Federal Register Vol. 83, No.21,

This action, pursuant to 5 U.S.C. 553, amends regulations issued to carry out a marketing order as defined in 7 CFR 900.2(j). This rule is issued under Marketing Agreement and Order No. 922, both as amended (7 CFR part 922), regulating the handling of apricots grown in designated counties in Washington. Part 922 (referred to as the “Order”) is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.” The Committee locally administers the Order and is comprised of growers and handlers of apricots operating within the area of production.

USDA is issuing this rule in conformance with Executive Orders 13563 and 13175. This rule falls within a category of regulatory actions that the Office of Management and Budget (OMB) exempted from Executive Order 12866 review. Additionally, because this rule does not meet the definition of a significant regulatory action, it does not trigger the requirements contained in Executive Order 13771. See OMB's Memorandum titled “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017, titled `Reducing Regulation and Controlling Regulatory Costs' ” (February 2, 2017).

Under the Order, Washington apricot handlers are subject to assessments. Funds to administer the Order are derived from such assessments. It is intended that the assessment rate, as issued herein, will be applicable to all assessable apricots beginning April 1, 2017, and continue until amended, suspended, or terminated. The Committee's fiscal period begins on April 1 and ends on March 31.

In an interim rule published in the Federal Register on September 15, 2017, and effective on September 18, 2017, (82 FR 43297), § 922.235 was amended by decreasing the assessment rate established for Washington apricots for the 2017-2018 and subsequent fiscal periods from $1.40 to $1.00 per ton of apricots handled. The decrease in the per ton assessment rate allows the Committee to reduce its financial reserve while still providing adequate funding to meet program expenses.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are approximately 17 Washington apricot handlers subject to regulation under the Order and approximately 100 apricot growers in the regulated production area. Small agricultural service firms (handlers) are defined by the Small Business Administration (SBA) as those whose annual receipts are less than $7,500,000, and small agricultural producers (growers) are defined as those having annual receipts less than $750,000 (13 CFR 121.201).

Committee reports indicate that the industry shipped 6,028 tons of Washington apricots over the 2016-2017 fiscal period. Based on information from the USDA's Market News Service, 2016 free on board (f.o.b.) prices for Washington No.1 apricots ranged from $18.00 to $23.00 per 24-pound container, for both loose-pack and 2-layer tray-pack containers. Using those prices and the shipment information provided by the Committee, the approximate total value of Washington apricot shipments likely ranged between $9.0 million and $11.6 million, with the average revenue per handler ranging from $529,000 to $682,000. It is therefore determined that most, if not all, of the Washington apricot handlers ship less than $7,500,000 worth of apricots on an annual basis.

In addition, using shipment data from the Committee and the 2016 National Agricultural Statistics Service (NASS) average f.o.b. price of $1,210 per ton for fresh apricots, total revenue for Washington apricot growers for the 2016-2017 fiscal period is estimated to be approximately $7.3 million. Based on these reports and the number of apricot growers within the production area, it is estimated that the average per grower revenue from the sale of apricots in 2016 was approximately $73,000. In view of the foregoing, it is concluded that most of the handlers and growers of Washington apricots may be classified as small entities.

This rule continues in effect the action that decreased the assessment rate established for the Committee and collected from handlers for the 2017-2018 and subsequent fiscal periods from $1.40 to $1.00 per ton of apricots. The Committee unanimously recommended 2017-2018 expenditures of $8,225 and an assessment rate of $1.00 per ton of apricots. The assessment rate of $1.00 per ton is $0.40 lower than the assessment rate previously in effect.

The quantity of assessable apricots for the 2017-2018 fiscal period is estimated at 6,000 tons. Thus, the $1.00 per ton rate should provide $6,000 in assessment income. Income derived from handler assessments, along with interest income and funds from the Committee's authorized reserve, will be adequate to cover budgeted expenses. This action will allow the Committee to reduce its financial reserve while still providing adequate funding to meet program expenses.

This rule continues in effect the action that decreased the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to growers. However, decreasing the assessment rate reduces the burden on handlers and may reduce the burden on growers.

In addition, the Committee's meeting was widely publicized throughout the Washington apricot industry, and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the May 3, 2017, meeting was a public meeting, and all entities, both large and small, were able to express views on this issue.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the Order's information collection requirements have been previously approved by OMB and assigned OMB No. 0581-0189, Marketing Orders for Fruit Crops. This final interim rule corrects information provided in the interim rule, which had incorrectly cited OMB No. 0581-0178, Vegetable and Specialty Crops, as the previously approved information collection. No changes are necessary in those requirements as a result of this action. Should any changes become necessary, they would be submitted to OMB for approval.

This action imposes no additional reporting or recordkeeping requirements on either small or large Washington apricot handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

Comments on the interim rule were required to be received on or before November 14, 2017. Two comments were received in response to the interim rule. One comment was a general question about the administration of the Order, and the other comment was a statement of gratitude for a perceived lower cost to consumers resulting from the decreased assessment rate. Therefore, for the reasons given in the interim rule, USDA is adopting the interim rule as a final rule, without change.

To view the interim rule, go to: https://www.federalregister.gov/documents/2017/09/15/2017-19553/apricots-grown-in-designated-counties-in-washington-decreased-assessment-rate.

This action also affirms information contained in the interim rule concerning Executive Orders 12866, 12988, 13175, 13563, and 13771; the Paperwork Reduction Act (44 U.S.C. Chapter 35); and the E-Gov Act (44 U.S.C. 101).

After consideration of all relevant material presented, it is found that finalizing the interim rule, without change, as published in the Federal Register (82 FR 43297, September 15, 2017) will tend to effectuate the declared policy of the Act.

Accordingly, AMS adopts the interim rule published September 15, 2017, at 82 FR 43297, as final with the following non-substantive amendments:

This final rule affecting 7 CFR part 1210 is authorized under the Watermelon Research and Promotion Act (Act) (7 U.S.C. 4901-4916). The Watermelon Research and Promotion Plan is codified at 7 CFR part 1210.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules and promoting flexibility. This final rule falls within a category of regulatory actions that the Office of Management and Budget (OMB) exempted from Executive Order 12866 review. Additionally, because this rule does not meet the definition of a significant regulatory action it does not trigger the requirements contained in Executive Order 13771. See OMB's Memorandum titled “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017, titled `Reducing Regulation and Controlling Regulatory Costs’ ” (February 2, 2017).

This final rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this rule will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.

In addition, this final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. The Act provides that it shall not affect or preempt any other State or Federal law authorizing promotion or research relating to an agricultural commodity.

Under section 1650 of the Act (7 U.S.C. 4909), a person may file a written petition with USDA if they believe that part 1210, any provision of the part, or any obligation imposed in connection with the part, is not in accordance with the law. In any petition, the person may request a modification of the part or an exemption from the part. The petitioner will have the opportunity for a hearing on the petition. Afterwards, an Administrative Law Judge (ALJ) will issue a decision. If the petitioner disagrees with the ALJ's ruling, the petitioner has 30 days to appeal to the Judicial Officer, who will issue a ruling on behalf of USDA. If the petitioner disagrees with USDA's ruling, the petitioner may file, within 20 days, an appeal in the U.S. District Court for the district where the petitioner resides or conducts business.

Under the Watermelon Research and Promotion Plan, the Board administers a nationally coordinated program of research, development, advertising and promotion designed to strengthen the watermelon's position in the market place and to establish, maintain, and expand markets for watermelons. The program is financed by assessments on producers growing 10 acres or more of watermelons, handlers of watermelons, and importers of 150,000 pounds of watermelons or more per year. The regulations specify that handlers are responsible for collecting and submitting both the producer and handler assessments to the Board, reporting their handling of watermelons, and maintaining records necessary to verify their reporting(s). Importers are responsible for payment of assessments to the Board on watermelons imported into the United States through U.S. Customs and Border Protection (Customs).

This final rule realigns the production districts under part 1210 for producer and handler membership on the Board, and adds four importer seats to the Board. The Board administers the regulations with oversight by USDA. These changes were recommended by the Board after a review of the production volume in each district as well as the assessments paid by importers. The regulations require that such a review be conducted every 5 years. This action is necessary to provide for the equitable representation of producers, handlers and importers on the Board.

Section 1210.320(a) specifies that the Board shall be composed of producers, handlers, importers and one public representative appointed by the Secretary. Pursuant to § 1210.320(b), the United States is divided into seven districts of comparable production volumes of watermelons, and each district is allocated two producer members and two handler members. Section 1210.320(d) specifies that importer representation on the Board shall be proportionate to the percentage of assessments paid by importers to the Board, except that at least one representative of importers shall serve on the Board.

The current Board is composed of 37 members—14 producers (two from each district), 14 handlers (two from each district), 8 importers and one public member.

Section 1210.320(c) requires the Board, at least every 5 years, to review the districts to determine whether realignment is necessary. In conducting the review, the Board must consider: (1) The most recent 3 years of USDA production reports or Board assessment reports if USDA production reports are not available; (2) shifts and trends in quantities of watermelon produced, and (3) other relevant factors. As a result of the review, the Board may recommend to USDA that the districts be realigned.

Pursuant to § 1210.501, the seven current districts are as follows:

District 1—The Florida counties of Brevard, Broward, Charlotte, Collier, Dade, Desoto, Glades, Hardee, Hendry, Highlands, Hillsborough, Indian River, Lake, Lee, Manatee, Martin, Monroe, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Sarasota, Seminole, St. Lucie, and Volusia;

District 2—The Florida counties of Alachua, Baker, Bay, Bradford, Calhoun, Citrus, Clay, Columbia, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hernando, Holmes, Jackson, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Marion, Nassau, Okaloosa, Putnam, Santa Rosa, St. Johns, Sumter, Suwannee, Taylor, Union, Wakulla, Walton, and Washington, and the States of North Carolina and South Carolina;

District 3—The State of Georgia;

District 4—The States of Alabama, Connecticut, Delaware, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Tennessee, Virginia, Vermont, Wisconsin, West Virginia, and Washington, DC;

District 5—The State of California;

District 6—The State of Texas; and

District 7—The States of Alaska, Arkansas, Arizona, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Washington, and Wyoming.

The districts listed above were recommended by the Board in 2010 and established through rulemaking by USDA in 2011 (76 FR 42009; July 18, 2011).

The Board appointed a subcommittee in 2016 to conduct a review of the seven U.S. watermelon production districts to determine whether realignment was necessary. The subcommittee held a teleconference on July 27, 2016, and reviewed production data for 2013, 2014 and 2015 from USDA's National Agricultural Statistics Service's (NASS) Vegetables Annual Summary for 2015.1 The data is shown in Table 1 below.

The subcommittee considered three scenarios in realigning the districts. All three scenarios would consolidate the State of Florida into District 1 and would make no changes to Districts 3 (Georgia), 5 (California), and 6 (Texas). Two of the scenarios would have moved the States of North and South Carolina into one district—District 2. Ultimately the subcommittee proposed the following changes: (1) Consolidating the State of Florida into one district by moving the Florida counties of Alachua, Baker, Bay, Bradford, Calhoun, Citrus, Clay, Columbia, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hernando, Holmes, Jackson, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Marion, Nassau, Okaloosa, Putnam, Santa Rosa, St. Johns, Sumter, Suwannee, Taylor, Union, Wakulla, Walton, and Washington from District 2 to District 1; (2) moving the States of Kentucky, Tennessee, Virginia and West Virginia from District 4 to District 2; and (3) moving the State of Alabama from District 4 to District 7. As shown in Table 2, under the realignment, each district will represent, on average, 14 percent of the total U.S. production based on NASS data, with a range of 11 to 17 percent.

Upon review, the Board subsequently recommended through a mail ballot vote in late July 2016 that four of the seven production districts be realigned. The districts will be as follows:

District 1—The State of Florida;

District 2—The States of Kentucky, North Carolina, South Carolina, Tennessee, Virginia and West Virginia;

District 3—The State of Georgia (no change);

District 4—The States of Connecticut, Delaware, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Wisconsin, and Washington, DC;

District 5—The State of California (no change);

District 6—The State of Texas (no change); and

District 7—The States of Alabama, Alaska, Arizona, Arkansas, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Washington, and Wyoming.

Additionally, USDA has reviewed the NASS report that was issued in February 2017.3 The data is shown in Table 3 below. While the data is in a slightly different format (consolidating some of the smaller producing states), the data is consistent with the Board's recommendation.

Section 1210.501 is revised accordingly.

Section 1210.320(e) requires USDA to evaluate the average annual percentage of assessments paid by importers during the 3-year period preceding the date of the evaluation and adjust, to the extent practicable, the number of importer representatives on the Board.

Table 4 below shows domestic and import assessment data for watermelons for the years 2013, 2014 and 2015. The data is from the Board's financial audits for 2013, 2014 4 and 2015.5

Based on this data, the 3-year average annual import assessments for watermelons for 2013-2015 totaled $1,029,030, approximately 34 percent of the Board's assessment income. Thus, increasing the number of importers on the Board from 8 to 14 members would reflect that almost 34 percent of the assessments were paid by importers over the 3-year period. However, due to the difficulty the Board has had in finding individuals that are both eligible and willing to serve in the current eight importer seats, it would likely be very challenging to fill six additional importer seats. Furthermore, under the program's nomination rules, the Board would need to recommend to the Secretary at least two importers for each open seat, which would mean that 12 eligible and willing importers would have to be secured. For these reasons, the Board recommended only adding four importer seats (representing 30 percent of the Board's total industry members) to ensure that it would have a sufficient number of potential nominees. The Board subsequently recommended through the July 2016 mail vote increasing the number of importer seats from 8 to 12, thereby increasing the number of Board members from 37 to a total of 41: 14 producers, 14 handlers, 12 importers, and one public member. Importers would represent 30 percent of the Board's 40 industry members. (Importers (8) represent about 22 percent of the current Board's 36 industry members.)

Section 1210.502 is revised accordingly.

Nominations will be held as soon as possible to fill the four new importer seats.

In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS is required to examine the economic impact of this rule on small entities. Accordingly, AMS has considered the economic impact of this action on such entities.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be disproportionately burdened. The Small Business Administration defines, in 13 CFR part 121, small agricultural producers as those having annual receipts of no more than $750,000 and small agricultural service firms (handlers and importers) as those having annual receipts of no more than $7.5 million.

According to the Board, there are 1,251 producers, 147 handlers, and 365 importers who are required to pay assessments under the program. NASS data for the 2016 crop year estimated about 354 hundredweight (cwt.) of watermelons were produced per acre in the United States, and the 2016 grower price was $14.40 per cwt.6 Thus, the value of watermelon production per acre in 2016 averaged about $5,098 (354 cwt. × $14.40). At that average price, a producer would have to farm over 147 acres to receive an annual income from watermelons of $750,000 ($750,000 divided by $5,098 per acre equals approximately 147 acres). Using 2012 USDA Census of Agriculture data, a maximum of 321 farms had watermelon acreage greater than or equal to 100 acres, and 12,675 out of a total of 12,996 farms producing watermelons reported less than 100 acres of watermelon on their farms.7 Therefore, assuming watermelon producers operate no more than one farm, a majority (97.5 percent) of all U.S. watermelon farms would be classified as small businesses. Using Board assessment data, 930 of the 1,251 (roughly 74 percent) U.S. watermelon producers currently paying assessments to the Board would be classified as small businesses.

Also based on the Board's data, using an average freight on board (f.o.b.) price of $0.186 per pound and the number of pounds handled annually, none of the watermelon handlers have receipts over the $7.5 million threshold.8 Therefore, the watermelon handlers would all be considered small businesses. A handler would have to ship over 40 million pounds of watermelons to be considered large (40,322,580 × $.0186 f.o.b. equals approximately $7,500,000).

Based on 2016 Customs data, over 90 percent of watermelon importers shipped under $7.5 million worth of watermelons. Based on the foregoing, the majority of the producers, handlers and importers that will be affected by this rule would be classified as small entities.

Regarding the value of the commodity, based on 2016 NASS data, the value of the U.S. watermelon crop was about $578 million.9 According to Customs data, the value of 2016 imports was about $356 million.

This rule revises §§ 1210.501 and 1210.502, respectively, to change the boundaries of four of the seven U.S. production districts and add four importers to the Board, increasing the size of the Board from 37 to 41 members. The Board administers the program with oversight by USDA.

Under the program, the United States is divided into seven districts of comparable production volumes of watermelons, and each district is allocated two producer members and two handler members. Further, importer representation on the Board must be, to the extent practicable, proportionate to the percentage of assessments paid by importers, except there must be at least one importer on the Board.

Every 5 years, the Board is required to evaluate, based on the preceding 3-year period, the average production in each production district and the average annual percentage of assessments paid by importers. The Board conducted this review in 2016 and recommended changing the boundaries of four of the seven districts and increasing the importer membership by four members. Authority for these changes is provided in § 1210.320.

Regarding the economic impact of this rule on affected entities, neither the realignment of production districts nor the expansion of Board membership imposes additional costs on industry members. Eligible importers interested in serving on the Board would have to complete a background questionnaire. Those requirements are addressed in the section titled Reporting and Recordkeeping Requirements. The changes are necessary to provide for the equitable representation of producers, handlers and importers on the Board.

Regarding alternatives, the Board considered three scenarios in realigning the districts. All three scenarios would consolidate the State of Florida in District 1 and would make no changes to Districts 3 (Georgia), 5 (California), and 6 (Texas). Two of the scenarios would have moved the States of North and South Carolina into one district—District 2. Ultimately the Board recommended consolidating the State of Florida into one district (District 1), moving the States of Kentucky, Tennessee, Virginia and West Virginia from District 4 to District 2, and moving the State of Alabama from District 4 to District 7. The Board recommended the alignment scenario described in this rule because it: (1) Provides for a proportional geographical representation on the Board for producers and handlers; (2) does not create any producer or handler vacancies on the Board; and (3) streamlines the nomination process for District 1 by condensing all the Florida counties into a single district. The Board's recommendation is consistent with the 2011 realignment that kept States (except Florida) together.

Regarding alternatives for importer representation, as stated previously, the 3-year average annual imports for watermelon totals $1,029,030. This represents almost 34 percent of the total assessments paid to the Board. One alternative would be to add five or six importer seats (representing 33 and 35 percent, respectively, of the Board's 40 industry members), so that importer representation would be proportionate to the percentage of importer assessments paid. However, due to the difficulty the Board has had in finding individuals who are both eligible and willing to serve in the current eight importer seats, it would likely be very challenging to fill six additional importer seats. Furthermore, under the program's nomination rules, the Board would need to recommend to the Secretary at least two importers for each open seat, which would mean that 12 eligible and willing importers would have to be secured. For these reasons, the Board recommended only adding four importer seats (representing 30 percent of the Board's total industry members) to ensure that it would have a sufficient number of potential nominees. This is consistent with § 1210.320(e) which prescribes that the number of importer seats should be adjusted, to the extent practicable. The addition of four importers will allow for more importer representation in the Board's decision making and also potentially provide an opportunity to increase diversity on the Board.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the background form, which represents the information collection and recordkeeping requirements that are imposed under the program, have been approved previously under OMB number 0581-0093. The watermelon regulations require that two nominees be submitted for each vacant position. With regard to information collection requirements, adding four importers to the Board means that eight additional importers would be required to submit background forms (Form AD-755) to USDA in order to verify their eligibility for appointment to the Board. However, serving on the Board is optional, and the burden of submitting the background form will be offset by the benefits of serving on the Board. The estimated annual cost of the eight importers providing the required information would be $66 or $8.25 per importer. The additional minimal burden is included in the existing information collection package under OMB number 0581-0093.

As with all Federal promotion programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. Finally, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

Regarding outreach efforts, the Board formed a subcommittee to review the production, assessment and import data to assess whether changes to the district boundaries and number of importers on the Board was warranted. The subcommittee held a teleconference on July 27, 2016. All Board and subcommittee meetings, including meetings held via teleconference, are open to the public and interested persons are invited to participate and express their views.

A proposed rule concerning this action was published in the Federal Register on September 27, 2017 (82 FR 44966). A 30-day comment period ending on October 27, 2017, was provided to allow interested persons to respond to the proposal. Board staff distributed the proposal to Board members via electronic mail. The proposal was also made available through the internet by USDA and the Office of the Federal Register.

Eleven comments were received in response to the proposed rule. Of those eleven comments, seven supported the proposed district realignment and the addition of four importer seats, three expressed concerns with the proposal, and one was outside the scope of the rulemaking.

The comments that supported the proposed changes focused on increasing the positive impact that the research and promotion program has already had on the watermelon industry. Several commenters opined that gradual adjustments such as adding new members and realigning the production districts after completing an analysis of the available data are a necessary component of the program's continued success. Several commenters also acknowledged that the Board accomplished the very difficult task of equitably distributing representation despite the fact that there is a variance in production levels across the country. One commenter stated that the four largest-producing states “. . . will be fairly represented while other smaller production areas will be grouped with states that produce little or no watermelons on a commercial scale.”

Three comments expressed concerns with the proposed rule. One commenter opined that the district realignment could weaken the representative power of the larger producing states. The commenter was concerned that the realignment unfairly left large production states like Florida, which will now be in one district, with the same number of Board seats as districts that combined smaller producing states. The watermelon regulations provide for seven U.S. districts of comparable production and do not prohibit one district being composed of just one state. The States of Georgia, California and Texas are already in their own respective district. The Board's recommendation, as adopted herein by USDA, provides for a proportional geographical representation of producers and handlers (on average each district accounts for 14 percent of total production), creates no vacancies within a district, and streamlines the nomination process for District 1 by consolidating all of the Florida counties. Further, the Board is composed of members representing both large and small states, and all members voting supported the district realignment.

The commenter also suggested that the increase in the number of importer seats be implemented gradually. The watermelon regulations require importer representation on the Board to be proportionate to the percentage of assessments paid by importers. Based on the Board's assessment records, more than 34 percent of the assessments collected from 2013-2015 came from imports. This would correspond to increasing the number of importers from 8 to 14 members. However, because the Board had difficulty in finding eligible importers willing to serve, it recommended adding only four importer seats to ensure that it would have a sufficient number of nominees. This will bring the total number of importers on the Board to 12 (representing 30 percent of the Board's total industry members). This change will ensure an equitable representation of importers on the Board as required in part 1210. Thus, delaying implementation would not be appropriate.

Another commenter expressed concern that there is only one public member on the Board. The commenter suggested that the size of the Board be increased to 50 members, adding 10 consumer members on top of its current makeup. Section 1647(c)(1) of the Act and § 1210.320 of part 1210 limit the number of public members that can serve on the Board to one.

One commenter asked why the government was “. . . spending money on this.” The national watermelon promotion program is funded through assessments paid by watermelon producers, handlers and importers. It is not funded by the government or taxpayer funds.

No changes have been made to the proposed rule based on the comments received.

After consideration of all relevant matters presented, including the information and recommendation submitted by the Board, the comments received, and other relevant information, it is hereby found that this rule, as hereinafter set forth, is consistent with and would effectuate the purposes of the Act.

For the reasons set forth in the preamble, 7 CFR part 1210 is amended as follows:

In the Federal Register of November 7, 2017 (82 FR 51554), we amended the color additive regulations to add § 73.70, “Calcium carbonate,” (21 CFR 73.70) to provide for the safe use of calcium carbonate to color soft and hard candies and mints, and in inks used on the surface of chewing gum, except that it may not be used to color chocolate for which standards of identity have been issued under section 401 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 341), unless added color is authorized by such standards.

We gave interested persons until December 7, 2017, to file objections or requests for a hearing. We explained that to file an objection, among other things, persons must specify with particularity the provision(s) to which they object. We also explained that if a person who properly submits an objection wants a hearing, he or she must specifically request a hearing and that failure to do so will constitute a waiver of the right to a hearing (82 FR 51554 at 51557).

We received two comments regarding our decision to amend the color additive regulations to provide for the safe use of calcium carbonate to color soft and hard candies and mints, and in inks used on the surface of chewing gum. Neither comment, however, specified with particularity the provision(s) of the regulation to which they objected nor specifically requested a hearing. Therefore, we find that the effective date of the final rule that published in the Federal Register of November 7, 2017, should be confirmed.

Therefore, under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 341, 342, 343, 348, 351, 352, 355, 361, 362, 371, 379e) and under authority delegated to the Commissioner of Food and Drugs, we are giving notice that no objections or requests for a hearing were filed in response to the November 7, 2017, final rule. Accordingly, the amendments issued thereby became effective December 8, 2017.

For the complete explanation of the background of this rule, including the rationale for the change, the authority of the Department of State (“Department”) to make the fee changes in question, and an explanation of the study that produced the fee amounts, consult the prior public notices cited in the “Background” section below.

The Department published an interim final rule in the Federal Register, 80 FR 53704, on September 8, 2015, amending sections of 22 CFR part 22. Specifically, the rule amended the Schedule of Fees for Consular Services and provided 60 days for comments from the public. During this 60-day comment period, 15 comments were received by mail, email, and through the submission process at regulations.gov.

This rule establishes the following fees for the categories below:

The original publication of the interim final rule included an incorrect effective date of September 23, 2015, for the above changes in the Passport Book Application fees and Passport Security Surcharge. That date subsequently was corrected. See 80 FR 55242. The correct effective date is reflected herein; it is September 26, 2015.

In the 60-day period since the publication of the interim final rule, 15 comments were received. Twelve of the comments were about the Administrative Processing of Request for CLN fee. The other three comments were about Executive Branch fees or U.S. citizenship.

Many of the comments suggested that the fee for Administrative Processing of Request for CLN creates a barrier to expatriation. Most asserted that the fee is excessive and that many individuals will be unable to pay it. However, one comment expressed support for collecting the fee from those attempting to evade taxes. Several asked for clarification about the amount of the fee, including one comment seeking confirmation that the Department had not doubled the CLN fee. Two challenged the analysis of processing costs used to justify the fee. Several cited the Expatriation Act of 1868 or the Universal Declaration of Human Rights when asserting that expatriation is a constitutional or human right.

In collecting the CLN fee, the Department has not restricted or burdened the right of expatriation. Further, the fee is not punitive and is unrelated to the Foreign Account Tax Compliance Act (FATCA) mentioned in some comments, except to the extent that the Act caused an increase in consular workload that must be paid for by user fees. Rather, the fee is a cost-based user fee for consular services. Conforming to guidance from the Office of Management and Budget (OMB), federal agencies make every effort to ensure that each service provided to specific recipients is self-sustaining, charging fees that are sufficient to recover the full cost to the government. (See OMB Circular A-25, ¶ 6(a)(1), (a)(2)(a).) Because costs change from year to year, the Department conducts an annual update of the costs for providing consular services in the form of a Cost of Service Model (CoSM). In addition to enabling the government to recover costs, the study also helps the Department to avoid charging consumers more than the cost of the services they consume. The CoSM is an activity-based costing (ABC) model that the Department developed following guidance provided in Statement 4 of OMB's Statement of Federal Financial Accounting Standards, available at http://www.fasab.gov/pdffiles/sffas-4.pdf. Setting the fee at $2,350 reflects the cost for the service as determined by the model. In sum, the Administrative Processing of Request for CLN fee is a “user charge,” which reflects the full cost to the U.S. government of providing the service, as determined through analysis based on federal financial accounting standards.

The Department has not doubled the CLN fee. In the past, the Department collected a fee only from U.S. nationals (i.e., U.S. citizens and non-citizen nationals) taking the oath of renunciation. The Department did not charge a fee for the service of documenting a non-renunciatory relinquishment, which it performed much less frequently. However, requests for documentation of relinquishment of nationality on the basis of a non-renunciatory relinquishment have increased significantly in recent years, and the Department expects the number to remain at an elevated level in the future. The services performed for both individuals who renounce nationality and individuals who apply for documentation on the basis of a non-renunciation relinquishment are similar, requiring close and detailed case-by-case review of the factors involved. The fiscal year 2013 CoSM update demonstrated that both services are extremely costly. For these reasons, the $2,350 fee now applies to relinquishments under 8 U.S.C. 1481(a)(1) to 8 U.S.C. 1481(a)(4) (and predecessor statutes) and to relinquishments by renunciation under 8 U.S.C. 1481(a)(5). With this change, the Department renamed the service “Administrative Processing of Request for Certificate of Loss of Nationality.”

The right of expatriation is addressed in the Immigration and Nationality Act and the Universal Declaration of Human Rights. The CLN fee does not impinge on the right of expatriation. Rather, the fee reflects the resources necessary for the U.S. government to verify that all constitutional and other requirements for expatriation are satisfied in every case. As described in the interim final rule and in an earlier rule that raised the fee for taking the oath of renunciation to $2,350 (80 FR 51464), expatriation for a U.S. national requires a thorough, serious, time-consuming process, in view of U.S. Supreme Court jurisprudence that declared unconstitutional an involuntary or forcible expatriation. In Afroyim v, Rusk, 387 U.S. 253 (1967) and Vance v. Terrazas, 444 U.S. 252 (1980), the Supreme Court ruled that expatriation requires the voluntary commission of an expatriating act with the intention or assent of the citizen to relinquish citizenship. It is therefore incumbent upon the Department to maintain and implement procedures that allow consular officers and other Department employees to ensure these requirements are satisfied in every expatriation case.

Several commenters requested information on the relinquishment process, e.g. payment options and documentation. Individuals desiring to relinquish their U.S. citizenship should consult travel.state.gov and may contact the appropriate U.S. embassy with any questions on the process. Embassy contact information can be found at usembassy.gov.

The Department adjusted the fees in light of the CoSM's findings that the U.S. government was not covering fully its costs for providing these consular services. Pursuant to OMB guidance, the Department endeavors to recover the cost of providing services that benefit specific individuals, as opposed to the general public. See OMB Circular A-25, ¶ 6(a)(1), (a)(2)(a). For this reason, the Department has adjusted the Schedule of Fees.

The Department of State published this rule as an interim final rule on September 8, 2015, and provided 60 days for comment. 80 FR 53704. The rule will be effective 60 days after publication, in accordance with the APA.

The Department of State has reviewed this rulemaking and certifies that this rule will not have a significant economic impact on a substantial number of small entities.

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4, 109 Stat. 48, 2 U.S.C. 1532, generally requires agencies to prepare a statement before proposing any rule that may result in an annual expenditure of $100 million or more by State, local, or tribal governments, or by the private sector. This rule will not result in any such expenditure, nor will it significantly or uniquely affect small governments.

This rule is not a major rule as defined by 5 U.S.C. 804, for purposes of congressional review of agency rulemaking under the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or adverse effects on competition, employment, investment, productivity, innovation, or the ability of the United States-based companies to compete with foreign-based companies in domestic and import markets.

The Office of Management and Budget reviewed this rule, and determined it is not an E.O. 13771 regulatory action because this rule is not significant under E.O. 12866. As this rule is not a significant regularly action, it is except from the requirements of Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.” See OMB Memorandum M-17-21, “Guidance Implementing Executive Order 13771” of April 5, 2017.

The Department of State has considered this rule in light of Executive Order 13563 and affirms that this regulation is consistent with the guidance therein. G. Executive Orders 12372 and 13132: Federalism

The Department of State has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not pre-empt tribal law. Accordingly, the requirements of section 5 of Executive Order 13175 do not apply to this rulemaking.

This rule does not impose or revise information collections subject to the provisions of the Paperwork Reduction Act, 44 U.S.C., Chapter 35.

For a summary of the regulatory findings and analyses regarding this rulemaking, please refer to the findings and analyses published with the interim final rule, which can be found at 80 FR 53704, which are adopted herein. Section 22.1, Items 2.(a), 2.(b), and 2.(g) of this rule became effective September 26, 2015. Section 22.1, Item 8 became effective November 9, 2015. As noted above, the Department considered the comments submitted in response to the interim final rule and does not adopt them. Thus, the rule remains in effect.

This rule makes a change to the Schedule of Fees for passport services (passport books and cards). The Department published a notice of proposed rulemaking (NPRM) on September 19, 2016 (81 FR 64088), with 60 days provided for public comment. This final rule addresses the relevant comments. Justification for this rulemaking can be found in the NPRM.

The Department received 34 comments, of which 26 are addressed herein. The other eight were duplicates submitted to regulations.gov and [email protected].

The majority of the comments were in favor of raising the fee from $25 to $35. Four were opposed to raising the fee and one comment referred to visa fees which are not addressed in this rulemaking.

A majority of the comments that were in favor of the fee increase cited increased overhead, with most mentioning staffing and postage as major costs. Other comments expressed the view that the small increase in fee would not affect business or personal travel.

Two commenters who opposed the fee increase expressed concern that the fee would be a burden to some travelers. Although the Department is sympathetic to the impact the fee increase may have on the public, the fee increase reflects the result of an evaluation to determine the cost of the service provided so that the U.S. Government may recover the full cost of the service in accordance with 31 U.S.C. 9701 and guidance from the Office of Management and Budget (OMB). Federal agencies make every effort to ensure that fees for services are sufficient to recover the full cost to the government. (See OMB Circular A-25, ¶ 6(a)(1), (a)(2)(a).)

Two commenters stated that the government should work more efficiently rather than raise fees. The Department of State's Bureau of Consular Affairs along with its partner acceptance facilities strive to optimize business functions to increase efficiency and effectively manage financial and capital resources funded by consular fees. There are approximately 7,400 acceptance facilities throughout the United States, including those at post offices and clerks of court. This fee is necessary to ensure that acceptance agents are compensated for the time and materials required to accept applications on behalf of the Department of State. The fee has remained the same for over nine years even though the cost of labor and material has increased during the same time period. In 2008, the Department lowered the execution fee for passport books from $30 to $25 based on costs at the time. The proposed $10 increase to $35, from the current fee of $25, is in line with cost increases for both the Department and United States Postal Service during the past nine years.

In an effort to improve business practices, the Department publishes a guide that standardizes processes for acceptance facilities and provides annual training to ensure the processes are followed. Additionally, the Department conducts regular audits and inspections of the acceptance facilities to protect the integrity of the application process, prevent mis/malfeasance, and promote standardization and efficiency.

The revenue from retained consular fees fund CA's domestic and overseas operations and consular-related programs. These operations protect the lives and serve the interests of United States citizens and strengthen U.S. border security.

One commenter stated that the amount of time and effort it takes to process applications does not justify the cost of service. The person believes that fees should be less for children when they apply with their family. As described in the section of this rule describing activity-based costing, the fee is determined in its totality, not as an individual transaction with consideration given to family circumstances. Conforming to guidance from OMB, federal agencies make every effort to ensure that fees for service are sufficient to recover the full cost to the government of providing the service. (See OMB Circular A-25, ¶ 6(a)(1), (a)(2)(a).) Activity-based costing was explained in the NPRM, and the Department will summarize the explanation here, for convenience.

To set fees in accordance with the general principles of cost recovery, the Department must determine the true cost of providing consular services. Following guidance provided in “Managerial Cost Accounting Concepts and Standards for the Federal Government,” OMB's Statement #4 of Federal Accounting Standards (SFFAS #4 (available at http://www.fasab.gov/pdffiles/sffas-4.pdf), the Department developed an activity-based costing (ABC) model to determine the true cost of each of its consular services.

The Government Accountability Office (GAO) defines activity-based costing as a “set of accounting methods used to identify and describe costs and required resources for activities within processes.” Because an organization can use the same staff and resources (computer equipment, production facilities, etc.) to produce multiple products or services, ABC models seek to identify and assign costs to processes and activities and then to individual products and services through the identification of key cost drivers referred to as “resource drivers” and “activity drivers.” ABC models also seek to identify the amount of time an organization's personnel spend on each service and how much overhead cost (rent, utilities, facilities maintenance, etc.) is associated with delivering each service.

ABC models require financial and accounting analysis and modeling skills combined with a detailed understanding of an organization's business processes. ABC models require an organization to identify all activities required to produce a particular product or service (“activities”) and all resources consumed (“costs”) in the course of producing that product or service. An organization must also measure the quantity of resources consumed (“resource driver”); and the frequency and intensity of demand placed on activities to produce services (“activity driver”). SFFAS Statement #4 provides a detailed discussion of the use of cost accounting by the U.S. Government.

The Department conducted periodic Cost of Service Studies using ABC methods to determine the costs of its consular services through 2009. In 2010, the Department moved to adopt an annually updated Cost of Service Model that measures all of its consular operations and costs, including all activities needed to provide consular services, whether fee-based or not. This provides a comprehensive and detailed look at all consular services as well as all services the Department performs for other agencies in connection with its consular operations. The Cost of Service Model now includes approximately 80 distinct activities, and enables the Department to model its consular-related costs with a high degree of precision.

The Department uses three methods outlined in SFFAS Statement #4 (paragraph 149(2)) to assign resource costs to activities: (a) Direct tracing; (b) estimation based on surveys, interviews, or statistical sampling; and (c) allocations. The Department uses direct tracing to assign the cost of, for example, a physical passport book or the visa foil placed in a visa applicant's passport. Assigning costs to activities such as adjudicating a passport or visa application requires estimation based on surveys, interviews, or statistical sampling to determine who performs an activity and how long it takes. Indirect costs (overhead) in the Cost of Service Model are allocated according to the level of effort needed for a particular activity. Where possible, the model uses overhead cost pools to assign indirect costs only to related activities. For instance, the cost of rent for domestic passport agencies is assigned only to passport costs, not to visas or other services the Department provides only overseas. The Department allocates indirect support costs to each consular service by the portion of each cost attributable to consular activities. For example, the model allocates a portion of the cost of the Department's Bureau of Human Resources to consular services. The total amount of this allocation is based on the number of Bureau of Human Resources staff members who support Bureau of Consular Affairs personnel. In turn, this amount is allocated between the different consular services by the level of effort to provide them.

To assign labor costs, the Department relies on a variety of industry-standard estimation methodologies. To document how consular staff divide their time overseas, the Department conducts the Consular Overseas Data Collection (CODaC) survey of a representative sample of posts each year. The Department uses CODaC survey data in conjunction with volume data from over 200 individual consular sections in consulates and embassies worldwide, to develop resource drivers to assign labor costs to activities. For consular activities that take place in the United States, the Department collects volume data from periodic workload reports including Passport Agency Task Reports pulled from management databases that include Passport's Management Information System. Financial information is gathered from reports by the Comptroller and Global Financial Services bureau financial systems. The Department converts the cost and workload data it collects into resource drivers and activity drivers for each resource and activity.

Roughly 70 percent of the workforce involved in providing consular services are full-time Federal employees. When demand for a service rises, it takes time for the Department to increase the number of employees because of the lengthy security clearance process and special training involved. Likewise, it is difficult to rapidly decrease the number of employees when demand for a service falls. Additionally, given government procurement rules and security requirements, the Department must commit to many of its facilities and infrastructure costs years before a facility becomes available. In spite of changes in demand, the Department is obligated to cover these costs. Given these and other constraints on altering the Department's cost structure in the short term, changes in service volumes can have dramatic effects on whether a fee is self-sustaining. Therefore, the Cost of Service Model includes predictive data as well as actual data. Predictive workloads are based on projections by the Office of Visa Services, the Office of Passport Services, and other parts of the Bureau of Consular Affairs that are consistent with Department budget documents prepared for Congress. As notified in the FY 2018 Congressional Budget Justification, the Department estimates a workload of 20.2 million passport applications, 14.4 million nonimmigrant visa applications, and 600,000 immigrant visa applications in FY 2018.

The costs the Department enters into the Cost of Service Model include every line item of costs, such as physical material for making passports and visas, salaries, rent, supplies, and IT hardware and software. The Department then calculates a resource driver for overseas staff time based on responses to the Consular Overseas Data Collection survey for overseas compensation costs and enters the resource drivers and activity assignments into the model. The Department then selects an activity driver, such as the volume data discussed above, for each activity, in order to assign these costs to each service type. This process allows the model to calculate a total cost for each of the Schedule of Fees line items for visa services, passport services, and overseas citizens services as well as services for other government agencies and no fee services. The model then divides this total cost by the total volume of the service or product in question in order to determine a final unit cost for the service or product. Projected costs for predictive years are also included to take account of changes in the size of consular staff, workload, and similar factors.1 The resulting database constitutes the Cost of Service Model. The Department continues to refine and update the Cost of Service Model in order to set fees commensurate with the cost of providing consular services.

The Cost of Service Model is a complex series of iterative computer processes incorporating more than a million calculations, housed in an industry standard commercial off-the-shelf product, SAP Enterprise Performance Management; therefore, it is not reducible to a tangible form such as a document. Inputs are formatted in spreadsheets for entry into the ABC software package. The software's output includes spreadsheets with raw unit costs, validation reports, and management reports. All data inputs and outputs are considered Sensitive but Unclassified and therefore cannot be made publically available.

The new cost reflected in the Schedule of Fees is based on projected workload for Fiscal Year 2018, and the fee has been rounded to make it easier to collect.

The Department is increasing the execution fee for passport books and cards from $25 to $35, excepting those persons who are statutorily exempted from paying the passport execution fee. The costs of providing passport services to exempt individuals are covered by fees paid by non-exempt individuals. The passport execution fee is applicable to all first-time passport applicants and certain other applicants who must apply in person, such as minors under the age of 16. Applicants apply in person at post offices and other acceptance facilities, such as local clerks of court, as well as at the Department's passport offices. The passport execution fee includes the costs associated with accepting passport applications and fees in-person, including salaries, benefits, and an allocated portion of overhead including, but not limited to, rent, utilities, supplies and equipment. The Department's Cost of Service Model showed that these costs were over $33. The United States Postal Service—the acceptance agent for the majority of passport applications—regularly conducts a similar study and found that these costs were more than $34.2 See 22 U.S.C. 214(a); 22 CFR 51.51(b).

The $10 increase in the passport execution fee will affect first-time passport applicants and certain applicants who must appear at post offices and other acceptance facilities such as local clerks of court. Individuals who apply for a passport renewal by mail will not see a fee increase.

The Department published this rule as a proposed rule on September 19, 2016, with a 60-day provision for public comments. See 81 FR 64088. In accordance with the Congressional Review Act, this rule will be effective 60 days after publication and receipt by Congress and the GAO.

The Department has reviewed this rule and, by approving it, certifies that it will not have a significant economic impact on a substantial number of small entities as defined in 5 U.S.C. 601(6).

This rule will not result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1501-1504.

This rule is a major rule as defined by 5 U.S.C. 804(2). The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The Department will submit the required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This rule will take effect 60 days after it is published in the Federal Register and receipt by Congress and the GAO.

The Department has reviewed this rule to ensure its consistency with the regulatory philosophy and principles set forth in the Executive Orders. OMB has determined that this rule is economically significant under Executive Order 12866.

This rule is necessary in light of the Department of State's Cost of Service Model finding that the cost of executing first-time passports is higher than the current fee. The Department is setting this fee in accordance with 22 U.S.C. 214(a) (“There shall be collected and paid into the Treasury of the United States . . . a fee, prescribed by the Secretary of State by regulation, for executing each such [passport] application) and 31 U.S.C. 9701(“The head of each agency . . . may prescribe regulations establishing the charge for a service or thing of value provided by the agency . . . based on . . . the costs to the Government.”). This regulation generally sets the fee for passport executions at the amount required to recover the costs associated with providing this service.

Details of the fee change are as follows:

As noted in the NPRM, the Department of State does not anticipate that demand for passport services affected by this rule will change significantly due to the fee change.

The Department does not believe that passport application fees are a significant determining factor when Americans decide to travel internationally. The price of a passport book or card remains minor in comparison with other costs associated with foreign travel, given that taxes and surcharges alone on international airfare can easily surpass $100. As a result, the Department does not believe passport demand will be significantly affected by the new fee.

This rule is not an E.O. 13771 regulatory action because it is a transfer rule that changes only the fee for a service without imposing any new costs.

This regulation will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on federal programs and activities do not apply to this regulation.

The Department has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not preempt tribal law. Accordingly, the requirements of Executive Order 13175 do not apply to this rulemaking.

Information collection 1405-0004, which relates to this rule, is approved by OMB pursuant to the Paperwork Reduction Act, 44 U.S.C. Chapter 35. Other than the comments summarized above, the Department received no public comments regarding this rulemaking. This information collection has been renewed until August 31, 2019.

Accordingly, 22 CFR part 22 is amended as follows:

I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking Pub. L. Public Law §  Section FL Florida SR State Route MHW Mean High Water U.S.C. United States Code II. Background Information and Regulatory History

On October 23, 2017, we published a notice of proposed rulemaking from drawbridge regulation with request for comments entitled Drawbridge Operation Regulations: Canaveral Barge Canal, Canaveral, FL in the Federal Register (82 FR 48940). We received three comments on this rule.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 499.

The SR 401 Drawbridges across the Canaveral Barge Canal, mile 5.5, at Port Canaveral, FL are three parallel double leaf bascule bridges that have a vertical clearance of 25 feet at MHW in the closed to navigation position and a horizontal clearance of 90 feet between the fender system. Presently, in accordance with 33 CFR 117.273(b), the bridges shall open on signal, except that from 6:15 a.m. to 8 a.m. and 3:30 p.m. to 5:15 p.m. Monday through Friday except Federal holidays, the bridges need not open and from 10 p.m. to 6 a.m. the bridges must open on signal if at least three hours notice is given. The bridges must open as soon as possible for the passage of public vessels of the Unites States and tugs with tows. The Canaveral Port Authority, with concurrence from the bridge owner, Florida Department of Transportation requested the operating schedule be changed to allow the bridges to not open to navigation from 11 a.m. to 2 p.m. on Saturdays and Sundays. This will provide relief to the increase in vehicle traffic congestion on the weekends while meeting the reasonable needs of navigation.

The Coast Guard received three comments to this rule stating that this regulation is unnecessarily restrictive to recreational boaters. All comments also recommended that if the Coast Guard moves forward with changing the operating schedule, they should consider allowing the bridge to open on the hour during the 11 a.m. to 2 p.m. closure. The Coast Guard has considered this recommendation, however, after analyzing vessel traffic data versus vehicular traffic data, the Coast Guard has determined that the benefit of reducing vehicle traffic to enhance the safety on the roadways, without compromising the safety of mariners, outweighs an inconvenience to vessels transiting the waterway.

We developed this rule after considering numerous statutes and Executive Orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive Orders, and we discuss First Amendment rights of protesters.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed by the Office of Management and Budget (OMB) and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the ability that vessels can still transit the bridge before and after the proposed periods. Vessels that can pass under the bridge in the closed position may continue to do so.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard received no comments from the Small Business Administration on this rule. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the bridge may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have made a determination 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 simply promulgates the operating regulations or procedures for drawbridges. This action is categorically excluded from further review, under figure 2-1, paragraph (32)(e), of the Instruction. A Record of Environmental Consideration and a Memorandum for the Record are not required for this rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the For Further Information Contact section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 117 as follows:

After consideration of the comments received, if appropriate, EPA will publish a notification of deletion in the Federal Register based on the parallel Notice of Intent to Delete (82 FR 56939) and place a copy of the final deletion package, including a Responsiveness Summary, if prepared, in docket EPA-HQ-SFUND-2002-0001, accessed through the http://www.regulations.gov website and in the Site repositories.

I. Background

DoD published a proposed rule in the Federal Register at 81 FR 53101 on August 11, 2016, to amend the DFARS to implement the requirements of sections 851 through 853 and 855 through 857 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Pub. L. 114-92, enacted November 25, 2015), as well as the requirements of section 831 of the NDAA for FY 2013 (Pub. L. 112-239, enacted January 2, 2013). This rule provides guidance to contracting officers for making price reasonableness determinations, promotes consistency in making commercial item determinations, and expands opportunities for nontraditional defense contractors to do business with DoD.

On August 3, 2015, DoD published proposed DFARS rule 2013-D034 to implement the requirements of section 831 of the NDAA for FY 2013 (80 FR 45918). Based on the comments received in response to that proposed rule, and in order to implement the requirements in sections 851 through 853 and 855 through 857 of the NDAA for FY 2016, DFARS rule 2013-D034 was closed into this DFARS rule.

In addition, this final rule implements section 848 of the NDAA of FY 2018 (Pub. L. 115-91, enacted December 12, 1017), which amended 10 U.S.C. 2380 regarding the content of the written determination required when determining that the prior use of commercial procedures was inappropriate or is no longer appropriate.

Twelve respondents submitted public comments in response to the proposed rule. DoD reviewed the public comments in the development of this final rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows:

1. For consistency in terminology, the word “data” has been changed to “information” where appropriate throughout the rule.

2. The language at DFARS 212.102(a)(ii) has been revised to state that a contracting officer may presume that a prior commercial item determination, or a determination that overturned a prior commercial item determination, made by a military department, a defense agency, or another component of DoD shall serve as a determination for subsequent procurements of such item.

3. The language at DFARS 212.102(a)(iii) on nontraditional defense contractors was reworded for clarity.

4. The language at DFARS 212.209(b) and 215.404-1(b)(ii) was amended to add the word “and” to allow contracting officers to consider recent purchase prices paid by both the Government “and” commercial customers for the same or similar commercial items.

5. DFARS 215.404-1(b)(iv) and 234.7002(d)(3), have been revised such that if the contracting officer determines that the pricing information submitted is not sufficient to determine the reasonableness of price, the contracting officer shall request other relevant information to include cost data. The proposed rule directed that the contracting officer may request other relevant information to include cost data.

6. To expedite commercial item determinations, the provision at DFARS 252.215-7010, paragraph (b)(1)(ii)(A) has been revised to require offerors to provide contract numbers and if available, a Government point of contact for items that have been previously determined to be commercial.

7. The provision at DFARS 252.215-7010, paragraph (b)(1)(ii)(B) has been reworded to remove the unintended offeror certification language from the proposed rule.

8. The provision at DFARS 252.215-7010, paragraph (d) has been reworded to require “the minimum information necessary” instead of “all data” to permit a determination that the proposed price is fair and reasonable.

9. The proposed rule language at DFARS 252.215-7010, paragraph (d)(3) has been removed as unnecessary, and paragraphs (d)(4) and (d)(5) have been renumbered accordingly.

10. The language at DFARS 252.215-7010, paragraph (d)(3), formerly paragraph (d)(4), has been reworded for clarity.

11. The DFARS provision 252.215-7013, Supplies and Services Provided by Nontraditional Defense Contractors, has been added to advise offerors that in accordance with 10 U.S.C. 2380a, supplies and services provided by a nontraditional defense contractor, as defined in DFARS 212.001, may be treated as commercial items.

1. Agree with the rule.

Comment: Two respondents expressed support for the rule, stating that the rule will reduce the risk of fraud, increase accountability, and make the buying process more seamless for the military.

Response: DoD appreciates the support for this rule.

2. Audit clause.

Comment: One respondent recommended that DFARS 252.215-7010(b)(2) mirror the entire language of Federal Acquisition Regulation (FAR) 52.215-20(a)(2) because the respondent did not believe that Congress intended for either section 831 of the NDAA for FY 2013 or sections 851 and 853 of the NDAA for FY 2016 to expand the Government's access to cost or profit information when commercial items are priced based on catalog or market prices, or set by law or regulation.

Response: Section 831 of the NDAA for FY 2013 requires the establishment of standards for determining the extent of uncertified cost information that should be required in cases in which price information is not adequate for evaluating the reasonableness of price. To that extent, the rule sets forth a hierarchy of information that the contracting officer shall require to determine the reasonableness of the price, including other relevant information that can serve as the basis for a price assessment. Further, section 853 requires that contracting officers shall consider evidence provided by offerors of recent purchase prices paid by the Government for the same or similar commercial items in establishing price reasonableness on a subsequent purchase if the contracting officer is satisfied that the prices previously paid remain a valid reference for comparison after considering the totality of other relevant factors such as the time elapsed since the prior purchase and any differences in the quantities purchased or applicable terms and conditions.

3. Catalog pricing provision.

Comment: Two respondents recommended removing or revising the catalog pricing provision. The respondents recommended deleting DFARS 252.215-7010(b)(1)(ii)(B)(2) because it is not based on any provision in the NDAA for FY 2013 or the NDAA for FY 2016, and is unclear about what it means for “catalog pricing” to be “consistent” or “not consistent” with “all relevant sales data.” According to the respondent, the provision raises these unanswered questions:

(a) Does “catalog pricing” refer to prices shown in the catalog in question or in the offeror's proposed pricing for the proposal?

(b) Does “catalog pricing” refer to prices shown in the catalog that must be used in the pricing of all sales in order for that pricing to be “consistent” with “all relevant sales data?”

(c) Does the determination of consistency take into account whether “catalog pricing” is higher or lower than the pricing reflected in “all relevant sales data”?

(d) How does the use of the term “all relevant sales data” in the provision relate to the definition of the term “relevant sales data” in the proposed DFARS provision 252.215-7010(a)?

The respondent is concerned that contracting officers will not know what offerors mean by these statements, which could lead to confusion and misunderstandings.

Another respondent recommends removing the requirement in DFARS 252.215-7010 that an offeror provide an explanation as to whether their proposed prices that are based on catalog pricing are consistent with relevant sales data. The offeror believes this requirement constitutes a new and unauthorized certification.

Response: The language at DFARS 252.215-7010(b)(1)(ii)(B)(2) has been revised to remove the certification requirements. However, for a commercial item exception, the offeror shall submit, at a minimum, information that is adequate for evaluating the reasonableness of the price for the acquisition, including prices at which the same item or similar items have been sold in the commercial market. Without the DFARS 252.215-7010(b)(1)(ii)(B)(2) requirements, the contracting officer will not have sufficient information to determine whether the price is fair and reasonable, and will need to request additional data. The catalog must state prices at which sales are currently, or were last made to a significant number of buyers constituting the general public. If the catalog pricing provided is not consistent with all relevant sales data, the offeror must describe the differences. It does not matter whether the catalog price is higher or lower than the proposed price. “Relevant sales data” means evidence provided by an offeror of sales of the same or similar items that can be used to establish price reasonableness taking into consideration the age, volume, and nature of the transactions (including any related discounts, refunds, rebates, offsets or other adjustments).

4. Collaboration on commercial item and price reasonableness determinations.

Comment: One respondent recommended that the rule codify and provide the opportunity for offerors to collaborate with DoD's cadre of experts prior to a final decision by the contracting officer on commercial item and price reasonableness determinations.

Response: DoD concurs with the statement that an open exchange of information by both parties leads to more timely commercial item determinations and price analysis. DoD has already issued guidance to contracting officers to collaborate with the Defense Contract Management Agency (DCMA) cadre of experts to assist in the timeliness and consistency of commercial procurements. The cadre regularly engages with offerors to obtain an understanding of proposed commercial items and associated pricing. DCMA is also facilitating collaboration with offerors through commercial item memorandums of agreement with interested companies.

5. Commercial item determination.

Comment: One respondent questioned if there is no commercial market place to establish price reasonableness and the contractor only offers an item that is “of a type” customarily used by the general public for sale, is that sufficient for the contractor to escape the Truthful Cost or Pricing Data requirement? The respondent further questioned what constitutes an offer, and whether an advertisement on a website is sufficient? The respondent suggested that the rule define an “offer” to incorporate a bona fide offer in a known market where competitive forces exist.

Response: DoD considers commercial item determinations separately from price reasonableness determinations. Commercial item determinations are not dependent upon the offered price of an item. The FAR 2.101 definition of “commercial item” does not require that the identical proposed item must be sold or offered for sale to the general public. When deciding whether to grant a commercial item exception to the requirement for certified cost or pricing data, FAR 2.101 permits contracting officers to consider items that are “of a type”—i.e., items that are similar to those customarily used by and sold or offered for sale to the general public. While pricing based on market prices is the preferred method to establish a fair and reasonable price, a commercial marketplace is not required for the item to meet the definition of a commercial item. This embraces DoD's broader view of the types of items that may qualify as commercial items and gives consideration to products and services offered by both traditional and nontraditional defense contractors. Contracting officers must use business judgement and consider all relevant factors when evaluating evidence of offers for sale, which may include advertisements on websites, sales orders, quotes, or other information that demonstrate that the similar item has been offered for sale in the commercial marketplace.

Comment: One respondent stated that the final rule should permit commercial item determinations in a timely and efficient manner with minimal deliberations. The respondent further suggested that any further guidance that might be issued in support of commercial item determinations after the final rule is published would greatly improve its chances of succeeding and facilitate the desired results of the final rule.

Response: Timely and consistent commercial item determinations are the standard for DoD. The proposed rule promotes timeliness and efficiency by providing that contracting officers may presume that a prior commercial item determination made by a military department, defense agency, or another component of DoD shall serve as a determination for subsequent procurements. As such, DoD has instructed contracting officers to adopt the practice of recognizing prior known determinations as valid. To further assist in the timeliness and consistency of commercial procurements, DoD has established a cadre of experts within DCMA to provide advice to contracting officers. DCMA is also streamlining the exchange of information for the evaluation and pricing of commercial items through “memorandums of agreement” with interested companies. DoD will finalize the Commercial Item Handbook to provide further guidance to contracting officers.

6. Conflating pricing with commercial item exception.

Comment: Two respondents recommended that commercial item determinations for exceptions from certified cost or pricing data be separated from price reasonableness determinations. One respondent recommended that DFARS 252.215-70XX(b)(1)(ii) be amended by striking the phrase “For a commercial item exception” and replacing it with the phrase “For items determined to be commercial” to ensure that the commercial item determination and the price reasonableness determination are kept separate.

Another respondent recommended changing DFARS 252.215-7010(b)(1)(ii) by separating the initial commercial item determination procedure from concurrent submission of any cost or pricing data that may be needed for a subsequent and independent evaluation of price reasonableness. This new clause creates several negative impacts when requiring subcontractors and/or prime contractors initial upfront submission of all past sales because:

(a) It excludes any use of FAR 2.101 commercial item definition of “offered for sale” because there is no sales data yet for “offered for sale” commercial items.

(b) It forces them to concurrently meet both the commercial item determination and price reasonableness data submission criteria, which will invite contracting officers to use the submitted cost or pricing data to actually determine initial commerciality, rather than using one or more of the current FAR 2.101 definitions of commercial items.

(c) It is a direct conflict with current FAR 15.402(a)(2) and (a)(3) for obtaining cost or pricing data from subcontractors and/or prime contractors to determine price reasonableness. The proposed rule directly conflicts with both newly proposed DFARS 212.209 and FAR 15.402 provisions.

Another respondent recommended modifying proposed DFARS 252.215-7010(b)(1)(ii) to separate a commercial item determination from a price reasonableness determination of a commercial item. Although this language mirrors FAR 52.215-20(a)(1)(ii), both elements are equally important to the Government's procurement of commercial items, but only the commercial item determination is necessary for an exception to submitting certified cost or pricing data. Pricing information is not solely determinative of whether a product or service is a “commercial item,” yet that is the only information the proposed language requires. DoD should make improvements to FAR 52.215-20 with supplemental guidance, which not only implements the requirements of section 831 of the NDAA for FY 2013 and sections 851, 852, and 855 of the NDAA for FY 2016, but also clarifies important distinctions that are critical to DoD's commercial item acquisition. This distinction was maintained by Congress, for a commercial item determination to be made and only then for price reasonableness to be assessed. The respondent asserted that commercial items determinations should be focused on the Government's market research and the commercial item definition in FAR 2.101, and cost or pricing data required for price reasonableness determinations should be uncertified when required by the clause to support the Government's price reasonableness determination.

Response: DoD considers commercial item determinations separately from price reasonableness determinations, however, offerors are still expected to provide adequate supporting data with their proposal submissions in order to avoid unnecessary delays in contract award. It would not be in the best interest of DoD or industry to delay acquisitions by establishing a formal two-step sequential proposal process of first requiring supporting information only for the purpose of making a commercial item determination, and then following up with a second request for information in order to make a determination of price reasonableness. In accordance with DFARS 252.215-7010, and consistent with the existing requirements of FAR 52.215-20, where commercial items are proposed in response to a solicitation, the offeror is required to concurrently submit information that is adequate for evaluating the reasonableness of the proposed price.

7. Congressional comments on previous rule.

Comment: One respondent indicated Congressman Derek Kilmer (R-WA), wrote a letter to the Director of Defense Pricing (March 7, 2014) and voiced his concerned with the application of the term “of a type” that was used to determine what is or is not a commercial item or service in certain cases. The Congressman addressed his concern with DoD's attempts to restrict “offered for sale” and “of a type” commercial item procurements, and its negative impact on the innovative defense community and the Government's defense mission. A contracting officer's commerciality determination may have long-ranging effects that impact the company's interest in investing private capital into innovation or participating in the Government marketplace. These are most likely to be dual-use and second-tier suppliers that tend to be among our most innovative and that are willing to invest their own money in development.

Another respondent indicated that Senator John McCain (R-AZ) wrote a letter to the Secretary of Defense (September 8, 2015) indicating he was deeply concerned by a new proposed DFARS CASE 2013-D034 and its ability to effectively preclude any significant participation by commercial firms in defense programs. The Senate and the House have included provisions in the NDAA for FY 2016 to entice new firms into the defense market and retain them once there. The Senator stated that the rule would deter privately-held start-up companies from offering their products and services to DoD, because it would impose cumbersome and excessive bureaucratic requirements on these firms and require firms to build entirely new accounting systems. The respondent indicated the current rule in question does not succeed in removing the accumulated detritus of law, process, and regulation sought by Senator McCain.

Response: DoD received comments on proposed DFARS rule 2013-D034 from many respondents, including members of Congress. Based on the comments received in response to that proposed rule, and in order to implement the requirements in sections 851 through 853 and 855 through 857 of the NDAA for FY 2016, DFARS rule 2013-D034 was closed into this DFARS rule, 2016-D006.

8. Contractual limitations on information necessary to support a determination of fair and reasonable Pricing.

Comment: One respondent recommended deleting DFARS 215.402(a)(i)(B), because the language does not appear to be based on statutory authority cited under section 831 of the NDAA for FY 2013. The use of terms “any data” and “necessary supporting information” are unclear and creates confusion regarding the scope of the information the Government would require.

Another respondent recommended adding language to DFARS 215.402(a)(i)(B) to state that any provision that limits the Government's ability to obtain any information that may be necessary to support a determination of fair and reasonable pricing is void.

Response: The language at 215.402(a)(i)(B) is intended to prohibit DoD contracting officers from agreeing to contract terms that preclude obtaining supporting information that may be necessary to support a determination of fair and reasonable pricing. For clarification, the language has been revised to state that the contracting officer shall not limit the Government's ability to obtain “information . . . ” in lieu of “any data,” and is sufficient to instruct contracting officers not to agree to any such limitations.

9. Converting commercial to noncommercial.

Comment: One respondent recommended changing DFARS 212.7001(a) allowing contracting officers to either consider finding errors “or” cost savings when converting from a commercial acquisition to a noncommercial acquisition. The current language reads “and.” Making this change will allow Government officials to convert the procurement when it is deemed appropriate.

Response: The language at DFARS 212.7001(a)(1)(i) and (ii) is in accordance with section 856 of the NDAA for FY 2016 and as such is unchanged.

10. Definition of “commercial item”.

Comment: One respondent supported narrowing the definition of a “commercial item” to mean goods or services that are actually sold to the general public in like quantities. This change would be a huge improvement over the current definition, which includes goods or services “of a type” that are merely “offered” for sale or lease.

Response: The definition of “commercial item” is not revised under this rule since the definition is set forth in 41 U.S.C. 103, which defines “commercial item”, in part, as an item, other than real property, that—

(a) Is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes; and

(b) Has been sold, leased, or licensed, or offered for sale, lease, or license, to the general public.

11. Definition of “market research”.

Comment: One respondent recommended amending the definition of “market research” to provide additional guidance to contracting officers to focus more directly on pricing and adequate evaluation of the fairness and reasonableness of an offeror's proposed price. A critical component of market research—particularly for determining fair and reasonable pricing—is reviewing and understanding pricing conditions and related considerations in the relevant industry and marketplace. The respondent proposed adding the following into the definition of “market research”:

(a) Include review of previous prices of the items.

(b) Considering offeror's net profit margins.

(c) Review and identify previous contract types.

(d) Other contract terms that may have affected differences in pricing (i.e., warranties, financing, discounts).

Response: The recommended revisions are not necessary. Language within the proposed rule and sections of FAR part 10 addresses these factors and does not require change. Specific to listed factor (a), the proposed language at DFARS 215.404-1 provides a hierarchy to follow when determining what information is necessary to determine the reasonableness of price. Included in this hierarchy is a review of information on prices paid. Specific to listed factor (b), the net profit margins would require access to cost data and including this as a factor would encourage contracting officers to seek cost data before considering DFARS 212.209(c) and the order of techniques listed in DFARS 215.404-1. Specific to listed factors (c) and (d), FAR 10.002(b)(1)(iii) includes reference to customary practices, including warranty, financing, discounts, and contract types.

12. Definition of relevant sales data.

Comment: One respondent supported the concept that contracting officers should review the age, volume, and nature of transactions when considering price reasonableness information (DFARS 252.215-7010).

Response: Section 831 of the NDAA for FY 2013 requires standards to be established for determining whether information on prices at which the same or similar items have previously been sold is adequate for evaluating the reasonableness of price. DFARS 215.404-1, Proposal Analysis Techniques, implements the requirements of section 831 by providing guidance to contracting officers to consider the totality of relevant factors when evaluating the reasonableness of price, including the time elapsed since the prior purchase, any differences in the quantities purchased, and applicable terms and conditions.

13. Federal Supply Schedule contracts.

Comment: Two respondents recommended revising the DFARS to recognize Federal Supply Schedule (FSS) contracts as commercial. One respondent recommended deleting the requirement at DFARS 252.215-7010(b)(1)(ii)(D) that an offeror must provide proof of a commercial item exception when an item is sold via an active FSS contract, because it is redundant and unsupported by statue. By the mere fact that items are included on FSS contracts, means that they have been determined to qualify as commercial items (see CGI Fed. Inc. v. United States, 779 F.3d 1346, 1353 (Fed. Cir. 2015)). In addition, the proposed rule disregards the prior work of the General Services Administration FSS contracting officers, and provisions of the NDAA do not require proof that a commercial item exemption has been granted for a schedule item.

Response: Section 851 of the NDAA for FY 2016 provided the authority for DoD contracting officers to presume that a prior commercial item determination made by a military department, a defense agency, or another component of the Department of Defense shall serve as a determination for subsequent procurements of such item. This does not preclude contracting officers from applying a commercial item exception when an item is sold via an active FSS contract. However, this statutory language does not mandate that DoD contracting officers apply the same presumptions to prior commercial item determinations made by non-DoD agencies. Therefore, the language at DFARS 252.215-7010(b)(1)(ii)(D) remains unchanged.

14. Format for submission of data.

Comment: One respondent recommended revising the language that requires the offeror to provide data to the contracting officer in a format regularly maintained in the offeror's business operations by replacing the word “operations” with the word “systems”.

Response: Section 831 of the NDAA for FY 2013 requires that guidance be established to ensure that in cases in which such uncertified cost information is required, the information shall be provided in the form in which it is regularly maintained by the offeror in its business operations. The language included in the rule is consistent with the language in section 831 of the NDAA for FY 2013.

15. “Of a type” items.

Comment: One respondent indicated that language in the proposed rule Federal Register notice (Section II.B., Analysis of Public Comments, on DFARS Rule 2013-D034), at Comment 3, asserts that “Regulations for CIDs [commercial item determinations] for `of a type' . . . are unchanged by this rule” is not entirely correct. Since it's a fact that the “of a type” commercial item category is the most widely used designation by innovative subcontractors, then it is also a fact that the new DFARS requirement for “concurrent” productions of cost or pricing data with a commercial item determination application will impact that class of subcontracted items the most. The proposed rule seems to be a thinly disguised major reversal of congressionally mandated direction in 2012 for DoD to procure more commercial items, especially “of a type” items.

Another respondent suggested that the rule clarify that for an “of a type” item to meet the definition of a commercial item (excluding modifications and services) there should be a two prong test: (1) The item has to be of a type that customarily used by the general public and (2) the item itself has to have been sold (leased or licensed) or offered to the general public.

Response: The language of this rule does not revise the definition of “commercial item” in FAR part 2, nor alter the requirements for commercial item determinations for “of a type” items. As stated in the response to comment 6 herein, DoD considers commercial item determinations separately from price reasonableness determinations. However, offerors are still expected to provide adequate supporting data with their proposal submissions in order to avoid unnecessary delays in contract award.

16. Major systems acquisition.

Comment: One respondent suggested the proposed rule language for major system acquisitions at DFARS 234.7002 incorporates proposal analysis techniques under DFARS 215.404-1, and provides that only a contracting officer may determine that a “subsystem, component or spare part” is a commercial item for a major weapon system. This same DFARS requirement first imposed in 2015, squarely conflicts with the older pragmatic DFARS policy requirement in DFARS 244.402 that mandates that only prime contractors “shall determine whether a particular subcontract item meets the definition a commercial item.” This will not alleviate the inevitable log jam of subcontract commercial item applications on major weapons.

Response: This is a statutory requirement under 10 U.S.C. 2379(b)(2). DFARS 244.402 does require contractors to determinde whether a particular subcontract item meets the definition of commercial item. However, it explicitly states that the requirement does not affect the contracting officer's responsibilities for determinations made under FAR 15.403-1(c)(3) whereby if the contracting officer determines than an item is not commercial and no other exception or waiver applies, then the contracting officer shall require the submission of certified cost or pricing data. This authority applies to prime contracts and subcontracts.

17. Market prices.

Comment: One respondent expressed concern that the definition of “market prices” focuses on “current prices.” The proposed definition could be interpreted by contracting officers to limit market prices to only those prices that have just been agreed to by a customer, and in extreme cases, only prices that are less than a few days old. Whether a price is “current enough” to be relevant varies based on many factors that are best addressed through guidance on age of data rather than within the definition of market prices. The respondent pointed out that section 853 of the NDAA for FY 2016 uses the term “recent” in lieu of the term “current.” The difference between “recent” and “current” is significant. “Recent” is having happened not long ago whereas “current” means in the present, contemporaneous, or being used or done now.

Response: Recent prices paid can be used in the determination of price reasonableness. “Market prices” means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain, and that can be substantiated through competition or from sources independent of the offerors. At any point in time, the market price would be the current price.

Comment: One respondent stated that for an item to be exempt from submitting certified cost or pricing data, a commercial market place should exist that allows for establishing price reasonableness. Excluding this requirement from the definition of a commercial item has created a policy for which proposed regulations have tried and failed to work around.

Response: This rule does not revise the established FAR definition of a commercial item which, in part, specifically identifies an item that “Has been offered for sale, lease, or license to the general public”. Section 831 of the NDAA for FY 2013 requires that standards be established for determining the extent of uncertified cost information that should be required in cases in which price information is not adequate for evaluating the reasonableness of price. While pricing based on market prices is the preferred method to establish a fair and reasonable price, a commercial marketplace is not required for the item to meet the definition of a commercial item. Furthermore, the rule sets forth a hierarchy of information that the contracting officer shall require to determine the reasonableness of the price, including other relevant information that can serve as the basis for a price assessment.

18. Market research.

Comment: One respondent recommends removing “where appropriate” from DFARS 212.209(a) because it injects the uncertainty that market research is conditional. Understanding the market place, even if there is limited research, is critical for commercial item determinations.

A second respondent recommended including language in the DFARS to require contracting officers to conduct market research prior to soliciting information from offerors for purposes of price reasonableness determinations of commercial items, however, another respondent opposes the use of market research to determine price reasonableness, when obtaining offeror cost or pricing data would be more time efficient and germane.

One respondent recommends that the rule specify that market research be conducted before the solicitation in order to inform the contracting officer whether a solicitation can be accommodated under FAR part 12.

Response: DoD agrees that understanding the market place, even if there is limited research, is critical for commercial item determinations. DoD disagrees that “where appropriate” indicates that it is conditional, but simply if it is appropriate at that point in the acquisition process. Market research also informs decisions at several other points in the requirements development and acquisition process, and is one of several techniques contracting officers may use to reach a conclusion regarding price reasonableness.

Market research is conducted at several points in the acquisition process, and that is adequately covered in FAR 10.001(a)(2) as well as in this rule. Market research is first conducted by the Requirements Community in developing requirements. The Acquisition Community builds upon initial market research in development of the acquisition strategy and drafting of the solicitation. However, additional focused market research is again conducted during the pricing and proposal analysis phase.

19. Modified and similar items.

Comment: One respondent stated that under FAR 15.403-1, if a minor modification of a commercial item exceeds the greater of the threshold for obtaining certified cost or pricing data or 5 percent of the total price of the contract, certified cost or pricing data are required. The respondent questioned whether equivalent requirements apply to price reasonableness assessments based on a “similar” item. The respondent believes that conceptually it seems it should. The respondent further questioned if there is a difference between a “similar” item and an item that has been modified, and whether a “similar” item can be an unmodified item of the item being purchased.

Another respondent suggested that the rule define a “similar” item as an item that is so sufficiently comparable in technical and physical characteristics that the differences in price due to those differences is not material to the assessment of price reasonableness. The respondent further stated that if significant price differences are allowed for similar items, there seems no meaningful way to distinguish similar items from modified items.

One respondent stated that in practice one of the biggest obstacles to determine price reasonableness on commercial items is the physical differences between the item being acquired and the item for which sales data is provided. It is difficult for the Government or contractor personnel to assess the price impact, with any level of fidelity, of the physical differences without associated price or cost data. Parametric models typically generate values with a gross level of precision, especially when using data from sources external to the manufacturer. The respondent suggested that the rule address data required for modifications of an item to include the technical or physical differences and the associated price or cost impact of each. The respondent further suggested that the rule address data required for “similar” items to include the technical or physical differences and the associated price or cost impact of each; including the data requirements for subcontractors in 252.215-7010, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data. This would be required to validate that the physical differences do not have a price impact.

Response: The rule provides the ability for contracting officers to obtain necessary data to determine price reasonableness. Consistent with FAR 15.403-1(b)(3), contracting officers shall not request certified cost and pricing data when a commercial item is being acquired, but may require data other than certified cost and pricing data as defined in FAR 2.101 to support a determination of a fair and reasonable price. The rule does not define “similar items” for the purposes of determining price reasonableness, but authorizes contracting officers, when appropriate, to require the contractor to supply information that is sufficient to determine the reasonableness of price, including information showing the similar item is comparable to the item being purchased to be used as a comparison in price reasonableness. Since no two contract actions are exactly the same, the rule provides a broad framework for data requirements. Contracting officers must use business judgement and consider all relevant factors including the similarity of items when making comparisons for the purposes of determining price reasonableness. Further information on the comparison of same or similar items may be found at FAR 15.404-1(b)(2)(ii).

20. Non-governmental entities.

Comment: One respondent recommended adding the term “non-governmental entities” into the rule where data is considered based on sales to the Government and commercial customers.

Response: The language of this rule is consistent with the preexisting terminology in the DFARS.

21. Nontraditional defense contractors.

Comment: One respondent recommended elimination of the permissive nature of this authority. The respondent further recommended deletion of the language stating that the use of commercial item procedures under this authority does not mean the item is commercial, stating that this additional direction adds uncertainty for nontraditional contractors for renewal contracts and could adversely impact their initial decision to sell to DoD.

Additionally, two respondents recommended clarifying that “subcontractors” be added to the definition of nontraditional defense contractors so that items provided by a subcontractor that meet the definition of a “nontraditional defense contractor” may be treated as commercial items.

Response: Section 857 amended 10 U.S.C 2380a to provide DoD with the permissive authority to treat items and services provided by nontraditional defense contractors as commercial items. This authority was neither mandatory nor was it extended to prime contractor commercial item determinations for subcontracted items and services.

Comment: One respondent recommended broadening the statement of intent in DFARS 212.102(a)(iv) to state: “This permissive authority is intended to enhance defense innovation and investment, enable DoD to acquire items that otherwise might not have been available, and create incentives for qualified firms to do business with DoD.”

The respondent further recommended an editorial revision to state “. . . does not require a commercial item determination . . .” in lieu of “. . . does not constitute a requirement for a commercial item determination. . . .”

Response: DoD concurs with the recommended revisions and has revised DFARS 212.102(a)(iii) accordingly. In addition, the DFARS provision 252.215-7013, Supplies and Services Provided by Nontraditional Defense Contractors, has been added to advise offerors that in accordance with 10 U.S.C. 2380a, supplies and services provided by a nontraditional defense contractor, as defined in DFARS 212.001, may be treated as commercial items.

22. Order of preference for determining price reasonableness.

Comment: One respondent recommended changing DFARS 215.404-1 to clearly conform to the order of preference in FAR 15.402(a) in determining the sources, order and type of data needed to adequately determine price reasonableness. The respondent asserts that listing “market research” as first in the order of preference gives the contracting officer unintended discretion to determine whether any market research is even appropriate. The respondent stated that the proposed rule side-steps the FAR 15.402 cost or pricing threshold and data exceptions as well as the requirement to rely on data available within the Government before going through market research, and demands, at a minimum up-front, information on prices at which the same or similar items have been sold in the commercial market (via DFARS Clause 252.215-7010).

Response: This rule establishes DFARS language to supplement the requirements of the FAR, including the requirements at FAR 15.402. It does not establish a different order of preference in determining the sources, order, and type of data needed to adequately determine price reasonableness. Per FAR 10.001, agencies must conduct market research (appropriate to the circumstances) before soliciting offers for acquisitions with an estimated value in excess of the simplified acquisition threshold.

23. Price analysis.

Comment: One respondent indicated the proposed rule would require prime contractors to obtain whatever information necessary from subcontractors to support concurrent commercial item determinations and price realism analyses. This requirement will more likely create disputes between prime contractors and subcontractors regarding the types of information necessary to support a subcontractor's commercial item assertion. Further, the respondent expressed concern that the rule gives DoD the subjective ability to effectively challenge the prime contractor's costs incurred for commercial item subcontracts under cost-type contracts, and provides fodder for DoD to challenge the adequacy of a prime contractor's purchasing system.

Response: The standards for what information is necessary to make commercial item determinations and determinations of price reasonableness should not be relaxed for subcontractors. Prime contractors are responsible for exercising the same due diligence as DoD contracting officers in making subcontractor commercial item determinations and evaluating their subcontractors' price reasonableness.

Comment: One respondent recommended changing DFARS 215.404-1(b)(ii) to allow contracting officers to consider recent purchase prices paid by both the Government “and” commercial customers for the same or similar commercial items. The current language reads “or”. Making this change can give Government officials access to both, which can ensure the Government is obtaining the best prices.

Response: DoD concurs with the respondent's recommendation and has incorporated this revision in the final rule in DFARS 212.209(b) and 215.404-1(b)(ii).

24. Price analysis techniques.

Comment: One respondent suggested expanding DFARS 212.209 and 215.404-1(b)(ii) to reference FAR 15.404 that lists the various price analysis techniques and procedures to ensure a fair and reasonable price.

Response: It is not necessary to reiterate the various price analysis techniques and procedures in FAR 15.404 in this rule.

25. Price reasonableness determinations.

Comment: One respondent recommended that DFARS 252.215-7010(d) be revised to require only the minimum data necessary to support a determination that the proposed price is fair and reasonable instead of requiring all data necessary to support such a determination.

Response: To ensure contracting officers request only the data necessary to permit a determination that the proposed price is fair and reasonable, the language has been revised to state “the minimum information” instead of “all data.” However, this does not relieve the requirement that offerors submit minimum essential information necessary to determine that the proposed price is fair and reasonable.

Comment: One respondent recommended changing DFARS 212.209(d), 215.404-1(b)(iv), and 234.7002(d)(3) to state the contracting officer “shall request” the offeror to submit other relevant information, including uncertified cost data instead of the current language “may request.” This change clears up confusion, especially when contractors refuse to turn over cost data to DoD. Since the proposed rule limits DoD's access to uncertified cost data to that which is regularly maintained by the offerors in its business operations, there should be no additional burden on contractors.

Response: DoD concurs that DFARS 215.404-1(b)(iv) and 234.7002(d)(3) should be changed to “shall” in accordance with the language in the NDAA for FY 2016.

26. Prior commercial item determination.

Comment: One respondent recommended adding the requirement under DFARS 212.102 that a prior commercial item determination will remain if the contracting activity fails to provide a written explanation of the basis for the revision within the 30 day review period.

Response: This rule will not impose such a time constraint on commercial item determinations.

Comment: Two respondents recommended that a prior commercial item determination made by a prime contractor shall serve as a determination for subsequent procurements of such item. One respondent recommended adding to DFARS 212.102(a)(iii)(A) that the contracting officer shall “also” presume that a prior commercial item determination made by a prime contractor for a subcontracted item (pursuant to the mandate of DFARS 244.402(a) Policy Requirements), shall serve as a determination for subsequent procurements of such subcontracted item either by the prime contractor or directly by the Government as a spare part.

Three respondents recommended further consistency and uniformity in the acquisition process by allowing the contracting officer to consider prior commercial items determinations made by “any” federal department or agency, including civilian agencies, departments and components not only DoD Agencies, or another component of DoD as stated under 212.102(a)(iii). The proposed provisions implement and are consistent with 10 U.S.C. 2306(a)(b)(4), however, this recommendation is not prohibited by section 851 of the NDAA for FY 2016.

Response: 10 U.S.C. 2306a(b)(4)(A) states that for purposes of applying the commercial item exception under paragraph (1)(B) to the required submission of certified cost or pricing data, the contracting officer may presume that a prior commercial item determination made by a military department, a defense agency, or another component of DoD shall serve as a determination for subsequent procurements of such item. This statutory language does not extend this authority to prior determinations made by prime contractors or civilian agencies.

Comment: One respondent recommended adding a DFARS provision that clearly separates commercial item determinations of “end items/weapons” by the contracting officer from commercial item determinations by prime contractors of subcontractor subsystems and components. This addition will streamline commercial item procurements.

Response: This rule does not alter prime contractors' responsibility for making subcontractor commercial item determinations and evaluating their subcontractors' price reasonableness, regardless of whether the end item has or has not been determined to be a commercial item.

Comment: One respondent suggested DFARS 212.102(a)(iii)(A) can lock DoD into buying items that are no longer commercial, and that requiring commercial item determinations as listed under DFARS 212.102(a)(iii)(B) and (C) can slow down the process by taking up to 30 days.

Response: DoD contracting officers remain responsible for adhering to the definition of commercial items set forth in 41 U.S.C. 103 and applying professional judgement in making commercial item determinations as expeditiously as possible. To that end, DoD has stood up a DCMA cadre of experts to assist contracting officers in making commercial item determinations.

27. Prior commercial sales.

Comment: One respondent recommended that the rule be revised to permit contracting officers to accept prior FAR part 12 contract numbers from the offeror to demonstrate prior commercial item determinations.

Response: Contracting officers must validate a previous commercial item determination and document the file appropriately. DoD agrees with the respondent that the identification of contract numbers is beneficial. In accordance with DFARS 252.215-7010, for items previously determined to be commercial, offerors are required to identify the contract and military department, defense agency, or another DoD component that rendered such determination. To expedite the commercial item determination, this language has been revised to include the contract number and, if available, a Government point of contact. Additionally, offerors are also required to provide information that is adequate for evaluating the reasonableness of the price for the acquisition.

28. Proposal analysis techniques.

Comment: One respondent suggested DFARS 215.404-1 doesn't incorporate the NDAA for FY 2016 section 855 “preference” for pricing based upon existing market prices. The respondent asserts that the proposed rule includes a cornucopia of market research and relevance “factors” that are confusing and will be extremely burdensome and time consuming for contractors, innovative subcontractors, and the Government.

Response: The language at DFARS 215.404-1 states that “In the absence of adequate price competition in response to the solicitation, pricing based on market prices is the preferred method to establish a fair and reasonable price.” This rule implements requirements from both the NDAA for FYs 2013 and 2016. Having the guidelines required by section 831 of the NDAA for FY 2013 should help contracting officers to know what information to request and also help contractors, as the data will be limited to the minimum necessary to make a determination of price reasonableness.

29. Revised commercial item determination.

Comment: One respondent recommended requiring that a revised commercial item determination be provided to the offeror.

Response: Offerors will be notified of the results of any commercial item redetermination during the negotiation process.

30. Right to examine offeror data.

Comment: Two respondents believed that offerors should be exempt from the requirement in DFARS 252.215-7010(b)(2) to submit data to support proposed prices based on catalog or market prices, or those prices set by law or regulation in accordance with the limitations set forth under FAR 52.215-20(a)(2).

Another respondent is concerned that the language at DFARS 252.215-7010(b)(2), which grants DoD the right to examine, at any time before award, books, records, documents, or other directly pertinent records to verify any request for a commercial item exception, and to determine the reasonableness of price, will negatively impact the entry of large and small commercial firms into the defense sector, impeding innovation and reducing competition.

Response: Section 831 of the NDAA for FY 2013 requires that standards be established for determining the extent of uncertified cost information that should be required in cases in which price information is not adequate for evaluating the reasonableness of price. To that extent, the rule sets forth a hierarchy of information that the contracting officer shall require to determine the reasonableness of the price, including other relevant information that can serve as the basis for a price assessment.

31. Rule origination.

Comment: One respondent suggested an investigation be conducted of how or who originated this proposal and how high up in the DoD hierarchy there is an understanding of how this proposal subverts congressional mandates.

Response: This rule implements sections of the NDAAs for FYs 2013 and 2016 relating to commercial item acquisitions, and is consistent with Congressional intent as set forth in statute.

32. Significant economic impact.

Comment: One respondent strongly believed the proposed rule goes much further than implementing section 831(a) of the NDAA for FY 2013 and sections 851-853, 855-857 of the NDAA for FY 2016. The respondent asserts that the requirement for submission of cost or price data concurrently with a contractor's commercial item determination request under DoD-funded prime contracts and commercial subcontracts would impose significant time and paperwork burdens on prime contractors for submission to the contracting officer. Although section IV. of this preamble indicates there will be no significant economic impact on a substantial number of entities, the converse is true. It is a major rule which will have a significant adverse effect on competition, investment and innovation, especially in the innovative subcontractor market place. In addition, the respondent states that commercial items merely “offered for sale” in the commercial market are implicitly excluded from ever getting a positive commercial item determination because they can't meet their DFARS clauses “minimum” prior sales data standard.

Response: There is no minimum prior sales standard that impacts the determination of commerciality. If an offeror does not have sales data to submit, the rule provides a list of other data that may be submitted, such as prices paid for similar levels of work or effort on related products or services. As previously stated, offerors are expected to provide adequate supporting data with their proposal submissions. It would not be in the best interest of DoD or industry to delay acquisitions by establishing a formal two-step sequential proposal process of first requiring supporting information only for the purpose of making a commercial item determination, and then following up with a second request for information in order to make a determination of price reasonableness. The rule does not contain any new information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

33. Sole source commercial acquisitions.

Comment: One respondent suggested that this proposed rule be further amended to address the situation of sole source commercial item acquisitions where market prices do not accurately reflect fair and reasonable prices due the lack of competition and the Government's bulk buys.

Response: If the contracting officer determines that the information obtained through market research is not sufficient, the contracting officer will follow the order of preference and request additional data until there is sufficient information to determine price reasonableness.

34. Solicitation provision.

Comment: One respondent recommended that the final rule incorporate the alternate version of DFARS solicitation provision 252.215-7010 in lieu of the proposed basic version of the provision to facilitate the ability of commercial companies that have an item not granted an exception to support the determination of price reasonableness with their commercial business systems.

Response: Both the basic and alternate versions of the provisions are required. Contracting officers shall use the basic provision when submission of certified cost or pricing data is required to be in the FAR Table 15-2 format, or if it is anticipated, at the time of solicitation, that the submission of certified cost or pricing data may not be required. Contracting officers shall use the alternate I provision to specify a format for certified cost or pricing data other than the format required by FAR Table 15-2.

35. Subcontract cost or pricing data flowdown requirements.

Comment: One respondent believed that the requirement for subcontractors to provide certified cost or pricing data and for data other than certified cost or pricing data is outside the scope of section 831 of the NDAA for FY 2013 because:

(a) Subcontract pricing has no bearing on the commercial price offered to the Government.

(b) In a fixed-price type commercial transaction, the prime contractor bears all the risk of subcontract price increases.

(c) There is little incentive for the offeror's commercial subcontractors to provide information necessary to support price reasonableness.

(d) Due to the nature of commercial supply chains, the fluidity of subcontractors is a common occurrence. With the increased use of electronic auctions and reverse auctions on commodities and basic services, the flowdown requirement regarding proposal preparation and evaluation to first-tier subcontractors would be problematic from a compliance standpoint.

(e) It is exponentially more difficult to flow down to subcontractors at all tiers, as many lower-tier subcontracts may not be negotiated at the same time as the prime contract.

(f) There is no way to flow down a solicitation provision in a “subcontract” because there isn't a subcontract yet.

(g) The requirements for certified cost or pricing data are flowed down to all lower-tier subcontractors above the certified cost or pricing data threshold without exception, despite the fact that many subcontracts may qualify for an exemption from certified cost or pricing data due to competition or commercial item status.

(h) The rule requires subcontractors to submit detailed data to support subcontract pricing for all subcontracts exceeding the simplified acquisition threshold, without any rationale or determination that such detailed data is necessary or relevant to the prices proposed by the prime.

(i) The contractor purchasing processes will require substantial changes to deal with this issue and for those commercial companies not so conversant on Government regulations.

(j) This is a significant cost driver and runs counter to Better Buying Power.

(k) FAR 52.215-20, the regulation that the proposed rule would replace, does not contain special rules for subcontracts.

(l) If the commercial item meets the Government's requirement and is determined to have a fair and reasonable price, there is little incentive for offeror's commercial subcontractors to provide “information necessary to support price reasonableness.” In a commercial marketplace, the Government's buying power or position is not significant enough to garner unique pricing data not customarily provided to commercial buyers.

(m) There is little justification to propose a DoD-unique subcontract price evaluation requirement as part of a rule to address Congressional direction on standards and limitations of cost data to support commercial pricing at the prime contract level.

The respondent further suggested that if the requirement for the offeror to provide data from subcontractors is retained, the final rule should exempt firm-fixed price contracts from this requirement.

Response: Section 831 of the NDAA for FY 2013 does not relieve prime contractors from their responsibility for exercising the same due diligence as DoD contracting officers in making subcontractor commercial item determinations and evaluating their subcontractors' price reasonableness.

36. Supporting information.

Comment: One respondent recommended deleting the ten-day requirement for offerors to provide additional information to support proposal analysis in the DFARS provision 252.215-7010(d)(4).

Response: The ten-day requirement is reasonable for offerors to provide additional data consistent with similar time limitations cited in the FAR and DFARS. Since the source selection process is time constrained, it is appropriate to impose a time limit on the provision of information to be considered in the source selection process.

37. Uncertified cost data.

Comment: One respondent asserted that the term “uncertified cost data” is inconsistent with the statutory language and recommended that the term be deleted from the rule.

Response: Section 831 of the NDAA for FY 2013 requires that standards be established for determining the extent of uncertified cost information that should be required in cases in which price information is not adequate for evaluating the reasonableness of price. Section 852 of the NDAA for FY 2016 further provides language on information submissions regarding the basis for price. The rule defines “uncertified cost data” as the subset of data other than certified cost or pricing data that relates specifically to cost data. The term “uncertified cost data” is included as a subset to reinforce that cost data may be requested as a last resort after pricing data has been determined to be insufficient to determine the price reasonableness. For consistency in terminology, this rule uses the term “uncertified cost data” in lieu of the term “uncertified cost information” as used in section 831.

Comment: One respondent stated that the language at DFARS 215.404-1 suggests a prohibition against obtaining other than certified cost or pricing data when there may only be a miniscule amount of nongovernment sales. The respondent suggested that the proposed rule should highlight instead that the Government should consider any cost data in its possession and seek additional cost data as permitted elsewhere in the regulations.

Response: The rule does not preclude the contracting officer from considering any cost data. DFARS 215.404-1 provides that if the contracting officer determines that the pricing information submitted is not sufficient to determine the price reasonableness, the contracting officer may request other relevant information, to include cost data. The language does not create a prohibition, but does provide a hierarchy that includes incorporation as to when to request other relevant information. Additional references within the rule, to include DFARS 212.209(d), provide that nothing in the section shall be construed to preclude the contracting officer from requiring the contractor to supply information that is sufficient to determine the reasonableness of the price. This would further reinforce that there is not a prohibition in place to restrict obtaining other than certified cost or pricing data when necessary to determine price reasonableness.

Comment: One respondent is concerned that the proposed rule leaves open a very favorite information shielding mechanism for contractors, insofar as it does not require contractors to disclose, in meaningful detail, the actual terms and conditions at which other buyers have acquired their commercial products. The respondent suggested that since information provided to the Government is protected from unwarranted disclosure under various federal procurement and data protection statutes, there is no valid reason why the regulations cannot require sharing of the actual commercial sales terms and conditions, as well as prices paid and identities of the purchasers.

Response: DoD agrees that that terms and conditions are frequently included in public websites and in catalogues for the prospective purchaser. Similarly, it is reasonable to require the offeror to provide terms and conditions as well as the price to support an informed and efficient decision by the contracting officer, whether the commercial procurement is competed or a sole source commercial acquisition. However, this comment is covered in DFARS 215.404-1(b)(iv) which states, “If the contracting officer determines that the pricing information submitted is not sufficient to determine the reasonableness of price, the contracting officer shall request other relevant information, to include cost data.”

38. Volume and completeness of transaction data.

Comment: One respondent recommended revising the definition of “Volume and completeness of transaction data” to remove the requirement to identify the customer as part of the key information. Further, the respondent recommended adding the phrase “to the extent it is reasonably available and can be released by the offeror.” Many commercial customer sales agreements contain non-disclosure provisions that restrict the seller's ability to disclose contract information, including customer identity, outside of the organization. These confidentiality provisions are extremely common in business-to-business agreements due to the fact that the identity of a business's suppliers and the prices paid to those suppliers is competitively sensitive information. A supplier may determine that price information may be disclosed so long as the customer's identity is not included with the disclosure, however requiring that both the price and the customer be identified puts the supplier at risk of violating contractual agreements with other customers. Using the phrase “released by the offeror” will allow the current practice of allowing the contracting officer to view un-redacted invoices (but not physically collect them) to ensure the data provided to the Government supports price reasonableness.

Response: The language states “customer” but does not state “customer name.” It is relevant to the contracting officer whether the customer is a commercial customer versus a Government customer. The subsequent paragraph provides further clarification that the DoD contracting officer needs to understand the type of customer. Nothing prohibits the current practice that the DoD contracting officer can travel onsite to review un-redacted invoices.

39. Out of scope comments.

Comment: One respondent commented on the affordability of technology. Another respondent stated that 100% of U.S. Government requirements should be purchased from U.S. small businesses.

Response: Both of these comments are beyond the scope of this rule.

The objective of this rule is to implement sections 851 through 853 and 855 through 857 of the NDAA for FY 2016 and section 831 of the NDAA for FY 2013. Sections 831, 851, and 853 address requirements related to commercial items. The statutes are silent on applicability to contracts for the acquisition of commercial items or commercially-available-off-the shelf (COTS) and do not provide for criminal or civil penalties. Therefore, sections 831, 851, and 853 do not apply to the acquisition of commercial items unless the Director, Defense Procurement and Acquisition Policy (DPAP) makes a written determination as provided in 41 U.S.C. 1906 to apply the statutes for commercial items and 41 U.S.C. 1907 for COTS items. Consistent with 41 U.S.C. 1906 and 1907, the Director, DPAP, has determined that it is in the best interest of DoD to apply sections 831, 851, and 853 to the acquisition of commercial items.

This final rule prescribes the use of a new DFARS provision 252.215-7010, to be used in lieu of FAR provision 52.215-20, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data. The new DFARS provision includes the existing requirement under FAR provision 52.215-20 for offerors to submit certified cost and pricing data and data other than certified cost or pricing data, as appropriate; however, the new DFARS provision adds levels of granularity to assist offerors in their proposal preparation with regards to “other than certified cost or pricing data” and implements a statutory exemption to the requirement for “certified cost or pricing data” for nontraditional defense contractors.

This rule will impact large businesses and small entities who currently compete on DoD solicitations issued using FAR part 15, Negotiation Procedures, and are valued at $750,000 or more. Offerors competing on contracts and orders subject to the new DFARS provision, will have the benefit of additional details on (and a hierarchy of) the types of “other than certified cost or pricing data” that they should consider including in their proposal. This information has the potential to improve the quality of proposals from businesses and reduce resubmissions of data during negotiations. In addition, this rule adds a statutory exemption from the requirement to submit “certified cost or pricing data” for nontraditional defense contractors, who may now “other than certified cost or pricing data,” which takes less time to prepare.

Finally, this rule also advises contracting officers that they may presume that a prior commercial item determination made another DoD component shall serve as a determination for subsequent procurements of such items, unless the contracting officer obtains a determination from the head of the contracting activity that the item is not commercial and the basis for that decision.

DoD has performed a regulatory cost analysis on this rule. The following is a summary of the estimated public cost savings in millions, which are calculated in 2016 dollars at a 3-percent and 7-percent discount rate:

To access the full Regulatory Cost Analysis for this rule, go to the Federal eRulemaking Portal at www.regulations.gov, search for “DFARS Case 2016-D006,” click “Open Docket,” and view “Supporting Documents.”

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

This final rule is considered to be an E.O. 13771 deregulatory action. Details on the estimated cost savings can be found in Section IV. of this rule.

A final regulatory flexibility analysis has been performed and is summarized as follows:

This rule amends the DFARS to provide additional guidance to contracting officers on making price reasonableness determinations, expand opportunities for nontraditional defense contractors to do business with DoD, and provide additional details on the types of “other than certified cost or pricing data” that offerors should include in their proposal in order to for the purposes of determining whether proposed prices for commercial items are fair and reasonable. The objective of this rule is to implement the requirements of sections 851 through 853 and 855 through 857 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Pub. L. 114-92, enacted November 25, 2015), as well as the requirements of section 831 of the NDAA for FY 2013 (Pub. L. 112-239, enacted January 2, 2013) and section 848 of the NDAA for FY 2018 (Pub. L. 115-91, enacted December 12, 1017).

There were no significant issues raised by the public in response to the initial regulatory flexibility analysis.

This rule will apply to contractors that compete for contracts being awarded using FAR part 15 Negotiation procedures that are valued at $750,000 or more. According to data available in the Federal Procurement Data System for FY 2016, DoD awarded approximately 6,865 contracts meeting this criteria to 5,105 unique contractors, of which 4,544 contracts (~66 percent) were to 3,536 (~70 percent) unique small businesses.

DoD does not expect this rule to have a significant impact on the small businesses that may be affected by this rule, because the rule does not add to or remove any of the existing requirements for the submission of other than certified cost or pricing data for the purpose of determining the reasonableness of prices proposed for commercial items. Rather the rule provides offerors additional details and a hierarchy of the “other than certified cost or pricing data” that should be included in their proposals. This additional detail could reduce the amount of time it takes a small business resubmit data during negotiations. In addition, the exception to “certified cost or pricing data” for nontraditional defense contractors would be of benefit to small businesses that meet the definition.

There are no significant alternative approaches to the rule that would meet the requirements of the statute.

The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

Therefore, 48 CFR parts 202, 212, 215, 234, 239, and 252 are amended as follows:

I. Background

This final rule implements the November 20, 2017, designation by the Department of State of North Korea as a state sponsor of terrorism, in accordance with section 6(j)(1)(A) of the Export Administration Act of 1979. A state sponsor of terrorism is a country, the government of which has repeatedly provided support for acts of international terrorism. The Department of State previously designated North Korea as a state sponsor of terrorism in January 1988, but rescinded the designation in October 2008. Consistent with the November 20, 2017, action, North Korea is added to the list of countries that are state sponsors of terrorism in the definition of “state sponsor of terrorism” in paragraph (a) of the provisions at DFARS 252.225-7049, Prohibition on Acquisition of Commercial Satellite Services from Certain Foreign Entities—Representation; and DFARS 252.225-7050, Disclosure of Ownership or Control by the Government of a Country that is a State Sponsor of Terrorism. The provision at DFARS 252.225-7050 implements 10 U.S.C. 2327, which prohibits DoD from entering into a contract with a firm that is owned or controlled by the government of a country that is a state sponsor of terrorism. The provision at 252.225-7049 implements 10 U.S.C. 2279, which restricts acquisitions of commercial satellite services from any entity—

• Owned by the government of a covered foreign country (China, North Korea, or any state sponsor of terrorism); or

• Planning or expected to provide or use launch or other satellite services under the contract from a covered foreign country.

This rule only updates the list of countries that are state sponsors of terrorism in the definition of “state sponsors of terrorism” in paragraph (a) of the DFARS provisions 252.225-7049, Prohibition on Acquisition of Commercial Satellite Services from Certain Foreign Entities—Representation; and DFARS 252.225-7050, Disclosure of Ownership or Control by the Government of a Country that is a State Sponsor of Terrorism. This revision does not impact use of clauses, their applicability to contracts or subcontracts valued at or below the simplified acquisition threshold, or their applicability to contracts or subcontracts for the acquisition of commercial items.

Executive Orders (E.O.) 12866, Regulatory Planning and Review, and E.O. 13563, Improving Regulation and Regulatory Review, direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

This rule is not subject to the requirements of E.O. 13771, because the rule is issued with respect to a national security function of the United States.

The statute that applies to the publication of the Federal Acquisition Regulation (FAR) is codified at Title 41 of the United States Code (formerly known as the Office of Federal Procurement Policy Act). Specifically, 41 U.S.C 1707(a)(1) requires that a procurement policy, regulation, procedure, or form (including an amendment or modification thereof) must be published for public comment if it relates to the expenditure of appropriated funds, and has either a significant effect beyond the internal operating procedures of the agency issuing the policy, regulation, procedure or form, or has a significant cost or administrative impact on contractors or offerors. This final rule is not required to be published for public comment, because it only adds North Korea to the list of countries that fall within the DFARS definition of “state sponsors of terrorism,” consistent with the November 20, 2017, designation of the country by the Secretary of State. These requirements affect only the internal operating procedures of the Government.

Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule under 41 U.S.C. 1707(a)(1) (see section V. of this preamble), the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) are not applicable. Accordingly, no regulatory flexibility analysis is required and none has been prepared.

The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply. However, the changes to these DFARS provisions, do not impose additional information collection requirements or change the burden under two currently approved collections—OMB Control Number 0704-0525, entitled “Foreign Commercial Satellite Services,” and OMB Control Number 0704-0187, entitled “Information Collection in Support of the DoD Acquisition Process (Various Miscellaneous Requirements).”

Therefore, 48 CFR part 252 is amended as follows: