PART 3—TRANSACTIONS OTHER THAN CONTRACTS, GRANTS, OR COOPERATIVE AGREEMENTS FOR PROTOTYPE PROJECTS Authority: Sec. 845, Pub. L. 103-160, 107 Stat. 1547, as amended. Source: 66 FR 57383, Nov. 15, 2001, unless otherwise noted. § 3.1 Purpose. This part consolidates rules that implement section 845 of the National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, 107 Stat. 1547, as amended, and have a significant impact on the public. Section 845 authorizes the Secretary of a Military Department, the Director of Defense Advanced Research Projects Agency, and any other official designated by the Secretary of Defense, to enter into transactions other than contracts, grants, or cooperative agreements in certain situations for prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department of Defense. [67 FR 54956, Aug. 27, 2002] § 3.2 Background. “Other transactions” is the term commonly used to refer to the 10 U.S.C. 2371 authority to enter into transactions other than contracts, grants or cooperative agreements. “Other transactions” are generally not subject to the Federal laws and regulations limited in applicability to contracts, grants or cooperative agreements. As such, they are not required to comply with the Federal Acquisition Regulation (FAR) and its supplements (48 CFR). [67 FR 54956, Aug. 27, 2002] § 3.3 Applicability. This part applies to the Secretary of a Military Department, the Directors of the Defense Agencies, 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, under authority of 10 U.S.C. 2371. Such transactions are commonly referred to as “other transaction” agreements and are hereafter referred to as agreements. [65 FR 35576, June 5, 2000. Redesignated at 67 FR 54956, Aug. 27, 2002] § 3.4 Definitions. Agency point of contact (POC). Agreements Officer. Approving Official. Awardee. Business unit. Contracting activity. Contracting Officer. Cost-type OT. Fixed-price type OT. Head of the contracting activity (HCA). Nontraditional Defense contractor. Procurement contract. Project Manager. Qualified Independent Public Accountant. Segment. Senior Procurement Executive. (1) Department of the Army—Assistant Secretary of the Army (Acquisition, Logistics and Technology); (2) Department of the Navy—Assistant Secretary of the Navy (Research, Development and Acquisition); (3) Department of the Air Force—Assistant Secretary of the Air Force (Acquisition). (4) The Directors of Defense Agencies who have been delegated authority to act as Senior Procurement Executive for their respective agencies. Single Audit Act. Subawardee. Traditional Defense contractor. [68 FR 27457, May 20, 2003, as amended at 69 FR 16482, Mar. 30, 2004] § 3.5 Appropriate use. In accordance with statute, this authority may be used only when: (a) At least one nontraditional Defense contractor is participating to a significant extent in the prototype project; or (b) No nontraditional Defense contractor is participating to a significant extent in the prototype project, but at least one of the following circumstances exists: (1) At least one third of the total cost of the prototype project is to be paid out of funds provided by non-Federal parties to the transaction. (2) The Senior Procurement Executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a procurement contract. [67 FR 54956, Aug. 27, 2002] § 3.6 Limitations on cost-sharing. (a) When a nontraditional Defense contractor is not participating to a significant extent in the prototype project and cost-sharing is the reason for using OT authority, then the non-Federal amounts counted as provided, or to be provided, by the business units of an awardee or subawardee participating in the performance of the OT agreement may not include costs that were incurred before the date on which the OT agreement becomes effective. Costs that were incurred for a prototype project by the business units of an awardee or subawardee after the beginning of negotiations, but prior to the date the OT agreement becomes effective, may be counted as non-Federal amounts if and to the extent that the Agreements Officer determines in writing that: (1) The awardee or subawardee incurred the costs in anticipation of entering into the OT agreement; and (2) It was appropriate for the awardee or subawardee to incur the costs before the OT agreement became effective in order to ensure the successful implementation of the OT agreement. (b) As a matter of policy, these limitations on cost-sharing apply any time cost-sharing may be recognized when using OT authority for prototype projects. [67 FR 54956, Aug. 27, 2002] § 3.7 Comptroller General access. (a) A clause must be included in solicitations and agreements for prototype projects awarded under authority of 10 U.S.C. 2371, that provide for total government payments in excess of $5,000,000 to allow Comptroller General access to records that directly pertain to such agreements. (b) The clause referenced in paragraph (a) of this section 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 agreements described in paragraph (a) of this section 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, 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 agreement under paragraph (a) of this part, 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 transactions that were entered into under 10 U.S.C. 2371 or Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note). (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. (d) The head of the contracting activity (HCA) that is carrying out the agreement may waive the applicability of the Comptroller General access requirement if the HCA determines it would not be in the public interest to apply the requirement to the agreement. The waiver will be effective with respect to the agreement only if the HCA transmits a notification of the waiver to the Committees on Armed Services of the Senate and the House of Representatives, the Comptroller General, and the Director, Defense Procurement before entering into the agreement. The notification must include the rationale for the determination. (e) The HCA must notify the Director, Defense Procurement of situations where there is evidence that the Comptroller General Access requirement caused companies to refuse to participate or otherwise restricted the Department's access to companies that typically do not do business with the Department. (f) In no case will the requirement to examine records under the clause referenced in paragraph (a) of this section apply to an agreement where more than three years have passed after final payment is made by the government under such an agreement. (g) The clause referenced in paragraph (a) of this section, must provide for the following: (1) The Comptroller General of the United States, in the discretion of the Comptroller General, shall have access to and the right to examine records of any party to the agreement or any entity that participates in the performance of this agreement that directly pertain to, and involve transactions relating to, the agreement. (2) Excepted from the Comptroller General access requirement is any party to this agreement or any entity that participates in the performance of the agreement, or any subordinate element of such party or entity, that, in the year prior to the date of the agreement, has not entered into any other contract, grant, cooperative agreement, or “other transaction” agreement that provides for audit access to its records by a government entity. (3)(A) The right provided to the Comptroller General is limited as provided in subparagraph (B) in the case of a party to the agreement, any 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 transactions that were entered into under 10 U.S.C. 2371 or Section 845 of the National Defense Authorization Act for Fiscal Year 1994 (Pub. L. 103-160; 10 U.S.C. 2371 note). (B) The only records of a party, other entity, or subordinate element referred to in subparagraph (A) 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 agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element. (4) This clause shall not be construed to require any party or entity, or any subordinate element of such party or entity, that participates in the performance of the agreement, to create or maintain any record that is not otherwise maintained in the ordinary course of business or pursuant to a provision of law. (5) The Comptroller General shall have access to the records described in this clause until three years after the date the final payment is made by the United States under this agreement. (6) The recipient of the agreement shall flow down this provision to any entity that participates in the performance of the agreement. [65 FR 35576, June 5, 2000. Redesignated at 67 FR 54956, Aug. 27, 2002] § 3.8 DoD access to records policy. (a) Applicability. (1) Fixed-price type OT agreements. General (ii) Termination considerations. (2) Cost-type OT agreements. Single Audit Act (ii) Traditional Defense contractors. (iii) Nontraditional Defense contractors. (iv) DoD access below threshold. (v) Examples of cost-type OT agreements. (B) An agreement that includes payable milestones, but provides for adjustment of the milestone amounts based on actual costs or reports generated from the awardee's financial or cost records. (C) An agreement that is for a fixed-Government amount, but the agreement provides for submittal of financial or cost records/reports to determine whether additional effort can be accomplished for the fixed amount. (3) Subawardees. (b) Exceptions Nontraditional Defense contractors (ii) The Agreements Officer will document: (A) What aspect of the audit policy was not applied; (B) Why it was problematic; (C) What means will be used to protect the Government's interest; and (D) Why the benefits of deviating from the policy outweigh the potential risks. (iii) This determination will be reviewed by the approving official as part of the pre-award approval of the agreement and submitted to the agency POC within 10 days of award. (iv) The agency POC will forward all such documentation received in any given fiscal year, to the Director, Defense Procurement by 15 October of each year. (2) Traditional Defense contractor. (ii) Additionally, the justification will document: (A) What aspect of the policy was not applied; (B) Why it was problematic; (C) What means will be used to protect the Government's interest; and (D) Why the benefits of deviating from the policy outweigh the potential risks. (iii) The HCA will forward documentation associated with such waivers in any given fiscal year, to the Director, Defense Procurement by 15 October of each year. (3) DoD access below the threshold. (4) Flow down provisions. (c) Content of DoD access to records clause. (1) Frequency of audits. (2) Means of accomplishing audits. Business units subject to the Single Audit Act (ii) Business units not subject to the Single Audit Act currently performing on procurement contracts. (iii) Other business units. (A) The IPA will perform the audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). Electronic copies of the standards may be accessed at www.gao.gov. www.gpo.gov (B) The Agreements Officers' authorized representative has the right to examine the IPA's audit report and working papers for 3 years after final payment or three years after issuance of the audit report, whichever is later, unless notified otherwise by the Agreements Officer. (C) The IPA will send copies of the audit report to the Agreements Officer and the Assistant Inspector General (Audit Policy and Oversight) [AIG(APO)], 400 Army Navy Drive, Suite 737, Arlington, VA 22202. (D) The IPA will report instances of suspected fraud directly to the DoDIG. (E) The Government has the right to require corrective action by the awardee or subawardee if the Agreements Officer determines (subject to appeal under the disputes clause of the agreement) that the audit has not been performed or has not been performed in accordance with GAGAS. The Agreements Officer should take action promptly once the Agreements Officer determines that the audit is not being accomplished in a timely manner or the audit is not performed in accordance with GAGAS but generally no later than twelve (12) months of the date requested by the Agreements Officer. The awardee or subawardee may take corrective action by having the IPA correct any deficiencies identified by the Agreements Officer, having another IPA perform the audit, or electing to have the Government perform the audit. If corrective action is not taken, the Agreements Officer has the right to take one or more of the following actions: ( 1 ( 2 ( 3 (F) If it is found that the awardee or subawardee was performing a procurement contract subject to Cost Principles Applicable to Commercial Organizations (48 CFR part 31.2) and/or Cost Accounting Standards (48 CFR part 99) at the time of agreement award, the Agreements Officer, or an authorized representative, has the right to audit records of the awardee or subawardee to verify the actual costs or reporting information used as the basis for payment or to verify statutorily required cost share under the agreement, and the IPA is to be paid by the awardee or subawardee. The cost of an audit performed in accordance with this policy is reimbursable based on the business unit's established accounting practices and subject to any limitations in the agreement. (3) Scope of audit. (4) Length and extent of access Clauses that do not provide for use of an IPA. (ii) Clauses that provide for use of an IPA to perform the audits. (A) Provide the Agreements Officer's authorized representative access to the IPA's audit reports and working papers to ensure that the IPA has performed the audit in accordance with GAGAS. (B) State that the Government will make copies of contractor records contained in the IPA's work papers if needed to demonstrate that the audit was not performed in accordance with GAGAS. (C) State that the Government has no direct access to any awardee or subawardee records unless it is found that the awardee or subawardee was performing a procurement contract subject to Cost Principles (48 CFR part 31) and/or Cost Accounting Standards (48 CFR part 99) at the time of agreement award. (iii) Business Units subject to the Single Audit Act. (iv) Record Retention/Period of Access. (5) Awardee flow down responsibilities. (d) DoDIG and GAO access. [68 FR 27457, May 20, 2003] § 3.9 Follow-on production contracts. (a) Authority. (b) Conditions. (1) Ensure non-Federal parties to the OT prototype agreement offer at least one-third of the costs of the prototype project pursuant to subsection (d)(1)(B)(i), 10 U.S.C. 2371 note. (2) Use competition to select parties for participation in the OT prototype agreement and evaluate the proposed quantity and target prices for the follow-on production units as part of that competition. (3) Determine the production quantity that may be procured without further competition, by balancing of the level of the investment made in the project by the non-Federal parties with the interest of the Federal Government in having competition among sources in the acquisition of the product or products prototyped under the project. (4) Specify the production quantity and target prices in the OT prototype agreement and stipulate in the agreement that the Contracting Officer for the follow-on contract may award a production contract without further competition if the awardee successfully completes the prototype project and agrees to production quantities and prices that do not exceed those specified in the OT prototype agreement ( see (c) Limitation. (d) Documentation. (2) The information shall contain, at a minimum: (i) The competitive procedures used; (ii) How the production quantities and target prices were evaluated in the competition; (iii) The percentage of cost-share; and (iv) The production quantities and target prices set forth in the OT agreement. (3) The Project Manager will provide evidence of successful completion of the prototype project to the Contracting Officer. [69 FR 16482, Mar. 30, 2004]