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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 15, 2003

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Payment Withholding

SOURCE: Federal Register, December 15, 2003, Vol. 68, No. 240, page 69631

AGENCIES: Department of Defense (DOD)

ACTION: Final Rule

SYNOPSIS: DOD is amending the DFARS to provide additional flexibility when determining the need to withhold payments under time-and-materials and labor-hour contracts. The rule clarifies that there should be no need to withhold payments from a contractor with a record of timely submittal of releases discharging the government from all liabilities, obligations, and claims under its contracts.

EDITOR'S NOTE: For more on the proposed rule, see the February 28, 2003, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Payment Withholding."

EFFECTIVE DATE: December 15, 2003.

FOR FURTHER INFORMATION CONTACT: Thaddeus Godlewski, Defense Acquisition Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; 703-602-2022; fax: 703-602-0350.

SUPPLEMENTAL INFORMATION: FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, requires the contracting officer to withhold 5% of the amounts due, up to a maximum of $50,000, unless otherwise specified in the contract schedule. The government retains the withheld amount until the contractor executes and delivers, at the time of final payment, a release discharging the government from all liabilities, obligations, and claims arising under the contract.

On February 28, 2003, DOD published a proposed rule that would add DFARS 252.232-7006, Alternate A, which would consist of a substitute paragraph (a)(2) for FAR 52.232-7(a)(2). Alternate A would permit the administrative contracting officer (ACO) to withhold 5% of the amount due until a reserve is set aside in an amount the ACO considers to be necessary, but not to exceed $50,000, to protect the government's interests. The amounts withheld would be retained until the contractor executes and delivers the release discharging the government from all liabilities, obligations, and claims under the contract.

In addition, the proposed rule would amend DFARS 232.111, Contract Clauses for Non-Commercial Purchases, to add the prescription for DFARS 252.232-7006 as paragraph (b). Besides prescribing when to use DFARS 252.232-7006, DFARS 232.111 would state, "Normally, there should be no need to withhold payment for a contractor with a record of timely submittal of the release discharging the government from all liabilities, obligations, and claims."

Five respondents submitted comments on the proposed rule. As a result of these comments, DFARS 232.111(b)(iii) is revised. Proposed (b)(iii) stated "If the ACO determines that it is necessary to withhold payment to protect the Government's interests, the ACO shall issue written direction to the contractor to withhold 5 percent of amounts due until a sufficient reserve is set aside." The final version of paragraph (b)(iii) states, "If the ACO determines that it is necessary to withhold payment to protect the Government's interests, the ACO shall unilaterally issue a modification requiring the contractor to withhold 5 percent of amounts due, up to a maximum of $50,000. The ACO shall ensure that the modification specifies the percentage and total amount of the withhold."

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

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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