DoD Issues Final DFARS Rules On Nondisclosure Agreements, Fixed-Price Contract Preferences, and Contract Pricing

On October 28, 2022, the U.S. Department of Defense (DoD) issued several final rules that made changes to its regulations in the Defense Federal Acquisition Regulation Supplement (DFARS).  In this edition of The GovCon Bulletin,™ we discuss briefly the Final Rules that made changes to regulations addressing nondisclosure agreements, DoD's preference for fixed-price contracts, and considerations of contract pricing by contracting officers.

DoD Rule Prohibiting Certain Nondisclosure Agreements Becomes Final

As we wrote about in a prior GovCon Bulletin, in June 2022, the U.S. Department of Defense (DoD) issued a Proposed Rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) in order to prohibit DoD agencies from making contract awards to entities that request that their employees sign confidentiality agreements that prohibit or restrict them from reporting waste, fraud, or abuse to a designated DoD representative authorized to receive this information.  As we also stated in that GovCon Bulletin, the regulation at Federal Acquisition Regulation (FAR) at 3.909-1, which applies Government-wide, already prohibits the federal government from contracting with entities that require employees or subcontractors to sign confidentiality agreements restricting them from reporting waste, fraud, or abuse to a designated federal agency investigative or law enforcement representative authorized to receive such information.  Consequently, the Proposed Rule imposed no new requirements on DoD agencies.

More recently, on October 28, 2022, DoD issued a Final Rule that implements the DFARS changes of the Proposed Rule without any alteration.

The Final Rule became effective immediately.

DoD Repeals Preference For Fixed-Price Contracts

In another Final Rule that was issued on October 28, 2022, DoD repealed a preference for fixed-price contracts that was implemented into DFARS in November 2019.  Specifically, a rule issued in November 2019 required contracting officers to first consider fixed-price contracts when determining contract type and to obtain approval from the head of the contracting activity for cost-reimbursement contracts in excess of $25 million awarded on or after October 1, 2019.   

The Final Rule issued more recently, which also became effective immediately, removes all language in DFARS that implemented this preference for fixed-price contracts.

DoD Amends Regulations On Contract Pricing 

On October 28, 2022, DoD issued a Final Rule that made certain changes to how contracting officers assess contract pricing. In particular, the rule amends DFARS 215.403-3 to add a provision that prohibits a contracting officer from making a determination of whether the price of a contract or subcontract is fair and reasonable based solely on historical prices paid by the Government.

Addressing questions raised by commenters, DoD explained in the preamble that the Final Rule does not prohibit contracting officers from utilizing prior cost or price analyses; nor does it prohibit contracting officers from using historical prices paid by the Government to determine prices fair and reasonable.  Rather, the Final Rule prohibits contracting officers from determining the price of a contract to be fair and reasonable based solely on historical prices paid by the Government.  The Final Rule makes conforming changes to DFARS 215.404-1 by requiring consideration of contract pricing using multiple factors.

The Final Rule also makes changes concerning a contractor’s failure to comply with requests for pricing data.  Under FAR 15.403-3(a)(4), which applies generally to all contracts including to DoD contracts, an offeror that does not comply with a requirement to submit contract or subcontract data is ineligible for an award unless the head of the contracting activity determines it is in the best interest of the Government to make the award based on certain criteria.  The Final Rule adds a provision in DFARS 215.403-3 reiterating that an award can be made to an offeror that does not make a good faith effort to comply with a reasonable request to submit pricing data if the head of the contracting activity determines it is in the best interest of the Government to make the award. The Final Rule, however, substitutes the criteria under FAR for making this determination with other criteria that DoD presumably believes is more applicable to DoD agencies.

Lastly, the Final Rule amends DFARS 242.1502(g) to add the requirement that, unless exempted by the head of the contracting agency, a notation is required in the Contractor Performance Assessment Reporting System (CPARS) that, despite receiving an award, the contractor has denied multiple requests for submission of pricing data over the preceding three-year period.

This Final Rule also became effective on October 28, 2022.