Government, since contractors cannot possibly know such things. The
other respondent indicated that this may be beyond the contractor's
knowledge and capability.
DoD Response: The contractor generally is not in a position to
determine the impact on national security, and the rule assigns that
responsibility to DoD. However, the policy at 232.7101, and the clause
at 252.232-7010, call for advice from the contractor as to whether
national security might be impacted. The advice may be helpful to the
buying activity in developing a decision as to the impact on national
security. No change in the rule is necessary.
14. Comment: One respondent commented that the Background section
of the Federal Register notice should be changed to make it consistent
with DFARS 232.7101, Policy and Procedures. Specifically, that section
should be revised to indicate that the contractor will notify the
contracting officer when the contractor believes a levy imposed on a
DoD contract payment will ``jeopardize contract performance.'' The
respondent also recommended that the Paperwork Reduction Act section of
the Federal Register notice be revised for consistency with DFARS
232.7101, to indicate that the rule requires contractors to provide
certain information to the Government when levies ``jeopardizing
contract performance and adversely affecting national security'' are
imposed on DoD contract payments.
DoD Response: As discussed in the response to Comment 4 above, to
avoid confusion, the final rule eliminates use of the term ``jeopardize
contract performance'' and now consistently refers to requirements for
the contractor to notify the contracting officer when a levy may result
in an ``inability to perform.''
15. Comment: One respondent recommended that DoD initiate actions
to draft proposed legislation that will require all Federal agencies to
provide notice by e-mail for all potential offsets at least 30 days in
advance of the target offset date to certain contractor points of
contact established in the Central Contractor Registration system. The
respondent maintains that Federal agencies, and the Internal Revenue
Service in particular, have not been compliant with the intent and
spirit of the Debt Collection Improvement Act of 1996, in making the
offsets to recover levies related to contract overpayment and tax
underpayments.
DoD Response: The comment is beyond the scope of this DFARS case.
However, DoD notes that the Internal Revenue Service issues a
Collection Due Process notice 30 days before collection action, such as
a levy. Therefore, the contractor is already aware of the debt, and DoD
believes that further notice should not be necessary.
16. Comment: One respondent strongly encouraged DoD to review the
interaction between DoD and the Federal Payment Levy Program and the
Treasury Offset Program, with a particular focus on the procedural
requirements to notify the contractor, to the maximum extent
practicable, before DoD notifies the Treasury Department of a contract
debt.
DoD Response: FAR 32.610, Demand for Payment of Contract Debt,
already provides for issuance of a demand for payment, and specifies
that the contractor has 30 days to make payment without interest. DoD
considers that the existing FAR requirements provide adequate notice to
a contractor of a contract debt.
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 certifies that this final rule 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.,
because the rule applies to only those contractors that have a
delinquent tax debt. The number of contractors that fall into this
category is expected to be less than 10 per year.
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. Although the rule requires contractors to provide certain
information to the Government when an IRS levy may result in an
inability to perform a contract, the number of contractors subject to
this requirement is expected to be less than 10 per year.
List of Subjects in 48 CFR Parts 212, 232, and 252
Government procurement.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
0
Accordingly, the interim rule amending 48 CFR parts 232 and 252, which
was published at 70 FR 52031 on September 1, 2005, is adopted as a
final rule with the following changes:
[[Page 69492]]
0
1. The authority citation for 48 CFR Parts 212, 232, and 252 continues
to read as follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 212--ACQUISITION OF COMMERCIAL ITEMS
0
2. Section 212.301 is amended by adding paragraph (f)(xi) to read as
follows:
212.301 Solicitation provisions and contract clauses for the
acquisition of commercial items.
(f) * * *
(xi) Use the clause at 252.232-7010, Levies on Contract Payments,
as prescribed in 232.7102.
PART 232--CONTRACT FINANCING
0
3. Sections 232.7101 and 232.7102 are revised to read as follows:
232.7101 Policy and procedures.
(a) The contracting officer shall require the contractor to--
(1) Promptly notify the contracting officer when a levy may result
in an inability to perform the contract; and
(2) Advise the contracting officer whether the inability to perform
may adversely affect national security.
(b) The contracting officer shall promptly notify the Director,
Defense Procurement and Acquisition Policy (DPAP), when the
contractor's inability to perform will adversely affect national
security or will result in significant additional costs to the
Government. Follow the procedures at PGI 232.7101(b) for reviewing the
contractor's rationale and submitting the required notification.
(c) The Director, DPAP, will promptly evaluate the contractor's
rationale and will notify the IRS, the contracting officer, and the
payment office, as appropriate, in accordance with the procedures at
PGI 232.7101(c).
(d) The contracting officer shall then notify the contractor in
accordance with paragraph (c) of the clause at 252.232-7010 and in
accordance with the procedures at PGI 232.7101(d).
232.7102 Contract clause.
Use the clause at 252.232-7010, Levies on Contract Payments, in all
solicitations and contracts other than those for micro-purchases.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
4. Section 252.232-7010 is amended by revising the clause date and
paragraphs (b) and (c) to read as follows:
252.232-7010 Levies on Contract Payments.
* * * * *
LEVIES ON CONTRACT PAYMENTS (DEC 2006)
* * * * *
(b) When a levy is imposed on a payment under this contract and the
Contractor believes that the levy may result in an inability to perform
the contract, the Contractor shall promptly notify the Procuring
Contracting Officer in writing, with a copy to the Administrative
Contracting Officer, and shall provide--
(1) The total dollar amount of the levy;
(2) A statement that the Contractor believes that the levy may
result in an inability to perform the contract, including rationale and
adequate supporting documentation; and
(3) Advice as to whether the inability to perform may adversely
affect national security, including rationale and adequate supporting
documentation.
(c) DoD shall promptly review the Contractor's assessment, and the
Procuring Contracting Officer shall provide a written notification to
the Contractor including--
(1) A statement as to whether DoD agrees that the levy may result
in an inability to perform the contract; and
(2)(i) If the levy may result in an inability to perform the
contract and the lack of performance will adversely affect national
security, the total amount of the monies collected that should be
returned to the Contractor; or
(ii) If the levy may result in an inability to perform the contract
but will not impact national security, a recommendation that the
Contractor promptly notify the IRS to attempt to resolve the tax
situation.
* * * * *
[FR Doc. E6-20394 Filed 11-30-06; 8:45 am]
BILLING CODE 5001-08-P