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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: February 28, 2003

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

SOURCE: Federal Register, February 28, 2003, Vol. 68, No. 40, page 9627

AGENCIES: Department of Defense (DOD)

ACTION: Proposed Rule

SYNOPSIS: DOD is proposing to amend the DFARS to remove the requirement that a contracting officer withhold 5% of the payments due under a time-and-materials or labor-hour contract unless otherwise prescribed in the contract.

DATES: Comments on the proposed rule must be submitted no later than April 29, 2003.

ADDRESSES: Respondents may submit comments directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. As an alternative, respondents may e-mail comments to: dfars@acq.osd.mil. Also, respondents who cannot submit comments through the web site or by e-mail may submit comments to Defense Acquisition Regulations Council, Attn: Sandra Haberlin, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062, or by fax to 703-602-0350. Cite "DFARS Case 2002-D017" when making comments on this proposed rule.

FOR FURTHER INFORMATION CONTACT: Sandra Haberlin, 703-602-0289.

SUPPLEMENTAL INFORMATION: Federal Acquisition Regulation (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.

This rule proposes to add DFARS 252.232-7XXX, Alternate A, which would provide 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.

Also, the prescription for DFARS 252.232-7XXX would be added as DFARS 232.111, Contract Clauses for Non-Commercial Purchases. In addition to describing when to use DFARS 252.232-7XXX, 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."

In the introduction to the proposed rule, DOD says it is "considering revising its policy because the current withholding provisions are administratively burdensome and may, in some situations, result in the withholding of amounts that exceed reasonable amounts needed to protect the government's interests. In addition, the contractor is already incentivized to execute and deliver the release discharging the government from all liabilities, obligations, and claims under the contract, since this release is a condition for final payment."

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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