IV.  Regulatory Flexibility Act

DoD does not expect this final rule to have a significant economic impact on small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. However, DoD has prepared a final regulatory flexibility analysis consistent with 5 U.S.C. 604 which is summarized below. A copy of the analysis may be obtained from the point of contact.

On May 22, 2008, the DoDIG issued the results of an audit Report No. D-2008-098, entitled "Internal Controls Over Payments Made in Iraq, Kuwait, and Egypt." The audit cited inconsistencies in FAR 32.9, DFARS 232.9, and 5 CFR in regard to compliance with the Prompt Payment Act for military contingency operations. The audit further recommended that DoD establish procedures to address contingency operations.

During emergencies and contingency operations, the operational area can be so fluid and dynamic that carrying out normal business practices can be extremely challenging. It is necessary for the Head of the Contracting Activity (HCA) to have the authority to appropriately respond to emergency and contingency operations accordingly whenever limited operational conditions exist. This includes the payment of contractors.

This final rule takes advantage of the exemption provided by OMB implementation of the Prompt Payment Act, which exempts military contingencies. This rule allows the HCA to make a determination of whether or not stable business operations exist in theater to allow the Prompt Payment Act to apply in an emergency and contingency operation. If stable conditions don't exist, then the HCA is authorized to apply the clause at 252.232-7011, Payments in Support of Emergencies and Contingency Operations. When this clause is invoked, it will be used instead of one of the payment clauses at FAR 52.232-25, 52.232-26, or 52.232-27. DFARS 232.901 will require the HCA to make subsequent determinations as the operational area evolves into a more stable environment to enable the provisions of the Prompt Payment Act to apply. It will also require the contracting officer to notify, by contract modification, each contractor that has a contract containing DFARS clause 252.232.7011, that it is no longer applicable, and the applicable FAR Prompt Payment clause in the contract applies.

No significant issues were raised by the public in response to the initial regulatory flexibility analysis.

This rule is expected to have a minimal economic impact on a relatively small number of small business entities. It is anticipated that the rule could initially be applied to contracts supporting Afghanistan. As of today, normal business operations are hindered in Afghanistan due to the uncertain environment and instability in the region. It may be impractical for U.S. forces to adequately match receipt of necessary supporting documentation (i.e., contract, invoice, and receiving report) in such an operational area. It is expected the HCA for Afghanistan could exempt "payments made in the theater of operations" from Prompt Payment Act interest and interest penalties.

In the preparation of the interim rule, a review of Federal Procurement Data Systems data for FY08 showed that of the 140 awards made to U.S. firms, only 21 were made to small business entities. This total represents 15 percent of all awards made during this time period. Therefore, the overall impact of the rule is not expected to have a significant aggregate economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. However, a regulatory flexibility analysis was completed because there is an economic impact to consider.

There is no reporting requirement established by this rule. There are no significant alternatives which accomplish the stated objectives. This rule will allow DoD to utilize the exemptions provided by OMB implementation of the Prompt Payment Act, which exempts military contingencies.