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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: November 15, 2001

SUBJECT: Department of Defense; Comptroller General Access to Records for Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects

SOURCE: Federal Register, November 15, 2001, Vol. 66, No. 221, page 57381

AGENCIES: Department of Defense (DOD)

ACTION: DOD is finalizing, with changes, an interim rule that requires inclusion of a clause providing for Comptroller General access to records in transactions other than contracts, grants, or cooperative agreements for prototype projects ("other transactions") in excess of $5,000,000.

EDITOR'S NOTE: For more on the interim rule, see the June 5, 2000, FEDERAL CONTRACTS DISPATCH "Defense of Defense; Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects."

DATES: This final rule is effective December 17, 2001, and will apply for solicitations issued on or after that date, though it may be used for new prototype awards that result from solicitations issued prior to that date.

FOR FURTHER INFORMATION CONTACT: Teresa Brooks, 703-695-8567.

SUPPLEMENTAL INFORMATION: Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Public Law 103-160) authorized the secretary of a military department, the director of Defense Advanced Research Projects Agency (DARPA), and any other official designated by the Secretary of Defense, to enter into "transactions other than contracts, grants or cooperative agreements for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense." These are commonly referred to as "other transactions," and they are generally exempt from all the statutes and regulations that govern federal contracts and grants. The purpose of "other transactions" is to overcome the reluctance of many firms with significant technological advances and innovations to share their innovations with the government because of the significant statutory and regulatory requirements involved in government contracts and grants. When using "other transactions," DOD contracting officials are not required to include standard contract provisions that typically address such issues as financial management or intellectual property rights, but may structure the agreements as they consider appropriate.

Section 801 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65) established a requirement that an "other transaction" agreement for a prototype project that "provides for payments in a total amount in excess of $5,000,000 shall include a clause that provides for the Comptroller General...to examine the records of any party to the agreement or any entity that participates in the performance of the agreement." Since "other transactions" have been exempt from all federal contract and grant statutes and regulations, the requirement in Section 801 is the first statutory requirement mandating conditions that had to be included in an "other transactions" agreement. Therefore, on June 5, 2000, DOD added to Title 32 of the Code of Federal Regulations (CFR), Chapter 1, Office of the Secretary of Defense, a Part 3, Transactions Other Than Contracts, Grants, or Cooperative Agreements for Prototype Projects, to implement the Section 801 requirement as an interim rule, and invited comments by July 5, 2000.

Comments were received from one respondent. The respondent cited a September 13, 1999, letter from the Under Secretary of Defense for Acquisition and Technology stating that DOD was considering issuing guidance for prototype other transactions in the form of a DOD directive. The respondent expressed concern that there may be multiple and potentially inconsistent guidance between the DOD directive and the DOD regulations, and the respondent urged DOD to consolidate guidance regarding these agreements to avoid redundant and potentially inconsistent guidance. Because of this comment, DOD plans for 32 CFR Chapter 1, Part 3 to be incorporated in its entirety as an appendix to internal DOD guidance.

On October 30, 2000, the president signed Public Law 106-398, the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001. It contained Section 804, Clarification of Authority of Comptroller General to Review Records of Participants in Certain Prototype Projects, which stated that "the right provided to the Comptroller General...is limited...in the case of a party to the agreement, an entity that participates in the performance of the agreement, or a subordinate element of that party or entity if the only agreements or other transactions that the party, entity, or subordinate element entered into with government entities in the year prior to the date of that agreement are cooperative agreements or [other] transactions...The only records of a party, other entity, or subordinate element...that the Comptroller General may examine...are records of the same type as the records that the government has had the right to examine under the audit access clauses of the previous agreements or [other] transactions...that were entered into by that particular party, entity, or subordinate element."

To implement this clarification, this final rule amends Section 3.4, Policy, to add the following language:

      (b) The clause...will not apply with respect to a party or entity, or subordinate element of a party or entity, that has not entered into any other contract, grant, cooperative agreement or "other transaction" agreement that provides for audit access by a government entity in the year prior to the date of the agreement. The clause must be included in all [other transaction] agreements...in order to fully implement the law by covering those participating entities and their subordinate elements which have entered into prior agreements providing for government audit access, and are therefore not exempt. The presence of the clause in an agreement will not operate to require Comptroller General access to records from any party or participating entity, or subordinate element of a party or participating entity, which is otherwise exempt under the terms of the clause and the law.
      (c)(1) The right provided to the Comptroller General in a clause of an [other transaction] agreement...is limited as provided by subparagraph (c)(2) of this part in the case of a party to the agreement, an entity that participates in the performance of the agreement, or a subordinate element of that party or entity, if the only cooperative agreements or "other transactions" that the party, entity, or subordinate element entered into with government entities in the year prior to the date of that agreement are cooperative agreements or [other] transactions...
      (c)(2) The only records of a party, other entity, or subordinate element referred to in subparagraph (c)(1) of this part that the Comptroller General may examine in the exercise of the right referred to in that subparagraph, are records of the same type as the records that the government has had the right to examine under the audit access clauses of the previous cooperative agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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