issue-1996-10-07•Federal Register final rules — 1996-10-07
Federal Register final rules — 1996-10-07
issue-1996-10-07Federal Register final rules — 1996-10-07Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-25815 Adoption of Updated EDGAR Filer Manual
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52283-52285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25815]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 232
[Release Nos. 33-7351; 34-37774; 35-26585; 39-2343; IC-22257]
RIN 3235-AG96
Adoption of Updated EDGAR Filer Manual
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting an updated edition of the EDGAR Filer Manual and is providing
for its incorporation by reference into the Code of Federal
Regulations.
EFFECTIVE DATE: The amendment to 17 CFR part 232 (Regulation S-T) will
be effective on October 7, 1996. The new edition of the EDGAR Filer
Manual (Release 5.10) will be effective on October 7, 1996. The
incorporation by reference of the EDGAR Filer Manual is approved by the
Director of the Federal Register as of October 7, 1996.
[[Page 52284]]
FOR FURTHER INFORMATION CONTACT: In the Office of Information
Technology, David T. Copenhafer at (202) 942-8800; for questions
concerning investment company filings, Ruth Armfield Sanders, Senior
Counsel, Division of Investment Management, at (202) 942-0591.
SUPPLEMENTARY INFORMATION: The Commission today announces the adoption
of an updated EDGAR Filer Manual (``Filer Manual''), which sets forth
the technical formatting requirements governing the preparation and
submission of electronic filings through the Electronic Data Gathering,
Analysis, and Retrieval (``EDGAR'') system.\1\ Compliance with the
provisions of the Filer Manual is required in order to assure the
timely acceptance and processing of filings made in electronic
format.\2\ Filers should consult the Filer Manual in conjunction with
the Commission's rules governing mandated electronic filing when
preparing documents for electronic submission.\3\ In this update,
notice is provided to filers concerning the change in electronic filing
requirements resulting from the elimination of fees previously adopted
by the Commission under the Independent Offices Appropriations Act of
1952 (``IOAA'').\4\
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\1\ The Filer Manual originally was adopted on April 1, 1993,
and became effective on April 26, 1993. Release No. 33-6986 (April
1, 1993) [58 FR 18638]. The most recent update to the Filer Manual
was adopted in Release No. 33-7241 (November 13, 1995) [60 FR
57682].
\2\ See Rule 301 of Regulation S-T (17 CFR 232.301).
\3\ See Release Nos. 33-6977 (February 23, 1993) [58 FR 14628],
IC-19284 (February 23, 1993) [58 FR 14848], 35-25746 (February 23,
1993) [58 FR 14999], and 33-6980 (February 23, 1993) [58 FR 15009]
for a comprehensive treatment of the rules adopted by the Commission
governing mandated electronic filing. See also Release No. 33-7122
(December 19, 1994) [59 FR 67752], in which the Commission made the
EDGAR rules final and applicable to all domestic registrants and
adopted minor amendments to the EDGAR rules, and Release No. 33-
7241, in which the Commission adopted the most recent update to the
Filer Manual and additional minor technical amendments to the EDGAR
rules.
\4\ 31 U.S.C. 9701. See Release No. 33-7331 (September 17, 1996)
[61 FR 49957], adopting, and Release No. 33-7293 (May 16, 1996) [61
FR 25601], proposing, the fee elimination.
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In addition, several submission types have been added to
accommodate existing rules. Specifically, new EDGAR submission type
``POS 8C'' has been added to accommodate filings of post-effective
amendments under the Securities Act of 1933 (the ``Securities Act'')
\5\ by certain investment companies. This submission type is to be used
by investment companies whose registration statements are filed on
Forms N-2 and N-5 for the submission of post-effective amendments under
the Securities Act, or for post-effective amendments under both the
Securities Act and the Investment Company Act of 1940.\6\ Also added
for investment companies are submission types ``485BXT,'' ``485BXTE,''
and ``485BXTF.'' These three submission types are to be used by open-
end investment companies submitting filings under Securities Act rule
485(b)(1)(v) to designate new effective dates for filings previously
made under Securities Act rule 485(a).\7\
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\5\ 15 U.S.C. 77a et seq.
\6\ 15 U.S.C. 80a-8, 80a-29, 80a-30 and 80a-37.
\7\ See Release Nos. IC-20486 (August 17, 1994) [59 FR 43460]
and IC-20486A (September 19, 1994) [59 FR 48798].
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Rule 301 of Regulation S-T also is being amended to provide for the
incorporation by reference of the Filer Manual into the Code of Federal
Regulations, which incorporation by reference was approved by the
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and
1 CFR Part 51. The revised Filer Manual and the amendment to Rule 301
will be effective on October 7, 1996.
Paper copies of the updated Filer Manual may be obtained at the
following address: Public Reference Room, U.S. Securities and Exchange
Commission, Mail Stop 1-2, 450 Fifth Street, N.W., Washington D.C.
20549. Electronic format copies will be available on the EDGAR
electronic bulletin board. Copies also may be obtained from Disclosure
Incorporated, the paper and microfiche contractor for the Commission,
at (800) 638-8241.
Since the Filer Manual relates solely to agency procedure or
practice, publication for notice and comment is not required under the
Administrative Procedure Act.\8\ It follows that the requirements of
the Regulatory Flexibility Act \9\ do not apply.
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\8\ 5 U.S.C. 601-612.
\9\ 5 U.S.C. 553(b).
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The effective date for the updated Filer Manual and the rule
amendments is October 7, 1996. In accordance with the Administrative
Procedure Act, 5 U.S.C. 553(d)(3), the Commission finds that there is
good cause to establish an effective date less than 30 days after
publication of these rules. The EDGAR system was upgraded to Release
5.10 on September 14, 1996, to add the new submission types and
implement technical system enhancements, and upgraded again on
Saturday, October 5, 1996, to implement system adjustments to
accommodate the elimination of IOAA fees, in anticipation of an
effective date of Monday, October 7, 1996. The Commission believes that
it is necessary to coordinate the effectiveness of the updated Filer
Manual with the effective date for the elimination of IOAA fees to
avoid confusion for EDGAR filers.
Statutory Basis
The amendment to Regulation S-T is being adopted under Sections 6,
7, 8, 10, and 19(a) of the Securities Act,\10\ Sections 3, 12, 13, 14,
15, 23, and 35A of the Securities Exchange Act of 1934,\11\ Section 20
of the Public Utility Holding Company Act of 1935,\12\ Section 319 of
the Trust Indenture Act of 1939,\13\ and Sections 8, 30, 31, and 38 of
the Investment Company Act of 1940.\14\
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\10\ 15 U.S.C. 77f, 77g, 77h, 77j and 77s(a).
\11\ 15 U.S.C. 78c, 78l, 78m, 78n, 78o, 78w and 78ll.
\12\ 15 U.S.C. 79t.
\13\ 15 U.S.C. 77sss.
\14\ 15 U.S.C. 80a-8, 80a-29, 80a-30 and 80a-37.
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List of Subjects in 17 CFR Part 232
Incorporation by reference; Investment companies; Registration
requirements; Reporting and recordkeeping requirements; Securities.
Text of the Amendment
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
1. The authority citation for Part 232 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.
2. Section 232.301 is revised to read as follows:
Sec. 232.301 EDGAR Filer Manual.
Electronic filings shall be prepared in the manner prescribed by
the EDGAR Filer Manual, promulgated by the Commission, which sets out
the technical formatting requirements for electronic submissions. The
September 1996 edition of the EDGAR Filer Manual: Guide for Electronic
Filing with the U.S. Securities and Exchange Commission (Release 5.10)
is incorporated into the Code of Federal Regulations by reference,
which action was approved by the Director of the Federal Register in
accordance with 5 U.S.C. 552(a) and 1 CFR Part 51. Compliance with the
requirements found therein is essential to the timely receipt and
acceptance of documents
[[Page 52285]]
filed with or otherwise submitted to the Commission in electronic
format. Paper copies of the EDGAR Filer Manual may be obtained at the
following address: Public Reference Room, U.S. Securities and Exchange
Commission, Mail Stop 1-2, 450 5th Street, N.W., Washington, D.C.
20549. They also may be obtained from Disclosure Incorporated by
calling (800) 638-8241. Electronic format copies are available through
the EDGAR electronic bulletin board. Information on becoming an EDGAR
E-mail/electronic bulletin board subscriber is available by contacting
CompuServe Inc. at (800) 848-8199.
By the Commission.
Dated: October 2, 1996.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-25815 Filed 10-4-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-25809 Natural Resources Conservation Service
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Page 52671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25809]
Federal Register / Vol. 61, No. 195 / Monday, October 7, 1996 / Rules
and Regulations
[[Page 52671]]
DEPARTMENT OF AGRICULTURE
Natural Resources Conservation Service
7 CFR Chapter VI
Farm Service Agency
7 CFR Chapter VII
AGENCY: Natural Resources Conservation Service and Farm Service Agency,
USDA.
ACTION: Announcement of forums, on interim rules.
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SUMMARY: The United States Department of Agriculture's, Natural
Resources Conservation Service (NRCS) and Farm Service Agency (FSA)
announced elsewhere in today's Federal Register forums on the
implementation of the conservation provisions of the Federal
Agriculture Improvement and Reform Act of 1996 (the 1996 Act), which
includes: Highly Erodible Land Compliance, Wetlands Conservation,
Conservation Reserve Program (CRP), and the Environmental Quality
Incentives Program (EQIP).
FOR FURTHER INFORMATION CONTACT:
Lloyd Wright, USDA/NRCS, Phone: 202-720-1845
Cheryl Zavodny, USDA/FSA, Phone: 202-720-7333.
SUPPLEMENTARY INFORMATION: The United States Department of Agriculture
(the Department), Natural Resources Conservation Service (NRCS) and
Farm Service Agency (FSA) will conduct 54 public forums where
interested individuals can provide comments and ideas on the
implementation of the conservation provisions of the Federal
Agriculture Improvement and Reform Act of 1996 (the 1996 Act), which
includes: Highly Erodible Land/Wetland Conservation (Federal Register,
August 27, 1996. (Volume 61, No. 167) Rules and Regulations, pp. 43943-
43946), Conservation Reserve Program (CRP)(Federal Register, September
23, 1996. (Volume 61, No. 185) Rules and Regulations, pp. 49697-49711),
and Environmental Quality Incentives Program (EQIP).
The public is invited to attend the meetings to provide brief oral
comments. All are encouraged to provide detailed written comments
concerning the implementation of the 1996 Act which are due on or
before October 22, 1996. Those who wish to speak at a meeting may make
arrangements in advance by calling the state contact listed for the
meeting. In addition, individuals wishing to provide oral presentations
may sign-up at the forum, as time permits.
For information on the dates and locations of these forums, please
consult the announcement of forums on proposed rules, located elsewhere
in today's Federal Register.
Paul W. Johnson,
Chief, Natural Resources Conservation Service.
Grant Buntrock,
Administrator, Farm Service Agency.
[FR Doc. 96-25809 Filed 10-4-96; 8:45 am]
BILLING CODE 3410-16-P
Complete official Federal Register PDF
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52602-52662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25720]
[[Page 52601]]
_______________________________________________________________________
Part VII
Department of Health and Human Services
_______________________________________________________________________
Food and Drug Administration
_______________________________________________________________________
21 CFR Parts 808, 812, and 820
Medical Devices; Current Good
Manufacturing Practice (CGMP); Final Rule
Federal Register / Vol. 61, No. 195 / Monday, October 7, 1996 / Rules
and Regulations
[[Page 52602]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 808, 812, and 820
[Docket No. 90N-0172]
RIN 0910-AA09
Medical Devices; Current Good Manufacturing Practice (CGMP) Final
Rule; Quality System Regulation
AGENCY: Food and Drug Administration, HHS.
ACTION: Final rule.
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SUMMARY: The Food and Drug Administration (FDA) is revising the current
good manufacturing practice (CGMP) requirements for medical devices and
incorporating them into a quality system regulation. The quality system
regulation includes requirements related to the methods used in, and
the facilities and controls used for, designing, manufacturing,
packaging, labeling, storing, installing, and servicing of medical
devices intended for human use. This action is necessary to add
preproduction design controls and to achieve consistency with quality
system requirements worldwide. This regulation sets forth the framework
for device manufacturers to follow and gives them greater flexibility
in achieving quality requirements.
DATES: The regulation is effective June 1, 1997. For more information
on compliance with 21 CFR 820.30 see section IV. of this document.
Written comments on the information collection requirements should
be submitted by December 6, 1996.
ADDRESSES: Submit written comments on the information collection
requirements to the Dockets Management Branch (HFA-305), Food and Drug
Administration, 12420 Parklawn Dr., rm. 1-23, Rockville, MD 20857. All
comments should be identified with the docket number found in brackets
in the heading of this document.
FOR FURTHER INFORMATION CONTACT: Kimberly A. Trautman, Center for
Devices and Radiological Health (HFZ-341), Food and Drug
Administration, 2098 Gaither Rd., Rockville, MD 20850, 301-594-4648.
SUPPLEMENTARY INFORMATION:
I. Background
Manufacturers establish and follow quality systems to help ensure
that their products consistently meet applicable requirements and
specifications. The quality systems for FDA-regulated products (food,
drugs, biologics, and devices) are known as CGMP's. CGMP requirements
for devices in part 820 (21 CFR part 820) were first authorized by
section 520(f) of the Federal Food, Drug, and Cosmetic Act (the act)
(21 U.S.C. 360j(f)), which was among the authorities added to the act
by the Medical Device Amendments of 1976 (Pub. L. 94-295).
Under section 520(f) of the act, FDA issued a final rule in the
Federal Register of July 21, 1978 (43 FR 31 508), prescribing CGMP
requirements for the methods used in, and the facilities and controls
used for the manufacture, packing, storage, and installation of medical
devices. This regulation became effective on December 18, 1978, and is
codified under part 820. Except for editorial changes to update
organizational references in the regulation and revisions to the list
of critical devices that was included in the preamble to the final
regulation, the device CGMP requirements have not been revised since
1978. This final rule is the result of an extensive effort begun in
1990 to revise this regulation.
The Safe Medical Devices Act of 1990 (the SMDA) (Pub. L. 101-629),
enacted on November 28, 1990, amended section 520(f) of the act,
providing FDA with the authority to add preproduction design controls
to the CGMP regulation. This change in law was based on findings that a
significant proportion of device recalls were attributed to faulty
design of product. Specifically, in January 1990, FDA published the
results of an evaluation of device recalls that occurred from October
1983 through September 1989, in a report entitled ``Device Recalls: A
Study of Quality Problems'' (Ref. 1). (See 55 FR 21108, May 22, 1990,
where FDA announced the availability of the report.) FDA found that
approximately 44 percent of the quality problems that led to voluntary
recall actions during this 6-year period were attributed to errors or
deficiencies that were designed into particular devices and may have
been prevented by adequate design controls. These design-related
defects involved both noncritical devices (e.g., patient chair lifts,
in vitro diagnostics, and administration sets) and critical devices
(e.g., pacemakers and ventilators). Also in 1990, the Department of
Health and Human Services' Inspector General conducted a study entitled
``FDA Medical Device Regulation From Premarket Review to Recall'' (Ref.
2), which reached similar conclusions. With respect to software used to
operate medical devices, the data were even more striking. A subsequent
study of software-related recalls for the period of fiscal year (FY)
1983 through FY 1991 indicated that over 90 percent of all software-
related device failures were due to design-related errors, generally,
the failure to validate software prior to routine production (Ref. 3).
The SMDA also added new section 803 to the act (21 U.S.C. 383)
which, among other things, encourages FDA to work with foreign
countries toward mutual recognition of CGMP requirements. FDA undertook
the revision of the CGMP regulation to add the design controls
authorized by the SMDA to the CGMP regulation, as well as because the
agency believed that it would be beneficial to the public and the
medical device industry for the CGMP regulation to be consistent, to
the extent possible, with the requirements for quality systems
contained in applicable international standards, primarily, the
International Organization for Standards (ISO) 9001:1994 ``Quality
Systems--Model for Quality Assurance in Design, Development,
Production, Installation, and Servicing'' (Ref. 4), and the ISO
committee draft (CD) revision of ISO/CD 13485 ``Quality Systems--
Medical Devices--Supplementary Requirements to ISO 9001'' (Ref. 5).
This action is being taken under those provisions of the SMDA and
in response to the following: (1) Notices that appeared in the Federal
Register of April 25, 1990 (55 FR 17502), and in the Federal Register
of April 17, 1991 (56 FR 15626), that announced meetings of the
agency's Device Good Manufacturing Practice Advisory Committee (GMP
Advisory Committee), at which the need for revisions to the CGMP
regulation was explored; (2) an advance notice of proposed rulemaking
(ANPRM) that appeared in the Federal Register of June 15, 1990 (55 FR
24544), that announced the agency's intent to revise the CGMP
regulation; (3) a notice of availability of a document that appeared in
the Federal Register of November 30, 1990 (55 FR 49644), entitled
``Medical Devices; Current Good Manufacturing Practices (CGMP)
Regulations Document; Suggested Changes; Availability'' (Ref. 6) and
comments solicited from the public about the document; (4) a proposed
rule in the Federal Register of November 23, 1993 (58 FR 61952), (Ref.
7) and comments solicited from the public about the proposal; (5) a
notice of availability that appeared in the Federal Register of July
24, 1995 (60 FR 37856), announcing the availability of the ``Working
Draft of the Current Good Manufacturing Practice (CGMP) Final Rule''
(hereinafter referred to as the Working Draft) (Ref. 8) and comments
[[Page 52603]]
solicited from the public about the Working Draft; (6) testimony at an
August 23, 1995, open public meeting announced in the Federal Register
(60 FR 37856); (7) and testimony and advisory committee recommendations
from the September 13 and 14, 1995, meeting of the GMP Advisory
Committee announced in the Federal Register of August 24, 1995 (60 FR
44036). Thus, FDA's decision to revise the CGMP regulation is based on
changes in the law made by the SMDA, the agency's discussions with
others including its GMP Advisory Committee, responses to the Federal
Register notices on this matter, FDA's analysis of recall data, its
experience with the regulatory application of the original CGMP
regulation, and its assessment of international quality standards.
The agency's final rule embraces the same ``umbrella'' approach to
the CGMP regulation that is the underpinning of the original CGMP
regulation. Because this regulation must apply to so many different
types of devices, the regulation does not prescribe in detail how a
manufacturer must produce a specific device. Rather, the regulation
provides the framework that all manufacturers must follow by requiring
that manufacturers develop and follow procedures and fill in the
details that are appropriate to a given device according to the current
state-of-the-art manufacturing for that specific device. FDA has made
changes to the proposed regulation and the Working Draft, as the final
rule evidences, to provide manufacturers with even greater flexibility
in achieving the quality requirements.
The Supreme Court recently addressed the preemptive effect, under
section 521 of the act (21 U.S.C. 360k), of the original CGMP
regulation and other FDA requirements for medical devices on State tort
actions. In Medtronic, Inc. v. Lohr, 116 S. Ct. 2240 (1996), the
Supreme Court gave substantial deference to the agency's interpretation
of section 521 of the act found at Sec. 808.1 (21 CFR 808.1). The Court
noted that CGMP requirements are general rather than ``specific
requirements applicable to a particular device,'' and that State common
law remedies are similarly general, and do not establish a
``substantive requirement for a specific device.'' (Lohr at 2257; see
also Sec. 808.1(d) and (d)(6)(ii).) Moreover, the Court drew a
distinction between remedies and requirements, noting that while common
law tort actions may provide remedies different from those available
under the act, no preemption occurs unless the substantive requirements
of the State law are ``different from, or in addition to,'' those
imposed by the act. (See Lohr at 2255.) Under the Supreme Court's
analysis in Lohr, the requirements imposed by the original CGMP
regulation would rarely have preemptive effect.
FDA believes that the reasoning of Medtronic v. Lohr applies
equally to the new quality system regulation, which, as does the
original CGMP regulation, prescribes requirements that apply to medical
devices in general, rather than to any particular medical device.
Therefore, FDA has concurrently amended part 808 (21 CFR part 808) to
make clear the new quality system regulation does not preempt State
tort and common law remedies.
II. Decision to Make a Working Draft Available for Comment
In the Federal Register of November 23, 1993, the agency issued the
proposed revisions to the CGMP regulation, entitled ``Medical Devices;
Current Good Manufacturing Practice (CGMP) Regulations; Proposed
Revisions; Request for Comments,'' and public comment was solicited.
After the proposal issued, FDA met with the Global Harmonization Task
Force (the GHTF) Study Group in early March 1994, in Brussels, to
compare the provisions of the proposal with the provisions of ISO
9001:1994 and European National Standard (EN) 46001 ``Quality Systems--
Medical Devices--Particular Requirements for the Application of EN
29001'' (Ref. 9). ISO 9001:1994 and EN 46001:1994 are written as
voluntary standards, but when used to fulfill the requirements of the
European Medical Device Directives, or other national regulations,
these standards are mandatory requirements similar to the CGMP
requirements. The GHTF includes: Representatives of the Canadian
Ministry of Health and Welfare, the Japanese Ministry of Health and
Welfare, FDA, and industry members from the European Union (EU),
Australia, Canada, Japan, and the United States. The participants at
the GHTF meeting favorably regarded FDA's effort toward harmonization
with international standards. The GHTF submitted comments, however,
noting where FDA could more closely harmonize to achieve consistency
with quality system requirements worldwide. Since the proposal
published, FDA has also attended numerous industry and professional
association seminars and workshops, including ISO Technical Committee
(TC) 210 ``Quality Management and Corresponding General Aspects for
Medical Devices'' meetings, where the proposed revisions were
discussed.
The original period for comment on the proposal closed on February
22, 1994, and was extended until April 4, 1994. Because of the heavy
volume of comments and the desire to increase public participation in
the development of the quality system regulation, FDA decided to
publish the notice of availability in the Federal Register to allow
comment on the Working Draft before issuing a final regulation.
The Working Draft represented the agency's views at the time on how
it would respond to the many comments received, and on how the agency
believed a final rule should be framed. FDA solicited public comment on
the Working Draft until October 23, 1995, to determine if the agency
had adequately addressed the many comments received and whether the
agency had framed a final rule that achieved the public health goals to
be gained from implementation of quality systems in the most efficient
manner.
III. Open Public Meeting and GMP Advisory Committee Meeting
FDA held an open public meeting on the quality system regulation on
August 23, 1995. The public meeting consisted of prepared presentations
followed by an open discussion period. Both the agency and the
participants found the meeting to be very productive in focusing
attention on the few main areas of concern in the Working Draft. The
main issues were: The application of the regulation to component
manufacturers; the application of the regulation to third party
servicers and refurbishers; and the implementation timeframe of the
final rule. A transcript of the proceedings of the public meeting, as
well as data and information submitted to FDA during the public
meeting, are available from the Dockets Management Branch (HFA-305),
Food and Drug Administration, 12420 Parklawn Dr., rm. 1-23, Rockville,
MD 20857, between 9 a.m. and 4 p.m., Monday through Friday.
There also was a meeting of the GMP Advisory Committee on the
Working Draft on September 13 and 14, 1995. A notice of the meeting was
published in the Federal Register of August 24, 1995. FDA made a brief
presentation to the committee on the changes from the 1993 proposal to
the 1995 Working Draft and discussed some changes that FDA was
recommending as a result of the August 1995 meeting. Two consultants
also made presentations to the committee, one a representative from ISO
TC 176 (the TC that authored the ISO 9000 series) and the other a
representative from the European Committee for Standardization (CEN).
The remainder of the meeting consisted of prepared
[[Page 52604]]
presentations from the public and the committee's discussion on the
main issues.
The overwhelming majority of the committee members believed that
the Working Draft met the public health needs, gave manufacturers
sufficient flexibility to comply with the regulation, and met the
agency's goal of harmonizing the quality system requirements with those
of other countries. The GMP Advisory Committee strongly supported FDA's
recommendation, in response to the August 1995 public meeting, to not
include component manufacturers under this final rule. However, the GMP
Advisory Committee was clearly divided on several issues related to the
proposed regulation of third party servicers and refurbishers. A
transcript of the proceedings of the GMP Advisory Committee meeting, as
well as data and information submitted to FDA during the meeting, are
available from the Dockets Management Branch (address above).
After considering the written comments and the views expressed at
meetings with the GHTF, at the August 1995 public meeting, and at the
September 1995 GMP Advisory Committee meeting, FDA is publishing this
final rule. A summary of changes from the July 1995 Working Draft to
the final rule is contained at the end of this preamble.
IV. Implementation of the Final Rule
FDA has decided, in response to the many comments and concerns
expressed about the need for more time to implement design controls, to
implement the final rule in two stages. Under stage one, on June 1,
1997, approximately 1 year after this rule is published in the Federal
Register, all elements of the final rule become effective. However,
with respect to the design control requirements in Sec. 820.30, as long
as manufacturers are taking reasonable steps to come into compliance,
FDA will implement a special 1-year transition program, with a
midcourse review, during which official agency action will not be
initiated, including FDA Form 483 observations, warning letters, or
enforcement cases, based on failure to comply with Sec. 820.30. Under
stage two, beginning June 1, 1998, FDA will treat noncompliance with
design control requirements in Sec. 820.30 the same as noncompliance
with other provisions of the CGMP regulation.
To prepare for stage one of this implementation plan, FDA intends
to develop, by April of 1997, a strategy for inspecting the design
control requirements. Both industry and FDA field investigators will
then be trained on this inspectional strategy for design controls
during April and May 1997. Starting June 1, 1997, manufacturers will be
inspected for compliance with all the new quality system requirements,
including design controls, in the manner described in the inspectional
strategy. However, as part of the transition program, from June 1,
1997, for a period of 1 year, although FDA will inspect firms for
compliance with the design control requirements, the field will issue
any observations to the manufacturer on a separate design control
inspectional strategy report, not on FDA Form 483. The design control
inspectional strategy report will be made a part of the manufacturer's
establishment inspection report (EIR), but the observations relating to
Sec. 820.30 will not be included in any warning letters or regulatory
actions during this initial 1-year period. FDA notes that it can, at
any time, take action against unsafe or adulterated medical devices
under different regulatory or statutory authorities. FDA wants to
emphasize that manufacturers are required to take reasonable steps to
come into compliance with the design control requirements during the
June 1, 1997, to June 1, 1998, period.
FDA also emphasizes that this transition period relates only to the
design control requirements of Sec. 820.30, and that beginning June 1,
1997, the agency will issue observations on FDA Form 483's, issue
warning letters, and take any necessary regulatory action for
violations of all other provisions of the CGMP final rule. The time
period from June 1, 1997, to June 1, 1998, is intended to allow both
the industry and FDA field investigators time to become familiar with
the design control requirements and the enforcement aspects of this new
area.
Finally, as described elsewhere in this preamble, FDA intends to
conduct a midcourse review of the new design control requirements
during the transition year (June 1997 to June 1998). Specifically, the
results of the first several months of design control inspections will
be reviewed by early 1998. FDA will review all of the completed design
control inspectional strategy reports that were given to manufacturers
from between June 1, 1997, through December 1, 1997. The completed
strategy reports will be reviewed with particular attention paid to
clarity of information obtained, the appropriateness of the information
collected with respect to the design control requirements, the
appropriateness of the questions on the inspectional strategy, the
manner in which the investigators are writing out their observations,
and any requirements that seem to be giving manufacturers a problem or
where there might be misunderstandings as to what the regulation
requires. FDA will then hold an open public meeting in early 1998 to
discuss with industry these findings and to further explore any
concerns industry might be having in implementing the new design
control requirements. As a result of the midcourse review and open
public meeting, FDA might hold additional workshops, meetings, and/or
training sessions.
Any midcourse adjustments to the inspectional strategy will be
instituted and made public by the spring of 1998. Also during this
midcourse review, FDA will evaluate the information gathered at that
point and determine if the design control requirements as written in
this final rule are appropriate to obtain the goals expressed in this
preamble. FDA will consider minor or even major changes, based on
experience to date. Any necessary adjustments or proposed revisions
will be published in the Federal Register and comments will be
solicited as necessary during the spring of 1998. This implementation
strategy is responsive to requests by industry for FDA to harmonize the
quality system regulation's implementation with the mandatory date for
implementation of the EU's Medical Device Directive, which is June
1998. However, if during the midcourse review of stage one it is
determined that the industry and/or FDA needs more time to fully
implement the design control requirements, FDA will publish an
extension of the regulatory implementation date for design control
requirements prior to June 1, 1998.
V. Response to Comments and Rationale for Changes
Approximately 280 separate individuals or groups commented on the
proposal published in the Federal Register of November 23, 1993, and
approximately 175 separate individuals or groups commented on the
Working Draft that was announced in a notice of availability published
in the Federal Register on July 24, 1995. FDA made many changes in
response to the comments. Most of the changes were made in response to
specific comments, in response to comments for clarity, understanding,
and readability, or to further harmonize FDA requirements with
international standards, as many comments requested.
Numerous comments stated that industry was very pleased with FDA's
[[Page 52605]]
Working Draft and the effort that was made to harmonize with ISO, as
well as to engage industry in commenting on the Working Draft through
the open public meeting and the GMP Advisory Committee meeting that
were held in August and September 1995, respectively.
FDA's responses to the comments received on the proposal and the
Working Draft, as well as explanations for the changes made, follow.
A. General Provisions (Subpart A)
i. Scope (Sec. 820.1)
1. The title of the regulation, as reflected in this section, has
been changed from the ``Current Good Manufacturing Practices (CGMP)''
regulation to the ``Quality System'' regulation. This revision follows
the suggestion underlying many comments on specific provisions that FDA
generally harmonize the CGMP requirements and terminology with
international standards. ISO 9001:1994, ISO/CD 13485, and EN 46001
employ this terminology to describe the CGMP requirements. In addition,
this title accurately describes the sum of the requirements, which now
include the CGMP requirements for design, purchasing, and servicing
controls. CGMP requirements now cover a full quality system.
FDA notes that the principles embodied in this quality system
regulation have been accepted worldwide as a means of ensuring that
acceptable products are produced. While the regulation has been
harmonized with the medical device requirements in Europe, Australia,
and Japan, as well as the requirements proposed by Canada, it is
anticipated that other countries will adopt similar requirements in the
near future.
FDA, however, did not adopt ISO 9001:1994 verbatim for two reasons.
First, there were complications in dealing with the issue of copyrights
and, second, FDA along with health agencies of other governments does
not believe that for medical devices ISO 9001:1994 alone is sufficient
to adequately protect the public health. Therefore, FDA has worked
closely with the GHTF and TC 210 to develop a regulation which is
consistent with both ISO 9001:1994 and ISO/CD 13485. FDA made several
suggestions to TC 210 on the drafts of the ISO/CD 13485 document in
order to minimize differences and move closer to harmonization. In some
cases, FDA has explicitly stated requirements that many experts believe
are inherent in ISO 9001:1994. Through the many years of experience
enforcing and evaluating compliance with the original CGMP regulation,
FDA has found that it is necessary to clearly spell out its
expectations. This difference in approach does not represent any
fundamentally different requirements that would hinder global
harmonization. In fact, numerous comments expressed their approval and
satisfaction with FDA's effort to harmonize the quality system
requirements with those of ISO 9001:1994 and ISO/CD 13485.
2. One comment suggested that the term ``purchasing'' in the scope
be deleted because it could be interpreted to mean the purchase of
finished medical devices by health care institutions and medical
professionals, instead of the purchase of components and manufacturing
materials as intended.
FDA agrees and has deleted the term ``purchasing'' throughout the
regulation when used in this context.
3. Several comments suggested that Sec. 820.1(a)(1) should not
state that the regulation establishes the ``minimum'' requirements
because it implies that compliance with the stated requirements may be
insufficient. They asked that FDA delete the word ``minimum,'' to avoid
having auditors search for additional requirements.
FDA does not believe that the provision would have required that
manufacturers meet additional requirements not mandated by the
regulation but has modified the section to clarify its intent by
stating that the regulation establishes the ``basic'' requirements for
manufacturing devices. The quality system regulation provides a
framework of basic requirements for each manufacturer to use in
establishing a quality system appropriate to the devices designed and
manufactured and the manufacturing processes employed. Manufacturers
must adopt current and effective methods and procedures for each device
they design and manufacture to comply with and implement the basic
requirements. The regulation provides the flexibility necessary to
allow manufacturers to adopt advances in technology, as well as new
manufacturing and quality system procedures, as they become available.
During inspections, FDA will assess whether a manufacturer has
established procedures and followed requirements that are appropriate
to a given device under the current state-of-the-art manufacturing for
that specific device. FDA investigators receive extensive training to
ensure uniform interpretation and application of the regulation to the
medical device industry. Thus, the agency does not believe that FDA
investigators will cite deviations from requirements not contained in
this part. However, as noted above, FDA has altered the language of the
scope to make clear that additional, unstated requirements do not
exist.
4. A few comments suggested eliminating the distinction between
critical and noncritical devices, thus eliminating the need for
distinct requirements for critical devices. Other comments disagreed,
asserting that eliminating the distinction would increase the cost of
production of low-risk devices without improving their safety and
effectiveness.
FDA agrees in part with the comments that suggest eliminating the
distinction between critical and noncritical devices and has eliminated
the term ``critical device'' from the scope, definitions, and
regulation in Secs. 820.65 Critical devices, traceability and 820.165
Critical devices, labeling. However, FDA has retained the concept of
distinguishing between devices for the traceability requirements in
Sec. 820.65. As addressed in the discussion under that section, FDA
believes that it is imperative that manufacturers be able to trace, by
control number, any device, or where appropriate component of a device,
that is intended for surgical implant into the body or to support or
sustain life whose failure to perform when properly used in accordance
with instructions for use provided in the labeling can be reasonably
expected to result in a significant injury to the user.
The deletion of the terminology will bring the regulation in closer
harmony with ISO 9001:1994 and the quality system standards or
requirements of other countries.
Finally, FDA notes that eliminating the term ``critical device''
and the list of critical devices does not result in the imposition of
new requirements. In fact the new regulation is less prescriptive and
gives the manufacturer the flexibility to determine the controls that
are necessary commensurate with risk. The burden is on the
manufacturer, however, to describe the types and degree of controls and
how those controls were decided upon. Such determinations are made in
accordance with standard operating procedures (SOP's) established by
the manufacturer.
5. In response to numerous comments, FDA has added the sentence
``If a person engages in only some operations subject to the
requirements in this part, and not in others, that person need only
comply with those requirements applicable to the operations in which he
or she is engaged.'' This sentence was added to clarify the scope of
the regulation and
[[Page 52606]]
the responsibility of those who fall under this regulation. The wording
is the same as that used in the drug CGMP.
6. Several comments recommended that the short list of class I
devices subject to design control requirements be deleted from the
regulation and be placed in the preamble, to allow additions or
deletions without requiring a change to the entire regulation. Others
commented that the list of class I devices should be entirely
eliminated to harmonize with Europe and Japan.
FDA disagrees that the list of devices subject to design control
requirements should be deleted from the regulation. FDA has experienced
problems or has concerns with the class I devices listed and has
determined that design controls are needed for the listed devices.
Further, placing the list in the regulation establishes the
requirements related to those devices, and is convenient for use by
persons who are not familiar with, or who do not have access to, the
preamble. Further, FDA notes that individual sections of a regulation
may be revised independent of the remainder of the regulation.
7. Numerous written comments and persons who testified at the
August and September 1995 meetings stated that application of the
regulation to component manufacturers would increase product cost, with
questionable value added to device safety and effectiveness, and that
many component suppliers would refuse to supply components or services
to the medical device industry. This would be especially likely to
occur, it was suggested, where medical device manufacturers account for
a small fraction of the supplier's sales.
FDA believes that because of the complexity of many components used
in medical devices, their adequacy cannot always be assured through
inspection and testing at the finished device manufacturer. This is
especially true of software and software-related components, such as
microprocessors and microcircuits. Quality must be designed and built
into components through the application of proper quality systems.
However, FDA notes that the quality system regulation now
explicitly requires that the finished device manufacturer assess the
capability of suppliers, contractors, and consultants to provide
quality products pursuant to Sec. 820.50 Purchasing controls. These
requirements supplement the acceptance requirements under Sec. 820.80.
Manufacturers must comply with both sections for any incoming component
or subassembly or service, regardless of the finished device
manufacturer's financial or business affiliation with the person
providing such products or services. FDA believes that these purchasing
controls are sufficient to provide the needed assurance that suppliers,
contractors, and consultants have adequate controls to produce
acceptable components.
Therefore, balancing the many concerns of the medical device
industry and the agency's public health and safety concerns, FDA has
decided to remove the provision making the CGMP regulation applicable
to component manufacturers and return to the language in the original
CGMP regulation. This approach was unanimously endorsed by the members
of the GMP Advisory Committee at the September 1995 meeting. FDA will
continue to focus its inspections on finished device manufacturers and
expects that such manufacturers will properly ensure that the
components they purchase are safe and effective. Finished device
manufacturers who fail to comply with Secs. 820.50 and 820.80 will be
subject to enforcement action. FDA notes that the legal authority
exists to cover component manufacturers under the CGMP regulation
should the need arise.
8. One comment stated that proposed Sec. 820.1(a)(2) should be
revised to include the District of Columbia and the Commonwealth of
Puerto Rico, as in the original CGMP regulation.
FDA agrees with the comment. These localities were inadvertently
omitted and have been added to the regulation.
9. FDA added Sec. 820.1(a)(3) on how to interpret the phrase
``where appropriate'' in the regulation, as recommended by the GMP
Advisory Committee. This section is consistent with the statement in
ISO/CD 13485.
10. Some comments on proposed Sec. 820.1(c) recommended that the
section be deleted as it already appears in the act. Others stated that
the provision implies that FDA will subject devices or persons to legal
action, regardless of the level of noncompliance. Still others
suggested that only intentional violations of the regulation should
give rise to regulatory action.
FDA disagrees with these comments. The consequences of the failure
to comply, and the legal authority under which regulatory action may be
taken, are included in the regulation so that the public may be fully
apprised of the possible consequences of noncompliance and understand
the importance of compliance. FDA notes that the agency exercises
discretion when deciding whether to pursue a regulatory action and does
not take enforcement action for every violation it encounters. Further,
FDA generally provides manufacturers with warning prior to initiating
regulatory action and encourages voluntary compliance. The agency also
notes, however, that violations of this regulation need not be
intentional to place the public at serious risk or for FDA to take
regulatory action for such violations.
In response to the concerns regarding the tone of the section,
however, the title has been changed. FDA has also deleted the specific
provisions referenced in the proposed section with which the failure to
comply would render the devices adulterated. The term ``part'' includes
all of the regulation's requirements.
11. A few comments on proposed Sec. 820.1(c)(2), now Sec. 820.1(d),
requested that the agency clarify what is meant by requiring that
foreign manufacturers ``schedule'' an inspection. A few comments stated
that FDA was adding new requirements for foreign manufacturers in this
section. Others stated that the proposed language would prohibit global
harmonization because it would limit third party audits in place of FDA
inspections.
FDA has moved the provision related to foreign manufacturers into a
separate section and has modified the language. The language in the
regulation reflects the language in section 801(a) of the act (21
U.S.C. 381(a)). FDA disagrees that it is adding new requirements for
foreign manufacturers in Sec. 820.1(d) because the section recites the
current requirement and standard used, and is consistent with current
agency policy. The agency believes that it is imperative that foreign
facilities be inspected for compliance with this regulation and that
they be held to the same high standards to which U.S. manufacturers are
held. Otherwise, the U.S. public will not be sufficiently protected
from potentially dangerous devices, and the U.S. medical device
industry will be at a competitive disadvantage.
FDA intends to continue scheduling inspections of foreign
manufacturers in advance to assure their availability and avoid
conflicts with holidays and shut down periods. However, the language
pertaining to the ``scheduling'' of such inspections has been deleted
to allow flexibility in scheduling methods.
FDA disagrees that, as written, the language would prohibit
inspections by third parties. FDA may use third party inspections, as
it uses other compliance information, in setting its priorities and
utilizing its resources related to foreign inspections. In this regard,
FDA looks forward to entering into agreements with foreign countries
related to CGMP
[[Page 52607]]
inspections that would provide FDA with reliable inspectional
information.
12. Two comments stated that the section on ``Exemptions or
variances,'' now Sec. 820.1(e), should require that FDA provide a
decision on petitions within 60 days of receipt and state that the
agency will take no enforcement action with respect to the subject of
the petition until a decision is rendered. The comments said that the
petition process is long, arduous, and not practical.
FDA disagrees with the comments. Currently, FDA is required by
section 520(f)(2)(B) of the act to respond within 60 days of receipt of
the petition, unless the petition is referred to an advisory committee.
When the 1978 CGMP regulation was published, there was a prediction
that FDA would be overwhelmed with petitions for exemption and variance
from the regulation. Over the past 18 years, since the CGMP regulation
first became effective, FDA has only received approximately 75
petitions. It is FDA's opinion that few petitions have been received
because of the flexible nature of the CGMP regulation. FDA has
attempted to write the current regulation with at least the same degree
of flexibility, if not more, to allow manufacturers to design a quality
system that is appropriate for their devices and operations and that is
not overly burdensome.
Guidelines for the submission of petitions for exemption or
variance are available from the Division of Small Manufacturers
Assistance (the DSMA). The petition guidelines state that FDA will not
process a petition for exemption or variance while an FDA inspection of
a manufacturer is ongoing. Until FDA has approved a petition for an
exemption or variance, a manufacturer should not deviate from the
requirements of this regulation. FDA must first have the opportunity to
ensure that the manufacturer has established that an exemption or
variance is warranted, to carry out its obligation of ensuring that
devices are safe and effective.
13. Several comments stated that the proposed requirements are not
necessary for all manufacturers, particularly small manufacturers with
few employees and low-risk devices. Other comments stated that the
documentation requirements are excessive.
FDA generally disagrees with these comments. The regulation
provides the ``basic'' requirements for the design and manufacture of
medical devices. And, as noted in the previous response, the
requirements are written in general terms to allow manufacturers to
establish procedures appropriate for their devices and operations.
Also, as discussed above, a manufacturer need only comply with those
requirements applicable to the operations in which he or she is
engaged. However, because the regulation requirements are basic, they
will apply in total to most manufacturers subject to the regulation.
The extent of the documentation necessary to meet the regulation
requirements may vary with the complexity of the design and
manufacturing operations, the size of the firm, the importance of a
process, and the risk associated with the failure of the device, among
other factors. Small manufacturers may design acceptable quality
systems that require a minimum of documentation and, where possible,
may automate documentation. In many situations, documentation may be
kept at a minimum by combining many of the recordkeeping requirements
of the regulation, for example, the production SOP's, handling, and
storage procedures. When manufacturers believe that the requirements
are not necessary for their operations, they may petition for an
exemption or variance from all or part of the regulation pursuant to
section 520(f)(2) of the act.
In addition, FDA has added a variance provision in Sec. 820.1(e)(2)
under which the agency can initiate a variance when it is in the best
interest of the public health. Under this provision, for instance, the
agency may initiate and grant a variance to manufacturers of devices
during times of product shortages, where the devices are needed by the
public and may not otherwise be made available, if such manufacturers
can adequately assure that the resulting devices are safe and
effective. The agency envisions this provision as a bridge, providing a
manufacturer with the time necessary to fulfill the requirements in the
regulation while providing important and needed devices to the public.
Thus, the variance would only be granted for a short period of time,
and only while the devices remained necessary and in short supply.
Under this provision, FDA will require a manufacturer to submit a plan
detailing the action it is taking to assure the safety and
effectiveness of the devices it manufactures and to meet the
requirements of the regulation.
This agency initiated variance provision is in accordance with
section 520(f) of the act which permits, but does not require, FDA to
promulgate regulations governing the good manufacturing practices for
devices and section 701(a) of the act (21 U.S.C. 371(a)), which permits
FDA to promulgate regulations for the efficient enforcement of the act.
Because the statute does not mandate that the agency establish any
requirements for device CGMP's, the agency has the authority to
determine that the manufacturers of certain devices need not follow
every requirement of the regulation.
Further, the agency initiated variance provision is in keeping with
the intent of Congress that FDA prevent hazardous devices from reaching
the marketplace, H. Rept. 853, 94th Cong., 2d sess. 25-26 (1976), and
the general intent of the act that the agency undertake to protect the
public health. The agency will only initiate such a variance where the
devices are needed and may not otherwise be made available, and the
manufacturer can assure the agency that its procedures are likely to be
adequate and that it is actively pursuing full compliance. The
variances will only be in effect for a limited time.
Section 820.1(e) has been modified to include the above addition,
to reflect the title change of the regulation, and to provide the most
current address for the DSMA.
ii. Definitions (Sec. 820.3)
14. Several comments were received regarding the definition of
``complaint.'' Comments generally believed that the definition was
unclear and could be interpreted to include routine service requests,
communications from customers unrelated to the quality, safety, or
effectiveness of the device, and internal communications.
FDA agrees with the comments in part and has modified the
definition to make clear that a communication would be considered a
``complaint'' only if the communication alleged some deficiency related
to the identity, quality, durability, reliability, safety,
effectiveness, or performance of the device after it is released for
distribution. The definition is now very similar to the definition used
in ISO/CD 13485.
The regulation addresses service requests and in-house indications
of dissatisfaction under Sec. 820.100 Corrective and preventive action.
This section requires manufacturers to establish procedures to identify
quality problems and process the information received to detect and
correct quality problems. Information generated in-house relating to
quality problems should be documented and processed as part of this
corrective and preventive action program.
With respect to service requests, Sec. 820.200 Servicing states
that a service report that represents an event which
[[Page 52608]]
must be reported to the FDA under part 803 or 804 (21 CFR part 803 or
804) shall automatically be considered a complaint. All other service
reports must be analyzed for trends or systemic problems and when
found, these trends or systemic problems must be investigated according
to the provisions of Sec. 820.100 Corrective and preventive action.
15. One comment suggested that the agency delete the phrase ``used
during device manufacturing'' in the definition of ``component''
because it was confusing and may cause problems with certain aspects of
distributor operations.
FDA agrees and has deleted the words ``used during device
manufacturing'' from the definition because it was not intended to
differentiate between distributors and manufacturers. Further, FDA
deleted the term ``packaging'' to clarify that every piece of packaging
is not necessarily a component. Only the materials that are part of the
``finished, packaged, and labeled device'' are considered to be
components.
16. Several comments stated that the term ``complete history'' in
the definition of ``control number'' should be clarified or deleted
because it is unclear what a complete production history is, and the
term could be construed to require full traceability for all component
lots of any product containing a control number.
FDA agrees in part with the comments. The control number is the
means by which the history of the device, from purchase of components
and materials through distribution, may be traced, where traceability
is required. The definition does not require that a manufacturer be
able to trace the device whenever control numbers are used. In fact,
the definition itself does not establish any requirements. The agency
notes, however, that the manufacturer's traceability procedures should
ensure that a complete history of the device, including environmental
conditions which could cause the device to fail to conform to its
specified requirements, can be traced and should facilitate
investigation of quality problems and corrective action. FDA notes,
however, that the level of detail required for this history is
dependent on the nature of the device, its intended use, and its
complexity. Therefore, FDA has removed the term ``complete'' in the
definition for clarity and flexibility.
FDA has also amended the definition for added flexibility, to state
that symbols may be used and has included the term ``unit'' for any
device that is not manufactured as a lot or batch.
17. The definition of ``critical device'' has been deleted for the
reasons discussed above.
18. Several comments stated that the term ``design history record''
should be changed because the acronym for the term is the same as that
for device history record (the DHR). Other comments said the ``design
history record'' should not need to contain documentation of a
``complete'' design history. One comment stated that the definition
should allow reference to records containing the design history of the
device. A few comments stated that the term should be deleted
altogether because it is redundant with the definition of device master
record (the DMR).
FDA agrees in part with these comments and has changed the term
``design history record'' to ``design history file.'' In addition, FDA
has amended the provisions to require that the file describe the design
history, as it may not be necessary to maintain a record of every step
in the design phase, although the ``entire history'' should be apparent
from the document. Section 820.30(j) further delineates what should be
in the design history file (the DHF), specifically records sufficient
to verify that the design was developed in accordance with the design
and development plan and other applicable design requirements of the
regulation.
FDA does not agree that the definitions of the DHF and the DMR are
redundant. The DHF for each type of device should include, for example,
the design and development plan, design review results, design
verification results, and design validation results, as well as any
other data necessary to establish compliance with the design
requirements. The DMR should contain all of the procedures related to
each type of device as required by this part and the most current
manufacturing specifications of the device, once the design
specifications have been transferred into production.
19. One comment on ``design input'' stated it was confused by the
term ``requirements'' and wanted to know whose requirements are
encompassed in this definition.
The term ``requirement'' is meant in the broadest sense, to
encompass any internally or externally imposed requirements such as
safety, customer-related, and regulatory requirements. All of these
requirements must be considered as design inputs. How these
requirements are handled and dealt with is up to the manufacturer.
20. Two comments stated that the definition of ``design output''
should be revised because it is not necessary, and would be burdensome,
to keep records of and review the ``results of a design effort at each
design phase and at the end.'' Other comments suggested that the design
output definition should be restricted to physical characteristics of
the device.
FDA agrees in part, but has not deleted the phrase ``results of a
design effort at each design phase and at the end'' from the
definition. The intent was not to dictate when design phases would
occur. Such phases will be defined in the design and development plan.
For example, a manufacturer may only have a few design phases for a new
type of syringe. Thus, design output would be the results of those few
efforts. The results of each design phase constitute the total design
output. The definition has been amended, however, to clarify that the
finished design output is the basis for the DMR.
FDA disagrees with the comments that suggest that the design output
should be restricted to physical characteristics of the device. Design
output is more than just the device specifications. Design output
includes, among other things, the specifications for the manufacturing
process, the quality assurance testing, and the device labeling and
packaging. It is important to note that the design effort should not
only control the design aspects of the device during the original
development phase, but also all subsequent design and development
activities including any redesign or design changes after the original
design is transferred to production.
21. A few comments on the definition of ``design review'' stated
that proposing solutions to problems is not part of the design review
activity. Two other comments expressed concern that the definition
would require that each design review be ``comprehensive.''
In response to the comments on the proper role of design review,
FDA agrees that the design review participants are typically not
responsible for establishing solutions, although they may do so in many
small operations. The definition has been amended, but FDA wants to
make clear that although the design review participants need not
propose solutions, they should ensure that solutions to any identified
problems are adequate and implemented appropriately.
Regarding the scope of design review, each design review need not
be ``comprehensive'' for the entire design process but must be
``comprehensive'' for the design phase being reviewed. However, at the
end of the design process when the design is transferred
[[Page 52609]]
to production, all aspects of the design process should have been
reviewed.
A few other changes were made to harmonize with the definition in
ISO 8402:1994 ``Quality--Vocabulary.''
22. Comments on the definition of ``device master record'' pointed
out that the definition is not consistent with the requirements of
Sec. 820.181 Device master record. Other comments stated that the
definition should allow reference to records. One comment stated that
``all'' procedures related to a specific finished device need not be
included in the DMR, such as the procedures for the design and
development, since they may be in the DHF.
FDA agrees in part with the comments that found the DMR definition
and requirements to be inconsistent and has amended the definition to
be consistent with the requirements set forth in Sec. 820.181. FDA does
not believe, however, that it is necessary to modify the definition to
include the referencing of records because the DMR requirements in
Sec. 820.181 state that the DMR ``shall include or refer to the
location of'' the required information. FDA agrees that the term
``all'' is not necessary and has deleted it in order to give
manufacturers the necessary flexibility.
23. The definition for the term ``end-of-life'' was added to the
Working Draft because this term was used in the definitions for
``refurbisher'' and ``servicing'' to help distinguish the activities of
refurbishing from those of servicing. FDA determined that such a
distinction was necessary, due to comments and ongoing confusion
regarding the difference between the two functions, and the different
requirements applicable to the functions.
Many written comments and persons who testified at the August and
September 1995 meetings stated that the term was confusing,
unnecessary, and introduced many new legal and liability issues. FDA
agrees with these comments and has deleted the term throughout the
regulation. FDA has also deleted definitions for ``refurbisher'' and
``servicing'' for the reasons discussed below.
24. The few comments received on the definition of ``establish''
indicated a concern that the regulation requires too much documentation
and is more onerous than ISO 9001 requirements.
FDA disagrees with the comments. The term ``establish'' is only
used where documentation is necessary. FDA also notes that the quality
system regulation is premised on the theory that adequate written
procedures, which are implemented appropriately, will likely ensure the
safety and effectiveness of the device. ISO 9001:1994 relies on the
same premise. The 1994 version of ISO 9001 broadly requires the
manufacturer to ``establish, document, and maintain a quality system,''
which includes documenting procedures to meet the requirements.
The definition has been amended, however, in response to general
comments received, to clarify that a ``document'' may be in writing or
on electronic media, to allow flexibility for any type of recorded
media.
25. FDA received comments questioning the inclusion of a device
that is intended to be sterile, but that is not yet sterile, in the
definition of ``finished device.'' A few comments stated that ``capable
of functioning'' is ambiguous, and ``suitable for use'' is not
necessary. Another comment requested that the term ``accessory'' be
defined.
FDA disagrees with the comments, but has amended the definition for
clarification. Since the 1978 CGMP regulation was promulgated, FDA has
been repeatedly asked whether devices intended to be sold as sterile
are considered subject to the CGMP requirements, even though they have
not yet been sterilized. The agency had intended the new definition to
make explicit the application of the regulation to the manufacture of
sterile devices that have yet to be sterilized. Although FDA believes
it should be obvious that such devices are subject to CGMP
requirements, some manufacturers have taken the position that the
regulation does not apply because the device is not ``finished'' or
``suitable for use'' until it has been sterilized.
To better clarify its intent, FDA has amended the definition to add
that all devices that are capable of functioning, including those
devices that could be used even though they are not yet in their final
form, are ``finished devices.'' For example, devices that have been
manufactured or assembled, and need only to be sterilized, polished,
inspected and tested, or packaged or labeled by a purchaser/
manufacturer are clearly not components, but are now in a condition in
which they could be used, therefore meeting the definition of
``finished device.''
The distinction between ``components'' and ``finished devices'' was
not intended to permit manufacturers to manufacture devices without
complying with CGMP requirements by claiming that other functions, such
as sterilization, incoming inspection (where sold for subsequent minor
polishing, sterilization, or packaging), or insertion of software, will
take place. The public would not be adequately protected in such cases
if a manufacturer could claim that a device was not a ``finished''
device subject to the CGMP regulation because it was not in its
``final'' form.
The phrase ``for commercial distribution'' was deleted from the
proposed definition of ``finished device'' because it is not necessary
for a device to be in commercial distribution to be considered a
finished device. Further, FDA notes that the term ``accessory'' is
described in Sec. 807.20(a)(5) (21 CFR 807.20(a)(5)).
26. Two comments on the definition of ``lot or batch'' requested
that the definition be clarified: One to reflect that single units may
be produced for distribution, the other to indicate that what
constitutes a lot or a batch may vary depending on the context.
In response to the comments, FDA has modified the definition to
make clear that a lot or batch may, depending on circumstances, be
comprised of one finished device. Whether for inspection or for
distribution, a lot or batch is determined by the factors set forth in
the definition; of course, a manufacturer may determine the size of the
lot or batch, as appropriate.
27. Several comments received on the definition of ``executive
management'' objected that the definition is inconsistent with ISO
9001. Others thought that FDA should better define the level of
management the term was intended to describe.
FDA agrees with both concerns and has modified the definition by
deleting the second half, which appeared to bring executive authority
and responsibility too far down the organization chart. The term was
intended to apply only to management that has the authority to bring
about change in the quality system and the management of the quality
system. Although such management would clearly have authority over, for
example, distribution, those who may have delegated management
authority over distribution would not necessarily have authority over
the quality system and quality policy. Accordingly, the definition has
been modified to include only those who have the authority and
responsibility to establish and make changes to the quality policy and
quality system. It is the responsibility of top management to establish
and communicate the quality policy. In addition, the term ``executive
management'' has been changed to ``management with executive
responsibility,'' to harmonize with ISO 9001:1994.
28. Several comments in response to the proposed definition of
[[Page 52610]]
``manufacturer'' stated that refurbishers and servicers should be added
to the definition of a ``manufacturer.'' Other comments recommended
adding the term ``remanufacturer.'' Other comments requested deletion
of contract sterilizers, installers, specification developers,
repackagers, relabelers, and initial distributors from the definition.
One comment stated that the phrase ``processes a finished device''
should be explained in the definition of manufacturer.
FDA's Compliance Policy Guide (CPG) 7124.28 contains the agency's
policy regarding the provisions of the act and regulations with which
persons who recondition or rebuild used devices are expected to comply.
This CPG is in the process of being revised in light of FDA's
experience in this area. FDA is not including the terms ``servicer'' or
``refurbisher,'' as they relate to entities outside the control of the
original equipment manufacturer, in this final regulation, even though
it believes that persons who perform such functions meet the definition
of manufacturer. Because of a number of competitive and other issues,
including sharply divided views by members of the GMP Advisory
Committee at the September 1995 meeting, FDA has elected to address
application of the CGMP requirements to persons who perform servicing
and refurbishing functions outside the control of the original
manufacturer in a separate rulemaking later this year, with another
opportunity for public comment.
FDA agrees that the term ``remanufacturing'' should be added to the
definition of ``manufacturer'' and has separately defined the term. A
remanufacturer is defined as ``any person who processes, conditions,
renovates, repackages, restores, or does any other act to a finished
device that significantly changes the finished device's performance or
safety specifications, or intended use.''
However, FDA disagrees that contract sterilizers, installers,
specification developers, repackagers, relabelers, and initial
distributors should be deleted from the definition, primarily because
all such persons may have a significant effect on the safety and
effectiveness of a device and on the public health. All persons who
perform these functions meet the definition of manufacturer, and
therefore should be inspected to ensure that they are complying with
the applicable provisions. For example, a specification developer
initiates the design requirements for a device that is manufactured by
a second party for subsequent commercial distribution. Such a developer
is subject to design controls. Further, those that perform the
functions of contract sterilization, installation, relabeling,
remanufacturing, and repacking have routinely been considered to be
manufacturers under the original CGMP definition, and the agency has
treated them as such by inspecting them to ensure that they comply with
the appropriate portions of the original CGMP. By explicitly including
them in the definition of ``manufacturer'' the agency has simply
codified its longstanding policy and interpretation of the original
regulation.
The phrase ``processes a finished device'' applies to a finished
device after distribution. Again, this phrase has been part of the CGMP
regulation definition of ``manufacturer'' for 18 years.
29. A number of comments on the definition of ``manufacturing
material,'' and on other parts of the proposal containing requirements
for ``manufacturing material,'' stated that while the control of
manufacturing material is important, it need not be as extensive as
required throughout the regulation. Other comments stated that the
meaning of the phrase ``or other byproducts of the manufacturing
process'' is unclear, and should be deleted. One comment suggested that
the definition be modified to separate the definition from the
examples.
FDA agrees that, depending on the manufacturing material and the
device, the degree of control that is needed will vary. FDA believes
that manufacturing materials must be assessed, found acceptable for
use, and controlled. Therefore, the regulation requires manufacturers
to assess, assure acceptability of, and control manufacturing materials
to the degree necessary to meet the specified requirements. The agency
notes that international standards such as ISO 8402:1994 include
manufacturing material in their definition of ``product,'' to which all
requirements apply, and notes that FDA has added the same definition in
Sec. 820.3(r) in its effort toward harmonization.
FDA amended the definition of manufacturing material to read ``a
concomitant constituent, or a byproduct constituent produced during the
manufacturing process'' to help clarify this definition. These terms
refer to those materials or substances that naturally occur as a part
of the material or during the manufacturing process which are intended
to be removed or reduced in the finished device. For example, some
components, such as natural rubber latex, contain allergenic proteins
that must be reduced or removed from the finished devices. The
definition has been modified to include ``concomitant constituents'' to
clarify the meaning.
In addition to clarifying the definition, FDA has deleted the
specific examples. Therefore, FDA notes that cleaning agents, mold
release agents, lubricating oils, latex proteins, and sterilant
residues are just some examples of manufacturing materials.
30. The comments received on the definition for ``nonconforming''
conveyed a general sense that the definition was confusing, with
various comments suggesting that different parts of the definition
should be deleted and one suggesting that the definition be deleted
altogether.
In response to these comments, the definition of ``nonconforming''
has been deleted. However, the definition from ISO 8402:1994 for
``nonconformity'' was added to ensure that the requirements in the
regulation, especially those in Secs. 820.90 Nonconforming product and
820.100 Corrective and preventive action are understood. FDA emphasizes
that a ``nonconformity'' may not always rise to the level of a product
defect or failure, but a product defect or failure will typically
constitute a nonconformity.
31. Several comments requested various revisions to the definition
of ``production'' to make it more clear, and one thought that it was a
common term and should be deleted.
In response, FDA has deleted the definition for ``production''
because it should be commonly understood.
As noted in response to comments on the definition of manufacturing
material, FDA has added a definition of ``product'' to conform to the
definition in ISO 8402:1994 and to avoid the necessity of repeating the
individual terms throughout the regulation. Whenever a requirement is
not applicable to all types of product, the regulation specifically
states the product(s) to which the requirement is applicable.
It should be noted that the regulation has acceptance requirements
for incoming ``product'' and other requirements for ``product,'' which
by definition includes manufacturing materials. Manufacturing materials
should be controlled in a manner that is commensurate with their risk
as discussed above. However, for manufacturing materials that are
``concomitant constituents,'' FDA realizes that incoming acceptance,
identification, etc., may not be feasible. The important control
measure for ``concomitant constituents'' is the
[[Page 52611]]
reduction or removal requirement found in Sec. 820.70(h).
32. A few comments stated that the definition of ``quality'' should
be changed to be identical to ISO 8402. Others stated that the
terminology adopted from ISO 8402, ``that bear on,'' is too broad and
could cover every potential and imaginable factor. Still others wanted
to add the phrase, ``as defined by the manufacturer'' to the end of the
sentence.
FDA disagrees with the comments and believes that the definition is
closely harmonized to that in ISO 8402:1994. FDA believes that the
definition appropriately defines quality in the context of a medical
device and believes that the phrase from ISO 8402:1994, ``stated and
implied needs,'' has the same meaning as the phrase ``fitness-for-use,
including safety and performance'' in the context of the Quality System
regulation. Further, ``quality'' is not just ``defined by the
manufacturer'' but is also defined by customer need and expectation.
33. Many comments received on the ``quality audit'' definition
suggested that the definition should not state that it is an
examination of the ``entire'' quality system because that would require
that every audit include the ``entire'' quality system. Other comments
on ``quality audit'' stated that it is unclear what is meant by the
last sentence of the proposed definition, namely, that `` `[q]uality
audit' is different from * * * other quality system activities required
by or under this part.''
FDA agrees that while the quality audit is an audit of the
``entire'' quality system, audits may be conducted in phases, with some
areas requiring more frequent audits than other areas, and that each
audit need not review the whole system. The frequency of internal
quality audits should be commensurate with, among other things, the
importance of the activity, the difficulty of the activity to perform,
and the problems found. To avoid any misunderstanding, the word
``entire'' before quality system has been deleted.
FDA emphasizes that if conducted properly, internal quality audits
can prevent major problems from developing and provide a foundation for
the management review required by Sec. 820.20(c), ``Management
review.''
In response to the confusion about the last sentence of the
proposed definition, FDA has deleted the last sentence. The purpose of
the sentence was to clarify that the internal audit requirement is
different from, and in addition to, the requirements for establishing
quality assurance procedures and recording results. On occasion,
manufacturers have attempted to prevent FDA investigators from
reviewing such quality assurance procedures and results (for example,
trend analysis results) by stating that they are part of the internal
quality audit report and not subject to review during a CGMP
inspection. FDA disagrees with this position. To clarify which records
are exempt from routine FDA inspection, FDA has added Sec. 820.180(c).
34. One comment said that the word ``executive'' should be deleted
from the definition of ``quality policy'' because quality policy should
be supported by all personnel, not just those in executive management.
A few comments stated that ``formally expressed'' should be deleted
because it is incompatible with the requirements in Sec. 820.20(a) and
(c) which require that the quality policy be ``established.'' Other
comments stated that the ``quality'' before ``intentions'' was
tautological.
FDA agrees that all company personnel must follow the quality
policy. However, the definition is intended to make clear that the
quality policy must be established by top management. Therefore it has
been retained. The term ``executive management'' has been modified to
``management with executive responsibility'' to be consistent with the
revised ISO 9001:1994. FDA agrees with the remaining comments and has
changed ``formally expressed'' to ``established'' for consistency and
has deleted the ``quality'' before ``intentions.''
35. A few comments suggested using the definition of ``quality
systems'' from ISO 8402 and 9001. Other comments on the definition of
``quality system'' said that the term ``quality management'' should be
defined.
FDA agrees in part with the comments. The term ``specifications''
has been deleted to harmonize the definition with ISO 8402:1994. FDA
does not agree that the term ``quality management'' must be defined. A
definition can be found in ISO 8402:1994 that is consistent with FDA's
use of the term.
36. Many comments on the definition of ``record'' were received.
Some thought the term was too broad, giving FDA access to all documents
and exceeding FDA's inspection authority. Others thought that the
definition of ``record'' would tremendously increase the recordkeeping
burden. Several comments recommended that FDA adopt the ISO definition.
The definition of ``record'' was deleted because it seemed to add
more confusion than clarity. The definition was intended to clarify
that ``records'' may include more than the traditional hardcopy
procedures and SOP's, for example, plans, notes, forms, data, etc. FDA
was trying to clarify that ``records'' could be written, electronic,
optical, etc., as long as they could be stored and controlled. FDA
could not adopt the ISO 8402:1994 definition because of how the term
``record'' is used in the act, which is broader than the ISO
definition. Therefore, FDA will allow the act and case law to continue
to define the term.
37. The definition in the Working Draft of ``refurbisher'' was
deleted and will be addressed in the separate rulemaking described
above.
38. FDA added the definition of ``remanufacturer'' to codify FDA's
longstanding policy and interpretation of the original CGMP. The
language is consistent with the 510(k) provisions and the premarket
approval amendment/supplement requirements, because FDA has always
considered remanufacturers in fact to be manufacturers of a new device.
39. Several comments on the definition of ``reprocessing''
requested clarification of the difference between that term and
``refurbishing.'' Several other comments on the definition of
``reprocessing'' stated that FDA should clarify that ``reprocessing''
is an activity performed before a device is distributed. Others
commented that the ter
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
m ``rework'' should be used instead of the term
``reprocessing,'' to be consistent with ISO terminology.
FDA agrees with the comments and has changed the term to
``rework,'' adopted the ISO 8402:1994 definition, and added that
``rework'' is performed according to specified DMR requirements before
the device is released for distribution.
40. A few comments stated that including the term ``maintenance''
in the proposed definition of ``servicing'' implies that preventative
maintenance would be subject to the regulation. Other comments said
that it may not be desirable to return old devices or devices that have
received field modifications to the original specifications. Therefore,
the comments suggested deleting the last part of the definition that
states that ``servicing'' is returning a device to its specifications.
FDA has deleted the definition of ``servicing'' and has not added a
definition of ``servicer'' because this will be covered in the separate
rulemaking discussed above. FDA notes, however, that servicing
performed by manufacturers and remanufacturers is subject to the
requirements in Sec. 820.200 Servicing. These requirements are a
codification of longstanding interpretations of the original CGMP,
[[Page 52612]]
Sec. 820.20(a)(3), and current agency policy.
41. Several comments were received on the proposed definition of
``special process.'' Many asked for clarification or adoption of the
ISO definition. Some stated that it is impossible to completely verify
processes in every instance.
FDA has deleted the definition because the term ``special process''
is no longer used in ISO 9001:1994, except in a note. FDA has, however,
modified the requirements of the regulation to reflect that, in many
cases, testing and inspecting alone may be insufficient to prove the
adequacy of a process. One of the principles on which the quality
systems regulation is based is that all processes require some degree
of qualification, verification, or validation, and manufacturers should
not rely solely on inspection and testing to ensure processes are
adequate for their intended uses.
42. Several comments on the definition of ``specification''
suggested that the term should not apply to quality system
requirements. One comment suggested that the phrase ``other activity''
be deleted because it is too broad. Another comment noted that the
definition in ISO 9001 pertains to requirements, not only documents.
In response, FDA has amended the definition to make clear that it
applies to the requirements for a product, process, service, or other
activity. The reference to the quality system has been deleted. FDA
disagrees that the definition is too broad and has not deleted the term
``other activity'' because a specification can be developed for
anything the manufacturer chooses. FDA notes, however, that ISO
9001:1994 does not contain a definition for ``specification'' but uses
the definition found in ISO 8402:1994.
43. Numerous comments were received on the definitions of
``validation'' and ``verification.'' Almost all stated that the two
definitions overlapped and that there was a need to rewrite the
definitions to prevent confusion. Many suggested that the ISO
definitions be adopted. Others stated that there was a need to
distinguish between design validation and process validation.
FDA agrees with the comments and has rewritten the two definitions
to better reflect the agency's intent. FDA has adopted the ISO
8402:1994 definition of validation. ``Validation'' is a step beyond
verification to ensure the user needs and intended uses can be
fulfilled on a consistent basis. FDA has further distinguished
``process validation'' from ``design validation'' to help clarify these
two types of ``validation.'' The ``process validation'' definition
follows from FDA's ``Guidelines on General Principles of Process
Validation'' (Ref. 10). The definition for ``design validation'' is
consistent with the requirements contained in Sec. 820.30 Design
controls.
The ISO 8402:1994 definition of ``verification'' has been adopted.
``Verification'' is confirmation by examination and provision of
objective evidence that specified requirements for a particular device
or activity at hand have been met.
iii. Quality System (Sec. 820.5)
44. Several comments suggested that the requirement should be more
general, in that the requirement that devices be safe and effective is
covered elsewhere in the regulation. The comments recommended that the
quality system requirements be harmonized with international standards
and focus on requiring that a system be established that is appropriate
to the specific device and that meets the requirements of the
regulation.
FDA agrees in part with the comments and has modified the language
as generally suggested by several comments to require that the quality
system be ``appropriate for the specific medical device(s) designed or
manufactured, and [] meet[] the requirements of this part.'' This is
essentially the requirement of the original CGMP regulation with the
added reference to design control.
The requirements that effective quality system instructions and
procedures be established and effectively maintained are retained;
however, they were moved to Sec. 820.20(b)(3)(i). As previously noted,
the quality system regulation is premised on the theory that the
development, implementation, and maintenance of procedures designed to
carry out the requirements will assure the safety and effectiveness of
devices. Thus, the broad requirements in Sec. 820.5 are in a sense the
foundation on which the remaining quality system requirements are
built.
B. Quality System Requirements (Subpart B)
i. Management Responsibility (Sec. 820.20)
45. Several comments on Sec. 820.20(a), ``Quality policy,'' related
to the use of the term ``executive management.'' A few comments stated
that quality system development and implementation are the
responsibility of the chief executive officer, but how he or she
chooses to discharge the responsibility should be left to the
discretion of the manufacturer. Other comments stated that the
requirement that executive management ensure that the quality policy is
understood is impossible and should be deleted or rewritten.
FDA agrees in part with the comments. In response to the comments,
FDA has deleted the term ``executive management'' and replaced it with
``management with executive responsibility,'' which is consistent with
ISO 9001:1994. Management with executive responsibility is that level
of management that has the authority to establish and make changes to
the company quality policy. The establishment of quality objectives,
the translation of such objectives into actual methods and procedures,
and the implementation of the quality system may be delegated. The
regulation does not prohibit the delegation. However, it is the
responsibility of the highest level of management to establish the
quality policy and to ensure that it is followed. (See United States v.
Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 421 U.S.
658 (1975).)
For this reason, FDA disagrees that the requirement that management
ensure that the quality policy is understood should be deleted. It is
without question management's responsibility to undertake appropriate
actions to ensure that employees understand management's policies and
objectives. Understanding is a learning process achieved through
training and reinforcement. Management reinforces understanding of
policies and objectives by demonstrating a commitment to the quality
system visibly and actively on a continuous basis. Such commitment can
be demonstrated by providing adequate resources and training to support
quality system development and implementation. In the interest of
harmonization, the regulation has been amended to be very similar to
ISO 9001:1994.
46. A few comments stated that the words ``adequate'' and
``sufficient'' should be deleted from Sec. 820.20(b) ``Organization,''
as they are subjective and too difficult to define. One comment thought
that the general requirements in the paragraphs are addressed by
Sec. 820.25 Personnel. Another comment stated that ``designed'' should
be added prior to ``produced'' for consistency with the scope.
FDA agrees that the requirement for ``sufficient personnel'' is
covered in Secs. 820.20(b)(2), ``Resources,'' and 820.25 Personnel,
both of which require manufacturers to employ sufficient personnel with
the training and
[[Page 52613]]
experience necessary to carry out their assigned activities properly.
The phrase is, therefore, deleted. However, FDA has retained the
requirement for establishing an ``adequate organizational structure''
to ensure compliance with the regulation, because such an
organizational structure is fundamental to a manufacturer's ability to
produce safe and effective devices. The organizational structure should
ensure that the technical, administrative, and human factors functions
affecting the quality of the device will be controlled, whether these
functions involve hardware, software, processed materials, or services.
All such control should be oriented towards the reduction, elimination,
or ideally, prevention of quality nonconformities. Further, the agency
does not believe that the term is ambiguous. The organizational
structure established will be determined in part by the type of device
produced, the manufacturer's organizational goals, and the expectations
and needs of customers. What may be an ``adequate'' organizational
structure for manufacturing a relatively simple device may not be
``adequate'' for the production of a more complex device, such as a
defibrillator. FDA has also added ``designed'' prior to ``produced'' to
be consistent with the scope of the regulation.
47. A number of comments on proposed Sec. 820.20 (b)(1)(i) through
(b)(1)(v), ``Responsibility and authority,'' objected to the section,
stating that it was too detailed and confusing and that the wording was
redundant with other sections of the proposal.
FDA agrees generally with the comments in that the proposed
paragraphs set forth examples of situations in which independence and
authority are important. Therefore, the examples provided in
Sec. 820.20 (b)(1)(i) through (b)(1)(v) are deleted. However, FDA has
retained the broad requirement that the necessary independence and
authority be provided as appropriate to every function affecting
quality. FDA emphasizes that it is crucial to the success of the
quality system for the manufacturer to ensure that responsibility,
authority, and organizational freedom (or independence) is provided to
those who initiate action to prevent nonconformities, identify and
document quality problems, initiate, recommend, provide, and verify
solutions to quality problems, and direct or control further
processing, delivery, or installation of nonconforming product.
Organizational freedom or independence does not necessarily require a
stand-alone group, but responsibility, authority, and independence
should be sufficient to attain the assigned quality objectives with the
desired efficiency.
48. Several comments on proposed Sec. 820.20(b)(2), ``Verification
resources and personnel,'' stated that requiring ``adequately'' trained
personnel was subjective and that the section was not consistent with
ISO 9001.
FDA agrees that the section is not consistent with ISO 9001, and
has adopted the language used in ISO 9001:1994, section 4.1.2.2,
``Resources,'' and has renamed the section ``Resources.'' The provision
is now a broad requirement that the manufacturer provide adequate
resources for the quality system and is not restricted to the
verification function. FDA acknowledges that Sec. 820.25(a),
``General,'' requires that sufficiently trained personnel be employed.
However, Sec. 820.20(b)(2), ``Resources,'' emphasizes that all resource
needs must be provided for, including monetary, supplies, etc., as well
as personnel resources. In contrast, Sec. 820.25(a) specifically
addresses education, background, training, and experience requirements
for personnel.
49. Comments on Sec. 820.20(b)(3), ``Management representative,''
stated that the management representative should not be limited to
``executive'' management. A few comments stated that the appointment
should be documented. In addition, a few comments from proposed
Sec. 820.5 stated that the terms ``effective'' and ``effectively''
should be defined.
The agency agrees that the responsibility need not be assigned to
``executive'' management and has modified the requirement to allow
management with executive responsibility to appoint a member of
management. When a member of management is appointed to this function,
potential conflicts of interest should be examined to ensure that the
effectiveness of the quality system is not compromised. In addition, in
response to many comments, the requirement was amended to make clear
that the appointment of this person must be documented, moving the
requirement up from Sec. 820.20(b)(3)(ii). The amended language is
consistent with ISO 9001:1994. Further, FDA has amended this section to
change ``executive management'' to ``management with executive
responsibility'' for consistency with the definition.
The terms ``effective'' and ``effectively'' are no longer used in
Sec. 820.5 but ``effectively'' is found in Sec. 820.20(b)(3)(i). FDA
does not believe that these terms require a definition. Instructions
and procedures must be defined, documented, implemented, and maintained
in such a way that the requirements of this part are met. If they are,
they will be ``effective.''
50. A few comments stated that the improvement of the quality
system is not a requirement under the act and the reference to such
improvement in Sec. 820.20(b)(3)(ii) should, therefore, be deleted.
FDA agrees in part with the comments and has deleted the
requirement that the person appointed under this section provide
information for improving the quality system. The provision implied
that the manufacturer must go beyond the requirements of the
regulation. FDA notes, however, that information collected in complying
with Secs. 820.20(b)(3)(ii) and 820.100 Corrective and preventive
action, should be used not only for detecting deficiencies and for
subsequent correction of the deficiencies but also to improve the
device and quality system.
51. Many comments stated that the report required by
Sec. 820.20(c), ``Management review,'' should not be subject to FDA
review, due to the same liability and self-incrimination concerns
related to the internal audit.
FDA agrees in part with the comments. The proposed regulation did
not state FDA's intentions with respect to inspectional review of the
results of the required management review. After careful consideration
of the comments, FDA agrees that it will not request to inspect and
copy the reports of reviews required by Sec. 820.20(c) when conducting
routine inspections to determine compliance with this part. FDA
believes that refraining from routinely reviewing these reports may
help ensure that the audits are complete and candid and of maximum use
to the manufacturer. However, FDA believes that it is important that
the dates and results of quality system reviews be documented, and FDA
may require that management with executive responsibility certify in
writing that the manufacturer has complied with the requirements of
Sec. 820.20(c). FDA will also review the written procedures required by
Sec. 820.20(c), as well as all other records required under
Sec. 820.20.
52. A few comments stated that the management review should not be
dictated by established review procedures because management level
employees should be fully capable of reviewing documents without a
written procedure.
As noted above, FDA has retained the requirement for establishing
procedures to conduct the required management review in Sec. 820.20(c).
FDA believes that
[[Page 52614]]
a manufacturer can establish procedures flexible enough for management
to vary the way in which a review is conducted, as appropriate.
Procedures should require that the review be conducted at appropriate
intervals and should be designed to ensure that all parts of the
quality system are adequately reviewed. A manufacturer may, of course,
develop procedures that permit review of different areas at different
times, so long as such reviews are sufficient to carry out the
objectives of this section. If there are known problems, for example, a
``sufficient frequency'' may be fairly frequent. Further, because FDA
will not be reviewing the results of such reviews, FDA must be assured
that this function will occur in a consistent manner.
53. A few comments stated that Sec. 820.20(c) should be deleted
because it duplicates the quality audit required by Sec. 820.22.
FDA disagrees that Sec. 820.20(c) duplicates the requirements in
Sec. 820.22. The purpose of the management reviews required by
Sec. 820.20(c) is to determine if the manufacturer's quality policy and
quality objectives are being met, and to ensure the continued
suitability and effectiveness of the quality system. An evaluation of
the findings of internal and supplier audits should be included in the
Sec. 820.20(c) evaluation. The management review may include a review
of the following: (1) The organizational structure, including the
adequacy of staffing and resources; (2) the quality of the finished
device in relation to the quality objectives; (3) combined information
based on purchaser feedback, internal feedback (such as results of
internal audits), process performance, product (including servicing)
performance, among other things; and (4) internal audit results and
corrective and preventive actions taken. Management reviews should
include considerations for updating the quality system in relation to
changes brought about by new technologies, quality concepts, market
strategies, and other social or environmental conditions. Management
should also review periodically the appropriateness of the review
frequency, based on the findings of previous reviews. The quality
system review process in Sec. 820.20(c), and the reasons for the
review, should be understood by the organization.
The requirements under Sec. 820.22 Quality audit are for an
internal audit and review of the quality system to verify compliance
with the quality system regulation. The review and evaluations under
Sec. 820.22 are very focused. During the internal quality audit, the
manufacturer should review all procedures to ensure adequacy and
compliance with the regulation, and determine whether the procedures
are being effectively implemented at all times. In contrast, as noted
above, the management review under Sec. 820.20(c) is a broader review
of the organization as a whole to ensure that the quality policy is
implemented and the quality objectives are met. The reviews of the
quality policy and objectives (Sec. 820.20(c)) should be carried out by
top management, and the review of supporting activities (Sec. 820.22)
should be carried out by management with executive responsibility for
quality and other appropriate members of management, utilizing
competent personnel as decided on by the management.
54. Some comments suggested that the requirements in
Sec. 820.186(a) and (d) be moved to Sec. 820.20 for clarity and to
better align with the structure of ISO 9001:1994 and ISO/CD 13485.
FDA agrees and has moved the specific requirements from
Sec. 820.186 and rewritten them into new Sec. 820.20 (d) and (e) for
clarity, better organization, and closer harmonization. Therefore,
Sec. 820.20(d) is consistent with ISO 9001:1994, section 4.2.3,
``Quality planning,'' and Sec. 820.20(e) is consistent with ISO
9001:1994, sections 4.2.1, ``General,'' and 4.2.2, ``Quality-system
procedures.'' Section 820.20(e) discusses ``[a]n outline of the
structure of the documentation used in the quality system.'' FDA
believes that outlining the structure of the documentation is
beneficial and, at times, may be critical to the effective operation of
the quality system. FDA recognizes, however, that it may not be
necessary to create an outline in all cases. For example, it may not be
necessary for smaller manufacturers and manufacturers of less
complicated devices. Thus, the outline is only required where
appropriate.
ii. Quality Audit (Sec. 820.22)
55. A few comments suggested that FDA delete the requirement that
persons conducting the audit be ``appropriately trained'' from the
second sentence of proposed Sec. 820.22(a), because it is subjective
and not consistent with ISO 9001.
FDA has deleted the requirement from Sec. 820.22(a) because
Sec. 820.25 Personnel requires that such individuals be appropriately
trained. Further, FDA has attempted to better harmonize with ISO
9001:1994, which does not explicitly state personnel qualifications in
each provision. Similarly, in response to general comments suggesting
better harmonization, FDA has added the requirement that the audit
``determine the effectiveness of the quality system'' as required by
ISO 9001:1994. This requirement underscores that the quality audit must
not only determine whether the manufacturer's requirements are being
carried out, but whether the requirements themselves are adequate.
56. Some comments stated that requiring ``individuals who do not
have direct responsibility for the matters being audited'' to conduct
the audits is impractical and burdensome, particularly for small
manufacturers.
FDA disagrees with the comments. Both small and large manufacturers
have been subject to the identical requirement since 1978 and FDA knows
of no hardship, on small or large manufacturers, as a result. Small
manufacturers must generally establish independence, even if it means
hiring outside auditors, because the failure to have an independent
auditor could result in an ineffective audit.
Manufacturers must realize that conducting effective quality audits
is crucial. Without the feedback provided by the quality audit and
other information sources, such as complaints and service records,
manufacturers operate in an open loop system with no assurance that the
process used to design and produce devices is operating in a state of
control. ISO 9001:1994 has the same requirement for independence from
the activity being audited.
57. Several comments claimed that the last sentence in proposed
Sec. 820.22(a), which required that followup corrective action be
documented in the audit report, made no sense. The comments said that
corrective action would be the subject of a followup report.
It was the agency's intent that the provision require that where
corrective action was necessary, it would be taken and documented in a
reaudit report. The provision has been rewritten to make that clear.
New Sec. 824.22 also clarifies that a reaudit is not always required,
but where it is indicated, it must be conducted. The report should
verify that corrective action was implemented and effective. Because
FDA does not review these reports, the date on which the audit and
reaudit were performed must be documented and will be subject to FDA
review. The revised reaudit provision is consistent with ISO 9001:1994.
58. Many comments were received on proposed Sec. 820.22(b)
regarding the reports exempt from FDA review. Most of the comments
objected to FDA reviewing evaluations of suppliers. FDA has decided not
to review such
[[Page 52615]]
evaluations at this time and will revisit this decision after the
agency gains sufficient experience with the new requirement to
determine its effectiveness. A thorough response to the comments is
found with the agency's response to other comments received on
Sec. 820.50 Purchasing controls. FDA has moved the section regarding
which reports the agency will refrain from reviewing from
Sec. 820.22(b) to new Sec. 820.180(c), ``Exemptions,'' under the
related records requirements. FDA believes this organization is easier
to follow.
iii. Personnel (Sec. 820.25)
59. A few comments stated that the requirement in Sec. 820.25
Personnel for the manufacturer to employ ``sufficient'' personnel
should be deleted, because whether there are ``sufficient'' personnel
is a subjective determination, and it is unnecessary to require it
since the manufacturer will know how best to staff the organization. A
few other comments stated that the provision should not base the
personnel requirements on ensuring that the requirements of the
regulation are ``correctly'' performed, because no manufacturer can
ensure that all activities are performed correctly. Another comment
stated that the term ``employ'' should be changed because personnel may
include qualified temporaries, contractors, and others who may not
typically be considered ``employees.''
FDA disagrees with the suggestions that the terms ``sufficient''
and ``correctly'' be deleted. Whether ``sufficient'' personnel are
employed will be determined by the requirements of the quality system,
which must be designed to ensure that the requirements of the
regulation are properly implemented. In making staffing decisions, a
manufacturer must ensure that persons assigned to particular functions
are properly equipped and possess the necessary education, background,
training, and experience to perform their functions correctly. However,
FDA changed ``ensure'' to ``assure'' to address the concerns that
people do make mistakes and management cannot guarantee that work is
correctly performed all of the time. Further, FDA agrees that the
manufacturer must determine for itself what constitutes ``sufficient''
personnel with proper qualification in the first instance. However, if
the manufacturer does not employ sufficient personnel, or personnel
with the necessary qualifications to carry out their functions, the
manufacturer will be in violation of the regulation. FDA has often
found that the failure to comply with this requirement leads to other
significant regulatory violations. FDA agrees with the comment that the
term ``employ'' should be deleted so that the requirement covers all
personnel who work at a firm.
60. In Sec. 820.25(b), ``Training,'' FDA deleted the requirement
that employees be trained ``by qualified individuals,'' because
Sec. 820.25(a) requires this. Several comments stated that FDA should
add the requirement that the training procedure include the
identification of training needs, to be consistent with the
requirements in ISO 9001:1994 and ISO/CD 13485. Other comments stated
that personnel need not be trained to the extent that they can quote
chapter and verse of the regulation as long as they can adequately
perform their assigned responsibilities. Several comments suggested
deleting the requirements in the last two sentences in favor of a
broad, general requirement that personnel be trained. A few comments
stated that the last two sentences should be retained because they are
crucial and sound requirements but that validation activities should be
included with verification activities.
FDA amended the requirement so that the training procedure includes
the identification of training needs. FDA deleted the requirement on
understanding the CGMP requirements applicable to job functions to
avoid the perception that personnel would need to know ``chapter and
verse of the regulation.'' FDA notes, however, that a training program
to ensure personnel adequately perform their assigned responsibilities
should include information about the CGMP requirements and how
particular job functions relate to the overall quality system. FDA
further believes that it is imperative that training cover the
consequences of improper performance so that personnel will be apprised
of defects that they should look for, as well as be aware of the effect
their actions can have on the safety and effectiveness of the device.
In addition, FDA disagrees with comments that suggested that only
``personnel affecting quality'' should be required to be adequately
trained. In order for the full quality system to function as intended,
all personnel should be properly trained. Each function in the
manufacture of a medical device must be viewed as integral to all other
functions. FDA has reorganized the last two sentences, however, to
place the requirements under Sec. 820.25(b), ``Training,'' and has
added validation activities as suggested by the comments.
61. Many comments objected to the proposed requirements of
Sec. 820.25(c), ``Consultants,'' stating that requiring a manufacturer
to chose consultants that have sufficient qualifications and to keep
records subject to FDA review of all consultants used, along with
copies of their resumes and lists of previous jobs, would unreasonably
interfere with the manufacturer's business activities and restrict the
right of a manufacturer to hire consultants on any basis it chooses.
Other comments said that a manufacturer's employment of a consultant
has the same potential impact on the safety and effectiveness of
medical devices as employment of any other contractor for services, and
that consultants should, therefore, be covered by Sec. 820.50
Purchasing controls.
FDA agrees in part with these comments. Although employing a
consultant is a business decision, when a manufacturer hires
consultants who do not have appropriate credentials, and manufacturing
decisions are made based on erroneous or ill-conceived advice, the
public suffers. Of course, the manufacturer is still ultimately
responsible for following the CGMP requirements and will bear the
consequences of a failure to comply. FDA notes that the use of
unqualified consultants has led to regulatory action for the failure to
comply with the CGMP regulation in the past. Thus, because of the
significant impact a consultant can have on the safety and
effectiveness of a device, FDA believes that some degree of control is
required in the regulation.
The requirements are revised somewhat in response to comments,
however, to reflect that it is not FDA's goal to dictate whom a
manufacturer may use as a consultant, but instead to require that a
manufacturer determine what it needs to adequately carry out the
requirements of the regulation and to assess whether the consultant can
adequately meet those needs. The requirements related to consultants
have been added in Sec. 820.50 Purchasing controls because a consultant
is a supplier of a service.
C. Design Controls (Subpart C)
Since early 1984, FDA has identified lack of design controls as one
of the major causes of device recalls. The intrinsic quality of
devices, including their safety and effectiveness, is established
during the design phase. Thus, FDA believes that unless appropriate
design controls are observed during preproduction stages of
development, a finished device may be neither safe nor effective for
its intended use. The SMDA provided FDA with the
[[Page 52616]]
authority to add preproduction design controls to the device CGMP
regulation. Based on its experience with administering the original
CGMP regulation, which did not include preproduction design controls,
the agency was concerned that the original regulation provided less
than an adequate level of assurance that devices would be safe and
effective. Therefore, FDA has added general requirements for design
controls to the device CGMP regulation for all class III and II devices
and certain class I devices. FDA is not subjecting the majority of
class I devices to design controls because FDA does not believe that
such controls are necessary to ensure that such devices are safe and
effective and otherwise in compliance with the act. However, all
devices, including class I devices exempt from design controls, must be
properly transferred to production in order to comply with
Sec. 820.181, as well as other applicable requirements. For most class
I devices, FDA believes that the production and other controls in the
new quality system regulation and other general controls of the act
will be sufficient, as they have been in the past, to ensure safety and
effectiveness.
62. Many comments were submitted in response to the addition of
design control requirements in general, many questioning how these new
requirements would be implemented and enforced. For instance, several
comments stated that the design control requirements do not reflect how
medical devices are actually developed, because the concept of a design
rarely originates with the manufacturer, who may not become involved
until relatively late in the design evolution. Others expressed concern
that FDA investigators will second-guess design issues in which they
are not educated or trained, and stated that investigators should not
debate whether medical device designs are ``safe and effective.''
FDA agrees in part with the comments. The design control
requirements are not intended to apply to the development of concepts
and feasibility studies. However, once it is decided that a design will
be developed, a plan must be established to determine the adequacy of
the design requirements and to ensure that the design that will
eventually be released to production meets the approved requirements.
Those who design medical devices must be aware of the design
control requirements in the regulation and comply with them. Unsafe and
ineffective devices are often the result of informal development that
does not ensure the proper establishment and assessment of design
requirements which are necessary to develop a medical device that is
safe and effective for the intended use of the device and that meets
the needs of the user.
However, FDA investigators will not inspect a device under the
design control requirements to determine whether the design is
appropriate or ``safe and effective.'' Section 520(f)(1)(a) of the act
precludes FDA from evaluating the ``safety or effectiveness of a
device'' through preproduction design control procedures. FDA
investigators will evaluate the process, the methods, and the
procedures that a manufacturer has established to implement the
requirements for design controls. If, based on any information gained
during an inspection, an investigator believes that distributed devices
are unsafe or ineffective, the investigator has an obligation to report
the observations to the Center for Devices and Radiological Health
(CDRH).
63. Several comments expressed concern that the application of
design controls would severely restrict the creativity and innovation
of the design process and suggested that design controls should not
apply too early in the design development process.
FDA disagrees with the comments. It is not the intent of FDA to
interfere with creativity and innovation, and it is not the intent of
FDA to apply the design control requirements to the research phase.
Instead, the regulation requires the establishment of procedures to
ensure that whatever design is ultimately transferred to production is,
in fact, a design that will translate into a device that properly
performs according to its intended use and user needs.
To assist FDA in applying the regulation, manufacturers should
document the flow of the design process so that it is clear to the FDA
investigator where research is ending and development of the design is
beginning.
64. A few comments stated that design controls should not be
retroactive and that ongoing design development should be exempted.
FDA agrees in part with the comments. FDA did not intend the design
requirements to be retroactive, and Sec. 820.30 Design controls will
not require the manufacturer to apply such requirements to already
distributed devices. When the regulation becomes effective on June 1,
1997, it will apply to designs that are in the design and development
phase, and manufacturers will be expected to have the design and
development plan established. The manufacturer should identify what
stage a design is in for each device and will be expected to comply
with the established design and development plan and the applicable
paragraphs of Sec. 820.30 from that point forward to completion. If a
manufacturer had a design in the development stage before June 1, 1997,
and cannot comply with any particular paragraph of Sec. 820.30, the
manufacturer must provide a detailed justification as to why such
compliance is not possible. However, designs will not have to be
recycled through previous phases that have been completed.
Manufacturers will be expected to comply in full by June 1, 1998. As
stated earlier, FDA wants to emphasize that it expects manufacturers to
be in a reasonable state of compliance with the design control
requirements from June 1, 1997, to June 1, 1998, because extra time was
given to the industry for implementing design controls before the final
regulation became effective.
When changes are made to new or existing designs, the design
controls of Sec. 820.30 must be followed to ensure that the changes are
appropriate and that the device will continue to perform as intended.
FDA notes that the original CGMP regulation contained requirements for
specification controls and controls for specification or design changes
under Sec. 820.100(a).
65. One comment asked how the proposed design controls would apply
to investigational device exemption (IDE) devices, since devices under
approved IDE's have been exempt from the CGMP regulation. Some comments
suggested that any changes to the IDE regulation should be done in a
separate rulemaking. Other comments stated that any change to the IDE
regulation should be worded so that all of Sec. 820.30 applies since
the IDE process is supplying information in support of the design
validation requirements but that all design requirements need not be
completed prior to the start of the IDE because the clinical evaluation
process often brings valuable information to the design project which
may need to be incorporated into the design before design transfer.
The IDE regulation was published in 1976 and last updated in 1978,
and has been in effect since that time. Devices being evaluated under
IDE's were exempted from the original CGMP regulation because it was
believed that it was not reasonable to expect sponsors of clinical
investigations to ensure compliance with CGMP's for devices that may
never be approved for commercial distribution. However, sponsors of IDE
studies were required to ensure that investigational devices were
manufactured under a state of control.
[[Page 52617]]
With respect to the new regulation, FDA believes that it is
reasonable to expect manufacturers who design medical devices to
develop the designs in conformance with design control requirements and
that adhering to such requirements is necessary to adequately protect
the public from potentially harmful devices. The design control
requirements are basic controls needed to ensure that the device being
designed will perform as intended when produced for commercial
distribution. Clinical evaluation is an important aspect of the design
verification and validation process during the design and development
of the device. Because some of the device design occurs during the IDE
stage, it is logical that manufacturers who intend to commercially
produce the device follow design control procedures. Were a
manufacturer to wait until all the IDE studies were complete, it would
be too late to take advantage of the design control process, and the
manufacturer would not be able to fulfill the requirements of the
quality system regulation for that device.
Therefore, FDA has concurrently amended the IDE regulation,
812.1 Scope to state:
(a) * * * An IDE approved under Sec. 812.30 or considered
approved under Sec. 812.2(b) exempts a device from the requirements
of the following sections of the Federal Food, Drug, and Cosmetic
Act (the act) and regulations issued thereunder: * * * good
manufacturing practice requirements under section 520(f) except for
the requirements found in Sec. 820.30, if applicable (unless the
sponsor states an intention to comply with these requirements under
Sec. 812.20(b)(3) or Sec. 812.140(b)(4)(v)) and color additive
requirements under section 721. (Emphasis added.)
FDA does not expect any new information in IDE applications as a
result of this amendment, nor will FDA inspect design controls during
bioresearch monitoring inspections. FDA is simply making a conforming
amendment to the IDE regulation to make clear that design controls must
be followed when design functions are undertaken by manufacturers,
including design activity which occurs under an approved IDE. FDA will
evaluate the adequacy of manufacturers' compliance with design control
requirements in routine CGMP inspections, including preapproval
inspections for premarket approval applications (PMA's).
66. Many written comments and oral comments at the August and
September 1995 meetings recommended that, because design controls are a
major addition to the regulation, the effective date for design
controls should be delayed until 18 months after publication of the
final rule.
FDA has addressed these comments by extending the effective date of
the regulation until June 1, 1997, and by the inspectional strategy
described earlier.
67. A couple of comments suggested that FDA lacked the authority to
establish the design control requirements.
FDA disagrees with the comments. The act and its legislative
history make clear that FDA has the authority to impose those controls
necessary to ensure that devices are safe and effective. The SMDA gave
FDA explicit authority to promulgate design controls, including a
process to assess the performance of a device (see section 520(f)(1)(A)
of the act). The legislative history of the SMDA supports a
``comprehensive device design validation regulation.'' H. Rept. 808,
101st Cong., 2d sess. 23 (emphasis added). Congress stated that the
amendment to the statute was necessary because almost half of all
device recalls over a 5-year period were ``related to a problem with
product design.'' Id. There is a thorough discussion on the evolution
of and need for the design controls in the preamble to the November 23,
1993 (58 FR 61952), proposal.
68. A few comments objected to FDA requiring design controls for
any class I devices in Sec. 820.30(a).
FDA believes that, for the class I devices listed, design controls
are necessary and has retained the requirements. Those relatively few
devices, while class I, require close control of the design process to
ensure that the devices perform as intended, given the serious
consequences that could occur if their designs were flawed and the
devices were to fail to meet their intended uses. In fact, some of the
devices included on the list have experienced failures due to design
related problems that have resulted in health hazards, injuries, or
death. Further, verification, or even validation, cannot provide the
assurance of proper design for some devices, especially those
containing extensive software. Thus, all automated devices must be
developed under the design control requirements.
69. Several comments stated that FDA has underestimated the
complexity of a design project in requiring that the plans identify
``persons responsible for each activity'' in proposed Sec. 820.30(b).
One comment stated that ``define responsibility for implementation''
and ``activities shall be assigned'' were basically redundant
requirements. A few other comments stated that ISO 9001:1994 does not
call for the design plans to be ``approved'' and that this requirement
should be deleted because it would be burdensome.
FDA agrees in part with the comments and has revised Sec. 820.30(b)
to require the plan to describe or reference design activities and
define responsibility for implementing the activities, rather than
requiring that the plan identify each person responsible for carrying
out each activity. In making this change, FDA notes that
Sec. 820.20(b)(1) requires manufacturers to establish the appropriate
responsibility for activities affecting quality, and emphasizes that
the assignment of specific responsibility is important to the success
of the design control program and to achieving compliance with the
regulation. Also, the design and development activities should be
assigned to qualified personnel equipped with adequate resources as
required under Sec. 820.20(b)(2). The requirements under Sec. 820.30(b)
were rewritten to be very similar to the requirements in ISO 9001:1994,
sections 4.4.2 and 4.4.3. FDA does not agree that the design plan
should not be ``approved.'' ISO 9001:1994, section 4.4.2 requires that
the plan be ``updated,'' and section 4.4.3 requires that the plan be
``regularly reviewed.'' Therefore, the approval is consistent with ISO
9001:1994 and would not be unduly burdensome since the FDA does not
dictate how or by whom the plan must be approved. The regulation gives
the manufacturer the necessary flexibility to have the same person(s)
who is responsible for the review also be responsible for the approval
of the plan if appropriate.
70. A few comments stated that the proposed requirement to describe
``any interaction between or among different organizational and
technical groups'' in Sec. 820.30(b) for the design and development
plan should be deleted because it is overly broad, unnecessary, and
burdensome. One comment said that the communication expected between
these groups should be clarified.
In response, FDA has amended the requirement as suggested by one
comment so that the plan shall identify and describe the interfaces
with different groups or activities that provide, or result in, input
to the design process. Many organization functions, both inside and
outside the design group, may contribute to the design process. For
example, interfaces with marketing, purchasing, regulatory affairs,
manufacturing, service groups, or information systems may be necessary
during the design
[[Page 52618]]
development phase. To function effectively, the design plan must
establish the roles of these groups in the design process and describe
the information that should be received and transmitted.
71. One comment stated that the requirement in Sec. 820.30(b) that
manufacturers establish a design plan completely ignores the creative
and dynamic process of designing by requiring a plan to have complete
design and testing criteria established, with specifications, before
the design process is started.
FDA disagrees with the comment. Section 820.30(b) does not require
manufacturers to complete design and testing criteria before the design
process begins. This section has been revised to state that ``plans
shall be reviewed, updated, and approved as design and development
evolves,'' indicating that changes to the design plan are expected. A
design plan typically includes at least proposed quality practices,
assessment methodology, recordkeeping and documentation requirements,
and resources, as well as a sequence of events related to a particular
design or design category. These may be modified and refined as the
design evolves. However, the design process can become a lengthy and
costly process if the design activity is not properly defined and
planned. The more specifically the activities are defined up front, the
less need there will be for changes as the design evolves.
72. One comment stated that the language contained in proposed
Sec. 820.30(c) should more closely match that of ISO 9001. Many other
comments stated that the provision should not require the input
requirements to ``completely'' address the intended use of the device
because inputs could never ``completely'' address the intended use.
Several comments stated that the requirement of ISO 9001 that
``incomplete, ambiguous or conflicting requirements shall be resolved
with those responsible for imposing these requirements'' should be
added to Sec. 820.30(c), ``Design input,'' because it is important that
the regulation identify the method of resolving conflicting
information.
FDA agrees with the harmonization comment and has revised the
language to incorporate the requirement of section 4.4.4, ``Design
input,'' of ISO 9001:1994. FDA does not believe that it is necessary to
have identical language to harmonize quality system requirements. ISO
9001:1994, section 4.4.1, ``General,'' requires that the manufacturer
``establish and maintain documented procedures to control and verify
the design of the product in order to ensure that the specified
requirements are met.'' FDA's regulation, under Sec. 820.30(a), imposes
the same requirements.
Regarding the comments that input requirements cannot completely
address the intended use of the device, FDA recognizes that the
provision could be interpreted to impose a burden that may not always
be possible to meet and has deleted the word ``completely.'' FDA did
not intend the provision to suggest that a manufacturer must foresee
every possible event.
FDA emphasizes, however, that the section requires the manufacturer
to ensure that the design input requirements are appropriate so the
device will perform to meet its intended use and the needs of the user.
In doing this, the manufacturer must define the performance
characteristics, safety and reliability requirements, environmental
requirements and limitations, physical characteristics, applicable
standards and regulatory requirements, and labeling and packaging
requirements, among other things, and refine the design requirements as
verification and validation results are established. For example, when
designing a device, the manufacturer should conduct appropriate human
factors studies, analyses, and tests from the early stages of the
design process until that point in development at which the interfaces
with the medical professional and the patient are fixed. The human
interface includes both the hardware and software characteristics that
affect device use, and good design is crucial to logical,
straightforward, and safe device operation. The human factors methods
used (for instance, task/function analyses, user studies, prototype
tests, mock-up reviews, etc.) should ensure that the characteristics of
the user population and operating environment are considered. In
addition, the compatibility of system components should be assessed.
Finally, labeling (e.g., instructions for use) should be tested for
usability.
FDA agrees with the comments, in that it is important that
incomplete, ambiguous, or conflicting requirements be resolved with
those responsible for imposing these requirements. Therefore, FDA has
added the requirement that the procedures shall include a mechanism for
addressing incomplete, ambiguous, or conflicting requirements. FDA
notes that this must be done to ``ensure that the design requirements
are appropriate and address the intended use of the device,'' as
required under Sec. 820.30(c).
73. A few other comments stated that ISO 9001:1994 does not call
for the design input to be ``approved'' and therefore, this requirement
should be deleted because it would be burdensome.
FDA does not agree that the ``approval'' of design input
requirements should be deleted, nor that the requirement is
inconsistent with ISO. ISO 9001:1994, section 4.4.4, ``Design Input,''
requires that the design input requirements be ``reviewed by the
supplier for adequacy.'' Therefore, the approval would not add any
additional burden because FDA does not dictate how or by whom the
design input requirements must be approved, thus giving the
manufacturer the necessary flexibility to have the same person(s) who
is responsible for the ``review for adequacy'' also be responsible for
the approval, if appropriate. Further, it is important that the design
input be assessed as early as possible in the development process,
making this an ideal time in the device's design development to have a
design review to ``approve'' the design input.
74. A few comments stated that the proposed requirement under
Sec. 820.30(c) that ``design input shall be reviewed and approved by a
designated qualified individual'' should be deleted as it implies that
one person must be designated to review and approve a design, and that
there may not be one person who is qualified to assess all of the
design input requirements. Addressing the same point, several comments
suggested that the provision be revised to allow for more than one
person to review and approve the design. One comment said that the
FDA's requirement appears to be at odds with the team approach.
FDA agrees with the concern expressed by the comments and has
modified the requirement to allow more than one individual to review
and approve the design input. FDA endorses the team approach and
believes that designs should be reviewed and evaluated by all
disciplines necessary to ensure the design input requirements are
appropriate.
75. Two comments stated that proposed Sec. 820.30(c) should be
reworded to focus on systems for assuring adequate design input, not on
the input itself. One additional comment on this section said that the
design input requirements should include not only the device's intended
use and needs of the user, but the environmental limits of where it
will be used.
FDA agrees that procedures for ensuring appropriate design controls
are of the utmost importance and has modified the section to clarify
that the
[[Page 52619]]
manufacturer must establish and maintain procedures to ensure that the
design requirements are properly addressed. FDA made this change to the
other paragraphs as well, but notes that Sec. 820.30(a), ``General,''
requires the manufacturer to establish and maintain procedures to
control the design of the device in order to ensure that specified
design requirements are met. The sections that follow set forth some of
the requirements for which procedures must be established. It should be
emphasized that the input itself must also be appropriate; the
requirement is for the procedures to be defined, documented, and
implemented. Thus, if the input requirements related to a device fail
to address the intended use of the device, for example, the
manufacturer has failed to comply with the provision.
FDA also agrees with the additional comment but believes that
identifying and establishing the environmental limits for safe and
effective device operation is inherent in the requirements for ensuring
that a device is appropriate for its intended use. Some factors that
must be considered when establishing inputs include, where applicable,
a determination of energy (e.g., electrical, heat, and electromagnetic
fields), biological effects (e.g., toxicity and biocompatibility) and
environmental effects (e.g., electromagnetic interference and
electrostatic discharge).
76. Several comments stated that proposed Sec. 820.30(f), ``Design
output,'' should be rewritten or deleted because many of the
requirements were already stated in proposed Secs. 820.30(d), ``Design
verification,'' and 820.30(e), ``Design review,'' and, if retained,
should be reordered similar to ISO 9001.
FDA agrees in part with the comments and has rewritten the
requirements of design output to be consistent with ISO 9001:1994,
section 4.4.5, ``Design output,'' and reordered the sections to be
consistent with ISO 9001:1994. FDA retained the provision, however,
because it does not agree that the section is redundant with the
sections on design verification, design validation, or design review.
Design output are the design specifications which should meet design
input requirements, as confirmed during design verification and
validation and ensured during design review. The output includes the
device, its labeling and packaging, associated specifications and
drawings, and production and quality assurance specifications and
procedures. These documents are the basis for the DMR. The total
finished design output consists of the device, its labeling and
packaging, and the DMR.
77. One comment stated that the sentence ``Design output procedures
shall ensure that design output meets the design input requirements''
is redundant with the requirement under design verification. Another
comment asked what is meant by ``release.''
FDA agrees with the first comment and has deleted that sentence in
Sec. 820.30(d) but notes that the design output must be documented and
expressed in terms that can be verified against the design input
requirements.
Design output can be ``released'' or transferred to the next design
phase at various stages in the design process, as defined in the design
and development plan. The design output is reviewed and approved before
release or transfer to the next design phase or production. The design
output requirements are intended to apply to all such stages of the
design process.
78. One small manufacturer commented that the problems that
Sec. 820.30(e), ``Design review,'' is meant to reveal involve
coordination, cooperation, or communication difficulties among the
members of an organization and that these difficulties do not exist in
a small company. Therefore, the comment stated that the design review
requirements should not apply to small manufacturers.
The purpose of conducting design reviews during the design phase is
to ensure that the design satisfies the design input requirements for
the intended use of the device and the needs of the user. Design review
includes the review of design verification data to determine whether
the design outputs meet functional and operational requirements, the
design is compatible with components and other accessories, the safety
requirements are achieved, the reliability and maintenance requirements
are met, the labeling and other regulatory requirements are met, and
the manufacturing, installation, and servicing requirements are
compatible with the design specifications. Design reviews should be
conducted at major decision points during the design phase.
For a large manufacturer, design review provides an opportunity for
all those who may have an impact on the quality of the device to
provide input, including manufacturing, quality assurance, purchasing,
sales, and servicing divisions. While small manufacturers may not have
the broad range of disciplines found in a large company, and the need
to coordinate and control technical interfaces may be lessened, the
principles of design review still apply. The requirements under
Sec. 820.30(e) allow small manufacturers to tailor a design review that
is appropriate to their individual needs.
79. One comment stated that the wording of proposed Sec. 820.30(e)
implies that only one design review is expected, and that design review
should be conducted at several stages of product development. Several
comments stated that to demand that every design review be conducted by
individuals who do not have direct responsibility for design
development is impractical, especially for small companies.
FDA agrees with the first comment and has rewritten the requirement
to make clear that design reviews must be conducted at appropriate
stages of design development, which must be defined in the established
design and development plan. The number of design reviews will depend
on the plan and the complexity of the device. FDA also amended the
requirements so that the results of a design review include
identification of the design, the date, and the individual(s)
performing the review. Thus, multiple reviews can occur and the
manufacturer must document what is being reviewed, when, and by whom.
FDA never intended to mandate that an individual without design
responsibility conduct the design reviews and, to clarify its position,
has rewritten the requirement. The requirement now states that the
procedures shall ensure that each design review includes an
individual(s) who does not have direct responsibility for the design
stage being reviewed. This requirement will provide an ``objective
view'' from someone not working directly on that particular part of the
design project, to ensure that the requirements are met. In making this
change, FDA also notes that it was not FDA's intention to prohibit
those directly responsible for the design from participating in the
design review.
80. One comment stated that as part of the systematic review of the
adequacy of the device design, it is occasionally necessary to produce
a prototype device and have it evaluated by a physician who is an
expert in the area of the device's intended use. Thus, the comment
stated that the regulation should be revised to allow a means for a
manufacturer to ship a prototype device to a physician for evaluation.
One comment questioned whether design verification and validation can
be conducted using prototypes or machine shop models.
FDA regulations do not prohibit the shipment of prototypes for
clinical or
[[Page 52620]]
other studies. Prototypes used in clinical studies involving humans may
be shipped in accordance with the IDE provisions in part 812 (21 CFR
part 812).
FDA understands that it is not always practical to conduct clinical
studies on finished production units and, therefore, the use of
prototypes in clinical studies is acceptable. When prototype devices
are used on humans they must be verified as safe to the maximum extent
feasible. Final design validation, however, cannot be done on
prototypes because the actual devices produced and distributed are
seldom the same as the research and development prototypes. The final
verification and validation, therefore, must include the testing of
actual production devices under actual or simulated use conditions.
81. A few comments stated that Sec. 820.30(d), ``Design
verification,'' should be rewritten and reordered similar to ISO 9001.
FDA agrees with the comments and has rewritten and reordered this
section to be consistent with ISO 9001:1994. The language in revised
Sec. 820.30(f) and (g) incorporates the requirement of ISO 9001:1994,
sections 4.4.7, ``Design verification,'' and 4.4.8, ``Design
validation,'' respectively.
Under the revised provisions, the design must be verified and
validated. It is important to note that design validation follows
successful design verification. Certain aspects of design validation
can be accomplished during the design verification, but design
verification is not a substitute for design validation. Design
validation should be performed under defined operating conditions and
on the initial production units, lots, or batches, or their equivalents
to ensure proper overall design control and proper design transfer.
When equivalent devices are used in the final design validation, the
manufacturer must document in detail how the device was manufactured
and how the manufacturing is similar to and possibly different from
initial production. Where there are differences, the manufacturer must
justify why design validation results are valid for the production
units, lots, or batches. Manufacturers should not use prototypes
developed in the laboratory or machine shop as test units to meet these
requirements. Prototypes may differ from the finished production
devices. During research and development, conditions for building
prototypes are typically better controlled and personnel more
knowledgeable about what needs to be done and how to do it than are
regular production personnel. When going from laboratory to scale-up
production, standards, methods, and procedures may not be properly
transferred, or additional manufacturing processes may be added. Often,
changes not reflected in the prototype are made in the device to
facilitate the manufacturing process, and these may adversely affect
device functioning and user interface characteristics. Proper testing
of devices that are produced using the same methods and procedures as
those to be used in routine production will prevent the distribution
and subsequent recall of many unacceptable medical devices.
In addition, finished devices must be tested for performance under
actual conditions of use or simulated use conditions in the actual or
simulated environment in which the device is expected to be used. The
simulated use testing provision no longer requires that the testing be
performed on the first three production runs. However, samples must be
taken from units, lots, or batches that were produced using the same
specifications, production and quality system methods, procedures, and
equipment that will be used for routine production. FDA considers this
a critical element of the design validation. The requirement to conduct
simulated use testing of finished devices is found in the original CGMP
in Sec. 820.160, as part of finished device inspection. This
requirement has been moved to Sec. 820.30(g) because FDA believes that
simulated use testing at this point is more effective in ensuring that
only safe and effective devices are produced. Manufacturers must also
conduct such tests when they make changes in the device design or the
manufacturing process that could affect safety or effectiveness as
required in the original CGMP in Sec. 820.100(a)(2). The extent of
testing conducted should be governed by the risk(s) the device will
present if it fails. FDA considers these activities essential for
ensuring that the manufacturing process does not adversely affect the
device.
Design validation may also be necessary in earlier stages, prior to
product completion, and multiple validations may need to be performed
if there are different intended uses. Proper design validation cannot
occur without following all the requirements set forth in the design
control section of the regulation.
82. Several comments stated that adequate controls for verification
of design output are contained in proposed Sec. 820.30(d), ``Design
verification,'' and repeated in proposed Sec. 820.30(f), ``Design
output.'' One comment stated that this section will place undue burden
on designers and require additional documentation which will add little
value to a device's safety and effectiveness.
FDA disagrees with the comments. Revised Sec. 820.30(f), ``Design
verification,'' and Sec. 820.30(g), ``Design validation,'' require
verification and validation of the design output. Section 820.30(d),
``Design output,'' requires that the output be documented in a fashion
that will allow for verification and validation. These sections thus
contain different requirements that are basic to establishing that the
design output meets the approved design requirements or inputs,
including user needs and intended uses. All the requirements are
essential to assuring the safety and effectiveness of devices. FDA does
not believe that these requirements place undue burden on designers or
require additional documentation with no value added. These basic
requirements are necessary to assure the proper device performance,
and, therefore, the production of safe and effective devices, and are
acknowledged and accepted as such throughout the world.
83. Several comments stated that the term ``hazard analysis''
should be defined in reference to design verification. A couple of
comments stated that the proposed requirement for design verification,
to include software validation and hazard analysis, where applicable,
was ambiguous, and may lead an FDA investigator to require software
validation and hazard analysis for devices in cases where it is not
needed. One comment stated that FDA should provide additional guidance
regarding software validation and hazard analysis and what
investigators will expect to see. Another comment stated that by
explicitly mentioning only software validation and hazard analysis, FDA
was missing the opportunity to introduce manufacturers to some powerful
and beneficial tools for better device designs and problem avoidance.
FDA has deleted the term ``hazard analysis'' and replaced it with
the term ``risk analysis.'' FDA's involvement with the ISO TC 210 made
it clear that ``risk analysis'' is the comprehensive and appropriate
term. When conducting a risk analysis, manufacturers are expected to
identify possible hazards associated with the design in both normal and
fault conditions. The risks associated with the hazards, including
those resulting from user error, should then be calculated in both
normal and fault conditions. If any risk is judged unacceptable, it
should be reduced to acceptable levels by the appropriate
[[Page 52621]]
means, for example, by redesign or warnings. An important part of risk
analysis is ensuring that changes made to eliminate or minimize hazards
do not introduce new hazards. Tools for conducting such analyses
include Failure Mode Effect Analysis and Fault Tree Analysis, among
others.
FDA disagrees with the comments that state the requirement is
ambiguous. Software must be validated when it is a part of the finished
device. FDA believes that this control is always needed, given the
unique nature of software, to assure that software will perform as
intended and will not impede safe operation by the user. Risk analysis
must be conducted for the majority of devices subject to design
controls and is considered to be an essential requirement for medical
devices under this regulation, as well as under ISO/CD 13485 and EN
46001. FDA has replaced the phrase ``where applicable'' with ``where
appropriate'' for consistency with the rest of the regulation.
FDA believes that sufficient domestic and international guidelines
are available to provide assistance to manufacturers for the validation
of software and risk analysis. For example, ``Reviewer Guidance for
Computer Controlled Medical Devices Undergoing 510(k) Review,'' August
1991; ``A Technical Report, Software Development Activities,'' July
1987; and ISO-9000-3 contain computer validation guidance. Further, FDA
is preparing a new ``CDRH Guidance for the Scientific Review of Pre-
Market Medical Device Software Submissions.'' Regarding guidance on
``risk analysis,'' manufacturers can reference the draft EN (prEN)
1441, ``Medical Devices--Risk Analysis'' standard and the work
resulting from ISO TC 210 working group No. 4 to include ISO/CD 14971,
``Medical Devices--Risk Management--Application of Risk Analysis to
Medical Devices.''
FDA disagrees that it is missing the opportunity to introduce
manufacturers to some powerful and beneficial tools for better device
designs and problem avoidance because the manufacturer must apply
current methods and procedures that are appropriate for the device, to
verify and validate the device design under the regulation. Therefore,
FDA need not list all known methods for meeting the requirements. A
tool that may be required to adequately verify and validate one design
may be unnecessary to verify and validate another design.
84. One comment stated that for some design elements it may be more
appropriate to reference data from another prior experimentation rather
than conduct new testing, and that the requirement to list verification
methods should be modified.
FDA agrees in part with the comment. The revised language of
Sec. 820.30(f) will permit the use of data from prior experimentation
when applicable. When using data from previous experimentation,
manufacturers must ensure that it is adequate for the current
application.
85. ``Design transfer,'' now Sec. 820.30(h), has been revised in
response to the many comments objecting to the requirements in the
proposed section on ``Design transfer.'' Specifically, the proposed
requirement for testing production units under actual or simulated use
conditions was rewritten and moved to current Sec. 820.30(g), ``Design
validation.''
FDA again emphasizes that testing production units under actual or
simulated use conditions prior to distribution is crucial for ensuring
that only safe and effective devices are distributed and FDA has
therefore retained the requirement. ISO 9001:1994 discusses this
concept in notes 12 and 13. As noted above, it is not always possible
to determine the adequacy of the design by successfully building and
testing prototypes or models produced in a laboratory setting.
The requirement for testing from the first three production lots or
batches has been deleted. While FDA believes that three production runs
during process validation (process validation may be initiated before
or during design transfer) is the accepted standard, FDA recognizes
that all processes may not be defined in terms of lots or batches. The
number three is, however, currently considered to be the acceptable
standard. Therefore, although the number requirement is deleted, FDA
expects validation to be carried out properly in accordance with
accepted standards, and will inspect for compliance accordingly.
Revised Sec. 820.30(h) now contains a general requirement for the
establishment of procedures to ensure that the design basis for the
device is correctly translated into production methods and procedures.
This is the same requirement that is contained in Sec. 820.100(a) of
the original CGMP regulation.
86. A few comments stated that the proposed requirements for
``Design release'' would prohibit the release of components, partial
designs, and production methods before the design was final because the
requirements mandate a review of all drawings, analysis, and production
methods before allowing the product to go into production. Several
comments stated that the proposed section on ``Design release'' was a
duplication of requirements in other paragraphs of Sec. 820.30 and
should be deleted.
FDA did not intend the requirements for ``Desi
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
gn release'' to
prohibit manufacturers from beginning the production process until all
design activities were completed. The intent of the requirement was to
ensure that all design specifications released to production have been
approved, verified, and validated before they are implemented as part
of the production process. This requirement is now explicitly contained
in Sec. 820.30(d).
FDA agrees in part with the second set of comments and has moved
the requirement that design output be reviewed and approved to current
Sec. 820.30(d), ``Design output.'' The remainder of the requirements
have been deleted.
87. Several comments on Sec. 820.30(i), ``Design changes,'' stated
that it is unnecessary to control all design changes and to do so would
inhibit change and innovation.
FDA disagrees with the comments. Manufacturers are not expected to
maintain records of all changes proposed during the very early stages
of the design process. However, all design changes made after the
design review that approves the initial design inputs for incorporation
into the design, and those changes made to correct design deficiencies
once the design has been released to production, must be documented.
The records of these changes create a history of the evolution of the
design, which can be invaluable for failure investigation and for
facilitating the design of future similar products. Such records can
prevent the repetition of errors and the development of unsafe or
ineffective designs. The evaluation and documentation should be in
direct proportion to the significance of the change. Procedures must
ensure that after the design requirements are established and approved,
changes to the design, both pre- production and post-production are
also reviewed, validated (or verified where appropriate), and approved.
Otherwise, a device may be rendered unable to properly perform, and
unsafe and ineffective. ISO 9001:1994, section 4.4.9, similarly
provides that ``all design changes and modifications shall be
identified, documented, reviewed, and approved by authorized personnel
before their implementation.''
Note that when a change is made to a specification, method, or
procedure, each manufacturer should evaluate the
[[Page 52622]]
change in accordance with an established procedure to determine if the
submission of a premarket notification (510(k)) under Sec. 807.81(a)(3)
(21 CFR 807.81(a)(3)), or the submission of a supplement to a PMA under
Sec. 814.39(a) (21 CFR 814.39) is required. Records of this evaluation
and its results should be maintained.
88. Several comments recommended that only changes after design
validation and design transfer to full-scale production need to be
documented.
FDA disagrees with the comments. The safety and effectiveness of
devices cannot be proven by final inspection or testing. Product
development is inherently an evolutionary process. While change is a
healthy and necessary part of product development, quality can be
ensured only if change is controlled and documented in the development
process, as well as the production process. Again, manufacturers are
not expected to maintain records of changes made during the very early
stages of product development; only those design changes made after the
approval of the design inputs need be documented. Each manufacturer
must establish criteria for evaluating changes to ensure that the
changes are appropriate for its designs.
89. One comment on proposed Sec. 820.30(i), ``Design changes,''
stated that validation of design changes is not always necessary and
the regulation should provide for other methods to be used. FDA agrees
with the comments and has amended the requirement to permit
verification where appropriate. For example, a change in the
sterilization process of a catheter will require validation of the new
process, but the addition of more chromium to a stainless steel
surgical instrument may only require verification through chemical
analysis. Where a design change cannot be verified by subsequent
inspection and test, it must be validated.
90. Many comments noted that the acronym for proposed design
history record (DHR) was the same as that of ``device history record''
(DHR), and suggested that the name of the ``design history record'' be
changed. Several comments stated that the requirements of the ``design
history record'' should be deleted because they were redundant with the
requirements of the ``device master record.''
FDA agrees with the first set of comments and has changed the name
to ``design history file.''
FDA disagrees with the second set of comments. The DMR contains the
documentation necessary to produce a device. The final design output
from the design phase, which is maintained or referenced in the DHF,
will form the basis or starting point for the DMR. Thus, those outputs
must be referred to or placed in the DMR. The total finished design
output includes the final device, its labeling and packaging, and the
DMR that includes device specifications and drawings, as well as all
instructions and procedures for production, installation, maintenance,
and servicing. The DHF, in contrast, contains or references all the
records necessary to establish compliance with the design plan and the
regulation, including the design control procedures. The DHF
illustrates the history of the design, and is necessary so that
manufacturers can exercise control over and be accountable for the
design process, thereby maximizing the probability that the finished
design conforms to the design specifications.
91. A few comments stated that the proposed requirements in
Sec. 820.30(j) for the design history record should allow a single
design history record for each device family or group having common
design characteristics.
FDA agrees with the comments. The intent of the DHF is to document,
or reference the documentation of, the activities carried out to meet
the design plan and requirements of Sec. 820.30. A DHF is, therefore,
necessary for each type of device developed. The DHF must provide
documentation showing the actions taken with regard to each type of
device designed, not generically link devices together with different
design characteristics and give a general overview of how the output
was reached.
92. Some comments stated that the requirement that the DHF contain
``all'' records necessary to demonstrate that the requirements are met
should be deleted because not ``all'' efforts need documentation.
FDA received similar comments on almost every section of the
regulation that had the word ``all.'' The proposed requirement does not
state that all records must be contained in the DHF, but that all
records necessary to demonstrate that the requirements were met must be
contained in the file. FDA has deleted the word ``all'' but cautions
manufacturers that the complete history of the design process should be
documented in the DHF. Such records are necessary to ensure that the
final design conforms to the design specifications. Depending on the
design, that may be relatively few records. Manufacturers who do not
document all their efforts may lose the information and experience of
those efforts, thereby possibly requiring activities to be duplicated.
D. Document Controls (Subpart D)
93. One comment stated that subpart D of part 820 should be titled
``Document Controls,'' instead of the proposed ``Document and Record
Controls'' because the ``record'' requirements are addressed in subpart
M. One comment stated that removal of obsolete or unneeded documents
should be performed to maintain the integrity of the product
configuration and the quality system. The comment suggested adding a
requirement for a verification step for document distribution and
removal to ensure this important element of a quality system is
performed correctly. A few comments stated that proposed Sec. 820.40
should be rewritten to be similar to ISO 9001 and to delete the
requirement that documents be ``accurate'' because the comments feared
that typographical errors would be considered violations.
FDA agrees with the first comment and has changed the title
accordingly. FDA agrees in part with the second comment. The
verification of document distribution and removal is very important and
can directly affect the quality of a product. Section 820.40, which
requires that the manufacturer establish and maintain procedures to
control all documents, including those that are obsolete and/or to be
removed, requires that the removal (or prevention of use) of obsolete
documents be verified. FDA agrees in part with the last set of comments
and has rewritten the section, following ISO 9001:1994, to be a general
requirement for procedures to control documents that are required under
the regulation. The procedures established must, among other things,
ensure control of the accuracy and usage of current versions of the
documents and the removal or prevention from use of obsolete documents,
as well as ensure that the documentation developed is adequate to
fulfill its intended purpose or requirement. FDA retained the
requirement that the procedures ensure that documents meet the
requirements of the regulation because that is the purpose of
controlling the documents. FDA deleted the term ``accurate'' but notes
that a typographical error can change the meaning of a document and
have undesirable consequences.
94. Several comments on proposed Sec. 820.40(a), ``Document
approval and issue,'' as well as other sections throughout the
regulation, suggested that the term ``signature'' be replaced by the
term ``identification.'' Such a change would allow for electronic or
computerized identification in lieu of formal written signatures. Other
comments stated that ``or stamps''
[[Page 52623]]
should be added after ``signature'' since they are legally recognized
in some foreign countries.
FDA is aware that many documentation systems are now maintained
electronically, and is in the process of developing an agency-wide
policy that will be implemented through rulemaking on the use of
electronic signatures. The agency identified several important issues
related to the use of such signatures, including how to ensure that the
identification is in fact the user's ``signature.'' These issues are
discussed in FDA's ANPRM on the use of electronic signatures, published
in the Federal Register on July 21, 1992 (57 FR 32185), and the
proposed regulation published in the Federal Register on August 31,
1994 (59 FR 45160). Therefore, FDA has not revised the regulation to
use the term ``identification,'' but notes that the quality system
regulation's use of the term ``signature'' will permit the use of
whatever electronic means the agency determines is the equivalent of a
handwritten signature. FDA recommends that manufacturers use the two
Federal Register documents as guidance until the regulation is
finalized. FDA has not added the term ``or stamps'' to the regulation;
however, stamps could be acceptable if the manufacturer has a formal
procedure on how stamps are used in place of handwritten signatures.
The procedure would have to address many of the same issues addressed
in the electronic signature Federal Register documents, most
importantly how the stamps would be controlled and how the manufacturer
would ensure that the stamp was in fact the user's ``signature.''
95. Several comments stated that proposed Sec. 820.40(b),
``Document distribution,'' should be rewritten to be consistent with
ISO 9001.
In response, FDA has deleted the section. The requirements for
making documents available at all appropriate locations (ISO 9001:1994,
section 4.5.2(a)) and the requirements for promptly removing obsolete
documents (ISO 9001:1994, section 4.5.2(b)) have been moved, in revised
form, to Sec. 820.40(a). In response to comments, FDA has added that
obsolete documents, in lieu of being promptly removed from points of
use, may be ``otherwise prevented from unintended use.''
96. Several comments suggested major changes to proposed
Sec. 820.40(c), ``Documentation changes.'' Some stated that the
requirements should be revised to be consistent with ISO 9001. Others
stated that the requirements related to validation should be rewritten
and moved to another section under this part, because Sec. 820.40(c)
should only address document changes, not device changes. Several
comments stated that the reference to determining whether a 510(k) or
PMA supplement is required after making changes to a device should be
deleted because it is covered under different parts of the act and
regulations. One comment stated that the requirement in Sec. 820.40(c)
for changes to be ``approved by individuals in the same functions/
organizations that performed the original review and approval, unless
specifically designated otherwise'' is unrealistic and does not reflect
the way things are done in real life.
FDA agrees with many of the comments and has substantially
rewritten Sec. 820.40(c), now designated as Sec. 820.40(b), to relate
specifically to changes to a document. The requirements are now very
similar to the ISO 9001:1994 requirements in section 4.5.3. FDA has
retained the requirement that the approved changes must be communicated
in a timely manner to appropriate personnel. FDA has had many
experiences where manufacturers made corrections to documents, but the
changes were not communicated in a timely manner to the personnel
utilizing the documents. The result of these untimely communications
was the production of defective devices.
In addition, FDA has moved the requirement for validating
production and process changes to Sec. 820.70(b), ``Production and
process changes,'' and notes that changes to the design specifications,
at any time during the lifetime of the design of the device, must
conform to the requirements in Sec. 820.30(i), ``Design changes.''
FDA has also deleted the sentence referencing 510(k)'s and PMA
supplements because FDA believes this is covered elsewhere, but notes
that this sentence is in the preamble above for Sec. 820.30(i).
FDA disagrees that the requirement for changes to be ``approved by
an individual(s) in the same function or organization that performed
the original review and approval, unless specifically designated
otherwise'' should be deleted and notes that this is a requirement of
ISO 9001:1994 as well. The intent of the requirement is to ensure that
those who originally approved the document have an opportunity to
review any changes because these individuals typically have the best
insight on the impact of the changes. The requirement is flexible,
however, because it permits the manufacturer to specifically designate
individuals who did not perform the original review and approval to
review and approve the changes. To designate such individuals, the
manufacturer will need to determine who would be best suited to perform
the function, thus ensuring adequate control over the changes. In this
way, review and approval will not be haphazard.
97. One comment on proposed Sec. 820.40(d), ``Documentation change
record,'' stated that this section should be deleted because the other
paragraphs of Sec. 820.40 adequately cover the proposed requirements.
Two comments suggested replacing the section with the requirements of
section 4.5.2 of ISO 9001.
FDA has deleted Sec. 820.40(d) and placed the revised requirements
in paragraphs (a) and (b) of this section. The general requirement of
Sec. 820.40 now requires the manufacturer to establish adequate
procedures to control all documents required by part 820. The
procedures must cover the requirements listed in Sec. 820.40 (a) and
(b). Thus, the manufacturer must establish a procedure for ensuring
that only the current and approved version of a document is used,
achieving the objective of the ``Master list or equivalent document
control procedure,'' required in ISO 9001:1994, section 4.5.2.
The other requirement in Sec. 820.40(d), ``Document change
record,'' was to maintain a record of changes, to include a description
of the changes, among other things. FDA has retained this requirement
and has moved it into Sec. 820.40(b), ``Document changes,'' because the
agency believes this information to be important and useful when
investigating and performing corrective or preventive actions.
FDA believes Sec. 820.40 on Document controls now adequately
harmonizes with ISO 9001:1994, sections 4.5.1, 4.5.2, and 4.5.3.
E. Purchasing Controls (Subpart E)
98. One comment stated that the proposed CGMP regulation omits any
discussion of contract reviews, such as that contained in ISO 9001,
section 4.3. Rather than leaving these procedures to the
interpretations of individual manufacturers and investigators, the
comment stated that FDA should explicitly state its general policy
regarding contract reviews in the regulation.
FDA agrees with the concepts underlying the contract review
requirements of ISO 9001:1994, but believes these principles are
already reflected in requirements in the regulation, such as
Secs. 820.50 Purchasing controls and 820.160 Distribution.
[[Page 52624]]
Therefore, the agency has not added a separate section on contract
review.
99. One comment stated that the requirements in Sec. 820.50 amount
to overregulation. The comment stated that components are purchased by
providing a specification sheet. They are then inspected upon receipt,
and defective components are returned. According to the comment, under
Sec. 820.50, the manufacturer would be required to spend more time on
paperwork, and product would still have to be inspected upon receipt.
Another comment stated that the cost of the quality assurance
documentation program is going to be significantly higher for a company
that runs a Just In Time (JIT) program than what FDA estimated.
FDA disagrees with the comments. The failure to implement adequate
purchasing controls has resulted in a significant number of recalls due
to component failures. Most of these were due to unacceptable
components provided by suppliers. Since FDA is not regulating component
suppliers, FDA believes that the explicit addition to CGMP requirements
of the purchasing controls of ISO 9001:1994 is necessary to provide the
additional assurance that only acceptable components are used. To
ensure purchased or otherwise received product or services conform to
specifications, purchasing must be carried out under adequate controls,
including the assessment and selection of suppliers, contractors, and
consultants, the clear and unambiguous specification of requirements,
and the performance of suitable acceptance activities. Each
manufacturer must establish an appropriate mix of assessment and
receiving acceptance to ensure products and services are acceptable for
their intended uses. The specifications for the finished device cannot
be met unless the individual parts of the finished device meet
specifications. The most efficient and least costly approach is to
ensure that only acceptable products and services are received. This
means that only suppliers, contractors, and consultants that meet
specifications should be used.
The regulation has been written to allow more flexibility in the
way manufacturers may ensure the acceptability of products and
services. Under the requirements, manufacturers must clearly define in
the procedures the type and extent of control they intend to apply to
products and services. Thus, a finished device manufacturer may choose
to provide greater in-house controls to ensure that products and
services meet requirements, or may require the supplier to adopt
measures necessary to ensure acceptability, as appropriate. FDA
generally believes that an appropriate mix of supplier and manufacturer
quality controls are necessary. However, finished device manufacturers
who conduct product quality control solely in-house must also assess
the capability of suppliers to provide acceptable product. Where audits
are not practical, this may be done through, among other means,
reviewing historical data, monitoring and trending, and inspection and
testing.
After evaluation of all of the comments on Sec. 820.50, FDA has
decided to change the wording of Sec. 820.50(a) and adopt the wording
of ISO 9001:1994 to make clear that manufacturers have flexibility in
determining the degree of assessment and evaluation necessary for
suppliers, contractors, and consultants. Thus the degree of supplier
control necessary to establish compliance may vary with the type and
significance of the product or service purchased and the impact of that
product or service on the quality of the finished device. In addition,
the requirement for manufacturers to establish assessment criteria has
been deleted but the evaluation still must include a description how
the assessment was made (according to what criteria or objective
procedure) and the results must be documented. Each manufacturer must
now define the type and extent of control it will exercise over
suppliers, contractors, and consultants. This is consistent with the
1994 version of ISO 9001.
Thus, FDA believes that the flexibility of the regulation will
allow manufacturers to implement JIT procedures without additional
cost. In fact, the new regulation is more conducive to JIT practices by
permitting the assessment or evaluation of product or services up
front, thereby lessening the degree of in-house control that may be
necessary.
100. Several comments said that it was unclear what FDA meant by
the phrase ``or held by other persons under contract conform to
specifications'' and that this phrase should be deleted.
FDA agrees with the comments and has deleted the phrase. The phrase
was intended to mean product and services which were purchased or
processed in some manner by other organizations. Section 820.50 now
applies to ``purchased or otherwise received product and services'' to
convey this meaning. FDA emphasizes that the requirements apply to all
product and service received from outside of the finished device
manufacturer, whether payment occurs or not. Thus, a manufacturer must
comply with these provisions when it receives product or services from
its ``sister facility'' or some other corporate or financial affiliate.
``Otherwise received product'' would include ``customer supplied
product'' as in ISO 9001:1994, section 4.7, but would not apply to
``returned product'' from the customer.
101. One comment stated that ``manufacturing materials'' should be
deleted from the first sentence of the introductory text of the
proposed Sec. 820.50, as the assessment of the manufacturers of
manufacturing materials would be a monumental task.
FDA disagrees with the comment. The first sentence of the
introductory text of Sec. 820.50 is rewritten to be a general
requirement that each manufacturer must establish procedures to ensure
that received product and services (purchased or otherwise received)
conform to specified requirements. All manufacturers are expected to
apply controls to manufacturing materials appropriate to the
manufacturing material, the intended use, and the effect of the
manufacturing materials on safety and effectiveness. For example, the
procedures necessary to ensure that a mold release agent conforms to
specified requirements may be less involved than the procedures for
controlling latex proteins. The provision allows the manufacturer the
flexibility of establishing the procedures to meet its needs and to
ensure that the product conforms to specified requirements.
102. One comment said that FDA should delete the last sentence of
the introductory text of proposed Sec. 820.50 because it is unnecessary
for manufacturers to develop specifications for services that are
unrelated to product or process quality, and because the terms
``service'' and ``other persons'' lack definition. Other comments
stated that ``all'' should be deleted in the general requirement.
FDA disagrees with the comments. First, as used in the regulation,
``service'' means parts of the manufacturing or quality system that are
contracted to others, for example, plating of metals, testing, and
sterilizing, among others. Second, FDA believes that all suppliers of
such services must be assessed and evaluated, just like a supplier of a
product. As always, the degree of control necessary is related to the
product or service purchased. FDA has, however, deleted the term
``provided by other persons'' because it was unnecessary. FDA did not
delete the word ``all'' because, as discussed above, component
manufacturers are not subject to this regulation, so it is the
[[Page 52625]]
finished device manufacturer who is responsible for ``all'' product and
services.
103. One comment stated that many suppliers of components to the
medical device industry have their quality systems certified to an ISO
9000 standard by an independent third party auditor, and that such
registration of component manufacturers should be considered in vendor
assessment plans.
FDA agrees in part with the comment in that certification may play
a role in evaluating suppliers, but cautions manufacturers against
relying solely on certification by third parties as evidence that
suppliers have the capability to provide quality products or services.
FDA has found during inspections that some manufacturers who have been
certified to the ISO standards have not had acceptable problem
identification and corrective action programs. Therefore, the initial
assessment or evaluation, depending on the type and potential effect on
device quality of the product or service, should be a combination of
assessment methods, to possibly include third party or product
certification. However, third party certification should not be relied
on exclusively in initially evaluating a supplier. If a device
manufacturer has established confidence in the supplier's ability to
provide acceptable products or services, certification with test data
may be acceptable.
104. Some comments stated that consultants should not be included
in the regulation at all. Others stated that it was not consistent with
ISO 9001.
FDA added ``consultants'' to Sec. 820.50(a) in response to the
comments from Sec. 820.25(c). FDA disagrees that ``consultants'' should
be deleted because over the years FDA has observed that a surprising
number of firms hire consultants who have no particular expertise in
the area in which the firm is seeking assistance. Section 820.50
addresses this problem by ensuring that a consultant's capability for
the specific tasks for which he or she is retained be assessed and
documented. Further, FDA does not believe this requirement is
inconsistent with ISO 9001:1994 because ISO uses the term
``subcontractor.'' The term ``subcontractor'' includes consultants.
105. One comment said that requiring evaluation of potential
suppliers, contractors, and consultants ``on the basis of their ability
to meet requirements'' is vague and should be clearly defined.
FDA disagrees that the phrase is vague. Suppliers, contractors, and
consultants selected by manufacturers of medical devices should have a
demonstrated capability of providing products and services that meet
the requirements established by the finished device manufacturer. The
capability of the product or service suppliers should be reviewed at
intervals consistent with the significance of the product or service
provided and the review should demonstrate conformance to specified
requirements.
106. One comment questioned the usefulness of Sec. 820.50, given
that the requirements under Sec. 820.80 Receiving, in-process, and
finished device acceptance, require manufacturers to establish and
maintain procedures for acceptance of incoming components.
The intent of Sec. 820.50 is to ensure that device manufacturers
select only those suppliers, contractors, and consultants who have the
capability to provide quality product and services. As with finished
devices, quality cannot be inspected or tested into products or
services. Rather, the quality of a product or service is established
during the design of that product or service, and achieved through
proper control of the manufacture of that product or the performance of
that service. Section 820.50 thus mandates that products be
manufactured and services be performed under appropriate quality
assurance procedures. Finished device manufacturers are required under
Sec. 820.50 to establish the requirements for, and document the
capability of, suppliers, contractors, and consultants to provide
quality products and services.
Section 820.80 is specific to a device manufacturer's acceptance
program. While finished device manufacturers are required to assess the
capability of suppliers, contractors, and consultants to provide
quality products and services, inspections and tests, and other
verification tools, are also an important part of ensuring that
components and finished devices conform to approved specifications. The
extent of incoming acceptance activities can be based, in part, on the
degree to which the supplier has demonstrated a capability to provide
quality products or services. An appropriate product and services
quality assurance program includes a combination of assessment
techniques, including inspection and test.
107. Several comments stated that it was not clear how a
manufacturer could evaluate an off-the-shelf component that is
purchased from a distributor rather than directly from its
manufacturer, and stated that it would not be helpful to audit the
distributor.
FDA agrees that auditing a distributor would not meet the intent of
Sec. 820.50. Manufacturers should remember that the purpose of
assessing the capability of suppliers is to provide quality products
and to provide a greater degree of assurance, beyond that provided by
receiving inspection and test, that the products received meet the
finished device manufacturer's requirements. The agency recognizes that
finished device manufacturers may not always be able to audit the
supplier of a product. In such cases, the manufacturer must apply other
effective means to assure that products are acceptable for use.
108. Many comments from both domestic and foreign firms in response
to proposed Sec. 820.22(b) said that making supplier audit reports
subject to FDA review would have a major adverse impact on the
relationships between the finished device manufacturers and their
suppliers and service providers. Some stated that the requirement would
cause suppliers to refuse to sell components to medical device
manufacturers, especially suppliers who provide only a small part of
their production to device manufacturers. Others said that this policy
is not consistent with FDA's policy for internal audits.
FDA recognizes that quality audits of suppliers have a significant
and demonstrated value as a management tool for corrective action,
quality improvement, and overall assurance of component and service
quality, and does not seek to undermine their value. Therefore, based
on the concerns raised by the comments, FDA will not review supplier
audit reports during a routine FDA inspection for compliance with part
820, as noted in Sec. 820.180(c), ``Exceptions.'' The audit procedures,
the evaluation procedures, and documents other than the supplier audit
reports themselves that demonstrate conformance with Sec. 820.50 will
be subject to review by an FDA investigator.
109. One comment stated that it was unclear what is meant by the
requirement to specify ``quality requirements'' that must be met by
suppliers, contractors, and consultants, as stated in Sec. 820.50(a).
The term ``quality requirements'' means the quality control and
quality assurance procedures, standards, and other requirements
necessary to assure that the product or service is adequate for its
intended use. FDA does not believe the term is unclear.
110. Several comments on proposed Sec. 820.50(b), ``Purchasing
forms,'' suggested that the term ``forms'' be replaced by ``data.''
Other comments stated that use of the term would not allow electronic
data exchange. One comment stated that the use of an
[[Page 52626]]
exclusive form for purchasing is unnecessary and redundant, and that it
is unduly burdensome to require detailed documentation on those
commonly available items such as fasteners. The comment stated that it
is common practice to use prints or drawings to fulfill the purpose of
the form.
FDA agrees in part with the comments, but does not believe that
Sec. 820.50(b) prohibits the use of drawings or prints, assuming that
the documents contain data clearly describing the product or service
ordered, and that the specified requirements are met. However,
Sec. 820.50(b) has been rewritten and now requires manufacturers to
establish purchasing ``data.'' This provides manufacturers with the
flexibility to use both written and electronic means to establish
purchasing information.
111. One comment stated that the inclusion of an additional
provision mandating that suppliers notify manufacturers of any change
in their product or service places an undue burden on suppliers and
inhibits their ability to make minor adjustments within the parameters
of agreed upon specifications and quality requirements. Many other
comments stated that the requirement in Sec. 820.50(b) is feasible only
for components that are custom made for the manufacturer, and is
meaningless for off-the-shelf components purchased from distributors.
Other comments stated that the requirement is part of the original CGMP
regulation and experience has shown that suppliers are not willing to
supply device manufacturers with such information. A few other comments
stated that ``any'' should be deleted because the term is too broad and
could result in burdensome reporting of variables which are irrelevant
to the continued performance or specifications of the product or
service.
FDA agrees in part with the comments and has amended the
requirement to state that such agreement should be obtained ``where
possible.'' FDA still believes that this change information is very
important to the manufacturer, and that the manufacturer should obtain
information on changes to the product or service. Where a supplier
refuses to agree to provide such notification, depending on the product
or service being purchased, it may render him an unacceptable supplier.
However, where the product is in short supply and must be purchased,
the manufacturer will need to heighten control in other ways.
FDA has also deleted the term ``any'' to give manufacturers the
flexibility to define in the agreement the types of changes that would
require notification.
112. One comment stated that Sec. 820.50(b) should incorporate a
provision that would allow manufacturers to cite published standards in
purchasing forms as one suitable method for specifying purchased item
quality requirements.
FDA believes the addition is unnecessary, because the regulation
permits manufacturers to clearly describe or reference requirements. A
reference could be to a standard.
113. One comment stated that it is unclear whether the requirement
for a signature to approve purchasing documents pertains to approval of
the form used for purchasing or approval of the individual purchasing
transaction. The comment also stated that a signature approval by
transaction is not practical for firms using electronic document
transmittals.
FDA has rewritten the requirement to be more clear. The requirement
is for approval of purchasing data or information on the purchasing
document used to purchase a product or service. Thus, each manufacturer
must review and approve the purchasing data before release of the data.
Approval of each purchasing transaction is not required. FDA addressed
the use of electronic signatures in response to another comment, and
notes that FDA is in the process of developing an agency-wide policy on
the use of electronic signatures.
114. One comment stated that purchasing is carried out verbally in
many small firms, without the use of component-specific purchasing
forms, and that the regulation should be revised to allow such verbal
purchasing to continue.
FDA disagrees with the comment. About 15 percent of the recalls
each year are due to unacceptable purchased products. Many of these
products are unacceptable because the finished device manufacturer did
not properly describe the product. The requirements for purchased
products and services must be documented to ensure that the supplier,
contractor, and consultant provide a product or service which conforms
to specified requirements. This requirement, and the goal it seeks to
achieve, are applicable to both small and large companies.
115. One comment stated that the requirement that purchasing forms
spell out the specifications for manufacturing materials in all cases
is excessive, and that the need for specifications should be based on
the criticality of and risk associated with the use of the specific
manufacturing material.
FDA agrees that the specifications for many manufacturing materials
may be so well established that the trade name of the product may be
sufficient to describe the material needed. For other materials,
specific written specifications may be necessary to ensure that the
desired materials are received. The extent of the specification detail
necessary to ensure that the product or service purchased meets
requirements will be related to the nature of the product or service
purchased, taking into account the effect the product or service may
have on the safety or effectiveness of the finished device, among other
factors. The term ``specification'' has been replaced with the term
``specified requirements'' to better reflect the intent of the
requirement.
116. FDA has deleted the last two sentences of Sec. 820.50(b) in
the Working Draft and has replaced them with a reference to
Sec. 820.40, the general document control provision. This does not
change the requirement but simply eliminates any confusion about the
reviews and approvals being duplicative.
F. Identification and Traceability (Subpart F)
i. Identification (Sec. 820.60)
117. A few comments on proposed Secs. 820.60 Identification and
traceability and 820.65 Critical device, traceability stated that the
two sections should be rewritten to delete the distinction between
critical and noncritical devices. Some stated they should be consistent
with ISO.
FDA agrees in part with the comments and has rewritten Sec. 820.60
to be consistent with ISO 9001:1994 and broad enough to allow the
manufacturer the flexibility needed to identify product by whatever
means described by the required procedure. The term ``critical device''
has also been deleted, and traceability is addressed solely in
Sec. 820.65.
118. One comment stated that manufacturing materials should be
deleted from Sec. 820.60, as the requirements are excessive and not
economically justifiable with regard to such materials.
FDA disagrees with the comment. The purpose of Sec. 820.60 is to
ensure that all products, including manufacturing materials used in the
manufacture of a finished device, are properly identified. This
requirement is intended to help prevent inadvertent use or release of
unacceptable product into manufacturing. It is as important that the
proper manufacturing materials be
[[Page 52627]]
used as it is that the proper component be used.
119. A few comments thought that Sec. 820.60 Identification in the
Working Draft was redundant with Sec. 820.86 Acceptance status.
FDA disagrees with the comments. Section 820.60 only requires that
product be identified but says nothing about the acceptance status of
that product. Section 820.86 requires that the acceptance status be
identified so that inadvertent use of product does not occur. The
manufacturer may choose to set up a system by which the identification
required by Sec. 820.60 can also show the acceptance status required by
Sec. 820.86, but this is up to the manufacturer.
ii. Traceability (Sec. 820.65)
120. A few comments stated that proposed Sec. 820.65 Critical
devices, traceability implies that traceability requirements exist for
all devices. Several other written comments and oral testimony at the
August and September 1995 meetings stated that the wording of the
Working Draft was too broad, vague, and ambiguous, and in effect would
require that all devices be traced.
As noted above, FDA has deleted the critical device terminology.
Section 820.65 is now entitled Traceability and uses the definition
from the original CGMP of a critical device to provide the necessary
clarity and delineation for this requirement. Thus, traceability is
required for the critical devices listed in the Federal Register notice
of March 17, 1988 (53 FR 8854). However, FDA is using the definition of
critical device in the requirement of Sec. 820.65, rather than a
reference to the 1988 list of critical devices, because that list has
not been updated since 1988 and there are no plans to revise that list.
Therefore, it is imperative that manufacturers use the definition
within the requirement of Sec. 820.65 to determine if a particular
device needs to be traced; it may not be sufficient to rely solely on
the 1988 list. Manufacturers may find it advantageous to provide unit,
lot, or batch traceability for devices for which traceability is not a
requirement to facilitate control and limit the number of devices that
may need to be recalled due to defects or violations of the act.
It is important that the traceability requirements in part 820 are
not confused with the Medical Device Tracking regulation in part 821
(21 CFR part 821). The tracking regulation is intended to ensure that
tracked devices can be traced from the device manufacturing facility to
the person for whom the device is indicated, that is, the patient.
Effective tracking of devices from the manufacturing facility, through
the distribution network (including distributors, retailers, rental
firms and other commercial enterprises, device user facilities, and
licensed practitioners) and, ultimately, to any person for whom the
device is intended is necessary for the effectiveness of remedies
prescribed by the act, such as patient notification (section 518(a) of
the act (21 U.S.C. 360h(a)) or device recall (section 518(e).) In
contrast, the traceability provision requires that a device that meets
the definition of a ``critical device'' can be traced from the
manufacturing facility only to the ``initial consignee'' as discussed
in Sec. 820.160 Distribution.
121. Another comment on proposed Sec. 820.65 stated that critical
device component traceability could be interpreted to be required for
almost all electronic components and other components in a critical
device. The comment stated that the extent of component traceability
should be left to the manufacturer's discretion, since it is an
economic risk decision. Several comments stated that component
traceability should only be required ``where appropriate,'' that all
``critical device'' components do not require traceability to comply
with the act.
FDA disagrees that the traceability determination should be based
solely on economic risk. As noted in the preamble to the November 23,
1993, proposal (58 FR 61964), where traceability is important to
prevent the distribution of devices that could seriously injure the
user, traceability of components must be maintained so that potential
and actual problem components can be traced back to the supplier. The
revised requirement mandates traceability of components ``where
appropriate'' as recommended by the GMP Advisory Committee and limited
by the discussion in the scope, Sec. 820.1(a)(3). The critical
component definition in the original CGMP regulation may be used as
guidance. However, to carry out the requirement of the revised
provision, the manufacturer should perform risk analysis first on the
finished device, and subsequently on the components of such device, to
determine the need for traceability. FDA believes that the extent of
traceability for both active and inactive implantable devices should
include all components and materials used when such products could
cause the medical device not to satisfy its specified requirements.
ISO/CD 13485 also requires that the manufacturer's agents or
distributors maintain records of distribution of medical devices with
regard to traceability and that such records be available for
inspection. This requirement is found in Sec. 820.160 Distribution of
this regulation and is consistent with the requirements in Sec. 820.151
of the original CGMP.
While FDA understands that traceability entails additional cost,
the agency notes that, if a product recall is necessary, more devices
would be subject to recall if units, lots, or batches of specific
devices are not traceable, with associated higher recall costs to the
manufacturer.
G. Production and Process Controls (Subpart G)
i. Production and Process Controls (Sec. 820.70)
122. A few comments stated that the requirements in proposed
Sec. 820.70(a) General are similar to those in ISO 9001, but that ISO
9001 makes clear that the requirements apply only ``where applicable''
and where deviations from device specifications would ``directly affect
quality.'' The comments suggested that FDA similarly employ such
language to avoid being too restrictive and overly burdensome.
The requirements in Sec. 820.70(a) are intended to ensure that each
manufacturer produces devices that conform to their specifications.
Thus, where any deviations from specifications could occur during
manufacturing, the process control procedures must describe those
controls necessary to ensure conformance. Those controls listed in the
regulation may not always be relevant; similarly others may be
necessary. For example, where deviations from device specifications
could occur as a result of the absence of written production methods,
procedures, and workmanship criteria, such production controls are
required. Thus, FDA has retained the provision, but revised it slightly
to conform with the original CGMP requirements in Sec. 820.100(b)(1).
As noted, the process control requirements apply when any deviation
from specifications could occur. FDA believes that such deviations must
be controlled, and that linking the requirements to deviations that
directly affect quality is inappropriate and subjective, and that it
could lead to the manufacture of potentially dangerous devices through
the lack of control of processes known to directly affect a device's
specifications. Therefore, the provision has not been restricted in
this manner. FDA has, however, revised the requirements to state
``Where process controls are needed they shall include:'' to make it
clear that a manufacturer only has to comply with the requirements
[[Page 52628]]
stated in Sec. 820.70 (a)(1) through (a)(5) if the general criteria
described in Sec. 820.70(a) have been met.
123. One comment stated that the second sentence of proposed
Sec. 820.70(a) was too restrictive, in that some processes can be
accomplished by adequately trained personnel without the use of
procedures.
FDA disagrees with the comment because the establishment of
procedures is necessary to ensure consistency in manufacture. The
procedures may be tailored under the requirement to cover only those
controls necessary to ensure that a device meets its specifications.
FDA notes that the deletion of the word ``all'' does not alter the
requirements. The first sentence in the general requirement also serves
to tie the production and process controls to the design and
development phase where many of these controls are originally
established in order for the device to conform to its design
specifications.
In addition to these changes, FDA has added the requirement that
production processes be ``monitored'' because a manufacturer must
monitor a controlled process to ensure that the process remains in
control.
124. FDA deleted the requirement for process controls related to
``installation and servicing'' from proposed Sec. 820.70 (a)(1) and
(a)(2) in response to comments. Such control is adequately assured by
the requirements in Secs. 820.170 Installation and 820.200 Servicing.
FDA amended Sec. 820.70(a)(3) in response to some comments that were
confused about compliance with ``applied reference standards.'' The
term ``applied'' was replaced with ``specified'' to make it clear that
the manufacturer must comply with reference standards or codes which he
or she has specified in the DMR. FDA has also deleted ``and process
control procedures'' because that requirement is inherent in
Sec. 820.70(a), ``General.'' FDA amended Sec. 820.70(a)(5) by adding
``identified and approved'' in response to comments and to clarify that
the ``representative samples'' have to be identified and deemed
appropriate before they are used as reference standards.
125. One comment believed that there is no longer a requirement
that process changes be validated. Other comments on the Working Draft
Sec. 820.70(b) stated the requirement was still confusing with respect
to ``unless inspection and test fully verifies,'' and when the
``approval'' was to occur.
Revised Sec. 820.70(b), ``Production and process changes,''
addresses the requirement for production and process changes to be
``verified or where appropriate validated according to Sec. 820.75.''
This requirement for validation was moved from Sec. 820.40(c), in
revised form, to Sec. 820.70. Verification was added to give the
manufacturer the flexibility to verify changes that can be tested and
inspected because FDA believes that validation is not always necessary.
FDA has provided guidance on when changes should be validated in its
``Guideline on General Principles of Process Validation.'' The agency
notes that wherever changes may influence a validated process, the
process must be revalidated as described in Sec. 820.75. A few examples
of processes that must be validated include sterilization, molding, and
welding.
FDA has deleted the last part in Sec. 820.70(b) of the Working
Draft about approving changes and has replaced it with ``Changes shall
be approved in accordance with Sec. 820.40.'' This does not change the
requirement but simply refers back to Sec. 820.40 because this requires
the same review and approval. This was done to eliminate any confusion
about the reviews and approvals being duplicative.
126. The EU Commission and others stated that environmental
conditions only affect the quality of certain devices and that the
requirements should, therefore, be limited in their application. Other
comments stated that the requirements in proposed Sec. 820.70(b),
``Environmental control,'' were not consistent with the requirements in
the original CGMP, Sec. 820.46. Another comment requested that FDA
delete the reference to ``facilities'' inspection and limit the
requirement to review of the control system, as contained in the
original CGMP regulation.
FDA has amended the requirements now in Sec. 820.70(c) to apply
only where environmental conditions could ``reasonably be expected to
have an adverse effect on product quality.'' The requirements for
procedures to ensure control of conditions, periodic inspection of
control systems, and documentation and review of results are similar to
the original CGMP requirements. However, the specific list of
conditions to be considered for control, which was carried over from
the original CGMP regulation to the proposal, was deleted in response
to a comment from the GHTF that the list would be better suited for a
guidance document. FDA agrees that it is not necessary to give examples
of conditions that may need controlling in a regulation, and notes that
lighting, ventilation, temperature, humidity, air pressure, filtration,
airborne contamination, and static electricity are among many
conditions that should be considered for control.
FDA reworded the requirement to make it clear that the inspection
must be of the control system. FDA also added that the inspection of
the control system(s) shall include ``any necessary equipment,'' e.g.,
pumps, filters, measurement equipment, etc. The sufficiency of
facilities is covered in a new Sec. 820.70(f), ``Buildings,'' that
requires that buildings be of suitable design and contain sufficient
space to allow for the proper manufacture of devices. Section 820.70(f)
is worded similarly to the original CGMP regulation Sec. 820.40, and is
intended to achieve the same objectives as that section.
127. One comment stated that the last sentence of proposed
Sec. 820.70(b), ``Environmental control,'' should be deleted because it
is redundant with the audits required in Sec. 820.22(a). Another
comment said that environmental conditions are currently reviewed via
internal audit, which an FDA investigator cannot review.
FDA disagrees with the comments. The inspection and review of
environmental control systems are routine quality assurance functions
that are part of the production quality assurance program. The audits
required by Sec. 820.22(a) are audits of the quality system, conducted
to ensure the adequacy of and conformance with the quality system
requirements. The requirement to conduct a quality audit is in addition
to other provisions in the regulation which require that a manufacturer
review its specific controls to ensure the requirements are met. FDA
may review the activities and results of environmental control system
inspections.
128. The GHTF commented that the requirements of proposed
Sec. 820.70(c), ``Cleaning and sanitation,'' should be placed in
guidance.
After careful consideration, FDA agrees that a separate section on
cleaning and sanitation is unnecessary. The objective of proposed
Sec. 820.70(c) is adequately met through the requirement of
Sec. 820.70(e), ``Contamination control,'' and Sec. 820.70(a), the
general process control procedure requirement. Contamination control
must include establishing and maintaining adequate cleaning procedures
and schedules, if such control is necessary to meet manufacturing
process specifications. In addition, Sec. 820.25 Personnel requires
that employees have a thorough understanding of their job functions,
which would include a requirement that the appropriate employees
comprehend
[[Page 52629]]
the cleanliness and sanitation procedures.
129. The GHTF and others commented that the requirements of
proposed Sec. 820.70 (d)(1) through (d)(3) should be deleted and placed
in guidance because they are redundant with the first sentence in
proposed Sec. 820.70(d), ``Personnel health and cleanliness.''
FDA agrees with the comments and has deleted Sec. 820.70 (d)(1)
through (d)(3). FDA has also rewritten the section, now entitled
``Personnel,'' to require procedures to achieve the desired result,
rather than dictate the means to achieve the result. The section as
rewritten provides the manufacturer with more flexibility and is
consistent with ISO/CD 13485. Under this section, a manufacturer's
requirements must not permit unclean or inappropriately clothed
employees, or employees with medical conditions, to work with devices
where such conditions could reasonably be expected to have an adverse
effect on product quality. The procedures must also address acceptable
clothing, hygiene, and personal practices, if contact between personnel
and product or environment could reasonably be expected to have an
adverse effect on product quality.
FDA also added the requirement, from ISO/CD 13485, that personnel
who are working temporarily (such as maintenance and cleaning
personnel) under special environmental conditions (such as a clean
room) be appropriately trained or supervised by someone trained to work
in such an environment.
130. One comment stated that the requirements of Sec. 820.70(e),
``Contamination control,'' should be deleted and placed in guidance.
Another comment stated that the reference to manufacturing materials
should be deleted because it is redundant with Sec. 820.70(g),
``Equipment.''
FDA has rewritten the section to delete the specific references to
contaminants that probably gave rise to the suggestion that the section
would be more appropriate as guidance. The section now contains a broad
requirement for the establishment of procedures to prevent
contamination of equipment or product by any substance that could
reasonably be expected to have an adverse effect on product quality.
Again, this revision adds flexibility.
FDA disagrees with the comment that manufacturing materials should
be deleted from this section. Section 820.70(e) requires procedures to
ensure that manufacturing materials do not become contaminated. Section
820.70(g), in contrast, establishes requirements related solely to the
equipment used in the manufacturing process, and Sec. 820.70(h),
``Manufacturing material,'' addresses requirements for the removal or
limitation of manufacturing materials. Thus, Sec. 820.70 (g) and (h)
are distinct and are intended to achieve different objectives.
131. The only two comments received on proposed Sec. 820.70(f),
``Sewage and refuse disposal,'' recommended that it be deleted because
it was unnecessary and/or covered by other Federal regulations.
Section 820.70(f) has been deleted because the requirements are
adequately covered in the current requirements under Sec. 820.70(e),
``Contamination control,'' and Sec. 820.70(c), ``Environmental
control.'' Under these sections, sewage, trash, byproducts, chemical
effluvium, and other refuse that could affect a device's safety,
effectiveness, or fitness-for-use must be adequately controlled.
132. Two comments stated that the requirement related to equipment
in Sec. 820.70(g) should ensure that equipment meets ``specified
requirements,'' not be ``adequate for its intended use,'' because
intended use is determined during the design phase, and because it is
easier to assess whether equipment meets specified requirements.
From these comments, FDA can see that the requirement should be
revised because it may have been misinterpreted. The requirement is
reworded as suggested. Under the requirement, the equipment must be
appropriately designed to facilitate maintenance, adjustment, cleaning,
and use. It must also meet the requirements that are necessary to
ensure its proper functioning for the manufacture of the device.
133. A few comments stated that not all equipment requires
maintenance, and the requirement for a maintenance schedule in
Sec. 820.70(g)(1) should be revised to make that clear. The GHTF
recommended that the second sentence of proposed Sec. 820.70(g)(1),
which required that the maintenance schedule be posted or readily
available, be deleted and placed in guidance.
FDA agrees that not all equipment may require maintenance and notes
that the general requirement of Sec. 820.70(a) requires process control
procedures that describe only those controls which are necessary.
Therefore, FDA did not revise the requirement.
FDA has deleted the requirement that the maintenance schedule be
posted or readily available. Section 820.70(g), which directs a
manufacturer to ensure that equipment meets specified requirements,
requires that the manufacturer ensure that maintenance is carried out
on schedule to comply with the requirement. To satisfactorily meet this
requirement, FDA expects that the schedule will be posted on or near
the equipment to be maintained, or otherwise made readily available to
appropriate personnel. Deletion of the requirement, however, permits
the manufacturer added flexibility in complying with this section.
134. Several comments stated that Sec. 820.70(g)(2),
``Inspection,'' and (g)(3), ``Adjustment,'' should be deleted and
placed in guidance because the requirements are adequately covered in
Sec. 820.70(g)(1). Another comment stated that the requirement for
limitations or tolerances to be ``visibly posted on or near equipment''
should be deleted.
FDA believes that to adequately ensure that equipment continues to
meet its specifications, and to ensure that inherent limitations and
allowable tolerances are known, these requirements are imperative. FDA
notes inherent limitations and allowable tolerances must be visibly
posted on or near equipment or made readily available to personnel to
allow the manufacturer the flexibility to utilize any system to make
sure that the limitations or tolerances are readily available to the
personnel that need them. Both Sec. 820.70(g)(2) and (g)(3) are
requirements in the original CGMP regulation and the agency has found
them to be useful and necessary.
135. One comment stated that requiring the removal of manufacturing
material to be documented in proposed Sec. 820.70(g)(4),
``Manufacturing material,'' would result in impossible requirements,
such as the requirement to document how much cutting oil is lost during
a metal removing operation, such as drilling. Others commented that the
requirement needs to be amended to clarify that only manufacturing
materials that have an adverse effect or that are unwanted need to be
removed or limited.
FDA disagrees with the first comment because Sec. 820.70(g)(4) (now
Sec. 820.70(h)) only requires that the fact that manufacturing material
was removed or reduced be documented, not how much was removed or how
much was lost due to processing. This requirement is carried over from
the original CGMP regulation, Sec. 820.60(d). FDA has amended the
section, however, to clarify that this requirement is necessary ``Where
a manufacturing material could reasonably be expected to have an
adverse effect on product quality.'' FDA
[[Page 52630]]
purposefully qualifies the general requirement by that which adversely
affects ``product quality'' (product as defined in Sec. 820.3(r)) and
limits the requirement for removal or reduction to ``an amount that
does not adversely affect the device's quality.''
136. One comment on Sec. 820.70(h), ``Automated processes,'' (now
Sec. 820.70(i)), stated that the section should be revised to reflect
that software used in such systems must be validated for ``its intended
use,'' not simply validated. Another comment stated that most companies
buy software currently available on the market and do not make changes
to the software. It was recommended that Sec. 820.70(h) allow for use
of outside personnel for validation runs and not necessarily require
the development of a software validation procedure. One comment
suggested that the section should allow verification rather than
validation of off-the-shelf software. Several comments on ``automated
processes'' stated that the term ``data processing systems'' was
unclear and its inclusion rendered the requirement too broad. Others
asked for clarification of ``automated data processing systems.''
FDA has modified the requirement to mandate validation for the
intended use of the software. In addition, the requirement that the
software be validated by individuals designated by the manufacturer has
also been deleted to make clear that validation may be performed by
those other than the manufacturer. However, whether the manufacturer
designates its own personnel or relies on outside assistance to
validate software, there must be an established procedure to ensure
validation is carried out properly.
FDA has maintained the requirement for validation because the
agency believes that it is necessary that software be validated to the
extent possible to adequately ensure performance. Where source code and
design specifications cannot be obtained, ``black box testing'' must be
performed to confirm that the software meets the user's needs and its
intended uses.
FDA emphasizes that manufacturers are responsible for the adequacy
of the software used in their devices, and activities used to produce
devices. When manufacturers purchase ``off-the- shelf'' software, they
must ensure that it will perform as intended in its chosen application.
FDA has amended the requirement to state ``When computers or
automated data processing systems are used as part of production or the
quality system,'' for clarification. Software used in production or the
quality system, whether it be in the designing, manufacturing,
distributing, or tracing, must be validated.
ii. Inspection, Measuring, and Test Equipment (Sec. 820.72)
137. A few comments stated that it is unclear what is meant by the
requirement in proposed Sec. 820.84 Inspection, measuring, and test
equipment that equipment be capable of producing ``valid results.'' The
comments stated that such equipment may be ``suitable for its intended
purpose'' and still not always ``produce valid results.''
FDA believes that the term ``valid results'' is commonly understood
and notes that it has been in the original CGMP regulation under
Sec. 820.61 for 18 years. The requirement is for the equipment to work
properly, thereby providing ``valid results.''
FDA renumbered Sec. 820.84 as Sec. 820.72 in response to comments
that stated these requirements were more appropriate under subpart G
Production and Process Controls. FDA revised the requirement in new
Sec. 820.72(a), ``Control of inspection, measuring, and test
equipment,'' to make clear that the procedures must also ensure that
the equipment is maintained and moved the requirement that the
procedure include provisions for handling, preservation and storage of
equipment from Sec. 820.84(d) in the Working Draft to Sec. 820.72(a).
FDA deleted the term ``test software'' that was in Sec. 820.84(e)
because FDA believes that ``test software'' is now covered under
``electronic inspection and test equipment'' in Sec. 820.72(a).
138. A few comments stated that the last sentence in proposed
Sec. 820.84(a), ``Calibration,'' is unnecessary because the requirement
for trained personnel is redundant with Sec. 820.25(a) Personnel. A few
comments stated that FDA should identify what must be remedied in
proposed Sec. 820.84(a).
FDA agrees that the requirement for trained personnel is redundant
and has deleted this sentence from Sec. 820.72(b), ``Calibration.'' FDA
has also added to this section the requirement that the calibration
procedure include provisions for remedial action to ``reestablish the
limits and to evaluate whether there was any adverse effect on the
device's quality'' to clarify this remedial action requirement and its
relationship to the requirements in Sec. 820.100 Corrective and
preventive action.
139. Several comments stated that Sec. 820.84(b), ``Calibration
standards,'' should allow for the use of international standards.
FDA agrees and has rewritten the section, now Sec. 820.72(b)(1),
``Calibration standards,'' to allow the use of international standards.
The standards used must be generally accepted by qualified experts as
the prevailing standards.
140. FDA has deleted the requirement in proposed Sec. 820.84(c),
now Sec. 820.72(b)(2), ``Calibration records,'' that calibration
records be ``maintained by individuals designated by the manufacturer''
because, on further reflection, the agency believes such a requirement
is unnecessary. As long as the required procedures and records are
maintained and displayed or readily available as required, the
objective of the section, ensuring that calibration is performed and
acceptable, will be met. FDA did add ``equipment identification'' to
the list of items that had to be documented in response to a comment
that requested clarification in this regard, so that equipment is
clearly identified in the calibration records even if the records are
not displayed on or near the particular piece of equipment.
141. Two comments suggested deleting proposed Sec. 820.84(d)
because they believed it was unnecessary to establish procedures to
maintain equipment, because most manufacturers simply store equipment
in protective covers.
As already noted, FDA has moved the requirement for establishing
maintenance procedures into the general requirement in Sec. 820.72. FDA
has retained the requirement because some equipment requires special
handling, preservation, and storage. For example, the temperature and
humidity of a room may affect the equipment and procedures would need
to be established taking those factors into account.
142. Several comments stated that proposed Sec. 820.84(e),
``Facilities,'' should be deleted because it is redundant with the
requirements under Sec. 820.70(g) and the general requirements of
proposed Sec. 820.84(a).
FDA agrees that revised Sec. 820.84(a), which is now
Sec. 820.72(a), would require procedures to ensure that equipment is
protected from adjustments that could invalidate the calibration, in
that the section requires procedures to ensure that equipment is
properly maintained. The procedures that require equipment to be
routinely calibrated, inspected, and checked, will also ensure that
improperly calibrated equipment is not used. Therefore, FDA has deleted
proposed Sec. 820.84(e).
[[Page 52631]]
iii. Process Validation (Sec. 820.75)
143. A few comments on proposed Sec. 820.75 Special processes
stated that the meaning of the term ``special processes'' was unclear.
Other comments stated that FDA should provide examples of processes
that would be considered ``special processes.'' Several comments stated
the term ``fully verified'' was unclear and should be deleted.
In response to the comments, the term ``special processes'' has
been dropped from the regulation and the term ``process validation'' is
defined in Sec. 820.3(z)(1). The section now requires that when a
process ``cannot be fully verified by subsequent inspection and test,
the process shall be validated with a high degree of assurance. * * *''
Examples of such processes include sterilization, aseptic processing,
injection molding, and welding, among others. The validation method
must ensure that predetermined specifications are consistently met. The
new Sec. 820.75, entitled ``Process validation,'' is consistent with
ISO 9001:1994, section 4.9, including the terminology ``fully
verified.'' FDA does not believe this terminology is unclear since it
has been used in ISO 9001:1987 and 1994 and explained in several
guidance documents.
FDA amended this section by removing the requirement for the
signature of the individual(s) performing the process and placing the
signature requirement on the approval of the validation where FDA
believes it is more important and appropriate. FDA also added that
``where appropriate, the major equipment validated'' must be
documented. Depending on the process that is validated, it may be
necessary to document the person performing the process or the
equipment or both in order to have adequate controls on the process.
144. Several comments were received on proposed Sec. 820.75(a)(1)
through (a)(4) that stated that the requirements were redundant with
other parts of the regulation and should be modified or deleted.
FDA disagrees with the comments and believes that, due to the
importance of process validation and correct performance of the
validated process, the requirements are necessary. The requirements
have been rearranged in the revised section.
145. Comments on the first sentence of proposed Sec. 820.75(b)
stated that it was unclear and unrealistic. Other comments stated that
the requirement for continuous monitoring is not practical or
necessary.
In response to the comments, FDA has revised the requirements.
Section 820.75(b) applies to the performance of a process after the
process has been validated. In contrast, Sec. 820.75(a) relates to the
initial validation of the process. FDA deleted the term ``continuous''
because the agency concurs that monitoring can be accomplished at a
determined interval and frequency depending on the type of validated
process being monitored and controlled. FDA notes that the interval and
frequency should be periodically evaluated for adequacy, especially
during any evaluation or revalidation that occurs in accordance with
the requirements in new Sec. 820.75(c).
New Sec. 820.75(b)(1), which was proposed Sec. 820.75(c) of the
Working Draft, requires that validated processes be performed by a
qualified individual(s). FDA notes that Sec. 820.75(b)(1) is similar to
the requirements under Sec. 820.25 Personnel but emphasizes that
validated processes must not only be performed by personnel with the
necessary education, background, training, and experience for their
general jobs but must be performed by personnel qualified for those
particular functions. Revised Sec. 820.75(b)(2), which was proposed
Sec. 820.75(d) of the Working Draft, contains the amended documentation
requirements for validated processes, to include the monitoring and
control methods and data. FDA notes that it is always ``appropriate''
to document the equipment used in the process where the manufacturer
uses different equipment on different manufacturing lines. To
investigate a problem with the device, the manufacturer will need to
know which equipment was used, since the problem could be with the
equipment itself. The same holds true for the individual(s) performing
the process.
Section 820.75(c) contains requirements on process revalidation in
response to several comments and concerns on when revalidation
activities were necessary. FDA believes that the new arrangement of
Sec. 820.75 should clarify the requirement.
H. Acceptance Activities (Subpart H)
i. Receiving, In-Process, and Finished Device Acceptance (Sec. 820.80)
146. One co
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
mment stated that the emphasis on testing and inspection
in proposed Sec. 820.80 completely ignores the quality goals, the
benefit of requiring purchasing controls, and statements made in the
preamble of the proposal reflecting FDA's negative opinion about
manufacturers relying solely on testing and inspection. A few comments
on the Working Draft stated that ``acceptance activities'' should be
defined as inspections, tests, or other verification activities so that
the regulation does not require all of these activities but gives the
manufacturer the flexibility to choose the appropriate method.
FDA agrees with the comments and has replaced the term ``inspection
and test'' with ``acceptance activities'' in Sec. 820.80. Further, FDA
now defines ``acceptance activities'' to include inspections, test, or
other verification activities, such as supplier audits.
147. One comment stated that recordkeeping is a significant cost
factor in the operation of a total quality system, and that the revised
CGMP regulation should not add cost through duplication of
documentation. The comment said recording all quantitative data is
inappropriate and of little value.
FDA agrees that unnecessary duplication of documentation should be
avoided. FDA believes that the quality system regulation requires the
minimum documentation necessary to ensure that safe and effective
devices are designed and produced. FDA similarly believes that
maintaining records of results of acceptance activities is imperative
to ensure that nonconforming product is not inadvertently used or
distributed. FDA has, however, deleted from Sec. 820.80(a) the
requirement for recording the results of inspections and testing
because Sec. 820.80(e) requires that the results of acceptance
activities be recorded. The requirement in Sec. 820.80(a) was therefore
unnecessary. Further, the regulation does not specify quantitative data
but simply requires that the results be recorded. FDA believes that it
is essential for the manufacturer to maintain records which provide
evidence that the product has gone through the defined acceptance
activities. These records must clearly show whether the product has
passed or failed the acceptance activities according to the defined
acceptance criteria. Where product fails to pass acceptance activities,
the procedures for control of nonconforming product must be
implemented, to include investigations where defined. If the acceptance
records are not clear about how the product failed, then the
manufacturer may end up duplicating the acceptance activities in order
to perform appropriate investigations.
148. Several comments stated that proposed Sec. 820.80(b),
``Receiving inspection and testing,'' did not allow for urgent use of
incoming items. The comments said that urgent use should be permitted
if forward traceability is maintained so that recall and
[[Page 52632]]
replacement is possible if the material is subsequently found to be
nonconforming. One comment stated that the requirements in proposed
Sec. 820.80(b) were too specific and did not allow flexibility.
FDA agrees in part with the comments. FDA has permitted
manufacturers to use incoming items that had not yet been proven
acceptable for use, provided that the manufacturer maintained control
of the unapproved items and could retrieve the product that contained
the unapproved items before distribution. Therefore, the requirement
that product ``shall not be used or processed until * * * verified''
has been deleted from Sec. 820.80(b), now entitled ``Receiving
acceptance activities.'' However, FDA emphasizes that while the product
can be used in production prior to verification, it cannot be
distributed prior to verification. FDA does not permit the distribution
of unapproved product through an urgent use provision, because all
finished devices must comply with Sec. 820.80(d), ``Final acceptance
activities,'' before they are released for distribution.
In addition to the changes noted above, FDA has deleted the
requirement that ``individual(s) designated by the manufacturer shall
accept or reject incoming'' product. FDA does not believe this
requirement is necessary in Sec. 820.80(b) because Sec. 820.80(e)
requires that the identification of the individual(s) conducting the
acceptance activities be recorded.
149. Several comments stated that an absolute requirement under
proposed Sec. 820.80(c), ``In-process inspection and testing,'' for in-
process testing was inconsistent with the preamble, which stated that
an appropriate mix of controls should be established. Other comments
stated that in-process inspection and testing is unnecessary if the
process is validated and the devices are subject to final inspection. A
few comments on the Working Draft stated that the term ``held'' was too
restrictive and was not consistent with the requirements and the
preamble discussion for Sec. 820.80(b).
FDA agrees with the comments in part, but believes that Sec. 820.80
as now written, with the inclusion of ``where appropriate,'' does not
mandate in-process inspection and testing. FDA acknowledges that in-
process acceptance activities may not be necessary or possible for
every device, for example, medical socks. Further, the requirement
states that in-process product must be controlled until the required
inspection and test, or other verification activities, have been
performed. This will permit manufacturers to use, under defined
conditions and procedures, product that has not completed the
acceptance activities described in Sec. 820.80(b) and (c). This does
not means that manufacturers can ignore the requirements in
Sec. 820.80(b) and (c) because these requirements must be completed in
order to comply with Sec. 820.80(d), which must be satisfied before
devices are released for distribution.
150. FDA received a similar comment on proposed Sec. 820.80(d),
``Final inspection and test,'' which said that the provision requires
finished device inspection for all devices, without defining what
inspection is expected. The comment suggested that Sec. 820.80(d) could
be interpreted to require actual product inspection, which has been
shown to be ineffective as a means of controlling product quality. One
comment stated that signatures should not be the only approved method
for identification of the individual(s) responsible for release. The
comment stated that use of inspection stamps and initials should be
allowed.
FDA has rewritten Sec. 820.80(d) to require that manufacturers
establish and maintain procedures for finished device acceptance to
ensure that each production run, lot, or batch of finished devices
meets specified requirements. Manufacturers have the flexibility to
choose a combination of methods, including finished device inspection
and test, provided such methods will accomplish the required result.
FDA believes that it is important for the person responsible for
release to have personally documented and dated that release. This can
be accomplished through use of an inspection stamp, if the stamp is
controlled as discussed above under Sec. 820.40 Document controls.
Therefore, FDA has retained the requirement for a signature.
151. Several comments on proposed Sec. 820.80(e), ``Inspection and
test records,'' stated that manufacturers should not be required to
record the use of general equipment in inspection and test records,
because this requirement would be burdensome to large manufacturers who
use many common pieces of equipment. A few comments stated that the
record requirements under Sec. 820.80(e) are overly prescriptive and go
well beyond ISO 9001's comparable requirements. The comments stated
that recordkeeping should be specified by the manufacturer in the
spirit of ISO 9001, and should include only the minimum records
necessary to show that finished device inspections are performed in
accordance with established procedures.
FDA agrees that it may not be necessary to document every piece of
equipment used in acceptance activities. The requirement, renamed
``Acceptance records,'' now provides that equipment used shall be
documented ``where appropriate.'' For some critical operations and
testing, identification of the equipment used will be imperative for
proper investigations into nonconforming product.
The requirements, as revised, are similar to those in ISO
9001:1994. As discussed above, certain information must be captured on
acceptance records for the records to be useful in evaluating
nonconformance. Through many years of experience, FDA has determined
what it believes to be a minimum requirement for these records. Section
820.80(e) reflects that determination.
ii. Acceptance Status (Sec. 820.86)
152. Several comments on proposed Sec. 820.86, ``Inspection and
test status,'' stated that the section was not flexible enough to allow
identification of the inspection and test status of product by various
means, because the requirement was for the status to be ``visible.''
One comment questioned why ``component acceptance'' was addressed
separately.
FDA agrees that the inspection and test status may be identified by
any method that will achieve the result, which might include acceptable
computerized identification, markings, etc. The section has been
rewritten to reflect this intent, has been renamed ``Acceptance
status,'' and is now consistent with ISO 9001:1994. FDA also agrees
that ``component acceptance'' is covered by ``manufacturing'' and has
deleted the term.
153. FDA has deleted proposed Sec. 820.86(b) which required that
records identify those responsible for release of the product, because
the agency believes that the records required by Sec. 820.80(e) will
identify those responsible for release of product.
I. Nonconforming Product (Subpart I)
154. FDA has rewritten Sec. 820.90 Nonconforming product to utilize
the term ``product'' throughout, as defined in Sec. 820.3(r), for both
shorthand purposes and consistency with ISO 9001:1994.
155. One comment suggested deleting the term ``inadvertently'' and
adding the word ``distributed'' before ``installed'' in Sec. 820.90(a).
Several written comments and persons who testified at the August and
September 1995 meetings stated that Sec. 820.90(a) should be written so
[[Page 52633]]
that it is not interpreted to require investigations for every
nonconformance. A few comments stated that the term ``provide for'' was
too broad and unclear. Other comments stated that the requirement to
``ensure'' nonconforming product was ``not used or distributed'' was
inconsistent with the provisions in Sec. 820.90(b) which allowed for
concessions under certain circumstances. One comment stated that the
requirement that persons responsible for nonconforming product be
``notified'' should be deleted because it is overly burdensome and not
needed in all cases.
FDA has reworded the general requirement for procedures to control
nonconforming product and has deleted the term ``inadvertently.'' FDA
has also added the requirement that the procedures provide for the
``evaluation'' of nonconforming product because evaluation is key to
protecting against recurring nonconformance. The addition is consistent
with ISO 9001:1994.
FDA has further revised Sec. 820.90 in response to the comments on
the Working Draft. First, the manufacturer must establish procedures to
``control'' nonconforming product. Second, the procedures shall
``address the identification, documentation, evaluation, segregation,
and disposition of nonconforming product,'' which gives the
manufacturers the flexibility to define how they are going to
``control'' products that are nonconforming. Third, the evaluation
process addressed in the procedure ``shall include a determination of
the need for an investigation.'' Therefore, the procedures will need to
set forth the manufacturer's SOP on when investigations will take place
and provisions for trending and/or monitoring the situation in the
future. Fourth, FDA added ``The evaluation and any investigation shall
be documented,'' which would include the explanations for not
performing investigations and how nonconformances will be trended and/
or monitored. Further, the phrase ``is not used or distributed'' has
been deleted to be consistent with Sec. 820.90(b).
FDA disagrees that the notification requirement should be deleted.
Where some person or organization is responsible for nonconformances,
they must be notified to ensure that future nonconformances are
prevented. This requirement is also in ISO 9001:1994, section 4.13.1.
156. FDA has rewritten Sec. 820.90(b)(1), ``Nonconformity review
and disposition,'' to make clear that the section requires procedures
that define the responsibility for review and authority for disposition
of nonconforming product and that set forth the review and disposition
process. FDA believes that proper disposition of nonconforming product
is essential for ensuring the safety and effectiveness of devices.
Manufacturers have made determinations that nonconforming product may
be used which have resulted in defective devices being distributed.
Thus, although it may be appropriate at times to use nonconforming
products, the disposition process must be adequately controlled.
The revision requires that disposition and justification for
concessions be documented. FDA believes that the justification should
be based on scientific evidence, which a manufacturer should be
prepared to provide upon request. Concessions should be closely
monitored and not become accepted practice. This section is consistent
with ISO 9001:1994, section 4.13.2.
Several comments on the Working Draft stated that the term
``concession'' should be deleted because it is confusing. FDA has
rewritten the sentence to ensure the meaning of this requirement is
clear. The sentence now reads, ``Documentation shall include the
justification for the use of nonconforming product and the signature of
the individual(s) authorizing the use.''
157. Several comments were received on proposed Sec. 820.90(b)(2).
One comment stated that the requirement should allow for other types of
disposition besides reprocessing. One comment suggested replacing the
term ``reinspection'' with ``evaluation,'' to allow for greater
flexibility in verification methods. Many comments suggested that the
requirement for identification of reprocessed product should be deleted
because they believed it would cause the consumer to forego purchasing
the product. Several comments requested that the term ``rework'' be
used instead of ``reprocessing'' to harmonize terminology with ISO
standards.
FDA agrees in part with the comments. FDA, as noted in the
definition section, has substituted the term ``rework'' and the ISO
8402:1994 definition for the term ``reprocessing'' in response to the
comments. FDA believes that the revised Sec. 820.90(b)(1) clearly
allows for other methods of disposition besides rework. Section
820.90(b)(2), which governs rework when it is chosen as a method of
disposition, has been revised as requested by replacing the term
``reinspection'' with ``reevaluation.'' The change will allow
manufacturers the flexibility to inspect or use other verification
activities.
FDA has also deleted the requirement for identification of reworked
product from this section because FDA believes that it is adequately
covered in Secs. 820.60 Identification and 820.86 Acceptance status.
Other minor changes made to the section include requiring that a
determination of any adverse effect of the rework upon the product be
made, whether there is ``repeated'' rework or not. FDA's intent is that
such a determination be made with any rework, given the potential
harmful effect rework could have on the product. The change harmonizes
Sec. 820.90 with ISO/CD 13485. In addition, the sentence requiring a
``complete reinspection'' for reworked product was deleted because the
section already requires retesting and reevaluation of reworked
product. FDA has also substituted ``current'' for ``original or
subsequently modified'' approved specifications for clarity. The
requirements as written are consistent with the original CGMP
requirements in Secs. 820.115 and 820.116.
J. Corrective and Preventive Action (Subpart J)
158. A few comments suggested revising proposed Sec. 820.100
Corrective and preventive action to require procedures for implementing
corrective and preventive action, consistent with ISO 9001. One comment
stated that the procedures should provide for an initial halt of
distribution of suspect products or tight control and action concerning
products already distributed before taking the long term action listed
in this section.
FDA agrees that it is essential that the manufacturer establish
procedures for implementing corrective and preventive action and has
revised Sec. 820.100(a) accordingly. The procedures must include
provisions for the remaining requirements in the section. These
procedures must provide for control and action to be taken on devices
distributed, and those not yet distributed, that are suspected of
having potential nonconformities.
159. Other comments stated that the degree of remedial action
should be commensurate with the risk associated with a product failure.
FDA agrees that the degree of corrective and preventive action
taken to eliminate or minimize actual or potential nonconformities must
be appropriate to the magnitude of the problem and commensurate with
the risks encountered. FDA cannot dictate in a regulation the degree of
action that
[[Page 52634]]
should be taken because each circumstance will be different, but FDA
does expect the manufacturer to develop procedures for assessing the
risk, the actions that need to be taken for different levels of risk,
and how to correct or prevent the problem from recurring, depending on
that risk assessment.
FDA emphasizes that any death, even if the manufacturer attributes
it to user error, will be considered relevant by FDA and will have a
high risk potentially associated with it. User error is still
considered to be a nonconformity because human factors and other
similar tools should have been considered during the design phase of
the device. FDA acknowledges that a manufacturer cannot possibly
foresee every single potential misuse during the design of a device,
but when the manufacturer becomes aware of misuse, the corrective and
preventive action requirements should be implemented to determine if
redesign of the device or labeling changes may be necessary.
160. Several comments on proposed Sec. 820.100(a)(1) stated that
requiring a manufacturer to analyze ``all'' processes, work operations,
and other factors listed, is excessive and unrealistic. Some comments
stated that there should not be a requirement to conduct an analysis
for ``potential causes'' of nonconformances. A few comments stated that
including ``quality audits'' in the list was inconsistent with the FDA
policy of not reviewing internal audits. A few comments stated that the
requirement that the analysis include ``trend analysis'' should be
modified because it places unnecessary emphasis on only one statistical
method or tool. Other comments stated that statistical tools are not
always necessary and that the requirement should be modified.
FDA agrees in part with the comments. It was not FDA's intent to
require that processes unrelated to an existing nonconformity be
analyzed. Instead, Sec. 820.100(a)(1) requires an analysis of those
items listed that could be related to the problem. To prevent
confusion, the word ``all'' has been deleted. The requirement is
similar to that of ISO 9001:1994, section 4.14.3(a).
The inclusion of ``quality audits'' as a valuable feedback
mechanism for the manufacturer does not conflict with FDA's policy of
not reviewing internal quality audits. Internal audits are valuable and
necessary tools for the manufacturer to evaluate the quality system.
The audit reports should be used to analyze the entire quality system
and provide feedback into the system to close the feedback loop, so
that corrective or preventive actions can be taken where necessary. FDA
will review the corrective and preventive action procedures and
activities performed in conformance with those procedures without
reviewing the internal audit reports. FDA wants to make it clear that
corrective and preventive actions, to include the documentation of
these activities, which result from internal audits and management
reviews are not covered under Sec. 820.180(c).
FDA has further revised the requirement to delete the reference to
trend analysis in response to the comments. The provision now requires
that ``appropriate statistical methodology'' be employed where
necessary to detect recurring quality problems. This revision is made
because there may be other statistical tools available beyond ``trend
analysis.'' FDA emphasizes that the appropriate statistical tools must
be employed when it is necessary to utilize statistical methodology.
FDA has seen far too often the misuse of statistics by manufacturers in
an effort to minimize instead of address the problem. Such misuse of
statistics would be a violation of this section.
FDA has retained the requirement for analysis to identify
``potential causes of nonconforming product,'' however, because FDA
believes this is an important aspect of preventive action. FDA notes
that ISO 9001:1994, section 4.14.1, specifically acknowledges that
corrective and preventive actions are associated with actual and
potential nonconformities.
161. Several comments stated that proposed Sec. 820.100(a)(2) was
redundant with requirements in Sec. 820.198 Complaints.
FDA agrees in part with the comments and has written the section to
require investigation of the cause of nonconformities relating to
process, product, and the quality system, consistent with ISO
9001:1994, section 4.14.2(b). The requirement in this section is
broader than the requirement for investigations under Sec. 820.198,
because it requires that nonconforming product discovered before or
after distribution be investigated to the degree commensurate with the
significance and risk of the nonconformity. At times a very indepth
investigation will be necessary, while at other times a simple
investigation, followed by trend analysis or other appropriate tools
will be acceptable. In addition, in contrast to Sec. 820.198, the
requirement in this section applies to process and quality system
nonconformities, as well as product nonconformities. For example, if a
molding process with its known capabilities has a normal 5 percent
rejection rate and that rate rises to 10 percent, an investigation into
the nonconformance of the process must be performed.
162. One comment stated that proposed Sec. 820.100(a)(3) should not
require identification of action necessary to correct ``other quality
problems.'' Another stated that the section should be harmonized with
ISO. One comment thought that the requirement should be to identify
action to correct problems identified by ``trend analysis.''
FDA agrees that harmonization is important and has harmonized the
terminology (and intent) of the section with ISO 9001:1994, sections
4.14.2(c) and 4.14.3(b). However, FDA disagrees that the section should
not require identification of action necessary to correct ``other
quality problems'' because the objective of Sec. 820.100 is to correct
and prevent poor practices, not simply bad product. Correction and
prevention of unacceptable quality system practices should result in
fewer nonconformities related to product. Therefore, this section
addresses problems within the quality system itself. For example, it
should identify and correct improper personnel training, the failure to
follow procedures, and inadequate procedures, among other things.
FDA also disagrees with the suggestion to link the requirement in
Sec. 820.100(a)(3) to trend analysis and has deleted the reference to
trend analysis in Sec. 820.100(a)(1) to give the manufacturer the
flexibility to use whatever method of analysis is appropriate.
163. FDA has revised Sec. 820.100(a)(4) to reflect that preventive,
as well as corrective, action must be verified or validated. The
section is now consistent with ISO 9001:1994, sections 4.14.2(d) and
4.14.3(c). Two comments stated that the definitions of validation and
verification cause confusion here, but FDA believes that these concerns
should be resolved with the amended definitions under Sec. 820.3 (z)
and (aa).
164. FDA has also revised Sec. 820.100(a)(5) in the same manner, to
relate the requirements to preventive action. This section is
consistent with ISO 9001:1994, section 4.14.1, third paragraph.
165. One comment suggested that proposed Sec. 820.100(a)(6) be
revised to reflect that minor quality problems may not need to be
disseminated to those directly responsible for ensuring quality and to
be reviewed by management.
[[Page 52635]]
FDA agrees in part with this comment. The revised Sec. 820.100
(a)(6) and (a)(7) require that procedures ensure that information is
disseminated to those directly responsible for assuring quality or the
prevention of such problems, and provide for submitting relevant
information on identified quality problems, as well as corrective and
preventive actions, for management review. This revision should address
the concern raised by the comment because only certain information need
be directed to management. The manufacturer's procedures should clearly
define the criteria to be followed to determine what information will
be considered ``relevant'' to the action taken and why. FDA emphasizes
that it is always management's responsibility to ensure that all
nonconformity issues are handled appropriately. This section is now
consistent with ISO 9001:1994, section 4.14.3(d).
166. Two comments stated that the records required under
Sec. 820.100(b) should be treated as part of the internal audit.
FDA disagrees with these comments because this information is
directly relevant to the safety and effectiveness of finished medical
devices. FDA has the authority to review such records and the
obligation to do so to protect the public health. Comparable
information and documentation is reviewed by the FDA under the
requirements of the original CGMP, Secs. 820.20 (a)(3) and (a)(4) and
820.162. Manufacturers will be required to make this information
readily available to an FDA investigator, so that the investigator may
properly assess the manufacturer's compliance with these quality system
requirements.
K. Labeling and Packaging Control (Subpart K)
i. Device Labeling (Sec. 820.120)
167. Several comments on proposed Sec. 820.162 Device labeling
stated that the section should be deleted and placed in guidance
because it is unnecessary and redundant with requirements under
Secs. 820.80 and 820.86. A few comments stated that the section should
be changed to be the same as that in the original CGMP regulation,
under Secs. 820.120 and 820.121. Another comment stated that labeling
and packaging requirements should be in subpart K of part 820 and
handling, storage, distribution, and installation requirements should
be in subpart L of part 820 because labeling and packaging functionally
occur before distribution and installation.
FDA believes that the section, as written, is consistent with the
requirements in the original CGMP. Section 820.120 relates specifically
to labeling and its requirements are in addition to those in both
Secs. 820.80 and 820.86. Further, FDA believes that the degree of
detail in this section is necessary because these same requirements
have been in place for 18 years, yet numerous recalls every year are
the result of labeling errors or mixups. FDA therefore believes that
more, not less, control is necessary.
FDA has reordered the subparts but notes that the handling and
storage requirements apply throughout the production process.
168. One comment stated that ``to maintain labeling integrity and
to prevent labeling mixups'' should be deleted from the general
requirement because the requirements are detailed in the following
sections. Other comments stated that all labels need not be affixed to
the device and others stated that ``legible and affixed'' may not be
appropriate for all implantable devices.
FDA agrees with the comments and has revised the requirements
accordingly.
169. A few comments stated that what is now Sec. 820.120(b),
``Labeling inspections,'' should allow automated readers to be used in
place of a ``designated individual(s)'' to examine the labeling.
FDA disagrees with the comments because several recalls on labeling
have been attributed to automated readers not catching errors. The
requirement does not preclude manufacturers from using automated
readers where that process is followed by human oversight. A
``designated individual'' must examine, at a minimum, a representative
sampling of all labels that have been checked by the automated readers.
Further, automated readers are often programmed with only the base
label and do not check specifics, such as control numbers and
expiration dates, among other things, that are distinct for each label.
The regulation requires that labeling be inspected for these items
prior to release.
170. FDA has amended Sec. 820.120(b) to add ``any'' to additional
processing instructions in response to a comment for clarity. FDA has
amended Sec. 820.120(d) to include ``The label and labeling used for
each production unit, lot, or batch shall be documented in the DHR'' in
response to comments questioning whether the labeling used should be
recorded in the DMR or the DHR. FDA also amended Sec. 820.120(e) by
adding ``or shall accompany the device through distribution'' and
deleting ``itself or its label'' for clarity.
171. A few comments on proposed Sec. 820.165 Critical devices,
labeling stated that this section should be deleted to eliminate any
distinction between critical and noncritical devices.
FDA agrees in part and has deleted Sec. 820.165, but has added the
requirement on control numbers to Sec. 820.120(e).
ii. Device Packaging (Sec. 820.130)
172. Two comments on proposed Sec. 820.160 Device packaging stated
that the section should be changed to allow manufacturers to use third
parties, if desired, for packaging. Another comment stated that it is
very difficult if not impossible to protect from intentional damage,
such as tampering.
FDA agrees with the comments and has changed the requirement, now
in Sec. 820.130, accordingly. FDA believes, however, that any
intentional tampering would not be covered because the requirement
states ``during customary conditions.''
L. Handling, Storage, Distribution, and Installation (Subpart L)
i. Handling (Sec. 820.140)
173. One comment on proposed Sec. 820.120 Handling suggested that
the procedures be ``designed to prevent,'' rather than be established
to ``ensure that,'' problems delineated in the section do not occur.
The comment stated that the word ``prevent'' would add clarity, without
compromising the meaning of the sentence. Another comment stated that
the handling procedures should apply ``prior to distribution,'' not
during ``any stage of handling.'' One comment stated that the
requirement does not cover the need for special precautions in handling
used devices which may be contaminated, and that this is an important
issue covered by ISO/CD 13485.
FDA does not believe that Sec. 820.120, now Sec. 820.140, as
written is unclear. The procedures are expected to ensure that mixups,
damage, deterioration, contamination, or other adverse effects do not
occur. FDA amended the requirement, however, to remove ``any stage of''
so it reads ``during handling.'' The requirement continues to apply to
all stages of handling in which a manufacturer is involved, which may
in some cases go beyond initial distribution.
The comparable provision in ISO/CD 13485 states, ``If appropriate,
special provisions shall be established, documented and maintained for
the handling of used product in order to prevent contamination of other
product, the manufacturing environment and
[[Page 52636]]
personnel.'' FDA agrees with this requirement and has therefore added
the term ``contamination'' to Secs. 820.140 Handling and 820.150
Storage.
ii. Storage (Sec. 820.150)
174. Two comments stated that proposed Sec. 820.122 Storage should
be amended to be similar to ISO 9001, and that the rest of the
requirements should be deleted and included in a guidance document. One
comment stated that the term ``obsolete'' should be deleted because,
although a device may no longer be sold, thereby making it obsolete,
the components for that device may still be stored for customer support
of the existing devices.
FDA agrees that Sec. 820.122, now Sec. 820.150, could be more
consistent with ISO 9001 and has revised the section to harmonize with
ISO 9001:1994. FDA has not deleted the term ``obsolete.'' FDA
understands that a device may no longer be sold, but that parts and
subassemblies may still be required for customer support; therefore,
those components or subassemblies are not ``obsolete.'' FDA's intent in
this requirement is to ensure that only the appropriate product be used
or distributed.
FDA has deleted the requirement that control numbers or
identifications be legible and visible because it believes the
requirement is inherent in Sec. 820.150(a), which requires the
manufacturer to establish procedures to prevent mixups. To do this, a
manufacturer must ensure that product can be properly identified.
175. A comment stated that restricting access to designated areas
through the use of keys, bar code readers, or other means, should be
sufficient to meet the intent of the requirement in proposed
Sec. 820.122(b), without the need for written procedures for
authorizing receipt.
FDA has not deleted the requirement for procedures, now in
Sec. 820.150(b), to authorize receipt of product because the agency
believes that strict control over product in storage areas and stock
rooms results in decreased distribution of nonconforming product. Thus,
even where locked storage rooms are utilized, the procedures should
detail, among other things, who is permitted access and what steps
should be followed prior to removal.
iii. Distribution (Sec. 820.160)
176. A few comments on proposed Sec. 820.124 Distribution stated
that there are times when ``first in, first out'' inventory procedures
may not be in the best interest of the customer. The comments said that
especially when expiration dating is defined and labeled, a ``first in,
first out'' system should not be required. The GHTF and other EU
comments stated that if a new section ``Contract review,'' similar to
ISO 9001:1994, section 4.3 was not added to the regulation, the
requirement that ``purchase orders are reviewed to ensure that
ambiguities and errors are resolved before devices are released for
distribution'' should be added to this section.
FDA agrees with the comments. FDA has amended the requirement in
Sec. 820.160 to state that the procedures must ensure that ``expired
devices or devices deteriorated beyond acceptable fitness for use'' are
not distributed. FDA has also added the sentence on reviewing purchase
orders.
177. A few comments on proposed Sec. 820.124(b) stated that class I
devices should be exempt, or that the requirement should apply only to
critical devices, because all devices do not require control numbers.
Other comments stated that the term ``consignee'' should be defined, or
the word ``primary'' should be added before ``consignee'' for clarity.
FDA agrees in part with the comments and in Sec. 820.160(b) has
added the term ``initial'' before ``consignee'' to make clear that the
requirement for maintaining distribution records extends to the first
consignee. FDA has retained the word ``consignee'' and notes that it is
a person to whom the goods are delivered. FDA has also clarified
Sec. 820.160(b)(4) by requiring ``Any control number(s) used.''
Therefore, if the manufacturer is required by Sec. 820.65 to have
control numbers, these must be recorded along with any control numbers
voluntarily used. Logically, control numbers are used for traceability
so they should be recorded in the DHR distribution records. FDA
disagrees, however, that the requirement to maintain distribution
records should not apply to class I devices. The information required
by this section is basic information needed for any class of product in
order to conduct recalls or other corrective actions when necessary.
iv. Installation (Sec. 820.170)
178. Several comments received on proposed Sec. 820.126,
Installation stated that not all devices require installation. Several
comments on the Working Draft asked that, ``The results of the
installation inspection shall be made available to FDA upon request''
be deleted because this was redundant with FDA's access to these
documents under Sec. 820.180.
FDA agrees with the first set of comments. As discussed in
Sec. 820.1, the installation requirements only apply to devices that
are capable of being installed. However, to further clarify the
requirements in Sec. 820.170, FDA has made clear that the requirement
applies to ``devices requiring installation.'' FDA also agrees that the
sentence on document availability is redundant with Sec. 820.180 for
all records and has deleted the sentence.
179. Several comments raised the issue of applying the regulation
requirements to third party installers.
FDA has rewritten Sec. 820.170. Persons who install medical devices
have been regulated under the original CGMP under Sec. 820.3(k) which
describes a manufacturer as one who ``assembles or processes a finished
medical device,'' and continue to be regulated under this quality
system regulation under Sec. 820.3(o). Section 820.152 Installation of
the original CGMP discussed the manufacturer or its authorized
representative and persons other than the manufacturer's
representative. This regulation eliminates that terminology. Under the
revised requirement in Sec. 820.170(a), the manufacturer establishes
installation and inspection instructions, and where appropriate test
procedures. The manufacturer distributes the instructions and
procedures with the device or makes them available to person(s)
installing the device. Section 820.170(b) requires that the person(s)
installing the device follow the instructions and procedures described
in Sec. 820.170(a) and document the activities described in the
procedures and instructions to demonstrate proper installation.
The revised provisions in Sec. 820.170(b) explicitly require that
the installation be performed according to the manufacturer's
instructions, regardless of whether the installer is employed by or
otherwise affiliated with the manufacturer. Section 820.170(b) requires
records to be kept by whomever performs the installation to establish
that the installation was performed according to the procedures. Such
records will be available for FDA inspection. FDA does not expect the
manufacturer of the finished device to maintain records of installation
performed by those installers not affiliated with the manufacturer, but
does expect the third party installer or the user of the device to
maintain such records.
FDA believes that making these requirements explicit in the
regulation is necessary to ensure that devices are safe and effective,
and that they perform as intended after installation. FDA notes
[[Page 52637]]
again that installers are considered to be manufacturers under the
original CGMP regulation and that their records are, and will continue
to be, subject to FDA inspections when the agency deems it necessary to
review such records.
M. Records (Subpart M)
i. General Requirements (Sec. 820.180)
180. Several comments under Sec. 820.180 General requirements
suggested that FDA delete the requirement that records be stored to
allow ``rapid retrieval'' because a reasonable time frame should be
allowed. One comment stated that the wording of the section needed to
be amended to allow records to be located in different places,
especially for foreign manufacturers and distributors. Two comments
stated that the requirement should be qualified by ``subject to
conflicting legal requirements in other countries'' because some
countries have ``blocking statutes'' that would prohibit the release of
some information. One comment stated that wherever the word ``all''
appeared in the requirements, FDA should remove it.
FDA has rearranged this section, and notes that records must be
kept in a location that is ``reasonably accessible'' to both the
manufacturer and FDA investigators, and that records must be made
``readily available.'' FDA expects that such records will be made
available during the course of an inspection. If the foreign
manufacturer maintains records at remote locations, such records would
be expected to be produced by the next working day or 2, at the latest.
FDA has clarified that records can be kept at other than the inspected
establishment, provided that they are made ``readily available'' for
review and copying. This should provide foreign manufacturers and
initial distributors the necessary flexibility.
FDA has not qualified Sec. 820.180 in response to the comments on
the ``blocking statues'' because if manufacturers want to import
medical devices into the United States, then they must comply with
applicable statutory and regulatory requirements, including part 820.
The records section of this regulation is essentially the same as that
of the original CGMP and FDA has not found these ``blocking statutes''
to present a problem. Further, countries increasingly realize the
importance of a global market, thus FDA does not anticipate this issue
to be a problem in the future.
In response to the comment on the term ``all'', FDA notes that
where a requirement exists for ensuring that records are maintained in
a certain fashion, a manufacturer must keep all records subject to the
regulation in that manner. The revised section makes clear that it is
``all records required'' by the regulation to which the section's
requirements pertain.
181. A few comments on Sec. 820.180(b), ``Record retention
period,'' stated that the section should be amended because all quality
records may not be tied to a specific device; therefore, such quality
records may not need to be maintained over the lifetime of a device. A
few comments stated that the retention period requirement is unclear
and burdensome, while others stated that the period should be left to
the manufacturer to define. One comment suggested the deletion of the
requirements related to photocopying records in proposed
Sec. 820.180(b) because it is technology that is not necessarily being
used.
FDA believes that all records should be retained for a period
equivalent to the design and expected life of the device, but in no
case less than 2 years, whether the records specifically pertain to a
particular device or not. The requirement has been amended to make
clear that all records, including quality records, are subject to the
requirement. FDA believes this is necessary because manufacturers need
all such records when performing any type of investigation. For
example, it may be very important to access the wording of a complaint
handling procedure at the time a particular complaint came in when
investigating a trend or a problem that extends to several products or
over an extended period of time. Further, FDA does not believe that
allowing the manufacturer to define the retention period will serve the
public's best interest with regard to safety concerns and hazard
analysis.
In response to the comment on photocopying, FDA has deleted the
last two sentences. The agency believes that this requirement is
outdated and does not necessarily reflect the technology being utilized
today. Section 820.180 requires that records be readily available for
inspection and copying by FDA, and FDA will interpret ``copying'' to
include the printing of computerized records, as well as photocopying.
182. One comment on proposed Sec. 820.180(c) stated that all
quality audit reports should be subject to FDA review and public
disclosure. A few other comments stated that for a management
representative to certify that ``corrective action has been taken''
would be difficult because some corrective actions are long term and
may not be completed at the time of certification.
FDA disagrees with the comment that quality audit reports should be
subject to FDA review for the reasons given in the preamble of the
original CGMP regulation, published in the Federal Register on July 21,
1978 (43 FR 31508), and believes that the disclosure of the audit
reports themselves would be counterproductive to the intent of the
quality system. FDA has added Sec. 820.180(c), ``Exceptions,'' to
address which records FDA, as a matter of policy, will not request to
review or copy during a routine inspection; such records include
quality audit reports. FDA may request an employee in management with
executive responsibility to certify in writing that the management
reviews, quality audits, and supplier audits (where conducted) have
been performed, among other things. FDA may also seek production of
these reports in litigation under applicable procedural rules or by
inspection warrant where access to the records is authorized by
statute. Again, FDA emphasizes that its policy of refraining from
reviewing these reports extends only to the specific reports, not to
the procedures required by the sections or to any other quality
assurance records, which will be subject to review and copying.
FDA agrees with the comments on the timing of corrective actions
and has amended the certification requirement to state ``corrective
action has been undertaken.''
ii. Device Master Record (DMR) (Sec. 820.181)
183. A few comments on proposed Sec. 820.181 Device master record
stated that the requirement for a ``qualified'' individual to prepare
the DMR should be deleted because it is unclear or redundant with the
requirements in Sec. 820.25.
FDA has not deleted the requirement for the DMR to be prepared,
dated, and approved by a qualified individual because the agency
believes this is necessary to assure consistency and continuity within
the DMR. The section is consistent with the original CGMP,
Sec. 820.181. FDA has, however, substituted the phrase ``prepared and
approved in accordance with Sec. 820.40'' to be consistent with the
requirements already in Sec. 820.40 and to eliminate any redundancy.
184. Two comments on Sec. 820.181(a) stated that ``software design
specifications'' should not be included in the DMR because these
documents will be located in the DHF. Another comment requested that
the requirement that the DMR contain ``software source code''
information be amended because
[[Page 52638]]
source codes for commercialized software will not be available to the
device manufacturers. Another comment stated that the source code
should not be in the DMR because it will already be in the DHF.
FDA deleted the reference to ``software source code'' because this
is already covered with the requirement for ``software
specifications.'' The final software specifications should be
transferred into production. Therefore, the final software
specification for the particular device or type of device should be
located or referenced in the DMR, while any earlier version should be
located or referenced in the DHF. FDA believes that it is more
important for manufacturers to construct a document structure that is
workable and traceable, than to worry about whether something is
contained in one file as compared to another. The DMR is set up to
contain or reference the procedures and specifications that are current
on the manufacturing floor. The DHF is meant to be more of a historical
file for utilization during investigations and continued design
efforts.
185. One comment on Sec. 820.181(c) stated that the DMR should not
contain quality system documents, but rather the quality control
documents related to the specific device. Three comments stated that
validation and verification information belongs in the DHF, not the
DMR.
FDA agrees in part with the comments and has revised the section to
clarify that the quality records required in the DMR relate to the
specific current design, not the more general requirements of the
quality system, which are addressed under new Sec. 820.186. However,
the comments are incorrect that all validation and verification
information is related solely to design. There are requirements for
validation and verification pertaining to device processing that may be
better kept in the DMR instead of the DHF. The documentation of such
verification and validation activities relating to processes that are
performed for several different devices or types of devices can be
placed or referenced in the location that best suits the manufacturer.
Again, it is more important that the manufacturer store and retrieve
information in a workable manner, than keep such information in
particular files.
186. FDA notes that the regulation contains a few requirements
which apply ``where appropriate'' or ``at appropriate stages.'' FDA
emphasizes that the procedures that the manufacturer places in the DMR
must clearly define the requirements the manufacturer is following and
when particular activities are appropriate. The manufacturer will have
failed to comply with the requirements of the section if the procedures
simply state that the review or activity occurs at ``appropriate
stages.''
The same principle applies for every section of this regulation,
which is written to be flexible enough to cover the manufacture of all
types of devices. Manufacturers must adopt quality systems appropriate
for their specific products and processes. In establishing these
procedures, FDA will expect manufacturers to be able to provide
justifications for the decisions reached.
iii. Device History Record (Sec. 820.184)
187. One comment on Sec. 820.184 stated that labeling should not be
required in the DHR because it is already required in the DMR. Another
comment stated that some devices have 25 or more labels and that only
the primary identification labels are necessary in the DHR. One comment
stated the requirement should be amended because it explicitly requires
that dates and quantities for each batch be in the DHR, while only
implying through the general requirement that the DHR must also contain
the batch test data.
FDA agrees that it may not be necessary to include all labeling
used in the DHR. However, FDA continues to believe, as it explained in
the preamble to proposed regulation published in the Federal Register
on November 23, 1993 (58 FR 61952 at 61968), that increased control
over labeling is necessary due to the many labeling errors resulting in
recalls. Therefore, FDA has retained a requirement related to labeling
in the DHR, but revised it to make it less burdensome. The requirement
was amended to ``the primary identification label and labeling'' which
is consistent with that contained in the original CGMP regulation,
Sec. 820.185. FDA believes that the requirement that the DHR contain
the primary label and labeling used for each production unit, coupled
with the labeling controls in Sec. 820.120, should help to ensure that
proper labeling is used and, hopefully, decrease the number of recalls
due to improper labeling.
FDA agrees with the last comment and has added in Sec. 820.184
``(d) The acceptance records which demonstrate the device is
manufactured in accordance with the DMR'' to explicitly state the
requirement to avoid any confusion.
188. FDA has deleted the requirement for the DHR to be ``readily
accessible and maintained by a designated individual(s)'' because it
believes that the objective of that requirement is met through
Secs. 820.40 Document controls and 820.180 General requirements.
FDA has also added ``device identification'' to the requirement
under Sec. 820.184(f) because it believes that any identification or
control number used should be documented in the DHR to facilitate
investigations, as well as corrective and preventive actions. FDA notes
that this provision does not add any requirement for identification or
traceability not already expressed in Secs. 820.60 and 820.65.
iv. Quality System Record (Sec. 820.186)
189. Several comments stated that the regulation should more
closely harmonize with ISO 9001:1994. A few comments stated that the
regulation should include the requirements for a quality manual. One
comment stated that general quality system procedures and instructions
should not be required in the DMR because the DMR is device specific,
and many quality system procedures are not tied to a particular device.
FDA agrees in part with these comments and has developed new
Sec. 820.186 Quality system record. This section separates the
procedures and documentation of activities that are not specific to a
particular type of device from the device specific records.
v. Complaint Files (Sec. 820.198)
190. Two comments on proposed Sec. 820.198 Complaint files stated
that the requirements were very detailed and that much of the language
should be placed in a guidance document.
FDA disagrees with the comments. These requirements are essentially
the same as the original CGMP requirements under Sec. 820.198, and 18
years of experience with these requirements shows that many
manufacturers still do not understand and properly handle complaints.
Therefore, FDA believes that the amount of detail in Sec. 820.198 is
appropriate and necessary. In an effort to make the requirements more
clear, however, the section has been reorganized to better illustrate
how complaint information should be handled.
Section 820.198(a) sets forth the general requirement for
establishing and maintaining a complaint handling procedure and
includes a few items that the procedure needs to address. Section
820.198(b) discusses the initial review and evaluation of the
complaints in order to determine if complaints are ``valid.'' It is
important to note that this evaluation is not the same as a complaint
investigation. The evaluation
[[Page 52639]]
is performed to determine whether the information is truly a complaint
or not and to determine whether the complaint needs to be investigated
or not. If the evaluation decision is not to investigate, the
justification must be recorded. Section 820.198(c) then describes one
subset of complaints that must be investigated, but explains that
duplicative investigations are not necessary. In cases where an
investigation would be duplicative, a reference to the original
investigation is an acceptable justification for not conducting a
second investigation. Section 820.198(d) describes another subset of
complaints that must be investigated (those that meet the MDR criteria)
and the information that is necessary in the record of investigation of
those types of complaints. Section 820.198(e) sets out the type of
information that must be recorded whenever complaints are investigated.
The information described in Sec. 820.198 (e)(1) through (e)(5) would
most likely be attained earlier in order to perform the evaluation in
Sec. 820.198(b). This information need not be duplicated in the
investigation report as long as the complaint and investigation report
can be properly identified and tied together. Section 820.198 (e)(1)
through (e)(5) are considered to be basic information essential to any
complaint investigation. If there is some reason that the information
described in Sec. 820.198(e) cannot be obtained, then the manufacturer
should document the situation and explain the efforts made to ascertain
the information. This will be considered to be acceptable as long as a
reasonable and good faith effort was made. For example, a single phone
call to a hospital would not be considered by FDA to be a reasonable,
good faith effort to obtain information. Section 820.198(f) is the same
as Sec. 820.198(d) of the original CGMP, where the manufacturing
facility is separate or different from that of the formally designated
complaint handling unit. In such cases, it is important that the
facility involved in the manufacturing of the device receive or have
access to complaint and investigation information. In order to give
manufacturers the flexibility of using computer or automated data
processing systems, the term ``reasonably accessible,'' from
Sec. 820.180, is used. Section 820.198(g) is the complaint
recordkeeping requirement for distributors. In order to give
manufacturers the same flexibility as described in Sec. 820.198(f), FDA
has included ``reasonably accessible'' in Sec. 820.198(g).
Throughout Sec. 820.198, when there is reference to the MDR
regulation or to the types of events that are reportable under the MDR
regulation, this section simply refers to events or complaints that
``represent an event which is required to be reported to FDA under part
803 or 804 of this chapter.''
191. A few comments on Sec. 820.198(a) stated that the section
should allow for more than one ``formally designated unit'' to handle
complaints, especially for large corporations where it would not be
feasible or beneficial for all divisions to have a single complaint
handling unit. A few other comments stated that Sec. 820.198(a)(2) on
oral complaints should be deleted because it is too subjective.
FDA disagrees with these comments. Large corporations may have
different complaint handling units for different product types or
different manufacturing establishments. However, there should be only
one formally designated complaint handling unit for each product type
or establishment. If a corporation chooses to operate with different
complaint handling units for products and/or establishments, the
manufacturer must clearly describe and define its corporate complaint
handling procedure to ensure consistency throughout the different
complaint handling units. A system that would allow multiple
interpretations of handling, evaluating, categorizing, investigating,
and following up, would be unacceptable. Each manufacturer should
establish in its procedures which one group or unit is ultimately
responsible for coordinating all complaint handling functions.
FDA also disagrees that the requirement that oral complaints be
documented upon receipt should be deleted. A December 1986 General
Accounting Office (GAO) report entitled ``Medical Devices; Early
Warning of Problems Is Hampered by Severe Underreporting,'' (Ref. 11)
showed that approximately 83 percent of the hospitals report complaints
orally. FDA believes that these oral complaints must be captured in the
complaint handling process.
192. FDA, as noted above, has added to Sec. 820.198(c) the phrase
``unless such investigation has already been performed for a similar
complaint and another investigation is not necessary'' to clarify that
duplicative investigations are not required if the manufacturer can
show that the same type of failure or nonconformity has already been
investigated.
193. Several comments on proposed Sec. 820.198(b), now
Sec. 820.198(d), stated that the evaluation of complaints pertaining to
death, injury, or hazard to health should be removed from this section
because it is redundant with the MDR regulation. Several other comments
on Sec. 820.198(b) stated that complaints pertaining to death, injury,
or hazard to health need not be maintained separately, as long as they
are identified.
FDA disagrees that the requirements are redundant, but believes
that they expressly state what is expected in the handling of this type
of complaint information. The requirements have been moved to a
separate section, Sec. 820.198(d).
FDA agrees with the second set of comments and has revised the
section to permit such complaints to be ``clearly identified.'' This
will give a manufacturer flexibility in choosing a means of ensuring
that these types of complaints can be immediately recognized and
segregated for purposes of prioritizing and meeting other requirements.
FDA has substituted the term ``promptly'' for the term
``immediately'' to be more consistent with the new MDR regulation
timeframes. FDA has also clarified that Sec. 820.198 (d)(1) through
(d)(3) are in addition to the information that must be recorded in
Sec. 820.198(e).
194. A few comments on proposed Sec. 820.198 (c) and (d) stated
that FDA should make clear that some of the requirements will not
always be applicable. For example, the comments stated that a record of
corrective action cannot be made if such action is not required, and is
not taken.
Where corrective action is not necessary and is not taken, it
cannot be documented. The section was revised to make that clear. As
stated in the preamble to the proposal (58 FR 61952 at 61968), the
manufacturer's procedures should clearly identify when corrective
action will be taken.
In addition, FDA combined provisions in Sec. 820.198 (c) through
(e) to eliminate redundancy and added the requirement that the records
include any device identification, as well as control number used, to
facilitate corrective and preventive actions. FDA has also deleted the
term ``written'' in Sec. 820.198(e) to be consistent with FDA's
statements on electronic and computer systems.
195. FDA deleted the requirements in proposed Sec. 820.198(f) in
response to comments because it agrees that it is not necessary to
repeat the requirements of the MDR regulation in the quality system
regulation. Section 820.198(a) requires that all complaints be
evaluated to determine whether they are subject to
[[Page 52640]]
the requirements of the MDR regulation under part 803 or 804.
196. A few comments on proposed Sec. 820.198(g), now
Sec. 820.198(f), stated that duplicate records are not needed in this
age of computer systems, and that the requirement as written would be
counterproductive.
FDA agrees with the comments and has rewritten the section to allow
the complaints and records of investigation to be reasonably accessible
at the formally designated complaint unit and the manufacturing site,
where these locations are distinct. A manufacturer's procedures must
ensure that the manufacturing site is alerted to complaints concerning
devices produced at that site.
197. Several comments on proposed Sec. 820.198(h), now
Sec. 820.198(g), stated that the requirement is unnecessary, given that
FDA can inspect a foreign manufacturer that imports devices, and is
burdensome.
FDA has revised the section to permit the records to be reasonably
accessible, similar to Sec. 820.198(f), which should alleviate any
burden. However, the agency must have access to these records in the
United States.
198. Several comments on proposed Sec. 820.198 (i) and (j) stated
that the requirements should be deleted because they are redundant with
the MDR requirements in part 803.
FDA disagrees that all of the requirements in Sec. 820.198 (i) and
(j) are redundant. The requirement that procedures ensure that
complaints are processed uniformly and in a timely manner, and
evaluated to determine whether they are reportable under part 803 or
804, has been moved up to Sec. 820.198(a). These are basic requirements
for complaint handling. If the complaint is determined to be of the
type subject to part 803 or 804, those requirements apply. The
requirements of parts 803 and 804 are not repeated in this regulation.
FDA has deleted Sec. 820.198(j).
N. Servicing (Subpart N)
199. Numerous comments were received on the servicing requirements
that were proposed. Many of these comments dealt with competitive
issues between manufacturers that perform or contract out their own
servicing and third party service organizations. The comments received,
as well as the recommendations from the GMP Advisory Committee, were
split on many issues. Therefore in this regulation, FDA has chosen to
codify only longstanding requirements for servicing performed by
original manufacturers and remanufacturers. The requirements in
Sec. 820.200 are similar to those in ISO 9001:1994, with some
supplemental requirements for clarification on monitoring service
reports, on the relationship of service reports and complaints, and on
the type of information FDA believes is essential in any service
report. As described above in the definition section of this preamble,
a separate rulemaking will specify and clarify the requirements for
third party service organizations.
200. Other comments on proposed Sec. 820.200(a) stated that it is
impractical to return a used device to its original specifications
because a certain amount of wear and tear should be expected, without
detriment to the safety and effectiveness of the device. Several
comments on Sec. 820.200(a) stated that the term ``records'' should be
replaced by ``reports,'' to be consistent with ISO 9001.
FDA agrees and has revised the requirements in Sec. 820.200(a) to
be similar to the requirements in ISO 9001:1994 as recommended by
comments at the GMP Advisory Committee meeting to require that the
servicing instructions and procedures ensure that the device will meet
``specified requirements'' for the device's intended use. FDA is aware
that with use and age, a device may be serviced to function as
intended, but may not meet original specifications.
FDA agrees with the comments and has modified the language in
Sec. 820.200(b), (c), and (d) to use the term ``service reports.''
201. A few comments on proposed Sec. 820.200(b), ``Service report
evaluation,'' questioned whether full corrective action was necessary
for every service report and whether service calls need to be handled
as complaints only when there is a death, injury, or hazard to safety.
FDA has rewritten this section into Sec. 820.200(b) and (c) to
clarify the agency's intent and to use terms consistent with those used
in Sec. 820.198. Section 820.200(b) now states that ``Each manufacturer
shall analyze service reports with appropriate statistical methodology
in accordance with Sec. 820.100.'' Full corrective action may not be
required for every service report. However, if the analysis of a
service report indicates a high risk to health, or that the frequency
of servicing is higher than expected, the remainder of the corrective
and preventive action elements are applicable, in accordance with the
corrective and preventive action procedures established under
Sec. 820.100.
Section 820.200(c) provides that when a service report ``represents
an event which must be reported to FDA under part 803 or 804 of this
chapter,'' it is automatically considered by FDA to be a complaint that
must be handled according to Sec. 820.198. FDA emphasizes that this
provision is not intended to limit ``complaints'' to MDR reportable
events.
202. FDA has also added in Sec. 820.200(d) the requirements for
recording the name of the device, any device identification(s) and
control number(s) used, as well as test and inspection data, because
FDA believes such documentation in the service report will facilitate
investigations. This additional documentation provision does not add
any requirement for identification or traceability not already
expressed in Secs. 820.60 and 820.65. Therefore, Sec. 820.200(d) as
amended focuses on the type of information that should be captured on
the service report instead of where the information should be sent.
O. Statistical Techniques (Subpart O)
203. FDA amended Sec. 820.250(a) to be consistent with the
requirements in ISO 9001:1994, section 4.20.
204. Several comments on Sec. 820.250(b) stated that the provision
as written seems to require the use of sampling plans, and that every
manufacturer does not necessarily use sampling plans. Another comment
stated that sampling plans are not often used during reviews of
nonconformities, quality audits, or complaints, and that these examples
should, therefore, be deleted. Two other comments questioned the
meaning of ``regularly reviewed.''
FDA's intent was not to require the use of sampling plans, but to
require that where they are used, they should be written and valid.
Section 820.250 was revised to make that clear. Sampling plans are not
always required, but any time sampling plans are used, they must be
based on a valid statistical rationale. Further, FDA acknowledges that
the most common use of sampling plans is during receiving acceptance,
and has deleted the examples. FDA has also clarified the review
requirement by stating ``to ensure that when changes occur the sampling
plans are reviewed.''
VI. Summary of Changes From the July 1995 Working Draft to the
Final Rule and Rationale
Note: Minor changes to improve grammar, readability, and
clarity, as well as changes in terminology and organization for the
sake of consistency throughout the regulation, are not listed.
[[Page 52641]]
A. Section 820.1 Scope
1. Inserted sentence, ``If a manufacturer engages in only some
operations subject to the requirements in this part, and not in others,
that manufacturer need only comply with those requirements applicable
to the operations in which it is engaged'' for further clarification of
the scope in response to many comments.
2. Amended sentence on component manufacturers to read, ``This
regulation does not apply to manufacturers of components or parts of
finished devices, but such manufacturers are encouraged to use
appropriate provisions of this regulation as guidance'' as a result of
the many written comments and oral testimony at the August and
September 1995 meetings.
3. Inserted sentence on how to interpret the phrase ``where
appropriate'' in the regulation, as recommended by the GMP Advisory
Committee. This sentence is consistent with International Organization
for Standards (ISO)/CD 13485-- ``Application of Quality Systems to
Medical Devices.''
B. Section 820.3 Definitions
4. Amended the definition of Complaint by inserting ``after it is
released for distribution'' in response to comments for clarification
and to harmonize with ISO/CD 13485.
5. Amended the definition of Component by deleting ``packaging''
for clarification that every piece of packaging is not necessarily a
component, only the materials that are part of the ``finished,
packaged, and labeled device.''
6. Amended the definition of Design output to clarify its
relationship with the Device Master Record.
7. Amended the definition of Design review to delete ``and propose
the development of solutions'' in order to allow the manufacturer the
flexibility to determine whom the appropriate person(s) is to propose
solutions.
8. Deleted the definition of End of life in response to the many
written comments and oral testimony at the August and September 1995
meetings.
9. Amended the definition of Manufacturer to delete component
manufacturers and to remove the terms ``servicer'' and ``refurbisher.''
The obligations of servicers and refurbishers will be addressed in a
separate rulemaking later this year. The terms ``installation'' and
``remanufacturing'' were added to codify longstanding FDA policy and
interpretations of the original CGMP regulation.
10. Amended the definition of Manufacturing material in response to
comments requesting clarification and separation of examples.
11. Deleted the definition of Record to avoid confusion. Record
will continue to be defined by the act and case law.
12. Removed the definition of Refurbisher for reasons discussed in
paragraph 28, section V.A. of this document.
13. Inserted the definition of Remanufacturer for reasons discussed
in paragraph 28, section V.A. of this document, and made the language
consistent with that of the 510(k) provision and the PMA amendment/
supplement requirements.
14. Changed the term Reprocessing to Rework and adopted a
definition consistent with ISO 8402 Quality Management and Assurance
Vocabulary Standard in response to comments for closer harmonization of
terminology.
15. Removed the definition of Servicing, and Servicer which was
proposed to the GMP Advisory Committee, for reasons discussed above.
16. Amended the definition of Validation as recommended by the GMP
Advisory Committee for further clarity by delineating the terms
validation, process validation, and design validation.
17. Amended the definition of Verification for further clarity in
response to comments and to more closely harmonize with ISO 8402.
C. Section 820.5 Quality System
18. Deleted the requirements in Sec. 820.5(a) and (b) because these
requirements are now found in Sec. 820.20.
D. Section 820.20 Management Responsibility
19. Moved the requirements from Sec. 820.186 and rewrote into new
Sec. 820.20(d) and (e) for clarity, better organization, and closer
harmonization with ISO/CD 13485.
E. Section 820.25 Personnel
20. Inserted the phrase, ``establish procedures for identifying
training needs'' in Sec. 820.25(b) in response to comments to add this
requirement and to harmonize with the requirement in ISO/CD 13485.
21. Deleted the sentence in Sec. 820.25 on understanding the ``CGMP
requirements applicable to their job function'' to provide
manufacturers with the flexibility to appropriately train personnel.
F. Section 820.30 Design Controls
22. Amended the requirements in Design and development planning for
clarity and to more closely harmonize with ISO/CD 13485.
23. In Sec. 820.30(c), inserted the sentence,
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
``The procedures
shall include a mechanism for addressing incomplete, ambiguous, or
conflicting requirements'' in response to comments to add this
requirement and to harmonize with the requirement in ISO/CD 13485.
24. In Sec. 820.30(d), deleted the sentence, ``Design output
procedures shall ensure that design output meets the design input
requirements'' because this was redundant with the requirement in
Sec. 820.30(f) Design verification.
25. Amended Sec. 820.30(e) Design review to clarify that the
procedures shall ensure that an independent person is included in
design reviews.
26. Section 820.30(f) Design verification and validation was split
into two paragraphs, (f) Design verification and (g) Design validation
and the requirements were separated between the two paragraphs, in
response to many written comments and oral testimony at the August and
September 1995 meetings and to improve clarity and consistency with
ISO/CD 13485.
27. Amended the requirement for Sec. 820.30(i) Design changes to
add the phrase ``before their implementation'' due to an inadvertent
omission in the July 1995 Working Draft.
G. Section 820.50 Purchasing Controls
28. Deleted the last two sentences in Sec. 820.50(b) and inserted
``Purchasing data shall be approved in accordance with Sec. 820.40''
because the last two sentences were redundant with the requirements in
Sec. 820.40.
H. Section 820.65 Traceability
29. Substituted the definition of critical device from the original
CGMP for the phrase ``where necessary to ensure the protection of the
public health,'' in response to many comments requesting clarification
as to when traceability is necessary.
30. Added ``where appropriate'' for the traceability of components
in response to the recommendation of the GMP Advisory Committee, the
written comments, and to harmonize with ISO/CD 13485.
I. Section 820.70 Production and Process Controls
31. Inserted ``identified and approved'' in Sec. 820.70(a)(5)
before ``representative samples'' to clarify that the samples have to
be established and deemed appropriate before they are used as a
standard.
32. Substituted in Sec. 820.70(b) ``where appropriate validated
according to Sec. 820.75'' for ``unless inspection and test
[[Page 52642]]
fully verifies the results of the changes'' because it was redundant
with the requirements set forth in Sec. 820.75.
33. Amended the requirement in Sec. 820.70(c) to apply only ``Where
environmental conditions could reasonably be expected to have an
adverse effect on product quality,'' in response to comments and to be
consistent with the original CGMP requirements.
34. Amended the requirements in Sec. 820.70(d) and (e) to include
``could reasonably be expected to have an adverse effect on product
quality'' to consistently qualify when these provisions are
appropriate.
35. Amended the requirement in Sec. 820.70(h) to apply only ``Where
a manufacturing material could reasonably be expected to have an
adverse effect on product quality,'' in response to comments and to be
consistent with the original CGMP requirements.
36. Rearranged the wording in Sec. 820.70(i) to clarify ``automated
data processing systems.''
J. Section 820.72 Inspection, Measuring, and Test Equipment
37. Renumbered Sec. 820.84 as Sec. 820.72 for better organization
because Inspection, measuring, and test equipment requirements are more
appropriate under Subpart G--Production and Process Controls than under
Subpart H--Acceptance Activities.
38. Section 820.72(b) ``Calibration standards'' and (c)
``Calibration records'' were reorganized as paragraphs(1) and (2),
respectively under paragraph (b) ``Calibration.''
39. Amended Sec. 820.72(b) to include provisions for remedial
action to ``reestablish the limits and to evaluate whether there was
any adverse effect on the device's quality'' in response to comments
which questioned whether this was adequately covered under
Sec. 820.100.
40. Section 820.84(d), ``Maintenance,'' is reorganized into
Sec. 820.72(a) ``Control of inspection, measuring, and test equipment''
and ``test software'' is deleted because it is considered to be covered
under ``electronic inspection and test equipment'' in the general
requirement.
K. Section 820.75 Process Validation
41. Section 820.75(a) is amended for clarity. The phrase ``with a
high degree of assurance'' was deleted from the definition of
``Validation'' and added as a requirement under process validation.
42. Section 820.75(b)(2) was amended to state ``where appropriate,
the individual(s) performing the process or the major equipment used''
in response to comments requesting that flexibility be given to the
manufacturer to determine when these items needed to be documented.
43. Section 820.75 (c) and (d) were redesignated as paragraphs
(b)(1) and (b)(2) for better organization and flow.
44. Section 820.75(c) was added to address comments and concerns on
when revalidation activities were necessary.
L. Section 820.80 Receiving, In-process, and Finished Device
Acceptance
45. Section 820.80(c) was amended to add ``where appropriate'' to
reinforce the discussion in the preamble that in- process testing is
not always necessary depending upon the type of device and the
manufacturing set-up.
M. Section 820.90 Nonconforming Product
46. Amended the requirement in Sec. 820.90(a) to include, ``The
evaluation of nonconformance shall include a determination of the need
for an investigation * * *. The evaluation and any investigation shall
be documented.'' in response to many written comments and oral
testimony at the August and September 1995 meetings on whether every
nonconformance had to be investigated.
47. Amended the requirement in Sec. 820.90(b)(1) to read,
``Documentation shall include the justification for use of
nonconforming product'' in response to several comments confused about
the meaning of the term ``concession.''
48. In Sec. 820.90(b)(2), substituted the term ``rework'' for the
term ``reprocessing'' for reasons described in the definitions section.
49. Deleted the sentence, ``Reprocessed product shall be clearly
identified during reprocessing, and shall be subjected to
reevaluation'' in Sec. 820.90(b)(2) because the requirement was
redundant with the requirements in Secs. 820.60 Identification and
820.86 Acceptance status.
N. Section 820.100 Corrective and Preventive Action
50. Amended Sec. 820.100(a)(7) to clarify what information is to be
submitted to management for review.
O. Section 820.120 Device Labeling
51. Inserted ``where appropriate'' before ``use'' in
Sec. 820.120(a) because every device may not have a label directly
affixed to the device itself (e.g. implantable devices).
52. Inserted the sentence, ``The label and labeling used for each
production unit, lot, or batch shall be documented in the DHR'' into
Sec. 820.120(d) in response to comments questioning whether the
labeling used should be recorded in the device master record or the
device history record.
P. Section 820.160 Distribution
53. Inserted the requirement in Sec. 820.160 ``that purchase orders
are reviewed to ensure that ambiguities and errors are resolved before
devices are released for distribution'' in response to the GHTF
comments and other EU comments that the regulation did not address the
requirements in ISO 9001, section 4.3, ``Contract Review.''
Q. Section 820.170 Installation
54. Amended the installation requirements for clarity and deleted
the last sentence in Sec. 820.170(b), ``The results of the installation
inspection shall be made available to FDA upon request'' because this
sentence is redundant with the requirements in Sec. 820.180 for all
records.
R. Section 820.181 Device Master Record (DMR)
55. In Sec. 820.181 deleted the phrase ``dated, and signature of
the qualified individual(s) designated by the manufacturer'' and
inserted ``and approved in accordance with Sec. 820.40'' to be
consistent with the requirements already in Sec. 820.40.
56. In Sec. 820.181 deleted the phrase ``and software source code
for customized software'' because comments stated that this was already
covered with the requirement for ``software specifications.''
S. Section 820.186 Quality System Record (QSR)
57. Amended the requirement in Sec. 820.186 by adding the sentence,
The QSR shall include, or refer to the location of, procedures
and the documentation of activities required by this part that are
not specific to a particular type of device(s), including but not
limited to the records required by Sec. 820.20. Each manufacturer
shall ensure that the QSR is prepared and approved in accordance
with Sec. 820.40.
Deleted the requirements in Sec. 820.186(a) through (d) because those
requirements are now found in Sec. 820.20. This change was in response
to comments and suggestions made by the GHTF for further harmonization
with ISO/CD 13485 and for clarity.
T. Section 820.198 Complaint Files
58. In Sec. 820.198 deleted the terminology ``pertaining to death,
[[Page 52643]]
injury, or any hazard to safety'' throughout this section and inserted
``an event which must be reported to the FDA under part 803 or 804 of
this chapter'' to reference the MDR regulation.
59. Added the phrase ``unless such investigation has already been
performed for a similar complaint and another investigation is not
necessary'' in Sec. 820.198(c) in response to comments which thought a
second investigation was always mandated by this requirement.
60. Amended Sec. 820.198(d) by changing the word ``immediately'' to
``promptly'' to be consistent with the new MDR regulation. Added, ``In
addition to the information required by Sec. 820.198(e),'' to clarify
that an investigation under Sec. 820.198(d) was to include requirements
under paragraphs (d)(1) through (d)(3) and under paragraphs (e)(1)
through (e)(8).
61. Substituted the phrase ``reasonably accessible'' for
``concurrently maintained'' in Sec. 820.198 (f) and (g) as recommended
by the GMP Advisory Committee to clarify FDA's intent of allowing these
records to be available in other media forms besides the hard copies
which were previously required.
U. Section 820.200 Servicing
62. Amended Sec. 820.200(a) to adopt language consistent with ISO/
CD 13485, which was suggested at the GMP Advisory Committee meeting, in
order to clarify the requirement and further harmonize.
63. Deleted the last two sentences in Sec. 820.200(a) on providing
information to third party servicers since this industry will be
addressed in a separate rulemaking, as discussed above.
64. Section 820.200(d) was amended for clarity and to focus on the
service report and what type of information should be captured on the
report instead of where the information should be sent.
V. Section 820.250 Statistical Techniques
65. Amended Sec. 820.250(b) by inserting the phrase, ``to ensure
that when changes occur the sampling plans are reviewed'' in response
to comments for clarification on when the plans needed to be reviewed.
VII. Environmental Impact
The agency has determined under 21 CFR 25.24(a)(8) and (a)(10) that
this action is of a type that does not individually or cumulatively
have a significant effect on the human environment. Therefore, neither
an environmental assessment nor an environmental impact statement is
required.
VIII. Intergovernmental Partnership
The agency has analyzed this rulemaking in accordance with the
principles and criteria set forth in Executive Order 12875, ``Enhancing
the Intergovernmental Partnership'' and in the Unfunded Mandates Reform
Act of 1995 (Pub. L. 104-4). Executive Order 12875 states that no
agency or executive department shall issue any regulation that is not
required by statute and that creates a mandate upon a State, local, or
tribal government unless the Federal Government supplies funds
necessary to comply with the mandate, or the agency provides the Office
of Management and Budget (OMB) a description of the agency's
consultation with affected State, local, and tribal governments, the
nature of their concerns, any written communications submitted to the
agency by such units of government, and the agency's position
supporting the need to issue the regulation containing the mandate.
Executive Order 12875 does not apply to this final rule because the
regulatory requirements are not generally applicable to government
facilities but to finished device manufacturers. The agency notes,
however, that the membership of the advisory committee established to
review this regulation and make recommendations to the agency on the
feasibility and reasonableness of the regulation (GMP Advisory
Committee) must include three members who are officers or employees of
any State or local government or of the Federal Government, and that in
1995 this committee included two State government representatives and
one Federal Government representative.
The agency has also examined the consistency of this final rule
with the Unfunded Mandates Reform Act of 1995. The Unfunded Mandates
Reform Act requires (in section 202) that agencies prepare an
assessment of anticipated costs and benefits before proposing any rule
that may result in an annual expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million (adjusted annually for inflation). FDA believes that the
private sector expenditures for this rule fall below $100 million
annually but nonetheless, due to uncertainties of these estimates, the
agency has prepared for the private sector an assessment of anticipated
costs and benefits for the 1993 proposed rule and this final rule as
described in section IX. of this document.
IX. Economic Impact
A. Summary
FDA has examined the impacts of the final rule under Executive
Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-354).
Executive Order 12866 directs agencies to assess all costs and benefits
of available regulatory alternatives and, when regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity). The agency believes that
this final rule is consistent with the regulatory philosophy and
principles identified in the Executive Order. As explained in detail
below, FDA finds that this final rule has an estimated total annual
incremental cost of $81.9 million to the U.S. industry and an estimated
average annual benefit of from $180 million to $220 million in lives
saved and is economically significant under Executive Order 12866.
Consequently, the agency has completed this full regulatory flexibility
analysis which demonstrates that this rule is consistent with the
principles set forth in the Executive Order and the Regulatory
Flexibility Act, and also with the Unfunded Mandates Reform Act as
described in section VIII. of this document. This analysis, together
with the preamble published in the Federal Register and supporting
analysis and materials, constitutes a final regulatory flexibility
analysis. In addition, this document has been reviewed by OMB as an
economically significant regulatory action under Executive Order 12866.
The detailed data for this analysis were developed by Eastern
Research Group, Inc. (ERG), under contract to FDA and their two
reports: ``Economic Analysis of the Proposed Revisions to the Good
Manufacturing Practices Regulation for Medical Devices,'' and
``Addendum to the Final Report'' are on file at the Dockets Management
Branch (HFA-305), Food and Drug Administration, 12420 Parklawn Dr., rm.
1-23, Rockville, MD 20857.
The objective of this rule is to reduce the number of fatalities
and injuries attributable to defective medical devices. FDA finds that
private market incentives do not adequately reduce the risk of design-
related device failures because neither physicians nor consumers have
all of the information needed to make adequate judgments of product
quality and legal tort remedies are slow, inefficient, and extremely
costly.
The changes to the CGMP regulation will require manufacturers to
extend
[[Page 52644]]
their quality systems to include several new areas, such as design and
purchasing, and to clarify or expand selected existing requirements.
Several of the changes to the regulation make it more consistent with
ISO 9001:1994 quality standards. The rule will affect all medical
device establishments engaged in the design, manufacture, contract
sterilization, and packaging of medical devices.
This analysis presents the costs and benefits of the final CGMP
rule and reflects the differences between the proposed and final
regulation. The complete methodology and preliminary economic analysis
was presented in the November 1993 ERG report, ``Economic Analysis of
Proposed Revisions to the Good Manufacturing Practices Regulation for
Medical Devices''. While the proposed rule covered component
manufacturers, the cost of compliance for such manufacturers was
inadvertently omitted from the November 1993 ERG report. However, FDA
has decided not to cover component manufacturers, therefore most of the
preliminary analysis remains valid (e.g., estimates of labor and
resource requirements, level of compliance, and number of firms remain
the same for the final analysis, except where noted).
Based on the ERG study, the total annual incremental costs to the
U.S. industry of the final CGMP regulation are estimated to be about
$81.9 million. These costs are more than offset, however, by benefits
to public health and by economic benefits to the medical device
industry. FDA estimates that the benefits to public health will include
36 to 44 fewer deaths and 484 to 677 fewer serious injuries per year,
which are attributed to design-related device failures. Studies on the
value of a statistical-life have reported estimates ranging from $1.6
million to $8.5 million.1 Assuming an economic value of $5 million
per fatality avoided, the monetary value of saving 36 to 44 lives each
year will be $180 to $220 million. Therefore, the value of the public
health benefits of preventing deaths alone easily exceeds the cost of
compliance even without estimating benefits from a reduced number of
serious injuries. Moreover, additional economic benefits to medical
device establishments will result from cost savings due to fewer
design-related product recalls, better product quality, and greater
productivity. In addition, medical device establishments exporting to
the EU will greatly benefit from the harmonization of the CGMP
regulation with the ISO 9001:1994 quality standards. Because the EU is
adopting ISO 9001:1994 as a basis for its medical device manufacturing
quality system, the harmonization of the two quality requirements will
eliminate the need for device manufacturers to maintain different
quality systems for each market.
---------------------------------------------------------------------------
1 Fisher, A.; Chestnut, L.; and Violette, D. (1989). ``The
Value of Reducing Risks of Death: A Note on New Evidence.'' Journal
of Policy Analysis and Management, 8 (pp. 88-100).
---------------------------------------------------------------------------
FDA supports the international harmonization of standards and
regulations governing medical devices and the eventual mutual
recognition of CGMP inspections between major device markets. While
full achievement of this goal is still in the future, the harmonization
of quality standards is an important first step.
FDA believes in a step wise approach toward harmonization and
eventual mutual recognition. For CGMP inspections or Quality System
Conformity Assessments, these goals comprise four basic steps. First,
the harmonization of quality system requirements is a fundamental
building block of all future work in this area. FDA believes that by
working with the GHTF, specifically Study Group #3 of the GHTF, it has
developed a final rule that incorporates the harmonized quality system
requirements which are recognized around the world. Second is the
harmonization of regulatory auditing or compliance inspections. This
work is currently underway in the GHTF in Study Group #4, which has
developed one draft document entitled ``Guidelines For Regulatory
Auditing Quality Systems of Medical Device Manufacturers,'' expected to
be finalized in 1997. The third step is for harmonization of the
policy, interpretation, and regulatory consequences of noncompliance
with the quality system requirements in this rule and in counterpart
requirements of other countries. Underlying these activities is an
ongoing need for confidence building between the parties working
towards mutual recognition. FDA believes that this regulation will
provide a sound foundation for the goal of mutual recognition of
inspections, a goal that will benefit industry, as well as the agency.
The Health Industry Manufacturers Association has stated that
reciprocity for quality assurance inspections could save the medical
device industry millions of dollars as well as provide significant
savings to governments.2
---------------------------------------------------------------------------
2 Gilmartin, R.V. (1992). ``The Benefits of Cooperation for
Industry and Regulators Alike: A Global Perspective.'' Presented at
the Third Annual Global Medical Device Conference, October 2.
---------------------------------------------------------------------------
For individual establishments, the economic impact of the
regulation will depend on a number of factors, such as the level of
current compliance, the type of activities performed at the
establishment, and the nature of the product. On average, the smaller
establishments will bear a relatively greater economic burden.
B. Industry Profile
Firms in the medical device industry are heterogeneous. They vary
in size, product type, product and process technology, and rate of new
product introductions. There are over 7,000 medical device
establishments involved in the production of approximately 4,000
different types of devices (Table 1). Sixty-two percent of these
establishments are very small (fewer than 20 employees), while 27
percent are of medium-size (20 to 99 employees), 7 percent are large
(100 to 249 employees), and 4 percent are very large (250 or more
employees). These size categories were developed to reflect size
categories within the medical device industry and differ from the Small
Business Administration definition. Under the Small Business
Administration definition, over 98% of all establishments would be
small.
Table 1.--Distribution of Affected Establishments by Employment Size
----------------------------------------------------------------------------------------------------------------
Employment size \2\
--------------------------------------------------------
Type of establishment Total \1\ Small (1- Medium (20- Large (100- Very large (250)
----------------------------------------------------------------------------------------------------------------
Design and Production Manufacturer........ 5,415 3,323 1,414 415 265
Contract manufacturer..................... 419 257 109 32 20
Specification developer................... 541 352 162 27 0
Repacker/relabeler........................ 828 538 248 41 0
[[Page 52645]]
Contract sterilizer....................... 34 22 10 2 0
---------------------------------------------------------------------
Total............................... 7,237 4,492 1,943 517 285
----------------------------------------------------------------------------------------------------------------
\1\ Based on data from FDA's Registration and Listing Branch, 1992, adjusted to reflect 13 percent not required
to register and 6 percent exempt from CGMP requirements.
\2\ ERG (1993), Section 3.
C. Comments to November, 1993 Proposed Changes to the CGMP Regulation
A small percentage of the public comments on the November 1993
proposed regulation addressed the economic impact analysis. The
majority of these comments made very general, nonspecific observations
and therefore cannot be addressed directly. Many of these comments
stated that FDA underestimated the regulatory burden that the proposed
CGMP regulation would place on medical device manufacturers. Others
stated that their companies would expend more than the per
establishment estimated costs; some discussed the hiring of additional
personnel to address the compliance requirements.
In developing the cost estimates for the 1993 proposal, ERG
attempted to describe the labor hours (and associated costs) needed to
achieve an acceptable minimum level of compliance with each
requirement. These estimates took into account the incremental labor
and capital resources that would be needed to progress from the
existing compliance level to the new level required by the proposal.
For individual establishments, the economic impact of the CGMP
regulation would depend on a number of factors, such as the level of
current compliance, the type of activities performed, and the nature of
the product. Not surprisingly, those establishments that currently
undertake relatively few of the activities to be required would incur
greater compliance costs than the averages presented.
In the final rule, FDA has eliminated or modified several
requirements to give medical device establishments greater flexibility
in selecting compliance methods. In general, the words ``where
appropriate'' were added to many requirements to make them less
prescriptive and allow establishments to determine if or when they are
appropriate for their product. For example, in Sec. 820.65
Traceability, the final requirement allows the manufacturer to identify
which components require traceability. In addition, many procedures may
not need to be changed, only documented. To further minimize compliance
costs, FDA intends to provide additional guidance materials. The DSMA
currently offers guidance materials and regional seminars on CGMP
matters.
1. Health Industry Manufacturers Association (HIMA)
HIMA commented that FDA understated the costs for personnel
training, maintenance of new systems, documentation revisions, and
operational costs.
ERG agrees that it did not fully address the initial training
requirements in the cost analysis for the proposed CGMP regulation. New
costs for initial training were included in the cost analysis for the
final CGMP regulation. However, the existing CGMP regulation requires
periodic training of personnel. Therefore no incremental costs for
periodic training were estimated.
ERG did not change its cost estimate for quality system maintenance
and procedure revisions. Estimates were made for the incremental
compliance costs associated with an annual review of each new
procedure, but these procedures would be revised only sporadically and
probable estimates of their future costs would be small and could not
be reasonably quantified.
ERG recognized that companies will incur incremental costs to use
new procedures. Although a separate estimate of these operational costs
was not made, they were incorporated into the estimates of the
individual requirements where applicable.
2. Other General Comments
Some manufacturers of low-risk devices and some that have never
experienced a product recall or MDR event questioned the merit and
benefits of applying design controls to all products. In the proposed
and final CGMP regulation, FDA exempted almost all class I devices
because the public health benefits gained did not exceed the costs of
implementation. However, FDA believes that all class II and III devices
should be covered because their failure could adversely affect public
health. Even firms with excellent past records put their consumers at
future risk if their design systems are inadequate. ERG estimates that
strict compliance to the final CGMP regulation will avert about 43
deaths and over 600 serious injuries per year. In addition, the
literature on quality systems consistently states that firms
implementing such systems, which begin with design controls, report
cost savings in the long-run.
A number of comments argued that the proposed CGMP regulation would
slow product innovation and increase health care costs. FDA believes
that the gains from improvements in quality control and greater
efficiencies will lessen the impact on both innovation and health care
costs and will not lower the innovation rate for products with
significant medical benefit. Manufacturers will also avoid the costs of
most design-related medical device recalls. ERG estimated that design-
related recalls cost industry approximately $40 million per year.
Health care spending overall will also decrease as deaths, injuries and
malfunctions from medical device failures decrease.
Some comments suggested that the proposed CGMP regulation would
hurt the domestic medical device industry's competitiveness and
encourage companies to move their operations to foreign countries. FDA
has sought to harmonize the final CGMP regulation with ISO 9001:1994
and ISO/CD 13485. Some comments had stated they would like to see even
greater harmonization in the final regulation. The harmonization of
regulatory requirements will benefit medical device establishments
because they will be able to maintain a single regulatory compliance
program. The harmonization of CGMP requirements is also a first step in
developing mutual recognition agreements between U.S. and foreign
governments. An FDA sponsored survey of innovative medical
[[Page 52646]]
device companies found that nearly 65 percent of them sold their
products outside the United States, including 40 percent of the small
and 70 percent of the medium-sized companies.3 Thus, a majority of
firms should benefit from harmonization efforts. Since foreign firms
exporting their products to the United States must comply with the U.S.
CGMP regulation, they will incur essentially the same incremental costs
to comply with the final CGMP regulation as domestic establishments.
---------------------------------------------------------------------------
\3\ ERG (1994). FDA Survey of Establishments Introducing New
Medical Devices. (Task Order 3, Contract No. 223-91-8100.)
---------------------------------------------------------------------------
3. Small Business Concerns
Some comments representing small businesses were concerned about
the increase in procedural and documentation requirements. The
procedures and paperwork requirements will be simpler for small medical
device establishments relative to larger firms. Further, small
businesses can reduce compliance costs by using FDA guidance and
training materials, industry-generated guidance, and other technical
assistance that is available. FDA is preparing an extensive range of
technical support regarding the final CGMP regulation, including
guidance documents, workshops, and other materials and presentations.
Several small businesses argued that the regulatory costs fall
disproportionately on small business, hindering industry growth. The
regulatory requirements apply equally to whoever is designing and
developing new devices. However, the vast majority of firms are small
and medium in size and these firms are least likely to have such design
control procedures already in place. As a result, their incremental
costs may be higher. Nevertheless, because procedures reflect the
complexity of the processes they guide, small and medium-sized
establishments should incur proportionately lower gross compliance
costs for those activities than larger establishments.
4. Section 820.22 Quality audit
Some comments believed that requiring quality audits to be
performed by individuals without direct responsibility for the matters
being audited poses a severe burden for small business. This
requirement is already present in the original CGMP regulation and thus
was not addressed in the economic analysis of the final regulation.
5. Section 820.25 Personnel
Comments stated that the requirement to maintain files on
consultants was onerous and interfered with manufacturers' selection
processes. FDA modified this requirement and moved it to Sec. 820.50
Purchasing, in the final CGMP regulation. Companies will now be
required to verify that consultants meet specified requirements and
define the type and extent of control they will exercise over them. The
incremental compliance costs were judged to be negligible.
6. Section 820.30 Design control
Comments believed that the requirement stipulating that devices be
sampled from three production runs before a device is released for
routine distribution was too prescriptive and burdensome. FDA has
modified the requirement in the final rule to require design validation
of initial production units, lots, or batches, or their equivalent.
This modification should give manufacturers greater flexibility in
implementing this requirement.
Some comments from small businesses were critical of the
requirement that independent personnel perform design reviews and
stated that they will have to hire outside engineers for this task. In
the final rule FDA allows greater flexibility and states that the
independent personnel can be individual(s) who do not have direct
responsibility for the design stage being reviewed. Thus, staff
personnel (including engineers working on other components of the
device and nonengineering personnel) can perform design reviews.
7. Section 820.40 Document control
Some comments believed that the cost of implementing documentation
systems and other paperwork was understated. However, ERG's estimates
included the incremental compliance costs for formalizing a written
document control procedure and ERG considered paperwork requirements in
its estimation. The final rule also extends document control
requirements to the design phase and cost estimates for these
requirements were added to the economic assessment.
Most companies consider document control procedures to be essential
and have realized some benefits from such procedures, typically in the
form of efficiency gains and avoided documentation mixups. These
potential benefits were not quantified.
8. Section 820.50 Purchasing control
Comments questioned the need to establish the quality of materials
purchased from long-established suppliers or from new suppliers of
small quantities of components. Historical records, however, even for
suppliers of small quantities, can be used to assess a supplier's
quality. Supplier audits are not mandated in the CGMP regulation, but
may be a useful tool in assessing a supplier's capabilities. Cost
estimates for auditing from one- half to four new suppliers per year
for small to very large establishments were included in the economic
assessment.
9. Section 820.80 Receiving, in-process, and finished device
acceptance
One comment believed that requiring manufacturers to retain the
quantitative results of testing was excessive. The final rule
stipulates that ``the results'' of acceptance activities are to be
recorded, but does not specify that all quantitative results must be
recorded. Because this requirement is consistent with current industry
practices, incremental costs were not assigned to this section.
10. Section 820.90 Nonconforming product
Comments noted that identifying a product as ``reprocessed'' has a
negative impact on sales. (FDA now uses the term ``reworked''.) This
language was revised in the final rule to clarify that reworked devices
need to be identified as such at the manufacturing facility to avoid
mixups. No costs were estimated for this requirement.
D. Industry Costs
ERG estimated the total annual incremental cost of the final rule
at $81.9 million. This includes $9.5 million in one-time costs that
were annualized over 5 years at a 10 percent discount rate. Table 2
lists the most costly of the new requirements.
Costs were based on the incremental tasks each manufacturer must
perform to achieve compliance. ERG retained most of the methodology and
data from the proposed rule to estimate the costs of the final rule.
Where applicable, costs were estimated for additional or changed final
requirements. Also, the distribution of costs across establishment size
was modified to reflect new information on the rate of product
innovation.4 The rates of innovation per year used for this
analysis are: 0.4 percent for small, 1.3 percent for medium-sized, 2.6
percent for large, and 6.5 percent for very large establishments.
---------------------------------------------------------------------------
4 ERG (1994). FDA Survey of Establishments Introducing New
Medical Devices. (Task Order 3, Contract No. 223-91-8100).
[[Page 52647]]
Table 2.--Total Compliance Costs, by Most Costly Incremental Tasks
[$ millions]
----------------------------------------------------------------------------------------------------------------
Annual
Incremental tasks One-time -------------------------- Total
annualized Labor Nonlabor annualized
-----------------------------------------------------------------\1\--------------------------------------------
Design Controls:
Design Verification................................... NA 18.2 27.4 45.6
Design Review......................................... NA 6.2 NA 6.2
Design Changes........................................ NA 4.0 NA 4.0
Design and Development Planning....................... NA 1.2 NA 1.2
Other:
Quality Audit......................................... 0.5 4.7 NA 5.2
Evaluation of Suppliers and Contractors............... 0.6 1.9 0.9 3.4
Management Review..................................... NA 2.2 NA 2.2
Purchasing Data....................................... NA 1.1 NA 1.1
All Remaining............................................. 8.4 4.6 0.0 13.0
-----------------------------------------------------
Total for Final Regulation........................ 9.5 44.1 28.3 81.9
----------------------------------------------------------------------------------------------------------------
\1\ One-time costs annualized over 5 years at discount rate of 10 percent.
NA=Not Applicable.
Note: Totals may not add due to rounding.
Source: ERG (1996), Section 4.
The great majority of costs for all size establishments will be
associated with the establishment of design controls for new products.
Therefore, the more innovative establishments will experience greater
compliance costs than the less innovative establishments. The estimated
annual design control costs total $57.5 million, which represents 70
percent of the total annual incremental costs of compliance. The most
costly task within the design control category is design verification
($45.6 million), which includes design validation. Other costly tasks
are design review ($6.2 million), which encompasses conducting and
documenting design reviews; design changes ($4.0 million), which
includes documenting and maintaining design change procedures; and
design and development planning ($1.2 million), which includes
documenting and maintaining plans for device design and development.
The requirement for extending the quality system audit ($5.2 million)
and the evaluation of suppliers and contractors ($3.4 million) are also
relatively high cost items.
The estimated total cost of compliance for the final rule ($81.9
million) is $2.6 million less than the estimated cost of the November
1993 proposed rule ($84.5 million). Some cost increases were due to
added requirements for increased documentation. However, these cost
increases were offset partly by a decrease of $0.5 million from the
modification of some requirements (e.g. Secs. 820.65 Traceability and
820.160 Distribution). The remaining changes resulted from changes in
assumptions or new information about cost and compliance rates in
design control and supplier audits and from new information regarding
product innovation rates across establishment size.
The projected average cost per establishment (see Table 3) varies
substantially across industry sectors and establishment size
categories. As expected, the average incremental costs are largest for
establishments that design medical devices: design and production
manufacturers and specification developers. For these two sectors, the
average per establishment costs are $15,994 for design and production
manufacturers and $14,767 for specification developers. Actual per
establishment costs will vary substantially depending on the product
type, design complexity, innovation rate, and level of design control
currently in place. The average incremental costs for the other three
sectors are significantly lower: $3,554 for contract manufacturer,
$1,995 for repacker/relabeler, and $2,040 for contract sterilizer.
Table 3.--Average Total Annualized \1\ Costs Per Establishment by Type and Size
[Dollars]
----------------------------------------------------------------------------------------------------------------
Medium (20- Large (100- Very large (250) All
----------------------------------------------------------------------------------------------------------------
Design and Production Manufacturer.... 11,085 25,800 22,748 12,258 15,994
Specification Developer............... 9,927 24,052 20,583 NA 14,767
Contract Manufacturer................. 2,357 4,027 5,802 10,678 3,554
Repacker/Relabeler.................... 1,471 2,588 3,969 NA 1,995
Contract Sterilizer................... 1,491 2,621 3,999 NA 2,400
----------------------------------------------------------------------------------------------------------------
\1\ One-time costs annualized over 5 years at a discount rate of 10 percent.
NA=Not Applicable.
Source: ERG (1996), Section 6.
Because average current compliance rates tend to vary directly with
establishment size and there are relatively few large and very large
establishments (7 and 4 percent of all medical device establishments,
respectively), the largest share of the costs are incurred by small
establishments, $35.2 million (43
[[Page 52648]]
percent) and medium-size establishments, $34.5 million (42 percent),
while the smallest share is incurred by very large establishments, $3.4
million (4 percent) (see Table 4).
Table 4.--Total Annualized Costs by Size Category
[$ millions]
----------------------------------------------------------------------------------------------------------------
Annual
Establishment size One-time -------------------------- Total
annualized Labor Nonlabor annualized
-----------------------------------------------------------------\1\--------------------------------------------
Small (1-19).............................................. 4.9 18.2 12.1 35.2
Medium (20-99)............................................ 3.0 18.2 13.3 34.5
Large (100-249)........................................... 1.0 5.1 2.8 8.8
Very large (250)............................... 0.7 2.6 0.1 3.4
All establishments........................................ 9.5 44.1 28.3 81.9
----------------------------------------------------------------------------------------------------------------
\1\ One-time costs annualized over five years at discount rate of 10 percent.
Note: Totals may not add due to rounding.
Source: ERG (1996), Section 4.
E. Benefits From Proposed Changes to the CGMP Regulation
ERG used the methodology and data from the proposed rule to
estimate the benefits of the final CGMP regulation. Adjustments to the
number and distribution of MDR's were made based on updated numbers of
closed cases. Also, more reliable estimates of industry savings from
avoided design-related recalls were incorporated.
The changes to the CGMP regulation will provide public health
benefits to medical device users and economic benefits to the medical
device industry. Based on its review of medical device recalls over the
4-year period 1988 to 1991, FDA has estimated that 30 percent of all
medical device product recalls are due to inadequate design controls.
It is extremely difficult to judge how many of these recalls could
reasonably have been avoided, but ERG judged that a majority would have
been prevented if manufacturers had fully implemented the CGMP design
control requirements.
1. Public Health Benefits
ERG used the MDR database to estimate the public health benefits of
the final CGMP regulation. There were over 41,600 MDR's submitted to
FDA in 1991; 97 percent of these MDR's are closed (i.e., a review of
the case is completed). Of these closed cases, FDA determined that 9.3
percent of the fatalities and 12.4 percent of the serious injuries were
due to device failures. The bulk of the remaining incidents were due to
user problems, but also include cases where cause could not be clearly
established. To estimate the total number of deaths and serious
injuries for 1991 by cause, the 1988-1991 averages of device recalls
were used. To estimate the number of deaths and serious injuries due to
design-related causes, ERG assumed that the percent of MDR's that were
design-related was the same as that for recalls (30 percent).5
Based on these assumptions, medical devices contributed to an estimated
49 fatalities and 663 serious injuries in 1991 due to design-related
problems in class II and III devices (see Table 5). To correct for the
substantial under reporting of MDR's, ERG made an upward adjustment in
the number of MDR's of 20 percent for fatalities and 40 percent for
serious injuries. The number of estimated fatalities adjusted for
underreporting of MDR's would be 59, with 929 serious injuries.
---------------------------------------------------------------------------
\5\ There is no code in the MDR database to identify design-
related events.
Table 5.--Number of Design-Related Reports and Estimated Avoided Deaths and Serious Injuries
----------------------------------------------------------------------------------------------------------------
Fatalities Serious Injuries
-----------------------------------------------------------------------
Class II Class III Total Class II Class III Total
----------------------------------------------------------------------------------------------------------------
Number in 1991.......................... 555 475 1,030 4,391 11,794 16,185
Device-related.......................... 105 59 164 330 1,881 2,211
Design-related \1\...................... 32 18 49 99 564 663
Number avoided.......................... 23 13 36 72 412 484
Adjusted number of design-related MDR's
\2\.................................... 38 21 59 139 790 929
Adjusted Number avoided................. 28 15 43 101 576 677
----------------------------------------------------------------------------------------------------------------
\1\ Assumes 30 percent of device-related MDR's are design-related, based on FDA recall data.
\2\ Total number of fatalities and injuries increased by 20 and 40 percent, respectively, to adjust for under-
reporting.
Source: ERG (1996), Section 5.
To develop an approximate idea of the preventability of these
incidents, ERG convened a panel of industrial engineers and regulatory
specialists with extensive experience in the design of medical devices.
The panel examined a random sample of 100 design-related medical device
recalls and judged whether implementation of design controls could have
prevented the recall. ERG found that the expected value of their
judgments implied that proper design controls would have prevented
about 73 percent of these recalls. Assuming the same preventability
ratio for design-related MDR events, ERG calculated that the proposal
would prevent about 36 to 43 deaths and 484 to 677 serious injuries per
year, depending on the degree of MDR underreporting.
To verify the reasonableness of the estimates, FDA examined an
alternative method of estimating the number of
[[Page 52649]]
fatalities caused by design-related failures. For this calculation, 3
years of design-related recalls were assumed linked to MDR fatalities
that occurred for these devices 1 year before or 3 months after the
date of the recall. This approach, which provides a conservative
estimate because not all relevant fatalities and subsequent MDR's would
occur during this limited time period, found that about 60 deaths per
year were due to design-related device failures. If 73 percent of such
incidents could be avoided through compliance with the proposed CGMP
regulation, 44 deaths per year would be prevented.
These estimates of the public health benefits from fewer design-
related deaths and serious injuries represent FDA's best projections,
given the limitations and uncertainties of the data and assumptions.
The above numbers, however, do not capture the quality of life losses
to patients who experience less severe injuries than those reported in
MDR's, who experience anxiety as a result of treatment with an
unreliable medical device, or who experience inconvenience and
additional medical costs because of device failure.
Medical device malfunctions are substantially more numerous than
deaths or injuries from device failures and also represent a cost to
society. Malfunctions represent a loss of product and an inconvenience
to users and/or patients. Additionally, medical device malfunctions
burden medical personnel with additional tasks, such as repeating
treatments, replacing devices, returning and seeking reimbursement for
failed devices, and providing reports on the circumstances of medical
device failures. No attempt was made to quantify these additional
costs.
2. Industry Benefits
The medical device industry would gain substantial economic
benefits from the proposed changes to the CGMP regulation in three
ways: Cost savings from fewer recalls, productivity gains from improved
designs, and efficiency gains for export-oriented manufacturers who
would now need to comply with only one set of quality standards.
An average of 359 medical device recall events per year were
reported to FDA over the period 1988 to 1991. As stated above, FDA
estimates that design-related deficiencies contributed to 30 percent of
those recall events annually. Applying the 73 percent recall
preventability factor, ERG projects that there would be 67 fewer
recalls of class II and III devices each year under the final CGMP
regulation (see Table 6). Based on data from a recent survey of recall
costs, 67 fewer recalls implies that the industry would avoid roughly
$29 million worth of recall expenses per year by complying with the
final CGMP regulation.6
---------------------------------------------------------------------------
6 Design-related medical device recalls cost the industry
approximately $40 million annually. (Eastern Research Group, Inc.
(1994). FDA Survey of Medical Device Recall Costs. (Task Order 3,
Contract Number 223-91-8100).
Table 6.--Number of Avoided Design-Related Recall Events by Class of
Device
[FY 1988-FY 1991]
------------------------------------------------------------------------
Average Number of
number of avoided
design- design-
Device class related related
recall recall
events\1\ events\2\
------------------------------------------------------------------------
I................................................. 15 NA
II................................................ 80 58
III............................................... 12 9
---------------------
All Devices..................................... 107 67
------------------------------------------------------------------------
\1\ Office of Compliance and Surveillance, CDRH.
\2\ ERG estimates based on random sample of 100 design-related recalls.
Source: ERG (1996), Section 5.
ERG also found that the design control requirements in the final
CGMP regulation would require manufacturers to integrate their design
and production operations and that most industry experts believe that
this change would lead to better quality products, more efficient
engineering, lower manufacturing costs, and reduced product development
time. These savings, however, could not be quantified.
Still another benefit of the revised regulation relates to the
harmonization of the final CGMP regulation with the ISO 9001:1994
international standard. This change would especially benefit export-
oriented establishments, because they would need to meet only one set
of quality standards. ERG could not derive quantitative measures of
this benefit. However, 65 percent of innovative medical device
companies export their products, thus a majority should benefit from
harmonization of CGMP regulation between major trading partners.7
---------------------------------------------------------------------------
7 ERG (1994). FDA Survey of Establishments Introducing New
Medical Devices. (Task Order 3, Contract No. 223-91-8100.)
---------------------------------------------------------------------------
F. Economic and Small Business Impact
The ability of medical device establishments to pass on the added
cost of the final regulation will determine the economic impact to the
industry. The diversity of medical devices precludes any easy
characterization of their product markets. Under the current medical
care system, however, the demand for many medical devices tends to be
price inelastic because they are often prescribed by physicians and
frequently paid for by third parties. Thus, small price increases have
not typically prompted significant declines in industry sales.
Nonetheless, competitive pressures have increased substantially under
new health care cost-containment measures. Therefore, to examine the
potential effect of the costs of compliance on the industry's
competitive structure, ERG calculated the maximum impact on industry
average prices and products, using extreme scenarios. Financial data
characterizing the scope of FDA-regulated medical device establishments
are not available. To make estimates of the regulatory impact on price
and profits, ERG used a combination of census and Dun and Bradstreet
data (see ERG (1993) for methodology). ERG assumed that the firms
characterized in these data sources had the same size and product
distribution, and introduced new products at the same rate as the
population of FDA-regulated establishments. While the validity of these
assumptions is uncertain, it was the only data available to measure
regulatory impact. ERG presents two extreme scenarios, the first
reflects the magnitude of the potential impact on product prices if all
costs were passed forward. The second demonstrates the maximum drop in
profits if no costs were passed forward. In reality, some combination
of these scenarios will occur.
Based on the assumption that all costs of compliance are passed
through to the end user, with no loss in sales and no offset for
avoided recalls or other industry productivity gains, ERG found that
the average increase in the price of medical devices would be less than
0.13 percent. Estimated price increases ranged from 0.04 percent for X-
Ray Apparatus and Tubes (SIC 3844) to 0.34 percent for Dental Equipment
and Supplies (SIC 3843) (see Table 7). The maximum price increase was
calculated using aggregate compliance costs as a percentage of the
value of shipments. The price increases calculated by size of
establishment suggest that small establishments will be under greater
pressure to increase prices. The cost of compliance represented an
average of 1.36 percent of the value of shipments for small
establishments and 0.01 percent for very large establishments. These
differences in impacts by size reflect the finding that small
[[Page 52650]]
establishments have lower current compliance than large establishments.
To estimate the potential impact of compliance costs on medical
device industry profits, ERG calculated after-tax compliance costs as a
percentage of after-tax income for each medical device SIC (see Table
7). Again, no adjustments were made for avoided recalls or expected
productivity gains. If manufacturers have no ability to increase prices
to offset the increase in compliance costs, this estimate represents an
upper bound of the potential effect on entity income. Under these
circumstances, the medical device sectors could incur reductions in
income ranging from about 0.81 percent (SIC 3845, Electromedical
Equipment) to about 4.27 percent (SIC 3843, Dental Equipment and
Supplies). ERG concluded that such impacts may affect some
establishments' decisions to develop new products where expected
profits are marginal or highly uncertain, but judged that the level of
incremental costs imposed by this regulation would not substantially
lower the innovation rate especially for products with significant
medical benefits.
Table 7.--Maximum Potential Impact on Price or Profits by Industry and
Employment Size
------------------------------------------------------------------------
Total
annualized After-tax
compliance compliance
costs as a costs as a
percentage percentage
of of after-
shipments tax income
------------------------------------------------------------------------
Industry:
3841 Surgical and medical instruments......... 0.12 2.00
3842 Surgical appliance and supplies.......... 0.14 1.78
3843 Dental equipment and supplies............ 0.34 4.27
3844 x-ray apparatus and tubes................ 0.04 0.88
3845 Electromedical equipment................. 0.05 0.81
3851 Ophthalmic goods......................... 0.24 3.54
All........................................... 0.13 1.87
Establishment size:
Small (1-19).................................. 1.36 NA
Medium (20-99)................................ 0.35 NA
Large (100-249)............................... 0.09 NA
Very large (250)................... 0.01 NA
All........................................... 0.13 NA
------------------------------------------------------------------------
NA = not available.
Source: ERG (1996), Section 6.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. This section together with other discussions in this
preamble and supporting analysis and materials constitute the agency's
regulatory flexibility analysis. A description of the projected
reporting, recordkeeping, and compliance requirements including the
type of professional skills required is included in the ERG economic
analysis reports that are referenced above and on file at the Dockets
Management Branch (address above). In accordance with the Regulatory
Flexibility Act, FDA has considered the effect of this action on small
businesses and has determined that there will be a significant impact
on a substantial number of small businesses. Almost all medical device
establishments are classified as small under the Small Business
Administrations definition of size.8 The incremental costs are
greatest for establishments that design medical devices and that
currently have lower levels of compliance with the new design control
requirements. These requirements account for 70 percent of the total
incremental costs of the final rule but affect only design and
production manufacturers and specification developers (82 percent of
the total affected establishments). Other sectors of the industry will
incur substantially lower costs (see Table 3).
---------------------------------------------------------------------------
8 The Small Business Administrations definition is by the
employment size at the company level. Detailed demographic and
financial data is not available by company size, therefore FDA used
establishment data. FDA does not know the impact on companies.
---------------------------------------------------------------------------
The actual added cost per establishment will vary by the
establishment's current level of compliance, complexity of product
design, product type, and rate of product innovation. As indicated in
Table 3, the average medium-size and large manufacturers of devices
will incur greater compliance costs ($25,800 and $22,748 per
establishment, respectively) relative to small and very large
establishments ($11,085 and $12,258, respectively). However, the
potential impact on product price (measured as a percent of the value
of shipments) is greatest for small (1.36 percent) and medium-size
(0.35 percent) establishments. Large and very large establishments will
incur only a 0.09 percent and 0.01 percent increase, respectively, due
to much larger values of shipments and higher rates of compliance with
the final rule. Smaller establishments producing differentiated
products or marketing to niche markets may not be at a disadvantage
because of their ability to pass on the added cost of compliance.
However, those smaller establishments that compete with larger
establishments based on price alone would suffer a drop in profits if
they currently operate at lower levels of compliance than their
competitors.
FDA believes that actual per establishment compliance costs will be
lower than estimated for the following reasons: First, the final CGMP
regulation closely parallels the ISO 9001:1994 quality standards, which
have been adopted as the quality standard for the EU and are becoming
the international quality standards for medical devices. Close to 65
percent of domestic medical device manufacturers export their products
and generate approximately one-third of their sales from exports.9
Compliance with the quality control requirements is necessary for firms
to maintain international competitiveness and in fact many U.S. medical
device manufacturers have become ISO certified since the 1993
publication of the proposed CGMP regulation and the EU implementation
of unified regulatory requirements.
---------------------------------------------------------------------------
9 ERG (1994). FDA Survey of Establishments Introducing New
Medical Devices. (Task Order 3, Contract No. 223-91-8100.)
---------------------------------------------------------------------------
Second, the FDA has extended the effective date of the final rule
to June 1, 1997, and has chosen not to take regulatory action for an
additional year on the design control requirements. This revised
effective date will also reduce the cost of implementation estimated
for the 1993 proposal where the proposed effective date was only 180
days after date of publication. The extension will give manufacturers a
longer time to implement the new requirements, allowing the costs to be
spread over almost a 2-year period as compared to 180 days. June 1998
coincides with the implementation of the EU's Inactive Medical Device
Directive. Therefore, the economic impact of complying with the new
quality system regulation will be shared with the economic impact of
complying with the new EU Medical Device Directive for any manufacturer
who also produces devices for sale in the EU, lessening the direct
impact of the new quality system regulation.
Third, ERG estimates of the number of labor hours needed for design
controls assume that many establishments have little or no formal
system in place. Once an establishment has developed a system, minor
modifications to an establishment's existing product (for which many
510(k) applications and PMA supplements are submitted) may be less
costly than ERG assumed.
[[Page 52651]]
Finally, cost estimates assume that establishments will use in-
house expertise or hired consultants for all compliance activities. In
fact, FDA and trade publications have disseminated much of the
information that would be needed by the firms. FDA has taken many steps
specifically to assist small businesses in complying with this final
rule. The two stage implementation of the regulation was a concerted
effort to reduce the regulatory burden on small businesses. Stage 1 was
set up to be a 1 year training and cooperative phase for the entire
medical device community. FDA and industry would be participating in a
number of cooperative efforts as well as joint training exercises. Most
importantly, FDA would be evaluating design controls and providing
industry with feedback in the nature of a report. During this time, to
truly allow it to be a learning experience for both the device
manufacturers and the FDA investigators, there would be no regulatory
actions taken as a result of these evaluations and reports. The biggest
benefactor of the two stage implementation would clearly be small
businesses.
Further, several guidances have been prepared by FDA for this
regulation as a whole, as well as on subject matters that are
significant in this final rule. FDA plans to release the following
three guidances within 60 days after the final rule is published: (1)
DSMA's ``Medical Device Quality Systems Manual: A Small Entity
Compliance Guide,'' which includes discussion on the entire regulation
plus multiple examples of procedures and forms that can be adopted and
modified by manufacturers; (2) ``Design Control Guidance For Medical
Device Manufacturers,'' which is intended to assist manufacturers in
understanding the intent of the design control requirements. Assistance
is provided by interpreting the language of the regulation and
explaining the underlying concepts in practical terms; and (3) ``Do It
By Design: An Introduction to Human Factors in Medical Devices,'' which
contains background information about human factors as a discipline,
descriptions and illustrations of device problems, and a discussion of
human factors principles and methods as a part of the design control
system. FDA also plans to release the following guidances after
publication of this final rule: (1) A guidance on ``Validation,'' which
will include discussions on design validation, computer validation, and
process validation; and (2) a draft of the ``Design Control
Inspectional Strategy,'' which will be the questions that FDA
investigators will be asking when assuring compliance with the design
control requirements.
FDA is also prepared to release shortly after publication of this
final rule a 4 hour series of videotapes discussing the Quality System
Regulation. The videotapes will also be accompanied by a guidebook
entitled ``The FDA and World Wide Quality System Requirements Guidebook
For Medical Devices.'' This guidebook will contain the entire Quality
System Regulation from FDA, the entire text of ISO 9001:1994, FDA
guidance from the regulation's preamble, and guidance on quality
systems from the GHTF.
FDA has also tentatively scheduled two teleconferences. The first
teleconference, which would be to discuss the Quality System Regulation
and answer questions that have come up from manufacturers beginning to
implement the regulation, is tentatively scheduled for December 1996. A
second teleconference is tentatively scheduled for April/May of 1997
and will specifically address design controls and the final Design
Control Inspectional Strategy. FDA is also exploring the possibility of
conducting regional workshops in May of 1997 to further discuss the
design control requirements and their implementation.
In addition to these activities, FDA and DSMA will continue to
provide guidance and workshops that can help small business with their
compliance activities, and will continue to participate in industry
association workshops, conferences, and meetings. While all of the
above-mentioned activities will be available to all manufacturers,
small manufacturers will benefit the most from these FDA activities
without having to pay substantial costs, as most of the guidance and
written material will be available on the world wide web, and the
teleconferences and other workshops sponsored or cosponsored by FDA
will be of nominal cost.
Finally, as described elsewhere in this preamble, FDA intends to
conduct a midcourse review of the new design control requirements
during the transition year (June 1997 to June 1998). Specifically, the
results of the first several months of design control inspections will
be reviewed by early 1998, and any midcourse adjustments to the
inspectional strategy will be instit
FR Doc. 96-25720 Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation
uted and made public by the Spring
of 1998. Also during this midcourse review FDA will evaluate the
information gathered at that point and determine if the design control
requirements as written in this final rule are appropriate to obtain
the goals expressed in this preamble. Any necessary adjustments or
proposed revisions will be published in the Federal Register and
comments will be solicited as necessary during the spring of 1998. This
implementation strategy is responsive to requests by industry for FDA
to harmonize the quality system regulation's implementation with the
mandatory date for implementation of the EU's Medical Device Directive,
which is June 1998. However, if during the midcourse review of stage
one it is determined that the industry and/or FDA needs more time to
fully implement the design control requirements, FDA will publish that
decision in the Spring of 1998 prior to the June 1, 1998, regulatory
implementation date.
Small businesses will also benefit in that FDA considered but
rejected applying design requirements to all class I devices, because
the added benefits to public health were not great enough to offset the
increased burden on industry. Two requirements were eliminated or
modified in the final rule that decreased the burden on industry: The
applicability of the CGMP regulation to component suppliers was
removed, and Sec. 820.65 Traceability was limited to traceability of
components where necessary to assure the protection of public health.
These changes will particularly aid small businesses. In addition,
revisions were made to many requirements in the final rule to make it
less prescriptive and to allow establishments greater flexibility in
implementing the requirements. Cost savings from these changes were not
estimated.
In addition, revisions were made to many requirements in the final
rule to make it less comprehensive in scope, less prescriptive and to
allow establishments greater flexibility in implementing the
requirements. Cost savings from these changes were not estimated. Based
on the above, the agency has determined that the current rule
represents the least burdensome alternative that meets the public
health goal of reducing deaths and serious injuries attributable to
defective medical devices.
In summary, FDA concludes that the estimated $81.9 million annual
incremental cost to comply with the final CGMP regulation is likely an
upward bound figure and that it would be substantially offset by
significant savings from avoided recalls and more importantly, the
avoidance of deaths and serious injuries due to design-related device
failures. FDA's estimate of public health benefits includes the
[[Page 52652]]
prevention of 36 to 44 deaths and 484 to 677 serious injuries annually.
Establishing design controls will also result in better designed and
higher quality devices and fewer device failures. This quality
improvement will in turn reduce the inconvenience and expense of
repetitive treatments or diagnoses. The agency also believes the actual
cost to comply with the final rule will be lower than estimated because
the industry compliance baselines used to estimate costs are from 1993.
Since that time, market pressures have induced many firms that export
to the EU to become ISO 9001:1994 certified. These firms would now be
in compliance with most of FDA's final CGMP regulation. Further, FDA
has provided continued education efforts over the past 15 years, to
mitigate industry costs.
IX. Paperwork Reduction Act of 1995
This final rule contains information collections that are subject
to review by OMB under the Paperwork Reduction Act of 1995 (Pub. L.
104-13). The title, description and respondents of the information
collection are shown below with an estimate of the annual incremental
increase in the recordkeeping burden that respondents must undertake to
achieve compliance with the final regulation.
Title: Medical Devices, Quality System Regulations, Current Good
Manufacturing Practice Requirements.
Description: This final quality system regulation amends and
revises the current good manufacturing practice requirements for
medical devices, set out at 21 CFR part 820. This final regulation
replaces quality assurance program requirements with quality system
requirements; adds design and purchasing controls; modifies the
critical device requirements; revises certain existing requirements,
such as validation and management responsibility, to clarify the intent
of the requirements; and harmonizes the CGMP regulations for medical
devices with quality system specifications in ISO 9001:1994 ``Quality
Systems-Model for Quality Assurance in Design, Development, Production,
Installation and Servicing.''
Description of Respondents: Business or other for-profit and small
businesses or organizations.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
Number of Annual Total annual Hours per operating and
CFR section record-keepers frequency of records record-keeper Total hours maintenance
recordkeeping costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
820.20(a)............................................... 7,237 1 7,237 10.96 79,386 ..............
820.20(b)............................................... 7,237 1 7,237 4.88 35,285 ..............
820.20(c)............................................... 7,237 1 7,237 10.28 74,364 ..............
820.20(d)............................................... 7,237 1 7,237 16.49 119,305 ..............
820.20(e)............................................... 7,237 1 7,237 16.49 119,305 ..............
820.22(a)............................................... 7,237 1 7,237 52.03 376,507 ..............
820.25(b)............................................... 7,237 1 7,237 21.13 152,896 ..............
820.30(a)(1)............................................ 7,237 1 7,237 2.92 21,162 ..............
820.30(b)............................................... 7,237 1 7,237 9.91 71,718 ..............
820.30(c)............................................... 7,237 1 7,237 2.92 21,162 ..............
820.30(d)............................................... 7,237 1 7,237 2.92 21,162 ..............
820.30(e)............................................... 7,237 1 7,237 38.98 282,115 ..............
820.30(f)............................................... 7,237 1 7,237 62.37 451,342 $27,359,420
820.30(g)............................................... 7,237 1 7,237 62.37 451,342 ..............
820.30(h)............................................... 7,237 1 7,237 5.56 40,236 ..............
820.30(i)............................................... 7,237 1 7,237 28.77 208,173 ..............
820.30(j)............................................... 7,237 1 7,237 4.40 31,848 ..............
820.40.................................................. 7,237 1 7,237 11.76 85,081 ..............
820.40(b)............................................... 7,237 1 7,237 .............. .............. ..............
820.50 (a)(1) to (a)(3)................................. 7,237 1 7,237 31.12 225,240 898,500
820.50(b)............................................... 7,237 1 7,237 10.04 72,679
820.60.................................................. 7,237 1 7,237 0.54 3,914 ..............
820.65.................................................. 7,237 1 7,237 .............. .............. ..............
820.70 (a)(1) to (a)(5)................................. 7,237 1 7,237 .............. .............. ..............
820.70 (b)-(c).......................................... 7,237 1 7,237 .............. .............. ..............
820.70(d)............................................... 7,237 1 7,237 3.09 22,335 ..............
820.70(e)............................................... 7,237 1 7,237 .............. .............. ..............
820.70 (g)(1) to (g)(3)................................. 7,237 1 7,237 ..............
820.70(h)............................................... 7,237 1 7,237 .............. .............. ..............
820.70(i)............................................... 7,237 1 7,237 9.41 68,092 ..............
829.72(a)............................................... 7,237 1 7,237 5.83 42,165 ..............
820.72 (b)(1) to (b)(3)................................. 7,237 1 7,237 .............. .............. ..............
820.75(a)............................................... 7,237 1 7,23 72.79 20,172 ..............
820.75(b)............................................... 7,237 1 7,237 .............. .............. ..............
820.75(b)(2)............................................ 7,237 1 7,237 0.15 1,096 ..............
820.75(c)............................................... 7,237 1 7,237 0.15 1,096 ..............
820.80 (a)-(e).......................................... 7,237 1 7,237 .............. .............. ..............
820.86.................................................. 7,237 1 7,237 .............. .............. ..............
820.90(a)............................................... 7,237 1 7,237 6.11 44,217 ..............
820.90 (b)(1) to (b)(2)................................. 7,237 1 7,237 6.11 44,217 ..............
820.100 (a)(1) to (a)(7)................................ 7,237 1 7,237 20.06 145,144 ..............
820.100(b).............................................. 7,237 1 7,237 .............. .............. ..............
820.120................................................. 7,237 1 7,237 .............. .............. ..............
820.120(b).............................................. 7,237 1 7,237 .............. .............. ..............
820.120(d).............................................. 7,237 1 7,237 .............. .............. ..............
820.130................................................. 7,237 1 7,237 .............. .............. ..............
820.140................................................. 7,237 1 7,237 9.45 68,418 ..............
820.150 (a)-(b)......................................... 7,237 1 7,237 9.45 68,418 ..............
820.160 (a)-(b)......................................... 7,237 1 7,237 .............. .............. ..............
[[Page 52653]]
820.170 (a)-(b)......................................... 7,237 1 7,237 .............. .............. ..............
820.180................................................. 7,237 1 7,237 .............. .............. ..............
820.181 (a)-(e)......................................... 7,237 1 7,237 .............. .............. ..............
820.184 (a)-(f)......................................... 7,237 1 7,237 .............. .............. ..............
820.186................................................. 7,237 1 7,237 .............. .............. ..............
820.198 (a)-(c)......................................... 7,237 1 7,237 3.71 26,850 ..............
820.200(a) and 820.200(d)............................... 7,237 1 7,237 4.35 31,459 ..............
820.250................................................. 7,237 1 7,237 .............. .............. ..............
-----------------------------------------------------------------------------------------------
Totals.............................................. 7,237 1 7,237 487.50 3,527,901 28,257,920
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Incremental increase in hours and costs to achieve compliance with additional requirements.
Note: Totals may not add due to rounding
Under OMB information collection 0910-0073, which expired on June
30, 1995, there were 375,266 burden hours approved for recordkeeping
requirements currently contained in part 820 to include 114,882 burden
hours as a one time start up expenditure for 750 new firms. The
additional requirements contained in this final rule will add 3,527,901
burden hours to the burden, resulting in a total annual recordkeeping
burden of 3,903,167 hours. The 3,527,901 burden hours includes
1,433,579 burden hours for a one time start up expenditure for 7,237
manufacturers and 2,094,321 burden hours expended annually by 7,237
manufacturers.
The final rule estimate of recordkeeping burden includes about 9.6
times as many manufacturers with a one time start up expenditure, due
to the addition of the design control requirements, than did FDA's
estimate of the manufacturers that would have had a one time start up
expenditure under the old regulation. Further the recordkeeping burden
hour calculations for the new regulation were done under contract using
a more complex methodology involving the estimated noncompliance ratio
for small, medium, large, and very large manufacturers (as defined
above) times the number of manufacturers in each category and factors
in a rate of product innovation for new products, including 510(k)
devices. This methodology is more precise than the methodology
previously utilized. Therefore, it is very difficult to directly
compare the total burden hours in this final rule as compared to the
estimated burden hours filed for the old regulation which expired June
1995.
Approximately 85 percent of the additional burden hours for the
final rule are from the following four subparts of part 820: (1)
Subpart B--Quality System Requirements; (2) Subpart C--Design Controls;
(3) Subpart E--Purchasing Controls; and (4) Subpart J--Corrective and
Preventive Action. Over 45 percent of the 3,527,901 burden hours are
attributed directly to the addition of design control requirements. The
recordkeeping burden hours for design control are significant because
of the nature of the new requirements, as well as in response to
numerous comments on the 1993 and 1995 proposals. The comments
requested that the regulation focus on procedures required under design
control as compared to prescriptive requirements on the design
activities. The quality system requirements, as well as the corrective
and preventive action requirements combined are approximately 31
percent of the additional recordkeeping burden hours and were in
response to two major issues: (1) Most importantly, FDA had identified
these two areas as two of the top four deficiencies found during
inspections of the medical device industry, across all sizes of
manufacturers; and (2) numerous comments requested harmonization with
the ISO 9000 series standards. The involvement of management with
executive responsibility, the concept of a total quality system which
is a closed feedback loop system, and the practice of using that closed
loop system in taking appropriate corrective and preventive action is
paramount in ensuring that safe and effective medical devices are
available to the public. The purchasing control requirements and the
respective recordkeeping burden are approximately 8 percent of the
additional recordkeeping burden. Purchasing requirements were the
overwhelming choice of the medical device industry as compared to the
option of the final rule encompassing component manufacturers. See the
discussion in section V.7. of this document.
It is important to note that small manufacturers may comply with
this final rule with less procedures and paperwork than larger
manufacturers of the same product because the structure and interfaces
for a small manufacturer often require less documentation and
paperwork.
Although the November 23, 1993, proposed rule provided a 90 day
comment period under the Paperwork Reduction Act of 1980, and this
final rule incorporates the comments received, as required by 44 U.S.C.
section 3507(d), FDA is providing additional opportunities for public
comment under the Paperwork Reduction Act of 1995, which applies to
this final rule and was enacted after the expiration of the comment
period.
Therefore, the agency solicits public comment on the information
collection requirements in order to: (1) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information will
have practical utility; (2) evaluate the accuracy of the agency's
estimate of the burden of the proposed collection of information,
including the validity of the methodology and assumptions used; (3)
enhance the quality, utility, and clarity of the information to be
collected; and (4) minimize the burden of the collection of information
on those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Individuals and organizations may submit comments on the
information collection requirements by December 6, 1996, and should
direct comments to FDA's Dockets Management Branch (address above).
Prior to the effective date of this final rule, FDA will publish a
notice in the Federal Register when the information collection
requirements in this rule are submitted for OMB approval, and again
when OMB makes a decision to approve, modify, or disapprove the
[[Page 52654]]
information collection requirements. Persons are not required to
respond to a collection of information unless it displays a currently
valid OMB control number.
X. Congressional Review
This final rule has been determined to be a major rule for purposes
of 5 U.S.C. 801 et seq., Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub. L. 104-121). FDA is submitting
the information and reports as required by that statute.
XI. References
The following references have been placed on display in the
Dockets Management Branch and may be seen by interested persons
between 9 a.m. and 4 p.m., Monday through Friday.
1. ``Device Recalls: A Study of Quality Problems,'' FDA, Center
for Devices and Radiological Health, Rockville, MD 20857, HHS
Publication FDA 90-4235, January 1990.
2. ``FDA Medical Device Regulation From Premarket Review to
Recall,'' Office of Inspector General, Washington, DC, HHS
Publication OEI 09-90-00040, February 1991.
3. ``Software Related Recalls for Fiscal Years FY 83--FY 91,''
FDA, Center for Devices and Radiological Health, Rockville, MD
20857, May 1992.
4. ISO 9001:1994 ``Quality Systems-- Model for Quality Assurance
in Design, Development, Production, Installation, and Servicing.''
5. ISO draft revision of ISO/CD 13485 ``Quality Systems--Medical
Devices-- Supplementary Requirements to ISO 9001.''
6. Federal Register notice entitled ``Medical Devices; Current
Good Manufacturing Practices (CGMP) Regulations Document; Suggested
Changes; Availability,'' November 30, 1990 (55 FR 49644).
7. Federal Register notice entitled ``Medical Devices; Current
Good Manufacturing Practice (CGMP) Regulations; Proposed Revisions;
Request for Comments,'' November 23, 1993 (55 FR 61952).
8. Federal Register notice entitled ``Medical Devices; Working
Draft of the Current Good Manufacturing Practice (CGMP) Final Rule;
Notice of Availability; Request for Comments; Public Meeting,'' July
24, 1995 (60 FR 37856).
9. European Standard (EN) 46001 ``Quality Systems--Medical
Devices--Particular Requirements for the Application of EN 29001.''
10. ``Guidelines on General Principles of Process Validation,''
Center for Drugs and Biologics, and Center for Devices and
Radiological Health, FDA, Rockville, MD 20857, May 11, 1987.
11. ``Medical Devices; Early Warning of Problems Is Hampered by
Severe Underreporting,'' United States General Accounting Office,
Washington, DC, GAO/PEMD-87-1.
List of Subjects
21 CFR Part 808
Intergovernmental relations, Medical devices.
21 CFR Part 812
Health records, Medical devices, Medical research, Reporting and
recordkeeping requirements.
21 CFR Part 820
Medical devices, Reporting and recordkeeping requirements.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, 21 CFR parts
808, 812, and 820 are amended as follows:
PART 808--EXEMPTIONS FROM FEDERAL PREEMPTION OF STATE AND LOCAL
MEDICAL DEVICE REQUIREMENTS
1. The authority citation for 21 CFR part 808 is revised to read as
follows:
Authority: Secs. 520, 521, 701 of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360j, 360k, 371).
2. Section 808.1 is amended by adding new paragraph (d)(10) to read
as follows:
Sec. 808.1 Scope.
* * * * *
(d) * * *
(10) Part 820 of this chapter (21 CFR part 820) (CGMP requirements)
does not preempt remedies created by States or Territories of the
United States, the District of Columbia, or the Commonwealth of Puerto
Rico.
* * * * *
PART 812--INVESTIGATIONAL DEVICE EXEMPTIONS
3. The authority citation for 21 CFR part 812 is revised to read as
follows:
Authority: Secs. 301, 501, 502, 503, 505, 506, 507, 510, 513-
516, 518-520, 701, 702, 704, 721, 801, 803 of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 331, 351, 352, 353, 355, 356, 357,
360, 360c-360f, 360h-360j, 371, 372, 374, 379e, 381, 383); secs.
215, 301, 351, 354-360F of the Public Health Service Act (42 U.S.C.
216, 241, 262, 263b-263n).
4. Section 812.1 Scope is amended by revising the fourth sentence
of paragraph (a) to read as follows:
Sec. 812.1 Scope.
(a) * * * An IDE approved under Sec. 812.30 or considered approved
under Sec. 812.2(b) exempts a device from the requirements of the
following sections of the Federal Food, Drug, and Cosmetic Act (the
act) and regulations issued thereunder: Misbranding under section 502
of the act, registration, listing, and premarket notification under
section 510, performance standards under section 514, premarket
approval under section 515, a banned device regulation under section
516, records and reports under section 519, restricted device
requirements under section 520(e), good manufacturing practice
requirements under section 520(f) except for the requirements found in
Sec. 820.30, if applicable (unless the sponsor states an intention to
comply with these requirements under Sec. 812.20(b)(3) or
Sec. 812.140(b)(4)(v)) and color additive requirements under section
721.
* * * * *
5. Part 820 is revised to read as follows:
PART 820--QUALITY SYSTEM REGULATION
Subpart A--General Provisions
Sec.
820.1 Scope.
820.3 Definitions.
820.5 Quality system.
Subpart B--Quality System Requirements
820.20 Management responsibility.
820.22 Quality audit.
820.25 Personnel.
Subpart C--Design Controls
820.30 Design controls.
Subpart D--Document Controls
820.40 Document controls.
Subpart E--Purchasing Controls
820.50 Purchasing controls.
Subpart F--Identification and Traceability
820.60 Identification.
820.65 Traceability.
Subpart G--Production and Process Controls
820.70 Production and process controls.
820.72 Inspection, measuring, and test equipment.
820.75 Process validation.
Subpart H--Acceptance Activities
820.80 Receiving, in-process, and finished device acceptance.
820.86 Acceptance status.
Subpart I--Nonconforming Product
820.90 Nonconforming product.
Subpart J--Corrective and Preventive Action
820.100 Corrective and preventive action.
Subpart K--Labeling and Packaging Control
820.120 Device labeling.
820.130 Device packaging.
Subpart L--Handling, Storage, Distribution, and Installation
820.140 Handling.
820.150 Storage.
[[Page 52655]]
820.160 Distribution.
820.170 Installation.
Subpart M--Records
820.180 General requirements.
820.181 Device master record.
820.184 Device history record.
820.186 Quality system record.
820.198 Complaint files.
Subpart N--Servicing
820.200 Servicing.
Subpart O--Statistical Techniques
820.250 Statistical techniques.
Authority: Secs. 501, 502, 510, 513, 514, 515, 518, 519, 520,
522, 701, 704, 801, 803 of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 351, 352, 360, 360c, 360d, 360e, 360h, 360i, 360j, 360l,
371, 374, 381, 383).
Subpart A--General Provisions
Sec. 820.1 Scope.
(a) Applicability.
(1) Current good manufacturing practice (CGMP) requirements are set
forth in this quality system regulation. The requirements in this part
govern the methods used in, and the facilities and controls used for,
the design, manufacture, packaging, labeling, storage, installation,
and servicing of all finished devices intended for human use. The
requirements in this part are intended to ensure that finished devices
will be safe and effective and otherwise in compliance with the Federal
Food, Drug, and Cosmetic Act (the act). This part establishes basic
requirements applicable to manufacturers of finished medical devices.
If a manufacturer engages in only some operations subject to the
requirements in this part, and not in others, that manufacturer need
only comply with those requirements applicable to the operations in
which it is engaged. With respect to class I devices, design controls
apply only to those devices listed in Sec. 820.30(a)(2). This
regulation does not apply to manufacturers of components or parts of
finished devices, but such manufacturers are encouraged to use
appropriate provisions of this regulation as guidance. Manufacturers of
human blood and blood components are not subject to this part, but are
subject to part 606 of this chapter.
(2) The provisions of this part shall be applicable to any finished
device as defined in this part, intended for human use, that is
manufactured, imported, or offered for import in any State or Territory
of the United States, the District of Columbia, or the Commonwealth of
Puerto Rico.
(3) In this regulation the term ``where appropriate'' is used
several times. When a requirement is qualified by ``where
appropriate,'' it is deemed to be ``appropriate'' unless the
manufacturer can document justification otherwise. A requirement is
``appropriate'' if nonimplementation could reasonably be expected to
result in the product not meeting its specified requirements or the
manufacturer not being able to carry out any necessary corrective
action.
(b) Limitations. The quality system regulation in this part
supplements regulations in other parts of this chapter except where
explicitly stated otherwise. In the event that it is impossible to
comply with all applicable regulations, both in this part and in other
parts of this chapter, the regulations specifically applicable to the
device in question shall supersede any other generally applicable
requirements.
(c) Authority. Part 820 is established and issued under authority
of sections 501, 502, 510, 513, 514, 515, 518, 519, 520, 522, 701, 704,
801, 803 of the act (21 U.S.C. 351, 352, 360, 360c, 360d, 360e, 360h,
360i, 360j, 360l, 371, 374, 381, 383). The failure to comply with any
applicable provision in this part renders a device adulterated under
section 501(h) of the act. Such a device, as well as any person
responsible for the failure to comply, is subject to regulatory action.
(d) Foreign manufacturers. If a manufacturer who offers devices for
import into the United States refuses to permit or allow the completion
of a Food and Drug Administration (FDA) inspection of the foreign
facility for the purpose of determining compliance with this part, it
shall appear for purposes of section 801(a) of the act, that the
methods used in, and the facilities and controls used for, the design,
manufacture, packaging, labeling, storage, installation, or servicing
of any devices produced at such facility that are offered for import
into the United States do not conform to the requirements of section
520(f) of the act and this part and that the devices manufactured at
that facility are adulterated under section 501(h) of the act.
(e) Exemptions or variances. (1) Any person who wishes to petition
for an exemption or variance from any device quality system requirement
is subject to the requirements of section 520(f)(2) of the act.
Petitions for an exemption or variance shall be submitted according to
the procedures set forth in Sec. 10.30 of this chapter, the FDA's
administrative procedures. Guidance is available from the Center for
Devices and Radiological Health, Division of Small Manufacturers
Assistance, (HFZ-220), 1350 Piccard Dr., Rockville, MD 20850, U.S.A.,
telephone 1-800-638-2041 or 1-301-443-6597, FAX 301-443-8818.
(2) FDA may initiate and grant a variance from any device quality
system requirement when the agency determines that such variance is in
the best interest of the public health. Such variance will remain in
effect only so long as there remains a public health need for the
device and the device would not likely be made sufficiently available
without the variance.
Sec. 820.3 Definitions.
(a) Act means the Federal Food, Drug, and Cosmetic Act, as amended
(secs. 201-903, 52 Stat. 1040 et seq., as amended (21 U.S.C. 321-394)).
All definitions in section 201 of the act shall apply to the
regulations in this part.
(b) Complaint means any written, electronic, or oral communication
that alleges deficiencies related to the identity, quality, durability,
reliability, safety, effectiveness, or performance of a device after it
is released for distribution.
(c) Component means any raw material, substance, piece, part,
software, firmware, labeling, or assembly which is intended to be
included as part of the finished, packaged, and labeled device.
(d) Control number means any distinctive symbols, such as a
distinctive combination of letters or numbers, or both, from which the
history of the manufacturing, packaging, labeling, and distribution of
a unit, lot, or batch of finished devices can be determined.
(e) Design history file (DHF) means a compilation of records which
describes the design history of a finished device.
(f) Design input means the physical and performance requirements of
a device that are used as a basis for device design.
(g) Design output means the results of a design effort at each
design phase and at the end of the total design effort. The finished
design output is the basis for the device master record. The total
finished design output consists of the device, its packaging and
labeling, and the device master record.
(h) Design review means a documented, comprehensive, systematic
examination of a design to evaluate the adequacy of the design
requirements, to evaluate the capability of the design to meet these
requirements, and to identify problems.
(i) Device history record (DHR) means a compilation of records
containing the production history of a finished device.
(j) Device master record (DMR) means a compilation of records
containing the procedures and specifications for a finished device.
[[Page 52656]]
(k) Establish means define, document (in writing or
electronically), and implement.
(l) Finished device means any device or accessory to any device
that is suitable for use or capable of functioning, whether or not it
is packaged, labeled, or sterilized.
(m) Lot or batch means one or more components or finished devices
that consist of a single type, model, class, size, composition, or
software version that are manufactured under essentially the same
conditions and that are intended to have uniform characteristics and
quality within specified limits.
(n) Management with executive responsibility means those senior
employees of a manufacturer who have the authority to establish or make
changes to the manufacturer's quality policy and quality system.
(o) Manufacturer means any person who designs, manufactures,
fabricates, assembles, or processes a finished device. Manufacturer
includes but is not limited to those who perform the functions of
contract sterilization, installation, relabeling, remanufacturing,
repacking, or specification development, and initial distributors of
foreign entities performing these functions.
(p) Manufacturing material means any material or substance used in
or used to facilitate the manufacturing process, a concomitant
constituent, or a byproduct constituent produced during the
manufacturing process, which is present in or on the finished device as
a residue or impurity not by design or intent of the manufacturer.
(q) Nonconformity means the nonfulfillment of a specified
requirement.
(r) Product means components, manufacturing materials, in- process
devices, finished devices, and returned devices.
(s) Quality means the totality of features and characteristics that
bear on the ability of a device to satisfy fitness-for-use, including
safety and performance.
(t) Quality audit means a systematic, independent examination of a
manufacturer's quality system that is performed at defined intervals
and at sufficient frequency to determine whether both quality system
activities and the results of such activities comply with quality
system procedures, that these procedures are implemented effectively,
and that these procedures are suitable to achieve quality system
objectives.
(u) Quality policy means the overall intentions and direction of an
organization with respect to quality, as established by management with
executive responsibility.
(v) Quality system means the organizational structure,
responsibilities, procedures, processes, and resources for implementing
quality management.
(w) Remanufacturer means any person who processes, conditions,
renovates, repackages, restores, or does any other act to a finished
device that significantly changes the finished device's performance or
safety specifications, or intended use.
(x) Rework means action taken on a nonconforming product so that it
will fulfill the specified DMR requirements before it is released for
distribution.
(y) Specification means any requirement with which a product,
process, service, or other activity must conform.
(z) Validation means confirmation by examination and provision of
objective evidence that the particular requirements for a specific
intended use can be consistently fulfilled.
(1) Process validation means establishing by objective evidence
that a process consistently produces a result or product meeting its
predetermined specifications.
(2) Design validation means establishing by objective evidence that
device specifications conform with user needs and intended use(s).
(aa) Verification means confirmation by examination and provision
of objective evidence that specified requirements have been fulfilled.
Sec. 820.5 Quality system.
Each manufacturer shall establish and maintain a quality system
that is appropriate for the specific medical device(s) designed or
manufactured, and that meets the requirements of this part.
Subpart B--Quality System Requirements
Sec. 820.20 Management responsibility.
(a) Quality policy. Management with executive responsibility shall
establish its policy and objectives for, and commitment to, quality.
Management with executive responsibility shall ensure that the quality
policy is understood, implemented, and maintained at all levels of the
organization.
(b) Organization. Each manufacturer shall establish and maintain an
adequate organizational structure to ensure that devices are designed
and produced in accordance with the requirements of this part.
(1) Responsibility and authority. Each manufacturer shall establish
the appropriate responsibility, authority, and interrelation of all
personnel who manage, perform, and assess work affecting quality, and
provide the independence and authority necessary to perform these
tasks.
(2) Resources. Each manufacturer shall provide adequate resources,
including the assignment of trained personnel, for management,
performance of work, and assessment activities, including internal
quality audits, to meet the requirements of this part.
(3) Management representative. Management with executive
responsibility shall appoint, and document such appointment of, a
member of management who, irrespective of other responsibilities, shall
have established authority over and responsibility for:
(i) Ensuring that quality system requirements are effectively
established and effectively maintained in accordance with this part;
and
(ii) Reporting on the performance of the quality system to
management with executive responsibility for review.
(c) Management review. Management with executive responsibility
shall review the suitability and effectiveness of the quality system at
defined intervals and with sufficient frequency according to
established procedures to ensure that the quality system satisfies the
requirements of this part and the manufacturer's established quality
policy and objectives. The dates and results of quality system reviews
shall be documented.
(d) Quality planning. Each manufacturer shall establish a quality
plan which defines the quality practices, resources, and activities
relevant to devices that are designed and manufactured. The
manufacturer shall establish how the requirements for quality will be
met.
(e) Quality system procedures. Each manufacturer shall establish
quality system procedures and instructions. An outline of the structure
of the documentation used in the quality system shall be established
where appropriate.
Sec. 820.22 Quality audit.
Each manufacturer shall establish procedures for quality audits and
conduct such audits to assure that the quality system is in compliance
with the established quality system requirements and to determine the
effectiveness of the quality system. Quality audits shall be conducted
by individuals who do not have direct responsibility for the matters
being audited. Corrective action(s), including a reaudit of deficient
matters,
[[Page 52657]]
shall be taken when necessary. A report of the results of each quality
audit, and reaudit(s) where taken, shall be made and such reports shall
be reviewed by management having responsibility for the matters
audited. The dates and results of quality audits and reaudits shall be
documented.
Sec. 820.25 Personnel.
(a) General. Each manufacturer shall have sufficient personnel with
the necessary education, background, training, and experience to assure
that all activities required by this part are correctly performed.
(b) Training. Each manufacturer shall establish procedures for
identifying training needs and ensure that all personnel are trained to
adequately perform their assigned responsibilities. Training shall be
documented.
(1) As part of their training, personnel shall be made aware of
device defects which may occur from the improper performance of their
specific jobs.
(2) Personnel who perform verification and validation activities
shall be made aware of defects and errors that may be encountered as
part of their job functions.
Subpart C--Design Controls
Sec. 820.30 Design controls.
(a) General. (1) Each manufacturer of any class III or class II
device, and the class I devices listed in paragraph (a)(2) of this
section, shall establish and maintain procedures to control the design
of the device in order to ensure that specified design requirements are
met.
(2) The following class I devices are subject to design controls:
(i) Devices automated with computer software; and
(ii) The devices listed in the following chart.
------------------------------------------------------------------------
Section Device
------------------------------------------------------------------------
868.6810.......................... Catheter, Tracheobronchial Suction.
878.4460.......................... Glove, Surgeon's.
880.6760.......................... Restraint, Protective.
892.5650.......................... System, Applicator, Radionuclide,
Manual.
892.5740.......................... Source, Radionuclide Teletherapy.
------------------------------------------------------------------------
(b) Design and development planning. Each manufacturer shall
establish and maintain plans that describe or reference the design and
development activities and define responsibility for implementation.
The plans shall identify and describe the interfaces with different
groups or activities that provide, or result in, input to the design
and development process. The plans shall be reviewed, updated, and
approved as design and development evolves.
(c) Design input. Each manufacturer shall establish and maintain
procedures to ensure that the design requirements relating to a device
are appropriate and address the intended use of the device, including
the needs of the user and patient. The procedures shall include a
mechanism for addressing incomplete, ambiguous, or conflicting
requirements. The design input requirements shall be documented and
shall be reviewed and approved by a designated individual(s). The
approval, including the date and signature of the individual(s)
approving the requirements, shall be documented.
(d) Design output. Each manufacturer shall establish and maintain
procedures for defining and documenting design output in terms that
allow an adequate evaluation of conformance to design input
requirements. Design output procedures shall contain or make reference
to acceptance criteria and shall ensure that those design outputs that
are essential for the proper functioning of the device are identified.
Design output shall be documented, reviewed, and approved before
release. The approval, including the date and signature of the
individual(s) approving the output, shall be documented.
(e) Design review. Each manufacturer shall establish and maintain
procedures to ensure that formal documented reviews of the design
results are planned and conducted at appropriate stages of the device's
design development. The procedures shall ensure that participants at
each design review include representatives of all functions concerned
with the design stage being reviewed and an individual(s) who does not
have direct responsibility for the design stage being reviewed, as well
as any specialists needed. The results of a design review, including
identification of the design, the date, and the individual(s)
performing the review, shall be documented in the design history file
(the DHF).
(f) Design verification. Each manufacturer shall establish and
maintain procedures for verifying the device design. Design
verification shall confirm that the design output meets the design
input requirements. The results of the design verification, including
identification of the design, method(s), the date, and the
individual(s) performing the verification, shall be documented in the
DHF.
(g) Design validation. Each manufacturer shall establish and
maintain procedures for validating the device design. Design validation
shall be performed under defined operating conditions on initial
production units, lots, or batches, or their equivalents. Design
validation shall ensure that devices conform to defined user needs and
intended uses and shall include testing of production units under
actual or simulated use conditions. Design validation shall include
software validation and risk analysis, where appropriate. The results
of the design validation, including identification of the design,
method(s), the date, and the individual(s) performing the validation,
shall be documented in the DHF.
(h) Design transfer. Each manufacturer shall establish and maintain
procedures to ensure that the device design is correctly translated
into production specifications.
(i) Design changes. Each manufacturer shall establish and maintain
procedures for the identification, documentation, validation or where
appropriate verification, review, and approval of design changes before
their implementation.
(j) Design history file. Each manufacturer shall establish and
maintain a DHF for each type of device. The DHF shall contain or
reference the records necessary to demonstrate that the design was
developed in accordance with the approved design plan and the
requirements of this part.
Subpart D--Document Controls
Sec. 820.40 Document controls.
Each manufacturer shall establish and maintain procedures to
control all documents that are required by this part. The procedures
shall provide for the following:
(a) Document approval and distribution. Each manufacturer shall
designate an individual(s) to review for adequacy and approve prior to
issuance all documents established to meet the requirements of this
part. The approval, including the date and signature of the
individual(s) approving the document, shall be documented. Documents
established to meet the requirements of this part shall be available at
all locations for which they are designated, used, or otherwise
necessary, and all obsolete documents shall be promptly removed from
all points of use or otherwise prevented from unintended use.
(b) Document changes. Changes to documents shall be reviewed and
approved by an individual(s) in the same function or organization that
performed the original review and approval, unless specifically
designated otherwise. Approved changes shall be
[[Page 52658]]
communicated to the appropriate personnel in a timely manner. Each
manufacturer shall maintain records of changes to documents. Change
records shall include a description of the change, identification of
the affected documents, the signature of the approving individual(s),
the approval date, and when the change becomes effective.
Subpart E--Purchasing Controls
Sec. 820.50 Purchasing controls.
Each manufacturer shall establish and maintain procedures to ensure
that all purchased or otherwise received product and services conform
to specified requirements.
(a) Evaluation of suppliers, contractors, and consultants. Each
manufacturer shall establish and maintain the requirements, including
quality requirements, that must be met by suppliers, contractors, and
consultants. Each manufacturer shall:
(1) Evaluate and select potential suppliers, contractors, and
consultants on the basis of their ability to meet specified
requirements, including quality requirements. The evaluation shall be
documented.
(2) Define the type and extent of control to be exercised over the
product, services, suppliers, contractors, and consultants, based on
the evaluation results.
(3) Establish and maintain records of acceptable suppliers,
contractors, and consultants.
(b) Purchasing data. Each manufacturer shall establish and maintain
data that clearly describe or reference the specified requirements,
including quality requirements, for purchased or otherwise received
product and services. Purchasing documents shall include, where
possible, an agreement that the suppliers, contractors, and consultants
agree to notify the manufacturer of changes in the product or service
so that manufacturers may determine whether the changes may affect the
quality of a finished device. Purchasing data shall be approved in
accordance with Sec. 820.40.
Subpart F--Identification and Traceability
Sec. 820.60 Identification.
Each manufacturer shall establish and maintain procedures for
identifying product during all stages of receipt, production,
distribution, and installation to prevent mixups.
Sec. 820.65 Traceability.
Each manufacturer of a device that is intended for surgical implant
into the body or to support or sustain life and whose failure to
perform when properly used in accordance with instructions for use
provided in the labeling can be reasonably expected to result in a
significant injury to the user shall establish and maintain procedures
for identifying with a control number each unit, lot, or batch of
finished devices and where appropriate components. The procedures shall
facilitate corrective action. Such identification shall be documented
in the DHR.
Subpart G--Production and Process Controls
Sec. 820.70 Production and process controls.
(a) General. Each manufacturer shall develop, conduct, control, and
monitor production processes to ensure that a device conforms to its
specifications. Where deviations from device specifications could occur
as a result of the manufacturing process, the manufacturer shall
establish and maintain process control procedures that describe any
process controls necessary to ensure conformance to specifications.
Where process controls are needed they shall include:
(1) Documented instructions, standard operating procedures (SOP's),
and methods that define and control the manner of production;
(2) Monitoring and control of process parameters and component and
device characteristics during production;
(3) Compliance with specified reference standards or codes;
(4) The approval of processes and process equipment; and
(5) Criteria for workmanship which shall be expressed in documented
standards or by means of identified and approved representative
samples.
(b) Production and process changes. Each manufacturer shall
establish and maintain procedures for changes to a specification,
method, process, or procedure. Such changes shall be verified or where
appropriate validated according to Sec. 820.75, before implementation
and these activities shall be documented. Changes shall be approved in
accordance with Sec. 820.40.
(c) Environmental control. Where environmental conditions could
reasonably be expected to have an adverse effect on product quality,
the manufacturer shall establish and maintain procedures to adequately
control these environmental conditions. Environmental control system(s)
shall be periodically inspected to verify that the system, including
necessary equipment, is adequate and functioning properly. These
activities shall be documented and reviewed.
(d) Personnel. Each manufacturer shall establish and maintain
requirements for the health, cleanliness, personal practices, and
clothing of personnel if contact between such personnel and product or
environment could reasonably be expected to have an adverse effect on
product quality. The manufacturer shall ensure that maintenance and
other personnel who are required to work temporarily under special
environmental conditions are appropriately trained or supervised by a
trained individual.
(e) Contamination control. Each manufacturer shall establish and
maintain procedures to prevent contamination of equipment or product by
substances that could reasonably be expected to have an adverse effect
on product quality.
(f) Buildings. Buildings shall be of suitable design and contain
sufficient space to perform necessary operations, prevent mixups, and
assure orderly handling.
(g) Equipment. Each manufacturer shall ensure that all equipment
used in the manufacturing process meets specified requirements and is
appropriately designed, constructed, placed, and installed to
facilitate maintenance, adjustment, cleaning, and use.
(1) Maintenance schedule. Each manufacturer shall establish and
maintain schedules for the adjustment, cleaning, and other maintenance
of equipment to ensure that manufacturing specifications are met.
Maintenance activities, including the date and individual(s) performing
the maintenance activities, shall be documented.
(2) Inspection. Each manufacturer shall conduct periodic
inspections in accordance with established procedures to ensure
adherence to applicable equipment maintenance schedules. The
inspections, including the date and individual(s) conducting the
inspections, shall be documented.
(3) Adjustment. Each manufacturer shall ensure that any inherent
limitations or allowable tolerances are visibly posted on or near
equipment requiring periodic adjustments or are readily available to
personnel performing these adjustments.
(h) Manufacturing material. Where a manufacturing material could
reasonably be expected to have an adverse effect on product quality,
the manufacturer shall establish and maintain procedures for the use
and removal of such manufacturing material
[[Page 52659]]
to ensure that it is removed or limited to an amount that does not
adversely affect the device's quality. The removal or reduction of such
manufacturing material shall be documented.
(i) Automated processes. When computers or automated data
processing systems are used as part of production or the quality
system, the manufacturer shall validate computer software for its
intended use according to an established protocol. All software changes
shall be validated before approval and issuance. These validation
activities and results shall be documented.
Sec. 820.72 Inspection, measuring, and test equipment.
(a) Control of inspection, measuring, and test equipment. Each
manufacturer shall ensure that all inspection, measuring, and test
equipment, including mechanical, automated, or electronic inspection
and test equipment, is suitable for its intended purposes and is
capable of producing valid results. Each manufacturer shall establish
and maintain procedures to ensure that equipment is routinely
calibrated, inspected, checked, and maintained. The procedures shall
include provisions for handling, preservation, and storage of
equipment, so that its accuracy and fitness for use are maintained.
These activities shall be documented.
(b) Calibration. Calibration procedures shall include specific
directions and limits for accuracy and precision. When accuracy and
precision limits are not met, there shall be provisions for remedial
action to reestablish the limits and to evaluate whether there was any
adverse effect on the device's quality. These activities shall be
documented.
(1) Calibration standards. Calibration standards used for
inspection, measuring, and test equipment shall be traceable to
national or international standards. If national or international
standards are not practical or available, the manufacturer shall use an
independent reproducible standard. If no applicable standard exists,
the manufacturer shall establish and maintain an in-house standard.
(2) Calibration records. The equipment identification, calibration
dates, the individual performing each calibration, and the next
calibration date shall be documented. These records shall be displayed
on or near each piece of equipment or shall be readily available to the
personnel using such equipment and to the individuals responsible for
calibrating the equipment.
Sec. 820.75 Process validation.
(a) Where the results of a process cannot be fully verified by
subsequent inspection and test, the process shall be validated with a
high degree of assurance and approved according to established
procedures. The validation activities and results, including the date
and signature of the individual(s) approving the validation and where
appropriate the major equipment validated, shall be documented.
(b) Each manufacturer shall establish and maintain procedures for
monitoring and control of process parameters for validated processes to
ensure that the specified requirements continue to be met.
(1) Each manufacturer shall ensure that validated processes are
performed by qualified individual(s).
(2) For validated processes, the monitoring and control methods and
data, the date performed, and, where appropriate, the individual(s)
performing the process or the major equipment used shall be documented.
(c) When changes or process deviations occur, the manufacturer
shall review and evaluate the process and perform revalidation where
appropriate. These activities shall be documented.
Subpart H--Acceptance Activities
Sec. 820.80 Receiving, in-process, and finished device acceptance.
(a) General. Each manufacturer shall establish and maintain
procedures for acceptance activities. Acceptance activities include
inspections, tests, or other verification activities.
(b) Receiving acceptance activities. Each manufacturer shall
establish and maintain procedures for acceptance of incoming product.
Incoming product shall be inspected, tested, or otherwise verified as
conforming to specified requirements. Acceptance or rejection shall be
documented.
(c) In-process acceptance activities. Each manufacturer shall
establish and maintain acceptance procedures, where appropriate, to
ensure that specified requirements for in-process product are met. Such
procedures shall ensure that in-process product is controlled until the
required inspection and tests or other verification activities have
been completed, or necessary approvals are received, and are
documented.
(d) Final acceptance activities. Each manufacturer shall establish
and maintain procedures for finished device acceptance to ensure that
each production run, lot, or batch of finished devices meets acceptance
criteria. Finished devices shall be held in quarantine or otherwise
adequately controlled until released. Finished devices shall not be
released for distribution until: (1) The activities required in the DMR
are completed; (2) the associated data and documentation is reviewed;
(3) the release is authorized by the signature of a designated
individual(s); and (4) the authorization is dated.
(e) Acceptance records. Each manufacturer shall document acceptance
activities required by this part. These records shall include: (1) The
acceptance activities performed; (2) the dates acceptance activities
are performed; (3) the results; (4) the signature of the individual(s)
conducting the acceptance activities; and (5) where appropriate the
equipment used. These records shall be part of the DHR.
Sec. 820.86 Acceptance status.
Each manufacturer shall identify by suitable means the acceptance
status of product, to indicate the conformance or nonconformance of
product with acceptance criteria. The identification of acceptance
status shall be maintained throughout manufacturing, packaging,
labeling, installation, and servicing of the product to ensure that
only product which has passed the required acceptance activities is
distributed, used, or installed.
Subpart I--Nonconforming Product
Sec. 820.90 Nonconforming product.
(a) Control of nonconforming product. Each manufacturer shall
establish and maintain procedures to control product that does not
conform to specified requirements. The procedures shall address the
identification, documentation, evaluation, segregation, and disposition
of nonconforming product. The evaluation of nonconformance shall
include a determination of the need for an investigation and
notification of the persons or organizations responsible for the
nonconformance. The evaluation and any investigation shall be
documented.
(b) Nonconformity review and disposition. (1) Each manufacturer
shall establish and maintain procedures that define the responsibility
for review and the authority for the disposition of nonconforming
product. The procedures shall set forth the review and disposition
process. Disposition of nonconforming product shall be documented.
Documentation shall include the justification for use of nonconforming
product and the signature of the individual(s) authorizing the use.
[[Page 52660]]
(2) Each manufacturer shall establish and maintain procedures for
rework, to include retesting and reevaluation of the nonconforming
product after rework, to ensure that the product meets its current
approved specifications. Rework and reevaluation activities, including
a determination of any adverse effect from the rework upon the product,
shall be documented in the DHR.
Subpart J--Corrective and Preventive Action
Sec. 820.100 Corrective and preventive action.
(a) Each manufacturer shall establish and maintain procedures for
implementing corrective and preventive action. The procedures shall
include requirements for:
(1) Analyzing processes, work operations, concessions, quality
audit reports, quality records, service records, complaints, returned
product, and other sources of quality data to identify existing and
potential causes of nonconforming product, or other quality problems.
Appropriate statistical methodology shall be employed where necessary
to detect recurring quality problems;
(2) Investigating the cause of nonconformities relating to product,
processes, and the quality system;
(3) Identifying the action(s) needed to correct and prevent
recurrence of nonconforming product and other quality problems;
(4) Verifying or validating the corrective and preventive action to
ensure that such action is effective and does not adversely affect the
finished device;
(5) Implementing and recording changes in methods and procedures
needed to correct and prevent identified quality problems;
(6) Ensuring that information related to quality problems or
nonconforming product is disseminated to those directly responsible for
assuring the quality of such product or the prevention of such
problems; and
(7) Submitting relevant information on identified quality problems,
as well as corrective and preventive actions, for management review.
(b) All activities required under this section, and their results,
shall be documented.
Subpart K--Labeling and Packaging Control
Sec. 820.120 Device labeling.
Each manufacturer shall establish and maintain procedures to
control labeling activities.
(a) Label integrity. Labels shall be printed and applied so as to
remain legible and affixed during the customary conditions of
processing, storage, handling, distribution, and where appropriate use.
(b) Labeling inspection. Labeling shall not be released for storage
or use until a designated individual(s) has examined the labeling for
accuracy including, where applicable, the correct expiration date,
control number, storage instructions, handling instructions, and any
additional processing instructions. The release, including the date and
signature of the individual(s) performing the examination, shall be
documented in the DHR.
(c) Labeling storage. Each manufacturer shall store labeling in a
manner that provides proper identification and is designed to prevent
mixups.
(d) Labeling operations. Each manufacturer shall control labeling
and packaging operations to prevent labeling mixups. The label and
labeling used for each production unit, lot, or batch shall be
documented in the DHR.
(e) Control number. Where a control number is required by
Sec. 820.65, that control number shall be on or shall accompany the
device through distribution.
Sec. 820.130 Device packaging.
Each manufacturer shall ensure that device packaging and shipping
containers are designed and constructed to protect the device from
alteration or damage during the customary conditions of processing,
storage, handling, and distribution.
Subpart L--Handling, Storage, Distribution, and Installation
Sec. 820.140 Handling.
Each manufacturer shall establish and maintain procedures to ensure
that mixups, damage, deterioration, contamination, or other adverse
effects to product do not occur during handling.
Sec. 820.150 Storage.
(a) Each manufacturer shall establish and maintain procedures for
the control of storage areas and stock rooms for product to prevent
mixups, damage, deterioration, contamination, or other adverse effects
pending use or distribution and to ensure that no obsolete, rejected,
or deteriorated product is used or distributed. When the quality of
product deteriorates over time, it shall be stored in a manner to
facilitate proper stock rotation, and its condition shall be assessed
as appropriate.
(b) Each manufacturer shall establish and maintain procedures that
describe the methods for authorizing receipt from and dispatch to
storage areas and stock rooms.
Sec. 820.160 Distribution.
(a) Each manufacturer shall establish and maintain procedures for
control and distribution of finished devices to ensure that only those
devices approved for release are distributed and that purchase orders
are reviewed to ensure that ambiguities and errors are resolved before
devices are released for distribution. Where a device's fitness for use
or quality deteriorates over time, the procedures shall ensure that
expired devices or devices deteriorated beyond acceptable fitness for
use are not distributed.
(b) Each manufacturer shall maintain distribution records which
include or refer to the location of:
(1) The name and address of the initial consignee;
(2) The identification and quantity of devices shipped;
(3) The date shipped; and
(4) Any control number(s) used.
Sec. 820.170 Installation.
(a) Each manufacturer of a device requiring installation shall
establish and maintain adequate installation and inspection
instructions, and where appropriate test procedures. Instructions and
procedures shall include directions for ensuring proper installation so
that the device will perform as intended after installation. The
manufacturer shall distribute the instructions and procedures with the
device or otherwise make them available to the person(s) installing the
device.
(b) The person installing the device shall ensure that the
installation, inspection, and any required testing are performed in
accordance with the manufacturer's instructions and procedures and
shall document the inspection and any test results to demonstrate
proper installation.
Subpart M--Records
Sec. 820.180 General requirements.
All records required by this part shall be maintained at the
manufacturing establishment or other location that is reasonably
accessible to responsible officials of the manufacturer and to
employees of FDA designated to perform inspections. Such records,
including those not stored at the inspected establishment, shall be
made readily available for review and copying by FDA employee(s). Such
records shall be legible and shall be stored to
[[Page 52661]]
minimize deterioration and to prevent loss. Those records stored in
automated data processing systems shall be backed up.
(a) Confidentiality. Records deemed confidential by the
manufacturer may be marked to aid FDA in determining whether
information may be disclosed under the public information regulation in
part 20 of this chapter.
(b) Record retention period. All records required by this part
shall be retained for a period of time equivalent to the design and
expected life of the device, but in no case less than 2 years from the
date of release for commercial distribution by the manufacturer.
(c) Exceptions. This section does not apply to the reports required
by Sec. 820.20(c) Management review, Sec. 820.22 Quality audits, and
supplier audit reports used to meet the requirements of Sec. 820.50(a)
Evaluation of suppliers, contractors, and consultants, but does apply
to procedures established under these provisions. Upon request of a
designated employee of FDA, an employee in management with executive
responsibility shall certify in writing that the management reviews and
quality audits required under this part, and supplier audits where
applicable, have been performed and documented, the dates on which they
were performed, and that any required corrective action has been
undertaken.
Sec. 820.181 Device master record.
Each manufacturer shall maintain device master records (DMR's).
Each manufacturer shall ensure that each DMR is prepared and approved
in accordance with Sec. 820.40. The DMR for each type of device shall
include, or refer to the location of, the following information:
(a) Device specifications including appropriate drawings,
composition, formulation, component specifications, and software
specifications;
(b) Production process specifications including the appropriate
equipment specifications, production methods, production procedures,
and production environment specifications;
(c) Quality assurance procedures and specifications including
acceptance criteria and the quality assurance equipment to be used;
(d) Packaging and labeling specifications, including methods and
processes used; and
(e) Installation, maintenance, and servicing procedures and
methods.
Sec. 820.184 Device history record.
Each manufacturer shall maintain device history records (DHR's).
Each manufacturer shall establish and maintain procedures to ensure
that DHR's for each batch, lot, or unit are maintained to demonstrate
that the device is manufactured in accordance with the DMR and the
requirements of this part. The DHR shall include, or refer to the
location of, the following information:
(a) The dates of manufacture;
(b) The quantity manufactured;
(c) The quantity released for distribution;
(d) The acceptance records which demonstrate the device is
manufactured in accordance with the DMR;
(e) The primary identification label and labeling used for each
production unit; and
(f) Any device identification(s) and control number(s) used.
Sec. 820.186 Quality system record.
Each manufacturer shall maintain a quality system record (QSR). The
QSR shall include, or refer to the location of, procedures and the
documentation of activities required by this part that are not specific
to a particular type of device(s), including, but not limited to, the
records required by Sec. 820.20. Each manufacturer shall ensure that
the QSR is prepared and approved in accordance with Sec. 820.40.
Sec. 820.198 Complaint files.
(a) Each manufacturer shall maintain complaint files. Each
manufacturer shall establish and maintain procedures for receiving,
reviewing, and evaluating complaints by a formally designated unit.
Such procedures shall ensure that:
(1) All complaints are processed in a uniform and timely manner;
(2) Oral complaints are documented upon receipt; and
(3) Complaints are evaluated to determine whether the complaint
represents an event which is required to be reported to FDA under part
803 or 804 of this chapter, Medical Device Reporting.
(b) Each manufacturer shall review and evaluate all complaints to
determine whether an investigation is necessary. When no investigation
is made, the manufacturer shall maintain a record that includes the
reason no investigation was made and the name of the individual
responsible for the decision not to investigate.
(c) Any complaint involving the possible failure of a device,
labeling, or packaging to meet any of its specifications shall be
reviewed, evaluated, and investigated, unless such investigation has
already been performed for a similar complaint and another
investigation is not necessary.
(d) Any complaint that represents an event which must be reported
to FDA under part 803 or 804 of this chapter shall be promptly
reviewed, evaluated, and investigated by a designated individual(s) and
shall be maintained in a separate portion of the complaint files or
otherwise clearly identified. In addition to the information required
by Sec. 820.198(e), records of investigation under this paragraph shall
include a determination of:
(1) Whether the device failed to meet specifications;
(2) Whether the device was being used for treatment or diagnosis;
and
(3) The relationship, if any, of the device to the reported
incident or adverse event.
(e) When an investigation is made under this section, a record of
the investigation shall be maintained by the formally designated unit
identified in paragraph (a) of this section. The record of
investigation shall include:
(1) The name of the device;
(2) The date the complaint was received;
(3) Any device identification(s) and control number(s) used;
(4) The name, address, and phone number of the complainant;
(5) The nature and details of the complaint;
(6) The dates and results of the investigation;
(7) Any corrective action taken; and
(8) Any reply to the complainant.
(f) When the manufacturer's formally designated complaint unit is
located at a site separate from the manufacturing establishment, the
investigated complaint(s) and the record(s) of investigation shall be
reasonably accessible to the manufacturing establishment.
(g) If a manufacturer's formally designated complaint unit is
located outside of the United States, records required by this section
shall be reasonably accessible in the United States at either:
(1) A location in the United States where the manufacturer's
records are regularly kept; or
(2) The location of the initial distributor.
Subpart N--Servicing
Sec. 820.200 Servicing.
(a) Where servicing is a specified requirement, each manufacturer
shall establish and maintain instructions and procedures for performing
and verifying that the servicing meets the specified requirements.
(b) Each manufacturer shall analyze service reports with
appropriate
[[Page 52662]]
statistical methodology in accordance with Sec. 820.100.
(c) Each manufacturer who receives a service report that represents
an event which must be reported to FDA under part 803 or 804 of this
chapter shall automatically consider the report a complaint and shall
process it in accordance with the requirements of Sec. 820.198.
(d) Service reports shall be documented and shall include:
(1) The name of the device serviced;
(2) Any device identification(s) and control number(s) used;
(3) The date of service;
(4) The individual(s) servicing the device;
(5) The service performed; and
(6) The test and inspection data.
Subpart O--Statistical Techniques
Sec. 820.250 Statistical techniques.
(a) Where appropriate, each manufacturer shall establish and
maintain procedures for identifying valid statistical techniques
required for establishing, controlling, and verifying the acceptability
of process capability and product characteristics.
(b) Sampling plans, when used, shall be written and based on a
valid statistical rationale. Each manufacturer shall establish and
maintain procedures to ensure that sampling methods are adequate for
their intended use and to ensure that when changes occur the sampling
plans are reviewed. These activities shall be documented.
Dated: October 1, 1996.
David A. Kessler,
Commissioner of Food and Drugs.
Donna E. Shalala,
Secretary of Health and Human Services.
[FR Doc. 96-25720 Filed 10-3-96; 11:22 am]
BILLING CODE 4160-01-P
Complete official Federal Register PDF
FR Doc. 96-25665 Removal of Exemption for Certain Pseudoephedrine Products Marketed Under the Food, Drug, and Cosmetic Act (FD&C Act)
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Page 52287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25665]
=======================================================================
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
21 CFR Parts 1309, 1310, 1313
[DEA NUMBER 138P]
RIN 1117-AA32
Removal of Exemption for Certain Pseudoephedrine Products
Marketed Under the Food, Drug, and Cosmetic Act (FD&C Act)
AGENCY: Drug Enforcement Administration (DEA), Justice.
ACTION: Final rule; withdrawal.
-----------------------------------------------------------------------
SUMMARY: DEA is withdrawing its rulemaking regarding Removal of
Exemption for Certain Pseudoephedrine Products Marketed Under the Food,
Drug, and Cosmetic Act (FD&C Act) which was published in the Federal
Register on August 7, 1996 (61 FR 40981). The final rule has been
superseded by the Comprehensive Methamphetamine Control Act of 1996,
which declares the final rule null and void and of no effect.
FOR FURTHER INFORMATION CONTACT: Frank Sapienza, Chief, Drug and
Chemical Evaluation Section, Office of Diversion Control, Drug
Enforcement Administration, Washington, DC. 20537, Telephone (202) 307-
7183.
SUPPLEMENTARY INFORMATION: DEA published a notice of proposed
rulemaking (NPRM) regarding Removal of Exemption for Certain
Pseudoephedrine Products Marketed Under the Food, Drug, and Cosmetic
Act (FD&C Act) in the Federal Register on October 31, 1995 (60 FR
55348). The NPRM proposed certain amendments to Title 21, Code of
Federal Regulations (CFR), Parts 1309, 1310, and 1313, and was open for
public comment until January 2, 1996. Following the comment period, DEA
published a final rulemaking on August 7, 1996 (61 FR 40981), which was
to become effective on October 7, 1996. However, on September 29, 1996,
Congress passed the Comprehensive Methamphetamine Control Act of 1996,
which provides that ``The final rule concerning removal of exemption
for certain pseudoephedrine products marketed under the Federal Food,
Drug, and Cosmetic Act published in the Federal Register of August 7,
1996 (61 FR 40981-40933) is null and void and of no force or effect.''
As a result, the amendments contained in the final rule are canceled
and the regulatory text of 21 CFR Parts 1309, 1310, and 1313 remains
unchanged.
Accordingly, DEA's rulemaking entitled Removal of Exemption for
Certain Pseudoephedrine Products Marketed Under the Food, Drug, and
Cosmetic Act (FD&C Act), published in the Federal Register as a
proposed rule on October 31, 1995 (60 FR 55348) and as a final rule on
August 7, 1996 (61 FR 40981), is withdrawn.
Dated: October 2, 1996.
Gene R. Haislip,
Deputy Assistant Administrator, Office of Diversion Control.
[FR Doc. 96-25665 Filed 10-4-96; 8:45 am]
BILLING CODE 4410-09-M
Complete official Federal Register PDF
FR Doc. 96-25659 Employer Sanctions Modifications; Warning Notices; Generation of Blank Employment Eligibility Verification Forms (Forms I-9)
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52235-52236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25659]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 61, No. 195 / Monday, October 7, 1996 / Rules
and Regulations
[[Page 52235]]
DEPARTMENT OF JUSTICE
Immigration and Naturalization Service
8 CFR Part 274a
[INS No. 1738-95]
RIN 1115-AE21
Employer Sanctions Modifications; Warning Notices; Generation of
Blank Employment Eligibility Verification Forms (Forms I-9)
AGENCY: Immigration and Naturalization Service, Justice.
ACTION: Interim rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: This rule amends the Immigration and Naturalization Service
(Service) regulations by allowing the Service to issue a Warning Notice
to employers in those cases where the Service has determined that a
person or entity has violated section 274A of the Immigration and
Nationality Act (the Act). The Warning Notice will be issued in those
cases generally characterized by the identification of minor
verification violations and the expectation of future compliance by the
violator. This amendment is necessary to state expressly current
Service policy and practice regarding the issuance of a Warning Notice
in lieu of a Notice of Intent to Fine. This rule will also allow
employers to generate blank copies of the Employment Eligibility
Verification Form (Form I-9) electronically and provides for single-
sided reproduction of the Form I-9, as well as the currently permitted
double-sided reproduction. This is intended to save employers the cost
of purchasing Forms I-9 and the burden of making double-sided copies of
the form.
DATES: This interim rule is effective October 7, 1996. Written comments
must be submitted on or before November 6, 1996.
ADDRESSES: Please submit written comments, in triplicate, to the
Director, Policy Directives and Instructions Branch, Immigration and
Naturalization Service, 425 I Street, NW., Room 5307, Washington, DC
20536. To ensure proper handling, please reference INS number 1738-95
on your correspondence. Comments are available for public inspection at
the above address by calling (202) 514-3048 to arrange for an
appointment.
FOR FURTHER INFORMATION CONTACT: Angelo V. Sorrento, Senior Special
Agent, Investigations Division, Immigration and Naturalization Service,
425 I Street NW., Room 1000, Washington, DC 20536, telephone (202) 514-
0747.
SUPPLEMENTARY INFORMATION:
Background
Over the past year, the Service has been reviewing its employer
sanctions policies and procedures to facilitate employer compliance
with the law and to improve enforcement efforts. This rule is part of
the Service's effort to achieve that goal.
Regulatory Changes
The Service's regulations require all employers to complete Forms
I-9, as evidence of verification of the identify and employment
eligibility of each employee hired after November 6, 1986. Currently,
the regulations permit the use of a Form I-9 which has been printed by
the Superintendent of Documents, reproduced by public or private
entities, or electronically generated, in accordance with the
requirements set forth in 8 CFR 299.4.
This rule amends 8 CFR 274a.2 by allowing employers to
electronically generate blank Forms I-9, provided that the resulting
form is legible; there is no change to the name, content, or sequence
of the data elements and instructions; no additional data elements or
language are inserted; and the paper used meets the standards for
retention and production for inspection specified under Sec. 274a.2(b).
When copying or printing the Form I-9, the text of the two-sided form
may be reproduced in either double-sided or single-sided copies.
The Service is also amending 8 CFR 274a.9 to allow the Service to
either issue and serve a Notice of Intent to Fine (NIF), Form I-763,
upon an alleged violator after the Service has determined that the
person or entity has violated section 274A of the Act, or issue a
Warning Notice, Form I-846, for minor verification violations in those
cases where the Service expects future compliance by the violator. A
Warning Notice notifies employers that they are not in full compliance
with the immigration laws relating to employment. The expectation is
that, after issuance of the Warning Notice, the relatively minor
violations will be corrected by the employer and not repeated.
Employers served with a Warning Notice will benefit by avoiding fines
normally levied by the issuance of a NIF. This rule will bring the
regulations into conformance with existing Service policy and will
allow the Service to issue a Warning Notice in lieu of a NIF and the
Department of Labor to continue to issue Warning Notices.
The Service's implementation of this rule as an interim rule, with
a 60-day provision for post-promulgation public comments, is based upon
the ``good cause'' exceptions found at 5 U.S.C. 553 (b)(B) and (d)(1).
The reasons and the necessity are as follows: this rule relieves a
restriction and is beneficial to both public and private entities by
facilitating employer compliance with the immigration laws.
Regulatory Flexibility Act
The Commissioner of the Immigration and Naturalization Service, in
accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has
reviewed this regulation and, by approving it, certifies that the rule
will not have a significant economic impact on a substantial number of
small entities for the following reasons: This rule is intended to
allow for the relief of fines on small entities for minor verification
violations contained in section 274A of the Act. This rule also reduces
an employer's burden of procuring Forms I-9 by allowing for the blank
electronic generation of this form in single-sided copies.
Exeuctive Order 12866
This rule is not considered by the Immigration and Naturalization
Service to be a ``significant regulatory action'' under Executive Order
12866, section 3(f), Regulatory Planning and Review, and the Office of
Management and
[[Page 52236]]
Budget has waived its review process under section 6(a)(3)(A).
Executive Order 12612
The regulations adopted herein will not have substantial different
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this rules
does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
List of Subjects in 8 CFR Part 274a
Administrative practice and procedure, Alien employment, Penalties,
Reporting and recordkeeping requirements.
Accordingly, part 274a of chapter I of title 8 of the Code of
Federal Regulations is amended as follows:
PART 274a--CONTROL OF EMPLOYMENT OF ALIENS
1. The authority citation for part 274a continues to read as
follows:
Authority: 8 U.S.C. 1101, 1103, 1324a; 8 CFR part 2.
2. In Sec. 274a.2 paragraph, (a) is amended by revising the fifth
and sixth sentences to read as follows:
Sec. 274a.2 Verification of employment eligibility.
(a) General. * * * Employers may electronically generate blank
Forms I-9, provided that: the resulting form is legible; there is no
change to the name, content, or sequence of the data elements and
instructions; no additional data elements or language are inserted; and
the paper used meets the standards for retention and production for
inspection specified under Sec. 274a.2(b). When copying or printing the
Form I-9, the text of the two-sided form may be reproduced by making
either double-sided or single-sided copies. * * *
* * * * *
3. Section 274a.9 is amended by:
a. Revising the third sentence of paragraph (b);
b. Redesignating paragraphs (c), (d), and (e) as paragraphs (d),
(e) and (f) respectively; and
c. Adding a new paragraph (c), to read as follows:
Sec. 274a.9 Enforcement procedures.
* * * * *
(b) Investigation. * * * If it is determined after investigation
that the person or entity has violated section 274A of the Act, the
Service may issue and serve a Notice of Intent to Fine or a Warning
Notice upon the alleged violator. * * *
(c) Warning notice. The Service and/or the Department of Labor may
in their discretion issue a Warning Notice to a person or entity
alleged to have violated section 274A of the Act. This Warning Notice
will contain a statement of the basis for the violations and the
statutory provisions alleged to have been violated.
* * * * *
Dated: August 8, 1996.
Doris Meissner,
Commissioner, Immigration and Naturalization Service.
[FR Doc. 96-25659 Filed 10-4-96; 8:45 am]
BILLING CODE 4410-10-M
Complete official Federal Register PDF
FR Doc. 96-25650 Benzidine-Based Chemical Substances; Significant New Uses of Certain Chemical Substances
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52287-52297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25650]
=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 9 and 721
[OPPTS-50617A; FRL 5396-6]
RIN 2070-AA58
Benzidine-Based Chemical Substances; Significant New Uses of
Certain Chemical Substances
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: EPA is promulgating a significant new use rule (SNUR) under
section 5(a) of the Toxic Substances Control Act (TSCA) which requires
persons to notify EPA at least 90 days before commencing the
manufacture, import, or processing of certain benzidine-based chemical
substances for any significant new use as described in this rule. EPA
believes that this action is necessary because benzidine-based chemical
substances may be hazardous to human health and that the uses governed
by this rule may result in significant exposure to workers handling
those substances. The required notice provides EPA with the opportunity
to evaluate any intended new uses and associated activities before the
benzidine-based chemical substances can be introduced into the
marketplace for a significant new use, and an opportunity to protect
against potentially adverse exposure before it occurs.
EFFECTIVE DATE: This rule becomes effective on November 20, 1996.
Persons who begin commercial manufacture, importation, or processing of
listed benzidine-based chemical substances for any significant new use
listed in this rule between August 30, 1995, and November 20, 1996 must
comply with the requirements of this final SNUR. See Unit VII of this
preamble for more information. In accordance with 40 CFR 23.5, this
rule shall be promulgated for purposes of judicial review at 1 p.m.
eastern time on October 21, 1996.
FOR FURTHER INFORMATION CONTACT: Susan B. Hazen, Director,
Environmental Assistance Division (7408), Office of Pollution
Prevention and Toxic Substances, Environmental Protection Agency, 401 M
St., SW., Rm. E-545, Washington, DC 20460, Telephone: (202) 554-1404,
TDD: (202) 554-0551; e-mail: TSCA-H[email protected].
SUPPLEMENTARY INFORMATION: This SNUR requires persons to notify EPA at
[[Page 52288]]
least 90 days before commencing the manufacture, import, or processing
of the benzidine-based chemical substances listed in this rule for any
significant new use as described in Sec. 721.1660(a)(2). The SNUR does
not apply to uses of benzidine-based substances in existence when this
SNUR was proposed which include uses as: A reagent to test for hydrogen
peroxide in milk; a reagent to test for hydrogen sulfate, hydrogen
cyanide, and nicotine; a stain in microscopy; a reagent for detecting
blood; an analytical standard; and also for Colour Index (C.I.) Direct
Red 28 (Congo Red, CAS No. 573-58-0) as an indicator dye. The required
notification will provide EPA with information needed to evaluate the
new use and associated activities, and an opportunity to protect
against potentially adverse exposure to the chemical substance before
it can occur. This rule was proposed on August 30, 1995 (60 FR 45119)
(FRL-4762-4).
Regulated entities. Entities potentially regulated by this action
are those which manufacture, import, or process the benzidine-based
chemical substances listed in the rule for any use other than those
listed in Sec. 721.1660(a)(2). Regulated categories and entities
include:
------------------------------------------------------------------------
Examples of regulated
Category entities
------------------------------------------------------------------------
Industry Manufacturers, importers,
and processors of cyclic
organic crudes and
intermediates, and organic
dyes.
Industry Entities which plan to use
the listed dyes in
conjunction with apparel
and other finished products
made from fabrics, leather,
and similar materials.
Industry Entities which plan to use
the listed dyes in
conjunction with paper and
allied products.
Industry Manufacturers, importers,
and processors of printing
ink.
------------------------------------------------------------------------
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. This table lists the types of entities that EPA is now aware
could potentially be regulated by this action. Other types of entities
not listed in the table could also be regulated. To determine whether
your business is regulated by this action, carefully examine the
applicability criteria set forth in Sec. 721.1660 of this rule. For
questions regarding the applicability of this action to a particular
entity, see ``FOR FURTHER INFORMATION CONTACT'' at the beginning of
this document.
I. Authority
Section 5(a)(2) of TSCA (15 U.S.C. 2604(a)(2)) authorizes EPA to
determine that a use of a chemical substance is a ``significant new
use.'' The Agency must make this determination by rule after
considering all relevant factors, including those listed in section
5(a)(2). Section 5(a)(2) factors generally relate to the extent that a
use changes the volume of a chemical substance's production or the
type, form, magnitude, or duration of exposure to it. Once EPA
determines by rule that a use of a chemical substance is a significant
new use, section 5(a)(1)(B) of TSCA requires persons to submit a
significant new use notice (SNUN) to EPA at least 90 days before
manufacturing, importing, or processing the chemical substance for that
use (15 U.S.C. 2604(a)(1)(B)).
Persons subject to this SNUR must comply with the same notice
requirements and EPA regulatory procedures as submitters of
premanufacture notices (PMNs) under section 5(a)(1)(A) of TSCA (15
U.S.C. 2604(a)(1)(A)). In particular, these requirements include the
information submission requirements of TSCA sections 5(b) and (d)(1),
the exemptions authorized by TSCA section 5 (h)(1), (2), (3), and (5),
and the regulations at 40 CFR part 720. If during its review, EPA
identifies concerns, regulatory action may be taken under TSCA section
5(e), 5(f), 6, or 7 to control the activities for which it has received
a SNUN (15 U.S.C. 2604 (e), (f), 2605, 2606). If EPA does not take
action, section 5(g) of TSCA requires EPA to explain in the Federal
Register its reasons for not taking action (15 U.S.C. 2604(g)).
Persons who intend to export a chemical substance identified in a
proposed or final SNUR are subject to the export notification
provisions of TSCA section 12(b) (15 U.S.C. 2611(b)). The regulations
that interpret section 12(b) appear at 40 CFR part 707. Persons who
intend to import a chemical substance identified in a final SNUR are
subject to the TSCA section 13 (15 U.S.C. 2612) import certification
requirements, and to the regulations codified at 19 CFR 12.118 through
12.127 and 12.128. Such persons must certify that they are in
compliance with TSCA requirements. The EPA rule in support of import
certification appears at 40 CFR part 707.
II. Applicability of General Provisions
General regulatory provisions applicable to SNURs are codified at
40 CFR part 721, subpart A. In the Federal Register of August 17, 1988
(53 FR 31252), EPA promulgated a ``User Fee Rule'' (40 CFR part 700)
under the authority of TSCA section 26(b) (15 U.S.C. 2625(b)).
Provisions requiring persons submitting SNUNs to submit certain fees to
EPA are discussed in detail in the Federal Register document.
Interested persons should refer to 40 CFR parts 700 and 721 and the
August 17, 1988 Federal Register document for further information.
III. Introduction
A. Summary
The chemical substances that are the subjects of this SNUR are
certain benzidine-based chemical substance as listed in table 1 of
Sec. 721.1660.
EPA has determined that there is no ongoing manufacture, import, or
processing, of the listed benzidine-based chemical substances, except
for the ongoing uses of such substances in small amounts for a few,
limited purposes (identified in Sec. 721.1660(a)(2) of this rule).
Because the listed benzidine-based chemical substances are currently
only used for these limited purposes, EPA is concerned that any new use
beyond the current ongoing limited uses would increase production
volume resulting in increased potential for exposure to workers which
would be significant because of their potential carcinogenicity.
Therefore, under TSCA section 5(a)(2), EPA is designating any use of
the listed benzidine-based chemical substances as a significant new
use, other than the following ongoing uses of such chemical substances:
As a reagent to test for hydrogen peroxide in milk; a reagent to test
for hydrogen sulfate, hydrogen cyanide, and nicotine; a stain in
microscopy; a reagent for detecting blood; an analytical standard; and
also for C. I. Direct Red 28 as an indicator dye.
Except for the ongoing uses listed above, this rule requires
persons who intend to manufacture, import, or process the benzidine-
based chemical substances listed in table 1 of Sec. 721.1660 of this
rule to notify EPA through the submission of a SNUN, at least 90 days
before commencing the manufacture, importation, or processing of any of
these substances for the significant new uses designated in this SNUR.
The required notice provides EPA with the opportunity to evaluate the
intended use, and, if necessary, to prohibit or limit that use before
it occurs.
[[Page 52289]]
B. Final Rule--Changes From the Proposed Rule
The Agency reviewed all comments received on the proposed rule.
After consideration of issues raised by the commenters, the Agency has
taken the following actions:
1. Some inconsistencies in naming and inaccuracies in CAS numbers
in table 1 of 40 CFR 721.1660 have been corrected.
2. Chemical substances not listed on the TSCA Inventory are no
longer covered by this rule.
3. The use of C.I. Direct Red 28 (CAS No. 573-58-0) as an indicator
dye and the use of benzidine-based chemical substances as an analytical
standard were added to the list of uses not designated as significant
new uses under this SNUR.
IV. Background Information on Benzidine-Based Chemical Substances
Based upon toxicity information on benzidine and benzidine-based
dyes, the Agency is concerned that all the benzidine-based chemical
substances listed in this rule may be carcinogens.
The molecule benzidine can only be isolated for commerce or use in
the form of a salt. In recognition of this fact, whenever the term
``benzidine'' is used in this section of the preamble, it refers to the
molecule benzidine, CAS No. 92-87-5, as well as to all benzidine salts.
Benzidine is an aromatic amine that has been used as a feedstock
for production of man-made dyes since the late 1800's. Dyestuffs were
among the first products of the developing chemical industry, and
aromatic amines were the first synthetic chemicals found to cause
cancer in humans. This was first reported in the last century, when
some workers manufacturing dyes developed bladder cancer. Benzidine was
subsequently found to be a potent carcinogen in humans and animals.
Several epidemiologic studies of occupationally exposed workers
have demonstrated that benzidine exposure is associated with a high
risk of developing bladder cancer (Ref. 1). Benzidine is classified by
EPA as Group A, a human carcinogen (IRIS, 1996). Benzidine is also
classified by the International Agency for Research on Cancer (IARC) as
a Group 1 carcinogen, which are chemicals known to cause cancer in
humans and animals (Ref. 2).
Originally, only benzidine was considered to be carcinogenic.
However, studies found that dyes derived from benzidine release free
benzidine via metabolic routes (Ref. 3). The dyes were predicted to be
carcinogens based on these findings. Animal bioassays performed by the
National Cancer Institute (NCI) in 1978 confirmed that administration
of three different benzidine-based dyes each led to cancer. (Ref. 4)
EPA's hazard analysis (Ref. 5) is based on studies of tested
representative benzidine-based dyes, as well as benzidine, from which
they are synthesized, and to which they break down or metabolize. The
overwhelming health concern for benzidine and benzidine-based dyes is
for bladder cancer generally believed to be caused through any route of
exposure. As of June 1974, the Occupational Safety and Health
Administration (OSHA) requires that manufacture of benzidine be
contained within a closed system (29 CFR 1910.1010 Benzidine). In
addition, the American Conference of Governmental Industrial Hygienists
(ACGIH) has classified benzidine as a ``confirmed human carcinogen''
with no Threshold Limit Value (TLV) assigned, and has recommended that
``all exposure to benzidine should be kept to an absolute minimum''
(Ref. 6).
Twelve benzidine-based dyes have been demonstrated to metabolize to
benzidine in one or more of four species (Ref. 7). National Toxicology
Program (NTP) cancer bioassays by the oral route in rodents using
Direct Black 38 (CAS No. 1937-37-7), Direct Blue 6 (CAS No. 2602-46-2),
and Direct Brown 95 (CAS No. 16071-86-6), showed statistically
significantly elevated tumor incidence of the liver following oral
administration. The time to tumor formation was 5 to 13 weeks. No
tumors were found in the controls (Ref. 4). In response to these and
other data, the National Institute for Occupational Safety and Health
(NIOSH) and NCI have jointly recommended that these three dyes be
handled in the workplace as if they were human carcinogens, and have
suggested guidelines for minimizing employee exposure (Ref. 8).
Bioavailability studies in Rhesus monkeys, rats, and dogs revealed
levels of benzidine in the urine, after the administration of the
above-mentioned dyes, equivalent to the levels found after
administration of a comparable volume of straight benzidine (Refs. 3
and 7). For this reason, IARC has classified these benzidine-based dyes
as Group 2A chemicals, which are carcinogenic to animals and probably
carcinogenic to humans (Refs. 1, 8, and 9). Given the consistent
results from testing these dyes, as well as known mechanistic
similarities among benzidine-based dyes, the entire class of benzidine-
based dyes are expected to have a similar degree of toxicity. In
addition, NIOSH has recommended that all benzidine-based dyes be
recognized as potential human carcinogens, based upon the evaluation of
information on the carcinogenicity and metabolism of these dyes (Ref.
10).
There are exposure issues for both the parent amines and the
finished dyes. Most available exposure data are for groups of dyes,
rather than for individual dyes. Inhalation, skin absorption, and
ingestion are possible routes of exposure in a variety of settings
where benzidine-based dyes are either manufactured or used. Benzidine
and monoacetyl benzidine, a metabolite, have been found in the urine of
workers making or using benzidine-based dyes in the paper, textile,
leather, and dye manufacturing industries (Ref. 10). The amount of
benzidine found in the urine was more than could be accounted for by
only benzidine impurities in the dyes.
Exposure estimates for dyes were developed based on the result of a
monitoring study conducted collaboratively by EPA and industry (Ref.
11). Using this information, and based on models from EPA and industry,
exposure estimates have been calculated for those workers who weigh
powder dyes in manufacturing establishments. From these estimates, EPA
predicts the highest exposure would occur for workers who would
manufacture benzidine-based dyes or who would weigh such dyes, and is
also concerned about potential exposures to workers who would operate
dyeing machinery (Ref. 11).
V. Rationale and Objectives for the Rule
To determine what would constitute a significant new use of
benzidine-based chemical substances, EPA considered relevant
information regarding the toxicity of the substances, likely exposure
and releases associated with potential uses, and the four factors
listed in TSCA section 5(a)(2). The Agency has concerns for bladder
cancer in workers which is generally believed to be caused through any
route of exposure to benzidine-based chemical substances (Ref. 5). EPA
classified benzidine as Group A, a human carcinogen (IRIS, 1996).
Benzidine has an IARC classification as a Group 1 carcinogen, which are
chemicals known to cause cancer in humans and animals. IARC has also
classified several benzidine-based dyes as Group 2A chemicals, which
are carcinogenic to animals and probably carcinogenic to humans. The
benzidine-based dyes that have not been tested are also suspected
carcinogens (e.g., Ref. 10).
EPA has determined that there is no ongoing manufacture, import, or
[[Page 52290]]
processing, of the listed benzidine-based chemical substances, except
for use in small amounts as a reagent to test for hydrogen peroxide in
milk; a reagent to test for hydrogen sulfate, hydrogen cyanide, and
nicotine; a stain in microscopy; a reagent for detecting blood; an
analytical standard; and also for C.I. Direct Red 28 as an indicator
dye. EPA believes that the use of the subject benzidine-based
substances for the uses designated at Sec. 721.1660 would result in
increases in production as well as the type, form, magnitude, or
duration of exposure to these known or suspected carcinogens.
Therefore, EPA is designating the uses at Sec. 721.1660 as significant
new uses (Ref. 12).
Based on these considerations, EPA wishes to achieve the following
objectives with regard to the significant new uses that are designated
in this rule. Specifically, EPA wants to ensure that it:
1. Receives notice of any company's intent to manufacture, import,
or process the benzidine-based chemical substances for the significant
new uses designated in this rule before that activity begins.
2. Has an opportunity to review and evaluate data submitted in a
SNUN before the notice submitter begins manufacturing, importing, or
processing the listed benzidine-based chemical substances for the
significant new uses designated in this rule.
3. Can regulate prospective manufacturers, importers, or processors
of the listed benzidine-based chemical substances before any
significant new use occurs, provided that the degree of potential
health risk is sufficient to warrant such regulation.
For the preceding reasons, EPA is designating any use of the
benzidine-based chemical substances listed in Sec. 721.1660, except for
those uses listed in Sec. 721.1660(a)(2), as significant new uses.
VI. Alternatives
Before promulgating this SNUR, EPA considered alternative
regulatory actions for the listed benzidine-based chemical substances.
It determined that the benzidine-based chemical substances listed in
this rule are currently not subject to Federal notification
requirements nor are they currently subject to any other Federal rules
that regulate risks to human health or the environment to a sufficient
extent to justify using those regulations as an alternative to this
SNUR. EPA also considered the following alternative actions.
1. Promulgate a TSCA section 8(a) reporting rule for these chemical
substances. Under such a rule, EPA could require any person to report
information to the Agency when they intend to manufacture, import, or
process the listed benzidine-based chemical substances, for a
significant new use as listed in this rule (15 U.S.C. 2607). However,
in the case of these particular chemical substances, the use of section
8(a) rather than SNUR authority would not provide the opportunity for
EPA to review human and environmental risks associated with new uses of
a chemical substance and, if necessary, take immediate follow-up
regulatory action under TSCA section 5(e) or section 5(f) to prohibit
or limit the activity before it begins. In view of the level of health
concerns for the listed benzidine-based chemical substances, the Agency
believes that a section 8(a) rule for those chemical substances would
not meet EPA's regulatory objectives.
2. Regulate the listed benzidine-based chemical substances under
section 6 of TSCA. EPA may regulate under section 6 if there is a
reasonable basis to conclude that the manufacture, importation,
processing, distribution in commerce, use, or disposal of a chemical
substance or mixture ``presents or will present'' an unreasonable risk
of injury to human health or the environment. A finding of unreasonable
risk indicates a determination that the reduction of health or
environmental risk resulting from a potential regulation outweighs the
regulatory burden to society.
In the case of this rule, EPA decided that a SNUR was more
appropriate than a section 6 rule because the Agency has not determined
that the ongoing uses raise sufficient concerns to justify a section 6
regulation. At the same time, EPA's concerns are for potential future
uses, and the notification which is required by this SNUR will be
sufficient to allow the Agency to make the decisions necessary to
protect against such uses.
VII. Applicability to Uses Occurring Before Effective Date of this
Final Rule
EPA believes that the intent of section 5(a)(1)(B) is best served
by designating a use as a significant new use as of the proposal date
of this SNUR rather than as of the effective date of this final rule.
If uses begun during the proposal period of a SNUR were considered
ongoing, rather than new, as of the effective date, it would be
difficult for EPA to establish SNUR notice requirements, because any
person could defeat the SNUR by initiating the proposed significant new
use before the rule became final, arguing that the use is no longer
new.
Persons who began commercial manufacture, importation, or
processing of the listed benzidine-based chemical substances for any
significant new use listed in this rule between issuance of the
proposed rule and the effective date of this SNUR must cease that
activity before the effective date of this rule. To resume their
activities, these persons would have to comply with all applicable SNUR
notice requirements and wait until the notice review period, including
all extensions, expires. If, however, persons who began commercial
manufacture, importation, or processing of the chemical substances
between the issuance of the proposed rule and the effective date of
this SNUR meet the conditions of advance compliance as codified at
Sec. 721.45(h), those persons will be considered to have met the
requirements of this final SNUR for those activities.
VIII. Response to Comments Received on Proposed Rule
The Agency received comments on the proposed rule from two
businesses and two trade associations. The Agency reviewed and
considered all significant comments received. These comments and EPA's
responses follow:
Comment. Some of the dyes listed in the proposed rule are assigned
incorrect CAS numbers and nomenclature.
Response. EPA reviewed the list of dyes in the proposed rule.
Inconsistencies in naming substances were identified and corrected in
table 1 in Sec. 721.1660 of this final rule. Inaccurate CAS numbers
were also identified and corrected in table 1 of this final rule for
C.I. Direct Blue 2 (CAS No. 2429-73-4), C.I. Direct Brown 6 (CAS No.
2893-80-3), and C.I. Direct Brown 74 (CAS No. 8014-91-3). Additionally,
chemical names were added to table 1 of this rule to futher identify
substances subject to SNUR reporting. These corrections were minor in
nature and did not change the types of benzidine-based dyes subject to
this final SNUR.
Comment. A majority of the chemical substances listed in the
proposed rule are not found on the TSCA Inventory. A SNUR for
substances that are not on the TSCA Inventory is unnecessary because
the ``PMN would serve the same purpose''.
Response. EPA conducted a review of the TSCA Inventory. This review
revealed that 24 out of 149 benzidine-based chemical substances in the
proposed SNUR were on the TSCA Inventory and the remaining substances
were not. EPA has removed the substances that are not on the TSCA
Inventory from the final list of
[[Page 52291]]
substances requiring notification of a significant new use. Those
substances continue to be subject to the reporting requirements under
TSCA section 5(a)(1) (15 U.S.C. 2604(a)(1)). Section 5(a)(1) requires a
person who manufactures a chemical substance that is not on the
Inventory, and not otherwise excluded or exempted from the requirements
of section 5, to file a premanufacture notification (PMN) with EPA.
When EPA proposed the SNUR it based the proposal on certain objectives
that it announced in the preamble to the proposed rule (60 FR 45121,
August 30, 1995). EPA has concluded that these same objectives can be
met through the submission of a PMN for benzidine-based chemical
substances that are not on the Inventory and requiring a SNUN in
addition is not necessary.
Comment. C.I. Direct Red 28, a benzidine derivative, is used as a
mineral acid indicator but was not identified in the proposed rule as
an ongoing use. Also, certain uses of benzidine as an analytical
laboratory standard, as with EPA Reference Method 8270, are also
ongoing. These uses are similar to other ongoing uses identified in the
proposed rule.
Response. EPA added the use of C.I. Direct Red 28 (CAS No. 573-58-
0) as an indicator dye and the use of benzidine and benzidine-based
chemical substances as an analytical standard to the list of ongoing
uses based on information from commenters and EPA's Office of Solid
Waste and Emergency Response (OSWER) (Benzidine SNUR Memo, 50617A). No
additional ongoing uses of benzidine-based chemical substances were
identified. Ongoing uses, as identified in Sec. 721.1660(a)(2) of this
final rule, are not subject to SNUR reporting. EPA decided to add these
two uses because they are similar to other ongoing uses that were
originally proposed. Like some of the proposed ongoing uses, the
additional uses rely on benzidine-based substances to test for the
presence of chemical substances. EPA received no objections to the
inclusion of the original uses in this SNUR and has concluded that
additional notice is not necessary to add these similar uses.
Comment. There are other benzidine-based dyes on the TSCA Inventory
which were not listed in the proposed rule.
Response. EPA's intent is to require notification prior to the
manufacture, import, or processing of all benzidine-based chemical
substances on the TSCA Inventory for all non-ongoing uses. EPA
conducted a thorough search of the TSCA Inventory which revealed that
there are additional benzidine-based chemical substances on the TSCA
Inventory that were not included in the proposed SNUR. EPA will propose
a SNUR for these additional benzidine-based chemical substances in the
near future.
Comment. EPA should exempt all laboratory uses of very small
amounts of benzidine-based chemical substances from the SNUR where
prudent laboratory practices are employed. Another comment suggested
that the SNUR should not apply to laboratory uses of benzidine-based
chemical substances.
Response. EPA agrees with the first comment and under existing EPA
regulations, a person who manufacturers, imports, or processes a listed
substance for a significant new use is not subject to SNUR notification
requirements if the person is utilizing small quantities for research
and development and meets the other safeguards as specified in 40 CFR
721.47. In addition, this SNUR will not cover identified laboratory
uses which are ongoing (listed in Sec. 721.1660(a)(2) of this rule).
However, EPA does not agree with the second comment that all laboratory
uses in general should be excluded. The purpose of the SNUR is to
insure that EPA has an opportunity to review human and environmental
risks associated with significant new uses of a chemical substance and,
if necessary, take further action to protect against those risks. If
EPA exempts all laboratory uses without any of the safeguards specified
in 40 CFR 721.47, as suggested by the commenter, then persons may
engage in those uses without further EPA review of these additional
human and environmental exposures. The comment did not provide adequate
information to allow EPA to determine the extent or possible
consequences of these exposures. Given the potentially hazardous nature
of benzidine-based chemical substances, EPA believes it is not
appropriate to exempt all laboratory uses from the SNUR. Anyone who
wishes to engage in such a new use in the future, however, may submit a
significant new use notice and initiate the process for determining
whether those uses pose an unreasonable risk.
Comment. The use of benzidine as a laboratory standard or an
indicator dye does not constitute manufacturing, importing, or
processing for a commercial purpose, i.e., for distribution in
commerce. The analytical procedures, of which the benzidine is part,
either consume the benzidine or produce by-products which are properly
disposed. No benzidine is manufactured or processed in the course of
these uses, nor is it for the purpose of distribution in commerce.
Response. EPA generally agrees with the commenter that a SNUR only
regulates manufacturing and processing activities that are undertaken
for commercial purposes; however, a laboratory could be engaging in
regulated activities when it uses a listed benzidine-based chemical
substance. TSCA provides that SNURs apply only to persons who
``manufacture or process'' subject substances (15 U.S.C.
2604(a)(1)(B)). TSCA also defines the term ``manufacture'' to include
importation of as well as production (15 U.S.C. 2602(7)). TSCA further
provides that SNURs only regulate manufacturing, importation, and
processing activities if those activities are for ``commercial
purposes'' (15 U.S.C. 5(I)). EPA interprets these provisions broadly to
encompass a wide range of activities. TSCA and the SNUR regulations
define manufacturing to include any activities associated with the
production or importation of substances with the purpose of obtaining
an immediate or eventual commercial advantage for the manufacturer or
importer (40 CFR 720.3(r), defining ``manufacture or import for
commercial purposes''). Processing for commercial purposes is also
defined to encompass a wide range of activities (40 CFR 721.3, defining
``process for commercial purposes''). Based upon these regulations, a
laboratory could be engaged in regulated activity when it uses a listed
benzidine-based substance. Determining whether a laboratory is engaged
in a regulated activity is very fact specific and requires an
assessment of a variety of the circumstances surrounding the
laboratory's activities. The commenter has not provided enough
information for EPA to determine whether the activities it describes
would be subject to the SNUR. Rather than speculate on hypothetical
situations, EPA advises a laboratory that intends to engage in
activities involving a significant new use of a listed benzidine-based
chemical substance to contact EPA as specified in 40 CFR 721.11 to
determine in advance whether it is subject to the SNUR. Additionally,
as stated in the previous response to comment, under existing EPA
regulations, a person who manufactures, imports, or processes a listed
substance for a significant new use is not subject to SNUR notification
requirements if the person is utilizing small quantities of research
and development and meets the other
[[Page 52292]]
safeguards as specified in 40 CFR 721.47.
Comment. The SNUR will give an unfair advantage to foreign
producers of benzidine-based chemical substances, and to those who
import textiles dyed with such chemicals into the US.
Response. While EPA does not presently have a sufficient basis to
support a regulatory action related to the import of articles
manufactured with benzidine-based chemical substances, we have taken
steps to address concerns with benzidine-based chemical substances on
an international level. EPA has helped the Organization for Economic
Cooperation and Development (OECD) organize an information
clearinghouse so the OECD member countries can share information
regarding the issues, concerns, and risk management activities
surrounding benzidine-based chemical substances. EPA has also provided
information to India through the U.S. Department of State. EPA plans to
inform the OECD, United Nations (UN) International Program on Chemical
Safety (IPCS) and the International Register of Potentially Toxic
Chemicals (IRPTC) of the issuance of this SNUR so that this action
might encourage other countries to examine the risks associated with
the manufacture and use of benzidine-based chemical substances in their
countries.
Comment. The SNUR is a ``complete product ban'', put into effect
without ``sufficient analysis of the alternatives and input from the
interested public''.
Response. EPA disagrees. A SNUR requires only that manufacturers,
importers, and processors of the listed substances notify EPA at least
90 days before beginning any activity that EPA has designated as a
``significant new use.'' The advance notification required by the SNUR
allows EPA to evaluate the proposed new use in more detail. If that
evaluation reveals a concern, EPA can take action to prevent or limit
unreasonable risk from the new use of the substance. Conversely if EPA
decides not to take any further action, the activity may proceed.
EPA also disagrees with the comment that it failed to analyze
alternatives or public input. The commenter failed to explain why it
believed that there were other viable alternatives to a SNUR. Unit VI
of this preamble includes EPA's analysis of alternative regulatory
actions and other provisions of TSCA. EPA also discussed plans to issue
a SNUR at several public meetings, and at a meeting with industry
representatives held during in April, 1995 (Meeting Minutes on
Benzidine-Based and Benzidine Congener-Based Dyes, 50617A).
Additionally, the public submitted comments when this SNUR was proposed
and EPA is responding to them in this preamble.
Comment. EPA has not addressed the issue of the ``actual risk posed
by these chemicals in their current limited use''.
Response. Because this SNUR is not intended to subject ongoing uses
of benzidine-based chemical substances to SNUR reporting requirements,
EPA did not specifically assess risk posed by ongoing uses of
benzidine-based chemical substances. Such an assessment would fall
outside the scope of this rule and therefore, is unnecessary to support
this rule.
Comment. The rule as proposed would not regulate significant new
uses of an existing product, but rather would regulate ``old,
established products and applications which are not currently used'' in
the U.S.
Response. The statutory language of TSCA section 5, the legislative
history, and underlying policy support EPA's conclusion that it has the
authority to classify the resumption of manufacturing or processing of
chemical substances as a ``significant new use.'' The term ``new''
generally encompasses uses that are occurring for the first time as
well as uses that were discontinued and then occur again. See, e.g.,
Webster's II New Riverside University Dictionary, 1988.
The factors that TSCA requires the Administrator to consider before
determining that a use is ``significant'' and ``new'' apply equally to
first time and resumed uses. Section 5(a)(2) states that the
Administrator's ``significant new use'' determination shall be made
after considering all relevant factors including ``projected volume,''
increases in ``magnitude and duration of exposure,'' and the reasonably
anticipated manner and methods of manufacturing, processing,
distribution, and disposal. Both first time and resumed use may result
in an increase in production volume and exposure to a chemical
substance. Both types of uses also can lead to increased risks
associated with manufacture, processing, distribution, and disposal.
Moreover, the legislative history of section 5 suggests that
Congress intended that increased volume of manufacturing or processing
would be subject to the requirements of that section. This adds further
support to the conclusion that a resumption of manufacture, which
necessarily entails an increase in production volume, may be classified
as manufacture for a significant ``new'' use. See, e.g., H.R. Rep. No.
94-1679, 94th Cong., 2nd Sess. 66 (1976), Legislative History of the
Toxic Substances Control Act 679; Senate Consideration of Conference
Report on S. 3149, Sept. 28, 1976, Legislative History of the Toxic
Substances Control Act at 723.
Comment. Thirty days is not a fair and reasonable comment period
for such complex regulations, with extensive dockets.
Response. EPA disagrees that 30 days is not a fair and reasonable
comment period. EPA allows a reasonable amount of time for comments
based upon the complexity of the proposed rule and the record. Due to
the relatively routine nature of SNURs and the limited nature of the
material in the docket for this particular rule, the Agency believes
that a 30-day comment period is reasonable in this case. EPA received
no requests from the public for an extension of the comment period.
Comment. The Agency is not justified in setting retroactive dates
as the effective dates for determining new uses.
Response. EPA disagrees and believes it is reasonable to make the
effective date of the Agency's ``significant new use'' determination
the proposal date of the rule rather than the date of the final rule.
If EPA adopted the date of the final rule as the effective date, then a
person could defeat the final rule simply by engaging in the proposed
significant new use before the rule took effect. Further, the
notification requirements for use of any listed benzidine-based
chemical substance only take effect when the rule becomes final. This
rule operates prospectively, not retroactively as the comment suggests.
Comment. EPA may be premature in ``extending its concern to the
listed dye products'' due to SNUN requirements for test data, protocol
consultation, and human exposure and environmental release data.
Response. EPA disagrees that issuing a SNUR is premature. Congress
designed SNURs to allow EPA to obtain data about new uses of chemical
substances that may pose significant concerns. This action is based on
Agency concerns for all benzidine-based substances listed in the rule.
Agency concerns for all these benzidine-based substances are based on
existing carcinogenicity and exposure data of benzidine and benzidine-
based substances.
As stated in Unit IX of the proposed rule (60 FR 45119, August 30,
1995), TSCA section 5 does not require persons to develop any
particular test data before submitting a SNUN. Persons are required
only to submit test data in their possession or control and to describe
any other data known to or reasonably ascertainable by them (15 U.S.C.
[[Page 52293]]
2604(d); 40 CFR 721.25). Further, while EPA does require the submission
of test data in a submitter's possession, EPA does not require the
development of test data when a SNUN is submitted. Rather, EPA suggests
to potential SNUR submitters the kind of data that would permit a
reasoned evaluation of potential risks posed by listed benzidine-based
chemical substances for an intended use. The characterization of
potential health and environmental effects will help the Agency
determine if regulation of the listed SNUR substance for the intended
use is warranted.
Comment. According to the July 1995 American Association of Textile
Chemists and Colorists (AATCC) Buyer's Guide, 15 companies were listed
as distributing benzidine dyes.
Response. Of the 15 companies identified in the 1995 AATCC Buyer's
Guide as selling benzidine-based chemical substances identified in this
SNUR, EPA had previously contacted nine that were listed in the 1994
AATCC Buyer's Guide prior to publication of the proposed SNUR (Phone
Contacts with Benzidine Dye Manufacturers and Distributors, 50617).
Representatives of those nine companies confirmed that they were not
manufacturing, importing, or distributing benzidine-based chemical
substances identified in this SNUR. EPA representatives attempted to
contact the additional six companies newly listed in the 1995 Buyer's
Guide (Buyer's Guide, 50617A). Five companies indicated to EPA that
they were not manufacturing, importing, or distributing benzidine-based
chemical substances. EPA representatives were unable to contact the
remaining company although repeated attempts were made using the
information contained in the 1995 AATCC Buyer's Guide. Thus, based on
the information currently available, EPA does not believe that the
benzidine-based chemical substances identified in this SNUR are in
commerce at this time.
IX. Test Data and Other Information
EPA recognizes that under TSCA section 5, persons are not required
to develop any particular test data before submitting a significant new
use notice. Rather, persons are required only to submit test data in
their possession or control and to describe any other data known to, or
reasonably ascertainable by, them (15 U.S.C. 2604(d); 40 CFR 721.25).
However, in view of the potential health risks that may be posed by
a significant new use of the listed benzidine-based chemical
substances, EPA suggests potential SNUR notice submitters include data
that would permit a reasoned evaluation of risks posed by these
chemical substances when utilized for an intended use. EPA currently
believes that the results of the following tests could help adequately
characterize possible health and environmental effects of the chemical
substances: Cancer bioassays, metabolism testing, and tests for
environmental fate and ecotoxicity. However, these studies may not be
the only means of identifying potential risks. SNUR notices submitted
without accompanying test data may increase the likelihood that EPA
would take action under TSCA section 5(e).
EPA encourages persons to consult with the Agency before submitting
a SNUN for benzidine-based chemical substances. As part of this
optional prenotice consultation, EPA will discuss the test data it
believes necessary to evaluate a significant new use of the chemical
substances and advise in the selection of a protocol for testing the
chemical substances. Test data should be developed according to TSCA
Good Laboratory Practice Standards at 40 CFR part 792. Failure to do so
may lead EPA to find such data to be insufficient to reasonably
evaluate the health or environmental effects of the chemical
substances.
EPA urges SNUN submitters to provide detailed information on human
exposure or environmental release that may result from the significant
new use of the listed benzidine-based chemical substances. In addition,
EPA encourages persons to submit information on potential benefits of
the chemical substances and information on risks posed by the chemical
substances compared to risks posed by potential substitutes.
X. Economic Analysis
EPA has evaluated the potential costs of establishing SNUR
reporting requirements for the benzidine-based chemical substances
listed in this rule (Ref. 12). While there is no precise way to
calculate the total annual cost of compliance with this rule, EPA
estimates that the reporting cost for submitting a SNUN ranges from
$7,198 to $8,170, including a $2,500 user fee. EPA believes that there
will be few, if any, SNUNs submitted. Furthermore, while the expense of
a notice and the uncertainty of possible EPA regulation may discourage
certain innovations, that impact would be limited because such factors
are unlikely to discourage an innovation that has high potential value.
The Agency's economic analysis is available in the public record for
this rule (OPPTS-50617A).
XI. Rulemaking Record
EPA has established a record for this rulemaking (docket control
number OPPTS-50617A). The record includes basic information considered
by the Agency in developing this rule and the references listed in Unit
XII of this preamble.
A public version of this record, without any Confidential Business
Information is available for reviewing and copying from 12 noon to 4
p.m., Monday through Friday, except legal holidays, in the TSCA
Nonconfidential Information Center (NCIC), located in Rm. NE-B607, 401
M St., SW., Washington, DC.
XII. References.
(1) International Agency for Research on Cancer (IARC). IARC
Monographs 1982, 29, 295-310, 311-330, 321-330).
(2) IARC Monographs, Supplement 7:123-125 (1987).
(3) Rinde, E. and Troll, W. ``Metabolic Reduction of Benzidine Azo
Dyes to Benzidine in the Rhesus Monkey.'' Journal of the National
Cancer Institute 55:181-182 (1975).
(4) National Cancer Institute (NCI). ``13-week subchronic toxicity
studies of Direct Blue 6, Direct Black 38 and Direct Brown 95 dyes.''
NCI Carcinogenesis. Technical Report Series Number 108. 127p (1978).
(5) USEPA. Chemical Screening and Risk Assessment Division.
Benzidine/Benzidine Congener Dyes Support Document, Ocotber 24, 1994.
(6) ACGIH. American Conference of Government Industrial Hygienists,
Inc. ``Documentation of the Threshold Limit Values and Biological
Exposure Indices. 6th ed.'' 121-122p (1991).
(7) Lynn, R.K. et al. ``Metabolism of bisazobiphenyl dyes derived
from benzidine, 3,3'-methylbenzidine and 3,3'-dimethoxybenzidine to
carconogenic aromatic amines in the dog and rat.'' Toxicology and
Applied Pharmacology 56:248-258 (1980).
(8) NIOSH/NCI, Current Intelligence Bulletin, 24(1,5):7-9 (1978).
(9) IARC Monographs, Supplement 7:125-126 (1987).
(10) NIOSH, Special Occupational Hazard Review for Benzidine-Based
Dyes (1980).
(11) USEPA. 1990a (April). U.S. Environmental Protection Agency.
Textile Dye Weighing Monitoring Study. EPA 560/5-90-009 and Supplement
560/5-90-010.
(12) USEPA. Regulatory Impact Branch, USEPA/OPPT/EETD, June 1,
1993. ``Production, Uses, and Imports of
[[Page 52294]]
Benzidine Based Chemicals.'' Prepared by Meridian Research, Inc.
(13) USEPA. Regulatory Impacts Branch, Economics, Exposure, and
Technology Division. ``Economic Analysis to Support the Proposed SNUR
for Benzidine and Benzidine-based Dyes''. May 12, 1995.
XIII. Regulatory Assessment Requirements
A. Executive Order 12866
Under Executive Order 12866 (58 FR 51735, October 4, 1993), it has
been determined that this rule is not ``significant'' and is therefore
not subject to OMB review.
B. Regulatory Flexibility Act
Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), EPA
certifies that this rule will not have a significant impact on a
substantial number of small entities. This certification can be found
in the docket for this rule (OPPTS-50617A). EPA has analyzed the impact
of the rule on small entities based upon the criteria in the Regulatory
Flexibility Act. Unit XIII.C. of this preamble and the Economic
Analysis (Ref. 13) to support this SNUR (docket number OPPTS-50617A)
describe the burden and costs of compliance of this rule as well as the
potential impacts on small entities.
This SNUR applies to any small or large business that may wish to
engage in the significant new use described in the rule. It appears
that no small or large businesses are currently engaged in activity
that is the subject of this rule. Although there may be some small
businesses that may decide to conduct such activities in the future, it
is not possible at this time to determine for certain how many, if any,
there may be. Based upon past experiences, EPA expects to receive few,
if any SNUNs from either small or large businesses in response to this
SNUR. To date, the Agency has received less than 10 SNUNs in response
to the many SNURs promulgated by EPA in the past.
There are no existing Federal rules that may duplicate, overlap, or
conflict with this rule. Finally there are no significant alternatives
to this rule that minimize economic impacts on small businesses and
accomplish the statutory objective of insuring that EPA has an
opportunity to review and evaluate the risks associated with a new use
to determine whether further regulatory activity is necessary.
Information relating to this determination may be provided to the
Chief Counsel for Advocacy of the Small Business Administration upon
request, and is included in the docket for this rulemaking. Any
comments regarding the economic impacts that this regulatory action may
impose on small entities should be submitted to the Agency at the
address listed above.
C. Unfunded Mandate Reform Act
This rule is not subject to the requirements of the Unfunded
Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4) because this rule
does not contain regulatory requirements that might significantly or
uniquely affect small governments and does not contain a Federal
mandate that may result in expenditures of $100 million or more for
State, local, and tribal governments, in the aggregate, or the private
sector in any one year. Since no current ongoing manufacture, import,
or processing of the listed benzidine-based chemical substance have
been identified except for uses of such substances as a reagent to test
for hydrogen peroxide in milk; a reagent to test for hydrogen sulfate,
hydrogen cyanide, and nicotine; a stain in microscopy; a reagent for
detecting blood; an analytical standard; or the use of C.I. Direct Red
28 as an indicator dye, this rule will not affect state, local, tribal
governments, or the private sector. EPA expects to receive few, if any,
SNUNs in response to this SNUR.
D. Executive Order 12898
Pursuant to Executive Order 12898 (59 FR 7629, February 16, 1994),
entitled Federal Actions to Address Environmental Justice in Minority
Populations and Low-Income Populations, the Agency has considered
environmental justice related issues with regard to the potential
impacts of this action on the environmental and health conditions in
low-income and minority communities and does not expect any negative
impacts since no current ongoing manufacture, import, or processing of
the listed benzidine-based chemical substances were identified except
for uses of such substances as a reagent to test for hydrogen peroxide
in milk; a reagent to test for hydrogen sulfate, hydrogen cyanide, and
nicotine; a stain in microscopy; a reagent for detecting blood; an
analytical standard; or the use of C.I. Direct Red 28 as an indicator
dye. Additionally, EPA expects to receive few, if any, SNUNs in
response to this SNUR.
E. Submission to Congress and the General Accounting Office
Under section 801(a)(1)(A) of the Administrative Procedure Act
(APA) (5 U.S.C. 801) EPA submitted a report containing this rule and
other required information to the U.S. Senate, the U.S. House of
Representatives and the Comptroller General of the General Accounting
Office prior to publication of this rule in the Federal Register. This
rule is not a ``major rule'' as defined by 5 U.S.C. 804(2) of the APA
as amended.
F. Paperwork Reduction Act
The information collection requirements contained in this rule have
already been approved by the Office of Management and Budget (OMB)
under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). This activity falls under OMB control number 2070-0038 (EPA ICR
No. 1188), which covers the submission of SNUNs related to existing
chemicals. Specifically, persons subject to this SNUR must submit a
SNUN to EPA at least 90 days before manufacturing, importing, or
processing a chemical substance for any significant new use (15 U.S.C.
2604(a)(1)(B)). The SNUN allows EPA to review and evaluate the intended
use and prohibit or limit that use if the degree of potential health
risk is sufficient to warrant such regulation. Persons subject to this
SNUR would comply with the same notice requirements and EPA regulatory
procedures as submitters of PMNs under section 5(a)(1)(A) of TSCA (15
U.S.C.2604(a)(1)(A)).
Additionally, persons who intend to export a chemical substance
identified in the final SNUR are subject to TSCA section 12(b) (U.S.C.
2611(b) and 40 CFR part 707). Persons who intend to import a chemical
substance identified in the final SNUR are subject to the TSCA section
13 (15 U.S.C. 2612) import certification requirements and to the
regulations codified at 19 CFR 12.118 through 12.127 and 12.128. The
EPA policy in support of import certification appears at 40 CFR part
707. OMB has already approved these activities under OMB Control No.
2070-0030 (EPA#795). EPA must withhold from disclosure trade secret or
confidential financial or commercial information submitted under TSCA.
In submitting a SNUN, the public reporting burden for this
collection of information is estimated to vary from 94 to 113 hours per
response, with an average of 103 hours per response, including time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. These hours are included and accounted for
in the above-referenced existing ICR.
Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a
[[Page 52295]]
Federal agency. This includes the time needed to review instructions;
develop, acquire, install, and utilize technology and systems for the
purposes of collecting, validating, and verifying information,
processing and maintaining information, and disclosing and providing
information; adjust the existing ways to comply with any previously
applicable instructions and requirements; train personnel to be able to
respond to a collection of information; search data sources; complete
and review the collection of information; and transmit or otherwise
disclose the information.
An Agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. EPA is also amending the table of
currently approved information collection requests (ICR) control
numbers issued by OMB for various regulations, which appears at 40 CFR
part 9. This amendment updates the table to accurately display OMB
approval of the information requirements contained in this final rule.
The display of the OMB control number in this notice and its subsequent
codification in the Code of Federal Regulations satisfies the
requirements of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.)
and OMB's implementing regulations at 5 CFR part 1320. The ICR was
previously subject to public notice and comment prior to OMB approval.
As a result, EPA finds that there is ``good cause'' under section
553(b)(B) of the Administrative Procedure Act (5 U.S.C. 553(b)(B)) to
amend this table without additional notice and comment. Due to the
technical nature of the table, further notice and comment would be
unnecessary.
Send comments on the burden estimates and any suggested methods for
minimizing respondent burden, including through the use of automated
collection techniques to Chief, Information Policy Branch (2131), U.S.
Environmental Protection Agency, 401 M St., SW., Washington, DC 20460;
and to the Office of Information and Regulatory Affairs, Office of
Management and Budget, 725 17th St., NW., Washington, DC 20503, marked
``Attention: Desk Officer for EPA.'' The ICR number must be included in
any correspondence.
List of Subjects
40 CFR Part 9
Reporting and recordkeeping requirements.
40 CFR Part 721
Environmental Protection, Chemicals, Hazardous materials,
Recordkeeping and reporting requirements, Significant new uses.
Dated: September 26, 1996.
Charles M. Auer,
Director, Chemical Control Division, Office of Pollution Prevention and
Toxics.
Therefore, 40 CFR parts 9 and 721 are amended to read as follows:
PART 9--OMB APPROVALS UNDER THE PAPERWORK REDUCTION ACT
1. The authority citation for part 9 continues to read as follows:
Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003,
2005, 2006, 2601-2671; 21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33
U.S.C. 1251 et seq., 1311, 1313d, 1314, 1321, 1326, 1330, 1344, 1345
(d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR, 1971-1975 Comp.
p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g, 300g-1, 300g-2,
300g-3, 300g-4, 300g-5, 300g-6, 300j-1, 300j-2, 300j-3, 300j-4,
300j-9, 1857 et seq., 6901-6992k, 7401-7671q, 7542, 9601-9657,
11023, 11048.
2. Section 9.1 is amended by adding the following new entry to the
table in numerical sequence to read as follows:
Sec. 9.1 OMB approvals under the Paperwork Reduction Act.
* * * * *
------------------------------------------------------------------------
40 CFR citation OMB control no.
------------------------------------------------------------------------
* * * * *
721.1660............................................. 2070-0038
* * * * *
------------------------------------------------------------------------
PART 721 --SIGNIFICANT NEW USES OF CHEMICAL SUBSTANCES
3. The authority citation for part 721 continues to read as
follows:
Authority: 15 U.S.C. 2604, 2607 and 2625(e).
4. By adding new Sec. 721.1660 to subpart E to read as follows:
Sec. 721.1660 Benzidine-based chemical substances.
(a) Chemical substances and significant new uses subject to
reporting. (1) The benzidine-based chemical substances listed in table
1 of this section are subject to reporting under this section for the
significant new uses described in paragraph (a)(2) of this section.
(2) The significant new uses are any use other than as a reagent to
test for hydrogen peroxide in milk; a reagent to test for hydrogen
sulfate, hydrogen cyanide, and nicotine; a stain in microscopy; a
reagent for detecting blood; an analytical standard; and also for
Colour Index (C.I.) Direct Red 28 (Congo Red, CAS No. 573-58-0) as an
indicator dye.
(b) List of substances. The following table 1 lists the benzidine-
based chemical substances covered by this section.
Table 1.--Benzidine-Based Chemical Substances
----------------------------------------------------------------------------------------------------------------
CAS number C.I. name C.I. number Chemical Name
----------------------------------------------------------------------------------------------------------------
92-87-5 Benzidine N/A [1,1'-Biphenyl]-4,4'-
531-85-1 Benzidine 2HCL N/A [1,1'-Biphenyl]-4,4'-
diamine, dihydrochloride
573-58-0 C.I. Direct Red 28 22120 1-Naphthalenesulfonic
acid, 3,3'-[[1,1'-
biphenyl]-4,4'-
diylbis(azo)]bis[4-amino-
, disodium
salt
1937-37-7 C.I. Direct Black 38 30235 2,7-Naphthalenedisulfonic
acid, 4-amino-3-[[4'-
[(2, 4-
diaminophenyl)azo][1,1'-
biphenyl]-4-yl]azo]-5-
hydroxy-6-
(phenylazo)-, disodium
salt
2302-97-8 C.I. Direct Red 44 22500 1-Naphthalenesulfonic
acid, 8,8'-[[1,1'-
biphenyl] -4,4'-
diylbis(azo)]bis[7-
hydroxy-, disodium salt
2429-73-4 C.I. Direct Blue 2 22590 2,7-Naphthalenedisulfonic
acid, 5-amino-3-[[4'-
[(7-amino-1-hydroxy-3-
sulfo-2-
naphthalenyl)azo] [1,1'-
biphenyl]-4-yl]azo]-4-
hydroxy-,
trisodium salt
[[Page 52296]]
2429-79-0 C.I. Direct Orange 8 22130 Benzoic acid, 5-[[4'-[(1-
amino-4-sulfo-2-
naphthalenyl)azo][1,1'-
biphenyl]-4-yl]azo]-2-
hydroxy-, disodium salt
2429-81-4 C.I. Direct Brown 31 35660 Benzoic acid, 5-[[4'-
[[2,6-diamino-3-[[8-
hydroxy-3,6-disulfo-7-
[(4-sulfo-1-
naphthalenyl)azo]-2-
naphthalenyl]azo]-5-
methylphenyl]azo][1,1'-
biphenyl]-4-yl]azo]-2-
hydroxy-,
tetrasodium salt
2429-82-5 C.I. Direct Brown 2 22311 Benzoic acid, 5-[[4'-[(7-
amino-1-hydroxy-3-sulfo-
2-naphthalenyl)azo][1,1'-
biphenyl]-4-yl]azo]-2-
hydroxy-, disodium salt
2429-83-6 C.I. Direct Black 4 30245 2,7-Naphthalenedisulfonic
acid, 4-amino-3-[[4'-
[(2,4-diamino-5-
methylphenyl)azo][1,1'-
biphenyl]-4-yl]azo]-5-
hydroxy-6-(phenylazo)-,
disodium salt
2429-84-7 C.I. Direct Red 1 22310 Benzoic acid, 5-[[4'-[(2-
amino-8-hydroxy-6-sulfo-
1-naphthalenyl)azo][1,1'-
biphenyl]-4-yl]azo]-2-
hydroxy-, disodium salt
2586-58-5 C.I. Direct Brown 1:2 30110 Benzoic acid, 5-[[4'-
[[2,6-diamino-3-methyl-5-
[(4-
sulfophenyl)azo]phenyl]a
zo][1,1'-biphenyl]-4-
yl]azo]-2-hydroxy-,
disodium salt
2602-46-2 C.I. Direct Blue 6 22610 2,7-Naphthalenedisulfonic
acid, 3,3'-[[1,1'-
biphenyl]-4,4'-
diylbis(azo)]bis[5-amino-
4- hydroxy-,
tetrasodium salt
2893-80-3 C.I. Direct Brown 6 30140 Benzoic acid, 5-[[4'-
[[2,4-dihydroxy-3-
[(4-
sulfophenyl)azo]phenyl]a
zo][1,1'-biphenyl]-4-
yl]azo]-2-hydroxy-,
disodium salt
3530-19-6 C.I. Direct Red 37 22240 1,3-Naphthalenedisulfonic
acid, 8-[[4'-[(4-ethoxy
phenyl)azo][1,1'-
biphenyl]-4-yl]azo]-7-
hydroxy-, disodium salt
3567-65-5 C.I. Acid Red 85 22245 1,3-Naphthalenedisulfonic
acid, 7-hydroxy-8-
[[4'-[[4-[[(4-
methylphenyl)sulfonyl]ox
y]phenyl] azo][1,1'-
biphenyl]-4-yl]azo]-,
disodium salt
3626-28-6 C.I. Direct Green 1 30280 2,7-Naphthalenedisulfonic
acid, 4-amino-5-
hydroxy-3-[[4'-[(4-
hydroxyphenyl)azo][1,1'-
biphenyl]-4-yl]azo]-6-
(phenylazo)-, disodium
salt
3811-71-0 C.I. Direct Brown 1 30045 Benzoic acid, 5-[[4'-
[[2,4-diamino-5-[(4-
sulfophenyl)azo]phenyl]a
zo][1,1'-biphenyl]-4-yl]
azo]-2-hydroxy-,
disodium salt
4335-09-5 C.I. Direct Green 6 30295 2,7-Naphthalenedisulfonic
acid, 4-amino-5-
hydroxy-6-[[4'-[(4-
hydroxyphenyl)azo][1,1'-
biphenyl]-4-yl]azo]-3-
[(4-nitrophenyl)azo]-,
disodium salt
6358-80-1 C.I. Acid Black 94 30336 2,7-Naphthalenedisulfonic
acid, 4-amino-5-
hydroxy-3-[[4'-[[4-
hydroxy-2-[(2-
methylphenyl) amino]phe
nyl]azo][1,1'-biphenyl]-
4-yl]azo]-6-[(4-
sulfophenyl)azo]-,
trisodium salt
6360-29-8 C.I. Direct Brown 27 31725 Benzoic acid, 5-[[4'-[[4-
[(4-amino-7-sulfo-1-
naphthalenyl)azo]-6-
sulfo-1-
naphthalenyl]azo] [1,
1'-biphenyl]-4-yl]azo]-2-
hydroxy-,
trisodium salt
6360-54-9 C.I. Direct Brown 154 30120 Benzoic acid, 5-[[4'-
[[2,6-diamino-3-methyl-5-
[(4-
sulfophenyl)azo]phenyl]a
zo][1,1'-biphenyl]-4-yl]
azo]-2-hydroxy-3-methyl-
, disodium salt
8014-91-3 C.I. Direct Brown 74 36300 Benzoic acid, 3,3'-[(3,7-
disulfo-1,5-
naphthalenediyl)bis[azo(
6-hydroxy-3,1-
phenylene)azo[6(or7)-
sulfo-4,1-
naphthalenediyl]azo[1,1'-
biphenyl]-4,4'-
diylazo]]bis[6-hydroxy-,
hexasodium salt
16071-86-6 C.I. Direct Brown 95 30145 Cuprate(2-), [5-[[4'-
[[2,6-dihydroxy-3-[(2-
hydroxy- 5-
sulfophenyl)azo]phenyl]a
zo][1,1'-biphenyl]
-4-yl]azo]-2-
hydroxybenzoato(4-)]-,
disodium
----------------------------------------------------------------------------------------------------------------
[[Page 52297]]
[FR Doc. 96-25650 Filed 10-4-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-25642 Fisheries of the Northeastern United States; Summer Flounder Fishery; Commercial Quota Harvested for Massachusetts
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52384-52385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25642]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 648
[Docket No. 951116270-5308-02; I.D. 092696B]
Fisheries of the Northeastern United States; Summer Flounder
Fishery; Commercial Quota Harvested for Massachusetts
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Commercial quota harvest.
-----------------------------------------------------------------------
SUMMARY: NMFS issues this notification announcing that the summer
flounder commercial quota available to the Commonwealth of
Massachusetts has been harvested. Vessels issued a commercial Federal
fisheries permit for the summer flounder fishery may not land summer
flounder in Massachusetts for the remainder of calendar year 1996,
unless additional quota becomes available through a transfer.
Regulations governing the summer flounder fishery require publication
of this notification to advise the Commonwealth of Massachusetts that
the quota has been harvested and to advise vessel and dealer permit
holders that no commercial quota is available for landing summer
flounder in Massachusetts.
EFFECTIVE DATE: October 2, 1996 through December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Lucy Helvenston, 508-281-9347.
SUPPLEMENTARY INFORMATION: Regulations governing the summer flounder
fishery are found at 50 CFR part 648. The regulations require annual
specification of a commercial quota that is apportioned among the
states from North Carolina through Maine. The process to set the annual
commercial quota and the percent allocated to each state are described
in Sec. 648.100.
The total commercial quota for summer flounder for the 1996
calendar year is set equal to 11,111,298 lb (5,040,000 kg) (January 4,
1996, 61 FR 291). The percent allocated to vessels landing summer
flounder in Massachusetts is 6.82046 percent, or 757,841 lb (343,751
kg).
Section 648.100(d)(2) provides that any overages of the commercial
quota landed in any state will be deducted from that state's annual
quota for the following year. In the calendar year 1995, a total of
1,127,995 lb (511,650 kg) were landed in Massachusetts. The amount
allocated for Massachusetts landings in 1995 was 1,122,246 lb (509,042
kg), creating a 5,749 lb (2,608 kg) overage that was deducted from the
amount allocated for landings in that state during 1996 (April 5, 1996,
61 FR 15199). The resulting quota for Massachusetts is 752,092 lb
(341,143 kg).
Section 625.101(b) requires the Regional Administrator, Northeast
Region (Regional Administrator) to monitor state commercial quotas and
to determine when a state commercial quota is harvested. The Regional
Administrator is further required to publish a notification in the
Federal Register advising a state and notifying Federal vessel and
dealer permit holders that, effective upon a specific date, the state's
commercial quota has been harvested and no commercial quota is
available for landing summer flounder in that state. Because the
available information indicates that the Commonwealth of Massachusetts
has attained its quota for 1996, the Regional Administrator has
determined that based on dealer reports and other available
information, the State's commercial quota has been harvested.
The regulations at Sec. 648.4(b) provide that Federal permit
holders agree as a condition of the permit not to land summer flounder
in any state that the Regional Administrator has determined no longer
has commercial quota available. Therefore, effective 0001 hours October
2, 1996 further landings of summer flounder in Massachusetts by vessels
holding commercial Federal fisheries permits are prohibited for the
remainder of the 1996 calendar year, unless additional quota becomes
available through a transfer and is announced in the Federal Register.
Federally permitted dealers are also advised that they may not purchase
summer flounder from federally permitted vessels that land in
Massachusetts for the remainder of the
[[Page 52385]]
calendar year, or until additional quota becomes available, effective
on October 2, 1996.
Classification
This action is required by 50 CFR part 648 and is exempt from
review under E.O. 12286.
Authority: 16 U.S.C. 1801 et seq.
Dated: October 2, 1996.
Bruce Morehead,
Acting Director, Office of Sustainable Fisheries, National Marine
Fisheries Service.
[FR Doc. 96-25642 Filed 10-2-96; 4:30 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-25641 Fisheries of the Exclusive Economic Zone Off Alaska; Yellowfin Sole by Vessels Using Trawl Gear in the Bering Sea and Aleutian Islands
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52385-52386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25641]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129019-6019-01; I.D. 100196B]
Fisheries of the Exclusive Economic Zone Off Alaska; Yellowfin
Sole by Vessels Using Trawl Gear in the Bering Sea and Aleutian Islands
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closure.
-----------------------------------------------------------------------
SUMMARY: NMFS is closing the directed fishery for yellowfin sole by
vessels using trawl gear in the Bering Sea and Aleutian Islands
management area (BSAI). This action is necessary to prevent exceeding
the 1996 bycatch mortality allowance of Pacific halibut apportioned to
the trawl yellowfin sole fishery in the BSAI.
EFFECTIVE DATE: 1200 hours, Alaska local time (A.l.t.), October 2,
1996, until 2400 hours, A.l.t., December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the BSAI exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for the Groundfish Fishery of the Bering Sea and Aleutian Islands
Area (FMP) prepared by the North Pacific Fishery Management Council
under authority of the Magnuson Fishery Conservation and Management
Act. Fishing by U.S. vessels is governed by regulations implementing
the FMP at subpart H of 50 CFR part 600 and 50 CFR part 679.
The 1996 bycatch mortality allowance of Pacific halibut for the
BSAI trawl yellowfin sole fishery, which is defined at
Sec. 679.21(e)(3)(iv)(B)(1), was established by the Final 1996 Harvest
Specifications of Groundfish (61 FR 4311, February 5, 1996) as 820
metric tons.
The Director, Alaska Region, NMFS, has determined, in accordance
with Sec. 679.21(e)(7)(iv), that the 1996 bycatch mortality allowance
of Pacific halibut apportioned to the trawl yellowfin sole fishery in
the BSAI has been caught. Therefore, NMFS is prohibiting directed
fishing for yellowfin sole by vessels using trawl gear in the BSAI.
[[Page 52386]]
Maximum retainable bycatch amounts for applicable gear types may be
found in the regulations at Sec. 679.20(e).
Classification
This action is taken under 50 CFR 679.21 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: October 2, 1996.
Bruce Morehead,
Acting Director, Office of Sustainable Fisheries, National Marine
Fisheries Service.
[FR Doc. 96-25641 Filed 10-2-96; 4:30 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-25639 Importation of Horses from CEM Countries
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52236-52246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25639]
=======================================================================
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DEPARTMENT OF AGRICULTURE
Animal and Plant Health Inspection Service
9 CFR Part 92
[Docket No. 95-054-2]
Importation of Horses from CEM Countries
AGENCY: Animal and Plant Health Inspection Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: We are amending the regulations regarding the importation of
horses from countries affected with contagious equine metritis by
incorporating new testing and treatment protocols for mares and
stallions, providing for the use of accredited veterinarians to monitor
horses temporarily imported into the United States for competition
purposes, incorporating a new testing protocol for thoroughbred horses
in training in their country of origin, and removing the requirements
for endometrial cultures and clitoral sinusectomies in mares. These
changes will update, clarify, and streamline the existing regulations
and will simplify the requirements for importing horses from countries
affected with contagious equine metritis without increasing the risk of
the disease being introduced into or disseminated within the United
States.
EFFECTIVE DATE: November 6, 1996.
FOR FURTHER INFORMATION CONTACT: Dr. Joyce Bowling, Staff Veterinarian,
Import/Export Animals, National Center for Import and Export, VS,
APHIS, 4700 River Road Unit 39, Riverdale, MD 20737-1231, (301) 734-
6479; or E-mail: [email protected].
SUPPLEMENTARY INFORMATION:
Background
The regulations in 9 CFR part 92 (referred to below as the
regulations) prohibit or restrict the importation of certain animals
into the United States to prevent the introduction of communicable
diseases of livestock and poultry. Subpart C--Horses, Secs. 92.300
through 92.326 of the regulations, pertains to the importation of
horses into the United States. Sections 92.301 and 92.304 of the
regulations contain specific provisions for the importation and post-
entry handling of horses from countries affected with contagious equine
metritis (CEM), a highly contagious bacterial venereal disease.
On June 4, 1996, we published in the Federal Register (61 FR 28073-
28085, Docket No. 95-054-1) a proposal to amend the regulations by:
Reorganizing the CEM regulations to eliminate duplication
and to make their provisions easier to find and use;
Removing the requirements for clitoral sinusectomies and
endometrial cultures in female horses and establishing new protocols
for the collection of specimens for culturing;
Incorporating new testing and treatment protocols for
stallions and test mares;
Incorporating a new testing protocol for thoroughbred
horses in training in their country of origin; and
Providing for the use of accredited veterinarians to
monitor horses from CEM-affected countries that are temporarily in the
United States for competition purposes.
We solicited comments concerning our proposal for 60 days ending
August 5, 1996. We received eight comments by that date. They were from
a horse transporter/customs house broker, a State veterinarian, two
private practice veterinarians, two thoroughbred owners/breeders
associations, a horse industry council, and the director of a CEM
quarantine facility. All of the commenters supported the proposed rule,
although six of them offered suggestions or sought clarification
regarding the changes proposed in the proposed rule. Those comments are
discussed below.
Collection of Specimens
In the proposed rule, we proposed that for all mares over 731 days
of age offered for importation or in quarantine in an approved State,
specimens would be collected from the mucosal surfaces of the urethra,
clitoral sinuses, and cervix. Six of the commenters disagreed with
those proposed collection sites for two main reasons: (1) The
commenters
[[Page 52237]]
pointed out that experience in Europe and the United States has shown
the clitoral fossa, including the clitoral sinuses, to be the site from
which the CEM organism is most likely to be located, and (2) the
commenters all expressed reservations about the collection of specimens
from the cervix of pregnant mares, given the risk of infection or even
abortion that could result from swabbing that site. Based on those
considerations, the commenters suggested that the urethra and cervix be
eliminated as collection sites and that the clitoral fossa be added as
a collection site. We agree with the reasoning and suggestions of the
commenters and have, therefore, changed the collection sites for
samples from female horses in this final rule. Specifically, we have
changed the testing requirements for female thoroughbred horses in
Sec. 92.301(d)(1)(ii)(D), mares over 731 days of age in
Sec. 92.301(e)(1)(iii), and test mares in Secs. 92.301(e)(3)(i)(B),
92.301(e)(4)(ii), and 92.301(e)(5)(i) to require that specimens for
culturing be collected from the clitoral fossa and clitoral sinuses.
Treatment in Country of Origin
We had proposed to remove certain specific treatment instructions
for stallions diagnosed with CEM in their country of origin and replace
them with the requirement that the stallion be treated for CEM in a
manner approved by the national veterinary service of the country of
origin. One commenter was concerned that the treatment protocols used
in a stallion's country of origin may not be as demanding as those that
would be required by the Animal and Plant Health Inspection Service
(APHIS) and thus may not eliminate the CEM organism; rather, the
commenter suggested, the stallions should be treated in a manner
approved in the country of destination, i.e., the United States.
As noted in the proposed rule, the treatments performed in the
country of origin and the dates of the treatments will have to be
recorded on the horse's health certificate, so APHIS will have the
opportunity to consider the treatments used when the stallion is
offered for importation into the United States. Further, we will
continue to require that the stallion be retested no less than 21 days
following the completion of treatment and found free of CEM before it
will be eligible to enter the United States. Because that retesting
requirement will be in place, we believe that allowing the national
veterinary service of the country of origin to use its discretion in
deciding the appropriate treatment for stallions that have been found
to be positive for CEM will not result in an increased risk of CEM-
infected stallions entering the United States. We have not, therefore,
made any changes in response to that comment.
Treatment and Cleaning Protocol
The proposed rule also included a proposed protocol for the
treatment and cleaning of the clitoral sinuses of mares over 731 days
of age imported into an approved State. The protocol involved the
flushing of the clitoral sinuses with a cerumalytic agent, followed by
5 days of cleaning the external genitalia and vaginal vestibule,
including the clitoral fossa, with a solution of not less than 2
percent chlorhexidine in a detergent base and then filling the clitoral
fossa and sinuses, and coating the external genitalia and vaginal
vestibule, with an antibiotic ointment effective against the CEM
organism. Three of the commenters were concerned that the 5 consecutive
days of cleaning and coating would be irritating and even painful to a
mare and would likely result in the mare violently resisting the
treatment, which would pose a risk of injury to both the mare and the
person doing the cleaning and possibly result in the procedure not
being completed properly. Two commenters suggested that if the cleaning
procedure were conducted properly and thoroughly, the period of
treatment could be reduced to 3 or even 2 days.
The researchers who developed the cleaning and treatment procedure
described above concluded that the cleaning and flushing of the
clitoral sinuses should be followed by 5 consecutive days of washing
and application of ointment to ensure that the treatment is effective.
We will, therefore, retain the requirement for 5 days of post-flush
treatment. We acknowledge that a mare undergoing the treatment may well
become anxious or irritated as a result of the repeated handling of the
genitalia and thus require restraint or anesthesia; if that is the
case, the quarantine center personnel would be able to note the change
in the mare's disposition and take whatever precautions they deem
necessary to prevent any harm coming to them and to the mare. If
subsequent research indicates that the procedure should be modified to
reduce the length of treatment or increase its effectiveness, we will
publish a new proposed rule in the Federal Register to modify the
procedure. We have not, however, made any changes to the procedure in
this final rule.
Clitoral Sinusectomy
We had proposed to eliminate the requirement that certain mares
undergo a clitoral sinusectomy because the availability of procedures
for the cleaning and treatment of the clitoral sinuses to eliminate the
CEM organism had rendered clitoral sinusectomies unnecessary. One
commenter did not agree and recommended that the clitoral sinusectomy
be retained for use on mares that had tested positive for CEM, rather
than depending on the cleaning and treatment procedure to eliminate the
CEM organism. The cleaning and treatment procedure, the commenter
suggested, could be retained for use on mares that had tested negative
for CEM.
We have full confidence in the efficacy of the procedures described
in the proposed rule for flushing and cleaning the clitoral sinuses,
cleaning and washing the external genitalia and vaginal vestibule, and
filling the clitoral fossa and sinuses and coating the external
genitalia and vaginal vestibule with an antibiotic ointment effective
against the CEM organism. This procedure has been shown to effectively
eliminate debris that could harbor the CEM organism, which we believe
renders clitoral sinusectomies in all mares, whether they have been
diagnosed with CEM or not, unnecessary. We have, therefore, made no
changes in response to that comment.
High-Risk Mares
Two commenters suggested that mares that had been diagnosed with
and treated for CEM in their country of origin prior to importation
into the United States should be classified as ``high-risk mares.'' The
commenters did not recommend that any additional restrictions be placed
on such mares, but only that APHIS notify the animal health authorities
in the approved State to which a high-risk mare has been consigned when
the mare is released from CEM quarantine.
Under the provisions of the regulations, a mare cannot be imported
into the United States from a CEM country until a set of specimens has
been collected from the mare and cultured negative for CEM. Once the
mare has been imported into the United States and released from Federal
port-of-entry quarantine, specimens must be collected from that mare
three more times over a 7-day period and cultured, all with negative
results. The mare must then undergo the cleaning and treatment
procedure described in the previous paragraphs. Only after the mare has
satisfied all those requirements may it
[[Page 52238]]
be released from quarantine. With these requirements in place, we are
confident that any mare released from quarantine will be free from CEM;
in that case, one mare would not present a higher risk than another. We
do not believe, therefore, that it is necessary to differentiate
between mares that have not been diagnosed with CEM and mares that were
diagnosed with and effectively treated for CEM prior to their
importation into the United States, so we have made no changes to this
rule in response to that comment.
Use of Accredited Veterinarians
Two commenters supported the idea of allowing accredited
veterinarians to conduct the monitoring required for horses imported
for no more than 90 days to compete in specified events, but the
commenters suggested that the accredited veterinarians be required to
undergo some type of additional training to ensure that they are fully
versed in the regulations regarding such temporary importations.
The monitoring required by Sec. 92.301(f)(2)(ii) is to ensure that
the horse is kept on a premises approved by an APHIS representative; is
kept, except when actually competing or being exercised, in a stall
that prevents any contact with other horses; and has no sexual contact
with other horses and does not undergo any genital examinations. As
noted in the proposed rule, an accredited veterinarian must be familiar
with APHIS' animal health programs and regulations in order to be
approved by the Administrator to perform the functions associated with
those programs, and any accredited veterinarian monitoring temporarily
imported horses would be subject to spot checks by an APHIS
representative. Although we do not believe that accredited
veterinarians will need to receive any additional training, as
suggested by the commenter, we believe it would be useful for the APHIS
Veterinarian in Charge in the State where the monitoring would take
place to check with the accredited veterinarian to make sure that he or
she is conversant in the duties and responsibilities associated with
the monitoring of temporarily imported horses. We have, therefore,
modified Sec. 92.301(f)(2)(ii) in this final rule to state that the
Veterinarian in Charge will ensure that the accredited veterinarian is
familiar with the requirements of the regulations with regard to
monitoring temporarily imported horses.
Release from Quarantine
One commenter sought clarification in three areas regarding the
timing or sequence of certain testing and treatment requirements for
stallions and mares in quarantine. First, the commenter asked whether
the release of a stallion from quarantine would be a set number of days
after it entered quarantine or if the release would be contingent upon
the receipt of the results of the complement fixation test conducted 15
days after breeding on the two test mares. The regulations in
Sec. 92.301(e)(3)(iii) state that a stallion may be released from
quarantine only if all cultures and tests of specimens from the mares
used for test breeding are negative for CEM and all cultures performed
on specimens taken from the stallion are negative for CEM. Because the
results of all tests and cultures must be negative before the stallion
can be released from quarantine, the release of a stallion from
quarantine would indeed be contingent upon the receipt of the results
of the complement fixation tests.
The commenter also noted that because many imported stallions have
no previous breeding experience, it often takes several days to train
them to safely breed a mare. Under the provisions described in the
proposed rule, the stallion is test bred to two mares after it has been
cultured negative for CEM, which the commenter speculated could be as
soon as the stallion's first day in quarantine. The commenter
recommended, therefore, that some flexibility should be built into the
regulations to allow the quarantine facility staff sufficient time to
train imported stallions to safely breed the test mares. Because there
is no set time limit in the regulations for the completion of the test
breeding, the flexibility sought by the commenter is, in fact, already
present. The regulations in Sec. 92.301(e)(3)(i) require only that the
test breeding take place after negative results have been obtained from
the stallion's CEM cultures, which is usually at least 2 or 3 days
after the collection of specimens. If an imported stallion requires
training to safely breed a mare, there is nothing in the regulations to
prevent a quarantine facility's staff from taking the time necessary to
conduct that training.
Finally, the commenter asked that we clarify the sequence of the
actions described in the proposed rule under Sec. 92.301(e)(5),
``Testing and treatment requirements for mares.'' The commenter was
uncertain as to whether the washing and packing of the mare's external
genitalia and vaginal vestibule was to be conducted prior to, or
concurrent with, the collection of specimens from the mare on days one,
four, and seven of quarantine. Actually, the washing and packing is to
be after the three sets of specimens have been collected. The required
actions are listed sequentially in Sec. 92.301(e)(5): Collect three
sets of specimens over 7 days, then clean and flush the sinuses, then
wash and pack for 5 consecutive days. The commenter's confusion could
be due to a lack of clarity at the start of Sec. 92.301(e)(5)(ii),
which begins ``Following the collections of specimens * * *'' without
specifying that all three sets of specimens must be collected before
the cleaning and flushing of the clitoral sinuses begins. In order to
eliminate that potential source of confusion, we have modified the
language in Sec. 92.301(e)(5) in this final rule to make it clear that
the collection of specimens is to be completed prior to the cleaning
and flushing.
Another instance where a lack of clarity could lead to confusion is
in Sec. 92.301(d)(3). That paragraph states that thoroughbred horses
found free from CEM and imported under Sec. 92.301(d)(1) may be
released after completing the Federal quarantine required under
Sec. 92.308; the paragraph does not, however, specify the post-entry
requirements for thoroughbred horses over 731 days of age that were
found positive for CEM and subsequently treated and retested for CEM as
provided by Sec. 92.301(d)(2). It was our intent when drafting the
proposed rule that such thoroughbred horses, as is required for all
other horses over 731 days of age that have been found positive for CEM
and subsequently treated and retested for CEM, should be consigned to
an approved State for post-entry testing and treatment. We have,
therefore, modified the language in Sec. 92.301(d)(3) to make it clear
that thoroughbred horses over 731 days of age that have been treated
and retested for CEM in accordance with Sec. 92.301(d)(2) must undergo
post-entry quarantine in an approved State.
In addition to the changes discussed above, we have also made
several nonsubstantive editorial changes for the sake of clarity or
consistency.
Therefore, based on the rationale set forth in the proposed rule
and in this document, we are adopting the provisions of the proposal as
a final rule, with the changes discussed in this document.
Executive Order 12866 and Regulatory Flexibility Act
This rule has been reviewed under Executive Order 12866. The rule
has been determined to be not significant for the purposes of Executive
Order 12866 and, therefore, has not been reviewed by the Office of
Management and Budget.
[[Page 52239]]
This rule amends the regulations regarding the importation of
horses from countries affected with CEM by incorporating new testing
and treatment protocols for mares and stallions, providing for the use
of accredited veterinarians to monitor horses temporarily imported into
the United States for competition purposes, incorporating a new testing
protocol for thoroughbred horses in training in their country of
origin, and removing the requirements for endometrial cultures and
clitoral sinusectomies in mares. These changes will update, clarify,
and streamline the existing regulations and simplify the requirements
for importing horses from countries affected with CEM without
increasing the risk of the disease being introduced into or
disseminated within the United States.
The United States is a net exporter of horses, exporting
approximately two horses for every one imported, and unit values for
imports and exports slightly favored the United States during fiscal
year (FY) 1994 and FY 1995. The unit value of exports was $3,762 per
head in FY 1994, while the unit import value was $3,336 per head; in FY
1995, these values shifted to $2,742 per head (export) and $2,674 per
head (import).
In FY 1994, U.S. exports of horses totaled 62,064 head valued at
$233.4 million; in FY 1995, the total was 81,487 head valued at $223.4
million. Most of those horses were exported to Canada, Mexico, and
Western Europe (especially the United Kingdom and Ireland). U.S.
imports of horses, on the other hand, are small relative to total
inventory and equal about half of U.S. horse exports. In FY 1994, U.S.
horse imports totaled 17,881 head valued at $59.6 million; in FY 1995,
the total was 43,545 head valued at $116.4 million. Canada and Mexico
were the source of over 90 percent of all U.S. horse imports in those
years. In each year, those imports equaled approximately 1 percent of
the domestic horse inventory (USDA, Economic Research Service,
``Foreign Agricultural Trade of the United States,'' Fiscal Year 1995
Supplement). Small entities maintain almost 95 percent of the domestic
horse inventory.
The new testing and treatment protocols presented in this document
are the only aspects of this rule that are expected to have an economic
impact. In each case, the changes will reduce the time required to
collect samples, conduct tests, and administer treatments, which will
shorten the period that an imported horse will have to spend in
quarantine. Because the importer or owner of an imported horse must
bear the cost of providing care, feeding, and handling of the horse
during the time it is quarantined for CEM testing and treatment in an
approved State, a shorter quarantine period will clearly reduce an
owner's or importer's boarding costs. The current course of testing and
treatment runs, on average, from 4 to 6 weeks; the testing and
treatment protocols in this rule are expected to cut that time frame to
2 to 3 weeks.
We do not expect, however, that these changes will result in an
increase of horse imports into the United States. Those countries that
can already profitably ship horses to the United States and meet the
current requirements of the regulations will not be significantly
affected, and those countries that do not currently meet those
requirements are not expected to meet the new requirements either.
Under these circumstances, the Administrator of the Animal and
Plant Health Inspection Service has determined that this action will
not have a significant economic impact on a substantial number of small
entities.
Executive Order 12372
This program/activity is listed in the Catalog of Federal Domestic
Assistance under No. 10.025 and is subject to Executive Order 12372,
which requires intergovernmental consultation with State and local
officials. (See 7 CFR part 3015, subpart V.)
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. This rule: (1) Preempts all State and local laws and
regulations that are inconsistent with this rule; (2) has no
retroactive effect; and (3) does not require administrative proceedings
before parties may file suit in court challenging this rule.
Paperwork Reduction Act
This rule contains no new information collection or recordkeeping
requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
et seq.).
Regulatory Reform
This action is part of the President's Regulatory Reform
Initiative, which, among other things, directs agencies to remove
obsolete and unnecessary regulations and to find less burdensome ways
to achieve regulatory goals.
List of Subjects in 9 CFR Part 92
Animal diseases, Imports, Livestock, Poultry and poultry products,
Quarantine, Reporting and recordkeeping requirements.
Accordingly, 9 CFR part 92 is amended as follows:
PART 92--IMPORTATION OF CERTAIN ANIMALS AND POULTRY AND CERTAIN
ANIMAL AND POULTRY PRODUCTS; INSPECTION AND OTHER REQUIREMENTS FOR
CERTAIN MEANS OF CONVEYANCE AND SHIPPING CONTAINERS THEREON
1. The authority citation for part 92 continues to read as follows:
Authority: 7 U.S.C. 1622; 19 U.S.C. 1306; 21 U.S.C. 102-105,
111, 114a, 134a, 134b, 134c, 134d, 134f, 135, 136, and 136a; 31
U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.2(d).
2. In Sec. 92.300, the definition of Weanling or yearling is
revised to read as follows:
Sec. 92.300 Definitions.
* * * * *
Weanling or yearling. Any horse, weaned from its dam, that was
foaled not more than 731 days prior to its being offered for entry into
the United States. A horse will not be considered to be a weanling or
yearling if its first permanent incisors have erupted.
Secs. 92.303 and 92.304 [Amended]
3. Sections 92.303 and 92.304 are amended as follows:
a. In Sec. 92.304, footnote 12 and its reference in the section
heading are removed.
b. In Sec. 92.303(e), footnote 11 and its reference are
redesignated as footnote 12.
4. In Sec. 92.301, paragraph (c) is revised and new paragraphs (d)
through (i) are added to read as follows:
Sec. 92.301 General prohibitions; exceptions.
* * * * *
(c) Specific prohibitions regarding contagious equine metritis;
exceptions--(1) Importation prohibited. Except as provided in paragraph
(c)(2) of this section, notwithstanding the other provisions of this
part concerning the importation of horses into the United States, the
importation of all horses from any of the following listed countries
and the importation of all horses that have been in any listed country
within the 12 months immediately preceding their being offered for
entry into the United States is prohibited, either because contagious
equine metritis (CEM) exists in the listed country or because the
listed country trades horses freely with a country in which CEM exists
without testing for CEM: Austria, Belgium, Bosnia and Herzegovina,
Croatia, Czech Republic, Denmark, Finland, France, Germany, Guinea-
Bissau, Ireland, Italy,
[[Page 52240]]
Japan, the Member States of the European Union, The Netherlands,
Norway, Slovakia, Slovenia, Sweden, Switzerland, The Former Yugoslav
Republic of Macedonia, the United Kingdom (England, Northern Ireland,
Scotland, Wales, and the Isle of Man), and the nonrecognized areas of
the former Yugoslavia (Montenegro and Serbia).
Note: Montenegro and Serbia have asserted the formation of a
joint independent State entitled ``The Federal Republic of
Yugoslavia,'' but this entity has not been formally recognized by
the United States.
(2) Exceptions. The provisions of paragraph (c)(1) of this section
shall not apply to the following:
(i) Wild (non-domesticated) species of equidae if captured in the
wild or imported from a zoo or other facility where it would be
unlikely that the animal would come in contact with domesticated horses
used for breeding;
(ii) Geldings;
(iii) Weanlings or yearlings whose age is certified on the import
health certificate required under Sec. 92.314(a);
(iv) Horses imported in accordance with conditions prescribed by
the Administrator as provided in Sec. 92.301(a);
(v) Thoroughbred horses imported for permanent entry from France,
Germany, Ireland, or the United Kingdom if the horses meet the
requirements of paragraph (d) of this section;
(vi) Stallions or mares over 731 days of age imported for permanent
entry if the horses meet the requirements of paragraph (e) of this
section;
(vii) Horses over 731 days of age imported into the United States
for no more than 90 days to compete in specified events if the horses
meet the requirements of paragraph (f) of this section; and
(viii) Horses temporarily exported from the United States or from
another country not known to be affected with CEM to a country listed
in paragraph (c)(1) of this section within the 12 months immediately
preceding their being offered for entry into the United States if the
horses meet the requirements of paragraph (g) of this section.
(d) Thoroughbred horses from France, Germany, Ireland, and the
United Kingdom. (1) Thoroughbred horses may be imported for permanent
entry from France, Germany, Ireland, or the United Kingdom if the
horses meet the following requirements:
(i) Each horse is accompanied at the time of importation by an
import permit in accordance with Sec. 92.304;
(ii) Each horse is accompanied at the time of importation by an
import health certificate issued in accordance with Sec. 92.314(a). In
addition to the information required by Sec. 92.314(a), the
veterinarian signing and issuing the certificate shall certify that:
(A) He or she has examined the daily records of the horse's
activities maintained by the trainer and certified to be current, true,
and factual by the veterinarian in charge of the training or racing
stable;
(B) He or she has examined the records of the horse's activities
maintained by a breed association specifically approved by the
Department 6 and certified by the breed association to be current,
true, and factual for the following information: Identification of the
horse by name, sex, age, breed, and all identifying marks;
identification of all premises where the horse has been since reaching
731 days of age and the dates that the horse was at such premises; and
that none of the premises are breeding premises;
---------------------------------------------------------------------------
\6\ The following breed associations and their record systems
have been approved by the Department: Weatherby's Ltd. for the
United Kingdom and Ireland; Haras du Pain for France; and
Direktorium fur Vollblutzucht und Rennen e.v. for Germany.
---------------------------------------------------------------------------
(C) He or she has compared the records maintained by the approved
breed association with the records kept by the trainer and has found
the information in those two sets of records to be consistent and
current;
(D) For thoroughbred horses over 731 days of age, cultures negative
for CEM were obtained from sets of specimens collected on 3 separate
occasions within a 7-day period from the mucosal surfaces of the
clitoral fossa and the clitoral sinuses of any female horses and from
the surfaces of the prepuce, the urethral sinus, and the fossa glandis,
including the diverticulum of the fossa glandis, of any male horses.
For both female and male horses, the sets of specimens must be
collected on days 1, 4, and 7 of the 7-day period, and the last of
these sets of specimens must be collected within 30 days of
exportation. All specimens required by this paragraph must be collected
by a licensed veterinarian who either is, or is acting in the presence
of, the veterinarian signing the certificate; and
(E) All specimens required by paragraph (d)(1)(ii)(D) of this
section were received within 48 hours of collection by a laboratory
approved to culture for CEM by the national veterinary service of the
country of export and were accompanied by a statement indicating the
date and time of their collection.
(2) If any specimen collected in accordance with paragraph
(d)(1)(ii)(D) of this section is found to be positive for CEM, the
horse must be treated for CEM in a manner approved by the national
veterinary service of the country of export. After the treatment is
completed, at least 21 days must pass before the horse will be eligible
to be tested again in accordance with paragraph (d)(1)(ii)(D) of this
section. All treatments performed, and the dates of the treatments,
must be recorded on the health certificate.
(3) Thoroughbred horses imported under paragraph (d)(1) of this
section may be released upon completion of the Federal quarantine
required under Sec. 92.308. Thoroughbred horses found positive for CEM
that have been treated and retested as provided in paragraph (d)(2) of
this section shall, upon completion of the Federal quarantine required
under Sec. 92.308, be consigned to an approved State listed in
paragraph (h)(6) or (h)(7) of this section, where they shall be
quarantined under State or Federal supervision until the stallions have
met the testing and treatment requirements of paragraph (e)(3) of this
section and the mares have met the testing and treatment requirements
of paragraph (e)(5) of this section.
(e) Stallions and mares over 731 days of age from CEM-affected
countries. (1) Stallions or mares over 731 days of age may be imported
for permanent entry from a country listed in paragraph (c)(1) of this
section if the horses meet the following requirements:
(i) Each horse is accompanied at the time of importation by an
import permit issued in accordance with Sec. 92.304. The import permit
must indicate that, after completion of the Federal quarantine required
in Sec. 92.308, the stallion or mare will be consigned to a State that
the Administrator has approved to receive such horses in accordance
with paragraph (h) of this section;
(ii) The horses are accompanied at the time of importation by an
import health certificate issued in accordance with Sec. 92.314(a);
(iii) A set of specimens must be collected from each horse within
30 days prior to the date of export by a licensed veterinarian who
either is, or is acting in the presence of, the veterinarian signing
the certificate. For stallions, the specimens must be collected from
the prepuce, urethral sinus, and fossa glandis, including the
diverticulum of the fossa glandis; for mares, the specimens must be
collected from the mucosal surfaces of the clitoral fossa and the
clitoral sinuses. All of the specimens collected must be cultured for
CEM with negative results in a laboratory approved to culture for CEM
[[Page 52241]]
by the national veterinary service of the country of origin;
(iv) The horses described on the certificate must not have been
used for natural breeding, for the collection of semen for artificial
insemination in the case of stallions, or for artificial insemination
in the case of mares, from the time the specimens were collected
through the date of export;
(v) All specimens required by paragraph (e)(1)(iii) of this section
must be received within 48 hours of collection by a laboratory approved
to culture for CEM by the national veterinary service of the country of
export and must be accompanied by a statement indicating the date and
time of their collection; and
(vi) If any specimen collected in accordance with paragraph
(e)(1)(iii) of this section is found to be positive for CEM, the
stallion or mare must be treated for CEM in a manner approved by the
national veterinary service of the country of export. After the
treatment is completed, at least 21 days must pass before the horse
will be eligible to be tested again in accordance with paragraph
(e)(1)(ii) of this section. All treatments performed, and the dates of
the treatments, must be recorded on the health certificate.
(2) Post-entry. (i) Stallions and mares imported under paragraph
(e)(1) of this section must complete the Federal quarantine required
under Sec. 92.308. Upon completion of the Federal quarantine, stallions
must be sent to an approved State listed in paragraph (h)(6) of this
section, and mares must be sent to an approved State listed in
paragraph (h)(7) of this section.
(ii) Once in the approved State, the stallions or mares shall be
quarantined under State or Federal supervision until the stallions have
met the testing and treatment requirements of paragraph (e)(3) of this
section and the mares have met the testing and treatment requirements
of paragraph (e)(5) of this section.
(iii) All tests and cultures required by paragraphs (e)(3) through
(e)(5) of this section shall be conducted at the National Veterinary
Services Laboratories, Ames, IA, or at a laboratory approved by the
Administrator in accordance with paragraph (i) of this section to
conduct CEM cultures and tests.
(iv) To be eligible for CEM culture or testing, all specimens
collected in accordance with paragraphs (e)(3) through (e)(5) of this
section must be received by the National Veterinary Services
Laboratories or the approved laboratory within 48 hours of collection
and must be accompanied by a statement indicating the date and time of
their collection.
(3) Testing and treatment requirements for stallions. (i) Once the
stallion is in the approved State, one specimen each shall be taken
from the prepuce, the urethral sinus, and the fossa glandis, including
the diverticulum of the fossa glandis, of the stallion and be cultured
for CEM. After negative results have been obtained, the stallion must
be test bred to two test mares that meet the requirements of paragraph
(e)(4) of this section. Upon completion of the test breeding:
(A) The stallion must be treated for 5 consecutive days by
thoroughly cleaning and washing (scrubbing) its prepuce, penis,
including the fossa glandis, and urethral sinus while the stallion is
in full erection with a solution of not less than 2 percent surgical
scrub chlorhexidine and then thoroughly coating (packing) the
stallion's prepuce, penis, including the fossa glandis, and urethral
sinus with an ointment effective against the CEM organism.7 The
treatment shall be performed by an accredited veterinarian and
monitored by a State or Federal veterinarian.
---------------------------------------------------------------------------
\7\ A list of ointments effective against the CEM organism may
be obtained from the National Center for Import and Export, Import/
Export Animals, VS, APHIS, 4700 River Road Unit 39, Riverdale, MD
20737-1231.
---------------------------------------------------------------------------
(B) Each mare to which the stallion has been test bred shall be
cultured for CEM from sets of specimens that are collected from the
mucosal surfaces of the clitoral fossa and clitoral sinuses on the
third, sixth, and ninth days after the breeding, with negative results.
A complement fixation test for CEM must be done with negative results
on the fifteenth day after the breeding.
(ii) If any culture or test required by this paragraph is positive
for CEM, the stallion shall be treated as described in paragraph
(e)(3)(i)(A) of this section and retested by being test bred to two
mares no less than 21 days after the last day of treatment.
(iii) A stallion may be released from State quarantine only if all
cultures and tests of specimens from the mares used for test breeding
are negative for CEM and all cultures performed on specimens taken from
the stallion are negative for CEM.
(4) Requirements for test mares. (i) Mares to be used to test
stallions for CEM shall be permanently identified before the mares are
used for such testing with the letter ``T.'' The marking shall be
permanently applied by an inspector, a State inspector, or an
accredited veterinarian who shall use a hot iron, freezemarking, or a
lip tattoo. If a hot iron or freezemarking is used, the marking shall
not be less than 2 inches (5.08 cm) high and shall be applied to the
left shoulder or left side of the neck of the mare. If a lip tattoo is
used, the marking shall not be less than 1 inch (2.54 cm) high and 0.75
inch (1.9 cm) wide and shall be applied to the inside surface of the
upper lip of the test mare.
(ii) The test mares must be qualified prior to breeding as
apparently free from CEM and may not be used for breeding from the time
specimens are taken to qualify the mares as free from CEM. To qualify,
each mare shall be tested with negative results by a complement
fixation test for CEM, and specimens taken from each mare shall be
cultured negative for CEM. For culture, sets of specimens shall be
collected on the first, fourth, and seventh days of a 7-day period from
the mucosal surfaces of the clitoral fossa and clitoral sinuses.
(iii) A test mare that has been used to test stallions for CEM may
be released from quarantine only if:
(A) The test mare is found negative for CEM on all cultures and
tests required under paragraph (e)(3)(ii) of this section; or
(B) The test mare is subjected to an ovariectomy by an accredited
veterinarian under the direct supervision of a State or Federal
veterinarian; or
(C) The test mare is treated and handled in accordance with
paragraph (e)(5) of this section; or
(D) The test mare is moved directly to slaughter without unloading
en route, is euthanized, or dies.
(5) Testing and treatment requirements for mares. (i) Once the mare
is in the approved State, sets of specimens shall be collected from the
mare on three separate occasions within a 7-day period. On days 1, 4,
and 7, an accredited veterinarian shall collect specimens from the
mucosal surfaces of the clitoral fossa and clitoral sinuses and shall
submit each set of specimens to the National Veterinary Services
Laboratories, Ames, IA, or to a laboratory approved by the
Administrator in accordance with paragraph (i) of this section to
conduct CEM cultures and tests.
(ii) After the three sets of specimens required by paragraph
(e)(5)(i) of this section have been collected, an accredited
veterinarian shall manually remove organic debris from the sinuses of
each mare and then flush the sinuses with a cerumalytic agent.8
---------------------------------------------------------------------------
\8\ Recommended protocols for the flushing of sinuses may be
obtained from the National Center for Import and Export, Import/
Export Animals, VS, APHIS, 4700 River Road Unit 39, Riverdale, MD
20737-1231.
---------------------------------------------------------------------------
[[Page 52242]]
(iii) For 5 consecutive days after the sinuses have been cleaned,
an accredited veterinarian shall aseptically clean and wash (scrub) the
external genitalia and vaginal vestibule, including the clitoral fossa,
with a solution of not less than 2 percent chlorhexidine in a detergent
base and then fill the clitoral fossa and sinuses, and coat the
external genitalia and vaginal vestibule with an antibiotic ointment
effective against the CEM organism.9
---------------------------------------------------------------------------
\9\ A list of ointments effective against the CEM organism may
be obtained from the National Center for Import and Export, Import/
Export Animals, VS, APHIS, 4700 River Road Unit 39, Riverdale, MD
20737-1231.
---------------------------------------------------------------------------
(iv) A mare may be released from State quarantine only if all
cultures performed on specimens taken from the mare are negative for
CEM.
(v) If any culture required by this paragraph is positive for CEM,
the mare shall be treated as described in paragraphs (e)(5)(ii) and
(e)(5)(iii) of this section. No less than 21 days after the last day of
treatment, the mare shall be tested again in accordance with paragraph
(e)(5)(i) of this section. If all specimens are negative for CEM, the
mare may be released from quarantine.
(f) Special provisions for temporary importation. Horses over 731
days of age may be imported into the United States for no more than 90
days to compete in specified events if the following conditions are
met:
(1) The horse may remain in the United States for not more than 90
days following the horse's arrival in the United States, except as
provided in paragraph (f)(6) of this section and, while in the United
States, the horse must be moved according to the itinerary and methods
of transport specified in the import permit provided for in Sec. 92.304
of this part;
(2) While the horse is in the United States, the following
conditions must be met:
(i) Except when in transit, the horse must be kept on a premises
that has been approved, orally or in writing, by an APHIS
representative. If the approval is oral, it will be confirmed in
writing by the Administrator as soon as circumstances permit. To
receive approval, the premises:
(A) Must not be a breeding premises; and
(B) Must be or contain a building in which the horse can be kept in
a stall that is separated from other stalls containing horses, either
by an empty stall, by an open area across which horses cannot touch
each other, or by a solid wall that is at least 8 feet (2.4 m) high.
(ii) While at the premises at which the horse competes, the horse
must be monitored by an accredited veterinarian or APHIS representative
to ensure that the provisions of paragraphs (f)(2)(i), (f)(2)(iv), and
(f)(2)(v) of this section are met. If the monitoring is performed by an
accredited veterinarian, the Veterinarian in Charge will ensure that
the accredited veterinarian is familiar with the requirements of this
section and spot checks will be conducted by an APHIS representative to
ensure that the requirements of this section are being met. If an APHIS
representative finds that requirements are not being met, the
Administrator may require that all remaining monitoring for the event
be conducted by APHIS representatives to ensure compliance.
(iii) While in transit, the horse must be moved in either an
aircraft or a sealed van or trailer. If the horse is moved in a sealed
van or trailer, the seal may be broken only by an APHIS representative
at the horse's destination, except in situations where the horse's life
is in danger.
(iv) Except when actually competing or being exercised, the horse
must be kept in a stall that is separated from other stalls containing
horses, either by an empty stall, by an open area across which horses
cannot touch each other, or by a solid wall that is at least 8 feet
(2.4 m) high.
(v) The horse may not be used for breeding purposes (including
artificial insemination), may not have any other sexual contact with
other horses, and may not undergo any genital examinations.
(vi) After the horse is transported anywhere in the United States,
any vehicle in which the horse was transported must be cleaned and
disinfected in the presence of an APHIS representative, according to
the procedures specified in Secs. 71.7 through 71.12 of this chapter,
before any other horse is transported in the vehicle.
(vii) The cleaning and disinfection specified in paragraph
(f)(2)(vi) of this section must be completed before the vehicle is
moved from the place where the horse is unloaded. In those cases where
the facilities or equipment for cleaning and disinfection are
inadequate at the place where the horse is unloaded, the Administrator
may allow the vehicle to be moved to another location for cleaning and
disinfection when the move will not pose a disease risk to other horses
in the United States.
(viii) The owner or importer of the horse must comply with any
other provisions of this part applicable to him or her.
(3) If the owner or importer wishes to change the horse's itinerary
or the methods by which the horse is transported from that which he or
she specified in the application for the import permit, the owner or
importer must make the request for change in writing to the
Administrator. Requests should be sent to the Administrator, c/o
Import-Export Animals Staff, VS, APHIS, 4700 River Road Unit 39,
Riverdale, MD 20737-1231. The change in itinerary or method of
transport may not be made without the written approval of the
Administrator, who may grant the request for change when he or she
determines that granting the request will not endanger other horses in
the United States and that sufficient APHIS personnel are available to
provide the services required by the owner or importer. If more than
one application for an import permit is received, APHIS personnel will
be assigned in the order that the applications that otherwise meet the
requirements of this section are received.
(4) The Administrator may cancel, orally or in writing, the import
permit provided for under Sec. 92.304 of this part whenever the
Administrator finds that the owner or importer of the horse has not
complied with the provisions of paragraphs (f)(1) through (f)(3) of
this section or any conditions imposed under those provisions. If the
cancellation is oral, the Administrator will confirm the cancellation
and the reasons for the cancellation in writing as soon as
circumstances permit. Any person whose import permit is canceled may
appeal the decision in writing to the Administrator within 10 days
after receiving oral or written notification of the cancellation,
whichever is earlier. If the appeal is sent by mail, it must be
postmarked within 10 days after the owner or importer receives oral or
written notification of the cancellation, whichever is earlier. The
appeal must include all of the facts and reasons upon which the person
relies to show that the import permit was wrongfully canceled. The
Administrator will grant or deny the appeal in writing as promptly as
circumstances permit, stating the reason for his or her decision. If
there is a conflict as to any material fact, a hearing will be held to
resolve the conflict. Rules of practice concerning the hearing will be
adopted by the Administrator.
(5) Except in those cases where an appeal is in process, any person
whose import permit is canceled must move the horse identified in the
import permit out of the United States within 10 days after receiving
oral or written
[[Page 52243]]
notification of cancellation, whichever is earlier. The horse is not
permitted to enter competition from the date the owner or importer
receives the notice of cancellation until the horse is moved out of the
United States or until resolution of an appeal in favor of the owner or
importer. Except when being exercised, the horse must be kept, at the
expense of the owner or importer, in a stall on the premises where the
horse is located when the notice of cancellation is received, or, if
the horse is in transit when the notice of cancellation is received, on
the premises where it is next scheduled to compete according to the
import permit. The stall in which the horse is kept must be separated
from other stalls containing horses, either by an empty stall, by an
open area across which horses cannot touch each other, or a by solid
wall that is at least 8 feet (2.4 m) high. In cases where the owners of
the above specified premises do not permit the horse to be kept on
those premises, or when the Administrator determines that keeping the
horse on the above specified premises will pose a disease risk to
horses in the United States, the horse must be kept, at the expense of
the owner or importer, on an alternative premises approved by the
Administrator.
(6) Stallions or mares over 731 days of age that are imported for
no more than 90 days in accordance with paragraphs (f)(1) through
(f)(3) of this section may be eligible to remain in the United States
if the following is completed:
(i) Following completion of the itinerary specified in the import
permit provided for in Sec. 92.304 of this part, the horse's owner or
importer applies for and receives a new import permit that specifies
that the stallion or mare will be moved to an approved State listed in
paragraph (h)(6) or (h)(7) of this section; and
(ii) The stallion or mare is transported in a sealed vehicle that
has been cleaned and disinfected to an approved facility in an approved
State where it is quarantined under State or Federal supervision until
the stallion or mare has met the testing and treatment requirements of
paragraph (e)(3) or (e)(5) of this section.
(7) All costs and charges associated with the supervision and
maintenance of a horse imported under paragraphs (f)(1) through (f)(3)
of this section will be borne by the horse's owner or importer. The
costs associated with the supervision and maintenance of the horse by
an APHIS representative at his or her usual places of duty will be
reimbursed by the horse's owner or importer through user fees payable
under part 130 of this chapter.
(8) In the event that an APHIS representative must be temporarily
detailed from his or her usual place of duty in connection with the
supervision and maintenance of a horse imported under paragraphs (f)(1)
through (f)(3) of this section, the owner or importer of the horse must
execute a trust fund agreement with APHIS to reimburse all expenses
(including travel costs, salary, per diem or subsistence,
administrative expenses, and incidental expenses) incurred by the
Department in connection with the temporary detail. Under the trust
fund agreement, the horse's owner or importer must deposit with APHIS
an amount equal to the estimated cost, as determined by APHIS, for the
APHIS representative to inspect the premises at which the horse will
compete, to conduct the monitoring required by paragraph (f)(2)(ii) of
this section, and to supervise the cleaning and disinfection required
by paragraph (f)(2)(vi) of this section. The estimated costs will be
based on the following factors:
(i) Number of hours needed for an APHIS representative to conduct
the required inspection and monitoring;
(ii) For services provided during regular business hours (8 a.m. to
4:30 p.m., Monday through Saturday, except holidays), the average
salary, per hour, for an APHIS representative;
(iii) For services provided outside regular business hours, the
applicable rate for overtime, night differential, or Sunday or holiday
pay, based on the average salary, per hour, for an APHIS
representative;
(iv) Number of miles from the premises at which the horse competes
to the APHIS office or facility that is monitoring the activities;
(v) Government rate per mile for automobile travel or, if
appropriate, cost of other means of transportation between the premises
at which the horse competes and the APHIS office or facility;
(vi) Number of trips between the premises at which the horse
competes and the APHIS office or facility that APHIS representatives
are required to make in order to conduct the required inspection and
monitoring;
(vii) Number of days the APHIS representative conducting the
inspection and monitoring must be in ``travel status;''
(viii) Applicable government per diem rate; and
(ix) Cost of related administrative support services.
(9) If a trust fund agreement with APHIS has been executed by the
owner or importer of a horse in accordance with paragraph (f)(8) of
this section and APHIS determines, during the horse's stay in the
United States, that the amount deposited will be insufficient to cover
the services APHIS is scheduled to provide during the remainder of the
horse's stay, APHIS will issue to the horse's owner or importer a bill
to restore the deposited amount to a level sufficient to cover the
estimated cost to APHIS for the remainder of the horse's stay in the
United States. The horse's owner or importer must pay the amount billed
within 14 days after receiving the bill. If the bill is not paid within
14 days after its receipt, APHIS will cease to perform the services
provided for in paragraph (f)(2) of this section until the bill is
paid. The Administrator will inform the owner or importer of the
cessation of services orally or in writing. If the notice of cessation
is oral, the Administrator will confirm, in writing, the notice of
cessation and the reason for the cessation of services as soon as
circumstances permit. In such a case, the horse must be kept, at the
expense of the owner or importer and until the bill is paid, in a stall
either on the premises at which the horse is located when the notice of
cessation of services is received, or, if the horse is in transit when
the notice of cessation of services is received, on the premises at
which it is next scheduled to compete according to the import permit.
The stall in which the horse is kept must be separated from other
stalls containing horses either by an empty stall, an open area across
which horses cannot touch each other, or a solid wall that is at least
8 feet (2.4 m) high. In cases where the owners of the above specified
premises do not permit the horse to be kept on those premises, or when
the Administrator determines that keeping the horse on the above
specified premises will pose a disease risk to other horses in the
United States, the horse must be kept, at the expense of the owner or
importer, on an alternative premises approved by the Administrator.
Until the bill is paid, the horse is not permitted to enter
competition. Any amount deposited in excess of the costs to APHIS to
provide the required services will be refunded to the horse's owner or
importer.
(g) Special provisions for the importation of horses that have been
temporarily exported to a CEM-affected country. If a horse has been
temporarily exported for not more than 60 days from the United States
to a CEM-affected country listed in paragraph (c)(1) of this section,
or if a horse has been temporarily exported for not more than 60 days
from another country not
[[Page 52244]]
known to be affected with CEM to a CEM-affected country during the 12
months preceding its exportation to the United States, the horse may be
eligible for return or importation into the United States without
meeting the requirements of paragraphs (d) through (f) of this section
under the following conditions:
(1) The horse must be accompanied by a certificate that meets the
requirements of Sec. 92.314(a) of this part issued by each CEM-affected
country that the horse has visited during the term of its temporary
exportation, and each certificate must contain the following additional
declarations:
(i) That the horse was held separate and apart from all other
horses except for the time it was actually participating in an event or
was being exercised by its trainer;
(ii) That the premises on which the horse was held were not used
for any equine breeding purpose;
(iii) That the horse was not bred to or bred by any animal, nor did
it have any other sexual contact or genital examination while in such
country; and
(iv) That all transport while in such country was carried out in
cleaned and disinfected vehicles in which no other horses were
transported since such cleaning and disinfection;
(2) The horse is accompanied by an import permit issued in
accordance with Sec. 92.304 of this part at the time of exportation;
(3) If the horse was temporarily exported from the United States
and is being returned to the United States, the horse must be
accompanied by a copy of the United States health certificate issued
for its exportation from the United States and endorsed in accordance
with the export regulations in part 91 of this chapter;
(4) The horse must be examined by an inspector at the U.S. port of
entry and found by the inspector to be the identical horse covered by
the documents required by paragraphs (a) through (c) of this section
and found by the inspector to be free of communicable disease and
exposure thereto; and
(5) The horse must be quarantined and tested at the U.S. port of
entry as provided in Sec. 92.308 of this part prior to release.
(h) Approval of States. In order for a State to be approved to
receive stallions or mares over 731 days of age from a CEM-affected
country listed in paragraph (c)(1) of this section that are imported
under paragraph (e) of this section, the State must meet the following
conditions:
(1) The State must enter into a written agreement with the
Administrator, whereby the State agrees to enforce its laws and
regulations to control CEM and to abide by the conditions of approval
established by the regulations in this part.
(2) The State must agree to quarantine all stallions and mares over
731 days of age imported under the provisions of paragraph (e) of this
section until the stallions have been treated in accordance with
paragraph (e)(3) of this section and the mares have been treated in
accordance with paragraph (e)(5) of this section.
(3) The State must agree to quarantine all mares used to test
stallions for CEM until the mares have been released from quarantine in
accordance with paragraph (e)(4) of this section.
(4) The State must have laws or regulations requiring that
stallions over 731 days of age imported under paragraph (e) of this
section be treated in the manner specified in paragraph (e)(3) of this
section, and that mares over 731 days of age imported under paragraph
(e) of this section be treated in the manner specified in paragraph
(e)(5) of this section.
(5) Approval of any State to receive stallions or mares imported
from countries affected with CEM may be suspended by the Administrator
upon his or her determination that any requirements of this section are
not being met. After such action is taken, the animal health
authorities of the approved State will be informed of the reasons for
the action and afforded an opportunity to present their views thereon
before such suspension is finalized; however, such suspension of
approval shall continue in effect unless otherwise ordered by the
Administrator. In those instances where there is a conflict as to the
facts, a hearing shall be held to resolve such conflict.
(6) The following States have been approved to receive stallions
over 731 days of age imported under paragraph (e) of this section:
The State of Alabama
The State of California
The State of Colorado
The State of Florida
The State of Kentucky
The State of Louisiana
The State of Maryland
The State of Montana
The State of New Hampshire
The State of New Jersey
The State of New York
The State of North Carolina
The State of Ohio
The State of South Carolina
The State of Tennessee
The State of Texas
The State of Virginia
The State of Wisconsin
(7) The following States have been approved to receive mares over
731 days of age imported under paragraph (e) of this section:
The State of Alabama
The State of California
The State of Colorado
The State of Kentucky
The State of Louisiana
The State of Maryland
The State of Montana
The State of Hew Hampshire
The State of New Jersey
The State of New York
The State of North Carolina
The State of Ohio
The State of South Carolina
The State of Tennessee
The State of Texas
The State of Virginia
The State of Wisconsin
(i) Approval of laboratories. (1) The Administrator will approve a
laboratory to conduct CEM cultures and tests only after consulting with
the State animal health official in the State in which the laboratory
is located and after determining that the laboratory:
(i) Has technical personnel assigned to conduct the CEM culturing
and testing who possess the following minimum qualifications:
(A) A bachelor's degree in microbiology;
(B) A minimum of 2 years experience working in a bacteriology
laboratory; and
(C) Experience working with the CEM organism, including knowledge
of the specific media requirements, atmospheric requirements, and
procedures for the isolation and identification of the CEM
organism.10
---------------------------------------------------------------------------
\10\ When training regarding CEM culturing and testing is
necessary, it may be obtained at the National Veterinary Services
Laboratories, Ames, IA 50010.
---------------------------------------------------------------------------
(ii) Follows standard test protocols that will reliably and
consistently provide for the isolation and identification of the CEM
organism; 11 and
---------------------------------------------------------------------------
\11\ Standard test protocols recommended by the National
Veterinary Services Laboratories and a list of approved laboratories
can be obtained from the National Veterinary Services Laboratories,
Ames, IA 50010.
---------------------------------------------------------------------------
(iii) Reports all official test results to the State animal health
official and the Veterinarian in Charge.
(2) To retain approval, the laboratory must meet the requirements
prescribed in paragraph (i)(1) of this section, and shall test with the
CEM organism each lot of media it prepares to ensure that the media
will support growth of the laboratory's reference culture. Media that
will not support growth of the reference culture must be discarded.
[[Page 52245]]
(3) The Administrator may deny or withdraw approval of any
laboratory to conduct CEM culturing or testing upon a determination
that the laboratory does not meet the criteria for approval or
maintenance of approval under paragraphs (i)(1) and (i)(2) of this
section.
(i) In the case of a denial of approval, the operator of the
laboratory will be informed of the reasons for denial and, upon
request, will be afforded an opportunity for a hearing with respect to
the merits or validity of the denial in accordance with rules of
practice that will be adopted for the hearing.
(ii) In the case of a withdrawal of approval, before such action is
taken, the operator of the laboratory will be informed of the reasons
for the proposed withdrawal and, upon request, will be afforded an
opportunity for a hearing with respect to the merits or validity of the
proposed withdrawal in accordance with rules of practice that will be
adopted for the hearing. However, the withdrawal will become effective
pending a final determination in the hearing when the Administrator
determines that such action is necessary to protect the public health,
interest, or safety. The withdrawal will be effective upon oral or
written notification, whichever is earlier, to the operator of the
laboratory. In the event of oral notification, written confirmation
will be given as promptly as circumstances allow. The withdrawal will
continue in effect pending completion of the hearing and any judicial
review of the hearing, unless otherwise ordered by the Administrator.
(iii) Approval for a laboratory to conduct CEM culturing or testing
will be automatically withdrawn by the Administrator when the operator
of the approved laboratory notifies the National Veterinary Services
Laboratories, Ames, IA 50010, in writing, that the laboratory no longer
conducts CEM culturing and testing.
(Approved by the Office of Management and Budget under control
number 0579-0040)
5. Section 92.304 is amended as follows:
a. The section heading is revised to read as set forth below.
b. In the introductory text of paragraph (a)(1)(ii), the reference
``Sec. 92.301(c)(2)(viii)'' is removed both times it appears and the
reference ``Sec. 92.301(f)'' added in its place.
c. In paragraph (a)(1)(iii), in the first sentence, the reference
``Sec. 92.301(c)(2)(viii)'' is removed and the reference
``Sec. 92.301(f)'' added in its place.
d. Paragraphs (a)(4) through (a)(12) are removed.
e. Paragraph (b) is revised to read as set forth below.
Sec. 92.304 Import permits for horses from countries affected with CEM
and for horse specimens for diagnostic purposes; reservation fees for
space at quarantine facilities maintained by APHIS.
* * * * *
(b) Permit. (1) When a permit is issued, the original and two
copies will be sent to the importer. It shall be the responsibility of
the importer to forward the original permit and one copy to the shipper
in the country of origin, and it shall also be the responsibility of
the importer to ensure that the shipper presents the copy of the permit
to the carrier and makes the necessary arrangements for the original
permit to accompany the shipment to the specified U.S. port of entry
for presentation to the collector of customs.
(2) Horses and horse test specimens for which a permit is required
under paragraph (a) of this section will be received at the port of
entry specified on the permit within the time prescribed in the permit,
which shall not exceed 14 days from the first day that the permit is
effective.
(3) Horses and horse test specimens for which a permit is required
under paragraph (a) of this section will not be eligible for entry if:
(i) A permit has not been issued for the importation of the horse
or horse test specimen;
(ii) If the horse or horse test specimen is unaccompanied by the
permit issued for its importation;
(iii) If the horse or horse test specimen is shipped from any port
other than the one designated in the permit;
(iv) If the horse or horse test specimen arrives in the United
States at any port other than the one designated in the permit;
(v) If the horse or horse test specimen offered for entry differs
from that described in the permit; or
(vi) If the horse or horse test specimen is not handled as outlined
in the application for the permit and as specified in the permit
issued.
Sec. 92.308 [Amended]
6. In Sec. 92.308(a)(3), footnote 16 and its reference in the text
are redesignated as footnote 14.
7. In Sec. 92.308(c)(1), footnote 17 and its reference in the text
are redesignated as footnote 15.
8. Section 92.314 is revised to read as follows:
Sec. 92.314 Horses, certification, and accompanying equipment.
(a) Horses offered for importation from any part of the world shall
be accompanied by a certificate of a salaried veterinary officer of the
national government of the country of origin, or if exported from
Mexico, shall be accompanied either by such a certificate or by a
certificate issued by a veterinarian accredited by the National
Government of Mexico and endorsed by a full-time salaried veterinary
officer of the National Government of Mexico, thereby representing that
the veterinarian issuing the certificate was authorized to do so,
showing that:
(1) The horses described in the certificate have been in said
country during the 60 days preceding exportation;
(2) That each horse has been inspected on the premises of origin
and found free of evidence of communicable disease and, insofar as can
be determined, exposure thereto during the 60 days preceding
exportation;
(3) That each horse has not been vaccinated with a live or
attenuated or inactivated vaccine during the 14 days preceding
exportation: Provided, however, that in specific cases the
Administrator may authorize horses that have been vaccinated with an
inactivated vaccine to enter the United States when he or she
determines that in such cases and under such conditions as he or she
may prescribe such importation will not endanger the livestock in the
United States, and such horses comply with all other applicable
requirements of this part;
(4) That, insofar as can be determined, no case of African horse
sickness, dourine, glanders, surra, epizootic lymphangitis, ulcerative
lymphangitis, equine piroplasmosis, Venezuelan equine
encephalomyelitis, or equine infectious anemia has occurred on the
premises of origin or on adjoining premises during the 60 days
preceding exportation; and
(5) That, except as provided in Sec. 92.301(g):
(i) The horses have not been in any country listed in
Sec. 92.301(c)(1) as affected with CEM during the 12 months immediately
prior to their importation into the United States;
(ii) The horses have not been on any premises at any time during
which time such premises were found by an official of the veterinary
services of the national government of the country where such premises
are located, to be affected with CEM;
[[Page 52246]]
(iii) The horses have not been bred by or bred to any horses from
an affected premises; and
(iv) The horses have had no other contact with horses that have
been found to be affected with CEM or with horses that were imported
from countries affected with CEM.
(b) If a horse is presented for importation from a country where it
has been for less than 60 days, the horse must be accompanied by a
certificate that meets the requirements of paragraph (a) of this
section that has been issued by a salaried veterinary officer of the
national government of each country in which the horse has been during
the 60 days immediately preceding its shipment to the United States.
The dates during which the horse was in each country during the 60 days
immediately preceding its exportation to the United States shall be
included as a part of the certification.
(c) Following the port-of-entry inspection required by Sec. 92.306
of this part, and before a horse offered for importation from any part
of the world is released from the port of entry, an inspector may
require the horse and its accompanying equipment to be disinfected as a
precautionary measure against the introduction of foot-and-mouth
disease or any other disease dangerous to the livestock of the United
States.
9. Preceding Sec. 92.315, in the undesignated center heading
``CANADA18'', footnote 18 and its reference are redesignated as
footnote 16.
10. Preceding Sec. 92.319, in the undesignated center heading
``COUNTRIES OF CENTRAL AMERICA AND WEST INDIES19'', footnote 19
and its reference are redesignated as footnote 17.
11. Preceding Sec. 92.321, in the undesignated center heading
``MEXICO20'', footnote 20 and its reference are redesignated as
footnote 18.
Sec. 92.324 [Amended]
12. In Sec. 92.324, in the third sentence, footnote 21 and its
reference in the text are redesignated as footnote 19.
Done in Washington, DC, this 2nd day of October 1996.
A. Strating,
Acting Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 96-25639 Filed 10-04-96; 8:45 am]
BILLING CODE 3410-34-P
Complete official Federal Register PDF
FR Doc. 96-25608 Establishment of Class E Airspace; Groveland, CA
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52282-52283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25608]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 96-AWP-10]
Establishment of Class E Airspace; Groveland, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final Rule.
-----------------------------------------------------------------------
SUMMARY: This action establishes a Class E airspace area at Groveland,
CA. The development of a Global Positioning System (GPS) Standard
Instrument Approach Procedure (SIAP) to Runway (RWY) 09/27 has made
this action necessary. The intended effect of this action is to provide
adequate controlled airspace for Instrument Flight Rules (IFR)
operations at Pine Mountain Lake Airport, Groveland, CA.
EFFECTIVE DATE: 0901 UTC December 5, 1996.
FOR FURTHER INFORMATION CONTACT:
William Buck, Airspace specialist, Operations Branch, AWP-530, Air
Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6556.
SUPPLEMENTARY INFORMATION:
History
On August 30, 1996, the FAA proposed to amend part 71 of the
Federal Aviation Regulations (14 CFR part 71) by established a Class E
airspace area at Groveland, CA, (61 FR 45919). This action will provide
adequate controlled airspace to accommodate a GPS SIAP to RWY 09/27 at
Pine Mountain Lake Airport, Groveland, CA.
Interested parties were invited to participate in this rulemaking
proceeding by submitting written comments on the proposal to the FAA.
No comments to the proposal were received. Class E airspace
designations are published in paragraph 6005 of FAA Order 7400.9D dated
September 4, 1996, and effective September 16, 1996, which is
incorporated by reference in 14 CFR 71.1. The Class E airspace
designations listed in this document will be published subsequently in
this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) establishes Class E airspace area at Groveland, CA. The
development of a GPS SIAP to RWY 09/27 has made this action necessary.
The effect of this action will provide adequate airspace for aircraft
executing the GSP RWY 09/27 SIAP at Pine Mountain Lake Airport,
Groveland, CA.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule will not have a significant economic impact on
a substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air)
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
[[Page 52283]]
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9D, Airspace Designations and
Reporting Points, dated September 4, 1996, and effective September 16,
1996, is amended as follows:
Paragraph 6005 Class E airspace area extending upward from 700
feet or more above the service of the earth.
* * * * *
AWP CA E5 Groveland, CA [New]
Pine Mountain Lake Airport, CA
(lat. 37 deg.51'42''N, long. 120 deg.10'43''W)
That airspace extending upward from 700 feet above the surface
within a 5.7-mile radius of the Pine Mountain Lake Airport and
within 2 miles southwest and 3 miles northeast of the 135 deg.
bearing from the Pine Mountain Lake Airport extending from the 5.7-
mile radius to 11 miles southeast of the airport.
* * * * *
Issued in Los Angeles, California, on September 25, 1996.
James H. Snow,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-25608 Filed 10-4-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-25607 Establishment of Class E Airspace; Phoenix, Deer Valley Municipal Airport, AZ
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Page 52283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25607]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 96-AWP-16]
Establishment of Class E Airspace; Phoenix, Deer Valley Municipal
Airport, AZ
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This action establishes a Class E airspace area at Phoenix,
Deer Valley Municipal Airport, AZ. The development of a Global
Positioning System (GPS) Standard Instrument Approach Procedure (SIAP)
to Runway (RWY) 07R to Phoenix-Deer Valley Municipal Airport has made
this action necessary. The intended effect of this action is to provide
adequate controlled airspace for Instrument Flight Rules (IFR)
operations at Phoenix-Deer Valley Municipal Airport. AZ.
EFFECTIVE DATE: 0901 UTC December 5, 1996.
FOR FURTHER INFORMATION CONTACT: William Buck, Airspace Specialist,
Operations Branch, AWP-530, Air Traffic Division, Western-Pacific
Region, Federal Aviation Administration, 15000 Aviation Boulevard,
Lawndale, California 90261, telephone (310) 725-6556.
SUPPLEMENTARY INFORMATION:
History
On September 5, 1996, the FAA proposed to amend part 71 of the
Federal Aviation Regulations (14 CFR part 71) by establishing a Class E
airspace area at Phoenix-Deer Valley Municipal Airport, AZ (61 FR
46744). This action will provide adequate controlled airspace to
accommodate at GPS SIAP to RWY 07R at Phoenix-Deer Valley Municipal
Airport, AZ.
Interested parties were invited to participate in this rulemaking
proceeding by submitting written comments on the proposal to the FAA.
No comments to the proposal were received. Class E airspace
designations are published in paragraph 6002 of FAA Order 7400.9D dated
September 4, 1996, and effective September 16, 1996, which is
incorporated by reference in 14 CFR 71.1. The Class E airspace
designations listed in this document will be published subsequently in
this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) establishes a Class E airspace area at Phoenix-Deer Valley
Municipal Airport, AZ. The development of a GPS SIAP to RWY 07R has
made this action necessary. The effect of this action will provide
adequate airspace for aircraft executing the GPS RWY 07R SIAP at
Phoenix-Deer Valley Municipal Airport, AZ.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation it is
certified that this rule will not have a significant economic impact on
a substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9665, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9D, Airspace Designations and
Reporting Points, dated September 4, 1996, and effective September 16,
1996, is amended as follows:
Paragraph 6002 Class E airspace areas designated as a surface area
for an airport.
* * * * *
AWP AZ E2 Phoenix, Deer Valley Municipal, AZ [New]
Phoenix, Deer Valley Municipal Airport, AZ
(lat. 33 deg.41'18''N, long. 112 deg.04'56''W)
* * * * *
Within 3 miles south and 2 miles north of the 287 deg. bearing
from the Deer Valley Municipal Airport extending from the 4.4-mile
radius of the Deer Valley Municipal Airport to 9.2 miles west of the
airport.
Issued in Los Angeles, California, on September 25, 1996.
James H. Snow,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-25607 Filed 10-4-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-25606 Revocation of Class D Airspace; Alameda, CA
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52281-52282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25606]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Airspace Docket No. 96-AWP-19]
Revocation of Class D Airspace; Alameda, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final Rule.
-----------------------------------------------------------------------
SUMMARY: This action revokes the Class D airspace area at Alameda, CA.
The base closure of Alameda Naval Air Station (NAS) has made this
action necessary. The intended effect of this action is to revoke
controlled airspace since the purpose and requirements for the surface
area no longer exist at Alameda NAS (Nimitz Field), CA.
EFFECTIVE DATE: 0901 UTC December 5, 1996.
FOR FURTHER INFORMATION CONTACT:
William Buck, Airspace Specialist, Operations Branch, AWP-530, Air
Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6556.
[[Page 52282]]
SUPPLEMENTARY INFORMATION:
History
On August 27, 1996, the FAA proposed to amend Part 71 of the
Federal Aviation Regulations (14 CFR part 71) by revoking the Class D
airspace area at Alameda, CA (61 FR 44008). This action will revoke
controlled airspace since the purpose and requirements for the surface
area no longer exits at Alameda NAS (Nimitz Field), CA. Interested
parties were invited to participate in this rulemaking proceeding by
submitting written comments on the proposals to the FAA. No comments to
the proposal were received. Class D airspace designations are published
in paragraph 5000 of FAA Order 7400.9D dated September 4, 1996, and
effective September 16, 1996, which is incorporated by reference in 14
CFR 71.1. The Class D airspace designations listed in this document
will be removed subsequently in this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) revokes the Class D airspace area at Alameda, CA. The base
closure of Alameda Naval Air Station (NAS) has made this action
necessary. The intended effect of this action is to revoke controlled
airspace since the purpose and requirements for the surface area no
longer exist at Alameda NAS (Nimitz Field), CA.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule will not have a significant economic impact on
a substantial of small entities under the criteria of the Regulatory
Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9D, Airspace Designations and
Reporting Points, dated September 4, 1996, and effective September 16,
1996, is amended as follows:
Paragraph 5000 Class D airspace.
* * * * *
AWPCAD Alameda NAS, CA [Removed]
* * * * *
Issued in Los Angeles, California, on September 25, 1996.
James H. Snow,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-25606 Filed 10-4-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-25599 Anticaries Drug Products for Over-the-Counter Human Use; Final Monograph; Technical Amendment; Partial Delay of Effective Date
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52285-52287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25599]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Part 355
[Docket No. 80N-0042]
RIN 0910-AA01
Anticaries Drug Products for Over-the-Counter Human Use; Final
Monograph; Technical Amendment; Partial Delay of Effective Date
AGENCY: Food and Drug Administration, HHS.
ACTION: Final rule; technical amendment; partial delay of effective
date.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is amending the
regulation that established conditions under which over-the-counter
(OTC) anticaries drug products (products that aid in the prevention of
dental cavities) are generally recognized as safe and effective and not
misbranded (60 FR 52478, October 6, 1995). This final rule makes a
nonsubstantive change in the definition of a dentifrice, clarifies how
OTC dentifrice gels are included in certain labeling aspects of the
final monograph, and clarifies that the second general warning
regarding ``accidental ingestion'' is the statement to be used for OTC
fluoride-containing dentifrice, treatment rinse, and preventive
treatment gel drug products. This amendment also revises the second
general warning statement to indicate to consumers that ``accidental
ingestion'' of these products means swallowing more than is used during
normal brushing or rinsing. Because of the need to revise labeling for
this minor revision, the agency is delaying the effective date of the
regulation to provide manufacturers with an additional 6 months to
comply with the labeling requirements of the monograph. This final rule
is part of the ongoing review of OTC drug products conducted by FDA.
DATES: The effective date for Sec. 355.50 added at 60 FR 52508, October
6, 1995, is delayed until April 7, 1997. This final rule is effective
April 7, 1997.
FOR FURTHER INFORMATION CONTACT: William E. Gilbertson, Center for Drug
Evaluation and Research (HFD-105), Food and Drug Administration, 5600
Fishers Lane, Rockville, MD 20857, 301-827-2304.
SUPPLEMENTARY INFORMATION:
I. Background
In the Federal Register of October 6, 1995 (60 FR 52478), FDA
issued a final monograph for OTC anticaries drug products (21 CFR part
355) establishing conditions under which the drug products that are
subject to that monograph will be generally recognized as safe and
effective and not misbranded. The effective date of the monograph is
October 7, 1996.
On April 17, 1996, the Joint Oral Care Task Group of the
Nonprescription Drug Manufacturers Association (NDMA) and the Cosmetic,
Toiletry and Fragrance Association (CTFA) (the Task Group) submitted
three citizen petitions (Refs. 1, 2, and 3) to amend the final
monograph for OTC anticaries drug products. The first petition
requested a technical amendment to the final monograph to clarify the
use of the term ``gel'' in the context of dentifrice gels and
preventive treatment gels in Sec. 355.50(c) and (d). The petition
indicated that this technical amendment would be helpful in avoiding
unnecessary discussion and/or confusion about how OTC dentifrice gels
are included in certain labeling aspects of the final monograph.
The two other petitions requested an exemption from the
requirements of the general warnings under Sec. 330.1(g) (21 CFR
330.1(g)) for OTC fluoride-containing dentifrice, treatment rinse, and
preventive treatment gel drug products based on these products' long
history of safe use, the package size limitations to limit potential
toxicity, and the potential for consumer confusion and alarm that the
general warnings would cause.
The Task Group added that the second general warning for these drug
products is confusing with regard to the terms ``accidental overdose''
and ``accidental ingestion.'' Because these products are not intended
for oral administration in the context of an orally administered
medicine and because no dosage amounts are specified in the labeling,
there is no ``overdose'' per se. The Task Group contended that
consumers may mistakenly consider any accidental ingestion (even the
swallowing of some product during normal usage) as dangerous and thus
needlessly call health professionals in poison control centers,
emergency rooms, and doctors' offices for assistance.
II. The Agency's Response to the Petitions
Based on these petitions, the agency has determined that in order
to avoid possible confusion about how OTC dentifrice gels and powders
are included in certain labeling aspects of the final monograph for OTC
anticaries drug products, the definition of ``Dentifrice'' in
Sec. 355.3(e) should be revised to read: ``An abrasive-containing
dosage form (gel, paste, or powder) for delivering an anticaries drug
to the teeth.''
To clarify how OTC dentifrice gels are included in the labeling
aspects in Sec. 355.10(a)(1), (b)(1), (b)(2), and (c)(1) and
Sec. 355.50(d)(1)(i) and (d)(1)(ii) of the final monograph, this
technical amendment revises the heading in each of these sections by
adding the words ``gel or'' before the word ``paste.'' To better
clarify how OTC dentifrice gels and preventive treatment gels are
included in the labeling aspects in Sec. 355.50(c)(1) and (c)(2),
respectively, this technical amendment includes the following
revisions: (1) The heading in Sec. 355.50(c)(1) is revised to read:
``For all fluoride dentifrice (gel, paste, and powder) products,'' and
(2) the heading in Sec. 355.50(c)(2) is revised to read: ``For all
fluoride rinse and preventive treatment gel products.''
With regard to the second general warning in Sec. 330.1(g), the
agency points out that the correct second general warning to be used
for fluoride-containing gel, paste, powder, treatment rinse, and
preventive treatment gel drug products included in the final monograph
is the statement for accidental ingestion and not for accidental
overdose. That statement reads: ``In case of accidental ingestion, seek
professional assistance or contact a Poison Control Center
immediately.'' The agency considers this information important to
provide consumers guidance if an accidental ingestion occurs,
particularly if a young child accidentally swallows or ingests an
[[Page 52286]]
excessive amount of an OTC anticaries drug product.
However, the agency recognizes that this statement may be confusing
to consumers who might think that any accidental ingestion of an OTC
anticaries drug product during normal use may be dangerous. Therefore,
to clarify to consumers that ``accidental ingestion'' does not refer to
the amount of product swallowed during normal use, but refers to
excessive ingestion of the drug product, this technical amendment
revises the second general warning in Sec. 355.50(c)(1) and (c)(2) of
the final monograph to read as follows: ``If you accidentally swallow
more than used for'' (select appropriate word: ``brushing'' or
``rinsing''), ``seek professional assistance or contact a Poison
Control Center immediately.'' The agency considers these labeling
revisions as minor clarifying changes that do not change the substance
of the labeling requirements contained in the final rule.
In a communication with the petitioner (Ref. 4), the agency
indicated that it had not decided on the exact revised wording of the
second general warning and asked the petitioner to make a suggestion.
The petitioner subsequently suggested (Ref. 5) the following language:
``If an amount larger than used for [brushing] is swallowed, call a
Poison Control Center or doctor right away.'' The agency considered the
first part of the petitioner's suggestion in developing the language
that appears in this final rule. However, the agency is not changing
the wording of the second part of this statement at this time because
such a change would be more than a technical amendment, which would
constitute a need for notice and comment rulemaking.
In a future issue of the Federal Register, the agency intends to
propose a revision to the general warnings labeling in Sec. 330.1(g).
This revision will include changes in the language of the second part
of this warning statement. The agency will provide an opportunity for
full public comment before establishing the revised wording and will
further consider the comment's suggestion at that time. The agency does
not want to implement revised labeling for that part of the warning for
only anticaries drug products at this time, but will implement revised
labeling for all OTC drug products uniformly at a later date.
Publication of this document constitutes final action on these
changes under the Administrative Procedure Act (5 U.S.C. 553). This
final rule institutes changes that are nonsubstantive in nature.
Because the revisions are not controversial and because, when
effective, they provide clarification of the final monograph for OTC
anticaries drug products, FDA finds that the notice and comment
procedures are unnecessary and not in the public interest (5 U.S.C 553
(b) and (d)). The agency believes that delaying the effective date for
6 months will provide sufficient time for industry to implement fully
the labeling revisions included in this technical amendment.
III. References
The following references are on display in the Dockets Management
Branch (address above) and may be seen by interested persons between 9
a.m. and 4 p.m., Monday through Friday.
(1) Comment No. CP6 (Vol. 22), Docket No. 80N-0042, Dockets
Management Branch.
(2) Comment No. CP6 (Vol. 24), Docket No. 80N-0042, Dockets
Management Branch.
(3) Comment No. CP6 (Vol. 26), Docket No. 80N-0042, Dockets
Management Branch.
(4) Letter from D. Bowen, FDA, to R. W. Soller, Nonprescription
Drug Manufacturers Association, coded as LET32, Docket No. 80N-0042,
Dockets Management Branch.
(5) Letter from R. W. Soller, Nonprescription Drug Manufacturers
Association, to D. Bowen, FDA, dated July 11, 1996, Docket No. 80N-
0042, Dockets Management Branch.
IV. Analysis of Impacts
FDA has examined the impacts of this final rule under Executive
Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-354).
Executive Order 12866 directs agencies to assess all costs and benefits
of available regulatory alternatives and, when regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic environmental, public health and safety, and other
advantages: distributive impacts; and equity). The agency believes that
this final rule is consistent with the regulatory philosophy and
principles identified in the Executive Order. The agency therefore
concludes that none of these technical changes included in this final
rule is a major rule. In addition, this final rule is not a significant
regulatory action as defined by the Executive Order and so is not
subject to review under the Executive Order.
Under the Regulatory Flexibility Act, if a rule has a significant
impact on a substantial number of small entities, an agency must
analyze regulatory options that would minimize any significant impact
of a rule on small entities. This final rule makes a minor revision in
some labeling that was to become effective on October 7, 1996, but
which will not be required now until April 7, 1997. Thus, this final
rule will not impose a significant economic burden on affected
entities. Therefore, under the Regulatory Flexibility Act (5 U.S.C.
605(b)), the Commissioner of Food and Drugs certifies that this final
rule will not have a significant economic impact on a substantial
number of small entities. No further analysis is required.
V. Paperwork Reduction Act of 1995
FDA concludes that the labeling requirements in this document are
not subject to review by the Office of Management and Budget because
they do not constitute a ``collection of information'' under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Rather, the
labeling statements are a ``public disclosure of information originally
supplied by the Federal government to the recipient for the purpose of
disclosure to the public'' (5 CFR 1320.3(c)(2)).
VI. Environmental Impact
The agency has determined under 21 CFR 25.24(c)(6) that this action
is of a type that does not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.
List of Subjects in 21 CFR Part 355
Labeling, Over-the-counter drugs.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, 21 CFR part
355 is amended as follows:
PART 355--ANTICARIES DRUG PRODUCTS FOR OVER-THE-COUNTER HUMAN USE
1. The authority citation for 21 CFR part 355 continues to read as
follows:
Authority: Secs. 201, 501, 502, 503, 505, 510, 701 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 351, 352, 353,
355, 360, 371).
2. Section 355.3 is amended by revising paragraph (e) to read as
follows:
Sec. 355.3 Definitions.
* * * * *
(e) Dentifrice. An abrasive-containing dosage form (gel, paste, or
powder) for delivering an anticaries drug to the teeth.
* * * * *
Sec. 355.10 [Amended]
3. Section 355.10 is amended in the headings for paragraphs (a)(1),
(b)(1), (b)(2), and (c)(1) by adding the words ``gel or'' before the
word ``paste''.
[[Page 52287]]
4. Section 355.50 is amended by revising paragraphs (c)(1) and
(c)(2), and in the headings for paragraphs (d)(1)(i) and (d)(1)(ii) by
removing the word ``Paste'' and adding in its place the words ``Gel or
paste'' to read as follows:
Sec. 355.50 Labeling of anticaries drug products.
* * * * *
(c) * * *
(1) For all fluoride dentifrice (gel, paste, and powder) products.
``Keep out of the reach of children under 6 years of age. If you
accidentally swallow more than used for brushing, seek professional
assistance or contact a Poison Control Center immediately.'' These
warnings shall be used in place of the general warning statements
required by Sec. 330.1(g) of this chapter.
(2) For all fluoride rinse and preventive treatment gel products.
``Keep this and all drugs out of the reach of children. If you
accidentally swallow more than used for'' (select appropriate word:
``brushing'' or ``rinsing''), ``seek professional assistance or contact
a Poison Control Center immediately.'' These warnings shall be used in
place of the general warning statements required by Sec. 330.1(g) of
this chapter.
* * * * *
Dated: September 30, 1996.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 96-25599 Filed 10-4-96; 8:45 am]
BILLING CODE 4160-01-P
Complete official Federal Register PDF
FR Doc. 96-25587 Fisheries of the Exclusive Economic Zone Off Alaska; Recordkeeping and Reporting Requirements in the Gulf of Alaska
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Page 52385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25587]
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DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129018-6018-01; I.D. 093096D]
Fisheries of the Exclusive Economic Zone Off Alaska;
Recordkeeping and Reporting Requirements in the Gulf of Alaska
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Notice of change in recordkeeping and reporting requirements.
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SUMMARY: NMFS has determined that Daily Production Reports (DPRs) must
be submitted by processor vessels using trawl gear that catch or
receive rockfish species of the genera Sebastes and Sebastolobus and
shoreside processing facilities that receive rockfish species of the
genera Sebastes and Sebastolobus from vessels using trawl gear in the
Gulf of Alaska (GOA). This action is necessary to prevent exceeding the
total allowable catches (TACs) for rockfish species and species groups
in the GOA.
EFFECTIVE DATE: From 1200 hrs, Alaska local time (A.l.t.), October 1,
1996, through the duration of the 1996 directed rockfish fisheries in
the GOA or until the Director, Alaska Region, NMFS determines the
supplementary reporting requirements are no longer necessary or until
directed fishing for trawl gear is closed. This determination will be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Andrew N. Smoker, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the Gulf of Alaska
exclusive economic zone is managed by NMFS according to the Fishery
Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by
the North Pacific Fishery Management Council under authority of the
Magnuson Fishery Conservation and Management Act. Fishing by U.S.
vessels is governed by regulations implementing the FMP at subpart H of
50 CFR part 600 and 50 CFR part 679.
Pursuant to Sec. 679.5(j) the Regional Director is requiring
processor vessels using trawl gear that catch or receive rockfish
species of the genera Sebastes and Sebastolobus and shoreside
processing facilities that receive rockfish species of the genera
Sebastes and Sebastolobus from vessels using trawl gear as defined at
Sec. 679.2 in the GOA to submit DPRs in addition to weekly processor
reports.
The remainder of the TAC for rockfish species of the genera
Sebastes and Sebastolobus under Sec. 679.20(a)(2) will become available
for directed fishing 1200 hrs, A.l.t., October 1, 1996, as the fourth
quarterly allowance of Pacific halibut prohibited species catch limits
for trawl gear becomes available. These rockfish amounts are expected
to be rapidly harvested, and the Regional Director has determined that
requiring DPRs is necessary to avoid exceeding TAC.
DPRs must include all information required by Sec. 679.5(j)(4) for
groundfish harvested from the applicable reporting areas. Processors
must submit the required information on the ``Alaska Groundfish
Processor Daily Production Report'' form that was distributed to
participants in the groundfish fishery with their 1996 Federal
fisheries permit. The form also may be obtained from the Regional
Director by calling Mary Furuness at 907-586-7228. Processors must
transmit completed DPRs to the Regional Director by facsimile
transmission to number 907-586-7131, no later than 12 hours after the
end of the day the groundfish was processed.
If and when the Regional Director determines that these reports are
no longer necessary, he may terminate the requirement. Criteria used to
assess the need for the reports include the stability of effort and
harvest rates in the fishery, and remaining amounts.
The Assistant Administrator for Fisheries, NOAA, has found that
reasons justifying promulgation of this action also make it
impracticable and contrary to the public interest to provide notice and
opportunity for prior comment or to delay for 30 days its effective
date. Intense fishing effort without DPRs could result in industry's
exceeding these allocations.
Classification
This action is taken under 50 CFR 679.20 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: October 1, 1996.
Bruce Morehead,
Acting Director, Office of Sustainable Fisheries, National Marine
Fisheries Service.
[FR Doc. 96-25587 Filed 10-02-96; 9:33 am]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-25467 Approval and Promulgation of State Implementation Plans; California State Implementation Plan Revision; Kern County Air Pollution Control District; Santa Barbara County Air Pollution Control District; South Coast Air Quality Management District
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52297-52299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25467]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[CA 043-0017a; FRL-5617-4]
Approval and Promulgation of State Implementation Plans;
California State Implementation Plan Revision; Kern County Air
Pollution Control District; Santa Barbara County Air Pollution Control
District; South Coast Air Quality Management District
AGENCY: Environmental Protection Agency (EPA).
ACTION: Direct final rule.
-----------------------------------------------------------------------
SUMMARY: EPA is taking direct final action on revisions to the
California State Implementation Plan (SIP). The revisions concern rules
from the Kern County Air Pollution Control District (KCAPCD), the Santa
Barbara County Air Pollution Control District (SBCAPCD), and the South
Coast Air Quality Management District (SCAQMD). This approval action
will incorporate these rules into the Federally approved SIP. The
intended effect of approving these rules is to regulate emissions of
volatile organic compounds (VOCs) in accordance with the requirements
of the Clean Air Act, as amended in 1990 (CAA or the Act). The rules
control VOC emissions from organic solvent degreasing operations,
petroleum storage tank degassing, and gasoline transfer and dispensing
operations. Thus, EPA is finalizing the approval of these rules into
the California SIP under provisions of the CAA regarding EPA action on
SIP submittals, SIPs for national primary and secondary ambient air
quality standards, and plan requirements for nonattainment areas.
DATES: This action is effective on December 6, 1996 unless adverse or
critical comments are received by November 6, 1996. If the effective
date is delayed, a timely notice will be published in the Federal
Register.
ADDRESSES: Copies of the rules and EPA's evaluation report for each
rule are available for public inspection at EPA's Region IX office
during normal business hours. Copies of the submitted rules are also
available for inspection at the following locations:
Environmental Protection Agency, Air Docket (6102), 401 ``M'' Street,
S.W., Washington, D.C. 20460.
California Air Resources Board, Stationary Source Division, Rule
Evaluation Section, 2020 ``L'' Street, Sacramento, CA 95812.
Kern County Air Pollution Control District, 2700 ``M'' Street, Suite
290, Bakersfield, CA 93301.
Santa Barbara County Air Pollution Control District, 26 Castilian
Drive, B-23, Goleta, CA 93117.
South Coast Air Quality Management District, 21865 E. Copley Drive,
Diamond Bar, CA 91765-4182.
FOR FURTHER INFORMATION CONTACT: Mae Wang, Rulemaking Section (A-5-3),
Air and Toxics Division, U.S. Environmental Protection Agency, Region
IX, 75 Hawthorne Street, San Francisco, CA 94105, Telephone: (415) 744-
1200.
SUPPLEMENTARY INFORMATION:
Applicability
The rules being approved into the California SIP include: KCAPCD
Rule 412.1, Transfer of Gasoline into Vehicle Fuel Tanks; KCAPCD Rule
410.3, Organic Solvent Degreasing Operations; KCAPCD Rule 102,
Definitions; SBCAPCD Rule 343, Petroleum Storage Tank Degassing; and
SCAQMD Rule 461, Gasoline Transfer and Dispensing.
Background
On March 3, 1978, EPA promulgated a list of ozone nonattainment
areas under the provisions of the Clean Air Act, as amended in 1977
(1977 Act or pre-amended Act), that included the San Joaquin Valley Air
Basin,1 the South Central Coast Air Basin and the Los Angeles-
South Coast Air Basin Area. 43 FR 8964, 40 CFR 81.305. These areas did
not attain the ozone standard by their approved attainment dates.2
On May 26, 1988, EPA notified the Governor of California, pursuant to
section 110(a)(2) of the 1977 Act, that the KCAPCD, SBCAPCD and SCAQMD
portions of the California SIP were inadequate to attain and maintain
the ozone standard and requested that deficiencies in the existing SIP
be corrected (EPA's SIP-Call). On November 15, 1990, the Clean Air Act
Amendments of 1990 were enacted. Pub. L. 101-549, 104 Stat. 2399,
codified at 42 U.S.C. 7401-7671q. In amended section 182(a)(2)(A) of
the CAA, Congress statutorily adopted the requirement that
nonattainment areas fix their deficient reasonably available control
technology (RACT) rules for ozone and established a deadline of May 15,
1991 for States to submit corrections of those deficiencies.
---------------------------------------------------------------------------
\1\ At the time, Kern County was included in the San Joaquin
Valley Air Basin and the Southeast Desert Air Basin. The San Joaquin
Valley Air Basin was designated as nonattainment and the Southeast
Desert Air Basin was designated as unclassified.
\2\ The South Central Coast Air Basin and the Los Angeles-
South Coast Air Basin Area received extensions of their attainment
dates to December 31, 1987. Kern County's attainment date remained
December 31, 1982.
---------------------------------------------------------------------------
On May 20, 1991, the San Joaquin Valley Unified Air Pollution
Control District was formed. This district has authority over the San
Joaquin Valley Air Basin Portion of Kern County. Thus, as of March 20,
1991, the KCAPCD has authority over only the Southeast Desert Air Basin
portion of Kern County.
Section 182(a)(2)(A) applies to areas designated as nonattainment
prior to enactment of the CAA amendments and classified as marginal or
above as of the date of enactment. It requires such areas to adopt and
correct RACT rules pursuant to pre-amended section 172(b) as
interpreted in EPA's pre-amendment guidance.3 EPA's SIP-Call used
that guidance to indicate the necessary corrections for specific
nonattainment areas. The South Central Coast Air Basin is classified as
moderate and the Los Angeles-South Coast Air Basin Area is classified
as extreme; therefore, these areas were subject to the RACT fix-up
requirement and the May 15, 1991 deadline. All of Kern County is
classified as serious. However, the Southeast Desert Air Basin portion
of Kern County was not a pre-amendment nonattainment area and,
therefore, was not designated and classified upon enactment of the
amended Act.4 For this reason, KCAPCD is not subject to the
section 182(a)(2)(A) RACT fix-up requirement. The KCAPCD is, however,
still subject to the requirements of EPA's SIP-Call because the SIP-
Call included all of Kern County. The substantive requirements of the
SIP-Call are the same as those of the statutory RACT fix-up
requirement.
---------------------------------------------------------------------------
\3\ Among other things, the pre-amendment guidance consists of
those portions of the proposed post-1987 ozone and carbon monoxide
policy that concern RACT, 52 FR 45044 (November 24, 1987); ``Issues
Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,
Clarification to Appendix D of November 24, 1987 Federal Register
Notice'' (Blue Book) (notice of availability was published in the
Federal Register on May 25, 1988); and the existing control
technique guidelines (CTGs).
\4\ The South Central Coast Air Basin, the Los Angeles-South
Coast Air Basin Area, and the San Joaquin Valley Air Basin portion
of KCAPCD retained their nonattainment designations and were
classified by operation of law pursuant to section 107(d) and 181(a)
upon the date of enactment of the CAA. The Southeast Desert Air
Basin portion of the KCAPCD was designated nonattainment on November
6, 1991. See 56 FR 56694 (November 6, 1991).
---------------------------------------------------------------------------
This document addresses EPA's direct final action for KCAPCD Rule
412.1, Transfer of Gasoline into Vehicle Fuel Tanks; KCAPCD Rule 410.3,
Organic Solvent Degreasing Operations; KCAPCD Rule 102, Definitions;
SBCAPCD Rule 343, Petroleum Storage
[[Page 52298]]
Tank Degassing; and SCAQMD Rule 461, Gasoline Transfer and Dispensing.
The State of California submitted these rules for inclusion into its
SIP, and EPA found them to be complete pursuant to EPA's completeness
criteria that are set forth in 40 CFR part 51 Appendix V.5 The
following table contains the dates of adoption, submittal, and
completeness for each rule.
---------------------------------------------------------------------------
\5\ EPA adopted the completeness criteria on February 16, 1990
(55 FR 5830) and, pursuant to section 110(k)(1)(A) of the CAA,
revised the criteria on August 26, 1991 (56 FR 42216).
------------------------------------------------------------------------
Rule No. Adopted Submitted Complete
------------------------------------------------------------------------
KCAPCD 412.1............................. 11/9/92 1/11/93 3/26/93
KCAPCD 410.3............................. 3/7/96 5/10/96 7/19/96
KCAPCD 102............................... 3/7/96 5/10/96 7/19/96
SBCAPCD 343.............................. 12/14/93 3/29/94 6/3/94
SCAQMD 461............................... 9/8/95 1/31/96 4/2/96
------------------------------------------------------------------------
KCAPCD Rule 412.1 and SCAQMD Rule 461 control VOC emissions during
gasoline transfer and dispensing operations. KCAPCD Rule 410.3
regulates organic solvent degreasing operations, and KCAPCD Rule 102
contains general definitions used in other district rules. SBCAPCD Rule
343 controls VOC emissions from the degassing of petroleum storage
tanks. VOCs contribute to the production of ground level ozone and
smog. These rules were originally adopted as part of district efforts
to achieve the National Ambient Air Quality Standard for ozone and in
response to EPA's SIP-Call. The following is EPA's evaluation and
direct final action for these rules.
EPA Evaluation
In determining the approvability of a VOC rule, EPA must evaluate
the rule for consistency with the requirements of the CAA and EPA
regulations, as found in section 110 and part D of the CAA and 40 CFR
part 51 (Requirements for Preparation, Adoption, and Submittal of
Implementation Plans). The EPA interpretation of these requirements,
which forms the basis for today's action, appears in the various EPA
policy guidance documents listed in footnote 3. Among those provisions
is the requirement that a VOC rule must, at a minimum, provide for the
implementation of RACT for stationary sources of VOC emissions. This
requirement was carried forth from the pre-amended Act.
For the purpose of assisting State and local agencies in developing
RACT rules, EPA prepared a series of Control Technique Guideline (CTG)
documents. The CTGs are based on the underlying requirements of the Act
and specify the presumptive norms for what is RACT for specific source
categories. Under the CAA, Congress ratified EPA's use of these
documents, as well as other Agency policy, for requiring States to
``fix-up'' their RACT rules. See section 182(a)(2)(A). The CTG
applicable to KCAPCD Rule 410.3 is ``Control of Volatile Organic
Emissions from Solvent Metal Cleaning,'' EPA-450/2-77-022, and the CTG
applicable to SCAQMD Rule 461 is ``Control of Volatile Organic Compound
Leaks from Gasoline Tank Trucks and Vapor Collection Systems,'' EPA
450/2-78-051. For some source categories, such as storage tank
degassing and phase II vapor recovery, EPA did not publish a CTG.
Therefore, there is no CTG applicable to KCAPCD Rule 412.1 or SBCAPCD
Rule 343. In such cases, the District makes a determination of what
controls are required to satisfy the RACT requirement, by reviewing the
operations of facilities within the affected source category. In that
review, the technological and economic feasibility of the proposed
controls are considered. Additionally, for both CTG and non-CTG rules,
the District may rely on EPA policy documents, such as the Blue Book or
model rules, to ensure that the adopted VOC rules are fully enforceable
and strengthen or maintain the SIP. KCAPCD Rule 412.1 was evaluated
against EPA's draft model stage II rule, dated August 17, 1992. KCAPCD
Rule 102 contains only definitions and is not considered a prohibitory
rule, and therefore it was not evaluated for RACT requirements.
KCAPCD Rule 412.1 is an amended rule which regulates the dispensing
of gasoline into motor vehicle fuel tanks.
This rule contains the following significant changes from the
current SIP:
Adds definitions, recordkeeping and testing requirements.
Adds requirements related to equipment operation and
maintenance.
KCAPCD Rule 410.3 is an amended rule controlling solvent degreasing
operations. The only change to this rule involved revising the
``volatile organic compound'' definition to reference KCAPCD Rule 102.
KCAPCD Rule 102 contains definitions for terms used and referenced
in other district rules. The definitions for ``exempt compounds'' and
``loading rack'' were added, and the definition for ``valley basin and
desert basin'' was deleted.
SBCAPCD Rule 344 is a new rule which controls VOC emissions from
the degassing of petroleum storage tanks, reservoirs, or other
containers. Above-ground containers and underground tanks are subject
to this rule depending upon their capacity and the vapor pressure of
the stored organic liquid. The rule requires degassing emissions to be
controlled by at least 90%, using one of several methods, including
liquid balancing, liquid displacement, or refrigeration. Monitoring of
refrigeration and carbon adsorption is required, along with records of
monitoring results, vapor pressures, and degassing events.
SCAQMD Rule 461 is an amended rule that includes the following
significant changes from the current SIP:
Adds definitions, recordkeeping requirements, and test
methods.
Adds requirements for phase I and phase II equipment,
initial and reverification testing, self-compliance inspection and
maintenance, and completion of a training program.
Deletes outdated compliance schedules.
EPA has evaluated the submitted rules and has determined that they
are consistent with the CAA, EPA regulations, and EPA policy.
Therefore, KCAPCD Rule 412.1, KCAPCD Rule 410.3, KCAPCD Rule 102,
SBCAPCD Rule 343, and SCAQMD Rule 461 are being approved under section
110(k)(3) of the CAA as meeting the requirements of section 110(a) and
part D.
Nothing in this action should be construed as permitting or
allowing or establishing a precedent for any future implementation
plan. Each request for revision to the State implementation plan shall
be considered separately in light of specific technical, economic, and
environmental factors and in relation to relevant statutory and
regulatory requirements.
EPA is publishing this document without prior proposal because the
Agency views this as a noncontroversial action and anticipates no
adverse comments. However, in a separate document in this Federal
Register publication, EPA is proposing to approve the SIP revision
should adverse or critical comments be filed. This action will be
effective December 6, 1996, unless, by November 6, 1996, adverse or
critical comments are received.
If EPA receives such comments, this action will be withdrawn before
the effective date by publishing a subsequent document that will
withdraw the final action. All public comments received will then be
addressed in a subsequent final rule based on this action serving as a
proposed rule. EPA will not institute a second comment period on this
action.
[[Page 52299]]
Any parties interested in commenting on this action should do so at
this time. If no such comments are received, the public is advised that
this action will be effective December 6, 1996.
Regulatory Process
Unfunded Mandates
Under Sections 202, 203, and 205 of the Unfunded Mandates Reform
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,
1995, EPA must undertake various actions in association with proposed
or final rules that include a Federal mandate that may result in
estimated costs of $100 million or more to the private sector or to
State, local, or tribal governments in the aggregate.
Through submission of this State implementation plan or plan
revision, the State and any affected local or tribal governments have
elected to adopt the program provided for under part D of the Clean Air
Act. These rules may bind State, local, and tribal governments to
perform certain actions and also require the private sector to perform
certain duties. The rules being approved by this action will impose no
new requirements because affected sources are already subject to these
regulations under State law. Therefore, no additional costs to State,
local, or tribal governments or to the private sector result from this
action. EPA has also determined that this direct final action does not
include a mandate that may result in estimated costs of $100 million or
more to State, local, or tribal governments in the aggregate or to the
private sector.
Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives and the Comptroller General of the
General Accounting Office prior to publication of the rule in today's
Federal Register. This rule is not a ``major rule'' as defined by 5
U.S.C. 804(2).
Small Businesses
Under the Regulatory Flexibility Act, 5 U.S.C. 600 et seq., EPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. 603 and 604.
Alternatively, EPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises and
government entities with jurisdiction over populations of less than
50,000.
SIP approvals under sections 110 and 301(a) and subchapter I, part
D of the CAA do not create any new requirements, but simply approve
requirements that the State is already imposing. Therefore, because the
Federal SIP-approval does not impose any new requirements, I certify
that it does not have a significant impact on any small entities
affected. Moreover, due to the nature of the Federal-State relationship
under the CAA, preparation of a regulatory flexibility analysis would
constitute Federal inquiry into the economic reasonableness of State
action. The CAA forbids EPA to base its actions concerning SIPs on such
grounds. Union Electric Co. v. U.S. E.P.A., 427 U.S. 246, 256-66 (S.
Ct. 1976); 42 U.S.C. 7410(a)(2).
This action has been classified as a Table 3 action for signature
by the Regional Administrator under procedures published in the Federal
Register on January 19, 1989 (54 FR 2214-2225), as revised by a July
10, 1995 memorandum from Mary Nichols, Assistant Administrator for Air
and Radiation. The Office of Management and Budget has exempted this
regulatory action from Executive Order 12866 review.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Hydrocarbons,
Incorporation by reference, Intergovernmental relations, Ozone,
Reporting and recordkeeping requirements, Volatile organic compounds.
Note: Incorporation by reference of the State Implementation
Plan for the State of California was approved by the Director of the
Federal Register on July 1, 1982.
Dated: September 17, 1996.
Felicia Marcus,
Regional Administrator.
Subpart F of part 52, chapter I, title 40 of the Code of Federal
Regulations is amended as follows:
PART 52--[AMENDED]
1. The authority citation for part 52 continues to read as follows:
Authority: 42 U.S.C. 7401-7671q.
Subpart F--California
2. Section 52.220 is amended by adding paragraphs (c)(191)(i)(D),
(c)(196)(i)(C)(3), (c)(229)(i)(A), and (c)(231)(i)(B) to read as
follows:
Sec. 52.220 Identification of plan.
* * * * *
(c) * * *
(191) * * *
(i) * * *
(D) Kern County Air Pollution Control District.
(1) Rule 412.1, adopted on November 9, 1992.
* * * * *
(196) * * *
(i) * * *
(C) * * *
(3) Rule 343, adopted on December 14, 1993.
* * * * *
(229) New and amended regulations for the following APCDs were
submitted on January 31, 1996, by the Governor's designee.
(i) Incorporation by reference.
(A) South Coast Air Quality Management District.
(1) Rule 461, adopted on September 8, 1995.
* * * * *
(231) * * *
(i) * * *
(B) Kern County Air Pollution Control District.
(1) Rule 102 and Rule 410.3, adopted on March 7, 1996.
* * * * *
[FR Doc. 96-25467 Filed 10-4-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-25462 Endangered and Threatened Wildlife and Plants; Determination of Endangered or Threatened Status for Four Southern Maritime Chaparral Plant Taxa from Coastal Southern California and Northwestern Baja California, Mexico
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52370-52384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25462]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
Fish and Wildlife Service
50 CFR Part 17
RIN 1018-AC01
Endangered and Threatened Wildlife and Plants; Determination of
Endangered or Threatened Status for Four Southern Maritime Chaparral
Plant Taxa from Coastal Southern California and Northwestern Baja
California, Mexico
AGENCY: Fish and Wildlife Service, Interior.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Fish and Wildlife Service (Service) determines
endangered status pursuant to the Endangered Species Act of 1973, as
amended (Act), for two plants--Arctostaphylos glandulosa ssp.
crassifolia (Del Mar manzanita) and Chorizanthe orcuttiana (Orcutt's
spineflower) throughout their historic range in southwestern California
and northwestern Baja California, Mexico; and threatened status for two
plants--Verbesina dissita (big-leaved crown-beard) and Baccharis
vanessae (Encinitas baccharis) throughout their historic range in
southwestern California and northwestern Baja California, Mexico. These
four taxa are threatened by one or more of the following--trampling by
farm workers or recreational activities; fuel modification; competition
from non-native plant species; and habitat destruction due to
residential, agricultural, commercial, and recreational development.
Several of these plant taxa are also threatened by a risk of extinction
from naturally occurring events due to their small population size and
limited distribution. This rule implements the Federal protection and
recovery provisions afforded by the Act for these four plants.
EFFECTIVE DATE: November 6, 1996.
ADDRESSES: The complete file for this rule is available for public
inspection, by appointment, during normal business hours at the U.S.
Fish and Wildlife Service, Carlsbad Field Office, 2730 Loker Avenue
West, Carlsbad, California 92008.
FOR FURTHER INFORMATION CONTACT: Fred Roberts, Botanist (see ADDRESSES
section) (telephone: 619/431-9440).
SUPPLEMENTARY INFORMATION:
Background
Southern maritime chaparral is a low, fairly open chaparral
typically dominated by Ceanothus verrucosus (wart-stemmed ceanothus),
Xylococcus bicolor (mission manzanita), Adenostoma fasciculatum var.
obtusifolium (chamise), Quercus dumosa (Nuttall's scrub oak),
Cneoridium dumosum (bush rue), Rhamnus crocea (red berry), Yucca
schidigera (Mojave yucca), and occasionally Dendromecon rigida (bush
poppy)(Holland 1986; Todd Kehler-Wolf, Plant Ecologist, California
Department of Fish and Game (CDFG), pers. comm., 1993; Dan Kelly and
Patricia Gordon-Reedy, biologists, OGDEN, pers. comm., 1993). Southern
maritime chaparral is a plant association that occurs only in coastal
southern California along the immediate coast of San Diego and Orange
counties and northwestern Baja California, Mexico. The distribution of
southern maritime chaparral in Orange County is disjunct, and the
species composition is slightly different from that found in San Diego
County and Mexico (Gray and Bramlet 1992).
Southern maritime chaparral is considered to be a unique and
[[Page 52371]]
threatened plant community. It has been estimated that about 120
hectares (ha) (300 acres (ac)) of southern maritime chaparral occurred
historically in Orange County (U.S. Fish and Wildlife Service (USFWS),
unpublished data), while about 8,400 ha (21,000 ac) of southern
maritime chaparral occurred historically in San Diego County (Oberbauer
and Vanderwier 1991). Currently, there are an estimated 60 ha (150 ac)
of southern maritime chaparral in Orange County (Todd Kehler-Wolf,
pers. comm., 1993) and between 600 and 1,480 ha (1,500 and 3,700 ac) in
San Diego County (Oberbauer and Vanderwier 1991; OGDEN 1993; Dave
Hogan, Southwest Center for Biological Diversity, in litt., 1993). This
represents an 82 to 93 percent decline in habitat in southern
California, largely due to agricultural conversion and urbanization.
Much of the remaining 10 to 20 percent of the United States portion of
southern maritime chaparral is located on Carmel Mountain, Torrey Pines
State Park, and in the cities of Carlsbad and Encinitas in San Diego
County. The distribution of southern maritime chaparral and related
associations has also declined significantly in Baja California,
Mexico, for many of the same reasons.
One of the four plant taxa to be listed by this final rule,
Chorizanthe orcuttiana, is primarily restricted to weathered sandstone
bluffs in association with or in microhabitats within southern maritime
chaparral. This species is endemic to south-central and southern
coastal San Diego County, California. A second taxon, Arctostaphylos
glandulosa ssp. crassifolia, is also primarily associated with southern
maritime chaparral in San Diego County, California. It also occurs in
disjunct populations in northwestern Baja California, Mexico, at least
as far south as Mesa el Descanseo, 40 kilometers (km) (25 miles (mi))
north of Ensenada.
The remaining two taxa, Verbesina dissita and Baccharis vanessae,
are frequently associated with southern maritime chaparral but also
extend into other plant communities. Verbesina dissita is restricted to
rugged coastal canyons in association with San Onofre breccia-derived
soils in the southern maritime chaparral of southern Orange County,
California. This taxon also occurs in limited numbers in Venturan-
Diegan transitional coastal sage scrub (Gray and Bramlet 1992), Diegan
coastal sage scrub, and southern mixed chaparral (Holland 1986).
Verbesina dissita occurs disjunctly in similar vegetation associations
from Punta Descanso south to San Telmo in northwestern Baja California,
Mexico. Baccharis vanessae occurs in southern maritime chaparral in the
vicinity of Encinitas, central San Diego County, California, and
extends inland to Mount Woodson and Poway where it is associated with
dense southern mixed chaparral. One population of this plant occurs in
the Santa Margarita Mountains of northern San Diego County. Two of the
four taxa are found below 250 meters (m) (820 feet (ft)) in elevation
in the United States. Arctostaphylos glandulosa ssp. crassifolia
reaches 730 m (2,400 ft) elevation in Mexico. Baccharis vanessae is
known to occur at 880 m (2,890 ft) in elevation on Mount Woodson.
While three of the four plant taxa are largely restricted to the
United States, 85 percent of the known populations of Verbesina dissita
are known from northwestern Baja California, Mexico. Although the
status of this species and its habitat in Mexico is not well
documented, over 20 percent of the populations occuring in Mexico have
been extirpated. Agricultural conversion, resort and residential
development, and wide fuel breaks and slash and burn practices have
already affected and continue to contribute to the decline of Verbesina
dissita in Mexico (CDFG 1990, Oberbauer 1992).
The natural plant communities of coastal Orange and San Diego
Counties have undergone significant changes resulting from both human-
caused activities and natural events. The rapid urbanization of
southern Orange County and south-central San Diego County has already
eliminated a significant portion of the southern maritime chaparral and
the four plant taxa considered herein. Fire also plays an important
role in determining southern California plant community distribution
and composition. The advent of widespread urbanization and the
disruption in natural fire cycles potentially threatens the remaining
southern maritime chaparral. Populations of these four taxa have been
subjected to a considerable degree of fragmentation.
Discussion of the Four Taxa
Arctostaphylos glandulosa ssp. crassifolia (Del Mar manzanita), a
member of the heath family (Ericaceae), is one of six recognized
subspecies occurring in California and northwest Baja California,
Mexico (Wells 1987, 1993). The subspecies is an erect shrub, generally
1 to 1.2 m (3.3 to 4 ft) tall, but occasionally higher when
introgressed (influenced by other subspecies).
This taxon is distinguished from other subspecies of Arctostaphylos
glandulosa by its shorter stature (other subspecies are up to 2.5 m
(8.2 ft) tall), and by its dark gray-green leaves that are glabrate
above and tomentulose beneath. The branchlets and leaf-like bracts are
non-glandular and tomentulose with scattered long hairs or bristles
(Wells 1993). Generally, A. glandulosa (Eastwood manzanita) is a
relatively open, smooth, dark red-barked shrub characterized by a basal
burl and scarcely leaf-like bracts that are shorter than the hairy
flower-stalks. Four of six subspecies of A. glandulosa lack non-
glandular, tomentulose hairs and scattered white bristles on the
branchlets, bracts and leaves. Of the remaining two taxa, A. g. ssp.
mollis of the western Transverse Ranges has more uniformly distributed,
long, white bristles and bright green, smooth and shiny leaves, while
A. g. ssp. glaucomollis of the San Gabriel and San Bernardino Mountains
lacks leaf-like bracts (Wells 1993).
Arctostaphylos glandulosa ssp. crassifolia was first described by
Willis Jepson (1922) based on a specimen he collected in Del Mar,
California. In 1925, Jepson placed Del Mar manzanita under the name
Arctostaphylos tomentosa var. crassifolia (Knight 1981). This name was
used by Howard McMinn (1939), who stated that Del Mar manzanita ``seems
very closely related to A. glandulosa var. cushingiana but the more
truncate leaf-bases, the usually more tomentulose lower leaf-surfaces,
and distribution seem sufficient to maintain it as a variety of A.
tomentosa.'' J.E. Adams, in his 1940 treatment of the genus
Arctostaphylos, transferred var. crassifolia to A. glandulosa as in
Jepson's original treatment (Knight 1981).
Philip Wells (1968) stated that ``other morphological variants of
the A. glandulosa complex have largely allopatric (do not overlap)
geographic distributions and are recognized as subspecies.''
Accordingly, Wells applied the name A. glandulosa ssp. crassifolia to
the Del Mar manzanita. Subsequent taxonomic review (Munz 1959, 1974)
upheld this treatment. Walter Knight (1981) reviewed the morphology and
summarized the taxonomic history of A. g. ssp. crassifolia. While the
majority of Knight's discussion in that article supported the validity
of A. g. ssp. crassifolia, Knight concluded that this taxon should not
be recognized. He stated that A. g. ssp. crassifolia was a product of
hybridization between A. glandulosa and other manzanita species in the
area. However, Knight's conclusions were not widely accepted by
botanists in San Diego County (Beauchamp 1986; Thomas Oberbauer,
Planner, County of San Diego, pers.
[[Page 52372]]
comms., 1993, 1994). Knight did not offer support, nor discuss
potential parentage for considering A. g. ssp. crassifolia as a hybrid
entity. Arctostaphylos glandulosa ssp. crassifolia is allopatric with
other manzanita taxa, except in Mexico, where the range is partly
sympatric (overlapping) with A. g. ssp. zacaensis (Wells 1987).
Additionally, the morphological characters of A. g. ssp. crassifolia do
not appear to be intermediate with any other species within the
vicinity of its range (McMinn 1939, Munz 1974, Wells 1993, Roberts
1994).
Both Knight and Wells were asked to examine populations of
manzanita along coastal San Diego County in March 1986. From these
field observations, Knight revised his position and agreed with the
classical treatment, concluding that Arctostaphylos glandulosa ssp.
crassifolia was distinct (T. Oberbauer, pers. comms., 1993, 1994; Jim
Bartel, USFWS, pers. comm., 1994). Wells reaffirmed the distinctness of
A. g. ssp. crassifolia, stating ``(A. g.) ssp. crassifolia is one of
the more consistent and well-defined taxa within the variable A.
glandulosa complex, and (A. g. ssp.) crassifolia has a discrete
distribution, allopatric from other taxa'' (Wells 1987, Sweetwater
Environmental Biologists (SEB) 1993b).
Arctostaphylos glandulosa ssp. crassifolia is restricted to
sandstone terraces and bluffs from Carlsbad south to Torrey Pines State
Park, extending inland to Rancho Santa Fe and Del Mar Mesa in San Diego
County, California. An additional population has been reported just
south of the San Dieguito River southwest of Lake Hodges. This species
has been reported from five localities in northwestern Baja California,
Mexico, from just east of Tijuana along the United States border, to
Cerro el Coronel and Mesa Descanseo 40 km (25 mi) south of the United
States border. These populations may no longer be extant due to
considerable urban and agricultural development in the Tijuana vicinity
(Roberts 1992). The most recent collection in the San Diego Museum of
Natural History was made by Reid Moran in 1982.
About 1982, approximately 16,600 to 17,600 individuals of
Arctostaphylos glandulosa ssp. crassifolia were known to be distributed
over about 26 population centers (Roberts 1992, SEB 1993b, OGDEN
1995a). A significant number of these populations have been severely
impacted since then. For example, in 1987, one population of nearly 500
individuals near San Dieguito Creek and the surrounding southern
maritime chaparral habitat was cleared and converted to agriculture.
Cultivation at this site was active for one season and has not been
continued (T. Oberbauer, pers. comm., 1992). Currently, about 9,400 to
10,300 individuals, scattered roughly throughout the historic
distribution of the species in San Diego County, are known to be extant
(Roberts 1993, SEB 1993b, OGDEN 1995a). About 75 percent of all
remaining individuals are located within six concentrations. The
majority of the 26 populations are found on private land, four occur in
State, county or local parks, and none are known from Federal lands.
The number of individuals in Baja California, Mexico, is not known but
is likely to be smaller than in the United States, based on the limited
availability of habitat.
Four populations of Arctostaphylos glandulosa totaling
approximately 3,000 individuals in the vicinity of Miramar Reservoir
have been attributed to A. g. ssp. crassifolia, but Wells (pers. comm.,
1992) maintains that these plants are intermediate with other
subspecies of A. glandulosa and can not be definitely placed. Later
inclusion of these populations in A. g. ssp. crassifolia would not
significantly alter the findings of this rule. Nearly 50 percent of the
individuals known from the vicinity of Miramar Reservoir in 1982 were
eliminated by the Scripps Ranch development between 1989 and 1992.
Baccharis vanessae (Encinitas baccharis), a member of the sunflower
family (Asteraceae), is a dioecious broom-like shrub, 0.5 to 1.3 m (1.6
to 4.3 ft) tall. It was discovered by Mitchel Beauchamp in October 1976
in southern maritime chaparral on Eocene sandstones along the north
side of Encinitas Boulevard in Encinitas. The species was later
described by Beauchamp (1980). Baccharis vanessae is distinguished from
other members of the genus by its filiform leaves and delicate
phyllaries which are reflexed at maturity (Beauchamp 1980, Munz 1974).
As currently understood, the historical distribution of this
species included 19 natural populations scattered from Encinitas east
through the Del Dios highlands and Lake Hodges area to Mount Woodson
and south to Poway and Carmel Mountain in San Diego County, California.
Fourteen of these populations are still extant and contain
approximately 2,000 individuals in total (CDFG 1992). Four of these
populations, however, contain fewer than six individuals each. An
additional disjunct individual was discovered on the western slopes of
Carmel Mountain in 1993 (D. Hogan, in litt., 1993). This location
harbors the southernmost known population. A single transplanted
population of 34 individuals was established in San Dieguito Park, but
this population has not persisted (Hall 1987). The majority of the
remaining populations are on private lands.
Chorizanthe orcuttiana (Orcutt's spineflower) was first described
by Charles Parry in 1884 based on a specimen collected by Charles
Orcutt at Point Loma, San Diego County, in the same year (Parry 1884).
Chorizanthe orcuttiana is a low, yellow-flowered annual of the
buckwheat family (Polygonaceae) restricted to sandy soils. It is
distinguished from other members of the genus by its prostrate form,
campanulate three-toothed involucre and involucral awns that are hooked
near the tip (Reveal 1989).
Historically, Chorizanthe orcuttiana is known from 10 separate
localities in San Diego County from Point Loma near San Diego
(including the U.S. Naval Reservation), Del Mar, Kearney Mesa and
Encinitas (CDFG 1992). Only two populations have been seen in recent
years. Allen reported 50 to 100 individuals at Torrey Pines State Park
in 1987 (CDFG 1992). However, this population has not been relocated in
the last several years, possibly due to changing plant species
composition and density as result of a 1984 burn. The species was
thought to be extinct until a new population was discovered in 1991 at
Oak Crest Park in Encinitas (D. Hogan, in litt., 1991). This population
numbered fewer than 40 individuals in 1993 and fewer than 10
individuals in 1994, and it is distributed over a relatively small area
(about 4 square m (43 square ft)) (unpublished USFWS data). The number
of individuals varies widely from year to year because the success of
germination is highly dependent on factors such as rainfall, which
often differ significantly from one year to the next in southern
California.
Verbesina dissita (big-leaved crown-beard) was first described by
Asa Gray (1885) based on a collection made by Charles Orcutt at
Ensenada, Baja California, Mexico, in September 1884. The taxon
apparently was first collected in the United States at Arch Beach in
South Laguna, Orange County, in 1903 by Mrs. M.F. Bradshaw (Hall 1907).
Verbesina dissita, a member of the sunflower family (Asteraceae),
is a low, semi-woody perennial shrub with bright yellow flowers. This
species grows from 0.5 to 1.0 m (1.6 to 3.3 ft) tall and has
distinctive scabrid leaves. Verbesina dissita is distinguished from
other members of the genus in California and Baja California, Mexico,
by its naked
[[Page 52373]]
achenes and broad involucre (Munz 1974).
Verbesina dissita is found on rugged hillsides in dense maritime
chaparral from Laguna Beach in Orange County south to the San Telmo
area east of Cabo Colonet in Baja California, Mexico. In California it
is known from two population centers less than 3.2 km (2 mi) apart.
Because of the low growth habit and preference for understory
locations, the population size of this taxon is difficult to estimate.
The United States populations have been estimated to contain several
thousand plants (CDFG 1992, Marsh 1992). Historically, this taxon has
been recorded from 23 separate locations in Mexico. Of the Mexican
localities, over 20 percent, all north of Punta Santo Tomas, have been
eliminated. Nearly all known populations are on private land.
Previous Federal Action
Action by the Federal government on two of the four plant taxa
contained herein began pursuant to section 12 of the Endangered Species
Act of 1973 (Act), as amended (16 U.S.C. 153 et seq.). Section 12
directed the Secretary of the Smithsonian Institution to prepare a
report on those plants considered to be endangered, threatened or
extinct. This report, designated as House Document No. 94-51, was
presented to Congress on January 9, 1975, and included Arctostaphylos
glandulosa ssp. crassifolia and Chorizanthe orcuttiana as endangered.
The Service published a notice in the July 1, 1975, Federal Register
(40 FR 27823) of its acceptance of the report of the Smithsonian
Institution as a petition within the context of section 4(c)(2)
(petition provisions are now found in section 4(b)(3) of the Act) and
its intention thereby to review the status of the plant taxa named
therein. On June 16, 1976, the Service published a proposal in the
Federal Register (42 FR 24523) to determine approximately 1,700
vascular plants to be endangered species pursuant to section 4 of the
Act. Chorizanthe orcuttiana and Arctostaphylos glandulosa ssp.
crassifolia were included in the June 16, 1976, Federal Register
notice.
General comments received in response to the 1976 proposal were
summarized in an April 26, 1978, Federal Register notice (43 FR 17909).
The Endangered Species Act Amendments of 1978 required that all
proposals already over two years old be withdrawn. A 1-year grace
period was given to those proposals already more than two years old. In
the December 10, 1979, Federal Register (44 FR 70796), the Service
published a notice of withdrawal of the portion of the June 8, 1976,
proposal that had not been made final, along with four other proposals
that had expired.
The Service published an updated notice of review of plants on
December 15, 1980 (45 FR 82480). This notice included Baccharis
vanessae and Chorizanthe orcuttiana as category 1 taxa. Category 1 taxa
are those taxa for which substantial information on biological
vulnerability and threats are available to support preparation of
listing proposals. On November 28, 1983, the Service published in the
Federal Register a supplement to the Notice of Review (48 FR 53840), in
which B. vanessae and C. orcuttiana were reclassified from category 1
to category 2. Category 2 candidates were taxa for which data in the
Service's possession indicated listing was possibly appropriate but for
which substantial information on biological vulnerability and threats
was not known or on file to support the preparation of proposed rules.
The designation of category 2 species was not included in the latest
notice of review (February 28, 1996; 61 FR 7596). Arctostaphylos
glandulosa ssp. crassifolia was not included in either the 1980 review
list or the 1983 supplement.
The plant notice was again revised on September 27, 1985 (50 FR
39526), and Arctostaphylos glandulosa ssp. crassifolia was listed as a
category 3B taxon. Category 3B taxa were those taxa that, based upon
current taxonomic understanding, did not represent distinct taxa under
the Act's definition of species (the designation of category 3B has
also been discontinued). This change reflected the questionable
validity of the taxon as presented by Knight (1981). The taxonomy of
Arctostaphylos glandulosa ssp. crassifolia was subsequently
reevaluated, and the plant was included as a category 2 taxon in the
February 21, 1990, Plant Notice of Review (55 FR 6184), based on the
work of Wells (1987). In this same notice, Baccharis vanessae and
Chorizanthe orcuttiana were reevaluated and included as category 1
species based on information contained in status reports prepared in
conjunction with State listing as endangered. The 1990 review included
C. orcuttiana as a category 1* candidate, indicating that this species
was possibly extinct. Based on additional information on threats and
vulnerability, the Service elevated A. g. ssp. crassifolia and C.
orcuttiana to category 1 and added Verbesina dissita as a category 1
candidate in the September 30, 1993, Notice of Review (58 FR 51144).
Section 4(b)(3)(B) of the Act requires the Secretary to make
certain findings on pending petitions within 12 months of their
receipt. Section 2(b)(1) of the 1982 amendments further requires that
all petitions pending on October 13, 1982, be treated as having been
newly submitted on that date. This was the case for Arctostaphylos
glandulosa ssp. crassifolia and Chorizanthe orcuttiana because the 1975
Smithsonian report had been accepted as a petition. On October 13,
1983, the Service found that the petitioned listing of these species
was warranted, but precluded by other pending listing actions pursuant
to section 4(b)(3)(B)(iii) of the Act. Notification of this finding was
published in the Federal Register on January 20, 1984 (49 FR 2485).
Such a finding requires the petition to be recycled, pursuant to
section 4(b)(3)(C)(i) of the Act. The finding was reviewed in October
of 1984, 1985, 1987, 1988, 1989, 1990, 1991, and 1992. Publication of
the proposed rule constituted the warranted finding for these taxa.
On December 14, 1990, the Service received a petition dated
December 5, 1990, from Mr. David Hogan of the San Diego Biodiversity
Project, to list Baccharis vanessae as an endangered species. The
petition also requested the designation of critical habitat. The
Service evaluated the petitioner's requested action and published a 90-
day finding on August 30, 1991 (56 FR 42968), stating that substantial
information had been presented that the requested actions concerning
Baccharis vanessae may be warranted.
A proposed rule to list Arctostaphylos glandulosa ssp. crassifolia,
Baccharis vanessae, and Chorizanthe orcuttiana as endangered and
Verbesina dissita as threatened was published in the Federal Register
on October 1, 1993 (58 FR 51302). That proposed rule also included
Dudleya blochmaniae ssp. brevifolia (short-leaved dudleya) to be listed
as endangered and Corethrogyne filaginifolia var. linifolia (Del Mar
sand-aster) to be listed as a threatened taxon. The proposals to list
those two taxa are withdrawn and addressed in a document published
concurrently in the proposed rule section of this issue of the Federal
Register.
The processing of this final rule follows the Service's listing
priority guidance published in the Federal Register on May 16, 1996 (61
FR 24722). The guidance clarifies the order in which the Service will
process rulemakings following two related events: 1) the lifting, on
April 26, 1996, of the moratorium on final listings imposed on April
10, 1995 (Public Law
[[Page 52374]]
104-6), and 2) the restoration of significant funding for listing
through passage of the omnibus budget reconciliation law on April 26,
1996, following severe funding constraints imposed by a number of
continuing resolutions between November 1995 and April 1996. The
guidance calls for prompt processing of final rules containing species
facing threats of high magnitude. All four taxa in this rule face high
magnitude threats.
Summary of Comments and Recommendations
In the October 1, 1993, proposed rule (58 FR 51302) and associated
notifications, all interested parties were requested to submit factual
reports or information that might contribute to the development of a
final rule. A 90-day comment period closed on January 1, 1994.
Appropriate State agencies, county governments, Federal agencies, and
other interested parties were contacted and requested to comment. A
letter of notification and a copy of the proposed rule were also sent
to the government of Mexico. Public notices announcing the publication
of the proposed rule were published in the Press-Enterprise in
Riverside County on October 12, 1993, and the San Diego Union Tribune
in San Diego County and the Orange County Register on October 13, 1993.
No request for a public hearing was received.
A total of seven written comments were received. Two commenters
supported the listing of these taxa. Two commenters neither supported
nor opposed the proposed listing. Three commenters opposed the proposed
listing. Information from a number of these comments has been
incorporated into the final rule. Eleven relevant issues were raised in
these comments and the Service's response to each is as follows:
Issue 1: One commenter stated that the estimate for remaining
southern maritime chaparral was too high and suggested that the
definition of southern maritime chaparral adopted by the Service, based
on Holland (1986), required modification.
Service Response: A range of estimates for remaining southern
maritime chaparral has been incorporated into the final rule. While the
exact amount of remaining southern maritime chaparral is not agreed
upon, the Service considers this plant association to be sensitive and
rare. The Service has coordinated with the CDFG, knowledgeable
biologists, and other parties in determining an appropriate definition
for southern maritime chaparral (Jim Dice, CDFG, T. Keeler-Wolf, D.
Kelly and P. Gordon-Reedy, pers. comms., 1993).
Issue 2: One commenter argued that Arctostaphylos glandulosa ssp.
crassifolia does not warrant protection under the Act because the
Service has failed to demonstrate that it is a distinct taxon. The
commenter claimed that there was no consensus within the scientific
community regarding this taxon. The commenter stated that the Service
did not clearly demonstrate that Knight's treatment (Knight 1981)
should be rejected over Wells (1987, 1993). The commenter questioned
the use of morphological variation in determining subspecific
classification. Additionally, the commenter claimed that it is unclear
whether the Scripps Ranch population of Arctostaphylos glandulosa is
representative of this taxon.
Service Response: A discussion regarding the taxonomic history of
this taxon is included under the ``Discussion of the Four Taxa''
section of this rule. The discussion in the proposed rule has been
expanded to increase clarity and address concerns included within this
comment. In determining the taxonomic status of any taxon, the Service
utilizes the best available information. Nearly all taxonomic
treatments published since the original description of Arctostaphylos
glandulosa ssp. crassifolia in 1922 recognize this taxon as distinct.
The two most recent treatments (Wells 1987, 1993) are the accepted,
peer reviewed treatments for this genus. This taxon is also recognized
as distinct in local floras (Beauchamp 1986) and other reports
regarding the status of the taxon (SEB 1993b).
The Service does not rely on Knight (1981) because this treatment
does not represent the best available information. As discussed under
the ``Background'' section of this rule, Knight did not substantiate
his claim that Arctostaphylos glandulosa ssp. crassifolia was of hybrid
origin between A. glandulosa and other unidentified species of
Arctostaphylos. Furthermore, Knight reversed his opinion in 1986 and
accepted A. g. ssp. crassifolia as valid (T. Oberbauer, pers. comm.,
1993; J. Bartel, pers. comm., 1994). Wells (1968, 1993) published in
peer-reviewed publications while Knight (1981) did not. Both Wells and
Knight applied morphological variation in determining the status of A.
g. ssp. crassifolia. While the Service acknowledges that other methods
(i.e., chemotaxonomy and genetic analysis) may be used as supplements
to morphological variation as available tools for taxonomic definition,
morphological variation has historically been the most widely accepted
basis for taxonomic distinction for all biological organisms.
Issue 3: One commenter claimed that historic losses of
Arctostaphylos glandulosa ssp. crassifolia were the result of taxonomic
confusion because of ``complete lack of consensus within the scientific
community.'' The commenter noted the taxon has only recently been
considered a distinct subspecies. The commenter also noted that the
California Native Plant Society rejected this taxon in their 1988
Inventory (Smith and Berg 1988) and that the Service determined in the
September 27, 1985, Notice of Review (50 FR 39528) that A. g. ssp.
crassifolia did not represent a distinct taxon. The commenter also
asserted that Federal recognition of this taxon has been lacking since
the 1985 notice.
Service Response: As discussed under the ``Background'' section,
this subspecies has been recognized as distinct for nearly 70 years.
This taxon was first described as a variety of A. glandulosa in 1922,
and has been widely recognized in taxonomic treatments since then
(McMinn 1939; Abrams 1951; Munz 1959, 1974; Wells 1968, 1987, 1993;
Beauchamp 1986). In 1985, the Service rejected this taxon based on the
most recent taxonomic treatment at that time. However, since that time,
floristic and monographic treatments by Beauchamp (1986) and Wells
(1987) recognized A. g. ssp. crassifolia as a distinct taxon. The
latter treatment detailed the taxonomic argument for retention of the
subspecies. The Service, following the criteria of the best available
information, reinstated the taxon to category 2 status in 1990. The
California Native Plant Society currently recognizes A. g. ssp.
crassifolia as a list 1B taxon (Skinner and Pavlik 1994). Plants
included on list 1B are considered rare and endangered in the State of
California and are eligible for State listing under California's Native
Plant Protection Act (chapter 10 section 1901) or the State Endangered
Species Act (Skinner and Pavlik 1994).
As discussed in this rule under ``Previous Federal Action,'' the
commenter is incorrect in asserting that the Service has not identified
this taxon as a candidate for protection under the Act since 1985. It
was published as a category 2 candidate species in the February 21,
1990, Plant Notice of Review (55 FR 6184) and as a category 1 candidate
in 1993. During the period between 1985 and 1990, Arctostaphylos
glandulosa ssp. crassifolia was widely recognized in environmental
documentation (Beauchamp 1986; Nelson 1988; Pacific Southwest
Biological Services 1990; Stephen Lacy,
[[Page 52375]]
Biological Resource Manager, ERCE, in litt., 1991; T. Oberbauer, pers.
comm., 1993). Based on the best available scientific and commercial
information, the Service finds A. g. ssp. crassifolia to be a taxon
eligible for listing under the Act.
Issue 4: Two commenters claimed that these taxa did not warrant
listing as endangered or threatened because the majority of their
populations are protected from development. One commenter dealt mainly
with a species now being withdrawn from consideration for listing.
Another commenter claimed that the report entitled ``Description,
Status, Distribution, and Conservation of Del Mar Manzanita
(Arctostaphylos glandulosa ssp. crassifolia)'' by Sweetwater
Environmental Biologists (SEB 1993b), rebuts the Service's finding that
listing of Del Mar manzanita is warranted. Based on this report, the
commenters stated that the majority of these individuals (76 percent)
occur within 7 of the 22 populations. Of these 7 major populations
(each containing over 500 individuals), the commenters claimed that 82
percent will be preserved, which accounts for 70 percent of the entire
taxon.
Service Response: Although these commenters evidently include
Baccharis vanessae, Chorizanthe orcuttiana, and Verbesina dissita
within the context of this comment, no specific discussion was included
regarding these taxa.
The Service has considered the findings of the SEB report (1993b)
in determining the status of Arctostaphylos glandulosa ssp.
crassifolia. SEB reported that there were about 17,000 individuals of
Del Mar manzanita distributed over 302 subpopulations within 24
populations in San Diego County from Oceanside south to La Jolla, and
inland to Scripps Ranch in the United States. SEB described the range
of this taxon as extending along the immediate coast of Baja
California, Mexico, south to Cabo Colonet about 200 km (124 mi) south
of the United States border.
Available data (Reid Moran, California Academy of Sciences, Philip
Wells, T. Oberbauer, pers. comms., 1992; and herbarium collections at
the San Diego Natural History Museum) indicate that the distribution of
this taxon in Mexico is limited. The Service has not been presented
with any evidence that Arctostaphylos glandulosa ssp. crassifolia
occurs farther south than Mesa Descanseo 40 km (25 mi) south of the
international border.
According to SEB (1993b), 22 of the 24 United States populations,
137 (45 percent) of the subpopulations and about 7,100 to 9,700
individuals (42 to 58 percent) of Arctostaphylos glandulosa ssp.
crassifolia are still extant. SEB (1993b) further states that of the
remaining individuals of this taxon, about 82 percent are proposed for
conservation, which includes about 35 percent on public lands and 48
percent on private lands.
SEB (1993b) identify seven major populations that contain about
three-fourths of all San Diego County Arctostaphylos glandulosa ssp.
crassifolia. The Service concurs with the assessment of six of these
populations and identifies the seventh population identified in SEB
(1993b) as moderately large. Service staff assessed this population at
fewer than 500 individuals in December 1993. The Service further
considers that both the size and the configuration of these populations
are important to the long-term viability of A. g. ssp. crassifolia.
Currently all seven of the populations identified as large in SEB
(1993b) are situated in natural blocks of vegetation greater than 40 ha
(100 ac) in size.
The number of individuals in the SEB (1993b) report is not
significantly different from, and generally conforms with, estimates
used by the Service in preparation of the proposed rule. However, SEB
(1993b) significantly overestimates the preserved population of
Arctostaphylos glandulosa ssp. crassifolia. The remarks and data
summary on Table 1 of the report are inconsistent--the data summary
indicates that about 18 percent of this taxon is threatened by
development, while the remarks section indicates that over 30 percent
of the A. g. ssp. crassifolia is currently threatened by development.
Although SEB (1993b) acknowledges that one of the major populations
located in the city of Carlsbad, California, consists of nearly 2,000
individuals, only about 750 of these are accounted for in Table 1. The
remaining 1,200 individuals are assumed to have been ``graded.''
However, these individuals are still extant and are threatened by the
implementation of a large scale development project. The Service
considers the loss of most of this population, which represents a
reduction of 10 to 15 percent of the United States populations of A. g.
ssp. crassifolia, to be a significant impact on this taxon. Nor is
public open space necessarily equivalent to protection, as indicated in
the SEB report. This is exemplified by clearing and mulching of
southern maritime chaparral east of Palomar Airport (Ken Cory, USFWS,
pers. comm., 1996) in an area identified as a public open space in
Table 1 of the SEB report.
Estimates for preservation in SEB (1993b) do not consider the
configuration of remaining occupied open space or edge effects
resulting from existing and proposed development. The majority of the
existing Arctostaphylos glandulosa ssp. crassifolia populations are
relics of larger historic populations. Nearly 50 percent of the
remaining populations, comprising about 10 to 14 percent of all
individuals of A. g. ssp. crassifolia, are in open space parcels that
are smaller than 20 ha (50 ac). While all populations of A. g. ssp.
crassifolia are important, the majority of these small, isolated, and
poorly configured populations are entirely within 60 m (200 ft) of, and
are often surrounded by, development. These population configurations
likely will not contribute significantly to the long-term preservation
of the taxon. All are subject to edge effects (i.e., invasion of exotic
plants, disturbances by local residents) and may be threatened by fuel
modification activities (i.e., fire breaks, discing, reduction through
thinning). The effect of isolation and habitat size reduction also
retards natural fire and successional cycles within the habitat of A.
g. ssp. crassifolia (Roberts 1993).
Of the larger and more significant populations of Arctostaphylos
glandulosa ssp. crassifolia, only one population is protected and
managed for long-term preservation (Torrey Pines State Park north).
However, this population is located within a 80 ha (200 ac) parcel that
is completely surrounded by development (Roberts 1993). Another
population (Crest View Canyon) is under public management; however,
about 50 percent of this population is located within 60 m (200 ft) of
development and is subject to edge effects (Roberts 1993). While
another population (upper end of Agua Hedionda) is also under public
management, it is subject to incremental clearing impacts as a result
of adjacent airport operations, road-widening activities, and clearing
related to mulching and agriculture (Roberts 1994; K. Cory, pers.
comm., 1996). This population is also bisected by numerous footpaths.
At least 15 percent of this population is situated within 60 m (200 ft)
of development (Roberts 1993).
Of the remaining four major populations, all are threatened in part
by development and will be further fragmented or isolated when projects
are completed. While the majority of one of these populations (Green
Valley,
[[Page 52376]]
Encinitas and Carlsbad) is proposed for conservation, three others, all
located within the City of Carlsbad, will be significantly reduced as a
result of proposed development. Two of these populations currently
contain nearly half of all individuals (about 3,000). After mitigation
is implemented for proposed development projects, these populations
will be reduced by about 50 percent and will be scattered over four
parcels of open space containing fewer than 20 ha (50 ac). A 20 ha (50
ac) parcel is not likely to insure long-term conservation of
Arctostaphylos glandulosa ssp. crassifolia. Additionally, the majority
of the surviving individuals will be situated within 60 m (200 ft) of
development and will likely be adversely affected by edge effects
(Roberts 1993, City of Carlsbad and Fieldstone/La Costa Associates
1994, OGDEN 1995a). Therefore the Service finds that the claim that 82
percent of this taxon is proposed for conservation and preservation is
not supported by available data. The best available data indicate that
while about 80 percent of the A. glandulosa ssp. crassifolia
populations are within dedicated open space, parks, or preserved areas
(about 30 percent of the total San Diego County populations are within
the Multiple Species Conservation Program (MSCP) preserve area), only
about 55 percent of the total populations are preserved when edge
effects and configuration of preserved areas are considered.
Issue 5: Two commenters stated that these taxa do not warrant
listing because existing regulatory mechanisms provided by the
California Environmental Quality Act (CEQA), County and City of San
Diego Resource Protection Ordinances (RPO's), and multispecies programs
including the State Natural Communities Conservation Plan (NCCP), and
local MSCP, Multiple Habitat Conservation Plan (MHCP), and the Carlsbad
Habitat Management Plan (HMP) provide adequate protection.
Service Response: Although the County and City of San Diego adopted
RPO's in 1991, many of the populations of these four taxa occur outside
the jurisdiction of these ordinances. For example, none of the major
populations of Arctostaphylos glandulosa ssp. crassifolia are within
the City of San Diego or on lands under County jurisdiction. Currently,
the Service is aware of 10 development projects that have recently been
approved or proposed that may eliminate nearly 50 percent of the
remaining Arctostaphylos glandulosa ssp. crassifolia. This rate of
decline is consistent with historical losses incurred over the last
decade. As indicated by the commentor, many RPO's protect steep slopes.
In addition, RPO's also apply to all biologically sensitive lands,
which are defined to include those lands that support sensitive
vegetation (San Diego Municipal Code Sec. 101.0462). The ordinance
further states that biologically sensitive lands shall be preserved in
their natural state and that any encroachment must be minimal and must
not adversely impact any rare, threatened or endangered species. This
presumably would include any sites containing populations of the
species listed herein.
The Service acknowledges that the NCCP, MSCP, MHCP, and HMP were
not adequately discussed in the proposed rule. Most of these programs
were in the early development stage at the time the rule was developed.
However, the Service has both monitored and actively participated in
coordinating the development of these programs as they have matured.
The MSCP in southern coastal San Diego County has proceeded to a
significant level. As a result of these planning efforts, one taxon
(Dudleya blochmaniae ssp. brevifolia) originally proposed as endangered
with the four subject taxa is being withdrawn (see separate concurrent
Federal Register notice), while another (Baccharis vanessae) is being
finalized as threatened instead of endangered. The Service considers
the mitigation proposed within the MSCP adequate for threats to
Baccharis vanessae and Arctostaphylos glandulosa ssp. crassifolia
within the MSCP subregion. However, both taxa have significant
populations outside this planning area. While other programs may
ultimately provide significant protection to the taxa considered
herein, at their current planning stages, the degree of conservation
afforded these taxa is uncertain and would not significantly alter the
Service position. A detailed discussion regarding these programs and
others has been incorporated into the final rule under Factor D (``The
inadequacy of existing regulatory mechanisms''). Verbesina dissita does
not occur in San Diego County and is not subject to the MSCP, MHCP, or
the HMP planning efforts.
Issue 6: One commenter stated that while the Service asserted that
State and local regulatory controls are inadequate to protect these
plant taxa, the Service failed to demonstrate how Federal listing will
provide further protection. The commenter noted that the Endangered
Species Act provides no direct protection to listed plants on private
lands. Specifically, the commenter discussed how Federal listing would
not provide Arctostaphylos glandulosa ssp. crassifolia, which occurs
primarily on private lands, additional protection in the two examples
cited in the proposed rule.
Service Response: The Service is required to determine whether any
species qualifies for listing as endangered or threatened based on a
review of the five factors listed under Section 4 of the Act. The
Service acknowledges that the level of protection provided for listed
plant species is not equivalent to the protection accorded federally
listed animal species. Impacts to listed plant species are addressed
through consultation with other Federal agencies when a Federal action
is involved. While Federal actions may be limited on private lands,
some protection may be afforded through this process. For example, in
autumn of 1993, the United States Army Corps of Engineers (Corps)
initiated conferencing regarding the proposed impacts of a large-scale
development project on a significant population of Arctostaphylos
glandulosa ssp. crassifolia. The conferencing process resulted in
improved preservation of that taxon.
When assessing a habitat conservation plan under section
10(a)(1)(B) of the Act, the Service must conduct an internal
consultation pursuant to section 7 of the Act to determine whether
approval of the plan will jeopardize any federally proposed or listed
plant or animal species. Additionally, ``take'' of federally listed
plant species is prohibited under Federal law in circumstances where a
State law is violated, such as a violation of the provisions of CEQA or
the California Endangered Species Act.
Federal listing also provides a significant degree of recognition
by State and local agencies and private landowners which may result in
increased protection. Survey requirements and conservation guidelines
for listed and non-listed species differ considerably under the State
Coastal Protection Act, CEQA, RPO's and other local conservation
regulations. Frequently, unlisted rare species are inadequately
surveyed or given inadequate protection under these processes.
Issue 7: One commenter claimed that listing these taxa would have a
negative effect on current multispecies planning efforts.
Service Response: The Service is required to determine whether any
species is endangered or threatened based on the applicability of the
five
[[Page 52377]]
factors listed under Section 4(a)(1) of the Act. While the Service
supports the intent of multispecies planning efforts to avoid or reduce
the need for future listing actions within designated planning areas,
significant populations of the four taxa discussed herein are outside
approved or nearly completed multispecies conservation plan areas
(MSCP), or not adequately protected within approved plans (i.e.,
Verbesina dissita within the Central Coastal subregion of Orange
County). Two of the four taxa are considered covered species under the
MSCP (Arctostaphylos glandulosa ssp. crassifolia and Baccharis
vanessae). Future impacts to these taxa within the MSCP have been
considered and are addressed through planned preservation or management
for plan participants throughout the subregion (see Available
Conservation Measures). Thus listing these three taxa will not have a
negative effect on current planning efforts. Chorizanthe orcuttiana is
extremely rare and not considered adequately conserved by the MSCP.
Federal and State listing actions frequently drive multispecies
planning efforts and offer guidance to these conservation efforts, many
of which are voluntary. Well-designed multispecies conservation plans
must consider a wide range of sensitive species and their habitats. The
necessity for additional listings indicate that these goals have not
yet been met as indicated in the discussion under Factor D.
Issue 8: One commenter thought that the Service should designate
critical habitat for all four taxa included in this rule, stating that
critical habitat designation would support the mapping efforts and
recommendations of the City of San Diego's MSCP, and that critical
habitat should include all remaining southern maritime chaparral.
Commenters noted that the locations of most of these taxa are available
to the public through environmental impact reports, rebutting the
Service's argument that the designation of critical habitat was not
prudent since this would increase the likelihood of vandalism (i.e.,
habitat destruction) by revealing precise locations.
Service Response: The Service acknowledges that available public
environmental documentation has already disclosed the location of many
populations of the four taxa. The Service finds that designation of
critical habitat is not prudent because it would not be beneficial to
any of these four taxa. Critical habitat is only applicable to actions
that have a Federal nexus. Any Federal action that may affect a listed
species or designated critical habitat is addressed through section 7
of the Act, which requires a Federal agency to consult with the Service
to determine if the action is likely to jeopardize a species or result
in destruction or adverse modification of critical habitat. Of the four
taxa, only Chorizanthe orcuttiana (historically) and Baccharis vanessae
occur on Federal lands, and none are associated with wetlands which
receive protection under section 404 of the Clean Water Act. It is
anticipated that few of the remaining populations will be affected by
actions of Federal agencies.
Issue 9: The Service should consider economic effects in
determining whether to list these taxa under the Endangered Species
Act.
Service Response: In accordance with section 4(b)(1)(A) of the Act,
and 50 CFR 424.11(b) of the implementation regulations, listing
decisions are made solely on the basis of the best available scientific
and commercial information, without reference to possible economic or
other impacts of such a determination.
Issue 10: One commenter stated that collection is not a threat to
any of the four taxa.
Service Response: As discussed under Factor B (``Overutilization
for commercial, recreational, scientific or educational purposes''),
Chorizanthe orcuttiana is threatened by overcollection because of
limited population size, horticultural appeal, and the relative ease of
access to remaining sites.
Issue 11: Two commenters requested that a qualified party perform
scientific peer review to reconcile the status of Del Mar manzanita as
a distinct subspecies, and one suggested that the Service reopen the
comment period to facilitate this review.
Service Response: As discussed in the Background section,
disagreements over the taxonomic status of this species between Wells,
the primary expert on the species, and Knight, who once proposed that
the subspecies was not distinct, have been resolved in peer-reviewed
publications.
Summary of Factors Affecting the Species
Section 4 of the Endangered Species Act and regulations (50 CFR
part 424) promulgated to implement the listing provisions of the Act
set forth the procedures for adding species to the Federal lists. A
species may be determined to be an endangered or threatened species due
to one or more of the five factors described in section 4(a)(1). The
threats facing these four taxa are summarized in Table 1.
Table 1.--Summary of Threats
----------------------------------------------------------------------------------------------------------------
Develop. Limited
Trampling Alien plants Fire control activity numbers
----------------------------------------------------------------------------------------------------------------
Arctostaphylos glandulosa ssp. crassifolia X X X X ............
Baccharis vanessae........................ X X X X X
Chorizanthe orcuttiana.................... X X ............ X X
Verbesina dissita......................... ............ ............ X X ............
----------------------------------------------------------------------------------------------------------------
These factors and their application to Arctostaphylos glandulosa Eastw.
ssp. crassifolia (Jeps.) Wells (Del Mar manzanita), Baccharis vanessae
Beauchamp (Encinitas baccharis), Chorizanthe orcuttiana Parry (Orcutt's
spineflower), and Verbesina dissita Gray (big-leaved crown-beard) are
as follows:
A. The present or threatened destruction, modification, or
curtailment of its habitat or range. One of the four taxa herein
(Chorizanthe orcuttiana) is restricted to the south-central coast of
San Diego County, California. Baccharis vanessae extends inland 32 km
(20 mi) and north to the Santa Margarita Mountains of northern San
Diego County. Arctostaphylos glandulosa ssp. crassifolia extends from
the south-central coast of San Diego County south into northwestern
Baja California, Mexico. Verbesina dissita occurs in two disjunct
populations, one in coastal southern Orange County and one along the
coast in northwestern Baja California, Mexico. The most imminent threat
facing all four taxa and their associated habitats is the ongoing and
threatened destruction and modification of habitat by one or more of
the following--urban development, agricultural development,
recreational
[[Page 52378]]
activities, trampling, and fuel modification activities.
Arctostaphylos glandulosa ssp. crassifolia (Del Mar manzanita) is
restricted to sandstone-derived soils along the south-central coast of
San Diego County, extending south to Mesa el Descanseo 40 km (25 mi)
south of the United States border, Baja California, Mexico. This taxon
is restricted almost exclusively to southern maritime chaparral and is
considered to be an indicator species for this plant community.
Estimates indicate that between 82 and 93 percent of southern maritime
chaparral vegetation in San Diego County has been lost as a result of
urban and agricultural development (Oberbauer and Vanderwier 1991;
OGDEN 1993; D. Hogan, in litt., 1993). Between 1980 and 1990, the
population of San Diego County increased by more than 600,000 people.
Most of this increase occurred on or near the coast at sites
historically occupied, in part, by southern maritime chaparral. About
140 to 180 ha (300 to 450 ac) (12 to 30 percent) of southern maritime
chaparral is currently located within approved or proposed developments
in San Diego County (RECON 1987, Roberts 1992, SEB 1993a; D. Hogan, in
litt., 1993; Gail Kobetich, USFWS, in litt., 1993). Less than 30
percent of the remaining southern maritime chaparral is preserved in
parks (e.g., Torrey Pines State Park) with long-term management for
conservation.
While 25 of 26 populations of Arctostaphylos glandulosa ssp.
crassifolia are still extant in part, the majority of these populations
have been greatly reduced and significantly fragmented by urban and
agricultural development, most of which has occurred since 1982. About
a 50 percent decline in the number of stands and the number of
individuals has occurred since 1982 (Roberts 1993, SEB 1993b). Of the
remaining individuals, the majority are distributed in highly
fragmented habitat along the margins of residential development.
Over 75 percent of Arctostaphylos glandulosa ssp. crassifolia in
the United States occurs within 6 concentrations located in Carlsbad,
Encinitas, Del Mar, and Torrey Pines State Park. Four of the six
populations, located in Carlsbad and Encinitas, are threatened in part
by approved or proposed development projects. These projects will
result in the elimination of over 1,900 individuals (over 35 percent)
of A. g. ssp. crassifolia that occurs within these 6 populations
through direct impacts. Furthermore the additional loss of 1,000
individuals (20 percent) will likely result from indirect impacts such
as fuel modification and edge effects (Roberts 1993, SEB 1993a).
Several of the smaller populations of A. g. ssp. crassifolia in
Encinitas, Carlsbad, Carmel Valley and on Carmel Mountain are also
threatened by development and associated indirect impacts (Roberts
1992, SEB 1993b).
The status of Arctostaphylos glandulosa ssp. crassifolia and its
habitat in extreme northwestern Baja California, Mexico, are not well
documented. However, this species only extends some 40 km (25 mi) south
of the United States border. This region represents one of the most
severely impacted areas in Baja California. Many of the same factors
(urban and agricultural development) that have affected the status of
this taxon in the United States are also clearly having an impact south
of the border (Oberbauer 1992).
Chorizanthe orcuttiana (Orcutt's spineflower) is restricted to
exposed sandy soils at two sites in coastal south-central San Diego
County. One site, located at Torrey Pines State Park, is protected.
However, this population has not been seen since 1987 (T. Oberbauer,
pers. comm., 1992). The only currently known population is within Oak
Crest Park in Encinitas, and this population is threatened by proposed
recreational facilities (see Factor D). The reduction of the southern
maritime chaparral in the park will have a significant impact on the
long-term viability of the only existing C. orcuttiana population.
Estimates indicate that between 82 and 93 percent of southern maritime
chaparral vegetation in San Diego County has been lost as a result of
urban and agricultural development (Oberbauer and Vanderwier 1991;
OGDEN 1993; D. Hogan, in litt., 1993).
Baccharis vanessae (Encinitas baccharis) is associated with dense
mixed chaparral and southern maritime chaparral. Fourteen populations
(and one isolated individual) currently exist. Seven of these remaining
populations are threatened by development projects. Five populations
are in the Del Dios Highlands within the Rancho Cielo project area.
Three of these are threatened by urban development and a golf course
(CDFG 1992). Clearing vegetation in 1991 and 1992 and application of
herbicides in 1993, in combination with a serious fire in 1990, may
already have eliminated some of these plants. Two other populations
near Lake Hodges have been identified as threatened by proposed
developments (CDFG 1992) or inundation from a proposed water storage
facility (OGDEN 1995b).
In the United States, Verbesina dissita (big-leaved crown-beard) is
restricted to rugged coastal hillsides and canyons in southern maritime
chaparral and, to a lesser extent, coastal sage scrub and mixed
chaparral, along a 3.2 km (2 mi) stretch of coastline in Laguna Beach,
Orange County. Although some populations extend into Aliso-Woods
Regional Park, the majority of the remaining populations are on private
land and these populations are threatened by residential development
and fuel modification activities (CDFG 1992).
Residential development and fuel modification activities continue
to incrementally impact the main Laguna Beach population of Verbesina
dissita (CDFG 1992). At least four residences were built directly on V.
dissita plants after its State-listing as a threatened species in 1989.
Although the individual houses eliminated a relatively small number of
plants, local ordinances require the creation of a fuel modification
zone up to 46 m (150 ft) from the residence (Richard Drewberry, Laguna
Beach Fire Department, pers. comm., 1991). Over 20 percent of V.
dissita occurrences are within 46 m (150 ft) of residential
development. If these ordinances are fully implemented, a significant
portion of this species in the United States would be eliminated. In
1984, a fuel break was cut through one population on Temple Hill. The
species normally persists in relatively dense brush, although it is
known to respond favorably to some clearing and fires. The plants in
the fuel break began to decline after four years (Fred Roberts, USFWS,
pers. obs., 1992). In 1991, the City of Laguna Beach used goats to
clear fuel breaks despite objections that the goats could potentially
consume rare plant species (Dr. Peter Bowler, University of California,
Irvine, pers. comm., 1992). The City of Laguna Beach has indicated that
many areas containing dense brush adjacent to residential development
will be cleared (R. Drewberry, pers. comm., 1991). These areas are
occupied in part by V. dissita. One development completed in 1989 has
placed irrigation and hydromulching over one population. Verbesina
dissita is not expected to persist with overwatering and competition
from Atriplex semibaccata (Australian saltbush), which is frequently
used in landscaping along the borders of development (F. Roberts, pers.
obs., 1992).
The remaining habitat of Verbesina dissita in the United States is
relatively contiguous. However, several developments have been proposed
that will reduce and further fragment this rare vegetation association.
Only 20 percent of the habitat is preserved (i.e., in Aliso-Woods
Canyon Regional Park).
[[Page 52379]]
The majority of Verbesina dissita populations occur south of the
United States-Mexican border in coastal, northwestern Baja California,
where it occurs in vegetation associations similar to those found in
Laguna Beach, California. The status of V. dissita and its habitat in
Mexico are not well documented. According to one prominent researcher,
the distribution of V. dissita in Mexico is spotty (R. Moran, pers.
comm., 1992). Over 20 populations are known between Punta Descanseo and
San Telmo near Cabo Colonet (Roberts 1988). A survey of historic
localities in 1988 between Punta el Descanseo and Punta Santo Tomas
determined that over 25 percent of these localities had been urbanized
or converted to agriculture. Four separate localities are known from
Punta Bunda just south of Ensenada. However, three of these are
threatened by changes in land use from relatively pristine conditions
in 1987 to extensive clearing in addition to rural condominium
development in 1990 (F. Roberts, memo to file, 1992). Many of the same
factors threatening the species in the United States (i.e., urban and
agricultural development) are threatening this species in Mexico as
well (Oberbauer 1992).
B. Overutilization for commercial, recreational, scientific, or
educational purposes. Some taxa have become vulnerable to collecting by
curiosity seekers as a result of increased publicity following the
publication of listing proposals. Chorizanthe orcuttiana is highly
restricted and is vulnerable to over-collection because of its rarity.
Some professional and amateur botanists are known to favor collection
of rare species, either to have examples in their collection or because
these specimens are valuable to trade with other institutions.
C. Disease or predation. Disease is not known to be a factor for
any of the taxa. Although swollen galls on the stems of Baccharis
vanessae indicate parasitism by a moth or butterfly (Beauchamp 1980),
insect predation of the four taxa is not well understood.
D. The inadequacy of existing regulatory mechanisms. Existing
regulatory mechanisms that may provide some protection for
Arctostaphylos glandulosa ssp. crassifolia, Baccharis vanessae,
Chorizanthe orcuttiana, and Verbesina dissita include--(1) the
California Endangered Species Act (CESA); (2) the California
Environmental Quality Act (CEQA); (3) the California Natural Community
Conservation Planning Program (NCCP), which includes the San Diego
Multiple Species Conservation Plan (MSCP), Multiple Habitat
Conservation Plan (MHCP), and Carlsbad Habitat Management plan (HMP);
(4) the Federal Endangered Species Act in those cases where these taxa
occur in habitat occupied by other listed species; (5) conservation
provisions under the Federal Clean Water Act; (6) land acquisition and
management by Federal, State, or local agencies, or by private groups
and organizations; and (7) local laws and regulations.
State Laws and Regulation:
Pursuant to the Native Plant Protection Act (chapter 10 section
1900 et seq. of the California Fish and Game Code) and California
Endangered Species Act (chapter 1.5 section 2050 et seq. of the Fish
and Game Code), the California Fish and Game Commission listed
Baccharis vanessae as endangered in 1987 and Chorizanthe orcuttiana in
1979. Verbesina dissita was listed as threatened by the State of
California in 1989. Although both statutes prohibit the ``take'' of
State-listed plants (chapter 10 section 1908 and chapter 1.5 section
2080), some projects do not comply with State law. As an example, in
1992, V. dissita plants in Laguna Beach were removed without the
State's knowledge (Ken Berg, CDFG, pers. comm., 1992).
Local lead agencies empowered to uphold and enforce the regulations
of the CEQA have made determinations that have or will adversely affect
these taxa and their southern maritime chaparral habitat. The CEQA
requires that a project proponent publicly disclose the potential
environmental impacts of proposed projects. The public agency with
primary authority or jurisdiction over the project is designated as the
lead agency, and is responsible for conducting a review of the project
and consulting with other agencies concerned with resources affected by
the project. Required biological surveys are often inadequate and
project proponents may disregard the results of surveys if occurrences
of sensitive species are viewed as a constraint on project design.
Mitigation measures used to condition project approvals are often
experimental and fail to adequately guarantee protection of sustainable
populations of the taxa considered herein. CEQA decisions are also
subject to overriding social and economic considerations.
To illustrate, the environmental documentation for a large-scale
development project in Carlsbad did not include sufficient surveys for
Chorizanthe orcuttiana or Baccharis vanessae (Pacific Southwest
Biological Services 1990; Larry Sward, SEB, in litt., 1993), although
the only currently known population of C. orcuttiana occurs in
Encinitas, less than 3.2 km (2 mi) distant, and one of the largest
populations of B. vanessae occurs on an adjacent parcel. One of the
largest populations of Arctostaphylos glandulosa ssp. crassifolia also
occurs within this project site. Although impacts to this taxon were
identified as significant under the CEQA, the adopted mitigation
measures were considered to be insufficient (S. Lacy, in litt., 1991).
In another project within the City of Carlsbad, the elimination of a
population of A. g. ssp. crassifolia was not considered to be a
significant impact, even though the taxon was a Federal category 2
candidate for listing at the time (M.F. Ponseggi and Associates 1993).
Impacts to category 2 candidates were considered significant under the
CEQA prior to 1996 revisions in candidate policy that eliminated
category 2 ranking (61 FR 7596; February 28, 1996).
Moreover, transplantation is frequently used to mitigate for the
loss of rare plant species; however, it has yet to be demonstrated to
provide for long-term viability of any of the four taxa. Several
attempts at transplanting Baccharis vanessae and Arctostaphylos
glandulosa ssp. crassifolia have been reported by Hall (1987). Attempts
to transplant B. vanessae at Quail Botanical Garden and at San Dieguito
County Park failed shortly after the monitoring period ended. Six years
after individuals of A. g. ssp. crassifolia were transplanted at Quail
Botanical Garden, 75 percent of the plants had died.
Regional Planning Efforts
In 1991, the State of California established the NCCP program to
address conservation needs throughout the State. The focus of current
planning programs is the coastal sage scrub community in southern
California, although other vegetation communities are being addressed
in an ecosystem-level approach. Southern maritime chaparral and the
four taxa are currently being considered under the MSCP, MHCP, and the
Orange County Central Coastal NCCP programs. The MHCP, which will
include the Carlsbad HMP program, is still in the early developmental
phase and thus it is uncertain to what degree it will be successful in
providing protection for these taxa.
The NCCP for the Central and Coastal Subregion of Orange County was
approved in July of 1996. Only one of the four taxa (Verbesina dissita)
occurs within the Central/Coastal NCCP. While the entire population of
this species in
[[Page 52380]]
the United States is within this subregion, only about 10 percent of
the species'' distribution is protected by the Central/Coastal Plan.
The species is not adequately conserved, nor is it considered a
``covered species'' under the plan. Covered species are those species
that have been adequately considered in terms of long-term preservation
within a Habitat Conservation Planning Area or NCCP subregion. Under an
agreement with the participants, CDFG, and the Service, future
potential impacts for covered species are considered adequately
addressed through proposed preservation, mitigation, and management.
Since the publication of the proposed rule, the MSCP, a regional
planning effort in southwestern San Diego County, has been finalized
and submitted to the Service as part of an application for a section
10(a)(1)(B) incidental take permit for 85 species, including
Arctostaphylos glandulosa ssp.0 crassifolia and Baccharis vanessae. The
Service and the City of San Diego have jointly prepared a Recirculated
Environmental Impact Report/Environmental Impact Statement, Issuance of
Take Authorizations for Threatened and Endangered Species due to Urban
Growth within the Multiple Species Conservation Program (MSCP) Planning
Area. This document, released on August 30, 1996, for a 45-day public
review period, assesses the effects of land-use decisions that will be
made by local jurisdictions to implement the plan and the effects of
the proposed issuance of the incidental take permit on the 85 species.
A decision on the permit issuance is expected in late 1996.
The MSCP will, upon approval, set aside preservation areas and
provide monitoring and management for the 85 ``covered species''
addressed in the permit application, including Arctostaphylos
glandulosa ssp. crassifolia and Baccharis vanessae. ``Covered species''
are taxa that will be adequately conserved by the plan's proposed
preservation and management. About 30 percent of the A. g. ssp.
crassifolia population (without consideration to edge effect) is
protected within the MSCP (about 90 percent of the species' total
populations are within the subregion) and about 45 percent of B.
vanessae populations are protected within the MSCP (about 70 percent of
the total populations are within the subregion). While all threats have
not been eliminated for these two taxa within the subregion, the
Service believes that future potential impacts will be adequately
addressed by management incorporated into the final MSCP agreement.
Project proponents in areas outside the MSCP subregion will be required
to coordinate with the Service on these taxa where applicable.
Federal Laws and Regulations
The Endangered Species Act may already afford protection to
candidate or other sensitive species if they co-exist with species
already listed as threatened or endangered under the Act. Although the
coastal California gnatcatcher (Polioptila californica californica) is
listed as threatened under the Act and overlaps with the range of the
taxa considered herein, the coastal California gnatcatcher primarily
utilizes a different habitat (coastal sage scrub). Addi
FR Doc. 96-25462 Endangered and Threatened Wildlife and Plants; Determination of Endangered or Threatened Status for Four Southern Maritime Chaparral Plant Taxa from Coastal Southern California and Northwestern Baja California, Mexico
tionally, under
provisions of section 10(a) of the Act, the Service may permit the
incidental ``take'' of the gnatcatcher during the course of an
otherwise legal activity provided that the taking will not appreciably
reduce the likelihood of its survival and recovery in the wild.
Projects developed with authorization for take of the coastal
California gnatcatcher may, however, contribute to the decline of
Arctostaphylos glandulosa ssp. crassifolia, Baccharis vanessae and
Chorizanthe orcuttiana in areas where the project area includes both
coastal sage scrub and southern maritime chaparral.
Some protection has been afforded to these taxa through section 404
of the Clean Water Act (G. Kobetich, in litt., 1993). However, since
the majority of these taxa occur in upland habitat or in isolated and
fragmented parcels, it is unlikely that actions affecting the taxa will
require section 404 permits.
Land Acquisition and Management
Land acquisition and management by State or local agencies or by
private groups and organizations have contributed to the protection of
some localities containing the taxa included in this rule. However, as
discussed below, these efforts are inadequate to assure the long-term
survival of these four taxa. For example, Torrey Pines State Park and
Crest Canyon Preserve (Del Mar) contain significant populations of
Arctostaphylos glandulosa ssp. crassifolia. While Torrey Pines State
Park is managed for long-term preservation of biological resources, the
populations within the park contain less than 20 percent of the
remaining A. g. ssp. crassifolia individuals. The populations of this
taxon in Crest Canyon Preserve Park are affected by trampling
associated with recreational activities and edge effects (see Factor
E). A small population of A. g. ssp. crassifolia located within San
Dieguito County Park is also threatened by edge effects and trampling
from recreational activities.
Three of the species considered within this rule (Arctostaphylos
glandulosa ssp. crassifolia, Baccharis vanessae, and Chorizanthe
orcuttiana) occur within Oak Crest Park in Encinitas. While this park
is under public ownership and management, these plants are threatened
by the construction of recreational facilities, invasive exotics, and
trampling (see Factors A and E).
A single population of Baccharis vanessae is known from the
Cleveland National Forest in the Santa Margarita Mountains (S. Boyd,
Rancho Santa Ana Botanical Garden, in litt., 1992). While this
population is protected in part because it is isolated, it represents
less than 10 percent of the known populations of this species. In
Orange County, Verbesina dissita extends into Aliso-Woods Canyons
Regional Park. However, this park encompasses less than 10 percent of
the known populations of the species. Additionally, while this county
regional park is, in part, managed for biological conservation, V.
dissita is threatened by fuel modification (i.e., thinning, mechanical
clearing, and irrigation) and exotic vegetation replacement at the park
boundary.
These plant taxa also occur in ``dedicated'' open space frequently
in association with development projects. These areas are often
specifically set aside for conservation as required by local and county
project approvals and/or the CEQA, and are managed by private
organizations, individuals, corporations, or local jurisdictions.
However, open space dedications do not incorporate the principles of
conservation biology. Many are inadequately configured, or are too
small for the long-term preservation of these taxa (see Factor E).
County open space designations within General Development Plans are
subject to amendments and, therefore, cannot be considered as permanent
conservation.
Local Laws, Regulations, and Ordinances
The four taxa in this rule have been identified as sensitive under
various local laws, regulations and ordinances. However, development
projects continue to be approved and implemented with designs that do
not preserve populations or habitat for the taxa considered herein.
Currently, the Service is aware of 10 approved or proposed development
projects that will directly or indirectly impact about 3,000
[[Page 52381]]
individuals of Arctostaphylos glandulosa ssp. crassifolia. While these
projects have been or currently are subject to review under existing
local regulatory mechanisms and conservation plans, this taxon is still
declining rapidly. Management and recovery become increasingly
difficult as options for preservation are reduced.
Existing local land-use regulations have failed to protect these
taxa as exemplified by Oak Crest Park in Encinitas. Although a portion
of the park was originally set aside for conservation purposes by the
County of San Diego (D. Hogan, in litt., 1991; T. Oberbauer, pers.
comm., 1992), recreational development has eliminated southern maritime
chaparral habitat and individuals of Arctostaphylos glandulosa ssp.
crassifolia, Baccharis vanessae, and Chorizanthe orcuttiana. One area
recently developed included a natural preserve area set aside under an
agreement between the City and the California Coastal Commission.
Current recreational development plans for Oak Crest Park, including
the construction of a community center, swimming pool and numerous
walking paths, will impact two of these taxa (A. g. ssp. crassifolia
and B. vanessae). The proposed development will reduce the B. vanessae
population and the extent of southern maritime chaparral within the
park by approximately one-third (David Wigginton, City of Encinitas
Community Services, pers. comm., 1992).
Another example demonstrating how existing regulatory mechanisms
are inadequate is provided by a project in the City of Carlsbad that
was originally approved circa 1980. The project area contained the
northernmost known population of Arctostaphylos glandulosa ssp.
crassifolia and a significant stand of southern maritime chaparral.
When a city official was approached by the project proponent in 1992,
the city informed the proponent that the existing CEQA documentation
was inadequate and that additional biological surveys would be
required. Despite this finding, the proponent was able to obtain
grading permits to clear the land without additional documentation
(Terri Stewart, CDFG, pers. comm., 1992).
Several development projects have proceeded without adequate
surveys for Chorizanthe orcuttiana (City of Carlsbad and Fieldstone/La
Costa Associates 1994). Arctostaphylos glandulosa ssp. crassifolia has
been considered in the majority of these plans; however projects have
recently been proposed and approved that have or will directly or
indirectly eliminate nearly half of the population within these
planning areas (SEB 1993a, 1993b). Because A. g. ssp. crassifolia has
already declined by about 50 percent over the last decade, these
additional significant losses will contribute to the further decline of
this taxon and may affect its recovery (Roberts 1993; SEB 1993b; G.
Kobetich, in litt., 1993). Although the only extant population of C.
orcuttiana is on public land within the jurisdiction of the MHCP, no
protection measures have been developed or implemented for this
population. Several important populations of Baccharis vanessae are
threatened by current project proposals that will reduce the
effectiveness of the MHCP, when developed, to adequately stabilize
populations within the subregion (OGDEN 1995a; D. Hogan, in litt.,
1991; D. Wigginton, pers. comm., 1992). The additional recognition that
results from listing is expected to generate additional efforts in
providing for the long-term preservation of these four taxa.
Laws and Regulation in Mexico
The range of Arctostaphylos glandulosa ssp. crassifolia and
Verbesina dissita continues south along the Pacific coast into
northwestern Baja California, Mexico. Mexico has laws that presumably
provide protection to rare plants; however, enforcement of these laws
is lacking (USFWS 1992b).
In summary, although most of these taxa are receiving at least some
protection through existing regulatory mechanisms, threats continue to
adversely affect the taxa, as indicated by their declining status.
E. Other natural or manmade factors affecting their continued
existence. At least two of the taxa (Baccharis vanessae and Chorizanthe
orcuttiana) may be threatened by a risk of extinction from naturally
occurring events because of their restricted distribution and small
population size. Genetic viability can be reduced in small populations,
making them less adaptable to changes in the environment. The potential
for extirpation by virtue of their small population sizes can be
exacerbated by natural causes such as drought or fire. For example, the
impact of fire on Baccharis vanessae is not fully understood, yet a
1,200 ha (3,000 ac) fire in the Del Dios highlands burned four of the
known populations in September 1990 (CDFG 1992, Los Angeles Times
1992). Many populations are now in close proximity to residential
development, and are threatened by edge effects including fuel
modification activities, fire suppression, the invasion of exotic plant
species, and increased human activities associated with nearby
urbanization. Additionally, unidentified pollinators or seed-dispersal
agents for these taxa may also be impacted by development.
Habitat fragmentation and isolation, in addition to fuel
modification, threaten the taxa in areas adjacent to residential
development. For example, nearly 15 percent of extant Arctostaphylos
glandulosa ssp. crassifolia occurs in small, fragmented, and isolated
parcels of open space (Roberts 1993). Of the six largest populations of
this taxon, 20 percent of the individuals are within 60 m (200 ft) of
existing development and are threatened by edge effects (Roberts 1993,
SEB 1993a). This is exemplified by Crest Canyon Preserve, where nearly
50 percent of the approximately 1,000 individuals of A. g. ssp.
crassifolia are within 60 m (200 ft) of development. Arctostaphylos
glandulosa ssp. crassifolia is also threatened by trampling where
trails have been cut through populations by recreationalists and farm
workers (Hogan 1990; CDFG 1992; F. Roberts and E. Berryman, USFWS,
pers. obs.).
Conflicts between fire management and preservation arise when
insufficient buffers exist between sensitive biological resources and
residential dwellings. A recent example includes clearing of about 1 ha
(2 ac) of southern maritime chaparral adjacent to a new residential
development in Carlsbad in June 1992.
Baccharis vanessae is limited to small numbers, comprising only 14
extant populations containing about 2,000 individuals. No population is
known to have over 300 individuals and 5 of these populations have
fewer than 6 individuals. One individual has been discovered on the
western slopes of Carmel Mountain.
Chorizanthe orcuttiana, known from a single locality, is the most
vulnerable of the four taxa. This species is threatened by trampling by
farm workers and recreationalists because of its small size and its
preference for open areas, which tend to attract foot traffic through
otherwise dense chaparral vegetation (F. Roberts and E. Berryman, pers.
obs.). The only known site could be eliminated in a single event if a
particularly large number of people were to walk through and trample
the population. Exotic grass and weed species are also threatening the
population.
All four taxa are potentially threatened by the interruption of the
natural fire cycle. Fragmentation has rendered individual populations
more susceptible to fire events that may either
[[Page 52382]]
occur too frequently or be suppressed too long to maintain a healthy
southern maritime chaparral habitat.
The Service has carefully assessed the best scientific and
commercial information available regarding the past, present, and
future threats faced by these four taxa in determining to make this
rule final. Based on this evaluation, the preferred action is to list
Arctostaphylos glandulosa ssp. crassifolia and Chorizanthe orcuttiana
as endangered. These taxa are in danger of extinction throughout all or
a significant portion of their ranges due to habitat alteration and
destruction resulting from urban, recreational and agricultural
development; fuel modification activities; trampling by farm workers
and recreational activities; inadequacy of existing regulatory
mechanisms; naturally occuring events due to limited populations; and
competition from exotic plant species. For the reasons discussed below,
the Service finds that Verbesina dissita and Baccharis vanessae are
likely to become endangered within the foreseeable future throughout
all or a significant portion of their range. Although V. dissita is
extremely threatened in the United States by development and fuel
modification activities, the status of this species in Baja California,
Mexico, is considerably better due to a larger number of extant
populations. However, it is still threatened by similar activities in
Mexico. Therefore the preferred action is to list V. dissita as
threatened. While nearly half of the known B. vanessae populations
continue to be at risk from urban development, inundation from a
proposed water storage facility, and fire management methods, the
species is not in immediate danger of extinction. The Service therefore
revises the preferred action for B. vanessae from listing as endangered
in the original proposed regulation to listing as threatened in this
final rule. In addition, the MSCP in San Diego County will offer
significant management and preservation for about half of the
populations upon its authorization. Critical habitat is not being
proposed for these taxa for the reasons discussed below.
Critical Habitat
Critical habitat, is defined in section 3 of the Act, as: (i) The
specific areas within the geographical area occupied by a species, at
the time it is listed in accordance with the Act, on which are found
those physical or biological features (I) essential to the conservation
of the species and (II) that may require special management
considerations or protection; and (ii) specific areas outside the
geographical area occupied by a species at the time it is listed, upon
a determination that such areas are essential for the conservation of
the species. ``Conservation'' means the use of all methods and
procedures needed to bring the species to the point at which listing
under the Act is no longer necessary.
Section 4(a)(3) of the Act, as amended, and implementing
regulations (50 CFR 424.12) require that, to the maximum extent prudent
and determinable, the Secretary designate critical habitat at the time
the species is determined to be endangered or threatened. The Service
finds that designation of critical habitat is not prudent for the taxa
discussed in this rule at this time. Service regulations (50 CFR
424.12(a)(1)) state that designation of critical habitat is not prudent
when one or both of the following situations exist--(1) the species is
threatened by taking or other human activity, and identification of
critical habitat can be expected to increase the degree of such threat
to the species; or (2) such designation of critical habitat would not
be beneficial to the species.
As discussed under Factor B, Chorizanthe orcuttiana is particularly
threatened by taking, specifically overcollecting, an activity
difficult to regulate and enforce. Taking is only regulated by the Act
with respect to plants in cases of (1) removal and reduction to
possession of federally listed plants from lands under Federal
jurisdiction, or their malicious damage or destruction on such lands;
and (2) removal, cutting, digging-up, or damaging or destroying in
knowing violation of any State law or regulation, including State
criminal trespass law. The publication of precise maps and descriptions
of critical habitat in the Federal Register would make these plants
more vulnerable to incidents of collection or vandalism and, therefore,
could contribute to the decline of this species.
Critical habitat designation provides protection only on Federal
lands or on private lands when there is Federal involvement through
authorization or funding of, or participation in, a project or
activity. Of the taxa discussed herein, only one population of
Baccharis vanessae is known to occur on Federal lands. All Federal and
state agencies and local planning agencies involved have been notified
of the location and importance of protecting the habitat of these taxa.
Protection of their habitat will be addressed through the recovery
process and through the section 7 consultation process. Section 7(a)(2)
of the Act requires Federal agencies, in consultation with the Service,
to ensure that any action authorized, funded, or carried out by such
agency, does not jeopardize the continued existence of a federally
listed species, or does not destroy or adversely modify designated
critical habitat. The taxa in this rule are all confined to small
geographic areas and each population is composed of so few individuals
that the determinations for jeopardy and adverse modification would be
similar. Therefore, designation of critical habitat provides no
additional benefit beyond those that these taxa would receive by virtue
of their listing as endangered or threatened species and likely would
increase the degree of threat from vandalism, collecting, or other
human activities. The Service finds that designation of critical
habitat is not prudent for these taxa at this time.
Available Conservation Measures
Conservation measures provided to species listed as endangered or
threatened under the Endangered Species Act include recognition,
recovery actions, requirements for Federal protection, and prohibitions
against certain activities. Recognition through listing encourages and
results in conservation actions by Federal, State, and local agencies,
private organizations, and individuals. The Act provides for possible
land acquisition from willing sellers and cooperation with the States
and requires that recovery actions be carried out for all listed
species. The protection required of Federal agencies and the
prohibitions against certain activities involving listed plants are
discussed, in part, below.
Section 7(a) of the Act, as amended, requires Federal agencies to
evaluate their actions with respect to any species that is proposed or
listed as endangered or threatened and with respect to its critical
habitat, if any is being designated. Regulations implementing this
interagency cooperation provision of the Act are codified at 50 CFR
part 402. Section 7(a)(4) requires Federal agencies to confer with the
Service on any action that is likely to jeopardize the continued
existence of a species proposed for listing or result in destruction or
adverse modification of proposed critical habitat. If a species is
listed subsequently, section 7(a)(2) requires Federal agencies to
ensure that activities they authorize, fund, or carry out are not
likely to jeopardize the continued existence of the species or destroy
or adversely modify its critical habitat. If a Federal action may
affect a listed species or its critical habitat, the responsible
Federal agency must enter into formal consultation with the Service.
[[Page 52383]]
Although only one of the four taxa (Baccharis vanessae at the
Olivenhein Water Storage Facility) is known to be directly affected by
activities permitted under section 404 of the Clean Water Act, effects
of actions that include direct and indirect impacts that are
interrelated or interdependent with the taxa under consideration may
require a permit under section 404 of the Clean Water Act.
Additionally, two of the taxa (Arctostaphylos glandulosa ssp.
crassifolia and B. vanessae) are known to occur in areas where highway
projects, which may involve Federal funding and the Federal Highways
Administration, have been proposed. At least one taxon (B. vanessae)
occurs on Federal land, within the Cleveland National Forest and within
1 km (0.6 mi) of Camp Pendelton Marine Base. New populations of these
taxa could be discovered at Miramar Naval Air Station, Point Loma Naval
Reserve, and Camp Pendelton Marine Base. These Federal nexuses would
require initiation of section 7 consultation on actions that may affect
the taxa.
Two of these species, Arctostaphylos glandulosa ssp. crassifolia
and Baccharis vanessae, are considered covered species under the MSCP.
These species will receive benefits from the plan upon its approval.
These benefits include--(1) preservation of the majority of populations
within the subregion including two major populations of A. g. ssp.
crassifolia and one and a half major populations of B. vanessae, (2)
management plans that will address impacts from fuel management and
close proximity of existing and proposed development, and (3)
monitoring of the status of these populations. Some populations within
this subregion will be eliminated or reduced, but it has been
determined that the populations preserved under the plan will be
adequate to stabilize the status of these taxa within the MSCP planning
area.
The Act and its implementing regulations set forth a series of
general prohibitions and exceptions that apply to all endangered or
threatened plants. All prohibitions of section 9(a)(2) of the Act,
implemented by 50 CFR 17.61 (endangered plants) or 17.71 (threatened
plants), apply. These prohibitions, in part, make it illegal for any
person subject to the jurisdiction of the United States to import or
export, transport in interstate or foreign commerce in the course of a
commercial activity, sell or offer for sale in interstate or foreign
commerce, or remove and reduce the species to possession from areas
under Federal jurisdiction. In addition, for plants listed as
endangered, the Act prohibits the malicious damage or destruction on
any area under Federal jurisdiction and the removal, cutting, digging
up, or damaging or destroying of such endangered plants in knowing
violation of any State law or regulation, including State criminal
trespass law. Section 4(d) of the Act allows for the provision of such
protection to threatened species through regulation. This protection
may apply to Baccharis vanessae and Verbesina dissita in the future if
regulations are promulgated. Seeds from cultivated specimens of
threatened plant species are exempt from these prohibitions provided
that their containers are marked ``Of Cultivated Origin''. Certain
exceptions to the prohibitions apply to agents of the Service and State
conservation agencies.
The Act and 50 CFR 17.62, 17.63, and 17.72 also provide for the
issuance of permits to carry out otherwise prohibited activities
involving endangered or threatened species under certain circumstances.
Such permits are available for scientific purposes and to enhance the
propagation or survival of the species. For threatened plants, permits
are also available for botanical or horticultural exhibition,
educational purposes, or special purposes consistent with the purpose
of the Act. It is anticipated that few trade permits would ever be
sought or issued because none of the four taxa are common in
cultivation or in the wild.
It is the policy of the Service, published in the Federal Register
on July 1, 1994 (59 FR 34272), to identify to the maximum extent
practicable at the time a species is listed those activities that would
or would not constitute a violation of section 9 of the Act. The intent
of this policy is to increase public awareness of the effect of this
listing on proposed and ongoing activities within the species' range.
One of these four taxa (Baccharis vanessae) is known to occur on lands
under the jurisdiction of the U.S. Forest Service and populations of
the taxa may potentially be discovered on lands under the jurisdiction
of the Department of Defense (Navy). Collection, damage or destruction
of any of these species on Federal lands is prohibited, although in
appropriate cases a Federal endangered species permit may be issued to
allow collection. Such activities on non-Federal lands would constitute
a violation of section 9 if conducted in knowing violation of State law
or regulations or in violation of State criminal trespass law. The
Service is not aware of any otherwise lawful activities being conducted
or proposed by the public that will be affected by this listing and
result in a violation of section 9.
Questions regarding whether specific activities will constitute a
violation of section 9 should be directed to the Field Supervisor of
the Service's Carlsbad Field Office (see ADDRESSES section). Requests
for copies of the regulations concerning listed plants and general
inquiries regarding prohibitions and permits may be addressed to the
U.S. Fish and Wildlife Service, Ecological Services, Endangered Species
Permits, 911 N.E. 11th Avenue, Portland, Oregon 97232-4181 (telephone
503/231-2063; facsimile 503/231-6243).
National Environmental Policy Act
The Fish and Wildlife Service has determined that Environmental
Assessments and Environmental Impact Statements, as defined under the
authority of the National Environmental Policy Act of 1969, need not be
prepared in connection with regulations adopted pursuant to section
4(a) of the Endangered Species Act of 1973, as amended. A notice
outlining the Service's reasons for this determination was published in
the Federal Register on October 25, 1983 (48 FR 49244).
References Cited
A complete list of all references cited herein is available upon
request from the Carlsbad Field Office (see ADDRESSES section).
Author
The primary author of this final rule is Fred M. Roberts, Jr.,
Carlsbad Field Office (see ADDRESSES section).
List of Subjects in 50 CFR Part 17
Endangered and threatened species, Exports, Imports, Reporting and
recordkeeping requirements, and Transportation.
Regulation Promulgation
Accordingly, part 17, subchapter B of chapter I, title 50 of the
Code of Federal Regulations, is amended as set forth below:
PART 17--[AMENDED]
1. The authority citation for part 17 continues to read as follows:
Authority: 16 U.S.C. 1361-1407; 16 U.S.C. 1531-1544; 16 U.S.C.
4201-4245; Pub. L. 99-625, 100 Stat. 3500; unless otherwise noted.
2. Section 17.12(h) is amended by adding the following, in
alphabetical order under FLOWERING PLANTS, to the List of Endangered
and Threatened Plants, to read as follows:
Sec. 17.12 Endangered and threatened plants.
* * * * *
[[Page 52384]]
(h) * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Species
-------------------------------------------------------- Historic range Family Status When listed Critical Special
Scientific name Common name habitat rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
FLOWERING PLANTS:
* * * * * * *
Arctostaphylos glandulosa ssp. Del Mar manzanita... U.S.A. (CA), Mexico. Ericaceae........... E 589 NA NA
crassifolia.
* * * * * * *
Baccharis vanessae............... Encinitas baccharis. U.S.A. (CA)......... Asteraceae.......... T 589 NA NA
* * * * * * *
Chorizanthe orcuttiana........... Orcutt's spineflower U.S.A. (CA)......... Polygonaceae........ E 589 NA NA
* * * * * * *
Verbesina dissita................ Big-leaved crown- U.S.A. (CA), Mexico. Asteraceae.......... T 589 NA NA
beard.
* * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dated: September 27, 1996.
John G. Rogers,
Acting Director, Fish and Wildlife Service.
[FR Doc. 96-25462 Filed 10-4-96; 8:45 am]
BILLING CODE 4310-55-P
Complete official Federal Register PDF
FR Doc. 96-25273 Consumer Leasing
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52246-52281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25273]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-0892]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing a final rule to amend Regulation M,
which implements the Consumer Leasing Act. The Act requires lessors to
provide uniform cost and other disclosures about consumer lease
transactions. The Board has reviewed Regulation M, pursuant to its
policy of periodically reviewing its regulations, and has revised the
regulation to carry out more effectively the purposes of the Act. The
final rule adds disclosures, primarily in connection with motor vehicle
leasing, including, for example, disclosures about early termination
charges and how scheduled payments are derived (which requires
disclosure of such items as the gross capitalized cost of a lease, the
vehicle's residual value, the rent charge, and depreciation). General
changes in the format of the disclosures require that certain leasing
disclosures be segregated from other information. Revisions to the
advertising provisions implement a statutory amendment, allowing a
toll-free number to substitute for certain disclosures in radio and
television advertisements, and make other changes to the advertising
rules. A lessor is not required to disclose the cost of a lease
expressed as a percentage rate; however, if a rate is disclosed or
advertised, a special notice must accompany the rate. Further, a rate
in an advertisement cannot be more prominent than any other Regulation
M disclosure.
DATES: Effective date. October 31, 1996. Compliance date. Compliance is
optional until October 1, 1997.
FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller, Obrea O.
Poindexter, or W. Kurt Schumacher, Staff Attorneys, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, DC 20551, at (202) 452-2412 or 452-3667.
For matters concerning the Regulatory Flexibility Analysis, in appendix
I, contact Thomas A. Durkin, Office of the Secretary, Board of
Governors of the Federal Reserve System, Washington, DC 20551, at (202)
452-2326. Users of Telecommunications Device for the Deaf only may
contact Dorothea Thompson, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background on the Consumer Leasing Act and Regulation M
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted
into law in 1976 as an amendment to the Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq. The Board was given rulewriting authority, and its
Regulation M (12 CFR Part 213) implements the CLA. An official staff
commentary interprets the regulation. (Supplement I to 12 CFR 213).
The CLA generally applies to consumer leases of personal property
in which the contractual obligation does not exceed $25,000 and has a
term of more than four months. An automobile lease is the most common
type of consumer lease covered by the act. Leases accounted for about
one-third of all passenger car deliveries to consumers in 1995. Leasing
in the luxury-car market is estimated to account for more than 70
percent for some models. Used cars are also now being leased, although
to date they account for a relatively small segment of the market.
Under the statute, prior to entering into a lease agreement,
lessors must give consumers 15 to 20 disclosures, including the amount
of initial, end-of-lease, and other charges to be paid by the consumer
(such as security deposits, insurance premiums, disposition fees, and
taxes); an identification of the leased property; a payment schedule;
the responsibilities for maintaining the leased property; and the
liability for terminating a lease early. Special provisions apply to
open-end leases. These provisions regulate balloon payments by limiting
liability at the end of a lease term to no more than three times the
monthly payment, and also require several disclosures unique to open-
end leases (in Secs. 213.4 (k) and (m)).
Open-end leases are a very small segment of the consumer leasing
market. In open-end leases, the consumer's liability at the end of the
lease term is based on the difference between the residual value of the
leased property and its realized value. The consumer--not the lessor--
assumes the risk that the realized value may be less than what was
initially estimated. Closed-end leases are the most common type of
lease covered under the CLA and Regulation M. These leases are
sometimes referred to as ``walk-away'' leases because the consumer is
not liable for the difference between the residual and the realized
values at the end of the lease term.
[[Page 52247]]
II. The Review of Regulation M
The Board's Regulatory Planning and Review Program calls for the
periodic review of a regulation with four goals in mind: to clarify and
simplify regulatory language; to determine whether regulatory
amendments are needed to address technological and other developments;
to reduce undue regulatory burden on the industry; and to delete
obsolete provisions.
Advance Notice of Proposed Rulemaking. The Board began its review
of Regulation M--the first substantial review of the regulation since
it was issued in 1976--by publishing an advance notice of proposed
rulemaking on November 19, 1993 (58 FR 61035). Although comment was
solicited generally on all provisions of the regulation, the Board
specifically sought comment on three issues: disclosure of early
termination charges, broadcast media advertising of leases, and
segregation of leasing disclosures from other information. Most of the
70 comment letters that were received commented only on the three
issues addressed in the advance notice. The comment letters were
received mostly from automobile lessors or their representatives, but
also from federal and state government agencies and from consumer
representatives. Most of the commenters supported revisions to the
disclosures about early termination charges either to better alert
consumers about such charges or to address concerns about lender
liability associated with providing extremely complex disclosures about
these charges. Some commenters supported more flexibility in the
advertising rules, while others expressed concern about the manner in
which leases are advertised. Many supported segregation of leasing
disclosures from other information. In addition, many commenters urged
the Board to mandate the disclosure of the ``capitalized cost'' of a
lease, meaning the value of the leased vehicle and other items that are
capitalized by agreement between the lessor and lessee.
The Proposed Rule to Revise Regulation M. The Board published a
proposed rule to substantially revise Regulation M on September 20,
1995 (60 FR 48752) and an extension of comment period notice was
published on December 6, 1995 (60 FR 62349). The proposal offered a new
disclosure format for model forms and some substantive changes to the
regulation. New disclosures were proposed pursuant to the Board's
authority under Sec. 105(a) of the TILA. Section 105(a) of the TILA
provides that the Board's regulations ``may contain such
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for any class of transactions, as
in the judgment of the Board are necessary or proper to effectuate the
purposes of [the CLA], to prevent circumvention or evasion thereof, or
to facilitate compliance therewith.''
The proposal contained the following proposed amendments to
Regulation M:
Segregation of certain leasing disclosures. (Leasing disclosures
were dispersed throughout a leasing contract.) Additionally, a
statement would remind consumers to read their contracts for other
important consumer leasing disclosures not included in the segregated
disclosures.
Revision of the disclosure of upfront fees to make it easier for a
consumer to understand the amounts to be paid and how they are
allocated, including the amount of any trade-in allowance.
Disclosure of the ``gross cost'' (the agreed upon acquisition value
of leased property) and the ``residual value'' (the estimated value at
the end of the lease term).
Disclosure of an ``estimated lease charge,'' a figure similar in
purpose to the finance charge in a credit transaction.
Disclosures about early termination charges--including a
transaction-specific example of such a charge at an assumed termination
point after one year--and about charges for excessive wear of leased
property.
Changes to the advertising rules to implement a statutory
amendment, simplify disclosure requirements, and deter misleading
advertising.
About 150 comment letters were received on the Board's proposed
rule, from consumer representatives involved in leasing issues and a
large segment of the consumer leasing industry. A majority of the
commenters generally supported the requirement that certain disclosures
be segregated from the remaining disclosures and other information.
Major industry representatives expressed concern, however, about the
overall disclosure format and offered an alternative that presented
some disclosures in a mathematical progression. Commenters generally
supported additional disclosures but many of them suggested
modifications to the Board's proposed definition of the estimated lease
charge and the gross cost. While many commenters favored an early
termination warning about charges for terminating a lease early, a
large majority of them opposed the requirement of a transaction-
specific numerical example for early termination.
To get direct feedback from individual consumers, in January 1996
the Board conducted four focus groups, two in the Washington, D.C. area
and two in Los Angeles, California. Participants gave their opinions on
various disclosure formats, including the Board's proposed model form,
an alternative form showing a mathematical progression of how periodic
payments are derived, and a format in which a few disclosures would be
highlighted in boxes. There were a total of 32 participants (evenly
representing men and women), about a quarter of whom had previously
leased automobiles.
While focus group participants had some concerns about the layout
and language in the disclosure statements presented, they responded
more favorably to the mathematical progression format than to the
Board's proposal. Some participants liked the payment calculation
disclosure because it ``walked you through the process.'' Many of them
were generally familiar with the highlighting of certain disclosures in
credit transactions. For lease transactions, they expressed an interest
in seeing the value of the car, the total due at lease signing, and the
monthly payments highlighted.
The Final Rule Amending Regulation M. The final rule includes most
of the disclosures to supplement the act that were contained in the
proposed rule. The major changes primarily affect motor vehicle
leasing. They include a mathematical progression on how the periodic
payment is derived (using figures such as the gross capitalized cost,
residual value, amount of depreciation and amortized amounts) and a
warning statement about charges for terminating a lease early. Certain
leasing disclosures must be segregated from other information.
The final rule contains revisions to the advertising provisions,
including the implementation of a statutory amendment. The statute
allows a toll-free number or a print advertisement to substitute for
certain lease disclosures in radio commercials, and the final rule
expands the application of this provision to television.
The Board had expressly solicited comment in the proposal about
whether the regulation should require the disclosure of a lease rate.
Under the final rule, a lessor is not required to disclose the cost of
a lease expressed as a percentage rate. If a rate is disclosed or
advertised, a notice must accompany the rate stating that the
percentage may not measure the overall cost of financing the lease
transaction. Also, in the case
[[Page 52248]]
of advertising, a rate cannot be more prominent than any other
Regulation M disclosure.
Other changes have been made to clarify and update the regulation.
Obsolete provisions have been deleted, and generally footnotes have
been moved to the regulatory text or to the Official Staff Commentary
to Regulation M.
The final rule contains the following major amendments to
Regulation M:
A revised disclosure format.
A total of payments disclosure.
An itemization that shows the mathematical progression used to
derive the periodic payment.
A strong narrative warning about the possibility of substantial
charges for early termination.
A notice to accompany any percentage rate (to indicate the
limitations of rate information).
Implementation of a statutory amendment for certain broadcast
advertisements and other changes to the advertising rules.
Official Staff Commentary. When the Board published the proposed
revisions to Regulation M for public comment, it also published
proposed revisions to the Official Staff Commentary on September 20,
1995 (60 FR 48769). The Board will publish an updated proposal to the
commentary in mid-November 1996. The proposal will include material
that was published for comment in September 1995, incorporate guidance
contained in the section-by-section discussion that accompanies this
final rule, and address other questions that may be brought to the
Board's attention following the public's review of the final rule.
III. Recommendations for Legislative Changes
In addition to seeking comment on the proposed regulatory changes,
the Board's September 1995 notice solicited views on whether specific
legislative revisions to the CLA may also be warranted. A few
commenters suggested that CLA coverage be expanded to cover leases that
exceed the current $25,000 cap, given the higher cost of automobiles.
IV. Effective Date
This final rule is effective October 31, 1996, but compliance is
optional until October 1, 1997. The mandatory effective date is
designated by section 105(d) of the act, which states that any
regulation promulgated by the Board is effective October 1 of a given
year, provided the rule was published at least six months in advance.
V. Section-by-Section Discussion of the Final Rule
The following discussion covers the revisions section-by-section.
Changes that are self-evident, and text that has been simplified or
clarified without substantive change, are generally not discussed.
Captions have been added to each paragraph, to conform with current
Board style; the addition or wording of captions alone is not meant as
a substantive change in the meaning of the paragraph itself.
Section 213.1 Authority, Scope, Purpose, and Enforcement
Former paragraph 1(d) on the issuance of staff interpretations has
been moved to appendix C.
1(b) Scope and Purpose
An introductory sentence has been added to state the scope of the
law. This paragraph has been revised to more closely parallel the
purpose clauses in Sec. 102 of the TILA.
Section 213.2 Definitions
Certain definitions are redesignated or added as indicated below.
Former section 213.2(b)--the rules of construction--has been deleted
except that former paragraph 2(b)(1) has been moved to paragraph
2(e)(1) of this section. Former Sec. 213.3--exempt transactions--has
been moved to paragraph 2(e)(3) of this section.
------------------------------------------------------------------------
Definition Final rule
------------------------------------------------------------------------
``Act'' in former 213.2(a)(1)............. 213.2(a).
``Advertisement'' in former 213.2(a)(2)... 213.2(b); examples moved to
commentary.
``Agricultural purpose'' in former Moved to commentary.
213.2(a)(3).
``Arrange for lease of personal Moved to commentary.
property''. in former 213.2(a)(4).
``Board'' in former 213.2(a)(5)........... 213.2(c).
``Closed-end lease''...................... 213.2(d) new.
``Consumer lease'' in former 213.2(a)(6).. 213.2(e).
``Gross capitalized cost''................ 213.2(f) new.
``Lessee'' in former 213.2(a)(7).......... 213.2(g).
``Lessor'' in former 213.2(a)(8).......... 213.2(h).
``Open-end lease''........................ 213.2(i) new.
``Organization'' in former 213.2(a)(9).... 213.2(j).
``Period'' in former 213.2(a)(10)......... Deleted as unnecessary.
``Person'' in former 213.2(a)(11)......... 213.2(k).
``Personal property'' in former 213.2(l).
213.2(a)(12).
``Real property'' in former 213.2(a)(13).. Deleted as unnecessary.
``Realized value'' in former 213.2(a)(14). 213.2(m).
``Residual value''........................ 213.2(n) new.
``Security interest'' in former 213.2(o); examples of
213.2(a)(15). security interests moved to
the commentary.
``State'' in former 213.2(a)(16).......... 213.2(p).
``Total lease obligation'' in former Deleted as unnecessary; open-
213.2(a)(17). end and closed-end
terminology conformed.
``Value at consummation'' in former Deleted as unnecessary; open-
213.2(a)(18). end and closed-end
terminology conformed.
------------------------------------------------------------------------
2(b) Advertisement.
The definition of advertisement is simplified and the examples have
been moved to the commentary. The definition of advertisement is broad,
covering commercial messages in any medium, including electronic media
such as the Internet, that directly or indirectly promote a lease
transaction.
2(d) Closed-end lease.
A definition of a closed-end lease has been added, modeled after
the definition of closed-end credit in Regulation Z (12 CFR
Sec. 226.2(a)(10)). The term covers any lease that does not fall within
the definition of an open-end lease. Commenters generally favored
having definitions of open- and closed-end leases.
2(e) Consumer lease.
The paragraph has been reorganized. The rule of construction in
former Sec. 213.2(b)(1) has been moved to paragraph (e)(1).
Transactions not included in the definition of consumer lease are now
in paragraph (e)(2). Former section Sec. 213.3 on exempt transactions
is now paragraph (e)(3). The term contractual obligation excludes
refundable and ``pass-through'' amounts a lessee is obligated to pay.
For example, the total contractual obligation does not include license
and registration fees and taxes. It also does not include the residual
value.
2(f) Gross capitalized cost.
A definition of gross capitalized cost has been added to this
section. Only items capitalized or amortized by the lessor are included
in this figure. The Board's proposal had contained a broader definition
using the term gross cost. Commenters favored a narrower definition.
Definitions of the related terms capitalized cost reduction and
[[Page 52249]]
adjusted capitalized cost have also been added to this section. The
supplementary information to Sec. 213.4(f)(1) provides a discussion of
these terms and further discussion about the gross capitalized cost,
including the disclosure of the agreed upon value.
2(h) Lessor.
The definition of lessor incorporates a numerical test similar to
the test in Regulation Z for defining a creditor (see footnote 3 to 12
CFR 226.2(a)(17)). Commenters generally supported the revision. The
phrase ``in the ordinary course of business'' has been omitted as
unnecessary.
2(i) Open-end lease.
A definition of an open-end lease has been added. Disclosures in
Secs. 213.4(k) and (m) and Sec. 213.7(d)(2)(vi) are only relevant to
open-end leases.
2(n) Residual value.
A definition of residual value has been added. Many commenters
urged the Board to clarify that the residual value is the lessor's
assigned value of the vehicle used to calculate the lessee's monthly
payments, and not necessarily a projection of the value of the car.
Several lessors noted that often a value is assigned to accommodate
promotional campaigns of a manufacturer. The final rule has a revised
definition in accordance with these comments.
Section 213.3 General disclosure requirements.
The following sections are redesignated or added as indicated
below:
------------------------------------------------------------------------
Former Final rule
------------------------------------------------------------------------
213.4(a)(1)............................... 213.3(a)(1).
213.4(a)(2)............................... 213.3(a)(1); 3(a)(3).
213.3(a)(2) new.
213.4(a)(3)............................... 213.3(a)(1).
213.4(a)(4)............................... 213.3(a)(4).
213.4(b).................................. 213.3(b).
213.4(c).................................. 213.3(c).
213.4(d).................................. 213.3(d).
213.4(e).................................. 213.3(e).
213.4(f).................................. 213.3(f).
------------------------------------------------------------------------
Paragraph 3(a) contains general rules about the disclosures
required under Sec. 213.4, including the form, content, and timing of
disclosures. Paragraph 3(f) on minor variations includes former comment
4(a)-2. The major revision to this section, discussed under paragraph
3(a)(2), is the requirement to segregate certain disclosures from other
information. Clear and conspicuous lease disclosures must be given
prior to consummation of a lease on a dated written statement that
identifies the lessor and lessee.
3(a) General requirements.
Based on comments and to provide a standard consistent with that of
other consumer regulations, the Board has added language requiring that
disclosures be given in a form the consumer may keep.
3(a)(1) Form of disclosures.
Former Secs. 213.4(a)(1) and 4(a)(2) required that all disclosures
be made together on a separate statement or in the lease contract
``above the place for the lessee's signature.'' The Board has deleted
this requirement along with the meaningful sequence, same-page, and
type-size disclosure requirements, replacing them with the requirement
that disclosures be segregated. Most commenters generally supported the
proposed segregation requirement, although some commenters opposed the
deletion of the other requirements. They believed that the signature
requirement ensured that lessors would give disclosures before the
consumer becomes obligated on the lease and discouraged lessors from
putting important information on the back of a lease document. The
Board believes that a segregation requirement and the clear and
conspicuous standard provide the same level of protection as the
previous rules.
The segregated disclosures and other CLA disclosures must be given
to a consumer at the same time. Lessors must continue to ensure that
the disclosures are given to lessees before the lessee becomes
obligated on the lease transaction. For example, by placing disclosures
that are included in the lease documents above the lessee's signature,
or by including instructions alerting a lessee to read the disclosures
prior to signing the lease.
Nonsegregated disclosures need not all be on the same page, but
should be presented in a way that does not obscure the relationship of
the terms to each other.
3(a)(2) Segregation of certain disclosures.
Most commenters--representing both the industry and consumer
groups--generally supported some form of segregation of leasing
disclosures. Many commenters believed that consumers would be more
likely to read and understand the disclosures if key items were
segregated from other disclosures and contract terms. Pursuant to its
authority under section 105(a) of the TILA, the Board has adopted the
requirement that certain consumer leasing disclosures be segregated
from other required disclosures and from general contract terms to
assure clear, conspicuous, and meaningful disclosure of lease terms.
Some commenters, including trade groups that represent a large
portion of the motor vehicle leasing industry, suggested that the more
important disclosures be further highlighted in a manner similar to the
Board's Regulation Z. The Board believes that the segregation
requirement and the requirement that disclosures be in a form
substantially similar to the applicable model form in appendix A
adequately focuses the consumer's attention on key information.
Lessors may provide the segregated disclosures on a separate
document or may include them in their lease contracts, apart from other
information. The general content, format, and headings for these
disclosures should be substantially similar to those contained in the
model forms in appendix A. Lessors may continue to provide the
remaining disclosures required by Regulation M and the CLA in a
nonsegregated format.
The model forms in Appendix A for open-end leases, closed-end
leases, and furniture leases have been revised.
3(a)(4) Language of disclosures.
Under former Sec. 213.4(a)(4), lease disclosures had to be provided
in English, except in the Commonwealth of Puerto Rico, where they could
be given in Spanish. The final rule revises this position. Lessors are
permitted to give disclosures in another language as long as
disclosures in English are given upon request. The Board believes that
a more permissive rule promotes a more meaningful delivery of
disclosures to consumers.
3(b) Additional information; nonsegregated disclosures.
Former Sec. 213.4(b) permitted additional information to be
included with any disclosures required by the regulation. The Board
proposed to permit additional information only with the nonsegregated
disclosures. Some commenters believed that the Board should permit the
inclusion of state-required disclosures among the federally-required
segregated disclosures. The Board believes that the purpose of
segregating disclosures could be diluted if additional information is
permitted among them. The final rule permits additional information
only with the nonsegregated CLA leasing disclosures.
Former Secs. 213.4(b)(1) and 4(b)(2) on inconsistent disclosures
have been
[[Page 52250]]
deleted. Pursuant to Sec. 186(a) of the CLA, Sec. 213.9 addresses the
preemption of state law if information required by state law is
inconsistent with the requirements of the act or regulation.
3(c) Multiple lessors or lessees.
Paragraph 3(c) provides that when a transaction involves multiple
lessors, one lessor may make the disclosures on behalf of all of them.
The phrase ``and the one that discloses shall be the one chosen by the
lessors'' has been deleted as unnecessary. No substantive change is
intended.
3(d) Use of estimates.
Former Sec. 213.4(d) on the use of estimated disclosures has been
redesignated and simplified as paragraph 3(d). The last sentence of the
former paragraph has been deleted as unnecessary.
3(e) Effect of subsequent occurrence.
The rule in paragraph 3(e), previously stated in former
Sec. 213.4(e), has been revised to add a reference to consummation, to
clarify that this rule is limited to events occurring after
consummation of a lease. Footnote 1 of the former regulation,
containing a specific example of a subsequent occurrence, has been
moved to the commentary except for the second sentence, which has been
deleted as unnecessary.
3(f) Minor variations.
Paragraph 3(f) incorporates into the regulation the rules on minor
variations that may be disregarded in making disclosures, including
provisions formerly contained in comment 4(a)-2 of the staff
commentary.
Section 213.4 Content of disclosures.
Although the regulation applies to leases of all types of personal
property such as furniture, much of the focus of the Board's review
under the Regulatory Planning and Review Program has been on motor
vehicle leasing. Because the regulatory issues have arisen in this
context, the final rule limits some of the new disclosure, formatting,
and advertising requirements to leases for motor vehicles. This section
has been reorganized essentially to follow the progression of
disclosures in the model forms as follows:
------------------------------------------------------------------------
Former Final rule
------------------------------------------------------------------------
213.4(g)(1)............................... 213.4(a).
213.4(g)(2)............................... 213.4(b).
213.4(g)(3)............................... 213.4(c).
213.4(g)(4)............................... 213.4(n).
213.4(g)(5)............................... 213.4(d).
213.4(g)(6)............................... 213.4(o).
213.4(g)(7)............................... 213.4(p).
213.4(g)(8)............................... 213.4(h); 4(h)(3) new.
213.4(g)(9)............................... 213.4(r).
213.4(g)(10).............................. 213.4(q).
213.4(g)(11).............................. 213.4(i).
213.4(g)(12).............................. 213.4(g); 4(g)(2) new.
213.4(g)(13).............................. 213.4(k).
213.4(g)(14).............................. 213.4(l).
213.4(g)(15).............................. 213.4(m).
213.4(e) new.
213.4(f) new.
213.4(j) new.
213.4(s) new.
------------------------------------------------------------------------
4(b) Amount due at lease signing.
Paragraph 4(b) requires lessors to disclose to consumers the total
amount of any payment due at lease signing (consummation of the lease).
The Board has adopted several revisions to this paragraph. The revised
language provides that the total amount of payments due at lease
signing must be itemized by amount as well as by type and included
among the segregated disclosures under the heading ``amount due at
lease signing.'' Previously, the lessor was required to itemize these
charges by type but not by amount. Also, to enhance consumer
understanding of the transaction, the lessor is required to itemize by
type and amount ``how the amount due at lease signing will be paid,''
which typically includes any net trade-in allowance, rebate, noncash
credits, and payments in cash. (See the model forms in appendix A for
format.) The Board believes that the standardization of terminology and
the full itemization of the amounts due and means of payment provide
consumer benefit without imposing substantial compliance costs on
lessors.
Commenters supported the proposal in substance. Most of the
commenters supporting the proposal believed that the proposed side-by-
side format would discourage unscrupulous lessors from failing to
credit a lessee's downpayment or trade-in. Some industry
representatives offered an alternative format using only one column to
present the disclosure, in place of the ``balance sheet'' approach.
Upon further analysis, the Board believes that the balance sheet
approach, in which the two columns equal one another, is appropriate to
ensure that the amounts of trade-ins, rebates, and cash payments are
used to reduce the total amount due at lease signing.
Some commenters asked whether a rebate that is subtracted from the
value of the vehicle in arriving at the gross capitalized cost needs to
be disclosed and itemized under this paragraph. They also inquired
about ``negative trade-ins.'' A rebate would be included in the
itemization under this section only when it is applied against the
amount due at lease signing. Also, where the amount owed on a prior
loan or lease exceeds an agreed-upon trade-in value, the difference is
reflected in the gross capitalized cost, and no trade in allowance
would be reflected under the column ``how the amount due at lease
signing is paid.''
4(d) Other Charges
In addition to the periodic payment, the regulation requires
disclosure of a total of other charges and an itemization by type and
amount, payable during and at the end of the lease term. The model
forms include examples of such fees--for example, an annual tax and a
disposition fee at the end of the lease term.
4(e) Total of payments
The Board adopted this disclosure to serve as a tool for comparing
leases that involve the same or similar types of leased properties for
the same lease duration. As the disclosure includes all payments the
consumer is obligated to make under the lease, it is not meant to
reflect the cost of financing the lease transaction.
This disclosure, accompanied by the statement ``the amount you will
have paid by the end of the lease,'' is the net sum of the amount due
at lease signing (excluding refundable amounts such as the security
deposit), the total of periodic payments (excluding the first periodic
payment, if paid at lease signing), and other charges are not part of
the periodic payments (such as a disposition fee). An additional
disclosure is required for open-end leases because, with some
limitations, consumers are liable for the difference between the
residual and realized values of the leased property.
4(f) Payment calculation
Many commenters on the Board's proposed rule expressed concern that
the revised format of the Board's model disclosure form did not present
information in a manner that would allow consumers to understand the
relationship of lease terms such as the ``gross cost'' and the
``residual value'' of a lease. Representatives of major automobile
leasing companies offered an alternative format, one that shows how the
periodic payments are derived. They said that such a disclosure scheme
would result in better consumer understanding of a lease transaction
and would enable consumers to verify their periodic payment. These
commenters
[[Page 52251]]
also noted that the disclosure would impose little additional
compliance burden as lessors make this calculation in setting up a
lease transaction.
The Board believes that a mathematical progression itemizing the
components of the periodic payment is valuable to consumers. It enables
consumers to see several of the newly required disclosures in the
context of the calculation, thereby enhancing the consumer's
understanding of the particular disclosures. Also, it allows consumers
to verify their periodic payment amount.
The CLA does not call for a payment calculation, but based on the
comments and on further analysis, the Board is exercising its
rulemaking authority under Sec. 105(a) of the TILA to require the
disclosure of the amounts comprising the periodic payment, in motor
vehicle leases, in a manner substantially similar to the model leasing
forms in appendix A. The payment calculation utilizes several
disclosures from the proposal; it requires the modification of others
that were proposed, and adds new ones, as discussed below.
4(f)(1) Gross capitalized cost
In the past, federal law has not required disclosure of information
on the base price of the leased property in closed-end leases. Because
this figure has not typically been given, consumers often have assumed
that the lease is based on the manufacturer's suggested retail price
(MSRP), or on a sales price negotiated by the consumer (who might have
initially contemplated financing or paying cash for the vehicle). If
the lessor uses a different starting price in the lease payment
computation, one that is higher than either the MSRP or the negotiated
figure, the consumer would be unaware of that fact, and thus would not
be aware that perhaps the periodic payment could be lower.
The Board's proposal would have required disclosure of the ``gross
cost'' among the segregated disclosures. This disclosure would have
been applicable only to closed-end leases, given that the regulation
already required the disclosure of a comparable term--the ``value at
consummation (the initial value)''--in open-end leases. Under the
proposal, the Board would have defined the gross cost as ``the total
dollar amount of all items included in the value of a lease at
consummation.''
A large majority of the commenters supported the disclosure of the
base price of the leased property in closed-end leases, in one form or
another. However, many of the industry commenters strongly objected to
using the term ``gross cost'' and objected also to the items that would
be included in the definition. Most of these commenters recommended
that the term be changed from ``gross cost'' to either ``gross
capitalized cost'' or ``capitalized cost'' to conform with state law
(as several states now require the disclosure of this figure) and also
to conform with industry practice. Trade associations that represent a
large segment of the industry have encouraged their members to
voluntarily disclose the ``capitalized cost,'' and some lessors have
been doing so. Industry commenters suggested that the term
``capitalized cost'' has gained a certain amount of acceptance from
consumers. Finally, both leasing representatives and consumer interest
groups believed that the disclosed figure should reflect only the
amounts that are capitalized by the lessor (such as the price of the
leased property on which the lease is based); and, in particular,
believed that it should not include amounts that are paid at lease
signing by the consumer.
In response to the comments and upon further analysis, the Board
has modified the final rule to require the disclosure of the ``gross
capitalized cost,'' using that term, in both closed-end and open-end
motor vehicle leases. Only items capitalized or amortized by the lessor
are to be included. The gross capitalized cost is readily available to
lessors from worksheets they use in setting the terms and conditions of
the lease, and hence the Board believes that this disclosure
requirement will not be unduly burdensome for lessors.
Some commenters representing consumer interests asked that the
capitalized cost figure be itemized to give the consumer a clear
picture of the base price of the leased automobile and other amounts
being financed, such as an outstanding balance from a prior loan or
lease. They suggested that without a breakdown, consumers could easily
misunderstand what is included or excluded from the capitalized cost
disclosure. A few industry commenters believed that disclosing an
itemization would be burdensome for lessors; they also believed an
itemization would have to be quite detailed to provide adequate
guidance to lessees concerning the treatment of specific costs.
The final rule requires a disclosure of the gross capitalized cost
with a description such as ``the agreed upon value of the vehicle
[state the amount] and any items you pay over the lease term (such as
service contracts, insurance, and any outstanding prior loan or lease
balance).'' The ``agreed upon value'' of the motor vehicle means the
amount for the vehicle agreed upon by the lessor and the lessee for
purposes of the lease. This would include capitalized items such as the
following: charges for vehicle accessories and options, delivery or
destination charges, and rustproofing. The lessor could also include
taxes and fees for license, title, and registration. The ``value''
would not include charges for service or maintenance contracts,
insurance products, gap waivers, or an outstanding balance on a prior
lease or loan.
Based on comments and upon further analysis, the Board believes
that disclosure of the gross capitalized cost (including the agreed
upon value) may aid consumers in better understanding lease pricing.
The final rule also allows the consumer to obtain an itemization of the
gross capitalized cost upon request. (See the model form in appendix
A.) As in the case of Regulation Z, the itemization must be given
separately, not within the segregated disclosures.
The Board solicited comment on whether the gross cost--the first
item on the proposed model form--should be de-emphasized or removed
from the required disclosures to avoid potential manipulation of the
figure by lessors to mislead consumers. The few commenters that
addressed the issue thought that the potential risk is negligible.
4(f)(2) Capitalized cost reduction.
The Board's proposed rule required the disclosure of any
``capitalized cost reduction'' in the disclosure of the total amount
due at lease signing. Like a downpayment in the case of a credit
transaction, the capitalized cost reduction reduces the capitalized
cost and thus the periodic payments. In response to comments, the final
rule requires that any capitalized cost reduction be reflected both in
the disclosure of the amount due at lease signing and in the
mathematical progression of the periodic payment amount.
4(f)(3) Adjusted capitalized cost.
In response to the comments, the final rule requires the disclosure
of the ``adjusted capitalized cost,'' which equals the gross
capitalized cost less any capitalized cost reduction. This net figure
is the starting point for determining the periodic payment of the
lease.
4(f)(4) Residual value.
The Board proposed to make the residual value of the leased
property a required disclosure in closed-end leases. (A disclosure
called the ``estimated value of the vehicle at the end of the lease''
was already required by Regulation M in an open-end lease.)
[[Page 52252]]
Many commenters, including both industry and consumer representatives,
favored the disclosure of this term. The residual value is the amount
estimated or assigned at consummation as the value of the lease
property at the end of the lease term. In motor vehicle leases, this
figure is frequently but not always obtained by reference to accepted
guides used by lessors, such as the ``ALG Residual Percentage Guide.''
In the payment calculation, the residual value is accompanied by the
statement: ``the value of the vehicle at the end of the lease used in
calculating your base [periodic] payment.''
4(f)(5) Depreciation and any amortized amounts.
The disclosure of the ``depreciation and any amortized amounts''
was not included in the Board's proposed rule but is a necessary part
of the payment calculation. The depreciation represents the difference
between the adjusted capitalized cost and the residual value. This is
the amount that the lessee pays for the vehicle's decline in value
attributable to normal use and for other items paid over the lease
term.
4(f)(6) Rent charge.
This figure, added in the final rule in response to comments,
represents the lessor's ``rent'' or ``interest.'' The rent charge is an
essential component in the payment calculation.
4(f) (7)-(10) Total of base periodic payments, lease term, base
periodic payment, itemization of other charges, and total periodic
payment.
Several other items are used in the payment calculation. The
``lease term'' and the ``total periodic payment'' are already required
disclosures under the CLA, and appear both in the payment calculation
and in the payment schedule disclosures. The ``total of base periodic
payments'' is not required by the CLA, but was used in open-end lease
disclosures and is necessary in the payment calculation. Itemization of
the periodic payment (the base monthly payment and other charges that
are part of the periodic payment) is also not currently required,
although over the years many lessors have routinely provided an
itemization. The periodic payment typically consists of an amount for
depreciation and a rent charge; there may also be state tax and other
fees.
4(g) Early termination.
The CLA requires lessors to disclose the conditions under which the
lessee or lessor may terminate the lease before the end of the lease
term and the amount or method of determining a penalty or other charge
for early termination. Lessors typically disclose the method of
determining an early termination charge, a disclosure which is often
complex.
The proposed rule noted that a U.S. Court of Appeals case,
Lundquist v. Security Pacific Automotive Financial Services Corp., 993
F.2d 11 (2d Cir.), cert. denied, 510 U.S. 959 (1993), caused lessors
concern in determining the requirements for disclosing their early
termination provisions. In that case, the court held a lessor liable
for violating the ``reasonably understandable'' standard for disclosure
under Regulation M; the lessor had an early termination formula that
the court found to be overly complex and beyond the understanding of
the average consumer. Many lessors believe that, given the complexity
of modern automobile lease transactions, it is difficult to describe
every part of an early termination formula in terms clearly
understandable to consumers. In particular, lessors believe that the
various methods used to determine the ``unamortized capitalized cost''
portion of their early termination formulas are inherently complex and
cannot be reduced to a disclosure that is easily understandable.
In response to the Board's proposal, many commenters (mostly those
representing the leasing industry) favored allowing a reference to the
name of the method employed to determine the unamortized capitalized
cost portion of the early termination formula instead of requiring a
detailed description of that method. Opponents believed that merely
providing the name of the method would not be useful and would make it
difficult or impossible for consumers to compute the amount of an early
termination charge. Some consumer advocates believed that in using
complex methods and highly complicated descriptions for determining
early termination charges, lessors preclude consumers from determining
whether the charges themselves are reasonable. (The CLA specifies that
charges for early termination must be ``reasonable.'') Other
commenters, including some lessors and many consumer representatives,
favored a full description of all aspects of a lessor's early
termination method, along with an example of how that method would
work.
Based on the comments and upon further analysis, the Board
continues to believe that the CLA mandates full disclosure of a
lessor's method of determining an early termination charge, even if it
is complex. Therefore, a full description of the complete early
termination method must be disclosed. Given the complexity of the
methods involved, however, a lessor is permitted--in giving the full
description of its early termination method--to refer by name to a
generally accepted method of computing the adjusted lease balance (also
known as the unamortized capitalized cost) for purposes of the early
termination charge. For example, a lessor may state that the ``constant
yield'' method will be utilized in determining the unamortized portion
of the gross capitalized cost, but the lessor would have to specify how
that figure--and any other term or figure--is used in computing the
total early termination charge that would be imposed upon the consumer.
Additionally, if a lessor refers to a named method in this manner, the
lessor will have to provide a written explanation of that method if
requested by the consumer. Lessors should provide clear and
understandable explanations of their early termination provisions to
consumers. Explanations that are full, accurate, and not intended to be
misleading are in compliance with CLA and Regulation M disclosure
requirements even if such explanations are complex.
The Board proposed new disclosure requirements in addition to
requiring this basic statutory information about charges for
terminating a lease early. The proposed rule added a statement alerting
consumers about charges for terminating a lease early, and also would
have required an example of an early termination charge based on an
assumed termination of the lease at the end of the first year. In
general, most commenters supported the Board's requiring a general
statement warning the consumer of the possibility of substantial
charges for early termination.
Many of the commenters representing the leasing industry objected
to the Board's proposed requirement of an early termination example.
They believed that a transaction-specific example would substantially
increase compliance burdens. They said the figure would be difficult to
calculate because published residual values at the end of one year are
not available; the tables typically start at 24 months. Also, the
figure would be imprecise, since charges for early termination are
typically determined based on the realized, not the residual, value of
the leased property at the time of early termination. The realized
value, these commenters pointed out, can vary widely from the residual
value based on factors such as the demand for a
[[Page 52253]]
particular model and the condition of the vehicle at the time of early
termination. Moreover, the example would not be representative of an
actual charge because few leases terminate at the end of the first
year. It is more typical for termination to occur nearer to the end of
the lease.
Industry commenters expressed concern about the compliance burden
attached to a transaction-specific mathematical calculation, as well as
concern about possible consumer misunderstanding of a numerical example
that might be out of line with the amount a consumer would have to pay
if, in fact, the lease is terminated early. Some commenters suggested,
as an alternative, an enhanced general warning to the effect that
charges for early termination could be substantial and ``may be several
thousand dollars.'' They also suggested adding a statement that the
actual charge will depend on when the lease is terminated, and the
earlier the consumer ends the lease, the greater this amount is likely
to be.
Commenters representing consumer interests believed that an example
is needed to give consumers a concrete idea of just how substantial an
early termination charge could be. Some of these commenters suggested
that the early termination example could be rephrased to make clear
that the early termination charge shown in any example is contingent
upon the realized value of the property at the time of termination.
They suggested using language such as ``if you terminate this lease at
the end of the first year, you may owe the lessor the difference
between your adjusted lease balance of [stated amount] and the realized
value at that time.''
While there have been very few consumer complaints about consumer
leasing at the federal level, one of the more frequent issues raised
involves early termination charges. At the state level, authorities
report that early terminations are a major source of consumer
complaints about leasing. Lessees often are surprised that an early
termination charge can be several thousand dollars. Many consumers
apparently think that as long as they are current in their monthly
payments, upon early termination they can merely return the car owing
nothing more or at most a nominal termination fee. The transaction-
specific example proposed by the Board was intended to show just how
substantial a charge could be. Based on the comments and further
analysis, the Board has dropped the requirement of an example and has
instead strengthened the warning to consumers. The final rule requires
the following revised statement among the segregated disclosures:
Early Termination. You may have to pay a substantial charge if you
end this lease early. The charge may be up to several thousand dollars.
The actual charge will depend on when the lease is terminated. The
earlier you end the lease, the greater this charge is likely to be.
The Board believes that a strong narrative statement, even without
the proposed example, will serve to apprise consumers that charges for
early termination may indeed be quite substantial.
4(h) Maintenance responsibilities.
To heighten a consumer's awareness about maintenance
responsibilities without imposing substantial compliance costs on
lessors, the Board proposed to add a disclosure requirement, among the
segregated disclosures, that ``you may be charged for excessive wear
and use based on the lessor's standard for normal use.'' Any applicable
charge for excessive mileage must also be included. In the final rule,
this requirement is limited to motor vehicle leases.
Several commenters requested guidance on disclosing the notice in
paragraph 4(h)(3) when a specific figure for excess mileage is not
available. They suggested that a description of the method for
assessing charges for excess mileage should be allowed in place of a
specific amount. The final rule allows a lessor to disclose a
description of the method used for calculating excess mileage charges
in place of a specific amount, when disclosing an amount is not
feasible.
4(i) Purchase option.
An association representing automobile lessors sought clarification
on whether reference to the fair market value based on an automobile
publication such as N.A.D.A. (published by the National Automobile
Dealers Association) could be disclosed in place of a sum certain, as
the purchase-option price. The Board clarifies that lessors may commit
to a sum certain as the purchase-option price at a future date by
reference to an independent source. The reference should provide
sufficient information so that the lessee will be able to determine the
actual price at the time the option becomes available. Statements of a
lease end price such as ``negotiated price'' or ``fair market value''
do not comply with the requirement of this paragraph. For a purchase
option during the lease term, the Board recognizes that the price may
vary depending on when the lessee exercises this option, and therefore
under the final rule, lessors are allowed to describe a method for
determining the price as an alternative to providing the price.
4(j) Statement referencing nonsegregated disclosures.
To alert consumers to the nonsegregated CLA disclosures, the final
rule requires a statement among the segregated disclosures to direct
consumers to other CLA-required disclosures in the lease documents. The
nonsegregated disclosures include information on early termination,
purchase options and maintenance responsibilities, warranties, late and
default charges, insurance, and any security interest.
4(k) Liability between residual and realized values.
This provision is substantially unchanged from the provision found
under former Sec. 213.5(g)(13); minor edits have been made.
4(l) Right of appraisal.
Paragraph 4(l) requires disclosure of the right to an appraisal of
leased property. This language has been adopted as proposed, with a few
changes for clarity and accuracy; for example, the term ``realized
value'' replaces ``estimated value.'' No substantive change is
intended. This provision is applicable both to open-end and to closed-
end leases.
4(m) Liability at end of lease term based on residual value.
Except as discussed below, editorial changes have been made to this
section without substantive change.
4(m)(1) Rent and other charges.
Former Secs. 213.2(a)(17) and 2(a)(18) defined the terms ``total
lease obligation'' and ``value at consummation,'' that were applicable
to open-end leases. The Congressional intent regarding these
definitions, as set forth in a committee report, was that the lessee
would have a readily understandable method for comparing the cost of
one lease with another or with the cost of buying the same property for
cash or on credit (Senate Committee on Banking, Housing and Urban
Affairs, Consumer Leasing Act of 1976, S. Rep. No. 94-590 (1976)). The
report stated, in pertinent part:
Under subsection 182[(10)][of the CLA], in addition the lessor
must calculate and disclose the difference between the total lease
obligation and the market value of the goods at the inception of the
lease. These figures then will provide an easy comparison
[[Page 52254]]
between the cost of the lease and the cost of an outright cash
purchase, and the differential figure provides a rough comparison to
the amount of finance charge which would be involved in a credit
purchase. The consumer lessee therefore will have at hand the
essential data to compare leases, and to evaluate alternatives to
leasing.
Commenters noted that the value at consummation, defined as ``the
cost to the lessor of the leased property including, if applicable, any
increase or markup by the lessor prior to consummation,'' is
essentially the same as the capitalized cost.
The Board believes that the purpose of the disclosure of the total
lease obligation, the value at consummation, and the differential
between these two figures is served by requiring lessors in open-end
leases to disclose the ``rent and other charges'' described as ``the
total amount of rent and other charges imposed in connection with your
lease [state the amount].'' Because of the new comprehensive disclosure
scheme, including a required disclosure of the gross capitalized cost
(including the agreed upon value) of leased property, the ``total lease
obligation'' disclosure (as defined in former Sec. 213.2(a)(17)), and
the ``value at consummation'' disclosure (as defined in former
Sec. 213.2(a)(18)) have been deleted as unnecessary. The final rule has
been revised accordingly.
4(o) Insurance.
Along with the amount paid to the lessor, this disclosure provides
information on the type and amount of coverage of insurance, whether
voluntary or required, as well as the cost. Several commenters pointed
out that unlike collision and comprehensive liability policies, the
lessor could not furnish the amount of coverage for mechanical
breakdown protection contracts (in states where these contracts are
treated as insurance). For mechanical breakdown protection insurance
contracts not capped by a dollar amount, lessors may describe coverage
by referring to a limitation by mileage or time period. For example,
the mechanical breakdown contract insures parts of the automobile for
up to 100,000 miles.
4(p) Warranties or guarantees.
The Board was asked to clarify whether warranties were limited to
maintenance warranties, or included UCC warranties such as warranty of
title, and whether disclosure is required if certain warranties do not
apply to the lessee. Whether warranties under the UCC should be treated
as warranties under this section is to be determined by state or other
applicable law. If a lessor provides a comprehensive list of warranties
to a consumer, the lessor must indicate which warranties apply or,
alternatively, which do not apply.
4(q) Penalties and other charges for delinquency
As proposed, the final rule adds that any penalty or charge shall
be reasonable, to reflect the requirement found in Sec. 183(b) of the
CLA. No substantive change is intended.
4(r) Security interest
This section has been adopted as proposed without substantive
change. The phrase ``in connection with the lease'' has been deleted as
unnecessary.
4(s) Limitation on rate information
Until recently, lessors did not disclose rate information to
consumers, although they have commonly used an implicit interest rate
for internal purposes. Now some automobile lessors disclose rate
information in contracts, or advertise lease rates, or orally provide
rate information to consumers who lease or express an interest in
leasing. Typically these rates are based on the lessor's ``money
factor''--representing only the ``rent'' or the ``interest'' charge--
and are sometimes labelled as an ``annual percentage rate.''
In the proposed rule, the Board solicited comment on whether
Regulation M should require a rate disclosure, and whether (and how)
the rate should be made comparable to the annual percentage rate (APR)
in a credit transaction. Many commenters addressed this issue. For the
most part, commenters representing consumer constituencies advocated
the disclosure of a uniformly calculated lease rate. Those representing
industry interests generally opposed a lease rate disclosure, although
some supported further consideration of the issue.
Those commenters who supported a rate disclosure believed that a
federally-mandated annual lease rate is needed to assure uniform
disclosure of lease-cost information. They expressed particular concern
that rates currently disclosed by some lessors in advertisements and in
contracts may mislead consumers about lease costs, given the lack of
any calculation standards. Commenters also argued that if the
capitalized cost, the residual value of leased property, and other
lease terms are disclosed to a consumer, the lease rate is the only
missing component necessary to fully demonstrate the cost of the lease.
They generally believed that a rate disclosure would be an effective
tool for comparison shopping.
Those commenters opposed to a rate disclosure requirement believed
that such a disclosure would be meaningless and perhaps even misleading
to consumers. They argued that there is no effective way to calculate a
lease rate that will be meaningful to consumers, absent rules
constraining lease terms. Many expressed concern that consumers would
inappropriately compare credit and lease transactions by comparing the
APR with the lease rate. A few commenters, mostly representing
independent lessors, suggested that the Board would be exceeding its
rulemaking authority under the CLA if it were to mandate a rate
disclosure, given that the statute does not impose this requirement.
Commenters also suggested that a rate disclosure presents the
opportunity for unscrupulous lessors to purposely manipulate the lease
rate (to make it look more attractive) by adjusting the residual value.
These commenters suggested that, to quote a low lease rate, such
lessors might use a residual value lower than the figure the lessor
actually expects to realize from the sale of the vehicle at the
scheduled termination of the lease. Reducing the residual value
increases the portion of the periodic payment attributable to
depreciation, thus lowering the amount imputed to the rent charge in
each payment. Indeed, for lease transactions in which the adjusted
capitalized cost, lease term, and periodic payments remain constant,
adjustments in the residual value can produce significantly different
lease rates.
Consideration of alternative approaches. The Board considered
several approaches to address the lease rate issue: it considered
requiring, permitting, or prohibiting a disclosure. In principle, the
disclosure of a lease cost expressed as an annual rate, rather than
solely as a dollar amount, could have value to consumers in negotiating
lease terms and in comparing one lease to another. In practice,
however, there are problems associated both with the computation of the
lease rate and with what the figure represents.
The major problem with a rate computation is that it is subject to
variations in the residual value, whether the variation is narrow or
wide and whether it results from unscrupulous manipulation or from
legitimate, good-faith differences about estimates of value. As to some
of the comparisons that consumers might attempt to make, it is arguable
that comparing the costs incurred in leasing and in financing based
primarily on rate information may never be totally appropriate because
the comparison overlooks legal and
[[Page 52255]]
economic distinctions between the two transactions--in a lease the
consumer accumulates no equity in the property. Given these
limitations, and the fact that the legislative history provides little
support for requiring a lease rate disclosure, the Board decided not to
mandate a lease rate disclosure.
The Board considered prescribing a method for calculating a rate so
that consumers could be assured of uniformity in any rate disclosures
they received. The calculation could use an ``actuarial method''
formula similar to that used for the APR under the Board's Regulation
Z. This formula would analyze the present value of all advances made to
the lessee or on the lessee's behalf against the present value of all
payments received by the lessor.
To address rate manipulation, the Board considered placing certain
general constraints on the use of the residual value, such as requiring
that the residual value used to calculate the rate be the same one on
which the periodic payments are based, and requiring also that the
residual value be a reasonable approximation of the value of the leased
property at the end of the lease term. While this approach would
promote more uniformity in rate disclosure than currently exists, it
would not make the rates quoted to a consumer completely reliable given
the legitimate range of residual values. Alternatively, the Board
considered requiring that lessors use the purchase-option price instead
of the residual value in calculating a rate when the option price is
higher. However, basing a lease rate on a purchase-option price
assumes, often incorrectly, that the consumer will purchase the leased
property at the end of the lease term. Moreover, because only about 60
percent of leases have an option price, this restraint on possible
manipulation would not be available in all instances.
Given the limitations under any of these approaches, the Board
believes that in specifying a rate calculation method, it would be
endorsing the use of an imperfect tool--one whose accurate use for
comparison shopping is questionable in many cases.
As an alternative, the Board considered whether to prohibit the
disclosure of lease rates. However, a regulatory prohibition would
essentially require a determination by the Board that a rate disclosure
is inherently deceptive or misleading to consumers. In light of the
wide support for a uniform lease rate disclosure among consumer
advocates and others, the Board believes it would be difficult to
support such a determination in all cases.
Still, the Board believes that the concerns about variations in
lease rates cannot be ignored. These concerns exist whether variations
result from a lessor's manipulation of the residual value to show a
lower lease rate, or occur despite a lessor's use of different good-
faith estimates of the residual value. Accordingly, the final rule
imposes constraints on the disclosure of rate information to deter--as
much as possible--inappropriate comparisons of leases by consumers
based on rate information offered by different lessors, and mistaken
comparisons between the distinct transactions of financing and leasing.
The final rule requires that where rate information is provided in an
advertisement or in lease documents, a notice must accompany the rate
disclosure stating that ``this percentage may not measure the overall
cost of financing this lease.''
Under the final rule, a lessor advertising or disclosing a lease
rate is also precluded from calling the rate an ``annual percentage
rate'' or any equivalent term to avoid the inference that the rate is
directly comparable to the APR. Moreover, the rate may not be placed
among Regulation M's segregated disclosures. The final rule in
Sec. 213.7(b)(2) also provides that the disclosure of a lease rate in
an advertisement cannot be more prominent than disclosures in the
advertisement required by Regulation M, except for the disclosure that
must accompany the rate.
The estimated lease charge. In its proposed rule, the Board
solicited comment on a new disclosure, called the estimated lease
charge, to show the total ``financing'' costs that would be charged to
the consumer over the lease term, including ``rent'' or ``interest.''
In name, the proposed figure was similar to the finance charge
disclosed in credit transactions subject to the TILA. In concept,
however, it was quite different in that it included fees that the
consumer would pay in a comparable cash transaction and fees paid to
third parties (such as automobile registration fees, insurance
premiums, and state taxes). These are items that in the credit context
would be excluded from the finance charge in most cases.
Commenters representing consumer interests, who generally supported
the proposed ``all-inclusive'' definition of the estimated lease
charge, believed that such a disclosure meets the goal of the CLA to
provide meaningful and full disclosure to consumers of the ``true''
cost of leasing. They thought it could facilitate shopping among
comparable lease transactions, and would not be burdensome for lessors
to disclose. A majority of commenters--all representing the leasing
industry--either opposed the estimated lease charge disclosure in
general or as it was defined in the proposal. They believed that any
lease charge should ideally reflect only that portion of each lease
payment representing the ``rent'' or ``interest'' charged by the
lessor. Also, they believed an all-inclusive lease charge disclosure
could mislead consumers to view leasing as more expensive in comparison
with financing, when that may not be the case. Most of these commenters
believed that if a lease charge were to be disclosed, the rules should
at least be more comparable to Regulation Z regarding the type of fees
included, based on their concern that consumers might attempt to
compare a lease charge to the finance charge in a credit transaction.
Although virtually all costs associated with a lease transaction
are itemized and disclosed under the final rule, there could be some
value in bringing together in one figure the various interest and
noninterest charges that may be split among those due at lease signing,
in the periodic payments, and at lease end. The Board considered that a
lease charge, redefined to more closely parallel the finance charge
disclosed in a credit transaction, could have utility in some
instances. For example, it might assist a consumer in comparing the
cost of leasing a vehicle offered by different lessors, such as when
shopping to lease a particular make and model with the same lease
duration. It would not be very useful in comparing the leasing of cars
with different values or different lease durations, or in comparing a
lease transaction to a credit transaction. For purposes of Regulation
M, a lease charge disclosure is related primarily to the calculation of
a lease rate (as lessors would need to know what fees to include in the
calculation) and to verify compliance with the prescribed formula.
Given that there is no federally-mandated lease rate disclosure, there
is little need for a lease charge disclosure (in a closed-end lease).
Based on the comments and upon further analysis, the final rule does
not require the disclosure of a lease charge.
Section 213.5 Renegotiations, extensions, and assumptions.
Section 213.5 is adopted as proposed with some editorial changes.
No substantive change is intended. This section contains all the
redisclosure rules governing leases that are renegotiated, extended, or
assumed, which were generally contained in
[[Page 52256]]
former Sec. 213.4(h). Paragraphs have been rearranged and revised for
clarity. Rules on assumptions have been moved from the commentary.
Section 213.5(d) retains the substance of the exceptions found in the
former regulation as well as the exceptions previously located in the
commentary for renegotiations, court proceedings, and deferrals under
former comments 4(h)-3, 7, and 8, respectively.
Section 213.6 [Reserved]
Section 213.7 Advertising.
Former Sec. 213.5 is redesignated as indicated below:
------------------------------------------------------------------------
Former Final rule
------------------------------------------------------------------------
213.5(a).................................. 213.7(a).
213.7(b) new, incorporating
standard in one place.
213.7(b)(1) new.
213.7(b)(2) new.
213.5(b).................................. 213.7(c).
213.5(c).................................. 213.7(d).
213.5(d).................................. 213.7(e).
FR Doc. 96-25273 Consumer Leasing
213.7(f) new.
------------------------------------------------------------------------
The final rule contains several substantive additions to the
advertising rules as discussed below. Some of the language of existing
provisions has been revised for simplicity.
7(b) Clear and conspicuous standard.
In response to commenters' request for guidance on the clear and
conspicuous standard for advertisements, the Board clarifies that an
advertisement must be understandable and readable. For example, very
fine print in a television advertisement or detailed and rapidly stated
information in a radio advertisement does not meet the clear and
conspicuous requirement if consumers cannot see and read or comprehend
all of the information required to be disclosed. Further, in the
official commentary, the Board proposed to require that lease
disclosures appear on a television screen at a minimum of five seconds
to meet the clear and conspicuous standard. Upon further analysis, the
Board believes that this ``five second'' rule, which was referred to in
a case by the Federal Trade Commission, is inadequate as a test for the
clear and conspicuous standard. Therefore, the Board is withdrawing the
``five second'' rule as a standard to be used for television
advertisements.
7(b)(1) Amount due at lease signing.
The proposal sought to address misleading advertisements primarily
in which a lessor refers to a low or no capitalized cost reduction
(downpayment) and, in small print lists other upfront charges such as
an acquisition fee, a security deposit, the first monthly lease
payment. The Board proposed that a reference in an advertisement to any
component of the total amount due at lease signing may not be more
prominently displayed than the required disclosure of the total amount
of payments due at lease signing.
The majority of commenters supported the proposed requirement,
stating that it would minimize deceptive practices and that it provided
clarity to the clear and conspicuous standard. However, a number of
commenters opposed the adoption of an equal prominence rule. They
believed the proposed rule was overbroad, and suggested that the final
rule should ensure that the prominence rule is not triggered when the
only payment due at lease inception is the first scheduled periodic
payment. Several commenters sought further clarification on the clear
and conspicuous standard.
The final rule provides an exception to the prominence test for the
periodic payment. Stating the amount of any periodic payment will not
trigger the prominence rule. The rule is triggered by oral or written
references (which includes electronic media such as the Internet) to
any other component of the total amount due at lease signing. The Board
believes the final rule addresses some of the concerns about lease
advertisements without adding significant burden on lessors or
interfering with the effective marketing of their products. The final
rule does not specify what terms are to be advertised, but only that
components of the total amount due at lease signing cannot be
emphasized without giving equal prominence to the disclosure of the
total amount due itself. Lessors can advertise lease transactions
without including any CLA disclosures. Disclosures are only required
when certain ``trigger'' terms are included in the advertisement. The
CLA requires only disclosure of the total due, not an itemization of
its component parts, in advertisements. Such an itemization is provided
in the transaction-specific disclosures.
7(b)(2) Advertisement of a lease rate.
As discussed in the supplementary information to Sec. 213.4(s), if
a percentage rate is stated in an advertisement, a notice must
accompany the rate. The notice must be placed next to the rate without
any other intervening language or symbols. For example, a lessor may
not state a rate with an asterisk and make the disclosure in a
different location in the advertisement or lease document. The notice
states that this percentage may not measure the overall cost of
financing the lease. In addition, with the exception of the notice
required by Sec. 213.4(s), the rate cannot be more prominent than the
disclosures in the advertisement required by Sec. 213.4.
7(c) Catalogs and multi-page advertisements.
Section 7(c) is adopted as substantially proposed, with no
substantive change from the former rule.
7(d) Advertisement of terms that require additional disclosure.
In paragraph 7(d)(2)(iii), the word ``such'' prior to ``payments
under the lease,'' inadvertently omitted in the proposal, is inserted
back in the paragraph.
In complying with paragraph 7(d)(2)(iv), lessors are required to
provide a sum certain if the purchase option is available at the end of
the term. Referring to a source for determining a sum certain in the
future complies with this requirement. Statements of a lease-end price
such as ``negotiated price'' or ``fair market value'' do not comply
with the requirement of this paragraph.
7(e) Alternative disclosures--merchandise tags.
The substance of this section is unchanged from the former
provision in Sec. 213.5(d); editorial changes have been made.
7(f) Alternative disclosures--telephone or radio advertisements.
Section 336 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) amends
Sec. 184 of the CLA to provide an alternative disclosure scheme for
radio lease advertisements. In radio advertisements, lessors are
permitted to substitute a reference to a toll-free telephone number or
to a print advertisement for the disclosures about the purchase option
and the end-of-term liability. When calling an advertised toll-free
number, if a consumer obtains a recording that provides several dialing
options--such as providing directions to the lessor's place of
business--the option allowing the consumer to request lease disclosures
should be provided early in the phone message to ensure that disclosure
information is not obscured by other information.
In keeping with the purpose of the statutory amendment, the final
rule requires language to accompany the telephone number indicating
that all required disclosures are available by
[[Page 52257]]
calling the toll-free number. Without language such as, ``call 1-800-
000-0000 for details about costs and terms,'' consumers are not put on
notice that disclosures may be obtained by calling the toll-free
number. A specific reference to disclosures in print advertisements is
also required.
The Board proposed to extend the alternate disclosure provision to
television advertisements. The majority of commenters supported this
proposal. They agreed that television has the same time and space
constraints as radio and that the alternate disclosure provision allows
consumers the opportunity to obtain lease information in a format that
can be retained and studied at a convenient time.
The Board also solicited comment on whether constraints similar to
those for television and radio advertisements exist for print
advertisements. Although some commenters encouraged imposing the same
standard for both broadcast and print media, the majority of commenters
did not support the application of the alternative disclosure rules to
print media. Much of the oral and written disclosure information in a
broadcast is difficult for lessors to provide and for consumers to
comprehend or retain. The Board believes that lessors have the ability
to more efficiently provide the required disclosures in print format.
And generally, print advertisements are easier to retain for use by
consumers who are shopping for a lease. Therefore, the Board has
extended the alternate disclosure provision to television but not to
print media.
Appendices
To simplify the regulation, the written information contained in
former appendices A and B about the procedures and criteria for
preemption and exemption determinations have been removed. Such
information is available from the Board upon request. The model forms
are in appendix A. The list of federal agencies that enforce the CLA
for particular classes of businesses is moved from former appendix D to
appendix B. Appendix C incorporates former Sec. 213.1(d).
Appendix A--Model Forms
The model forms illustrate the new segregated disclosure scheme
required by Sec. 213.3(a)(2). Instructions have been deleted as
unnecessary.
A-1--Model Open-End or Finance Vehicle Lease Disclosures
A-2--Model Closed-End or Net Vehicle Lease Disclosures
A-3--Model Furniture Lease Disclosures
VI. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C 603), the Board's Office of the Secretary has reviewed the
amendments to Regulation M. The text of a detailed analysis appears at
the end of this document as appendix I. The changes to Regulation M
will require a substantial revision to the disclosure format currently
required of lessors. In issuing the final rule, the Board has attempted
to minimize the burden of changing to the new disclosure format by
requiring, wherever possible, disclosures that can be preprinted.
Further, the Board has provided model disclosure forms to facilitate
compliance. Section 105 of the Truth in Lending Act provides that a
lessor that uses the appropriate model forms published by the Board
``shall be deemed to be in compliance with the disclosure provisions of
this title with respect to other than numerical disclosures....'' Thus,
using the model forms properly provides lessors with a safe harbor from
civil liability. Required disclosures will be the same for large and
small lessors, but the Board does not expect that the changes to
Regulation M will have a substantial adverse economic impact on a large
number of small entities. The automobile leasing industry, at which
most of the changes are directed, is highly concentrated in a small
number of large firms. Actual preparation of lease documents will
typically take place in the offices of numerous automobile dealers,
many of which are small entities. However, preparation will take place
through computer terminals and computer programs provided by the
lessors. Because the new forms are provided through the lessors'
computer systems, they will be clearer and easier for dealer personnel
to understand. Explanations and necessary training of personnel should
actually be enhanced and made easier for dealers.
VII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule
under the authority delegated to the Board by the Office of Management
and Budget.
The respondents are individuals or businesses that regularly lease,
offer to lease, or arrange for the lease of personal property under a
consumer lease. The purpose of the disclosures associated with
Regulation M is to ensure that lessees of personal property receive
meaningful information that enables them to compare lease terms with
other leases and, where appropriate, with credit transactions. Records,
required in order to evidence compliance with the regulation, must be
retained for twenty-four months. The revisions to the disclosure
requirements in this regulation are found in Secs. 213.3, 213.4, and
213.7.
Regulation M applies to all types of financial institutions, not
just state member banks. Under the Paperwork Reduction Act, however,
the Federal Reserve accounts for the paperwork burden associated with
Regulation M only for state member banks. Any estimate of paperwork
burden for institutions other than state member banks affected by the
amendments is provided by the federal agency or agencies that supervise
those lessors. The Federal Reserve has found that few state member
banks engage in consumer leasing and that while the prevalence of
leasing has increased in recent years, it has not increased
substantially among state member banks. It also has found that among
state member banks that engage in consumer leasing, only a very few
advertise consumer leases.
The estimated burden per response for the disclosures is eighteen
minutes, three minutes more than the estimate of the burden for the
disclosures under the former rule. Under the Board's September 1995
proposal, the estimate was seventeen minutes. The final rule adds two
particular items: an itemized mathematical progression of the periodic
payment and, if an annual lease rate is included, a statement that the
rate may not measure the overall cost of financing the lease. The
estimated burden for advertisement disclosures, twenty-five minutes (a
decrease of five minutes from the former rule), is unchanged since the
proposal. It is estimated that there will be 310 respondents and an
average frequency of 120 responses per respondent each year. The
combined amount of annual burden is estimated to increase from 9,322
hours to 11,179 hours. In addition, start-up costs are estimated to be
$12,000 per respondent, amounting to a total of $3,720,000 for state
member banks.
The Board received no comments that specifically addressed the
burden estimate.
The disclosures made by lessors to consumers under Regulation M are
mandatory (15 USC 1667 et seq.). Because the Federal Reserve does not
collect any information, no issue of confidentiality under the Freedom
of Information Act arises. Consumer lease information in advertisements
is available to the public. Disclosures of the costs, liabilities, and
terms of
[[Page 52258]]
consumer lease transactions relating to specific leases are not
publicly available.
An agency may not conduct or sponsor, and an organization or
individual is not required to respond to, an information collection
unless it displays a currently valid OMB control number. The OMB
control number for Regulation M is 7100-0202.
Comments regarding the burden estimate, or any other aspect of this
collection of information, including suggestions for reducing the
burden, may be sent to: Secretary, Board of Governors of the Federal
Reserve System, 20th and C Streets, N.W., Washington, DC 20551; and to
the Office of Management and Budget, Paperwork Reduction Project (7100-
0202), Washington, DC 20503.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in Lending.
For the reasons set forth in the preamble, the Board amends 12 CFR
Part 213 as follows:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 continues to read as
follows:
Authority: 15 U.S.C. 1604.
2. The table of contents to part 213 is revised to read as follows:
Sec.
213.1 Authority, scope, purpose, and enforcement.
213.2 Definitions.
213.3 General disclosure requirements.
213.4 Content of disclosures.
213.5 Renegotiations, extensions, and assumptions.
213.6 [Reserved]
213.7 Advertising.
213.8 Record retention.
213.9 Relation to state laws.
Appendix A to Part 213--Model Forms
Appendix B to Part 213--Federal Enforcement Agencies
Appendix C to Part 213--Issuance of Staff Interpretations
Supplement I to Part 213--Official Staff Commentary to Regulation M
3. Part 213 is amended as follows:
a. Sections 213.1 through 213.5 are revised;
b. Section 213.6 is removed and reserved;
c. Sections 213.7 and 213.8 are revised;
d. Section 213.9 is added;
e. Appendices A through C are revised; and
f. Appendix D is removed.
The revisions and additions read as follows:
Sec. 213.1 Authority, scope, purpose, and enforcement.
(a) Authority. The regulation in this part, known as Regulation M,
is issued by the Board of Governors of the Federal Reserve System to
implement the consumer leasing provisions of the Truth in Lending Act,
which is Title I of the Consumer Credit Protection Act, as amended (15
U.S.C. 1601 et seq.).
(b) Scope and purpose. This part applies to all persons that are
lessors of personal property under consumer leases as those terms are
defined in Sec. 213.2(e)(1) and (h). The purpose of this part is:
(1) To ensure that lessees of personal property receive meaningful
disclosures that enable them to compare lease terms with other leases
and, where appropriate, with credit transactions;
(2) To limit the amount of balloon payments in consumer lease
transactions; and
(3) To provide for the accurate disclosure of lease terms in
advertising.
(c) Enforcement and liability. Section 108 of the act contains the
administrative enforcement provisions. Sections 112, 130, 131, and 185
of the act contain the liability provisions for failing to comply with
the requirements of the act and this part.
Sec. 213.2 Definitions.
For the purposes of this part the following definitions apply:
(a) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.) and
the Consumer Leasing Act is chapter 5 of the Truth in Lending Act.
(b) Advertisement means a commercial message in any medium that
directly or indirectly promotes a consumer lease transaction.
(c) Board refers to the Board of Governors of the Federal Reserve
System.
(d) Closed-end lease means a consumer lease other than an open-end
lease as defined in this section.
(e)(1) Consumer lease means a contract in the form of a bailment or
lease for the use of personal property by a natural person primarily
for personal, family, or household purposes, for a period exceeding
four months and for a total contractual obligation not exceeding
$25,000, whether or not the lessee has the option to purchase or
otherwise become the owner of the property at the expiration of the
lease. Unless the context indicates otherwise, in this part ``lease''
means ``consumer lease.''
(2) The term does not include a lease that meets the definition of
a credit sale in Regulation Z (12 CFR 226.2(a)). It also does not
include a lease for agricultural, business, or commercial purposes or a
lease made to an organization.
(3) This part does not apply to a lease transaction of personal
property which is incident to the lease of real property and which
provides that:
(i) The lessee has no liability for the value of the personal
property at the end of the lease term except for abnormal wear and
tear; and
(ii) The lessee has no option to purchase the leased property.
(f) Gross capitalized cost means the amount agreed upon by the
lessor and the lessee as the value of the leased property and any items
that are capitalized or amortized during the lease term, including but
not limited to taxes, insurance, service agreements, and any
outstanding balance from a prior loan or lease. Capitalized cost
reduction means the total amount of any rebate, cash payment, net
trade-in allowance, and noncash credit that reduces the gross
capitalized cost. The adjusted capitalized cost equals the gross
capitalized cost less the capitalized cost reduction, and is the amount
used by the lessor in calculating the base periodic payment.
(g) Lessee means a natural person who enters into or is offered a
consumer lease.
(h) Lessor means a person who regularly leases, offers to lease, or
arranges for the lease of personal property under a consumer lease. A
person who has leased, offered, or arranged to lease personal property
more than five times in the preceding calendar year or more than five
times in the current calendar year is subject to the act and this part.
(i) Open-end lease means a consumer lease in which the lessee's
liability at the end of the lease term is based on the difference
between the residual value of the leased property and its realized
value.
(j) Organization means a corporation, trust, estate, partnership,
cooperative, association, or government entity or instrumentality.
(k) Person means a natural person or an organization.
(l) Personal property means any property that is not real property
under the law of the state where the property is located at the time it
is offered or made available for lease.
(m) Realized value means:
(1) The price received by the lessor for the leased property at
disposition;
(2) The highest offer for disposition of the leased property; or
(3) The fair market value of the leased property at the end of the
lease term.
(n) Residual value means the value of the leased property at the
end of the
[[Page 52259]]
lease term, as estimated or assigned at consummation by the lessor,
used in calculating the base periodic payment.
(o) Security interest and security mean any interest in property
that secures the payment or performance of an obligation.
(p) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, and any territory or possession of the
United States.
Sec. 213.3 General disclosure requirements.
(a) General requirements. A lessor shall make the disclosures
required by Sec. 213.4, as applicable. The disclosures shall be made
clearly and conspicuously in writing in a form the consumer may keep,
in accordance with this section.
(1) Form of disclosures. The disclosures required by Sec. 213.4
shall be given to the lessee together in a dated statement that
identifies the lessor and the lessee; the disclosures may be made
either in a separate statement that identifies the consumer lease
transaction or in the contract or other document evidencing the lease.
Alternatively, the disclosures required to be segregated from other
information under paragraph (a)(2) of this section may be provided in a
separate dated statement that identifies the lease, and the other
required disclosures may be provided in the lease contract or other
document evidencing the lease. In a lease of multiple items, the
property description required by Sec. 213.4(a) may be given in a
separate statement that is incorporated by reference in the disclosure
statement required by this paragraph.
(2) Segregation of certain disclosures. The following disclosures
shall be segregated from other information and shall contain only
directly related information: Secs. 213.4(b) through (f), (g)(2),
(h)(3), (i)(1), (j), and (m)(1). The headings, content, and format for
the disclosures referred to in this paragraph (a)(2) shall be provided
in a manner substantially similar to the applicable model form in
appendix A of this part.
(3) Timing of disclosures. A lessor shall provide the disclosures
to the lessee prior to the consummation of a consumer lease.
(4) Language of disclosures. The disclosures required by Sec. 213.4
may be made in a language other than English provided that they are
made available in English upon the lessee's request.
(b) Additional information; nonsegregated disclosures. Additional
information may be provided with any disclosure not listed in paragraph
(a)(2) of this section, but it shall not be stated, used, or placed so
as to mislead or confuse the lessee or contradict, obscure, or detract
attention from any disclosure required by this part.
(c) Multiple lessors or lessees. When a transaction involves more
than one lessor, the disclosures required by this part may be made by
one lessor on behalf of all the lessors. When a lease involves more
than one lessee, the lessor may provide the disclosures to any lessee
who is primarily liable on the lease.
(d) Use of estimates. If an amount or other item needed to comply
with a required disclosure is unknown or unavailable after reasonable
efforts have been made to ascertain the information, the lessor may use
a reasonable estimate that is based on the best information available
to the lessor, is clearly identified as an estimate, and is not used to
circumvent or evade any disclosures required by this part.
(e) Effect of subsequent occurrence. If a required disclosure
becomes inaccurate because of an event occurring after consummation,
the inaccuracy is not a violation of this part.
(f) Minor variations. A lessor may disregard the effects of the
following in making disclosures:
(1) That payments must be collected in whole cents;
(2) That dates of scheduled payments may be different because a
scheduled date is not a business day;
(3) That months have different numbers of days; and
(4) That February 29 occurs in a leap year.
Sec. 213.4 Content of disclosures.
For any consumer lease subject to this part, the lessor shall
disclose the following information, as applicable:
(a) Description of property. A brief description of the leased
property sufficient to identify the property to the lessee and lessor.
(b) Amount due at lease signing. The total amount to be paid prior
to or at consummation, using the term ``amount due at lease signing.''
The lessor shall itemize each component by type and amount, including
any refundable security deposit, advance monthly or other periodic
payment, and capitalized cost reduction; and in motor-vehicle leases,
shall itemize how the amount due will be paid, by type and amount,
including any net trade-in allowance, rebates, noncash credits, and
cash payments in a format substantially similar to the model forms in
appendix A of this part.
(c) Payment schedule and total amount of periodic payments. The
number, amount, and due dates or periods of payments scheduled under
the lease, and the total amount of the periodic payments.
(d) Other charges. The total amount of other charges payable to the
lessor, itemized by type and amount, that are not included in the
periodic payments. Such charges include the amount of any liability the
lease imposes upon the lessee at the end of the lease term; the
potential difference between the residual and realized values referred
to in paragraph (k) of this section is excluded.
(e) Total of payments. The total of payments, with a description
such as ``the amount you will have paid by the end of the lease.'' This
amount is the sum of the amount due at lease signing (less any
refundable amounts), the total amount of periodic payments (less any
portion of the periodic payment paid at lease signing), and other
charges under paragraphs (b), (c), and (d) of this section. In an open-
end lease, a description such as ``you will owe an additional amount if
the actual value of the vehicle is less than the residual value'' shall
accompany the disclosure.
(f) Payment calculation. In a motor-vehicle lease, a mathematical
progression of how the scheduled periodic payment is derived, in a
format substantially similar to the applicable model form in appendix A
of this part, which shall contain the following:
(1) Gross capitalized cost. The gross capitalized cost, including a
disclosure of the agreed upon value of the vehicle, a description such
as ``the agreed upon value of the vehicle [state the amount] and any
items you pay for over the lease term (such as service contracts,
insurance, and any outstanding prior loan or lease balance),'' and a
statement of the lessee's option to receive a separate written
itemization of the gross capitalized cost. If requested by the lessee,
the itemization shall be provided before consummation.
(2) Capitalized cost reduction. The capitalized cost reduction,
with a description such as ``the amount of any net trade-in allowance,
rebate, noncash credit, or cash you pay that reduces the gross
capitalized cost.''
(3) Adjusted capitalized cost. The adjusted capitalized cost, with
a description such as ``the amount used in calculating your base
[periodic] payment.''
(4) Residual value. The residual value, with a description such as
``the value of the vehicle at the end of the lease used in calculating
your base [periodic] payment.''
(5) Depreciation and any amortized amounts. The depreciation and
any amortized amounts, which is the difference between the adjusted
[[Page 52260]]
capitalized cost and the residual value, with a description such as
``the amount charged for the vehicle's decline in value through normal
use and for any other items paid over the lease term.''
(6) Rent charge. The rent charge, with a description such as ``the
amount charged in addition to the depreciation and any amortized
amounts.'' This amount is the difference between the total of the base
periodic payments over the lease term minus the depreciation and any
amortized amounts.
(7) Total of base periodic payments. The total of base periodic
payments with a description such as ``depreciation and any amortized
amounts plus the rent charge.''
(8) Lease term. The lease term with a description such as ``the
number of [periods of repayment] in your lease.''
(9) Base periodic payment. The total of the base periodic payments
divided by the number of payment periods in the lease.
(10) Itemization of other charges. An itemization of any other
charges that are part of the periodic payment.
(11) Total periodic payment. The sum of the base periodic payment
and any other charges that are part of the periodic payment.
(g) Early termination--(1) Conditions and disclosure of charges. A
statement of the conditions under which the lessee or lessor may
terminate the lease prior to the end of the lease term; and the amount
or a description of the method for determining the amount of any
penalty or other charge for early termination, which must be
reasonable.
(2) Early-termination notice. In a motor-vehicle lease, a notice
substantially similar to the following: ``Early Termination. You may
have to pay a substantial charge if you end this lease early. The
charge may be up to several thousand dollars. The actual charge will
depend on when the lease is terminated. The earlier you end the lease,
the greater this charge is likely to be.''
(h) Maintenance responsibilities. The following provisions are
required:
(1) Statement of responsibilities. A statement specifying whether
the lessor or the lessee is responsible for maintaining or servicing
the leased property, together with a brief description of the
responsibility;
(2) Wear and use standard. A statement of the lessor's standards
for wear and use (if any), which must be reasonable; and
(3) Notice of wear and use standard. In a motor-vehicle lease, a
notice regarding wear and use substantially similar to the following:
``Excessive Wear and Use. You may be charged for excessive wear based
on our standards for normal use.'' The notice shall also specify the
amount or method for determining any charge for excess mileage.
(i) Purchase option. A statement of whether or not the lessee has
the option to purchase the leased property, and:
(1) End of lease term. If at the end of the lease term, the
purchase price; and
(2) During lease term. If prior to the end of the lease term, the
purchase price or the method for determining the price and when the
lessee may exercise this option.
(j) Statement referencing nonsegregated disclosures. A statement
that the lessee should refer to the lease documents for additional
information on early termination, purchase options and maintenance
responsibilities, warranties, late and default charges, insurance, and
any security interests, if applicable.
(k) Liability between residual and realized values. A statement of
the lessee's liability, if any, at early termination or at the end of
the lease term for the difference between the residual value of the
leased property and its realized value.
(l) Right of appraisal. If the lessee's liability at early
termination or at the end of the lease term is based on the realized
value of the leased property, a statement that the lessee may obtain,
at the lessee's expense, a professional appraisal by an independent
third party (agreed to by the lessee and the lessor) of the value that
could be realized at sale of the leased property. The appraisal shall
be final and binding on the parties.
(m) Liability at end of lease term based on residual value. If the
lessee is liable at the end of the lease term for the difference
between the residual value of the leased property and its realized
value:
(1) Rent and other charges. The rent and other charges, paid by the
lessee and required by the lessor as an incident to the lease
transaction, with a description such as ``the total amount of rent and
other charges imposed in connection with your lease [state the
amount].''
(2) Excess liability. A statement about a rebuttable presumption
that, at the end of the lease term, the residual value of the leased
property is unreasonable and not in good faith to the extent that the
residual value exceeds the realized value by more than three times the
base monthly payment (or more than three times the average payment
allocable to a monthly period, if the lease calls for periodic payments
other than monthly); and that the lessor cannot collect the excess
amount unless the lessor brings a successful court action and pays the
lessee's reasonable attorney's fees, or unless the excess of the
residual value over the realized value is due to unreasonable or
excessive wear or use of the leased property (in which case the
rebuttable presumption does not apply).
(3) Mutually agreeable final adjustment. A statement that the
lessee and lessor are permitted, after termination of the lease, to
make any mutually agreeable final adjustment regarding excess
liability.
(n) Fees and taxes. The total dollar amount for all official and
license fees, registration, title, or taxes required to be paid to the
lessor in connection with the lease.
(o) Insurance. A brief identification of insurance in connection
with the lease including:
(1) Voluntary insurance. If the insurance is provided by or paid
through the lessor, the types and amounts of coverage and the cost to
the lessee; or
(2) Required insurance. If the lessee must obtain the insurance,
the types and amounts of coverage required of the lessee.
(p) Warranties or guarantees. A statement identifying all express
warranties and guarantees from the manufacturer or lessor with respect
to the leased property that apply to the lessee.
(q) Penalties and other charges for delinquency. The amount or the
method of determining the amount of any penalty or other charge for
delinquency, default, or late payments, which must be reasonable.
(r) Security interest. A description of any security interest,
other than a security deposit disclosed under paragraph (b) of this
section, held or to be retained by the lessor; and a clear
identification of the property to which the security interest relates.
(s) Limitations on rate information. If a lessor provides a
percentage rate in an advertisement or in documents evidencing the
lease transaction, a notice stating that ``this percentage may not
measure the overall cost of financing this lease'' shall accompany the
rate disclosure. The lessor shall not use the term ``annual percentage
rate,'' ``annual lease rate,'' or any equivalent term.
Sec. 213.5 Renegotiations, extensions, and assumptions.
(a) Renegotiation. A renegotiation occurs when a consumer lease
subject to this part is satisfied and replaced by a new lease
undertaken by the same consumer. A renegotiation requires new
[[Page 52261]]
disclosures, except as provided in paragraph (d) of this section.
(b) Extension. An extension is a continuation, agreed to by the
lessor and the lessee, of an existing consumer lease beyond the
originally scheduled end of the lease term, except when the
continuation is the result of a renegotiation. An extension that
exceeds six months requires new disclosures, except as provided in
paragraph (d) of this section.
(c) Assumption. New disclosures are not required when a consumer
lease is assumed by another person, whether or not the lessor charges
an assumption fee.
(d) Exceptions. New disclosures are not required for the following,
even if they meet the definition of a renegotiation or an extension:
(1) A reduction in the lease charge;
(2) The deferment of one or more payments, whether or not a fee is
charged;
(3) The extension of a lease for not more than six months on a
month-to-month basis or otherwise;
(4) A substitution of leased property with property that has a
substantially equivalent or greater economic value, provided no other
lease terms are changed;
(5) The addition, deletion, or substitution of leased property in a
multiple-item lease, provided the average periodic payment does not
change by more than 25 percent; or
(6) An agreement resulting from a court proceeding.
Sec. 213.6 [Reserved]
Sec. 213.7 Advertising.
(a) General rule. An advertisement for a consumer lease may state
that a specific lease of property at specific amounts or terms is
available only if the lessor usually and customarily leases or will
lease the property at those amounts or terms.
(b) Clear and conspicuous standard. Disclosures required by this
section shall be made clearly and conspicuously.
(1) Amount due at lease signing. Except for the statement of a
periodic payment, any affirmative or negative reference to a charge
that is a part of the total amount due at lease signing under paragraph
(d)(2)(ii) of this section, such as the amount of any capitalized cost
reduction (or no capitalized cost reduction is required), shall not be
more prominent than the disclosure of the total amount due at lease
signing.
(2) Advertisement of a lease rate. If a lessor provides a
percentage rate in an advertisement, the rate shall not be more
prominent than any of the disclosures in Sec. 213.4, with the exception
of the notice in Sec. 213.4(s) required to accompany the rate; and the
lessor shall not use the term ``annual percentage rate,'' ``annual
lease rate,'' or equivalent term.
(c) Catalogs and multipage advertisements. A catalog or other
multipage advertisement that provides a table or schedule of the
required disclosures shall be considered a single advertisement if, for
lease terms that appear without all the required disclosures, the
advertisement refers to the page or pages on which the table or
schedule appears.
(d) Advertisement of terms that require additional disclosure.--(1)
Triggering terms. An advertisement that states any of the following
items shall contain the disclosures required by paragraph (d)(2) of
this section, except as provided in paragraphs (e) and (f) of this
section:
(i) The amount of any payment;
(ii) The number of required payments; or
(iii) A statement of any capitalized cost reduction or other
payment required prior to or at consummation, or that no payment is
required.
(2) Additional terms. An advertisement stating any item listed in
paragraph (d)(1) of this section shall also state the following items:
(i) That the transaction advertised is a lease;
(ii) The total amount due at lease signing, or that no payment is
required;
(iii) The number, amounts, due dates or periods of scheduled
payments, and total of such payments under the lease;
(iv) A statement of whether or not the lessee has the option to
purchase the leased property, and where the lessee has the option to
purchase at the end of the lease term, the purchase-option price. The
method of determining the purchase-option price may be substituted in
disclosing the lessee's option to purchase the leased property prior to
the end of the lease term;
(v) A statement of the amount, or the method for determining the
amount, of the lessee's liability (if any) at the end of the lease
term; and
(vi) A statement of the lessee's liability (if any) for the
difference between the residual value of the leased property and its
realized value at the end of the lease term.
(e) Alternative disclosures--merchandise tags. A merchandise tag
stating any item listed in paragraph (d)(1) of this section may comply
with paragraph (d)(2) of this section by referring to a sign or display
prominently posted in the lessor's place of business that contains a
table or schedule of the required disclosures.
(f) Alternative disclosures--television or radio advertisements.--
(1) Toll-free number or print advertisement. An advertisement made
through television or radio stating any item listed in paragraph (d)(1)
of this section complies with paragraph (d)(2) of this section if the
advertisement states the items listed in paragraphs (d)(2)(i) through
(iii) of this section, and:
(i) Lists a toll-free telephone number along with a reference that
such number may be used by consumers to obtain the information required
by paragraph (d)(2) of this section; or
(ii) Directs the consumer to a written advertisement in a
publication of general circulation in the community served by the media
station, including the name and the date of the publication, with a
statement that information required by paragraph (d)(2) of this section
is included in the advertisement. The written advertisement shall be
published beginning at least three days before and ending at least ten
days after the broadcast.
(2) Establishment of toll-free number. (i) The toll-free telephone
number shall be available for no fewer than ten days, beginning on the
date of the broadcast.
(ii) The lessor shall provide the information required by paragraph
(d)(2) of this section orally, or in writing upon request.
Sec. 213.8 Record retention.
A lessor shall retain evidence of compliance with the requirements
imposed by this part, other than the advertising requirements under
Sec. 213.7, for a period of not less than two years after the date the
disclosures are required to be made or an action is required to be
taken.
Sec. 213.9 Relation to state laws.
(a) Inconsistent state law. A state law that is inconsistent with
the requirements of the act and this part is preempted to the extent of
the inconsistency. If a lessor cannot comply with a state law without
violating a provision of this part, the state law is inconsistent
within the meaning of section 186(a) of the act and is preempted,
unless the state law gives greater protection and benefit to the
consumer. A state, through an official having primary enforcement or
interpretative responsibilities for the state consumer leasing law, may
apply to the Board for a preemption determination.
(b) Exemptions.--(1) Application. A state may apply to the Board
for an
[[Page 52262]]
exemption from the requirements of the act and this part for any class
of lease transactions within the state. The Board will grant such an
exemption if the Board determines that:
(i) The class of leasing transactions is subject to state law
requirements substantially similar to the act and this part or that
lessees are afforded greater protection under state law; and
(ii) There is adequate provision for state enforcement.
(2) Enforcement and liability. After an exemption has been granted,
the requirements of the applicable state law (except for additional
requirements not imposed by federal law) will constitute the
requirements of the act and this part. No exemption will extend to the
civil liability provisions of sections 130, 131, and 185 of the act.
Appendix A to Part 213--Model Forms
A-1 Model Open-End or Finance Vehicle Lease Disclosures
A-2 Model Closed-End or Net Vehicle Lease Disclosures
A-3 Model Furniture Lease Disclosures
BILLING CODE 6210-01-P
[[Page 52263]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.006
[[Page 52264]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.007
[[Page 52265]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.008
[[Page 52266]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.009
[[Page 52267]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.010
[[Page 52268]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.011
BILLING CODE 6210-01-C
[[Page 52269]]
Appendix B to Part 213--Federal Enforcement Agencies
The following list indicates which federal agency enforces
Regulation M (12 CFR Part 213) for particular classes of business.
Any questions concerning compliance by a particular business should
be directed to the appropriate enforcement agency. Terms that are
not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s))
shall have the meaning given to them in the International Banking
Act of 1978 (12 U.S.C. 3101).
1. National banks and federal branches and federal agencies of
foreign banks
District office of the Office of the Comptroller of the Currency
for the district in which the institution is located.
2. State member banks, branches and agencies of foreign banks (other
than federal branches, federal agencies, and insured state branches
of foreign banks), commercial lending companies owned or controlled
by foreign banks, and organizations operating under section 25 or
25A of the Federal Reserve Act
Federal Reserve Bank serving the District in which the
institution is located.
3. Nonmember insured banks and insured state branches of foreign
banks
Federal Deposit Insurance Corporation Regional Director for the
region in which the institution is located.
4. Savings institutions insured under the Savings Association
Insurance Fund of the FDIC and federally chartered savings banks
insured under the Bank Insurance Fund of the FDIC (but not including
state-chartered savings banks insured under the Bank Insurance Fund)
Office of Thrift Supervision regional director for the region in
which the institution is located.
5. Federal credit unions
Regional office of the National Credit Union Administration
serving the area in which the federal credit union is located.
6. Air carriers
Assistant General Counsel for Aviation Enforcement and
Proceedings, Department of Transportation, 400 Seventh Street, S.W.,
Washington, DC 20590
7. Those subject to Packers and Stockyards Act
Nearest Packers and Stockyards Administration area supervisor.
8. Federal Land Banks, Federal Land Bank Associations, Federal
Intermediate Credit Banks, and Production Credit Associations
Farm Credit Administration, 490 L'Enfant Plaza, S.W.,
Washington, DC 20578
9. All other lessors (lessors operating on a local or regional basis
should use the address of the FTC regional office in which they
operate)
Division of Credit Practices, Bureau of Consumer Protection,
Federal Trade Commission, Washington, DC 20580
Appendix C to Part 213--Issuance of Staff Interpretations
Officials in the Board's Division of Consumer and Community
Affairs are authorized to issue official staff interpretations of
this Regulation M (12 CFR Part 213). These interpretations provide
the formal protection afforded under section 130(f) of the act.
Except in unusual circumstances, interpretations will not be issued
separately but will be incorporated in an official commentary to
Regulation M (Supplement I of this part), which will be amended
periodically. No staff interpretations will be issued approving
lessor's forms, statements, or calculation tools or methods.
Supplement I to Part 213--[Amended]
4. The Supplement to part 213 is amended by revising the heading to
read as follows:
Supplement I to Part 213--Official Staff Commentary to Regulation M
Note: Appendix I will not appear in the Code of Federal
Regulations.
Appendix I to the Preamble--Regulatory Flexibility Analysis
I. Introduction
Acquiring and financing a substantial asset through purchase credit
or a lease contract ranks among the most complicated financial
transactions a typical consumer undertakes. In fundamental economic
terms, however, a consumer's decision whether to lease rather than use
more traditional forms of credit is relatively straightforward. Stating
the problem in its simplest form, a consumer should lease an asset
rather than purchase it on credit if the discounted present cost of all
the lease payments and outflows (including down payments and any
deferred payment for a residual value where relevant) is less than the
present cost of all outflows for the credit purchase over a comparable
period of leasing or ownership.
Unfortunately, difficulties arise that make this criterion less
than straightforward for many consumers. One problem is properly
accounting for the streams of outflows--including acquisition charges,
down payments, periodic payments, disposal charges, taxes, insurance
premiums, and other outflows--that can differ in both timing and
amounts under the two financing alternatives. A more basic concern is
that consumers do not typically think in terms of present values,
discount rates, and other elements of financial economics that are
second nature to the financial analyst, even though present value is
the index that brings asset acquisitions under different financing
schemes into the same framework.
To help satisfy concerns that individuals did not have the
necessary information available to make lease versus purchase decisions
wisely, Congress in 1976 mandated consumer disclosures for leases by
passing the Consumer Leasing Act. Structurally, the Consumer Leasing
Act is an amendment to the Truth-in-Lending Act, which Congress
established as a basic consumer protection in 1968. A recurring
question since then is whether the Truth-in-Lending Act generally,
including the Consumer Leasing Act component (which is unchanged since
passage), meets the needs of consumers in today's marketplace.1
---------------------------------------------------------------------------
\1\ Congress itself is reviewing this question in the 1995-6
session as members in each house have introduced bills to amend both
Truth in Lending and the Consumer Leasing Act.
---------------------------------------------------------------------------
This paper examines current and proposed disclosure requirements
for vehicle leasing, the largest segment of the leasing industry
subject to consumer disclosure requirements, in light of consumers'
information needs--including what is necessary to calculate present
values, the method of comparison that places all financing methods on
the same footing. First, Section II looks briefly at types of
automobile leases commonly available in today's marketplace and notes
some important characteristics. Section III then reviews the cash flows
that arise under the most common form of consumer automobile-leasing
arrangement, the closed-end operating lease, and specifies a present
value equation that consumers might use to analyze their leasing
decisions. Finally, Section IV examines staff proposals to revise the
disclosure requirements in Regulation M, the regulation that implements
the Consumer Leasing Act, in view of consumers' information needs and
the regulatory burdens that the proposed changes would entail.
II. Kinds of Leases
As the leasing market has evolved over the years, the closed-end
operating lease has become typical in consumer transactions, at least
in the big market for automobiles and light trucks. An ``operating
lease'' covers a period of time shorter than the whole economic life of
an asset. There is an expectation that an asset will still have an
economic value (usually called its ``residual value'') at the end of an
operating lease. With an operating lease, an asset user (lessee) agrees
to pay for the expected depreciation of an asset during the lease
period, plus a financing or lease charge to compensate the owner
(lessor) for the use of the lessor's capital, including a
[[Page 52270]]
profit. Common car rentals or apartment leases are examples of short-
term operating leases.
Also increasingly familiar today are longer-term operating leases
(possibly up to 4-5 years) that auto dealers offer consumers through
leasing companies and banks. These operating leases have become
important substitutes for purchase financing for consumers and are
widely advertised by both automobile manufacturers and dealers. Like a
car renter or apartment lessee, a vehicle lessee under these plans uses
the asset for a term but must return it to the lessor at the end of the
lease period (unless the parties make some other arrangement for
disposition). An operating lease always assumes the asset will have
some remaining economic life and value at lease end. Consequently,
transfer of ownership at lease end (to the lessee or another party)
requires additional payment for the residual value.2
---------------------------------------------------------------------------
\2\ The alternative to an operating lease is a ``full-payout''
or ``financial'' lease, which finances the whole economic life of an
asset by fully paying for (amortizing) the asset's capitalized cost,
plus financing charges. Financial leases are not common in consumer
leasing; they are more common in commercial leases and sale-
leaseback transactions involving industrial buildings and equipment.
---------------------------------------------------------------------------
Among operating leases for consumers, the ``closed-end'' operating
lease, sometimes referred to as a ``walk-away'' lease, has become the
most common form of automobile lease agreement. On a closed-end
operating lease the lessee has no obligation concerning the market
value of the lessor's asset at lease end. The agreement merely requires
the consumer to return the asset at lease end and to pay then for any
excess damage above normal expected wear and tear.3 Common, long-
term, closed-end lease agreements for automobiles and trucks typically
contain an option for consumers to purchase their vehicles at lease end
at a price agreed upon at the outset, but there is no obligation to
purchase.
---------------------------------------------------------------------------
\3\ There may be a refundable security deposit to guarantee
payment for damages. For automobiles there may also be a small
``disposition'' or ``drop off'' charge specified in the contract.
The typical automobile lease contract also specifies a yearly
average mileage limit to avoid having charges for excess usage
collected at lease end.
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The closed-end operating lease contrasts with the less common
``open-end'' operating lease where the lessee still does not have a
requirement to purchase but where there is an obligation at lease end
to make up to the lessor any shortfall in the actual market value of
the asset from expectations. In effect, the open-end lessee guarantees
the residual value of the lessor's asset. Under typical open-end
automobile lease contracts, consumer lessees also may purchase their
vehicles at lease end for a purchase price guaranteed at the outset,
but open-end lessees cannot walk away. Rather, if they return their
vehicles, they are liable for any differences between assumed residual
values and actual, realized market values at lease end.4
---------------------------------------------------------------------------
\4\ The Consumer Leasing Act limits a consumer's liability for
the difference between expected and actual market value on an open-
end vehicle lease to no more than three times the amount of the
monthly payment. This provision likely has encouraged the use of
closed-end leases by making open-end leases less useful to lessors
as a way of shifting risks to their customers.
---------------------------------------------------------------------------
From this description it is easy to see that the embedded fixed-
price purchase options in common, closed-end operating leases for
vehicles present consumers with different risk characteristics on their
transaction than purchase financing. Closed-end lessees do not bear any
risk of decline in the residual value of used assets below expectations
over the lease period, but open-end lessees and purchasers do. If at
lease end the value of the asset is below the deferred purchase price
set at the outset, the closed-end lessee may return the asset and walk
away. If, in contrast, the market value at lease end is greater than
expected, the lessee may keep the asset by paying the deferred purchase
price agreed upon at the signing of the lease and can retain it or sell
it. For the closed-end lessee this amounts to a ``heads I win, tails
you lose'' proposition, at least with respect to the residual value of
the asset. It seems reasonable to suppose that lessors will charge
closed-end lessees for the purchase option feature that transfers the
residual-value risk to the lessor. Purchasers and open-end lessees bear
this risk themselves. Ultimately, it is this difference in risk
bearing, together with differences in the size and timing of cash flows
(discussed in the next section), that characterizes the distinction for
consumers between leasing and purchase financing.
III. Cash Flows
Before examining proposals for disclosures on consumer vehicle
leases, there is some usefulness in examining the cash flows that arise
from lease and purchase-financing contracts. Ultimately, it is
comparison of the present values of the outflows that arise under the
different financing schemes that resolves the question of best choice.
In the long run in a competitive, perfect capital market with full
information and without transaction costs or taxes, the type of
financing arrangement for retail purchase of automobiles by consumers
would be a matter of indifference to both consumers and creditors/
lessors: both costs to consumers and yields to creditors and lessors
would be the same under the two financing alternatives. Clearly,
capital markets are not perfect, however. First of all, there are
transaction costs that may differ between leasing and debt financing.
Also, taxes may differ between consumers and lessors, as well as
between financing schemes, and there may be risk differences among
consumers and among types of transactions. On occasion there also may
be marketing promotions that encourage one transaction form over the
other. Consequently, at different times leasing may be more or less
advantageous than purchase financing to either consumers or creditors/
lessors, and both consumers and creditors/lessors have an interest in
evaluating the alternatives.
Fundamentally, consumers should choose a closed-end operating lease
instead of debt financing only if the present value of all the costs
(outflows) arising from the lease (including any down payment) is less
than the present value of outflows resulting from the credit purchase
over a comparable period of leasing or ownership.5 The present
value of the purchase option embedded in a closed-end operating lease,
which the consumer also pays for as part of the lease payments, must be
subtracted from the present value of the lease payments in order to
maintain comparability between the packages of transportation-related
services purchased. This presents the following decision criterion:
---------------------------------------------------------------------------
\5\ Although the discussion here concerns comparing a lease with
a purchase, comparing two leases or two purchases would proceed in
fundamentally the same way.
---------------------------------------------------------------------------
If Sum PV (LP)-PV (Option) < Sum PV (FP), then lease, where PV ( )
= Present Value (of quantity in brackets),
LP = all payments on a lease,
FP = all payments on a financed purchase, and
Option = Value to lessee of purchase option.
That is, if Sum PV (FP) + PV (Option)-Sum PV (LP) > 0, then lease.
(1)
To analyze the decision, a consumer should discount the leasing
flows at the annual percentage rate available on the credit purchase or
loan. If the discounted present value of the credit flows (which equals
the purchase price) plus the present value of the option is greater
than the discounted present
[[Page 52271]]
value of the leasing flows, then leasing is the better choice and vice
versa.6
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\6\ Because discounting the flows from a financed purchase at
the annual percentage rate paid for the credit equals the price of
the asset, substituting the price of the asset for the discounted
present value of the finance flows produces a standard net advantage
of leasing (NAL) equation (see Myers, Dill, and Bautista [1976]).
Substituting into equation 1 produces the decision criterion:
If NAL = Purchase Price (FP) + PV (Option) - Sum PV (LP) > 0,
then lease.
---------------------------------------------------------------------------
Leaving aside the question whether consumers understand present
values and the discounting process, the difficult matter in analyzing
the decision is to specify the flows properly for the two kinds of
arrangements. Typically, they will differ in form, timing, and amount.
Also, valuing the purchase option available on a closed-end lease might
become an important aspect of the decision.7
---------------------------------------------------------------------------
\7\ As a practical matter, the value of this option may not be
very great to the extent that lessors are reasonably competent in
predicting values of used assets in the future and set residual
values and optional purchase prices at lease end accordingly.
---------------------------------------------------------------------------
Table 1 provides a listing of the four possible patterns of cash
outflows arising from (1) a closed-end lease and (2) a purchase
agreement for an automobile. For the lessee there are two possibilities
at lease end: the lessee may return the vehicle to the dealer or may
exercise the purchase option and buy it. For the credit purchaser there
are also two possibilities at the end of the payment period: the owner
can keep the vehicle or sell it. The table adopts the convention that
outflows are positive and inflows negative; thus, the table expresses
net costs of the transactions.
Initial Flows. Under this convention, the consumer receives from a
lease or a financed purchase an inflow (negative cost) of
transportation and other services from the vehicle during the period
covered by the agreement.8 Over comparable time periods the
transportation services are assumed to be independent of the financing
method (line 1 of Table 1).9
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\8\ Services provided by the vehicle may also include
psychological services such as pride of ownership or opportunity to
drive a new or stylish automobile or truck, and in the past these
psychological services may have varied depending on whether the
transaction was a purchase with financing or was a lease. For
example, it is possible that at least some drivers felt better
thinking they ``owned'' a vehicle rather than they merely leased its
services. Leasing has recently become such a common financing
alternative, however, that it seems reasonable to assume that these
psychological services are similar for purchase financing and
leasing today and that they are of comparable value. Differences
that may have existed formerly may be ignored today.
\9\ Transportation services may differ between the leasing and
the purchase financing cases if the amount of yearly mileage
permitted under a lease without an additional mileage charge
(typically 12,000 or 15,000 miles per year, but with variations)
constrains the potential purchaser. For illustrative purposes this
limitation is assumed not to be binding so that transportation
services provided by the leased and financed vehicles are the same
for this example. If the constraint were binding because the
potential lessee intends to drive more than the yearly maximum, then
another term for the present value of the expected deferred excess
mileage charge due at lease end would be added to column 2 of the
table.
---------------------------------------------------------------------------
Some of the initial outflows arising from the two alternative
financing methods will also be the same between the alternatives, but
some will differ. For both types of financing the consumer agrees to a
series of outflows to satisfy the payment obligation. Frequently, the
first of these is a trade-in of a vehicle already owned by the consumer
(line 2 in the table). With the assumption that the consumer trades in
the same vehicle under both financing schemes, the trade-in is the same
under the two alternatives; this is denoted in the table by equal signs
between columns.
Often the trade in is accompanied by a cash down payment (line 3).
(On a lease the down payment and the trade in are often called the
``capitalized cost reduction.'' In Table 1 this term applies to the
cash component.) A lessee typically must also provide a security
deposit, which often approximates one monthly payment on the lease
obligation (line 4). Upon satisfaction of the lease agreement this
security deposit is refunded at lease end (line 5).
Periodic Flows. In addition to these initial outflows, the consumer
is also obligated for a series of further cash payments over the
agreement period, usually monthly (line 6). On a lease the first
payment typically is due at signing, while a credit-purchase agreement
normally defers the first payment for a month. In many jurisdictions
vehicle owners are also subject to personal property taxes on their
vehicles owned or ``garaged'' within tax districts such as counties or
states (line 7). On a lease in some jurisdictions the lessor may be
responsible for these taxes, which it recoups by upping the necessary
periodic payments. Consequently, for lessees the flows for personal
property taxes may not appear as a separate, explicit outflow on a
lease in many tax jurisdictions, even if personal property taxes are
explicit for financed purchases. For comparability with a credit
purchase, therefore, either the taxes in these jurisdictions must be
subtracted from the lease payments or added to the finance
payments.10
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\10\ Identifiable personal property taxes may be deductible from
adjusted gross income for federal and state income tax purposes for
some consumers, which also should be properly taken into account by
those eligible for the deduction. There also may be sales taxes
associated with both the credit purchase and the lease. For
comparing a purchase to a lease, both must be accounted for properly
to avoid erroneous conclusions. For example, on a purchase sales
taxes may be financed as part of the gross purchase price and paid
for through the down payment and periodic payment flows. On a lease
they may be collected monthly as part of the monthly payment, either
explicitly or not. Each of these possibilities requires an
adjustment in the table to account properly for the facts of
individual situations.
---------------------------------------------------------------------------
End-of-Term Flows. End-of-term outflows also differ between
purchasing and leasing. In the credit purchase case the consumer owns
the vehicle at the end of the financing period and holds the right to
continued transportation services over the additional expected life of
the vehicle; with a lease the consumer does not have this right. To
compare a lease with purchase financing, it is necessary to account for
the remaining transportation services at lease end.
One possibility, of course, is that the consumer purchases the
leased vehicle at the end of the lease period, thereby obtaining the
remaining transportation services. On a typical closed-end lease the
consumer obtains the vehicle and its remaining services by purchasing
it at the optional purchase price disclosed in the original lease
agreement, or at some other price negotiated between the parties. This
price becomes another outflow (line 8), this one deferred until the end
of the lease period.11
---------------------------------------------------------------------------
\11\ This purchase price may also be financed, in which case the
price becomes another stream of outflows. The lessor and lessee may
also agree to another lease or to a continuation of the old lease
agreement. The examples in the table do not reflect these
possibilities.
---------------------------------------------------------------------------
Because the lessee does not have to make the decision whether or
not to retain the vehicle until the end of the lease period, at the
outset the deferred decision amounts to a call option for the lessee,
and, as noted previously, this option has value because it transfers
risks of residual price fluctuations to the lessor. In effect, when
lessees contract for the services of vehicles, they obtain options to
call the residual values of their vehicles at the end of the leases by
paying at lease end a deferred optional purchase price agreed at the
outset. This differentiates the lessee from the credit purchaser who
owns the vehicle and bears all of the residual price risk. To maintain
comparability with a purchase, the present value of this option must be
subtracted from the present value of the lease costs or added to the
present value of the purchase-finance costs (see equation 1, above).
The other possibility is that the consumer returns the vehicle to
the lessor at lease end, thereby giving up any claim to transportation
services
[[Page 52272]]
remaining in the vehicle. In this case the lessee returns the vehicle
and pays any drop-off or disposition charge in the contract (line 9),
but not any optional purchase price (line 8 is zero in this
case).12
---------------------------------------------------------------------------
\12\ The lessee still acquires the purchase option, even if the
ultimate decision is to return the vehicle at lease end, and so the
present value of the option remains a term in equation 1, above.
---------------------------------------------------------------------------
Purchasers who sell their vehicles receive a wholesale selling
price upon sale (line 10 in the table). Those who sell them privately
and not to a dealer may receive an amount closer to the retail price
(if the cars are in good condition), less, of course, their costs of
selling, including advertising expenses and the costs of personal time
spent on the sale process (and subjective personal costs of any
accompanying aggravations).
Contingencies. Two contingencies might lead to additional outflows.
First, there is a chance that a vehicle may be worth more or less at
the time of eventual disposition than the consumer expects at the
outset, which may be important to the consumer in some cases. If the
consumer expects to purchase the vehicle at lease end or plans to
retain the vehicle at the end of the purchase finance period, however,
planned disposition likely will take place long enough into the future
that the consumer may well not have at the outset any expectation about
the value many years hence. If so, this contingency probably need not
enter into the present value calculations at the outset of the
transaction (or into columns 1 or 3 of Table 1).13
---------------------------------------------------------------------------
\13\ Even if there is a recognized prior probability of deferred
gain or loss, there is no reason to expect a difference if original
acquisition is through a lease or purchase contract. If loss
expectations are equal at the outset, they can be ignored in the
calculations (and the table) when making comparisons.
---------------------------------------------------------------------------
In the other situation, that is, if the consumer does not intend to
retain the vehicle at lease end or plans to sell the purchased auto,
the time before expected disposition is shorter and unexpected loss may
become a factor in decision making. For the closed-end lessee the
lessor bears this risk; the value to the consumer of avoiding the loss
is subsumed into the value of the call option on the vehicle's residual
value. Thus, of the four cases only the purchaser who plans to sell the
vehicle upon completion of the payments is subject to this potential
risk (column 4 on line 11 in the table).14
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\14\ For such a purchaser who plans to sell there is the real
possibility of an unexpected loss upon disposition of the vehicle,
but there may also be an unexpected gain. If the likelihood of the
loss or gain is unknown at the outset of the lease arrangement, it
might be argued that the expected value of the distribution of
possibilities may well be zero, arguing for its dismissal from the
calculations and the table. Because the risk of loss exists,
however, an expected value of loss upon disposition is a potential
outflow for a purchaser (column 4, line 11).
---------------------------------------------------------------------------
A second contingency is the chance of a loss upon an early
termination of the lease or upon a sale of the vehicle before the end
of the credit-purchase agreement period. A loss on early termination
might occur following theft or an accident not fully covered by
insurance, or because the consumer desires to change vehicles before
the end of the lease or purchase financing agreement. For both lessees
and purchasers this risk is independent of plans to retain the vehicle
or not at the end of the payment period and can be assumed equal for
all lessors or all purchasers (indicated by equal signs on line 12 of
Table 1). Since a loss (outflow) is more likely than an unexpected gain
under these circumstances, however, the expected value is probably
positive. To minimize the size of such losses for lessees in the cases
of accident or theft (and the financial and legal difficulties that
might arise) ``gap insurance'' often is available from lessors,
typically included as part of the leasing transaction and charge. For
most consumers, though, either the prior probability of unexpected
early term
FR Doc. 96-25273 Consumer Leasing
ination (and, consequently, the expected value of any
associated loss) is probably small enough in the consumer's mind at the
outset of the transaction, or the expectation of a difference in loss
size in this area between leasing and purchase financing is probably
small enough, that expectation of a loss on early termination is
probably not much of a factor in the choice between leasing and
financing.15
---------------------------------------------------------------------------
\15\ This is not an argument against required disclosure of the
existence of such a risk, however.
---------------------------------------------------------------------------
Now, the quantities in Table 1 can be substituted into equation 1
to derive the net advantage of leasing, first, for the case where the
consumer keeps the vehicle at lease end (equation 2); and, second, for
the situation where the consumer does not retain the vehicle (equation
3).
To ease solution, a few simplifications of the equations are
possible. First, because Transportation Services (line 1 of Table 1)
are assumed to be the same for comparable periods of ownership and
lease holding, they may be ignored and omitted from the equations.
Likewise, since the trade in is the same (line 2), it may also be
dismissed. Third, if the expected value of the loss from an early
termination (line 12) either is not very large or does not differ much
between a financed purchase and a lease, it also can drop from the
equation, since it is the difference between these quantities for a
financed purchase and a lease which would enter the equation anyway.
Thus, with these assumptions and recalling that leases but not
purchases commonly require one monthly payment in advance, this leaves
the following specifications for equations 2 and 3 for finance and
lease periods of N months:
(2), (3): See Equations (2) and (3) at the End of the Analysis
These equations exhibit some features that should receive special
mention. First, as discount rates move higher but other things are
equal, leasing becomes relatively more attractive. Specifically, in the
case where the vehicle is retained (equation 2), higher discount rates
make leasing more attractive because higher discount rates relatively
reduce the discounted future purchase price of the leased vehicle. This
decreases the second (subtracted) term in equation 2 (the term in
square brackets), tending the equation toward a positive value favoring
leasing. In contrast, where the vehicle is not retained at contract end
(equation 3), higher discount rates favor leasing for a different
reason. In this case as the discount rate rises, it relatively
decreases the present value of the sale price of the vehicle in the
future. Since this is a subtracted item in the first part of the
equation, higher discount rates again increase the likelihood that the
equation will be positive, again tending to favor leasing relatively.
Second, the non-retention case (equation 3) requires a term, the
future sale price of the vehicle, that is not known at the outset of
the transaction. Even if an expected used car price some time in the
future is available from some guidebook, there is no certainty
concerning this price, and there is no certainty about advertising,
sales and aggravation costs that properly should reduce the final sales
price. Consequently, equation 3 requires some estimating and cannot
serve as a definitive guide.
Third, both equations 2 and 3 contain a term for the discounted
value of the purchase option available on a closed-end operating lease.
Estimating the value of this option is not a simple matter, although
its value may not be very great to the extent that experienced
automobile dealers are reasonably proficient at estimating the values
of used vehicles some time into the future.
In sum, a consumer's informed choice whether to lease or purchase
an asset like a vehicle depends on the amount and pattern of the stream
of outflows
[[Page 52273]]
and on the discount rate that converts the stream of outflows to
present values. Unfortunately, presence in a closed-end lease of a
purchase option with unknown value and consumer uncertainty about
future used-car prices mean that the single-equation optimal decision
criterion will always contain multiple unknowns and be insoluble
mathematically, even if the discount rate is known. Consequently, the
search is not for the perfect set of disclosures, but rather for the
set that enables most consumers to make good decisions most of the
time.
IV. Required Disclosures
Staff proposals to revise Regulation M would make substantial
changes to the format and content of required disclosures on consumer
leases. In analyzing this (or any) disclosure regime, a few general
principles seem useful:
(1) The goal of a disclosure scheme should be to make available
sufficient information that consumers can make good decisions, not to
require every disclosure that might possibly be useful to someone,
sometime, for some purpose. No disclosure scheme, it seems, will ever
be able to insure that all consumers understand everything or that they
never have to read contracts or make any calculations for themselves.
Required disclosures can be used to compare features of transactions,
but cannot reasonably be specific to individuals whose situations will
differ.
(2) Whenever possible, disclosures should discourage obvious
opportunities for abuses.
(3) Regulatory requirements (and changes in requirements) should
maintain a reasonable balance between costs and benefits.
(4) Transaction-specific disclosures are the most costly and should
demonstrate clear benefits.
Avoiding the issue whether the Consumer Leasing Act itself
satisfies these requirements, it appears that the proposed redrafted
Regulation M does so, within the constraints of the law. The redrafted
regulation mandates that lessors make substantial changes in the format
and content of required disclosures, but it seems that the new approach
will improve the quality and accessibility of useful information to
consumers. Furthermore, much of the leasing industry supports the bulk
of the proposed changes.
It does not seem, however, that any leasing-disclosure scheme can
provide all of the information required for consumers to solve
equations 2 or 3 for the theoretically correct choice between a lease
and a financed purchase. First of all, leasing disclosures cannot
reasonably be expected to provide information about the purchase-
financing alternative to a lease, which is necessary to solve either
equation. Consumers would have to obtain this information themselves by
shopping, even if this merely means obtaining the necessary information
from the same dealer. Second, some information like personal property
taxes and an individual's personal tax situation are idiosyncratic to
each shopper and must be factored into the purchase or lease decision
by that person. Third, as already mentioned, both equations 2 and 3
require some information, such as future prices of used vehicles and
the present value of the purchase option, that is not readily available
to either party to the transaction except by crude estimation.
For these reasons, it does not seem reasonable to expect that any
disclosure scheme will provide all the information that a consumer
might find useful; it simply is not possible. Nonetheless, most of the
information that consumers might need to characterize a lease is
available from the required disclosures. Moreover, the new disclosure
scheme should make this information easier for consumers to comprehend
and use.
The proposed regulation redraft does require disclosures of some
transaction-specific numerical quantities beyond those mandated by the
statute, which is quite detailed. In those cases where the proposed
redraft extends the law it appears, for the most part, to respond to
consensus of both industry and consumerist comments that such
requirements would be useful. Except for the quantity called the
``total of payments,'' all of the new numeric disclosures are amounts
that lessors already calculate and have readily available. For this
reason disclosing most of these additional quantities, even though not
required by statute, may not by itself cause substantial marginal cost
as part of a complete revamping of the disclosure regime. Proposed
major changes to the regulation include the following:
(1) Formatting Changes. The new disclosure plan will require
substantial changes in disclosure format for all lessors. Especially
notable are first, the requirements for segregation of a group of key
disclosures in a highlighted ``federal box''; and second, disclosure of
elements that comprise the monthly payment in a mathematical
progression. Although a segregated ``federal box'' of disclosures and a
mathematical progression are not required by the statute, they follow
the general approach for credit disclosures that became part of
Regulation Z under the Truth-in-Lending Act amendments of 1980. Third,
staff also proposes requiring a new format for itemization of the
amount due from the consumer at inception of the lease, disclosures
already required. Under the proposed format in this area, itemization
of amounts due at signing would be in two columns, one listing amounts
due at signing and the other designating means of paying the itemized
costs.
It appears that the proposed new requirements for formatting in all
three areas could help consumers become aware of important terms
without searching through the contract, as is sometimes necessary
today. At present, Regulation M contains no placement requirement for
the key disclosures except that they be clear, conspicuous, in
meaningful sequence, and that they be on the same page and above the
lessee's signature. Otherwise, lessors may spread the disclosures
through the contract document. For disclosing monthly payments, the
current requirement is disclosure of the total amount required plus
identification of the components; the regulation does not currently
require disclosure of the amounts of the individual components,
although some lessors have disclosed amounts of components and there
has been some confusion concerning exactly what is required.
Presentation of a mathematical progression should help interested
consumers understand the intricacies of their transactions. The new
requirement for placement of disclosures of amounts due at lease
signing should help clarify questions consumers may have about any of
these quantities.
Even though the proposed format of the segregated key disclosures,
the mathematical progression, and the amounts due at lease signing are
not required by the Consumer Leasing Act, comments from the automobile
leasing industry largely support such requirements. The automobile
leasing industry originally proposed both the segregated key
disclosures and the mathematical progression to the monthly payment,
and industry comment letters have strongly favored them since. The new
requirement for a two-column disclosure of amounts due at lease signing
merely calls for a reorganization of current disclosures.
In all three areas the new disclosure placement requirements would
replace the current mandates concerning type size, sequencing, and
placement on the same page as the lessee's signature. In the past these
requirements have, on occasion, caused lessors some difficulties in
form design anyway.
[[Page 52274]]
Sufficient lead time before a mandatory compliance date could minimize
any disruptions caused by the necessity of redesigning and reprinting
disclosure forms and of reprogramming computer systems to print the new
forms. In addition, staff has proposed new model disclosure forms with
segregated disclosures and mathematical progression. Use of these model
forms ensures compliance and provides a safe harbor from liability if
the form is used properly.
(2) New Disclosures Associated with the Mathematical Progression
Leading to the Monthly Payment. As indicated above, the revised
regulation also requires some new disclosures. They include disclosure
of gross capitalized cost, adjusted capitalized cost, residual value,
rent charge, and total of payments. Except for total of payments, these
new disclosures arise as components of a mathematical progression
leading to the monthly payment. There are also requirements for
calculating and disclosing certain subtotals. Gross capitalized cost is
analogous to gross purchase price including lease acquisition charges,
carried-over balances on any previous transactions, initial taxes owed,
registration fees, delivery charges, and any after-market products such
as extended warranties. Adjusted capitalized cost is gross capitalized
cost less ``capitalized cost reductions'' including trade-in
allowances, cash down payments, rebates, and any other reductions. The
residual value of the lease is the estimated value of the asset at
lease end. The rent charge is the lessor's added-on charge to cover
transaction costs and the charge for capital use, including any profit
from financing.
Lessors determine periodic payments by subtracting the capitalized
cost reductions and lease residual from the gross capitalized cost and
adding the rent charge. They then divide the resulting quantity by the
number of periods to determine the size of the base periodic payments,
excluding any added amounts for taxes and insurance. Thus, each of
these new disclosures (gross capitalized cost, adjusted capitalized
cost, rent charge, and lease residual) are amounts that lessors must
have readily available to make their calculations, although there has
previously been no requirement for their disclosure. Likewise, newly
required subtotals like total capitalized cost reduction (including
cash component, trade in, and rebate or other noncash component) and
amount to be depreciated and amortized (adjusted capitalized cost less
lease residual) are directly derived from amounts already calculated
and do not represent departures into a new disclosure scheme.
As noted above, the automobile leasing industry has supported
requiring these additional disclosures as part of the development of a
mathematical progression leading to the monthly payment. Apparently,
some of the industry commentary favoring these disclosures arises from
a concern reported from time to time in the press that some dealers
may, on occasion, take advantage of potential lessees by raising the
capitalized cost of a vehicle and then not disclosing the amount.
Because both monthly lease payments and early termination penalties are
based on this term, the concern has been that nondisclosure has the
potential to permit abuses. Although all of these disclosures are
transaction-specific, they are already calculated by the lessor for
each transaction and are, therefore, readily available.
One additional new disclosure, the total of payments, is not part
of the progression leading to the monthly payment, but it is merely
another calculation based on quantities already disclosed or readily
available, Thus, it should not be especially costly for lessors to
produce as part of a revised disclosure scheme. It consists of the sum
of the amounts due at lease signing plus the total of the periodic
payments (payment amount times number of payments) plus other charges
(likely to consist largely of disposition fees and taxes).
Although disclosure of the total of payments may be useful to
consumers on some occasions, it may not be especially useful for
shopping purposes on others because the total will vary directly with
the value of the vehicle and maturity of the lease, other things equal.
Consequently, even if it is useful in some cases for comparing amounts
on competing leases with similar terms, it will be less useful for
comparing leases on different vehicles or on the same vehicle for
different lease maturities. Also, it is not a present value, and the
present value of any particular amount can vary substantially with
different timing patterns of outflows.
Even if these new disclosures have the potential to improve
consumer protection and most appear to be favored by at least most of
the automobile leasing industry, they will undoubtedly entail some
additional cost. They may also be somewhat controversial among dealers,
as opposed to lessors, because the new disclosures may limit their
flexibility and will cause them to have to learn about new disclosures
and forms. If the effective date of any final rule in this area is
sufficiently deferred, however, it will minimize the difficulties of
transition. Also, the cost of reprinting forms and reprogramming
systems will largely be borne by lessors, who appear to be favorably
inclined to the proposal, rather than by dealers.16
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\16\ Interestingly, although these new disclosures might help
prevent abuses and are, consequently, consistent with general
principles outlined above for reasonable disclosure requirements,
they are not needed for calculating the present value of a stream of
outflows arising from a lease, since they are not cash outflows.
(Therefore, they do not appear in Table 1.)
---------------------------------------------------------------------------
(3) Other New Disclosures. Staff also proposes some additional new
disclosures that would appear below the monthly payment calculation on
the model form. These include a warning to consumers that they may be
liable for excess wear and use (including the amount of any excessive
mileage charge), disclosures concerning any purchase option at lease
end, and a direction that consumers refer to the rest of the disclosure
statement or the contract for a list of other Consumer Leasing Act
disclosures. Since all but the purchase-option price, if any, these are
not transaction-specific disclosures and lessors can pre-print them on
disclosure documents, these changes to the regulation should not be
especially costly either, since lessors will be reprinting forms anyway
as part of the change to the new disclosure scheme. The purchase-option
information can be preprinted (except for the price itself, which may
even be hand written).
Another preprinted disclosure requires special mention. The
Consumer Leasing Act and Regulation M require lessors to disclose the
``amount or method'' of determining any charge for early termination of
a lease and that the amount be ``reasonable.'' Most lessors have
disclosed the method of determining the charge, but this approach has
generated litigation and a finding by a United States Court of Appeals
that a common disclosure violates the Regulation M standard ``that
disclosures be in a reasonably understandable form.'' 17
---------------------------------------------------------------------------
\17\ Official Staff Commentary on Regulation M, Paragraph
4(a)(1)(1). See Lundquist vs. Security Pacific Automotive Financial
Services Corp., 993 F.2d 11, 14-15 (2nd Circuit, 1993).
---------------------------------------------------------------------------
Lessors contend that calculation of prepayment penalties is
inherently complicated and, therefore, difficult to describe because of
requirements of the accounting principles involved. Consequently, they
have requested a determination that disclosure of the name of the
method of determining the charge be sufficient, possibly with
[[Page 52275]]
approved model descriptive clauses as part of the regulation. Instead,
staff has recommended requiring in the segregated disclosures a printed
warning of the potential for a substantial charge for early
termination, plus a full description in the disclosures outside of the
segregated grouping of the method of calculating the penalty. This
description would comply with the Consumer Leasing Act and Regulation M
even if complex, as long as it is full, accurate, not intended to be
misleading, and (as the statute requires) it is reasonable.
These generic disclosures, including the printed warning and full
description of the methodology for calculating an early termination
penalty, should not entail much additional cost because they could be
preprinted on disclosure and contract forms. The alternative, proposed
last year, of requiring a numerical example of the penalty for early
termination likely would entail more substantial cost because it is
specific to each individual transaction and could not be preprinted.
Unlike gross capitalized cost and most of the other newly required
disclosures, this amount is not currently calculated for each
transaction by current calculating systems and would, therefore,
require substantial system alterations. It entails estimating the
market value of used assets at a second point in time for each
transaction, one year into the lease as well as at lease end.
Furthermore, relatively few actual prepayments would closely fit the
timing of the example, since most accounts do not prepay precisely at
that time. Thus, there could exist the possibility of good-faith
mistakes to which civil liability would apply with only limited
correspondence to actual transactions. The current proposal minimizes
this possibility.
(4) Advertising Disclosures. Under the current regulation,
advertised lease transactions that state certain terms trigger the
requirement that there be other disclosures as well. Staff believes
that there has been some ambiguity concerning disclosures of amounts
due at the outset of leasing agreements and that the proposal would
clarify the requirements. The proposal would not require itemization of
amounts due at the outset, but it would require disclosure of the total
with no component being more prominent in the advertisement than the
total. Although the proposal will require all advertisers to become
aware of the changed regulation and may be costly to some who must
change their procedures, it should also make advertisements more
readily comparable for consumers.
The ``trigger-term'' feature of the Consumer Leasing Act appears to
have reduced the number of radio advertisements, since time often is
very limited and advertisers desire to use the time for their preferred
messages. In television advertisements it has produced the widely-
discussed phenomenon of minute and/or scrolling type, which appears
briefly at the bottom of the advertisement. A variety of observers,
including attorneys general of some states, has questioned whether the
use of such small type complies with the regulation or provides any
useful consumer information.
As discussed in the staff memorandum, legislation in 1994 amended
the Consumer Leasing Act to resolve some of these concerns for radio
advertising. The statutory amendments reduce the number of disclosures
that advertisements with trigger terms must contain, and they permit
reference to a toll-free telephone number or to print advertisements
for the full listing. Relying on the legislative history of this
statutory change, staff has proposed extending this approach to
television advertising as well as to radio. For radio advertisements
this amendment to the regulation should somewhat reduce regulatory
burden arising from the advertising provisions of the current
regulation by permitting advertisers to shorten the time requirements
of their broadcast advertisements. Those consumers subjected to either
radio or television advertisements and who are actually interested in
learning more about the product can obtain additional information
without visiting either sellers or financing sources. This sort of
regulatory change may become increasingly important in the future as
advertisers begin to use technological innovations in advertising, such
as electronic ``interactive'' advertising prepared specifically for
selected audiences through new media.
(5) The Lease Charge. In the draft final rule staff did not include
the new transaction-specific disclosure called the ``Lease Charge''
that was part of the proposal for public comment last year. This
potential new disclosure was an attempt to calculate and supply
consumers with a measure of the cost of lease financing analogous to
the finance charge on a credit purchase. A version of this disclosure
considered by the staff would have derived this measure essentially by
adding to the amount of the lease rental charge 1) amounts like
administrative fees that would qualify as prepaid finance charges, 2)
any fees associated either with including a purchase option in the
contract or associated with disposition expenses at lease end, and 3)
the amount by which any optional purchase price exceeded the lease
residual. The assumption behind this last addition is that if the
offered optional purchase price exceeds the lease residual, then the
difference must be a cost of financing. (The reasonableness of this
assumption is examined further below in the following subsection, which
discusses the lease rate, another disclosure considered by the staff
but not included in the draft final proposal.)
The requirement for disclosure of a lease charge likely would have
caused more administrative difficulties and regulatory burden than the
other newly required transaction-specific disclosures. Experience with
Regulation Z shows that the issue of proper inclusions and exclusions
from the finance charge (and the amount financed) on credit
transactions has been subject to extensive litigation in the past.
Requiring a similar disclosure for leases may have led to increased
litigation in the leasing area as well. Also, some questions about how
to include in the lease charge fees for exercising a purchase option or
for return of the asset to the lessor at end of the contract, which
would never both occur on the same contract and would always occur long
after contract signing and delivery of the disclosures, would have to
have been answered in the Official Staff Commentary or elsewhere before
the regulatory change became effective.
Apart from the likely burden of this disclosure and the potential
for litigation, the lease charge in dollars would have only limited
utility as a shopping tool for consumers anyway. While there may be
some usefulness to disclosing the dollar cost of leasing in order to
view the absolute magnitude of the agreed amount, this amount is
dependent on the size of the transaction and it varies directly with
maturity. Consequently, the lease charge is not especially useful for
shopping among leases on different vehicles or of different maturities.
Furthermore, it is merely a totalling of charges paid and payable
regardless of timing; it is not a present value of these amounts.
Disclosure of the method of calculating monthly payment through a
mathematical progression likely will be of greater usefulness in
educating consumers about the intricacies of the leasing transaction.
(6) The Annual Percentage Lease Rate (ALR). Many commentators
discussed the usefulness of requiring disclosure of lease charges in
the form of an Annual Percentage Lease Rate (ALR) analogous to the
Annual Percentage Rate (APR)
[[Page 52276]]
required by Truth in Lending for a credit transaction. The staff
memorandum discusses this issue, although the memorandum does not
recommend requiring this disclosure in Regulation M. Ultimately, the
difficulties with calculating and disclosing an annual lease rate arise
from the necessity of assuming for a lease the value of one or more
unknowns to permit solution of the discounting equation.
The mathematical formula for calculating a percentage rate from a
series of cash flows is well known and straightforward: the internal
rate of return formula commonly used to discount cash flows. For
consumer credit, Appendix J to Regulation Z extensively describes the
internal rate of return formula for ``unit period'' lengths of time,
with many examples. Even an area as long established as calculating
annual percentage rates on closed-end credit under Regulation Z can be
subject to controversy and litigation, however, although it seems that
turmoil rarely, if ever, arises from the mathematical formulas
themselves. Instead, litigation comes from questions over items
included or not in the formulas.18
---------------------------------------------------------------------------
\18\ This has recently been evident in the controversy
surrounding the 1994 ``Rodash'' decision, Rodash v. AIB Mortgage
Co., 16 F. 3d 1142 (11th Cir. 1994). This case was controversial
enough that it prompted Congress to make some changes in the Truth-
in-Lending Act itself to settle disputes over what properly is
included in the components of the calculation.
---------------------------------------------------------------------------
If anything, leasing is more complicated on this basis than closed-
end installment credit. The difficulties associated with leasing
disclosures come about because on a lease a consumer does not contract
for ownership of the whole economic life of the asset, but rather for
only a portion of it. This fact raises questions about how to account
properly for economic depreciation in the various parts of the asset's
life, offers more opportunities for differing interpretations and
conclusions, and even presents opportunities for manipulation.
Calculating an internal rate of return from a series of cash flows
requires knowing the amount of the credit and the pattern of the cash
flows (see Appendix J of Regulation Z). For installment credit like
automobile financing, if assumptions are made that the contract runs to
maturity and that all payments arrive as scheduled, then all of these
figures are known at the outset of the transaction. On a lease they are
not.
On a lease the lessee contracts only to purchase a portion of the
economic depreciation of the asset and merely holds an option on the
rest. For this reason, it is not possible at the outset to know the
complete pattern of the flows. Some lessees will either pay or finance
a balloon payment at the end of the lease term, as they acquire the
vehicle by exercising their purchase option and paying the agreed-upon
amount or refinancing it. Others will not purchase the vehicle and may
have no intention at any time of exercising this option, and so the
size of the balloon payment is irrelevant to them. Still other
consumers will negotiate a continuation of the lease. To calculate a
percentage rate at the outset of the lease, some assumption about the
events at lease end is necessary.
Although no assumption properly describes the lease-end event for
all cases, probably the most reasonable and defensible approach is to
assume that the percentage rate calculation for a lease depends only on
events of the lease term. This means that the calculation should not
consider purchase of the vehicle or negotiated continuation of the
lease. Rather, the most reasonable assumption probably is that the
consumer returns the vehicle to the dealer at lease end under the terms
of the lease contract. In this case the cash flows used in the
calculation include only those for which the consumer is contractually
liable. Other, hypothetical, possibilities do not become part of the
calculation.
Under this assumption, specifying the stream of outflows during the
period of the lease is relatively simple, except for the issue of
valuing the purchase option. As is the case in calculating the net
advantage of leasing over purchase financing (Equations 1-3, above),
the present value of the purchase option embedded in a typical closed-
end operating lease that permits a lessee to call the residual value of
the asset at a prearranged strike price must be subtracted from the
present value of the rest of the cash flows to compare the internal
rate of return on a lease with purchase financing. The rest of the cash
flows are straightforward. They were described in column 2 of Table 1
(see Section III, above).
Equation 4 employs these flows and using the methodology of
Appendix J to Regulation Z calculates an annualized internal rate of
return for a lease with these cash flows by solving for i.19
---------------------------------------------------------------------------
\19\ The term for the present value of the expected loss from
early termination, which appears in Table 1, does not appear in
equation 4 because it is a contingency and not predictable.
Therefore, it cannot be a part of the calculation for a disclosed
percentage rate.
---------------------------------------------------------------------------
(4): See Equation (4) at the End of the Analysis
This is not the end of the story, though. There is still the
question of lease amount, the top line of equation 4, which is
necessary to solve for the ALR. On a credit transaction the amount
financed is known at the outset. What is the corresponding amount of
the lease?
As mentioned, a lease finances the economic depreciation of the
asset during the lease period. In present value terms this is the
difference between the asset price after all initial payments (called
in the staff draft the ``adjusted capitalized cost'') and the present
value of the residual value. Using economic depreciation as the lease
amount in Equation 4 and adding the present value of the residual value
to both sides of the equation produces Equation 5. Solving Equation 5
for i calculates the ALR:
(5): See Equation (5) at the End of the Analysis
Conceptually, a lessor knows all of the variables in Equation 5 at
the outset of the transaction, except the value of the purchase option.
Consequently, some commentators have argued, in effect, that the option
be valued at zero, which is not a correct assumption, and that lessors
solve equation 5 for i and disclose the result, calling it an ALR. But
equation 5 has a difficulty of its own, even disregarding the
inappropriateness of valuing the purchase option at zero. The remaining
important problem is that the residual value used by the lessor for the
purposes of making the calculations can never be better than an
estimate. No one really knows what the value of the asset will be at
the end of the lease, and different lessors may in good faith estimate
depreciation over the lease period (and corresponding lease residual)
differently. This means that in good faith they can estimate different
ALR's for otherwise identical transactions. Beyond good faith
differences, there is also the possibility that some market
participants may want to manipulate the lease residual to alter a
disclosed lease rate.
Table 2 provides an example of an automobile leasing transaction,
using a disclosure format that, like the staff proposal, follows a
mathematical progression illustrating the components of the
calculation. Column 1 describes a hypothetical simplified example of a
24 month lease.
Assume a consumer leases a vehicle with a gross capitalized cost
after all negotiations and extras of $20,000 (line 1). This consumer
receives a trade-in allowance of $1000 and provides $1000 down payment
in cash for a total capitalized cost reduction of $2000 (line 2). This
produces an adjusted
[[Page 52277]]
capitalized cost of $18,000 (line 3). Subtracting a residual value for
the car after 24 months of $12,000 (line 4) means depreciation of $6000
(line 5). Adding a rent charge of $1500 (line 6) results in a total of
periodic payments of $7500 (line 7). A term of 24 months (line 8) means
that the monthly payment amount is $312.50 (line 9). The cash flows
over the course of the lease consist of the stream of 24 monthly
payments of $312.50 in column 1 of the table totaling to $7500.20
---------------------------------------------------------------------------
\20\ For illustrative simplicity Table 2 ignores the
complicating factors of the security deposit, refund of the deposit,
disposition charge, and value of the purchase option. All except the
option value could easily be added to the table.
---------------------------------------------------------------------------
Column 2 of Table 2 illustrates the problem of different estimates
of depreciation (and corresponding lease residuals). Suppose in the
example in Table 2 that another dealer/lessor estimates a higher rate
of depreciation and, therefore, a lower residual value for the same
vehicle. But, also suppose this dealer offers the same monthly payment
by charging a lower rental fee. From a consumer's standpoint the
transaction illustrated in column 2 is exactly the same as the one in
column 1: the vehicle leased in the column 2 transaction is the same,
the trade in allowance and cash down payment are the same (each $1000),
and the pattern and total of the payments are exactly the same (24
monthly payments of $312.50 for a total of $7500). The calculated
percentage rates are different, however, with column 2 leading to a
lower ALR. This illustrates how different assumptions about
depreciation and residuals can change the annual lease rate for the
same payment stream, even apart from any issue of manipulation by
dealer/lessors. If a dealer/lessor subject to a disclosure regime
decides to minimize the disclosed percentage rate by lowering the
expected residual for this reason, it would compound the problem.
Table 3 illustrates the difficulty of requiring disclosure of a
percentage rate as the dealer/lessor engages in different marketing
strategies. The three columns illustrate common marketing strategies
that dealer/lessors often employ, each leading to price reductions for
the consumer. The examples are constructed so that in the absence of a
requirement for an ALR disclosure the dealer/lessor is financially
indifferent among the strategies. Also the example is constructed so
that the timing and amount of outlays is the same for consumers. Which
strategy lessors choose would seem to depend on their perceptions of
which strategies consumers are most likely to notice and respond to.
This may vary among dealer clienteles and for any dealer over time.
Column 1 of Table 3 illustrates the common marketing strategy of
raising the anticipated residual on the vehicle, thereby lowering
depreciation and the size of the monthly payments, a common marketing
strategy known as ``subventing'' the residual. Column 2 shows the
impact of offering a ``subvented rebate'' on the lease. This has the
effect of lowering the adjusted capitalized cost and the recaptured
depreciation. The third choice, column 3, contains the example of a
``subvented'' rental charge. In the example this lowers the monthly
payments by the same amount as the other strategies, although this time
not by lowering the accounted-for depreciation but instead by lowering
the rental charge component of the monthly payment. The consumer pays
the same amount at the same pace in each case. Thus, from the
consumer's standpoint apart from the ALR disclosure these transactions
are exactly the same, but their ALR's are much different, 4.79 percent,
5.31 percent, and 0.0 percent, respectively.
To try to minimize the possibility of manipulation of residuals by
lessors as a way of lowering ALR's, one alternative considered by the
staff would have required that lessors not use the lease residual in
their calculation of the lease charge or the Annual Lease Rate if the
residual diverges from the optional purchase price. If there is a
divergence, then the lessor would use the optional purchase price in
the calculation under the argument that the optional purchase price
represents a better estimate of the true residual value of the asset,
since it is the price at which the lessor really would be wiling to
sell the asset. While this approach might appear to help to minimize
absolute manipulations of the residual value by lessees, it has a
number of problems of its own.
One problem is that many lease contracts do not state an optional
purchase price for the asset. It is possible, of course, even if
perhaps not likely, that the proportion of leases without an optional
purchase price could change as a result of the new disclosure
regulation. Regardless of the frequency, because such leases do not
contain an optional purchase price, only the residual could be used for
calculations and disclosures on these leases. This would negate any
purported advantage from requiring that the optional purchase price be
used in place of the residual value, at least for these leases. More
importantly, it would introduce a source of inconsistency into the
methodology of calculations and disclosures: some disclosures would be
based on lease residuals while disclosures on other leases would be
dependent on optional purchase prices. It is not clear that this would
solve the problem of potential for manipulation.
A second problem is that use of the optional purchase price in
place of the lease residual introduces into the calculations and
disclosures a quantity for which the consumer is not contractually
liable. Many consumers do not purchase their leased car at lease end.
Substituting the optional purchase price for the lease residual for
purposes of calculating the ALR while retaining the residual for
calculating the monthly payment, in effect, adds the algebraic
difference between the optional purchase price and the residual to the
lease charge. But, the closed-end lessee is never contractually liable
for this difference at the time the dealer makes disclosures. At the
outset of the lease consumers do not agree to subsequent purchase of
the vehicle or, consequently, for paying the optional purchase price or
the difference between it and the lease residual. In many cases lessees
do not purchase their vehicles or ever pay these amounts. Thus,
disclosures of a lease charge or an ALR based on optional purchase
price are never right for these consumers. Even for consumers who
purchase their vehicles at lease end, the price may be negotiated at
that time anyway, and may well diverge from the optional purchase price
originally disclosed.
A third difficulty is that the exercise price of a purchase option
is not simply another estimate of the residual value of an asset. The
exercise price of the purchase option may depend on the lessor's
business strategy. Even if lessors have the same expectations about
depreciation, they may quote different exercise prices because one may
want to keep the asset and the other may prefer that the lessee buy the
asset at lease end. Lessors may hedge against the possibility that
certain high-demand assets may not actually depreciate very much in
value over time by quoting a high, but negotiable, optional price. As a
result, a lease charge or lease rate calculation that requires use of
this optional purchase price, may not even approximate the lease charge
or lease rate that a consumer actually pays, especially if the lessee
declines to purchase the asset.
V. Impact on Small Entities
The above analysis contains a description of the implications of
requiring new methods of disclosures on consumers' automobile leases.
The
[[Page 52278]]
changes will require a substantial revision to the disclosure format
currently required of lessors. In issuing the new rule the Board has
attempted to minimize the burden of changing to the new disclosure
format by requiring, wherever possible, disclosures that can be
preprinted. Furthermore, the Board took the opportunity to provide
model forms to guide lessors. Section 105 of the Truth-in-Lending Act
provides that a creditor or lessor that uses the appropriate model
forms published by the Board ``shall be deemed to be in compliance with
the disclosure provisions of this title with respect to other than
numerical disclosures * * *.'' Thus, using the model forms provides a
safe harbor from civil liability if the numbers are filled in
accurately.
Required disclosures will be the same for large and small lessors,
but the Board does not expect that the changes to Regulation M will
have a substantial adverse economic impact on a large number of small
entities. The automobile leasing industry, at which the bulk of the
changes are directed, is highly concentrated in a small number of large
firms. Actual preparation of lease documents will typically take place
in the offices of numerous automobile dealers, many of which are small
entities. Preparation will take place through computer terminals and
computer programs provided by the lessors, however. Because the new
forms are provided through the lessors' computer systems will be
clearer and easier for dealer personnel to understand, explanations and
necessary training of personnel should actually be enhanced and made
easier for dealers.
Reference
Myers, Stewart C., David A. Dill, and Alberto J. Bautista,
``Valuation of Financial Lease Contracts,'' Journal of Finance, June
1976.
BILLING CODE 6210-01-P
Equations (2) Through (5)
[GRAPHIC] [TIFF OMITTED] TR07OC96.062
[[Page 52279]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.063
[GRAPHIC] [TIFF OMITTED] TR07OC96.064
[[Page 52280]]
[GRAPHIC] [TIFF OMITTED] TR07OC96.065
BILLING CODE 6260-01-C
Table 1.--Cash Outflows Associated With Obtaining Use of Assets Through Closed-End Operating Leases and Credit
Purchases
----------------------------------------------------------------------------------------------------------------
Lease Credit purchase
-------------------------------------------------- ------------------------------------------------
Retain auto at Turn in auto at Retain auto when Sell auto when
lease end least end paid paid
----------------------------------------------------------------------------------------------------------------
(1).. -Trans Serv........ -Trans Serv........ -Trans Serv........ -Trans Serv
(2).. +Trade-In.......... = +Trade-In.......... = +Trade-In.......... = +Trade-In
(3).. +CCR............... +CCR............... +Down Pay.......... +Down Pay
(4).. +Secur Dep......... +Secur Dep......... .................
(5).. -PV (Dep Ref)...... -PV (Dep Ref)...... .................
(6).. +Sum PV (LP)....... +Sum PV (LP)....... +Sum PV (FP)....... +Sum PV(FP)
(7).. ................. ................. +Sum PV (PPT)...... +SumPV (PPT)
(8).. +PV (Pur Price).... ................. .................
(9).. ................. +PV (Disp Chrge)... .................
(10). ................. ................. ................. -PV (Sale)
(11). ................. ................. ................. +PV (EL/S)
(12). +PV (EL/ET)........ = +PV (EL/ET)........ +PV (EL/ET)........ = +PV (EL/ET)
----------------------------------------------------------------------------------------------------------------
Abbreviations Used:
PV ( )--Present Value (of Quantity in Brackets).
Trans Serv--Transportation Services Provided.
CCR--(Cash) Capitalized Cost Reduction.
Down Pay--(Cash) Down Payment.
Secur Dep--Security Deposit.
Dep Ref--Security Deposit Refund.
LP--Lease Payments.
FP--Finance Payments.
PPT--Personal Property Taxes.
Pur Price--Purchase Price.
Disp Chrge--Disposition or Drop-Off Charge.
Sale--Sale Price.
EL/S--Expected Loss on Sale of the Vehicle.
EL/ET--Expected Loss Upon Early Termination of Lease.
Table 2--Patterns of Disclosures
------------------------------------------------------------------------
1 2
-------------------------
Lower
Base case residual
------------------------------------------------------------------------
(1) Gross Cap. Cost........................... 20,000 20,000
[[Page 52281]]
(2) Cap. Cost Reduction....................... -2000 -2000
-------------------------
(3) Adjusted Cap. Cost........................ =18,000 =18,000
(4) Residual Value............................ -12,000 -10,500
-------------------------
(5) Depreciation.............................. =6000 =7500
(6) Rent Charge............................... +1500 +0
-------------------------
(7) Amount of Periodic Payments............... =7500 =7500
(8) Lease Term................................ 24 24
-------------------------
(9) Base Monthly Payment...................... 312.50 312.50
------------------------------------------------------------------------
Additional Information about Transaction
------------------------------------------------------------------------
(10) Sale Price of Vehicle.................... 12,000 12,000
(11) Gain on Sale............................. 0 1500
(12) Recovery of Adjusted Cap. Cost........... 19,500 19,500
------------------------------------------------------------------------
Table 3.--Patterns of Disclosures
----------------------------------------------------------------------------------------------------------------
1 2 3
--------------------------------------
Subvent
Subvent Subvent lease
residual rebate charge
----------------------------------------------------------------------------------------------------------------
(1) Gross Cap. Cost...................................................... 20,000 20,000 20,000
(2) Cap. Cost Reduction.................................................. -2000 -3500 -2000
--------------------------------------
(3) Adjusted Cap. Cost................................................... =18,000 =16,500 =18,000
(4) Residual Value....................................................... -13,500 -12,000 -12,000
--------------------------------------
(5) Depreciation......................................................... =4500 =4500 =6000
(6) Rent Charge.......................................................... +1500 +1500 +0
--------------------------------------
(7) Amount of Periodic Payments.......................................... =6000 =6000 =6000
(8) Lease Term........................................................... 24 24 24
--------------------------------------
(9) Base Monthly Payment................................................. 250 250 250
----------------------------------------------------------------------------------------------------------------
Additional Information about Transaction
----------------------------------------------------------------------------------------------------------------
(10) Sale Price of Vehicle............................................... 12,000 12,000 12,000
(11) Gain on Sale........................................................ (1500) 0 0
(12) Recovery of Adjusted Cap. Cost...................................... 18,000 18,000 18,000
----------------------------------------------------------------------------------------------------------------
By order of the Board of Governors of the Federal Reserve
System, September 27, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-25273 Filed 10-4-96; 8:45 am]
BILLING CODE 6210-01-P
Complete official Federal Register PDF
FR Doc. 96-25256 Medicare and State Health Care Programs and Program Fraud Civil Remedies: Fraud and Abuse; Civil Money Penalties Inflation Adjustments
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52299-52301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25256]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
42 CFR Part 1003
45 CFR Part 79
RIN 0991-AA
Medicare and State Health Care Programs and Program Fraud Civil
Remedies: Fraud and Abuse; Civil Money Penalties Inflation Adjustments
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In accordance with Federal Civil Monetary Penalty Inflation
Adjustment Act of 1990, as amended by the Debt Collection Improvement
Act of 1996, this final rule incorporates the penalty inflation
adjustments for the civil money penalties for health case fraud and
abuse. These inflation adjustment calculations are not applicable to
those civil money penalties contained in the Social Security Act, which
are exempted from this adjustment.
EFFECTIVE DATE: This rule is effective on November 6, 1996.
FOR FURTHER INFORMATION CONTACT:
[[Page 52300]]
Joel J. Schaer, Office of Management and Policy, (202) 619-0089.
SUPPLEMENTARY INFORMATION:
I. The Debt Collection Improvement Act of 1996
In an effort to maintain the remedial impact of civil money
penalties (MPSs) and promote compliance with the law, the Federal Civil
Monetary Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-410) was
amended by the Debt Collection Improvement Act of 1996 (Pub.L. 104-134)
to require Federal agencies to regularly adjust certain CMPs for
inflation. As amended, the law requires each agency to make an initial
inflationary adjustment for all applicable CMPs, and to make further
adjustments at least once every four years thereafter for these penalty
amounts.
The Debt Collection Improvement Act of 1996 further stipulates that
any resulting increases in a CMP due to the calculated inflation
adjustments (i) should apply only to the violations that occur after
October 23, 1996--the Act's effective date--and (ii) should not exceed
10 percent of the penalty indicated. In addition to those penalties
that fall under the Internal Revenue Code of 1986, the Tariff Act of
1930 and the Occupational Safety and Health Act of 1970, CMPs that come
under the Social Security Act are specifically exempt from the
requirements of this Act.
Method of calculation
Under the Act, the inflation adjustment for each applicable CMP is
determined by increasing the maximum CMP amount per violation by the
cost-of-living adjustment. The ``cost-of-living'' adjustment is defined
as the percentage of each CMP by which the Consumer Price Index (CPI)
for the month of June of the calendar year in which the amount of the
CMP was last set or adjusted in accordance with the law. Any calculated
increase under this adjustment is subject to a specific rounding
formula set forth in the Act.
II. OIG Civil Money Penalties Affected by this Adjustment
While the vast majority of penalty sanctions delegated to the OIG
derive from CMP authorities set forth under the Social Security Act,
and therefore are exempt from these inflation adjustment calculations,
there are several penalty authorities, within our jurisdiction, as
described below, for which adjustments are required and are now being
made.
The Health Care Quality Improvement Act of 1986
In 1986, sections 421(c) and 427(b)(2) of the Health Care Quality
Improvement Act (HCQIA) of 1986 (Title IV of Pub. L. 99-660)
established OIG CMP authorities for failure to report medical
malpractice payment information to the National Practitioner Data Bank,
and for breaching the confidentiality of information reported to the
Data Bank established to collect and disseminate such information. To
assure the timely collection and reporting of medical malpractice
payments to the Data Bank, the final regulations--published in the
Federal Register (56 FR 28492, June 21, 1991) and codified at 42 CFR
part 1003--set forth a CMP of up to 410,000 against any person or
entity that fails to report each such payment in a timely and complete
manner.
In addition, to protect the confidentiality of information reported
to the Data Bank under these provisions, the final regulations also
established a CMP of up to $10,000 against any person or entity who
improperly discloses information reported to the Data Bank.
Based on the penalty amount inflation factor calculation, derived
from dividing the June 1995 CPI by the CPI from June 1986, after
rounding and the 10 percent maximum ceiling, we are adjusting the
maximum penalty amount for the two CMPs under the HCQIA to $11,000 per
violation.
The Program Fraud Civil Remedies Act of 1986
In 1986, sections 6103 and 6104 of the Omnibus Budget
Reconciliation Act of 1986 (Pub. L. 99-501) set forth the Program Fraud
Civil Remedies Act (PFCRA) of 1986. Specifically, this authority
established a CMP and an assessment against any individual who--with
knowledge or reason to know--makes, presents or submits a false,
fictitious or fraudulent claim or statement to the Department. The
Department's regulations--published in the Federal Register (53 FR
11656, April 8, 1988) and codified at 45 CFR part 79--set forth a CMP
of up to $5,000 for each false claim or statement made to the
Department.
Based on the penalty amount inflation factor calculation, derived
from dividing the June 1995 CPI by the CPI from June 1986, after
rounding and the 10 percent maximum ceiling, we are adjusting the
maximum penalty amount for this CMP to $5,500 per violation.
III. Waiver of Proposed Rulemaking
In developing this final rule, we are waiving the usual notice of
proposed rulemaking and public comment procedures set forth in the
Administrative Procedure Act (APA) (5 U.S.C. 553). The APA provides an
exception to the notice and comment procedures when an agency finds
there is good cause for dispensing with such procedures on the basis
that they are impracticable, unnecessary or contrary to the public
interest. We have determined that under 5 U.S.C. 553(b)(3)(B) good
cause exists for dispensing with the notice of proposed rulemaking and
public comment procedures for this rule. Specifically, this rulemaking
comports and is consistent with the statutory authority set forth in
the Debt Collection Improvement Act of 1996, with no issues of policy
discretion. Accordingly, we believe that opportunity for prior comment
is unnecessary and contrary to the public interest, and are issuing
these revised regulations as a final rule that will apply to all future
cases under this authority.
IV. Regulatory Impact Statement
Executive Order 12866
The Office of Management and Budget (OMB) has reviewed this final
rule in accordance with the provisions of Executive Order 12866, and
has determined that it does not meet the criteria for a significant
regulatory action. As indicated above, the provisions contained in this
final rulemaking set forth the inflation adjustments in compliance with
the Debt Collection Improvement Act of 1996 for specific applicable
civil money penalties under the authority of the OIG. The great
majority of individuals, organizations and entities addressed through
these regulations do not engage in such prohibited activities and
practices, and as a result, we believe that any aggregate economic
impact of these revised regulations will be minimal, affecting only
those limited few who may engage in prohibited behavior in violation of
the statutes. As such, this final rule and the inflation adjustment
contained therein should have no effect on Federal or State
expenditures.
Regulatory Flexibility Act
In addition, we generally prepare a regulatory flexibility analysis
that is consistent with the Regulatory Flexibility Act (5 U.S.C. 601-
612), unless the Secretarty certifies that a regulation will not have a
significant economic impact on a substantial number of small business
entities. While some penalties may have an impact on small entities, it
is the nature
[[Page 52301]]
of the violation and not the size of the entity that will result in an
action by the OIG, and the aggregate economic impact of this rulemaking
on small business entities should be minimal, affecting only those few
who have chosen to engage in prohibited arrangements and schemes in
violation of statutory intent. Therefore, we have concluded, and the
Secretary certifies, that this final rule will not have a significant
economic impact on a number of small business entities, and that a
regulatory flexibility analysis is not required for this rulemaking.
Paperwork Reduction Act
This final rule imposes no new reporting or recordkeeping
requirements necessitating clearance by OMB.
List of Subjects
42 CFR Part 1003
Administrative practice and procedure, Fraud, Grant programs--
health, Health facilities, Health professions, Maternal and child
health, Medicaid, Medicare, Penalties.
45 CFR Part 79
Administrative practice and procedure, Fraud, Investigations,
Organizations and functions, (Governmental agencies), Penalties.
Accordingly, 42 CFR part 1003 and 45 CFR part 79 are amended as set
forth below:
A. TITLE 42--PUBLIC HEALTH
CHAPTER V--OFFICE OF INSPECTOR GENERAL--HEALTH CARE; DEPARTMENT OF
HEALTH AND HUMAN SERVICES
42 CFR part 1003 is amended as set forth below:
PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS
1. The authority citation for past 1003 continues to read as
follows:
Authority: 42 U.S.C. 1302, 1320a-7, 1230a-7a, 1320b-10,
1395u(j), 1395u(k), 1395dd(d)(1), 1395mm, 1395nn(g), 1395ss(d),
1396b(m), 11131(c) and 11137(b)(2).
2. Section 1003.103 is amended by revising paragraph (c) to read as
follows:
Sec. 1003.103 Amount of penalty.
* * * * *
(c) The OIG may impose a penalty of not more than $11,000 \1\ for
each payment for which there was a failure to report required
information in accordance with Sec. 1003.102(b)(5), or for each
improper disclosure, use or access to information that is subject to a
determination under Sec. 1003.102(b)(6).
---------------------------------------------------------------------------
\1\ As adjusted in accordance with the Federal Civil Monetary
Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-140), as
amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104-
134).
---------------------------------------------------------------------------
* * * * *
B. TITLE 45--PUBLIC WELFARE
Subtitle A--Department of Health and Human Services, General
Administration
45 CFR part 79 is amended as set forth below:
PART 79--PROGRAM FRAUD CIVIL REMEDIES
1. The authority citation for part 79 is revised to read as
follows:
Authority: 31 U.S.C. 3801-3812.
2. Section 79.3 is amended by revising paragraphs (a)(1) and (b)(1)
to read as follows:
Sec. 79.3 Basis for civil penalties and assessments.
(a) Claims. (1) Except as provided in paragraph (c) of this
section, any person who makes a claim that the person knows or has
reason to know--
(i) Is false, fictitious, or fraudulent;
(ii) Includes, or is supported by, any written statement which
asserts a material fact which is false, fictitious, or fraudulent;
(iii) Includes, or is supported by, any written statement that--
(A) Omits a material fact;
(B) Is false, fictitious, or fraudulent as a result of such
omission; and
(C) Is a statement in which the person making such statement has a
duty to include such material fact; or
(iv) Is for payment for the provision of property or services which
the person has not provided as claimed, shall be subject, in addition
to any other remedy that may be prescribed by law, to a civil penalty
of not more than $5,500 \1\ for each such claim.
---------------------------------------------------------------------------
\1\ As adjusted in accordance with the Federal Civil Monetary
Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-140), as
amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104-
143).
---------------------------------------------------------------------------
* * * * *
(b) Statements. (1) Except as provided in paragraph (c) of this
section, any person who makes a written statement that--
(i) The person knows or has reason to know--
(A) Asserts a material fact which is false, factitious, or
fraudulent; or
(B) Is false, factitious, or fraudulent because it omits a material
fact that the person making the statement has a duty to include in such
statement; and
(ii) Contains, or is accompanied by, an express certification or
affirmation of the truthfulness and accuracy of the contents of the
statement, shall be subject, in addition to any other remedy that may
be prescribed by law, to a civil penalty of not more than $5,500 \2\
for each such statement.
---------------------------------------------------------------------------
\2\ As adjusted in accordance with the Federal Civil Monetary
Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-140), as
amended by the Debt Collection Improvement Act of 1996 (Pub. L 104-
143).
---------------------------------------------------------------------------
* * * * *
Dated: September 11, 1996.
June Gibbs Brown,
Inspector General.
Approved: September 17, 1996.
Donna E. Shalala,
Secretary.
[FR Doc. 96-25256 Filed 10-4-96; 8:45 a.m.]
BILLING CODE 4150-04-M
Complete official Federal Register PDF
FR Doc. 96-25236 Fixed Satellite Service 13.75 to 14.0 GHz Band
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52301-52307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25236]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 2, 25 and 90
[ET Docket No. 96-20; FCC 96-377]
Fixed Satellite Service 13.75 to 14.0 GHz Band
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commission has allocated the 13.75-14.0 GHz band to the
fixed-satellite service (``FSS'') on a co-primary basis for Earth-to-
space (``uplink'') transmissions and has made conforming revisions to
the associated service rules in Parts 25 and 90. The Commission found a
growing demand for FSS in the Ku-band portion of the spectrum and
concluded that this allocation will further the competitiveness of U.S.
satellite operators in domestic and international markets and will
provide more open and competitive markets for consumers. Further the
allocation will permit added flexibility to FSS operators in the design
of their systems by facilitating the co-location of additional
satellites that use different frequency bands. The Commission believes
that this allocation will complement and allow for greater use of the
existing FSS downlink spectrum allocation.
EFFECTIVE DATE: November 6, 1996.
FOR FURTHER INFORMATION CONTACT: Tom Mooring, Office of Engineering and
Technology, (202) 418-2450.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order, ET Docket No. 96-20, FCC 96-377, adopted September 12, 1996,
[[Page 52302]]
and released September 26, 1996. The full text of this Commission
decision is available for inspection and copying during normal business
hours in the FCC Reference Center (Room 239), 1919 M Street, N.W.,
Washington, D.C., and also may be purchased from the Commission's
duplication contractor, International Transcription Service, (202) 857-
3800, 2100 M Street, N.W., Suite 140, Washington D.C. 20037.
Summary of the Report and Order
1. By this action, the Commission amended Part 2 of its Rules to
allocate the 13.75-14.0 GHz band to the FSS on a co-primary basis for
uplink transmissions and made conforming revisions to the associated
service rules in Parts 25 and 90. The FSS is a radiocommunication
service between earth stations at a specified fixed point or between
any fixed point within specified areas and one or more satellites.
2. The Commission's action is based on the growing demand for FSS
in the Ku-band portion of the spectrum. For example, over 100 satellite
systems are planned worldwide that would make use of the 13.75-14.0 GHz
band. The locations of some of these systems are particularly well-
suited for the provision of service to and from the United States. This
allocation, the Commission believes, would complement and allow for
greater use of the existing FSS downlink spectrum allocation. The
Commission also believes that the growing international and domestic
demand for FSS services should be accommodated by making this spectrum
available for such operations. The Commission stated that this
allocation would further the competitiveness of U.S. satellite
operators in domestic and international markets and would provide more
open and competitive markets for consumers.
3. In addition, the FCC adopted domestically the international
footnotes that specify the spectrum sharing criteria between incumbent
services and the FSS in this band, as contained in the Final Acts of
the 1995 World Radiocommunication Conference. Since the 13.75-14.0 GHz
band is shared with Federal Government operations, all FSS applications
that request the use of any frequencies in the 13.75-14.0 GHz band are
subject to the standard process whereby the Commission coordinates such
applications with the National Telecommunications and Information
Administration to ensure that interference to primary Government
operations is minimized. The FCC also adopted a United States footnote
that requires that all FSS applications requesting the use of any
frequency in the 13.75-13.80 GHz band segment be coordinated on a case-
by-case basis in order to minimize harmful interference to the forward
space-to-space link of NASA's Tracking and Data Relay Satellite System
when this link is operated in its wideband mode. This action is
generally consistent with the international allocation for this band
made at the 1992 World Administrative Radio Conference and will provide
incumbent primary operations in this band with adequate interference
protection from FSS uplinks.
4. On a related issue, the Commission declined to consider a
request to eliminate the prohibition on the use of the 10.95-11.2 and
11.45-11.7 GHz FSS downlink bands by domestic systems, ruling that this
issue is outside the scope of this proceeding.
Final Regulatory Flexibility Analysis
5. As required by Section 603 of the Regulatory Flexibility Act, 5
U.S.C. 603 (``RFA''), an Initial Regulatory Flexibility Analysis
(``IRFA'') was incorporated into the NPRM in ET Docket No. 96-20.1
The Commission sought written public comments on the proposals in the
NPRM, including the IRFA. The Commission's Final Regulatory Flexibility
Analysis (``FRFA'') in this Report and Order conforms to the RFA, as
amended by the Contract With America Advancement Act of 1996 (CWAAA),
Public Law No. 104-121, 110 Stat. 847 (1996).2
---------------------------------------------------------------------------
\1\ See 11 FCC Rcd 5923 (1996).
\2\ Subtitle II of the CWAAA is ``The Small Business Regulatory
Enforcement Fairness Act of 1996'' (SBREFA), codified at 5 U.S.C.
601 et seq.
---------------------------------------------------------------------------
Need For and Objective Of the Rules
6. Our objective is to accommodate growing demand for fixed
satellite services and to provide satellite operators with increased
flexibility in the design of their systems. This action will allocate
an additional 250 megahertz of uplink spectrum to the fixed-satellite
service, which we hope will open markets and increase competition in
the fixed-satellite service for both domestic and international
operations.
Summary of Issues Raised by the Public Comments in Response to the
IRFA
7. No comments were submitted in direct response to the IRFA. We
also reviewed the general comments for potential impact on small
business, and no issues were raised.
Description and Estimate of Small Entities Subject to Which Rules Will
Apply
8. The Commission has not developed a definition of small entities
applicable to FSS licensees. Therefore, the applicable definition of
small entity is the definition under the Small Business Administration
(SBA) rules applicable to Communications Services, Not Elsewhere
Classified. This definition provides that a small entity is expressed
as one with $11.0 million or less in annual receipts.3 At present
there are no FSS satellite licensees in the 13.75-14.0 GHz band, and
therefore, there are no small businesses currently using this band.
However, we acknowledge that there may be future development of new
satellite systems in this frequency band that may qualify as small
entities pursuant to the SBA's definition.
---------------------------------------------------------------------------
\3\ 13 CFR 121.201, Standard Industrial Classification (SIC)
Code 4899.
---------------------------------------------------------------------------
9. This rule may also affect satellite communications equipment
manufacturers. According to the SBA's regulations, a satellite
communications equipment manufacturer must have 750 or fewer employees
in order to qualify as a small business concern.4 Census Bureau
data indicates that there are 858 U.S. companies that manufacture radio
and television broadcasting and communications equipment, and that 778
of these firms have fewer than 750 employees and would be classified as
small entities.5 The Census Bureau category is very broad, and
specific figures are not available as to how many of these firms are
manufacturers of satellite communications equipment; however, we
acknowledge the likelihood that some of them may qualify as small
entities.
---------------------------------------------------------------------------
\4\ 13 CFR 121.201, (SIC) Code 3663.
\5\ U.S. Dept. of Commerce, 1992 Census of Transportation,
Communications and Utilities (issued May 1995), SIC category 3663.
---------------------------------------------------------------------------
Projected Reporting, Recordkeeping and Other Compliance Requirements of
the Rules
10. The antennas that will use the 13.75-14.0 GHz band must have a
minimum diameter of 4.5 meters. The e.i.r.p. from a earth station using
the 13.75-14.0 GHz band must be at least 68 dBW and must not exceed 85
dBW, except in the frequency band 13.772-13.778 GHz, where the e.i.r.p.
must be at least 68 dBW and must not exceed 71 dBW per 6 MHz. These
rules are designed to ensure that FSS uplink operations will not cause
harmful interference to the incumbent users of the band. These
technical rules will generally effect only those small entities
[[Page 52303]]
that manufacture earth station uplink equipment. Such equipment must
comply with the requirement of Part 25 of the Commission's Rules, 47
CFR Part 25. The types of professional engineering skills needed to
assure such compliance would be available at any manufacturer of such
equipment. In addition, the operators of the equipment must monitor the
output power of the transmitter in order to ensure that the e.i.r.p.
range is maintained. The types of professional skills needed to monitor
the output power would be integral to the running of the system.
Steps Taken To Minimize Significant Economic Impact on Small Entities
Consistent With Stated Objectives
11. The Commission considered and rejected an alternative proposal
to restrict this FSS allocation to international service only. In this
Report and Order, we decline to restrict the use of the 13.75-14.0 GHz
band to international systems only. We believe that, by treating all
U.S.-licensed geostationary fixed-satellite operations in this band
under the same regulatory scheme, we will better encourage the opening
of markets and the intensification of competition in the fixed-
satellite services for both domestic and international operations.
Further, we believe that restriction of this band to international
operations only is not technically justified and would needlessly
impair businesses' ability, including small businesses, to meet their
customers' needs. Accordingly, we are making the 13.75-14.0 GHz band
available for use by both domestic and international FSS systems.
Report to Congress
12. The Commission shall send a copy of this Final Regulatory
Flexibility Analysis, along with this Report and Order, in a report to
Congress pursuant to the Small Business Regulatory Enforcement Fairness
Act of 1996, 5 U.S.C. Sec. 801(a)(1)(A).
List of Subjects
47 CFR Part 2
Communications equipment, Radio.
47 CFR Part 25
Communications equipment, Radio, Satellites.
47 CFR Part 90
Communications equipment, Radio.
Federal Communications Commission.
Shirley S. Suggs,
Chief, Publications Branch.
Rule Changes
Parts 2, 25 and 90 of Title 47 of the Code of Federal Regulations,
are amended as follows:
PART 2--FREQUENCY ALLOCATIONS AND RADIO TREATY MATTERS; GENERAL
RULES AND REGULATIONS
1. The authority citation for Part 2 continues to read as follows:
Authority: Sec. 4, 302, 303, and 307 of the Communications Act
of 1934, as amended, 47 U.S.C. Sections 154, 302, 303 and 307,
unless otherwise noted.
2. Section 2.106, the Table of Frequency Allocations, is amended as
follows:
a. Remove the existing entries for 10.7-11.7 GHz and 12.75-13.25
GHz through 14.47-14.50 GHz.
b. Add entries in numerical order for 10.7-11.7 GHz and 12.75-13.25
GHz through 14.47-14.5 GHz.
c. Remove international footnotes 835, 851, 852, 853, 854, 855,
856, 857, 858, 859, 860, 861 and 862.
d. Add a note, a heading I., and international footnotes S5.149,
S5.333, S5.441, S5.484 , S5.497, S5.498, S5.499, S5.500, S5.501,
S5.502, S5.503, S5.503A, S5.504, S5.505, S5.506, S5.508 and S5.509
immediately following the centerheading ``INTERNATIONAL FOOTNOTES.''
e. Add a heading II. immediately preceding international footnote
444.
f. Revise United States footnote US110.
g. Remove United States footnote US287.
h. Add United States footnote US337 in numerical order.
The revisions and additions read as follows:
Sec. 2.106 Table of Frequency Allocations.
* * * * *
International table United States table FCC use designators
----------------------------------------------------------------------------------------------------------------
Government Non-
Region 2-- Region 3-- --------------- Government
Region 1-- allocation GHz allocation GHz --------------- Rule Special-use
allocation GHz Allocation Allocation part(s) frequencies
GHz GHz
* * * * * * *
----------------------------------------------------------------------------------------------------------------
10.7-11.7 FIXED 10.7-11.7 FIXED 10.7-11.7 FIXED 10.7-11.7 10.7-11.7 FIXED ..............
FIXED-SATELLITE FIXED-SATELLITE FIXED-SATELLITE US211 FIXED FIXED- MICROWAVE
(space-to-Earth) (space-to- (space-to- SATELLITE (101)
(Earth-to-space) Earth) S5.441 Earth) S5.441 (space-to- SATELLITE
S5.441 S5.484 MOBILE except MOBILE except Earth) COMMUNICAT
MOBILE except aeronautical aeronautical S5.441 US211 IONS (25)
aeronautical mobile mobile NG104
mobile NG41
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
12.75-13.25 FIXED 12.75-13.25 12.75-13.25 12.75-13.25 12.75-13.25 AUXILIARY ..............
FIXED-SATELLITE FIXED FIXED- FIXED FIXED- US251 FIXED FIXED- BROADCASTI
(Earth-to-space) SATELLITE SATELLITE SATELLITE NG (74)
S5.441 MOBILE (Earth-to- (Earth-to- (Earth- CABLE TV
Space Research space) S5.441 space) S5.441 tospace) RELAY (78)
(deep space) MOBILE Space MOBILE Space S5.441 NG104 FIXED
(space-to-Earth) Research (deep Research (deep MOBILE MICROWAVE
space) (space- space) (space- US251 NG53 (101)
to-Earth) to-Earth) NG118
----------------------------------------------------------------------------------------------------------------
[[Page 52304]]
13.25-13.4 13.25-13.4 13.25-13.4 13.25-13.4 13.25-13.4 AVIATION ..............
AERONAUTICAL AERONAUTICAL AERONAUTICAL AERONAUTICAL AERONAUTICAL (87)
RADIONAVIGATION RADIONAVIGATION RADIONAVIGATION RADIONAVIGAT RADIONAVIGAT
S5.497 S5.497 S5.497 ION S5.497 ION S5.497
S5.498 S5.498 S5.498 S5.499 Space Space
Research Research
(Earth-to- (Earth-to-
space) space)
----------------------------------------------------------------------------------------------------------------
13.4-13.75 13.4-13.75 13.4-13.75 13.4-13.75 13.4-13.75 Private ..............
RADIOLOCATION RADIOLOCATION RADIOLOCATION RADIOLOCATIO Radiolocatio Land
Standard Standard Standard N US110 G59 n US110 Mobile
Frequency and Frequency and Frequency and Standard Standard (90)
Time Signal- Time Signal- Time Signal- Frequency Frequency
Satellite (Earth- Satellite Satellite and Time and Time
to-space) Space (Earth-to- (Earth-to- Signal- Signal-
Research space) Space space) Space Satellite Satellite
S5.333 S5.500 Research Research (Earth-to- (Earth-to-
S5.501 S5.333 S5.333 S5.499 space) Space space) Space
S5.500 S5.501 Research Research
S5.333 S5.333
----------------------------------------------------------------------------------------------------------------
13.75-14.0 FIXED- 13.75-14.0 FIXED- 13.75-14.0 FIXED- 13.75-14.0 13.75-14.0 SATELLITE ..............
SATELLITE (Earth- SATELLITE SATELLITE RADIOLOCATIO FIXED- COMMUNICAT
to-space) (Earth-to- (Earth-to- N US110 G59 SATELLITE ION (25)
RADIOLOCATION space) space) Standard (Earth-to- Private
Standard RADIOLOCATION RADIOLOCATION Frequency space) US337 Land
Frequency and Standard Standard and Time Radiolocatio Mobile
Time Signal- Frequency and Frequency and Signal- n US110 (90)
Satellite (Earth- Time Signal- Time Signal- Satellite Standard
to-space) Space Satellite Satellite (Earth-to- Frequency
Research (Earth-to- (Earth-to- space) Space and Time
S5.333 S5.500 space) Space space) Space Research Signal-
S5.501 S5.502 Research Research US337 Satellite
S5.503 S5.503A S5.333 S5.502 S5.333 S5.499 S5.333 S5.502 (Earth-to-
S5.503 S5.503A S5.500 S5.501 S5.503 space) Space
S5.502 S5.503 S5.503A Research
S5.503A S5.333 S5.502
S5.503
S5.503A
----------------------------------------------------------------------------------------------------------------
14.0-14.2 FIXED- 14.0-14.2 FIXED- 14.0-14.2 FIXED- 14.0-14.2 14.0-14.2 SATELLITE ..............
SATELLITE (Earth- SATELLITE SATELLITE RADIONAVIGAT FIXED- COMMUNICAT
to-space) S5.506 (Earth-to- (Earth-to- ION US292 SATELLITE IONS (25)
RADIONAVIGATION space) S5.506 space) S5.506 Space (Earth-to- Aviation
S5.504 Land RADIONAVIGATION RADIONAVIGATION Research space) (87)
Mobile-Satellite S5.504 Land S5.504 Land RADIONAVIGAT Maritime
(Earth-to-space) Mobile- Mobile- ION US292 (80)
Space Research Satellite Satellite Land Mobile-
S5.505 (Earth-to- (Earth-to- Satellite
space) Space space) Space (Earth-to-
Research Research space) Space
S5.505 Research
----------------------------------------------------------------------------------------------------------------
14.2-14.25 FIXED- 14.2-14.25 FIXED- 14.2-14.25 FIXED- 14.2-14.25 14.2-14.25 SATELLITE ..............
SATELLITE (Earth- SATELLITE SATELLITE FIXED- COMMUNICAT
to-space) S5.506 (Earth-to- (Earth-to- SATELLITE IONS (25)
RADIONAVIGATION space) S5.506 space) S5.506 (Earth-to- Fixed
S5.504 Land RADIONAVIGATION RADIONAVIGATION space) Land Microwave
Mobile-Satellite S5.504 Land S5.504 Land Mobile- (101)
(Earth-to-space) Mobile- Mobile- Satellite
Space Research Satellite Satellite (Earth-to-
S5.505 (Earth-to- (Earth-to- space)
space) Space space) Space Mobile
Research Research except
S5.505 aeronautical
mobile
----------------------------------------------------------------------------------------------------------------
[[Page 52305]]
14.25-14.3 FIXED- 14.25-14.3 FIXED- 14.25-14.3 FIXED- 14.25-14.3 14.25-14.3 SATELLITE ..............
SATELLITE (Earth- SATELLITE SATELLITE FIXED- COMMUNICAT
to-space) S5.506 (Earth-to- (Earth-to- SATELLITE IONS (25)
RADIONAVIGATION space) S5.506 space) S5.506 (Earth-to- Fixed
S5.504 Land RADIONAVIGATION RADIONAVIGATION space) Land Microwave
Mobile-Satellite S5.504 Land S5.504 Land Mobile- (101)
(Earth-to-space) Mobile- Mobile- Satellite
Space Research Satellite Satellite (Earth-to-
S5.505 S5.508 (Earth-to- (Earth-to- space)
space) Space space) Space Mobile
Research Research except
S5.505 S5.509 aeronautical
mobile
----------------------------------------------------------------------------------------------------------------
14.3-14.4 FIXED 14.3-14.4 FIXED- 14.3-14.4 FIXED 14.3-14.4 14.3-14.4 SATELLITE ..............
FIXED-SATELLITE SATELLITE FIXED-SATELLITE FIXED- COMMUNICAT
(Earth-to-space) (Earth-to- (Earth-to- SATELLITE IONS (25)
S5.506 MOBILE space) S5.506 space) S5.506 (Earth-to- Fixed
except Land Mobile- MOBILE except space) Land Microwave
aeronautical Satellite aeronautical Mobile- (101)
mobile Land (Earth-to- mobile Land Satellite
Mobile-Satellite space) Mobile- (Earth-to-
(Earth-to-space) Radionavigation- Satellite space)
Radionavigation- Satellite (Earth-to- Mobile
Satellite space) except
Radionavigation- aeronautical
Satellite mobile
----------------------------------------------------------------------------------------------------------------
14.4-14.47 FIXED 14.4-14.47 FIXED 14.4-14.47 FIXED 14.4-14.47 14.4-14.47 SATELLITE ..............
FIXED-SATELLITE FIXED-SATELLITE FIXED-SATELLITE Fixed Mobile FIXED- COMMUNICAT
(Earth-to-space) (Earth-to- (Earth-to- SATELLITE IONS (25)
S5.506 MOBILE space) S5.506 space) S5.506 (Earth-to-
except MOBILE except MOBILE except space) Land
aeronautical aeronautical aeronautical Mobile-
mobile Land mobile Land mobile Land Satellite
Mobile-Satellite Mobile- Mobile- (Earth-to-
(Earth-to-space) Satellite Satellite space)
Space Research (Earth-to- (Earth-to-
(space-to-Earth) space) Space space) Space
Research (space- Research (space-
to-Earth) to-Earth)
----------------------------------------------------------------------------------------------------------------
14.47-14.5 FIXED 14.47-14.5 FIXED 14.47-14.5 FIXED 14.47-14.5 14.47-14.5 SATELLITE ..............
FIXED-SATELLITE FIXED-SATELLITE FIXED-SATELLITE Fixed Mobile FIXED- COMMUNICAT
(Earth-to-space) (Earth-to- (Earth-to- S5.149 US203 SATELLITE IONS (25)
S5.506 MOBILE space) S5.506 space) S5.506 (Earth-to-
except MOBILE except MOBILE except space) Land
aeronautical aeronautical aeronautical Mobile-
mobile Land mobile Land mobile Land Satellite
Mobile-Satellite Mobile- Mobile- (Earth-to-
(Earth-to-space) Satellite Satellite space)
Radio Astronomy (Earth-to- (Earth-to- S5.149 US203
S5.149 space) Radio space) Radio
Astronomy Astronomy
S5.149 S5.149
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
International Footnotes
Note: The International Telecommunication Union is transitioning
to new Simplified Radio Regulations. As part of the Simplified Radio
Regulations, the ``S'' numbering scheme is used for international
footnotes. Until such time as the Commission revises the entire list
of international footnotes to comport with the new ``S'' numbering
scheme, the international footnotes that are adopted in individual
proceeding shall be listed in I. prior to the listing of
international footnotes employing the old numbering scheme.
Footnotes employing the old numbering scheme will appear in II. and
shall not be deleted until all frequency bands listed within a
footnote have been updated to the new ``S'' numbering scheme.
I. New ``S'' Numbering Scheme
S5.149 In making assignments to stations of other services to
which the bands:
13360-13410 kHz,
25550-25670 kHz,
37.5-38.25 MHz,
73-74.6 MHz in
Regions 1 and 3,
79.75-80.25 MHz in
Region 3,
150.05-153 MHz in
Region 1,
322-328.6 MHz*,
406.1-410 MHz,
608-614 MHz in
3345.8-3352.5 MHz*,
[[Page 52306]]
4825-4835 MHz*,
4950-4990 MHz,
4990-5000 MHz,
6650-6675.2 MHz*,
10.6-10.68 GHz,
14.47-14.5 GHz*,
22.01-22.21 GHz*,
22.21-22.5 GHz,
22.81-22.86 GHz*,
23.07-23.12 GHz*,
31.2-31.3 GHz,
72.77-72.91 GHz*,
93.07-93.27 GHz*,
97.88-98.08 GHz*,
140.69-140.98 GHz*,
144.68-144.98 GHz*,
145.45-145.75 GHz*,
146.82-147.12 GHz*,
150-151 GHz*,
174.42-175.02 GHz*,
177-177.4 GHz*,
178.2-178.6 GHz*,
181-181.46 GHz*,
Regions 1 and 3,
1330-1400 MHz*,
1610.6-1613.8 MHz*,
1660-1670 MHz,
1718.8-1722.2 MHz*,
2655-2690 MHz,
3260-3267 MHz*,
3332-3339 MHz*,
31.5-31.8 GHz in
Regions 1 and 3,
36.43-36.5 GHz*,
42.5-43.5 GHz,
42.77-42.87 GHz*,
43.07-43.17 GHz*,
43.37-43.47 GHz*,
48.94-49.04 GHz*,
186.2-186.6 GHz*,
250-251 GHz*,
257.5-258 GHz*,
261-265 GHz,
262.24-262.76 GHz*,
265-275 GHz,
265.64-266.16 GHz*,
267.34-267.86 GHz*,
271.74-272.26 GHz*
are allocated (* indicates radio astronomy use for spectral line
observations), administrations are urged to take all practicable
steps to protect the radio astronomy service from harmful
interference. Emissions from spaceborne or airborne stations can be
particularly serious sources of interference to the radio astronomy
service (see Nos. 343/S4.5 and 344/S4.6 and Article 36/S29).
S5.333 In the bands 1215-1300 MHz, 3100-3300 MHz, 5250-5350
MHz, 8550-8650 MHz, 9500-9800 MHz and 13.4-14.0 GHz, radiolocation
stations installed on spacecraft may also be employed for the earth
exploration-satellite and space research services on a secondary
basis.
S5.441 The use of the bands 4500-4800 MHz (space-to-Earth),
6725-7025 MHz (Earth-to-space), 10.7-10.95 GHz (space-to-Earth),
11.2-11.45 GHz (space-to-Earth) and 12.75-13.25 GHz (Earth-to-space)
by the fixed-satellite service shall be in accordance with the
provisions of Appendix 30B/S30B.
S5.484 In Region 1, the use of the band 10.7-11.7 GHz by the
fixed-satellite service (Earth-to-space) is limited to feeder links
for the broadcasting-satellite service.
S5.497 The use of the band 13.25-13.4 GHz by the aeronautical
radionavigation service is limited to Doppler navigation aids.
S5.498 The band 13.25-13.4 GHz may also be used in the space
research service (Earth-to-space) on a secondary basis, subject to
agreement obtained under Article 14/No. S9.21.
S5.499 Additional allocation: in Bangladesh, India and
Pakistan, the band 13.25-14 GHz is also allocated to the fixed
service on a primary basis.
S5.500 Additional allocation: in Algeria, Angola, Saudi Arabia,
Bahrain, Brunei Darussalam, Cameroon, the Republic of Korea, Egypt,
the United Arab Emirates, Gabon, Guinea, Indonesia, the Islamic
Republic of Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Madagascar,
Malaysia, Malawi, Mali, Malta, Morocco, Mauritania, Niger, Nigeria,
Pakistan, Qatar, Syria, Senegal, Singapore, Sudan, Chad and Tunisia,
the band 13.4-14 GHz is also allocated to the fixed and mobile
services on a primary basis.
S5.501 Additional allocation: in Armenia, Austria, Azerbaijan,
Belarus, Bulgaria, Georgia, Hungary, Japan, Kazakhstan, Moldova,
Mongolia, Kyrgyzstan, Romania, the United Kingdom, Russia,
Tajikistan, Turkmenistan and Ukraine, the band 13.4-14 GHz is also
allocated to the radionavigation service on a primary basis.
S5.502 In the band 13.75-14 GHz, the e.i.r.p. of any emission
from an earth station in the fixed-satellite service shall be at
least 68 dBW, and should not exceed 85 dBW, with a minimum antenna
diameter of 4.5 metres. In addition the e.i.r.p., averaged over one
second, radiated by a station in the radiolocation or
radionavigation services towards the geostationary-satellite orbit
shall not exceed 59 dBW.
S5.503 In the band 13.75-14 GHz, geostationary space stations
in the space research service for which information for advance
publication has been received by the Bureau prior to 31 January 1992
shall operate on an equal basis with stations in the fixed-satellite
service; after that date, new geostationary space stations in the
space research service will operate on a secondary basis. The
e.i.r.p. density of emissions from any earth station in the fixed-
satellite service shall not exceed 71 dBW per 6 MHz in the frequency
range 13.772-13.778 GHz until those geostationary space stations in
the space research service for which information for advance
publication has been received by the Bureau prior to 31 January 1992
cease to operate in this band. Automatic power control may be used
to increase the e.i.r.p. density above 71 dBW per 6 MHz in this
frequency range to compensate for rain attenuation, to the extent
that the power-flux density at the fixed-satellite service space
station does not exceed the value resulting from use of 71 dBW per 6
MHz e.i.r.p. in clear sky conditions.
S5.503A Until 1 January 2000, stations in the fixed-satellite
service shall not cause harmful interference to non-geostationary
space stations in the space research and Earth exploration-satellite
services. After that date, these non-geostationary space stations
will operate on a secondary basis in relation to the fixed-satellite
service. Additionally, when planning earth stations in the fixed-
satellite service to be brought into service between 1 January 2000
and 1 January 2001, in order to accommodate the needs of spaceborne
precipitation radars operating in the band 13.793-13.805 GHz,
advantage should be taken of the consultation process and the
information given in Recommendation ITU-R SA.1071.
S5.504 The use of the band 14-14.3 GHz by the radionavigation
service shall be such as to provide sufficient protection to space
stations of the fixed-satellite service (see Recommendation 708).
S5.505 Additional allocation: in Algeria, Angola, Saudi Arabia,
Australia, Bahrain, Bangladesh, Botswana, Brunei Darussalam,
Cameroon, China, the Congo, the Republic of Korea, Egypt, the United
Arab Emirates, Gabon, Guatemala, Guinea, India, Indonesia, the
Islamic Republic of Iran, Iraq, Israel, Japan, Jordan, Kuwait,
Lesotho, Lebanon, Malaysia, Malawi, Mali, Morocco, Mauritania,
Niger, Oman, Pakistan, the Philippines, Qatar, Syria, the Democratic
People's Republic of Korea, Senegal, Singapore, Somalia, Sudan,
Swaziland, Tanzania, Chad and Yemen, the band 14-14.3 GHz is also
allocated to the fixed service on a primary basis.
S5.506 The band 14-14.5 GHz may be used, within the fixed-
satellite service (Earth-to-space), for feeder links for the
broadcasting-satellite service, subject to coordination with other
networks in the fixed-satellite service. Such use of feeder links is
reserved for countries outside Europe.
S5.508 Additional allocation: in Germany, Austria, Belgium,
Bosnia and Herzegovina, Denmark, Spain, France, Greece, Ireland,
Iceland, Italy, The Former Yugoslav Republic of Macedonia, Libya,
Liechtenstein, Luxembourg, Norway, Portugal, the United Kingdom,
Slovenia, Switzerland, Turkey and Yugoslavia, the band 14.25-14.3
GHz is also allocated to the fixed service on a primary basis.
S5.509 Additional allocation: in Japan and Pakistan the band
14.25-14.3 GHz is also allocated to the mobile, except aeronautical
mobile, service on a primary basis.
II. Old Numbering Scheme
* * * * *
United States (US) Footnotes
* * * * *
US110 In the frequency bands 3100-3300 MHz, 3500-3700 MHz,
5250-5350 MHz, 8500-9000 MHz, 9200-9300 MHz, 9500-10000 MHz, 13.4-
14.0 GHz, 15.7-17.3 GHz, 24.05-24.25 GHz and 33.4-36.0 GHz, the non-
Government radiolocation service shall be secondary to the
Government radiolocation service and to airborne doppler radars at
8800 MHz, and shall provide protection to airport surface detection
equipment (ASDE) operating between 15.7-16.2 GHz.
* * * * *
US337 In the band 13.75-13.80 GHz, earth stations in the fixed-
satellite service shall be coordinated on a case-by-case basis
through the frequency assignment
[[Page 52307]]
subcommittee in order to minimize harmful interference to the
Tracking and Data Relay Satellite System's forward space-to-space
link (TDRSS forward link-to-LEO).
* * * * *
PART 25--SATELLITE COMMUNICATIONS
1. The authority citation for Part 25 continues to read as follows:
Authority: Secs. 25.101 to 25.601 issued under Sec. 4, 48 Stat.
1066, as amended; 47 U.S.C. 154. Interpret or apply secs. 101-104,
76 Stat. 419-427; 47 U.S.C. 701-744; 47 U.S.C. 554.
2. Section 25.202(a)(1) is revised to read as follows:
Sec. 25.202 Frequencies, frequency tolerance and emission limitations.
(a)(1) Frequency bands. The following frequencies are available for
use by the fixed-satellite service. Precise frequencies and bandwidths
of emission shall be assigned on a case-by-case basis.
------------------------------------------------------------------------
Earth-to-space
Space-to-Earth (GHz) (GHz)
------------------------------------------------------------------------
3.7-4.2 \1\............................................. \1\ 5.925-6.42
5
10.95-11.2 \1\.......................................... \4\ 13.75-14.0
11.45-11.7 \2\.......................................... \5\ 14.0-14.2
11.7-12.2 \3\........................................... 14.2-14.5
17.7-19.7 \1\........................................... \1\ 27.5-29.5
19.7-20.2............................................... 29.5-30.0
------------------------------------------------------------------------
\1\ This band is shared coequally with terrestrial radiocommunication
services.
\2\ Use of this band by the fixed-satellite service is limited to
international systems, i.e., other than domestic systems.
\3\ Use of this band by the fixed-satellite service in Region 2 is
limited to national and subregional systems. Fixed-satellite
transponders may be used additionally for transmissions in the
broadcasting-satellite service.
\4\ This band is shared on an equal basis with the Government
radiolocation service, grandfathered space stations in the Tracking
and Data Relay Satellite System, and until January 1, 2000, spaceborne
sensors.
\5\ In this band, stations in the radionavigation service shall operate
on a secondary basis to the fixed-satellite service.
* * * * *
3. Section 25.204(f) is added to read as follows:
Sec. 25.204 Power limits.
* * * * *
(f) The e.i.r.p. of any emission from an earth station operating in
the frequency band 13.75-14.0 GHz shall be at least 68 dBW and shall
not exceed 85 dBW, with a minimum antenna diameter of 4.5 meters;
except in the frequency band 13.772-13.778 GHz, where the e.i.r.p.
shall be at least 68 dBW and shall not exceed 71 dBW per 6 MHz, with a
minimum antenna diameter of 4.5 meters. Automatic power control may be
used to increase the e.i.r.p. density above 71 dBW per 6 MHz to
compensate for rain attenuation to the extent that the power flux
density at the fixed-satellite space station does not exceed the value
resulting from use of 71 dBW per 6 MHz e.i.r.p. in clear sky
conditions.
PART 90--PRIVATE LAND MOBILE RADIO SERVICES
1. The authority citation for Part 90 continues to read as follows:
Authority: Sections 4, 303, 309 and 332, 48 Stat. 1066, 1082, as
amended; 47 U.S.C. Secs. 154, 303, 309 and 332, unless otherwise
amended.
2. Section 90.103(b) is amended in the table by removing the entry
for the 13,400-14,000 MHz band, and adding entries for 13,400 to 13,750
MHz band and 13,750 to 14,000, by revising paragraph (c)(12), and by
adding paragraph (c)(31) to read as follows:
Sec. 90.103 Radiolocation Service.
* * * * *
(b) * * *
Radiolocation Service Frequency Table
------------------------------------------------------------------------
Frequency or band Class of station(s) Limitation
------------------------------------------------------------------------
* * * * *
Megahertz:
* * * * *
13,400 to 13,750.................... ......do.............. 12
13,750 to 14,000.................... ......do.............. 31
* * * * *
------------------------------------------------------------------------
* * * * *
(c) * * *
(12) This frequency is shared with and is on a secondary basis to
the Government Radiolocation Service.
* * * * *
(31) This frequency band is shared with and is on secondary basis
to the Fixed-Satellite Service and to the Government's Radiolocation,
Space Research and Earth Exploration-Satellite Services. After January
1, 2000, the Government's Space Research and Earth Exploration-
Satellite Services shall operate on a co-equal secondary basis with the
non-Government Radiolocation Service, except that grandfathered space
stations in the Tracking and Data Relay Satellite System shall continue
to be protected from harmful interference.
* * * * *
[FR Doc. 96-25236 Filed 10-4-96; 8:45 am]
BILLING CODE 6712-01-P
Complete official Federal Register PDF
FR Doc. 96-25189 Rewrite of the NASA FAR Supplement (NFS)
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52325-52347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25189]
=======================================================================
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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 1815, 1816, 1852, and 1870
Rewrite of the NASA FAR Supplement (NFS)
AGENCY: Office of Procurement, National Aeronautics and Space
Administration (NASA).
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: Part 1815 is revised to delete the NASA-unique source
selection procedures and established those in FAR 15.6 as the standard
for NASA negotiated competitive acquisition, with appropriate
supplementation; implement recent FAR changes resulting from provisions
of the Federal Acquisition Streamlining Act (FASA) of 1994; and
incorporate other acquisition streamlining procedures or delete
unnecessary regulatory coverage, consistent with the NFS rewrite
philosophy. Part 1816 is revised for the same reasons as above, as well
as to clarify the relationship between cost-plus-award-fee (CPAF)
contracting and performance based contracting (PBC). Subpart 1870.3 is
deleted in its entirety. The numbering of NFS sections has been changed
to indicate the exact section of the FAR being implemented or
supplemented. Since the changes either conform NASA procedures to those
of the FAR, implement FASA-related FAR changes, or affect acquisition
procedures to the extent that immediate adoption is necessary, NASA is
issuing the changes as an interim rule, with an effective date 30 days
after publication.
DATES: This rule is effective November 6, 1996. All comments on this
interim rule should be in writing and must be received by November 6,
1996.
ADDRESSES: Bruce King, Code HC, NASA Headquarters, 300 E Street, SW.,
Washington, DC 20546-0001; Tom O'Toole, Code HC, NASA Headquarters, 300
E Street, SW., Washington, DC 20546-0001.
FOR FURTHER INFORMATION CONTACT:
Mr. Thomas O'Toole, (202) 358-0478; Mr. Bruce King, (202) 358-0461.
SUPPLEMENTARY INFORMATION:
Background
The National Performance Review urged agencies to streamline and
clarify their regulations. The NFS rewrite initiative was established
to pursue these goals by conducting a section by section review of the
NFS to verify its accuracy, relevancy, and validity. The NFS will be
rewritten in blocks of parts and upon completion of all parts, the NFS
will be reissued in a new edition.
Impact
NASA certifies that this regulation will not have a significant
economic impact on a substantial number of small entities under the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). This rule does not
impose any reporting or record keeping requirements subject to the
Paperwork Reduction Act.
List of Subjects in 48 CFR Parts 1815, 1816, 1852, and 1870
Government procurement.
Deidre A Lee,
Associate Administrator for Procurement.
Accordingly, 48 CFR Parts 1815, 1816, 1852, and 1870 are amended as
follows:
2. Part 1815 is revised to read as follows:
PART 1815--CONTRACTING BY NEGOTIATION
Subpart 1815.4--Solicitation and Receipt of Proposals and Quotations
Sec.
1815.405 Solicitations for information or planning purposes.
1815.405-70 Draft requests for proposals.
1815.406 Preparing requests for proposals (REPs) and requests for
quotations (FRQs).
1815.406-2 Part I--The Schedule.
1815.406-5 Part IV--Representations and instructions.
1815.406-70 Page limitations.
1815.406-71 Installation reviews.
1815.406-72 Headquarters reviews.
1815.407 Solicitation provisions.
1815.407-70 NASA solicitation provisions.
1815.408 Issuing solicitations.
1815.408-70 Blackout notices.
1815.412 Late proposals, modifications, and withdrawals of
proposals.
1815.412-70 Broad agency announcements (BAAs), Small Business
Innovative Reearch (SBIR), and Small Business Technology Transfer
(STTR) solicitations.
1815.413 Disclosure and use of information before award.
1815.413-2 Alternate II.
[[Page 52326]]
1815.413-270 Appointing non-Government evaluators as special
Government employees.
Subpart 1815.5--Unsolicited Proposals
1815.502 Policy.
1815.503 General.
1815.504 Advance guidance.
1815.506 Agency procedures.
1815.506-70 Relationship of unsolicited proposals to NRAs.
1815.508 Prohibitions.
1815.508-70 NASA prohibitions.
1815.509 Limited use of data.
1815.509-70 Limited use of proposals.
1815.570 Foreign proposals.
Subpart 1815.6--Source Selection
1815.601 Definitions.
1815.602 Applicability.
1815.605-70 Evaluation factors and subfactors.
1815.608 Proposal evaluation.
1815.608-70 Identification of unacceptable proposals.
1815.608-71 Evaluation of a single proposal.
1815.609 Competitive range.
1815.610 Written or oral discussions.
1815.611 Best and Final Offers.
1815.612-70 NASA formal source selection.
Subpart 1815.7--Make-or-Buy Programs
1815.704 Items and work included.
1815.706 Evaluation, negotiation, and agreement.
1815.708 Contract clause.
1815.708-70 NASA contract clause.
Subpart 1815.8--Price Negotiaton
1815.804 Cost or pricing data and information other than cost of
pricing data.
1815.804-1 Prohibition on obtaining cost or pricing data.
1815.804-170 Acquisitions with the Canadian Commercial Corporation
(CCC).
1815.804-2 Requiring cost or pricing data.
1815.805-5 Field pricing support.
1815.807 Prenegotiation objectives.
1815.807-70 Content of the prenegotiation position memorandum.
1815.807-71 Installation reviews.
1815.807-72 Headquarters reviews.
1815.808 Price negotiation memorandum.
Subpart 1815.9--Profit
1815.902 Policy.
1815.903 Contracting officer responsibilities.
1815.970 NASA structured approach for profit or fee objective.
1815.970-1 General.
1815.970-2 Contractor effort.
1815.970-3 Other factors.
1815.970-4 Facilities capital cost of money.
1815.971 Payment of profit or fee under letter contracts.
Subpart 1815.10--Preaward, Award, and Postaward Notifications,
Protests, and Mistakes
1815.1003 Notification to successful offeror.
1815.1004-70 Debriefing of offerors--Major System acquisitions.
Subpart 1815.70--Ombudsman
1815.7001 NASA Ombudsman Program.
1815.7002 Synopses of solicitations and contracts.
1815.7003 Contract clause.
Authority 42 U.S.C. 2473(c)(1)
Subpart 1815.4--Solicitation and Receipt of Proposals and
Quotations
1815.405 Soliciations for information or planning purposes.
1815.405-70 Draft requests for proposals.
(a) Except for acquisitions described in 1815.602(b), contracting
officers shall issue draft requests for proposals (DRFPs) for all
competitive negotiated acquisitions expected to exceed $1,000,000
(including all options or later phases of the same project). DRFPs
shall invite comments from potential offerors on all aspects of the
draft solicitation, including the requirements, schedules, proposal
instructions, and evaluation approaches. Potential offerors should be
specifically requested to identify unnecessary or inefficient
requirements. When considered appropriate, the statement of work or the
specifications may be issued in advance of other solicitation sections.
(b) Contracting officers shall plan the acquisition schedule to
include adequate time for issuance of the DRFP, potential offeror
review and comment, and NASA evaluation and disposition of the
comments.
(c) When issuing DRFPs, potential offerors should be advised that
the DRFP is not a solicitation and NASA is not requesting proposals.
(d) Whenever feasible, contracting officers should include a
summary of the disposition of significant DRFP comments with the final
RFP.
(e) The procurement officer may waive the requirement for a DRFP
upon written determination that the expected benefits will not be
realized given the nature of the supply or service being acquired. The
DRFP shall not be waived because of poor or inadequate planning.
1815.406 Preparing requests for proposals (RFPs) and requests for
quotations (RFQs).
1815.406-2 Part I--The Schedule. (NASA supplements paragraph (c))
(c) To the maximum extent practicable, requirements should be
defined as performance based specifications/statements of work that
focus on required outcomes or results, not methods of performance or
processes.
1815.406-5 Part IV--Representations and instructions. (NASA
supplements paragraph (b))
(b) The information required in proposals should be kept to the
minimum necessary for the source selection decision. Although offerors
should be provided the maximum flexibility in developing their
proposals, contracting officers shall specify any information and
standard formats required for the efficient and impartial evaluation of
proposals.
1815.406-70 Page limitations.
(a) Technical and contracting personnel will mutually agree on page
limitations for their respective portions of an RFP. Unless approved in
writing by the procurement officer, the page limitation for the
contracting portion of an RFP (all sections except Section C,
Description/ specifications/work statement) shall not exceed 150 pages,
and the page limitation for the technical portion (Section C) shall not
exceed 200 pages. Attachments to the RFP count as part of the section
to which they relate. In determining page counts, a page is defined as
one side of a sheet, 8\1/2\'' x 11'', with at least one inch margins on
all sides, using not smaller than 12 characters per inch or equivalent
type. Foldouts count as an equivalent number of 8\1/2\'' x 11'' pages.
The metric standard format most closely approximating the described
standard 8\1/2\'' x 11'' size may also be used.
(b) Page limitations shall also be established for proposals
submitted in competitive acquisitions. Accordingly, technical and
contracting personnel will mutually agree on page limitations for each
portion of the proposal. Unless a different limitation is approved in
writing by the procurement officer, the total initial proposal,
excluding title pages, tables of content, and cost/price information,
shall not exceed 500 pages using the page definition of 1815.406-70(a).
Firm page limitations shall also be established for Best and Final
Offers (BAFOs), if requested. The appropriate BAFO page limitations
should be determined by considering the complexity of the acquisition
and the extent of any written or oral discussions. The same BAFO page
limitations shall apply to all offerors. Pages submitted in excess of
the specified limitations for the initial proposal and BAFO will not be
evaluated by the Government and will be returned to the offeror.
1815.406-71 Installation reviews.
(a) Installations shall establish procedures to review all RFPs
before release. When appropriate given the
[[Page 52327]]
complexity of the acquisition or the number of offices involved in
solicitation review, centers should consider use of a single review
meeting, called a Solicitation Review Board (SRB), as a streamlined
alternative to the serial or sequential coordination of the
solicitation with reviewing offices. The SRB is a meeting in which all
offices having review and approval responsibilities discuss the
solicitation and their concerns. Actions assigned and changes required
by the SRB shall be documented.
(b) When source evaluation board (SEB) procedures are used in
accordance with 1815.612-70, the SEB shall review and approve the RFP
prior to issuance.
1815.406-72 Headquarters reviews.
For RFPs requiring Headquarters review and approval, the
procurement officer shall submit ten copies of the RFP to the Associate
Administrator for Procurement (Code HS). Any significant information
relating to the RFP or the planned evaluation methodology that are not
included in the RFP itself should also be provided.
1815.407 Solicitation provisions. (NASA supplements paragraphs (c) and
(d))
(c)(6) The provision at FAR 52.215-10, Late Submissions,
Modifications, and Withdrawals of Proposals shall not be used in
solicitations for the Small Business Innovation Research (SBIR) or
Small Business Technology Transfer programs, or for broad agency
announcements listed in 1835.016. See instead 1815.407-70(a).
(d)(4) The contracting officer shall insert FAR 52.215-16 Alternate
II in all competitive negotiated solicitations.
1815.407-70 NASA solicitation provisions.
(a) The contracting officer shall insert the provision at 1852.215-
73, Late Submissions, Modifications, and Withdrawals of Proposals (AO,
SBIR, and STTR Programs), in lieu of the provision at FAR 52.215-10 in
Announcements of Opportunity issued pursuant to subpart 1870.1 and in
Small Business Innovation Research (SBIR) and Small Business Technology
Transfer solicitations. (See 1815.412).
(b) The contracting officer shall insert a provision substantially
as stated at 1852.215-74, Alternate Proposals, in competitive requests
for proposals if receipt of alternate proposals would benefit the
Government.
(c) The contracting officer shall insert the provision at 1852.215-
75, Expenses Related to Offeror Submissions, in all requests for
proposals.
(d) The contracting officer shall insert the provision at 1852.215-
77, Preproposal/Pre-bid Conference, in competitive requests for
proposals and invitations for bids where the Government intends to
conduct a preproposal or pre-bid conference. Insert the appropriate
specific information relating to the conference.
(e) The contracting officer shall insert the clause at 1852.214-71,
Grouping for Aggregate Award, in solicitations when it is in the
Government's best interest not to make award for less than specified
quantities solicited for certain items or groupings of items. Insert
the item numbers and/or descriptions applicable for the particular
acquisition.
(f) The contracting officer shall insert the clause at 1852.214-72,
Full Quantities, in solicitations when award will be made only on the
full quantities solicited.
(g) The contracting officer shall insert the provision at 1852.215-
81, Proposal Page Limitations, in all competitive requests for
proposals.
(h) The contracting officer shall insert the provision at 1852.215-
82, Offeror Oral Presentations, in competitive requests for proposals
when the Government intends to allow offerors to make oral
presentations prior to commencement of the Government's formal
evaluation.
1815.408 Issuing solicitations.
1815.408-70 Blackout notices.
(a) Upon release of the formal RFP, the Contracting Officer shall
direct all personnel associated with the acquisition to refrain from
communicating with prospective offerors and to refer all inquiries to
the Contracting Officer or other authorized representative. This
procedure is commonly known as a ``blackout notice'' and shall not be
imposed prior to release of the RFP. The notice may be issued in any
format (e.g., letter or electronic) appropriate to the complexity of
the acquisition.
(b) Blackout notices are not intended to terminate all
communication with offerors. Contracting officers should continue to
provide information as long as it does not create an unfair competitive
advantage or reveal offeror proprietary data.
1815.412 Late proposals, modifications, and withdrawals of proposals.
1815.412-70 Broad agency announcements (BAAs), Small Business
Innovative Research (SBIR), and Small Business Technology Transfer
(STTR) solicitations.
For BAAs listed in 1835.016, SBIR Phase I and Phase II
solicitations, and STTR solicitations--
(a) Proposals, or modifications to them, received from qualified
firms after the latest date specified for receipt may be considered if
a significant reduction in cost to the Government is probable or if
there are significant technical advantages, as compared with proposals
previously received. In such cases, the project office shall
investigate the circumstances surrounding the submission of the late
proposal or modification, evaluate its content, and submit written
recommendations and findings to the selection official or a designee as
to whether there is an advantage to the Government in considering the
proposal.
(b) The selection official or a designee shall determine whether to
consider the proposal.
(c) Offerors may withdraw proposals any time before award, provided
the conditions in paragraph (b) of the provision at 1852.215-73, Late
Submissions, Modifications, and Withdrawals of Proposals (AO, SBIR, and
STTR Programs), are satisfied.
1815.413 Disclosure and use of information before award.
1815.413-2 Alternate II.
(NASA supplements paragraphs (a), (e), and (f))
The alternate procedures at FAR 15.413-2 shall be used for NASA
acquisitions in lieu of those prescribed at FAR 15.413-1. These
procedures, as implemented by this section, apply both before and after
award.
(a) During evaluation proceedings, NASA personnel participating in
any way in the evaluation may not reveal any information concerning the
evaluation to anyone not also participating, and then only to the
extent that the information is required in connection with the
evaluation. When non-NASA personnel participate, they shall be
instructed to observe these restrictions.
(e) The notice at FAR 15.413-2(e) shall be placed on the cover
sheet of all proposals, whether solicited or unsolicited. (See 1805.402
regarding release of the names of firms submitting offers.)
(f)(i) Except as provided in paragraph (f)(ii) of this section, the
procurement officer is the approval authority to disclose proposal
information outside the Government. This authorization may be granted
only after compliance with FAR 37.2 and 1837.204, except that the
determination of nonavailability of Government personnel required by
FAR 37.2 is not required for disclosure of proposal information to JPL
employees.
(ii) Proposal information in the following classes of proposals may
be
[[Page 52328]]
disclosed with the prior written approval of a NASA official one level
above the NASA program official responsible for overall conduct of the
evaluation. The determination of nonavailbility of Government personnel
required by FAR 37.2 is not required for disclosure in these instances.
(A) NASA Announcements of Opportunity proposals;
(B) Unsolicited proposals;
(C) NASA Research Announcement proposals;
(D) SBIR and STTR proposals.
(iii) The written approvals required by paragraphs (f) (i) and (ii)
of this section shall be provided to the contracting officer before the
release of the proposal information. As a minimum, the approval shall:
(A) Identify the precise proposal information being released;
(B) Identify the person receiving the proposal information and
evidence of their appointment as a special government employee or a
statement of the applicable exception (see 1815.413-270);
(C) Provide a justification of the need for disclosure of the
proposal information to the non-Government evaluator(s); and
(D) Provide a statement that a signed ``Agreement and Conditions
for Evaluation of Proposals,'' in accordance with paragraph (f)(2) of
this section, will be obtained prior to release of the proposal to the
evaluator.
(iv) If JPL personnel, in evaluating proposal information released
to them by NASA, require assistance from non-JPL, non-Government
evaluators, JPL must obtain written approval to release the information
in accordance with paragraphs (f)(i) and (f)(ii) of this section.
(f)(2) The NASA official approving the disclosure of any proposal
information to a non-Government evaluator, including employees of JPL,
shall, prior to such disclosure, require each non-Government evaluator
to sign the following ``Agreement and Conditions for Evaluation of
Proposals.''
Agreement and Conditions for Evaluation of Proposals, October 1996
(1) The recipient agrees to use proposal information for NASA
evaluation purposes only. This limitation does not apply to
information that is otherwise available without restrictions to the
Government, another competing contractor, or the public.
(2) The recipient agrees that the NASA proposal cover sheet
notice (FAR 15.413-2(e) and NFS 1815.413-2(e)), and any notice that
may have been placed on the proposal by its originator, shall be
applied to any reproduction or abstract of any proposal information
furnished.
(3) Upon completion of the evaluation, the recipient agrees to
return all copies of proposal information or abstracts, if any, to
the NASA office that initially furnished the proposal information
for evaluation.
(4) Unless authorized in writing by the NASA official releasing
the proposal information, the recipient agrees not to contact either
the business entities originating the proposals or any of their
employees, representatives, or agents concerning any aspect of the
proposal information or extracts covered by this agreement.
(5) The recipient agrees to review his or her financial
interests relative to the entities whose proposal information NASA
furnishes for evaluation. At any time the recipient becomes aware
that he or she or a person with a close personal relationship
(household family members, business partners, or associates) has or
acquires a financial interest in the entities whose proposal
information is subject to this agreement, the recipient shall
immediately advise the NASA official releasing the proposal
information, protect the proposal information, and cease evaluation
activities pending a NASA decision resolving the conflict of
interest.
Signature:-------------------------------------------------------------
Name typed or printed:-------------------------------------------------
Date:------------------------------------------------------------------
[End of agreement]
1815.413-270 Appointing non-Government evaluators as special
Government employees.
(a) Except as provided in paragraph (c) of this section, non-
Government participants in proposal evaluation proceedings, except
employees of JPL, shall be appointed as special Government employees.
(b) Appointment as a Special Government employee is a separate
action from the approval required by paragraph 1815.413-2(f) and may be
processed concurrently. Appointment as a special Government employee
shall be made by:
(1) The NASA Headquarters personnel office when the release of
proposal information is to be made by a NASA Headquarters office; or
(2) The Field Installation personnel office when the release of
proposal information is to be made by the Field Installation.
(c) Non-Government evaluators need not be appointed as special
Government employees when they evaluate:
(1) NASA Announcements of Opportunity proposals;
(2) Unsolicited proposals;
(3) NASA Research Announcement proposals; and
(4) SBIR and STTR proposals.
Subpart 1815.5--Unsolicited Proposals
1815.502 Policy. (NASA supplements paragraphs (1) and (2))
(1) An unsolicited proposal may result in the award of a contract,
a grant, a cooperative agreement, or other agreement. If a grant or
cooperative agreement is used, the NASA Grant and Cooperative Agreement
Handbook (NPG 5800.1) applies.
(2) Renewal proposals, (i.e., those for the extension or
augmentation of current contracts) are subject to the same FAR and NFS
regulations, including the requirements of the Competition in
Contracting Act, as are proposals for new contracts.
1815.503 General. (NASA supplements paragraph (e))
(e) NASA will not accept for formal evaluation unsolicited
proposals initially submitted to another agency or to the Jet
Propulsion Laboratory (JPL) without the offeror's express consent.
1815.504 Advance guidance. (NASA supplements paragraph (b))
(b) The Headquarters Office of Procurement (Code HK) is responsible
for preparing for public use a brochure titled ``Guidance for the
Preparation and Submission of Unsolicited Proposals,'' which shall be
provided without charge by the Office of Procurement and other NASA
officials in response to requests for proposal submission information.
A deviation is required for use of any modified or summarized version
of the brochure or for alternate means of general dissemination of
unsolicited proposal information. Code HK is responsible for internal
distribution of the brochure.
1815.506 Agency procedures. (NASA supplements paragraph (a))
(a)(i) NASA Headquarters and each NASA field installation shall
designate an organizational entity as its unsolicited proposal
coordinating office for receiving and coordinating the handling and
evaluation of unsolicited proposals.
(ii) Each installation shall establish procedures for handling
proposals initially received by other offices within the installation.
Misdirected proposals shall be forwarded by the coordinating office to
the proper installation. Field installation coordinating offices are
also responsible for providing guidance to potential offerors regarding
the appropriate NASA officials to contact for general mission-related
inquiries or other preproposal discussions.
(iii) Coordinating offices shall keep records of unsolicited
proposals received and shall provide prompt
[[Page 52329]]
status information to requesters. These records shall include, at a
minimum, the number of unsolicited proposals received, funded, and
rejected during the fiscal year; the identity of the offerors; and the
office to which each was referred. The numbers shall be broken out by
source (large business, small business, university, or nonprofit
institution).
1815.506-70 Relationship of unsolicited proposals to NRAs.
An unsolicited proposal for a new effort or a renewal, identified
by an evaluating office as being within the scope of an open NRA, shall
be evaluated as a response to that NRS (see 1835.016-70), provided that
the evaluating office can either:
(a) State that the proposal is not at a competitive disadvantage or
(b) Give the offeror an opportunity to amend the unsolicited
proposal to ensure compliance with the applicable NRA proposal
preparation instructions. If these conditions cannot be met, the
proposal must be evaluated separately.
1815.508 Prohibitions. (NASA supplements paragraph (b))
(b) FAR 15.508(b) shall not apply to NASA; see instead 1815.508-70.
1815.508-70 NASA prohibitions.
Information (data) in unsolicited proposals furnished to the
Government is to be used for evaluation purposes only. Disclosure
outside the Government for evaluation is permitted only to the extent
authorized by, and in accordance with procedures in, FAR 15.413-2 and
1815.413-2.
1815.509 Limited use of data.
FAR 15.509 shall not apply to NASA. See instead 1815.509-70.
1815.509-70 Limited use of proposals.
(a) The provision at FAR 52.215.12, Restriction on Disclosure and
Use of Data, is applicable to unsolicited proposals.
(b) If an unsolicited proposal is received with a more restrictive
legend than made applicable by paragraph (a) of this section, the
procedures of FAR 15.413-2(c) apply.
(c) Upon receipt in the coordinating office, the Government notice
in FAR 15.413-2(e) shall be placed on the cover sheet of all
unsolicited proposals.
(d) Unsolicited proposals shall be evaluated outside the Government
only to the extent authorized by, and in accordance with the procedures
prescribed in, FAR 15.413-2(f) and 1815.413-2.
(e) If a request is made under the Freedom of Information Act for
any information contained in an unsolicited proposal, the procedures of
FAR 15.413-2(g) apply.
Sec. 1815.570 Foreign proposals.
Unsolicited proposals from foreign sources are subject to NMI
1362.1, Initiation and Development of International Cooperation in
Space and Aeronautical Programs.
Subpart 1815.6--Source Selection
Sec. 1815.601 Definitions. (NASA supplements paragraph (1) and (2))
(1) The source selection authority (SSA) is the Agency official
responsible for proper and efficient conduct of the source selection
process and for making the final source selection decision. The SSA has
the following responsibilities:
(i) Approve the evaluation factors, subfactors, and elements, the
weight of the evaluation factors and subfactors, and any special
standards of responsibility (see FAR 9.104-2) prior to release of the
RFP, or delegate this authority to appropriate management personnel;
(ii) Appoint the source selection team. However, when the
Administrator will serve as the SSA, the Official-in-Charge of the
cognizant Headquarters Program Office will appoint the team; and
(iii) Provide the source selection team with appropriate guidance
and special instructions to conduct the evaluation and selection
procedures.
(2) The SSA shall be established at the lowest reasonable level for
each acquisition. For acquisitions designated as Headquarters
selections, the SSA will be identified as part of the Master Buy Plan
process (see 1807.71).
Sec. 1815.602 Applicability. (NASA supplements paragraphs (a) and (b))
(a)(i) Except as indicated in paragraph (b) of this section, NASA
competitive negotiated acquisitions shall be conducted as follows:
(A) Acquisitions of $50 million or more--in accordance with FAR
15.6 and this subpart.
(B) Other acquisitions--in accordance with FAR 15.6 and this
subpart except section 1815.612-70.
(ii) Estimated dollar values of acquisitions shall include the
values of multiple awards, options, and later phases of the same
project.
(b) FAR 15.6 and this subpart are not applicable to acquisitions
conducted under the following procedures:
(i) MidRange (see part 1871).
(ii) Announcements of Opportunity (see 1870.102, App. I).
(iii) NASA Research Announcements (see 1835.016-70 and 1870.203,
App. I).
(iv) The Small Business Innovative Research (SBIR) program and the
Small Business Technology Transfer (STTR) pilot program under the
authority of the Small Business Act (15 U.S.C. 638).
(V) Architect and Engineering (A&E) services (see FAR 36.6 and
1836.6).
1815.605-70 Evaluation factors and subfactors.
(a) Typically, NASA establishes three evaluation factors: Mission
Suitability, Cost/Price, and Relevant Experience and Past Performance.
Evaluation factors may be further defined by subfactors. Although
discouraged, subfactors may be further defined by elements. Evaluation
subfactors and any elements should be structured to identify
significant discriminations, or ``key swingers''--the essential
information required to support a source selection decision. Too many
subfactors and elements undermine effective proposal evaluation. All
evaluation subfactors and any elements should be clearly defined to
avoid overlap and redundancy.
(b) Mission Suitability factor. (1) This factor indicates the merit
or excellence of the work to be performed or product to be delivered.
It includes, as appropriate, both technical and management subfactors.
Mission Suitability shall be numerically weighted and scored on a 1000-
point scale.
(2) The Mission Suitability factor may identify evaluation
subfactors to further define the content of the factor. Each Mission
Suitability subfactor shall be weighted and scored. The adjectival
rating percentages in 1815.608(a)(3)(A) shall be applied to the
subfactor weight to determine the point score. The number Mission
Suitability subfactors is limited to four. The Mission Suitability
evaluation subfactors and their weights shall be identified in the RFP.
(3) Although discouraged, elements that further define the content
of each subfactor may be identified. Elements, if used, shall not be
numerically weighted and scored. The total number of elements is
limited to eight. Any Mission Suitability elements shall be identified
in the RFP.
(4) For cost reimbursement acquisitions, the Mission Suitability
evaluation shall also include the results of any cost realism analysis.
The RFP shall notify offerors that the realism of proposed costs may
significantly affect their Mission Suitability scores.
(c) Cost/Price factor. This factor evaluates the reasonableness
and, if necessary, the cost realism, of proposed cost/prices. The Cost/
Price factor is not numerically weighted or scored.
[[Page 52330]]
(d) Relevant Experience and Past Performance factor. (1) This
factor indicates the relevant quantitative and qualitative aspects of
each offeror's record of performing services or delivering products
similar in size, content, and complexity to the requirements of the
instant acquisition. The Relevant Experience and Past Performance
factor is not numerically weighted or scored.
(2) The RFP shall instruct offerors to submit data (including data
from relevant Federal, State, and local governments and private
contracts) that can be used to evaluate their relevant experience and
past performance. Typically, the RFP will require:
(i) A list of contracts similar in-size, content and complexity to
the instant acquisition, showing each contract number, the type of
contract, a brief description of the work, and a point of contact from
the organization placing the contract. Normally, the requested
contracts are limited to those received in the last three years.
However, in acquisitions that require longer periods to demonstrate
performance quality, such as hardware development, the time period
should be tailored accordingly.
(ii) The identification and explanation of any cost overruns or
underruns, completion delays, performance problems and terminations.
(3) The Contracting Officer may start collecting past performance
data prior to proposal receipt. One method for initiating the past
performance evaluation early is to request offerors to submit their
past performance information in advance of the proposal due date. The
RFP could also include a past performance questionnaire for offerors to
send their previous customers with instructions to return the completed
questionnaire to the Government. Failure of the offeror to submit its
past performance information early or of the customers to submit the
completed questionnaires shall not be a cause for rejection of the
proposal nor shall it be reflected in the Government's evaluation of
the offeror's past performance.
1815.608 Proposal evaluation. (NASA supplements paragraphs (a) and
(b))
(a) Each proposal shall be evaluated to identify and document:
(i) Any failures to meet any terms and conditions of the RFP;
(ii) All strengths and weaknesses, classified as major or minor to
further underscore discriminators among proposals;
(iii) The numerical score and/or adjectival rating of each Mission
Suitability subfactor and for the Mission Suitability factor in total;
(iv) Cost realism, if appropriate;
(v) The adjectival rating of the Relevant Experience and Past
Performance evaluation factor; and
(vi) Any technical, schedule, and cost risk. Risks may result from
the offeror's technical approach, manufacturing plan, selection of
materials, processes, equipment, etc., or as a result of the cost,
schedule and performance impacts associated with these approaches. Risk
evaluations must consider the probability of success, the impact of
failure, and the alternatives available to meet the requirements. Risk
assessments shall be considered in determining Mission Suitability
strengths, weaknesses and numerical/adjectival ratings. Identified risk
areas and the potential for cost impact shall be considered in the cost
or price evaluation.
(1) Cost or price evaluation. (A) In accordance with 1815.804-1,
cost or pricing data shall not be requested in competitive
acquisitions. Only the minimal information other than cost or pricing
data necessary to ensure price reasonableness and assess cost realism
should be requested.
(B) When contracting on a firm fixed price basis, the contracting
officer shall not request any cost information, unless proposed prices
appear unreasonable or unrealistically low given the offeror's proposed
approach and there are concerns that the contractor may default.
(C) When contracting on a basis other than firm fixed price, the
contracting officer shall perform price and cost realism analyses to
assess the reasonableness and realism of the proposed costs. A cost
realism analysis will determine if the costs in an offeror's proposal
are realistic for the work to be performed, reflect a clear
understanding of the requirements, and are consistent with the various
elements of the offeror's technical proposal. The analysis should
include;
(a) The probable cost to the Government of each proposal, including
any recommended additions or reductions in materials, equipment, labor
hours, direct rates and indirect rates. The probable cost should
reflect the best estimate of the cost of any contract which might
result from that offeror's proposal.
(b) The differences in business methods; operating procedures, and
practices as they impact cost.
(c) A level of confidence in the probable cost assessment for each
proposal.
(D) The cost realism analysis may result in adjustments to Mission
Suitability scores in accordance with the procedure described in
1815.608(a)(3)(B).
(E) The cost or price evaluation, specifically the cost realism
analysis, often requires a technical evaluation of proposed costs.
Contracting officers may provide technical evaluators a copy of the
cost volume or relevant information from it to use in the analysis.
(2) Past performance evaluation. (A) The Relevant Experience and
Past Performance evaluation assesses the contractor's performance under
previously awarded contracts. It should evaluate the company, not the
individuals, involved with contractor performance. Relevant Experience
and Past Performance is not numerically scored, but is assigned an
adjectival rating.
(B) The evaluation may be limited to specific areas of past
performance considered most germane for the instant acquisition. It may
include any or all of the items listed in FAR 42.1501, and/or any other
aspects of past performance considered pertinent to the solicitation
requirements or challenges. Regardless of the areas of past performance
selected for evaluation, the same areas shall be evaluated for all
offerors in that acquisition.
(C) The evaluation may consider past performance data provided by
offerors and data from other sources. Questionnaires and interviews may
be used to solicit assessments of the offeror's performance, as either
a prime or subcontractor, from the offeror's previous customers.
(D) All pertinent information, including customer assessments and
any offeror rebuttals, will be made part of the source selection
records and included in the evaluation.
(iii) Firms without relevant experience or a past performance
record shall not be given a proposal deficiency or weakness (see
1815.610) and shall be given a neutral rating. If the adjectival rating
system of 1815.608(a)(3)(A) is used for the Relevant Experience and
Past Performance factor, a rating of ``Good'' shall be assigned in such
cases.
(3) Technical Evaluation. (A) Mission Suitability subfactors and
the total Mission Suitability factor shall be evaluated using the
following adjectival ratings, definitions and percentile ranges.
[[Page 52331]]
----------------------------------------------------------------------------------------------------------------
Adjectival rating Definitions Percentile range
----------------------------------------------------------------------------------------------------------------
Excellent............................. A comprehensive and thorough proposal of 91-100.
exceptional merit with one or more major
strengths. No weaknesses or only minor weaknesses
exist..
Very Good............................. A proposal which demonstrates over-all competence. 71-90.
One or more major strengths have been found, and
strengths outbalance any weaknesses that exist..
Good.................................. A proposal which shows a reasonably sound 51-70.
response. There may be strengths or weaknesses,
or both. As a whole, weaknesses not off-set by
strengths do not significantly detract from the
offeror's response..
Fair.................................. A proposal that has one or more weaknesses. 31-50.
Weaknesses have been found that outbalance any
strengths that exist..
Poor.................................. A proposal that has one or more major weaknesses 0-30.
that demonstrate a lack of overall competence or
would require a major proposal revision to
address..
----------------------------------------------------------------------------------------------------------------
(B) When contracting on a cost reimbursement basis, the Mission
Suitability evaluation shall reflect the results of any required cost
realism analysis performed under the cost/price factor. A structured
approach shall be used to adjust Mission Suitability scores based on
the degree of assessed cost realism. An example of such an approach
would:
(a) Establish a threshold at which Mission Suitability adjustments
would start. The threshold should reflect the acquisition's estimating
uncertainty (i.e., the higher the degree of estimating uncertainty, the
higher the threshold);
(b) Use a graduated scale that proportionally adjusts a proposal's
Mission Suitability score for its assessed cost realism;
(c) Affect a significant number of points in order to encourage
realistic pricing.
(d) Calculate a Mission Suitability point adjustment based on the
percentage difference between proposed and probable cost as follows:
------------------------------------------------------------------------
Point
Services Hardware development adjustment
------------------------------------------------------------------------
+/-5 percent........................ +/-30 percent......... 0
+/-6 to 10 percent.................. +/-31 to 40 percent... -50
+/-11 to 15 percent................. +/-41 to 50 percent... -100
+/-16 to 20 percent................. +/-51 to 60 percent... -150
+/-21 to 30 percent................. +/-61 to 70 percent... -200
+/- more than 30 percent............ +/- more than 70 -300
percent.
------------------------------------------------------------------------
(b) The contracting officer is authorized to make the determination
to reject all proposals received in response to a solicitation.
1815.608-70 Identification of unacceptable proposals.
(a) The contracting officer shall not complete the initial
evaluation of any proposal when it is determined that the proposal is
unacceptable because:
(1) It does not represent a reasonable initial effort to address
itself to the essential requirements of the RFP or clearly demonstrates
that the offeror does not understand the requirements;
(2) In research and development acquisitions, a substantial design
drawback is evident in the proposal, and sufficient correction or
improvement to consider the proposal acceptable would require virtually
an entirely new technical proposal; or
(3) It contains major technical or business deficiencies or
omissions or out-of-line costs which discussions with the offeror could
not reasonably be expected to cure.
(b) The contracting officer shall document the rationale for
discontinuing the initial evaluation of a proposal in accordance with
this section.
1815.608-71 Evaluation of a single proposal.
(a) If only one proposal is received in response to the
solicitation, the contracting officer shall determine if the
solicitation was flawed or unduly restrictive and determine if the
single proposal is an acceptable proposal. Based on these findings, the
Source Selection Authority shall direct the contracting officer to:
(1) Award without discussions provided the contracting officer
determines that adequate price competition exists (see FAR 15.804-
1(b)(1)(ii));
(2) Award after negotiating a mutually acceptable contract. (The
requirement for submission of cost or pricing data shall be determined
in accordance with FAR 15.804-1); or
(3) Reject the proposal and cancel the solicitation.
(b) The procedure in 1815.608-71(a) also applies when the number of
proposals equals the number of awards contemplated or when only one
acceptable proposal is received.
1815.609 Competitive range. (NASA supplements paragraph (a))
(a) Proposals shall not be included in the competitive range when
they do not have a reasonable chance of selection. To reduce
unnecessary expenses to both offerors and NASA, a total of no more than
three proposals shall be a working goal in establishing the competitive
range. Field installations may establish procedures for approval of
competitive range determinations commensurate with the complexity or
dollar value of an acquisition.
1815.610 Written or oral discussions. (NASA supplements paragraph
(c)).
(c)(2)(A) The contracting officer shall identify, and give offerors
a reasonable opportunity to address, all weaknesses that have an
adverse impact on the evaluation. Weaknesses are defined as
deficiencies (see FAR 15.601) and other proposal inadequacies.
Weaknesses may include all proposal areas that are inadequate for
evaluation, contain contradictory statements, or strain credibility.
However, minor irregularities, informalities, or apparent clerical
mistakes are not considered weaknesses. They may be identified to
offerors through the clarification technique defined in FAR 15.601,
rather than discussions as contemplated in this section.
(B) The contracting officer shall advise an offeror if, during
written or oral discussions, an offeror introduces a new weakness. The
offeror can be advised during the course of the discussions or as part
of the request for BAFO.
(C) The contracting officer shall identify any cost/price elements
that do not appear to be justified and encourage offerors to submit
their most favorable and realistic cost/price proposals, but shall not
discuss, disclose, or compare cost/price elements of any other offeror.
The contracting officer should question inadequate, conflicting,
unrealistic or unsupported cost information; differences between the
offeror's proposal and most probable cost assessments; cost realism
concerns; differences between audit findings and
[[Page 52332]]
proposed costs; proposed rates that are too high/low; and labor mixes
that do not appear responsive to the requirements. No agreement on
cost/price elements or a ``bottom line'' is necessary.
(3)(A) The contracting officer shall discuss contract terms and
conditions so that a ``model'' contract can be sent to each offeror
with the request for BAFO. Any proposed technical performance
capabilities above those specified in the RFP that have value to the
Government and are considered proposal strengths should be discussed
with the offeror and proposed for inclusion in that offeror's ``model''
contract. These items are not to be discussed with, or proposed to,
other offerors. If the offeror declines to include these strengths in
its ``model'' contract, the Government evaluators should reconsider
their characterization as strengths.
(B) In no case shall the contracting officer relax or amend RFP
requirements for any offeror, without amending the RFP and permitting
the other offerors an opportunity to propose against the relaxed
requirements.
1815.611 Best and Final Offers. (NASA supplements paragraphs (b), (c)
and (d))
(b) The request for BAFOs shall also:
(i) Identify any remaining weaknesses;
(ii) Instruct offerors to incorporate all changes to their offers
resulting from discussions, and require clear traceability from initial
proposals;
(iii) Require offerors to complete and execute the ``model''
contract, which includes any special provisions or performance
capabilities the offeror proposed above those specified in the RFP;
(iv) Caution offerors against unsubstantiated changes to their
proposals; and
(v) Establish a page limit for BAFOs.
(c) (i) Approval of the Associate Administrator for Procurement
(Code HS) is required to reopen discussions for acquisitions of $50
million more.
(ii) Approval of the procurement officer is required for all other
acquisitions.
(d) (i) Proposals are rescored based on BAFO evaluations. Scoring
changes between initial and BAFO proposals shall be clearly traceable.
(ii) All significant evaluation findings shall be fully documented
and considered in the source selection decision. A clear and logical
audit trail shall be maintained for the rationale for ratings and
scores, including a detailed account of the decisions leading to the
selection. Selection is made on the basis of the evaluation criteria
established in the RFP.
(iii) Prior to award, the SSA shall sign a source selection
statement that clearly and succinctly justifies the selection. Source
selection statements must describe: the acquisition; the SEB evaluation
procedures; the substance of the Mission Suitability evaluation; and
the evaluation of the Cost/Price and Relevant Experience and Past
Performance factors. The Statement also addresses unacceptable
proposals, the competitive range determination, late proposals, or any
other considerations pertinent to the decision. The statement shall not
reveal any confidential business information. Except for certain major
system acquisition competitions (see 1815.1004-70), source selection
statements shall be releasable to competing offerors and the general
public upon request. The statement shall be available to the Debriefing
Official to use in debriefing unsuccessful offerors and shall be
provided to debriefed offerors upon request.
(iv) Once the selection decision is made, the contacting officer
shall, without post-selection negotiations, award the contract.
1815.612-70 NASA formal source selection
(a) The source evaluation board (SEB) procedures shall be used for
those acquisitions identified in 1815.602(a)(i)(A).
(b) General. The SEB assists the SSA in decision making by
providing expert analyses of the offerors' proposals in relation to the
evaluation factors, subfactors, and elements contained in the
solicitation. The SEB will prepare and present its findings to the SSA,
avoiding trade-off judgments among either the individual offerors or
among the evaluation factors. The SEB will not make recommendations for
selection to the SSA.
(c) Designation. (1) The SEB shall be comprised of competent
individuals fully qualified to identify the strengths, weaknesses, and
risks associated with proposals submitted in response to the
solicitation. The SEB shall be appointed as early as possible in the
acquisition process, but not later than acquisition plan approval.
(2) While SEB participants are normally drawn from the cognizant
installation, personnel from other NASA installations or other
Government agencies may participate. When it is necessary to disclose
the proposal (in whole or in part) outside the Government, approval
shall be obtained in accordance with NFS 1815.413-2.
(3) When Headquarters retains SSA authority, the Headquarters
Office of Procurement (Code HS) must concur on the SEB appointments.
Qualifications of voting members, including functional title, grade
level, and related SEB experience, shall be provided.
(d) Organization. (1) The organization of an SEB is tailored to the
requirements of the particular acquisition. This can range from the
simplest situation, where the SEB conducts the evaluation and fact-
finding without the use of committees or panels/consultants (as
described in 1815.612-70(d) (4) and (5)), to a highly complex situation
involving a major acquisition where two or more committees are formed
and these, in turn, are assisted by special panels or consultants in
particular areas. The number of committees or panels/consultants shall
be kept to a minimum.
(2) The SEB Chairperson is the principal operating executive of the
SEB. The Chairperson is expected to manage the team efficiently without
compromising the validity of the findings provided to the SSA as the
basis for a sound selection decision.
(3) The SEB Recorder functions as the principal administrative
assistant to the SEB Chairperson and is principally responsible for
logistical support and record-keeping of SEB activities.
(4) An SEB committee functions as a fact-finding arm of the SEB,
usually in a broad grouping of related disciplines (e.g., technical or
management). The committee evaluates in detail each proposal, or
portion thereof, assigned by the SEB in accordance with the approved
evaluation factors, subfactors, and elements, and summarizes its
evaluation in a written report to the SEB. The committee will also
respond to requirements assigned by the SEB, including further
justification or reconsideration of its findings. Committee
chairpersons shall manage the administrative and procedural matters of
their committees.
(5) An SEB panel or consultant functions as a fact-finding arm of
the committee in a specialized area of the committee's
responsibilities. Panels are established or consultants named when a
particular area requires deeper analysis than the committee can
provide.
(6) The total of all such evaluators (committees, panels,
consultants, etc. excluding SEB voting members and ex officio members)
shall be limited to a maximum of 20 people, unless approved in writing
by the procurement officer.
(e) Voting members. (1) Voting members of the SEB shall include
people who will have key assignments on the project to which the
acquisition is directed. However, it is important that
[[Page 52333]]
this should be tempered to ensure objectivity and to avoid an improper
balance. It may even be appropriate to designate a management official
from outside the project as SEB Chairperson.
(2) Non-government personnel shall not serve as voting members of a
NASA SEB.
(3) The SEB shall review the findings of committees, panels or
consultants and use its own collective judgment to develop the SEB
evaluation findings reported to the SSA. All voting members of the SEB
shall have equal status as rating officials.
(4) SEB membership shall be limited to a maximum of 7 voting
individuals. Wherever feasible, an assignment to SEB membership as a
voting member shall be on a full-time basis. When not feasible, SEB
membership shall take precedence over other duties.
(5) The following people shall be voting members of all SEBs:
(i) Chairperson.
(ii) A senior, key technical representative for the project.
(iii) An experience procurement representative.
(iv) A senior Safety & Mission Assurance (S&MA) representative, as
appropriate.
(v) Committee chairpersons (except where this imposes an undue
workload).
(f) Ex officio members. (1) The number of nonvoting ex officio
(advisory) members shall be kept as small as possible. Ex officio
members should be selected for the experience and expertise they can
provide to the SEB. Since their advisory role may require access to
highly sensitive SEB material and findings, ex officio membership for
persons other than those identified in paragraph 1815.612-70(f)(3) is
discouraged.
(2) Nonvoting ex officio members may state their views and
contribute to the discussions in SEB deliberations, but they may not
participate in the actual rating process. However, the SEB recorder
should be present during rating sessions.
(3) For field installation selections, the following shall be
nonvoting ex officio members on all SEBs:
(i) Chairpersons of SEB committees, unless designated as voting
members.
(ii) The procurement officer of the installation, unless designated
a voting member.
(iii) The contracting officer responsible for the acquisition,
unless designated a voting member.
(iv) The Chief Counsel and/or designee of the installation.
(v) The installation small business specialist.
(vi) The SEB recorder.
(g) Evaluation plan. (1) The SEB evaluation plan consists of
general and specific evaluation guidelines (and special standards of
responsibility, where applicable) established to assess each offeror's
proposal against the RFP evaluation factors, subfactors, and elements.
The evaluation guidelines are designed to focus the evaluators'
assessment. They are not weighted and are not listed in the RFP.
However, the substance of the guidelines may be included in a narrative
description of the subfactors and elements. In addition, the plan
includes the system used in conducting the evaluation and scoring of
each offeror's proposal.
(2) The evaluation plan shall be approved by the SEB (and other
personnel designated in accordance with installation procedures) before
the formal RFP is issued.
(h) Evaluation. (1) If committees are used, the SEB Chairperson
shall send them the proposals or portions thereof to be evaluated,
along with instructions regarding the expected function of each
committee, and all data considered necessary or helpful.
(2) While oral reports may be given to the SEB, each committee
shall submit a written report which should include the following:
(i) Copies of individual worksheets and supporting comments to the
lowest level evaluated;
(ii) An evaluation sheet summarized for the committee as a whole;
and
(iii) A statement for each proposal describing any strengths or
weaknesses which significantly affected the evaluation and stating any
reservations or concerns, together with supporting rationale, which the
committee or any of its members want to bring to the attention of the
SEB.
(3) Clear traceability must exist at all levels of the SEB process.
All reports submitted by committees or panels will be retained as part
of the SEB records.
(4) Each voting SEB member shall thoroughly review each proposal
and any committee reports and findings. The SEB shall rate or score the
proposals for each evaluation factor and subfactor according to its own
collective judgment, consistent with the approved evaluation plan. SEB
minutes shall reflect this evaluation process.
(i) SEB presentation. (1) The SEB Chairperson shall brief the SSA
on the results of the SEB deliberations to permit an informed and
objective selection of the best source(s) for the particular
acquisition.
(2) The presentation shall focus on the major strengths and
weaknesses found in the proposals, the probable cost of each proposal,
and any significant issues and problems identified by the SEB. This
presentation must explain any applicable special standards of
responsibility; evaluation factors, subfactors, and elements; the major
strengths and weaknesses of the offerors; the Government cost estimate,
if applicable; the offerors' proposed cost/price; the probable cost;
the proposed fee arrangements; and the final adjectival ratings and
scores to the subfactor level.
(3) Attendance at the presentation is restricted to people involved
in the selection process or who have a valid need to know. The
designated individuals attending the SEB presentation(s) shall:
(i) Ensure that the solicitation and evaluation processes complied
with all applicable agency policies and that the presentation
accurately conveys the SEB's activities and findings;
(ii) Not change the established evaluation factors, subfactors,
elements, weights, or scoring systems; or the substance of the SEB's
findings. They may, however, advise the SEB to rectify procedural
omissions, irregularities or inconsistencies, substantiate its
findings, or revise the presentation.
(4) The SEB recorder will coordinate the formal presentation
including arranging the time and place of the presentation, assuring
proper attendance, and distributing presentation material.
(5) For Headquarters selections, the Headquarters Office of
Procurement (Code HS) will coordinate the presentation, including
approval of attendees. When the Administrator is the SSA, a preliminary
presentation should be made to the Field Installation Director and to
the Official-in-Charge of the cognizant Headquarters Program Office.
(j) Recommended SEB presentation format. (1) Identification of
acquisition. Identifies the installation, the nature of the services or
hardware to be procured, some quantitative measure including the
Government cost estimate for the acquisition, and the planned
contractual arrangement. Avoids detailed objectives of the acquisition.
(2) Background. Identifies any earlier phases of a phased
acquisition or, as in the case of continuing support services,
identifies the incumbent and any consolidations or proposed changes
from the existing structure.
(3) Evaluation factors, subfactors, and elements. Explains any
special standards of responsibility and the evaluation factors,
subfactors, and elements. Lists the relative order of importance of the
evaluation factors and
[[Page 52334]]
the numerical weights of the Mission Suitability subfactors. Presents
the adjectival scoring system used in the Mission Suitability and
Relevant Experience and Past Performance evaluations.
(4) Sources. Indicates the number of offerors solicited and the
number of offerors expressing interest (e.g., attendance at a
preproposal conference). Identifies the offerors submitting proposals,
indicating any small businesses, small disadvantaged businesses, and
women-owned businesses.
(5) Summary of findings. Lists the initial and final Mission
Suitability ratings and scores, the offerors' proposed costs/prices,
and any assessment of the probable costs. Introduces any clear
discriminator, problem, or issue which could affect the selection.
Addresses any competitive range determination.
(6) Strengths and weaknesses of offerors. Summarizes the SEB's
findings, using the following guidelines:
(i) Present only the major strengths and weaknesses of individual
offerors.
(ii) Directly relate the strengths and weaknesses to the evaluation
factors, subfactors, and elements.
(iii) Indicate the significance of major strength and weaknesses.
(iv) Indicate the results and impact, if any, of written and/or
oral discussions and BAFOs on ratings and scores.
(7) Final mission suitability ratings and scores. Summarizes the
evaluation subfactors and elements, the maximum points achievable, and
the scores of the offerors in the competitive range.
(8) Final cost/price evaluation. Summarizes proposed costs/prices
and any probable costs associated with each offeror including proposed
fee arrangements. Presents the data as accurately as possible, showing
SEB adjustments to achieve comparability. Identifies the SEB's
confidence in the probable costs of the individual offerors, noting the
reasons for low or high confidence.
(9) Relevant experience and past performance. Reflects the summary
conclusions, supported by specific case data, with particular emphasis
on exemplary or inferior performance and its potential bearing on the
instant acquisition.
(10) Special interest. Includes only information of special
interest to the SSA that has not been discussed elsewhere, e.g.,
procedural errors or other matters that could have an effect on the
selection decision.
(k) A source selection statement shall be prepared in accordance
with 1815.611(d)(iii). For installation selections, the Field
Installation Chief Counsel or designee will prepare the source
selection statement. For Headquarters selections, the Office of General
Counsel or designee will prepare the statement.
Subpart 1815.7--Make-or-Buy Programs
1815.704 Items and work included.
Make-or-buy programs should not include items or work efforts
estimated to cost less than $500,000.
1815.706 Evaluation, negotiation, and agreement. (NASA supplements
paragraph (b))
(b) The make-or-buy program review by the installation's small and
disadvantaged business utilization specialist and the SBA
representative should be concurrent with the contracting officer's
review. When urgent circumstances preclude this or if the small and
disadvantaged business specialist or SBA representative fails to
respond on a timely basis, the contracting officer shall include an
explanatory statement in the contract file and transmit copies to the
specialist and the representative.
1815.708 Contract clause.
1815.708-70 NASA contract clause.
(a) The contracting officer shall insert the provision at 1852.215-
78, Make-or-Buy Program Requirements; in solicitations requiring make-
or-buy programs as provided in FAR 15.703. This provision shall be used
in conjunction with the clause at FAR 52.215-21, Changes or Additions
to Make-or-Buy Program. The contracting officer may add additional
paragraphs identifying any other information required in order to
evaluate the program.
(b) The contracting officer shall insert the clause at 1852.215-79,
Price Adjustment for ``Make-or-Buy'' Changes, in contracts that include
FAR 52.215-21 with its Alternate I or II. Insert in the appropriate
columns the items that will be subject to a reduction in the contract
value.
Subpart 1815.8--Price Negotiation
1815.804 Cost or pricing data and information other than cost or
pricing data.
1815.804-1 Prohibition on obtaining cost or pricing data. (NASA
supplements paragraph (b))
(b)(1) The adequate price competition exception is applicable to
both fixed-price and cost-reimbursement type acquisitions. Contracting
officers shall assume that all competitive acquisitions qualify for
this exception. In such cases, information other than cost or pricing
data may be requested to the extent necessary to ensure price
reasonableness and assess cost realism.
(2)(iii) The contracting officer shall document the comparison of
the item with the catalog or market priced commercial item, including
the technical similarities and differences and the price justification
methodology.
(5) Waivers of the requirement for submission of cost or pricing
data shall be prepared in accordance with FAR 1.704. A copy of each
waiver shall be sent to the Headquarters Office of Procurement (Code
HC).
1815.804-170 Acquisitions with the Canadian Commercial Corporation
(CCC).
NASA has waived the requirement for the submission of cost or
pricing data when contracting with the CCC. This waiver applies through
March 31, 1999. The CCC will provide assurance of the fairness and
reasonableness of the proposed prices, and will also provide for
follow-up audit activity to ensure that excess profits are found and
refunded to NASA. However, contracting officers shall ensure that the
appropriate level of information other than cost or pricing data is
submitted to permit any required Government cost/price analysis.
1815.804-2 Requiring cost or pricing data. (NASA supplements paragraph
(b))
(b)(2) If a certificate of current cost or pricing data is made
applicable as of a date other than the date of price agreement, the
agreed date should generally be within two weeks of the date of price
agreement.
1815.805-5 Field pricing support. (NASA supplements paragraph (a))
(a)(1)(A) The threshold for obtaining a field pricing report for
cost reimbursement contracts is $1,000,000.
(B) A field pricing report consists of a technical report and an
audit report by the cognizant contract audit activity. Contracting
officers should request a technical report from the ACO only if NASA
resources are not available.
(C) When the required participation of the ACO or auditor involves
merely a verification of information, contracting officers should
obtain this verification from the cognizant office by telephone rather
than formal request of field pricing support.
(D) When the threshold for requiring field pricing support is met
and the cost proposal is for a product of a follow-on nature,
contracting officers shall ensure that the following items, at a
minimum are considered: actuals incurred under the previous contract,
learning
[[Page 52335]]
experience, technical and production analysis, and subcontract proposal
analysis. This information may be obtained through NASA resources or
the cognizant DCMC ACO or DCAA.
1816.807 Prenegotiation objectives. (NASA supplements paragraph (b))
(b)(i) Before conducting negotiations requiring installation or
Headquarters review, contracting officers or their representatives
shall prepare a prenegotiation position memorandum setting forth the
technical, business, contractual, pricing, and other aspects to be
negotiated.
(ii) A prenegotiation position memorandum is not required for
contracts awarded under competitive negotiated procedures.
1815.807-70 Content of the prenegotiation position memorandum.
The prenegotiation position memorandum (PPM) should fully explain
the contractor and Government positions. Since the PPM will ultimately
become the basis for negotiation, it should be structured to track to
the price negotiation memorandum (see FAR 15.808 and 1815.808). In
addition to the information described in FAR 15.807 and, as
appropriate, 15.808(a), the PPM should address the following subjects,
as applicable, in the order presented:
(a) Introduction. Include a description of the acquisition and a
history of prior acquisitions for the same or similar items. Address
the extent of competition and its results. Identify the contractor and
place of performance (if not evident from the description of the
acquisition). Document compliance with law, regulations and policy,
including JOFOC, synopsis, method of contracting D&F, EEO compliance,
and current status of contractor systems (see FAR 15.808(a)(4)). In
addition, the negotiation schedule should be addressed and the
Government negotiation team members identified by name and position.
(b) Type of contract contemplated. Explain the type of contract
contemplated and the reasons for its suitability.
(c) Special features and requirements. In this area, discuss any
special features (and related cost impact) of the acquisition,
including such items as--
(1) Letter contract or precontract costs authorized and incurred;
(2) Results of preaward survey;
(3) Contract option requirements;
(4) Government property to be furnished;
(5) Contractor/Government investment in facilities and equipment
(and any modernization to be provided by the contractor/Government);
and
(6) Any deviation, special clauses, or unusual conditions
anticipated, for example, unusual financing, warranties, EPA clauses
and when approvals were obtained, if required.
(d) Cost analysis. For the basic requirement, and any option,
include--
(1) A parallel tabulation, by element of cost and profit/fee, of
the contractor's proposal and the Government's negotiation objective.
The negotiation objective represents the fair and reasonable price the
Government is willing to pay for the supplies/services. For each
element of cost, compare the contractor's proposal and the Government
position, explain the differences and how the Government position was
developed, including the estimating assumptions and projection
techniques employed, and how the positions differ in approach. Include
a discussion of excessive wages found (if applicable) and their planned
resolution. Explain how historical costs, including costs incurred
under a letter contract (if applicable), were used in developing the
negotiation objective;
(2) Significant differences between the field pricing report
(including any audit reports) and the negotiation objectives and/or
contractor's proposal shall be highlighted and explained. For each
proposed subcontract meeting the requirement of FAR 15.806-2(a), there
shall be a discussion of the price and, when appropriate, cost analyses
performed by the contracting officer, including the negotiation
objective for each such subcontract. The discussion of each major
subcontract shall include the type of subcontract, the degree of
competition achieved by the prime contractor, the price and, when
appropriate, cost analyses performed on the subcontractor's proposal by
the prime contractor, any unusual or special pricing or finance
arrangements, and the current status of subcontract negotiations.
(3) The rationale for the Government's profit/fee objectives and,
if appropriate, a completed copy of the NASA Form 634, Structured
Approach--Profit/Fee Objective, and DD Form 1861, Contract
FR Doc. 96-25189 Rewrite of the NASA FAR Supplement (NFS)
Facilities
Capital Cost of Money, should be included. For incentive and award fee
contracts, describe the planned arrangement in terms of share lines,
ceilings, cost risk, and so forth, as applicable.
(e) Negotiation approval sought. The PPM represents the
Government's realistic assessment of the fair and reasonable price for
the supplies and services to be acquired. If negotiations subsequently
demonstrate that a higher dollar amount (or significant term or
condition) is reasonable, the contracting officer shall document the
rationale for such a change and request approval to amend the PPM from
the original approval authority.
1815.807-71 Installation reviews.
Each contracting activity shall establish a formal system for the
review of prenegotiation position memoranda. The scope of coverage,
exact procedures to be followed, levels of management review, and
contract file documentation requirements should be directly related to
the dollar value and complexity of the acquisition. The primary purpose
of these reviews is to ensure that the negotiator, or negotiating team,
is thoroughly prepared to enter into negotiations with a well-
conceived, realistic, and fair plan.
1815.807-72 Headquarters reviews.
(a) When a prenegotiation position has been selected for
Headquarters review and approval, the contracting activity shall submit
to the Office of Procurement (Code HS) one copy each of the
prenegotiation position memorandum, the contractor's proposal, the
Government technical evaluation, and all pricing reports (including any
audit reports).
(b) The required information described in paragraph (a) of this
section shall be furnished to Headquarters as soon as practicable and
sufficiently in advance of the planned commencement of negotiations to
allow a reasonable period of time for Headquarters review. Electronic
submittal is acceptable.
1815.808 Price negotiation memorandum. (NASA supplements paragraphs
(a) and (b))
(a)(i) The price negotiation memorandum (PNM) serves as a detailed
summary of: the technical, business, contractual, pricing (including
price reasonableness), and other elements of the contract negotiated;
and the methodology and rationale used in arriving at the final
negotiated agreement.
(ii) A PNM is not required for a contract awarded under competitive
negotiated procedures. However, the information required by FAR 15.808
shall be reflected in the evaluation and selection documentation to the
extent applicable.
(b) When the PNM is a ``stand-alone'' document, it shall contain
the information required by the FAR and NFS for both PPMs and PNMs.
However, when a PPM has been prepared under 1815.807, the subsequent
PNM need only provide any
[[Page 52336]]
information required by FAR 15.808 that was not provided in the PPM, as
well as any changes in the status of factors affecting cost elements
(e.g., use of different rates, hours, subcontractors; wage rate
determinations; or the current status of the contractor's systems).
Subpart 1815.9--Profit
1815.902 Policy. (NASA supplements paragraph (a))
(a)(1) The NASA structured approach for determining profit or fee
objectives, described in 1815.970, shall be used to determine profit or
fee objectives for conducting negotiations in those acquisitions that
require cost analysis, except as indicated in paragraph (a)(2) of this
section.
(a)(2) The use of the NASA structured approach for profit or fee is
not required for:
(A) Architect-engineer contracts;
(B) Management contracts for operation and/or maintenance of
Government facilities;
(C) Construction contracts;
(D) Contracts primarily requiring delivery of material supplied by
subcontractors;
(E) Termination settlements;
(F) Cost-plus-award-fee contracts (however, contracting officers
may find it advantageous to perform a structured profit/fee analysis as
an aid in arriving at an appropriate fee arrangement); and
(G) Contracts having unusual pricing situations when the
procurement officer determines in writing that the structured approach
is unsuitable and the exemption is:
(1) Justified in writing, and
(2) Authorized by the procurement officer.
1815.903 Contracting officer responsibilities. (NASA supplements
paragraph (d))
(d)(1)(ii) In architect-engineer contracts, the price or estimated
cost and fee for services other than the production and delivery of
designs, plans, drawings, and specifications, are not subject to the 6
percent limitation set forth in FAR 15.903(d)(1).
1815.970 NASA structured approach for profit or fee objective.
1815.970-1 General.
(a) The NASA structured approach for determining profit or fee
objectives is a system of assigning weights to cost elements and other
factors to calculate the objective. Contracting officers shall use NASA
Form 634 to develop the profit or fee objective and shall use the
weight ranges listed after each category and factor on the form after
considering the factors in 1815.970-2 through 1815.970-4. The rationale
supporting the assigned weights shall be documented in the PPM in
accordance with 1815.807-70(d)(3).
(b)(1) The structured approach was designed for determining profit
or fee objectives for commercial organizations. However, the structured
approach shall be used as a basis for arriving at fee objectives for
nonprofit organizations (FAR subpart 31.7), excluding educational
institutions (FAR subpart 31.3), in accordance with paragraph (b)(2) of
this section. (It is NASA policy not to pay profit or fee on contracts
with educational institutions.)
(2) For contracts with nonprofit organizations under which profits
or fees are involved, an adjustment of up to 3 percent shall be
subtracted from the total profit/fee objective. In developing this
adjustment, it will be necessary to consider the following factors:
(i) Tax position benefits;
(ii) Granting of financing through letters of credit;
(iii) Facility requirements of the nonprofit organization; and
(iv) Other pertinent factors that may work to either the advantage
or disadvantage of the contractor in its position as a nonprofit
organization.
1815.970-2 Contractor effort.
(a) This factor takes into account what resources are necessary and
what the contractor must do to meet the contract performance
requirements. The suggested cost categories under this factor are for
reference purposes only. The format of individual proposals will vary,
but these broad categories provide a sample structure for the
evaluation of all categories of cost. Elements of cost shall be
separately listed under the appropriate category and assigned a weight
from the category range.
(b) Regardless of the categories of cost defined for a specific
acquisition, neither the cost of facilities nor the amount calculated
for the cost of money for facilities capital shall be included as part
of the cost base in column 1.(a) in the computation of profit or fee.
(c) Evaluation of this factor requires analyzing the cost content
of the proposed contract as follows:
(1) Material acquisition (subcontracted items, purchased parts, and
other material.). (i) Consider the managerial and technical efforts
necessary for the prime contractor to select subcontractors and
administer subcontracts, including efforts to introduce and maintain
competition. These evaluations shall be performed for purchases of raw
materials or basic commodities; purchases of processed material,
including all types of components of standard or near-standard
characteristics; and purchases of pieces, assemblies, subassemblies,
special tooling, and other products special to the end item. In
performing the evaluation, also consider whether the contractor's
purchasing program makes a substantial contribution to the performance
of a contract through the use of subcontracting programs involving many
sources, new complex components and instrumentation, incomplete
specifications, and close surveillance by the prime contractor.
(ii) Recognized costs proposed as direct material costs, such as
scrap charges, shall be treated as material for profit/fee evaluation.
If intracompany transfers are accepted at price in accordance with FAR
31.205-26(e), they shall be evaluated as a single element under the
material acquisition category. For other intracompany transfers, the
constituent elements of cost shall be identified and weighted under the
appropriate cost category, i.e., material, labor, and overhead.
(2) Direct labor (engineering, service, manufacturing, and other
labor). (i) Analysis of the various items of cost should include
evaluation of the comparative quality and level of the engineering
talents, service contract labor, manufacturing skills, and experience
to be employed. In evaluating engineering labor for the purpose of
assigning profit/fee weights, consideration should be given to the
amount of notable scientific talent or unusual or scarce engineering
talent needed, in contrast to journeyman engineering effort or
supporting personnel.
(ii) Evaluate service contract labor in a like manner by assigning
higher weights to engineering, professional, or highly technical skills
and lower weights to semiprofessional or other skills required for
contract performance.
(iii) Similarly, the variety of engineering, manufacturing and
other types of labor skills required and the contractor's manpower
resources for meeting these requirements should be considered. For
purposes of evaluation, subtypes of labor (for example, quality
control, and receiving and inspection) proposed separately from
engineering, service, or manufacturing labor should be included in the
most appropriate labor type. However, the same evaluation
considerations as outlined above will be applied.
(3) Overhead and general management (G&A). (i) Analysis of overhead
and G&A includes the evaluation of the makeup of these expenses, how
much they contribute to
[[Page 52337]]
contract performance, and the degree of substantiation provided for
rates proposed in future years.
(ii) Contracting officers should also consider the historical
accuracy of the contractor's proposed overheads as well as the ability
to control overhead pool expenses.
(iii) The contracting officer, in an evaluation of the overhead
rate of a contractor using a single indirect cost rate, should break
out the applicable sections of the composite rate which could be
classified as engineering overhead, manufacturing overhead, other
overhead pools, and G&A expenses, and apply the appropriate weight.
(4) Other costs. Include all other direct costs associated with
contractor performance under this item, for example, travel and
relocation, direct support, and consultants. Analysis of these items of
cost should include their nature and how much they contribute to
contract performance.
1815.970-3 Other factors.
(a) Cost risk. The degree of risk assumed by the contractor should
influence the amount of profit or fee a contractor is entitled to
anticipate. For example, if a portion of the risk has been shifted to
the Government through cost-reimbursement or price redetermination
provisions, unusual contingency provisions, or other risk reducing
measures, the amount of profit or fee should be less than for
arrangements under which the contractor assumes all the risk. This
factor is one of the most important in arriving at prenegotiation
profit/fee objectives.
(1) Other risks on the part of the contractor, such as loss of
reputation, losing a commercial market, or losing potential profit/fee
in other fields, shall not be considered in this factor. Similarly, any
risk on the part of the contracting office, such as the risk of not
acquiring an effective space vehicle, is not within the scope of this
factor.
(2) The degree of cost responsibility assumed by the contractor is
related to the share of total contract cost risk assumed by the
contractor through the selection of contract type. The weight for risk
by contract type would usually fall within the 0-to-3 percent range for
cost-reimbursement contracts and 3-to-7 percent range for fixed-price
contracts.
(i) Within the ranges set forth in paragraph (a)(2) of this
section, a cost-plus-fixed-fee contract normally would not justify a
reward for risk in excess of 0 percent, unless the contract contains
cost risk features such as ceilings on overheads, etc. In such cases,
up to 0.5 percent may be justified. Cost-plus-incentive-fee contracts
fill the remaining portion of the range, with weightings directly
related to such factors as confidence in target cost, share ratio of
fees, etc.
(ii) The range for fixed-price type contracts is wide enough to
accommodate the various types of fixed-price arrangements. Weighting
should be indicative of the price risk assumed and the end item
required, with only firm-fixed-price contracts with requirements for
prototypes or hardware reaching the top end of the range.
(3) The cost risk arising from contract type is not the only form
of cost risk to consider.
(i) The contractor's subcontracting program may have a significant
impact on the contractor's acceptance of risk under a particular
contract type. This consideration should be a part of the contracting
officer's overall evaluation in selecting a weight to apply for cost
risk. It may be determined, for instance, that the prime contractor has
effectively transferred real cost risk to a subcontractor, and the
contract cost risk weight may, as a result, be below the range that
would otherwise apply for the contract type proposed. The contract cost
risk weight should not be lowered, however, merely on the basis that a
substantial portion of the contract costs represents subcontracts
unless those subcontract costs represent a substantial transfer of the
contractor's risk.
(ii) In making a contract cost risk evaluation in an acquisition
that involves definitization of a letter contract, unpriced change
orders, or unpriced orders under BOAs, consideration should be given to
the effect on total contract cost risk as a result of having partial
performance before definitization. Under some circumstances it may be
reasoned that the total amount of cost risk has been effectively
reduced. Under other circumstances it may be apparent that the
contractor's cost risk is substantially unchanged. To be equitable,
determination of a profit/fee weight for application to the total of
all recognized costs, both incurred and yet to be expended, must be
made with consideration of all attendant circumstances and should not
be based solely on the portion of costs incurred, or percentage of work
completed, before definitization.
(b) Investment. NASA encourages its contractors to perform their
contracts with a minimum of financial, facilities, or other assistance
from the Government. As such, it is the purpose of this factor to
encourage the contractor to acquire and use its own resources to the
maximum extent possible. Evaluation of this factor should include an
analysis of the contractor's facilities and the frequency of payments.
(1) To evaluate how facilities contribute to the profit/fee
objective requires knowledge of the level of facilities utilization
needed for contract performance, the source and financing of the
required facilities, and the overall cost effectiveness of the
facilities offered. Contractors furnishing their own facilities that
significantly contribute to lower total contract costs should be
provided additional profit/fee. On the other hand, contractors that
rely on the Government to provide or finance needed facilities should
receive a correspondingly lower profit/fee. Cases between the above
examples should be evaluated on their merits, with either a positive or
negative adjustment, as appropriate, in the profit/fee objective.
However, where a highly facilitized contractor is to perform a contract
that does not benefit from this facilitization, or when a contractor's
use of its facilities has a minimum cost impact on the contract,
profit/fee need not be adjusted.
(2) In analyzing payments, consider the frequency of payments by
the Government to the contractor and unusual payments. The key to this
weighting is proper consideration of the impact the contract will have
on the contractor's cash flow. Generally, negative consideration should
be given for payments more frequent than monthly, with maximum
reduction being given as the contractor's working capital approaches
zero. Positive consideration should be given for payments less frequent
than monthly.
(c) Performance. The contractor's past and present performance
should be evaluated in such area as product quality, meeting
performance schedules, efficiency in cost control (including the need
for and reasonableness of costs incurred), accuracy and reliability of
previous cost estimates, degree of cooperation by the contractor (both
business and technical), timely processing of changes and compliance
with other contractual provisions.
(d) Subcontract program management. Subcontract program management
includes evaluation of the contractor's commitment to its competition
program and its past and present performance in competition in
subcontracting. If a contractor has consistently achieved excellent
results in these areas in comparison with other contractors in similar
circumstances, such performance merits a proportionately greater
opportunity for profit or fee. Conversely, a poor record
[[Page 52338]]
in this regard should result in a lower profit or fee.
(e) Federal socioeconomic programs. In addition to rewarding
contractors for unusual initiative in supporting Government
socioeconomic programs, failure or unwillingness on the part of the
contractor to support these programs should be viewed as evidence of
poor performance for the purpose of establishing this profit/fee
objective factor.
(f) Special situations. (1) Occasionally, unusual contract pricing
arrangements are made with the contractor under which it agrees to
accept a lower profit or fee for changes or modifications within a
prescribed dollar value. In such circumstances, the contractor should
receive favorable consideration in developing the profit/fee objective.
(2) This factor need not be limited to situations that increase
profit/fee levels. A negative consideration may be appropriate when the
contractor is expected to obtain spin-off benefits as a direct result
of the contract, for example, products with commercial application.
1815.970-4 Facilities capital cost of money.
(a) When facilities capital cost of money is included as an item of
cost in the contractor's proposal, it shall not be included in the cost
base for calculating profit/fee. In addition, a reduction in the
profit/fee objective shall be made in the amount equal to the
facilities capital cost of money allowed in accordance with FAR 31.205-
10(a)(2).
(b) CAS 417, cost of money as an element of the cost of capital
assets under construction, should not appear in contract proposals.
These costs are included in the initial value of a facility for
purposes of calculating depreciation under CAS 414.
1815.971 Payment of profit or fee under letter contracts.
NASA's policy is to pay profit or fee only on definitized
contracts.
Subpart 1815.10--Preaward, Award, and Postaward Notifications,
Protests, and Mistakes
1815.1003 Notification to successful offeror.
The reference to notice of award in FAR 15.1003 on negotiated
acquisitions is a generic one. It relates only to the formal
establishment of a contractual document obligating both the Government
and the offeror. The notice is effected by the transmittal of a fully
approved and executed definitive contract document, such as the award
portion of SF 33, SF 26, SF 1449, or SF 1447, or a letter contract when
a definitized contract instrument is not available but the urgency of
the requirement necessitates immediate performance. In this latter
instance, the procedures in 1816.603 for approval and issuance of
letter contracts shall be followed.
1815.1004-70 Debriefing of offerors--Major System acquisitions.
(a) When an acquisition is conducted in accordance with the Major
System acquisition procedures in part 1834 and multiple offerors are
selected, the debriefing will be limited in such a manner that it does
not prematurely disclose innovative concepts, designs, and approaches
of the successful offerors that would result in a transfusion of ideas.
(b) When Phase B awards are made for alternative system design
concepts, the source selection statements shall not be released to
competing offerors or the general public until the release of the
source selection statement for Phase C/D without the approval of the
Associate Administrator for Procurement (Code HS).
Subpart 1815.70--Ombudsman
1815.7001 NASA Ombudsman Program.
NASA's implementation of an ombudsman program is in NPG 5101.33,
Procurement Guidance.
1815.7002 Synopses of solicitations and contracts.
In all synopses announcing competitive acquisitions, the
contracting officer shall indicate that the clause at 1852.215-84,
Ombudsman, is applicable. This may be accomplished by referencing the
clause number and identifying the installation Ombudsman.
1815.7003 Contract clause.
The contracting officer shall insert a clause substantially the
same as the one at 1852.215-84, Ombudsman, in all solicitations
(including draft solicitations) and contracts.
3. Part 1816 is revised to read as follows:
PART 1816--TYPES OF CONTRACTS
Subpart 1816.2--Fixed-Price Contracts
1816.202 Firm-fixed-price contracts.
1816.202-70 NASA contract clause.
1816.203 Fixed-price contracts with economic price adjustment.
1816.203-4 Contract clauses.
Subpart 1816.3--Cost-Reimbursement Contracts
1816.303-70 Cost-sharing contracts.
1816.306 cost-plus-fixed-fee contracts.
1816.307 Contract clauses.
1816.307-70 NASA contract clauses.
Subpart 1816.4--Incentive Contracts
1816.402 Application of predetermined, formula-type incentives.
1816.402-2 Technical performance incentives.
1816.402-270 NASA technical performance incentives.
1816.404 Cost-reimbursement incentive contracts.
1816.404-2 Cost-plus-award-fee (CPAF) contracts.
1816.404-270 CPAF contracts.
1816.404-271 Base fee.
1816.404-272 Award fee evaluation periods.
1816.404-273 Award fee evaluations.
1816.404-274 Award fee evaluation factors.
1816.404-275 Award fee evaluation scoring.
1816.405 Contract clauses.
1816.405-70 NASA contract clauses.
Subpart 1816.5--Indefinite-Delivery Contracts
1816.504 Indefinite quantity contracts
1816.505 Ordering.
1816.505-70 Task ordering.
1816.506-70 NASA contract clause.
Subpart 1816.6--Time-and-Materials, Labor-Hour, and Letter Contracts
1816.603 Letter contracts.
1816.603-370 Approvals.
Authority: 42 U.S.C. 2473(c)(1)
Subpart 1816.2--Fixed-Price Contracts
1816.202 Firm-fixed-price contracts.
1816.202-70 NASA contract clause.
The contracting officer shall insert the clause at 1852.216-78,
Firm-Fixed-Price, in firm-fixed-price solicitations and contracts.
Insert the appropriate amount in the resulting contract.
1816.203 Fixed-price contracts with economic price adjustments.
1816.203-4 Contract clauses. (NASA supplements paragraphs (a) and (d))
(a) In addition to the approval requirements in the prescriptions
at FAR 52.216-2 through 42.216-4, the contracting officer shall
coordinate with the installation's Deputy Chief Financial Officer
(Finance) before exceeding the ten-percent limit in paragraph (c)(1) of
the clauses at FAR 52.216-2 through 52.216-4.
(d)(2) Contracting officers shall contact the Office of
Procurement, Code HC, for specific guidance on preparing clauses using
cost indexes. Such clauses require advance approval by the Associate
Administrator for Procurement. Requests for approval
[[Page 52339]]
shall be submitted to the Headquarters Office of Procurement (Code HS).
Subpart 1816.3--Cost-Reimbursement Contracts
1816.303-70 Cost-sharing contracts.
(a) Cost-sharing with for-profit organizations. (1) Cost sharing by
for-profit organizations is mandatory in any contract for basic or
applied research resulting from an unsolicited proposal, and may be
accepted in any other contract when offered by the proposing
organization. The requirement for cost-sharing may be waived when the
contracting officer determines in writing that the contractor has no
commercial, production, education, or service activities that would
benefit from the results of the research, and the contractor has no
means of recovering its shared costs on such projects.
(2) The contractor's cost-sharing may be any percentage of the
project cost. In determining the amount of cost-sharing, the
contracting officer shall consider the relative benefits to the
contractor and the Government. Factors that should be considered
include--
(i) The potential for the contractor to recover its contribution
from non-Federal sources;
(ii) The extent to which the particular area of research requires
special stimulus in the national interest; and
(iii) The extent to which the research effort or result is likely
to enhance the contractor's capability, expertise, or competitive
advantage.
(b) Cost-sharing with not-for-profit organizations. (1) Costs to
perform research stemming from an unsolicited proposal by universities
and other educational or not-for-profit institutions are usually fully
reimbursed. When the contracting officer determines that there is a
potential for significant benefit to the institution cost-sharing will
be considered.
(2) The contracting officer will normally limit the institution's
share to no more than 10 percent of the project's cost.
(c) Implementation. Cost-sharing shall be stated as a minimum
percentage of the total allowable costs of the project. The
contractor's contributed costs may not be charged to the Government
under any other contract or grant, including allocation to other
contracts and grants as part of an independent research and development
program.
1816.306 Cost-plus-fixed-fee contracts. (NASA supplements paragraph
(d))
(d) Completion and term forms. (4) Term form contracts are
incompatible with performance based contracting (PBC) and should not be
used with PBC requirements.
1816.307 Contract clauses. (NASA supplements paragraphs (a), (b), (d)
and (g))
(a) In paragraph (h)(2)(ii)(B) of the Allowable Cost and Payment
clause at FAR 52.216.7, the period of years may be increased to
correspond with any statutory period of limitation applicable to claims
of third parties against the contractor; provided, that a corresponding
increase is made in the period for retention of records required in
paragraph (f) of the clause at FAR 52.215-2, Adult and Records--
Negotiation.
(b) In solicitations and contracts containing the clause at FAR
52.216-8, Fixed Fee, the Schedule shall include appropriate terms, if
any, for provisional billing against fee.
(d) In solicitations and contracts containing the clause at FAR
52.216-10, Incentive Fee, the Schedule shall include appropriate terms,
if any, for provisional billing against fee.
(g) In paragraph (g)(2)(ii) of the Allowable Cost and Payment--
Facilities clause at FAR 52.216-13, the period of years may be
increased to correspond with any statutory period of limitation
applicable to claims of third parties against the contractor; provided,
that a corresponding increase is made in the period for retention of
records required in paragraph (f) of the clause at FAR 52.215-2, Adult
and Records--Negotiation.
1816.307-70 NASA contract clauses.
(a) The contracting officer shall insert the clause at 1852.216-73,
Estimated Cost and Cost Sharing, in each contract in which costs are
shared by the contractor pursuant to 1816.303-70.
(b) The contracting officer shall insert the clause substantially
as stated at 1852.216.74, Estimated Cost and Fixed Fee, in cost-plus-
fixed-fee contracts.
(c) The contracting officer may insert the clause at 1852.216-75,
Payment of Fixed Fee, in cost-plus-fixed-fee contracts. Modifications
to the clause are authorized.
(d) The contracting officer shall insert the clause at 1852.216-81,
Estimated Cost, in cost-no-fee contracts that are not cost sharing or
facilities contracts.
(e) The contracting officer may insert a clause substantially as
stated at 1852.216-87, Submission of Vouchers for Payment, in cost-
reimbursement solicitations and contracts.
(f) When either FAR clause 52.216-7, Allowable Cost and Payment, or
FAR clause 52.216-13, Allowable Cost and Payment--Facilities, is
included in the contract, as prescribed at FAR 16.307 (a) and (g), the
contracting officer should include the clause at 1852.216-89,
Assignment and Release Forms.
Subpart 1816.4--Incentive Contracts
1816.402 Application of pre-determined, formula-type incentives.
1816.402-2 Technical performance incentives.
1816.402-270 NASA technical performance incentives.
(a) A performance incentive shall be included in all contracts
where the primary deliverable(s) is (are) hardware and where total
estimated cost and fee is greater than $25 million unless it is
determined that the nature of the acquisition (for example, commercial
off-the-shelf computers) would not effectively lend itself to a
performance incentive. Any exception to this requirement shall be
approved in writing by the Center Director. Performance incentives may
be included in hardware contracts valued under $25 million at the
discretion of the procurement officer. Performance incentives, which
are objective and measure hardware performance after delivery and
acceptance, are separate from other incentives, such as cost or
delivery incentives.
(b) When a performance incentive is used, it shall be structured to
be both positive and negative based on hardware performance after
delivery and acceptance. In doing so, the contract shall establish a
standard level of performance based on the salient hardware performance
requirement. This standard performance level is normally the contract's
minimum performance requirement. No incentive amount is earned at this
standard performance level. Discrete units of measurement based on the
same performance parameter shall be identified for performance both
above and below the standard. Specific incentive amounts shall be
associated with each performance level from maximum beneficial
performance (maximum positive incentive) to minimal beneficial
performance or total failure (maximum negative incentive). The
relationship between any given incentive, both positive and negative,
and its associated unit of measurement should reflect the value to the
Government of tha level of hardware performance. The contractor should
not be rewarded for above-standard performance levels that are of no
benefit to the Government.
(c) The final calculation of the performance incentive shall be
done when hardware performance, as defined
[[Page 52340]]
in the contract, ceases or when the maximum positive incentive is
reached. When hardware performance ceases below the standard
established in the contract, the Government shall calculate the amount
due and the contractor shall pay the Government that amount. Once
hardware performance exceeds the standard, the contractor may request
payment of the incentive amount associated with a given level of
performance, provided that such payments shall not be more frequent
than monthly. When hardware performance ceases above the standard level
of performance, or when the maximum positive incentive is reached, the
Government shall calculate the final performance incentive earned and
unpaid and promptly remit it to the contractor. The exclusion at FAR
16.405(e)(3) does not apply to decisions made as to the amount(s) of
positive or negative incentive.
(d) When the deliverable hardware lends itself to multiple,
meaningful measures of performance, multiple performance incentives may
be established. When the contract requires the sequential delivery of
several hardware items (e.g., multiple spacecraft), separate
performance incentive structures may be established to parallel the
sequential delivery and use of the deliverables.
(e) In determining the value of the maximum performance incentives
available, the contracting officer shall follow the following rules.
(1) The sum of the maximum positive performance incentive and other
fixed or earnable fees on the contract shall not exceed the limitations
in FAR 15.903(c).
(2) For an award fee contract.
(i) The individual values of the maximum positive performance
incentive and the total potential award fee (including any base fee)
shall each be at least one-third of the total potential contract fee.
The remaining one-third of the total potential contract fee may be
divided between award fee and the maximum performance incentive at the
discretion of the contracting officer.
(ii) The maximum negative performance incentive for research and
development hardware (e.g., the first and second units) shall be equal
in amount to the total earned award fee (including any base fee). The
maximum negative performance incentives for production hardware (e.g.,
the third and all subsequent units of any hardware items) shall be
equal in amount to the total potential award fee (including any base
fee). Where one contract contains both cases described above, any base
fee shall be allocated reasonably among the items.
(3) For cost reimbursement contracts other than award fee
contracts, the maximum negative performance incentives shall not exceed
the total earned fee under the contract.
1816.404 Cost-reimbursement incentive contracts.
1816.404-2 Cost-plus-award-fee (CPAF) contracts.
1816.404-270 CPAF contracts.
(a) For purposes of this subsection, ``performance based
contracting'' means effort which can be contractually defined so that
the results of the contractor's effort can be objectively measured in
terms of technical and quality achievement, schedule progress or cost
performance. ``Nonperformance based contracting'' means contractor
effort that cannot be objectively measured but is evaluated based on
subjective, qualitative assessments (e.g., controlling changes or
interfacing with other agencies, contractors and international
organizations).
(b)(1) Normally, award fee incentives are not used when contract
requirements can be defined in sufficient detail to allow for
performance based contracting. If incentives are considered necessary,
objectively measured incentives as described in FAR 16.402 are
preferred.
(2) Award fee incentives may be used as follows:
(i) As a CPAF contract where a cost reimbursement contract is
appropriate and none of the requirements can be defined to permit
performance based contracting;
(ii) As a CPAF line item for nonperformance based requirements in
conjunction with a non-CPAF line item(s) for performance based
requirements. In this instance, fees for the performance based and
nonperformance based requirements shall be developed separately IAW FAR
15-9 and 1815.9; and
(iii) Under a performance based contract when it is determined to
be necessary to motivate the contractor toward exceptional performance
(see FAR 16.404-2(b)(ii)) and the increased level of performance
justifies the additional administrative expense. When an award fee
incentive is used in this instance, the basic contract type shall be
other than CPAF (e.g., CPIF or FPIF). The potential award fee should
not exceed 10 percent of the total contract fee or profit and shall not
be used to incentivize cost performance.
(3) Award fee incentives shall not be used with a CPAF contract.
(c) Use of an award fee incentive shall be approved in writing by
the procurement officer. The procurement officer's approval shall
include a discussion of the other types of contracts considered and
shall indicate why award fee incentive is the appropriate choice. Award
fee incentives should be used on contracts with a total estimated cost
and fee greater than $2 million per year. The procurement officer may
authorize use of award fee for lower-valued acquisitions, but should do
so only in exceptional situations, such as contract requirements having
direct health or safety impacts, where the judgmental assessment of the
quality of contractor performance is critical.
1816.404-271 Base fee.
(a) A base fee shall not be used on CPAF contracts for which the
periodic award fee evaluations are final (1816.404-273(a)). In these
circumstances, contractor performance during any award fee period is
independent of and has no effect on subsequent performance periods or
the final product/results at contract completion. For other contracts,
such as those for hardware or software development, the procurement
officer may authorize the use of a base fee not to exceed 3 percent.
Base fee shall not be used when an award fee incentive is used in
conjunction with a performance based contract structure, such as an
incentive fee arrangement.
(b) When a base fee is authorized for use in a CPAF contract, it
shall be paid only if the final award fee evaluation is
``satisfactory'' or better. (See 1816.404-273 and 1816.404-275) Pending
final evaluation, base fee may be paid during the life of the contract
at defined intervals on a provisional basis. If the final award fee
evaluation is ``poor/unsatisfactory'', all provisional base fee
payments shall be refunded to the Government.
1816.404-272 Award fee evaluation periods.
(a) Award fee evaluation periods should be at least 6 months in
length. When appropriate, the procurement officer may authorize shorter
evaluation periods after ensuring that the additional administrative
costs associated with the shorter periods are offset by benefits
accruing to the Government. Where practicable, such as developmental
contracts with defined performance milestones (e.g., Preliminary Design
Review, Critical Design Review, initial system test), establishing
evaluation periods at the conclusion of the milestones rather than
[[Page 52341]]
calendar dates, or in combination with calendar dates should be
considered. In no case shall an evaluation period be longer than 12
months.
(b) A portion of the total available award fee contract shall be
allocated to each of the evaluation periods. This allocation may result
in an equal or unequal distribution of fee among the periods. The
contracting officer should consider the nature of each contract and the
incentive effects of fee distribution in determining the appropriate
allocation structure.
1816.404-273 Award fee evaluations.
(a) Award fee evaluations are either interim or final. On contracts
where the contract deliverable is the performance of a service over any
given time period, contractor performance is often definitively
measurable within each evaluation period. In these cases, all
evaluations are final, and the contractor keeps the fee earned in any
period regardless of the evaluations of subsequent periods. Unearned
award fee in any given period in a service contract is lost and shall
not be carried forward, or ``rolled-over,'' into subsequent periods.
(b) On other contracts, such as those for end item deliverables
where the true quality of contractor performance cannot be measured
until the end of the contract, only the last evaluation is final. At
that point, the total contract award fee pool is available, and the
contractor's total performance is evaluated against the award fee plan
to determine total earned award fee. In addition, interim evaluations
are done to monitor performance prior to contract completion and
provide feedback to the contractor on the Government's assessment of
the quality of its performance. Interim evaluations are also used to
establish the basis for making interim award fee payments. These
interim payments are superseded by the fee determination made in the
final evaluation at contract completion. The Government will then pay
the contractor, or the contractor will refund to the Government, the
difference between the final award fee determination and the cumulative
interim fee payment.
(c) Provisional award fee payments, i.e., payments made within
evaluation periods, may be included in the contract and should be
negotiated on a case-by-case basis. The amount of the provisional award
fee payment is determined by applying the lesser of the prior period's
interim evaluation score (see 1816.404-275) or 80 percent of the fee
allocated to the current period. The provisional award fee payments are
superseded by the fee determinations made at the conclusion of each
award fee performance period.
(d) The Fee Determination Official's rating for both interim and
final evaluations will be provided to the contractor within 45 calendar
days of the end of the period being evaluated. Any fee, interim or
final, due the contractor will be paid no later than 60 calendar days
after the end of the period being evaluated.
1816.404-274 Award fee evaluation factors.
(a) Explicit evaluation factors shall be established for each award
fee period.
(b) Evaluation factors will be developed by the contracting officer
based upon the characteristics of an individual procurement. Normally,
technical and schedule considerations will be included in all CPAF
contracts as evaluation factors. Cost control shall be included as an
evaluation factor in all CPAF contracts. When explicit evaluation
factor weightings are used, cost control shall be no less than 25
percent of the total weighted evaluation factors. the predominant
consideration of the cost control evaluation should be a measurement of
the contractor's performance against the negotiated estimated cost of
the contract. This estimated cost may include the value of
undefinitized change orders when appropriate.
(c) In rare circumstances, contract costs may increase for reasons
outside the contractor's control and for which the contractor is not
entitled to an equitable adjustment. One example is a weather-related
launch delay on a launch support contract. The Government shall take
such situations into consideration when evaluating contractor cost
control.
(d) Emphasis on cost control should be balanced against other
performance requirement objectives. The contractor should not be
incentivized to pursue cost control to the point that overall
performance is significantly degraded. For example, incentivizing an
underrun that results in direct negative impacts on technical
performance, safety, or other critical contract objectives is both
undesirable and counterproductive. Therefore, evaluation of cost
control shall conform to the following guidelines:
(1) Normally, the contractor should be given a score of 0 for cost
control when there is a significant overrun within its control.
However, the contractor may receive higher scores for cost control if
the overrun is insignificant. Scores should decrease sharply as the
size of the overrun increases. In any evaluation of contractor overrun
performance, the Government shall consider the reasons for the overrun
and assess the extend and effectiveness of the contractor's efforts to
control or mitigate the overrun.
(2) The contractor should normally be rewarded for an underrun
within its control, up to the maximum score allocated for cost control,
provided the average numerical rating for all other award fee
evaluation factors is 81 or greater (see 1816.404-275). An underrun
shall be rewarded as if the contractor has met the estimated cost of
the contract (see 1816.404-274(d)(3)) when the average numerical rating
for all other factors is less than 81 but greater than 60.
(3) The contractor should be rewarded for meeting the estimated
cost of the contract, but not to the maximum score allocated for cost
control, to the degree that the contractor has prudently managed costs
while meeting contract requirements. No award shall be given in this
circumstance unless the average numerical rating for all other award
fee evaluation factors is 61 or greater.
(e) When an AF arrangement is used in conjunction with a
performance based contract structure (see 1816.404-270(b)(2)(iii)), the
award fee's cost control factor will only apply to a subjective
assessment of the contractor's efforts to control costs and not the
actual cost outcome incentivized under the basic contract type (e.g.
CPIF, FPIF).
(f) Only the award fee performance evaluation factors set forth in
the performance evaluation plan shall be used to determine award fee
scores.
(g) The Government may unilaterally modify the applicable award fee
performance evaluation factors and performance evaluation areas prior
to the start of an evaluation period. The contracting officer shall
notify the contractor in writing of any such changes 30 days prior to
the start of the start of the relevant evaluation period.
1816.404-275 Award fee evaluation scoring.
(a) A scoring system of 0-100 shall be used for all award fee
ratings. Award fee earned is determined by applying the numerical score
to the award fee pool. For example, a score of 85 yields an award fee
of 85 percent of the award fee pool. No award fee shall be paid unless
the total score is 61 or greater.
(b) The following standard adjectival ratings and the associated
numerical scores shall be used on all award fee contracts.
(1) Excellent (100-91): Of exceptional merit; exemplary performance
in a timely, efficient, and economic manner;
[[Page 52342]]
very minor (if any) deficiencies with no adverse effect on overall
performance.
(2) Very good (90-81): Very effective performance, fully responsive
to contract requirements accomplished in a timely, efficient, and
economical manner for the most part; only minor deficiencies.
(3) Good (80-71): Effective performance; fully responsive to
contract requirements; reportable deficiencies, but with little
identifiable effect on overall performance.
(4) Satisfactory (70-61): Meets or slightly exceeds minimum
acceptable standards; adequate results; reportable deficiencies with
identifiable, but not substantial, effects on overall performance.
(5) Poor/Unsatisfactory (less than 61): Does not meet minimum
acceptable standards in one or more areas; remedial action required in
one or more areas; deficiencies in one or more areas which adversely
affect overall performance.
(c) As a benchmark for evaluation, in order to be rated
``Excellent,'' the contractor must be under cost, on or ahead of
schedule, and have provided excellent technical performance.
(d) A scoring system appropriate for the circumstances of the
individual contract requirement should be developed. Weighted scoring
is recommended. In this system, each evaluation factor (e.g.,
technical, schedule, cost control) is assigned a specific percentage
weighting with the cumulative weightings of all factors totaling 100.
During the award fee evaluation, each factor is scored from 0-100
according to the ratings defined in 1816.404-275(b). The numerical
score for each factor is then multiplied by the weighting for that
factor to determine the weighted score. For example, if the technical
factor has a weighting of 60 percent and the numerical score for that
factor is 80, the weighted technical score is 48 (80 x 60 percent).
The weighted scores for each evaluation factor are then added to
determine the total award fee score.
1816.405 Contract clauses.
1816.405-70 NASA contract clauses.
(a) As authorized by FAR 16.405(e), the contracting officer shall
insert the clause at 1852.216-76, Award Fee for Service Contracts, in
solicitations and contracts when a cost-plus-award-fee contract is
contemplated and the contract deliverable is the performance of a
service. When provisional award fee payments are authorized, use
Alternate I.
(b) As authorized by FAR 16.405(e), the contracting officer shall
insert the clause at 1852.216-77, Award Fee for End Item Contracts, in
solicitations and contracts when a cost-plus-award-fee contract is
contemplated and the contract deliverables are hardware or other end
items for which total contractor performance cannot be measured until
the end of the contract.
(c) The contracting officer may insert a clause substantially as
stated at 1852.216-83, Fixed Price Incentive, in fixed-price-incentive
solicitations and contracts utilizing firm or successive targets. For
items subject to incentive price revision, identify the target cost,
target profit, target price, and ceiling price for each item.
(d) The contracting officer shall insert the clause at 1852.216-84,
Estimated Cost and Incentive Fee, in cost-plus-incentive-fee
solicitations and contracts.
(e) The contracting officer may insert the clause at 1852.216-85,
Estimated Cost and Award Fee, in cost-plus-award-fee solicitations and
contracts. When the contract includes performance incentives, use
Alternate I.
(f) As provided at 1816.402-270, the contracting officer shall
insert a clause substantially as stated at 1852.216-88, Performance
Incentive, when the primary deliverable(s) is (are) hardware and total
estimated cost and fee is greater than $25 million. A clause
substantially as stated at 1852.216-88 may be included in lower dollar
value hardware contracts with the approval of the procurement officer.
Subpart 1816.5--Indefinite-Delivery Contracts
1816.504 Indefinite quantity contracts. (NASA supplements paragraph
(a))
(a)(4)(ii) ID/IQ service contract values and task order values
shall be expressed only in dollars.
1816.505 Ordering. (NASA supplements paragraphs (a) and (b))
(a)(2) Task and delivery orders shall be issued by the contracting
officer.
(b)(4) The Agency and installation ombudsmen designated in
accordance with 1815.70 shall review complaints from contractors on
task order contracts and delivery order contracts.
1816.505-70 Task ordering.
(a) The contracting officer shall, to the maximum extent possible,
state task order requirements in terms of functions and the related
performance and quality standards such that the standards may be
objectively measured.
(b) To the maximum extent possible, contracting officers shall
solicit contractor task plans to use as the basis for finalizing task
order requirements and enable evaluation and pricing of the
contractor's proposed work on performance based approach as described
in 1816.404-270(a).
(c) Task order contract type shall be individually determined,
based on the nature of each task order's requirements.
(1) Task orders may be grouped by contract type for administrative
convenience (e.g., all CPIF orders, all FFP orders, etc.) for
contractor progress and cost reporting.
(2) Under multiple awards, solicitations for individual task plans
shall request the same pricing structure from all offerors. (d) Any
undefinitized task order issued under paragraph (f) of the clause at
1852.216-80, Task Ordering Procedure, shall be treated and reported as
an undefinitized contract action in accordance with 1843-70.
1816.506-70 NASA contract clause.
Insert the clause at 1852.216-80, Task Ordering Procedure, in
solicitations and contracts when an indefinite-delivery, task order
contract is contemplated. The clause is applicable to both fixed-price
and cost-reimbursement type contracts. If the contract does not require
533M reporting (See NHB 9501.2), use the clause with its Alternate I.
Subpart 1816.6--Time-and-Materials, Labor-Hour, and Letter
Contracts
1816.603 Letter contracts.
1816.603-370 Approvals.
(a) All requests for authority to issue a letter contract shall
include the following:
(1) Proposed contractor's name and address.
(2) Location where contract is to be performed.
(3) Contract number, including modification number, if applicable.
(4) Brief description of the work or services to be performed.
(5) Performance period or delivery schedule.
(6) Amount of letter contract.
(7) Performance period of letter contract.
(8) Estimated total amount of definitive contract.
(9) Type of definitive contract to be executed.
(10) A statement that the definitive contract will contain all
required clauses or identification of specific clause deviations that
have been approved.
(11) A statement as to the necessity and advantage to the
Government of the proposed letter contract.
(12) The definitization schedule described in FAR 16.603-2(c)
expected to be negotiated with the contractor.
(b) Requests for authority to issue letter contracts having an
estimated
[[Page 52343]]
definitive contract amount equal to or greater than the Master Buy Plan
submission thresholds of 1807.7101 (or modifications thereto) shall be
signed by the procurement officer and submitted to the Associate
Administrator for Procurement (Code HS) for approval.
(c) Authority to approve the issuance of letter contracts below the
Master Buy Plan submission thresholds specified in 1807.7101 is
delegated to the procurement officer.
(d) Any modification of an undefinitized letter contract approved
by a procurement officer in accordance with (c) of this section that
increases the estimated definitized contract amount to or above the
Master Buy Plan submission threshold must have the prior approval of
the Associate Administrator for Procurement (Code HS).
PART 1852--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
1852.215-70, 1852.215-71, 1852.215-72 [Removed]
4.-5. Sections 1852.215-70, 1852.215-71 and 1852.215-72 are
removed.
1852.215-73, 1852.215-74, 1852.215-75 [Revised]
6. Sections 1852.215-73, 1852.215-74 and 1852.215-75 are revised to
read as follows:
1852.215-73 Late Submissions, Modifications, and Withdrawals of
Proposals (AO, SBIR, and STTR Programs).
As prescribed in 1815.407-70(a), insert the following provision:
Late Submissions, Modifications, and Withdrawals of Proposals (AO,
SBIR, and STTR Programs); (October 1996)
(a) The Government reserves the right to consider proposals or
modifications, including any revision of an otherwise successful
proposal, received after the date indicated for receipt of proposals
if it would be in the Government's best interest to do so.
(b) Proposals may be withdrawn by written notice or telegram
(including mailgram) received at any time before award. Proposals
may be withdrawn in person by an offeror or an authorized
representative, if the representative's identity is made known and
the representative signs a receipt for the proposal before award.
(End of provision)
1852.215-74 Alternate Proposals.
As prescribed in 1815.407-70(b), insert the following provision:
Alternate Proposals (October 1996)
(a) The offeror may submit an alternate proposal to accomplish
any aspect of the effort or product contemplated by the solicitation
in a manner that might create a beneficial improvement to the
Government. The Government will consider an alternate proposal if it
is accompanied by a basic proposal prepared in accordance with
instructions contained in this solicitation. The alternate proposal
must be complete by itself and comply with the proposal instructions
of this solicitation. The alternate proposal will be evaluated in
accordance with the evaluation factors of this solicitation.
(b) In the event the Government receives an alternate proposal
that, if accepted, would result in a contract with terms varying in
one or more material respects from those contained in this
solicitation, and the government concludes that implementation of
the approach contained in the alternate proposal would be in its
best interests, the Government may modify its solicitation in a
manner appropriate to incorporate the changes but not reveal the
substance of the alternate proposal, and thereafter give all
offerors (and others if the facts warrant) an opportunity to respond
to the modified solicitation.
(End of provision)
1852.215-75 Expenses Related to Offeror Submissions.
As prescribed in 1815.407-70(c), insert the following provision:
Expenses Related to Offeror Submissions (December 1988)
This solicitation neither commits the Government to pay any cost
incurred in the submission of the offer or in making necessary
studies or designs for preparing the offer, nor to contract for
services or supplies. any costs incurred in anticipation of a
contract shall be at the offeror's own risk.
(End of provision)
1852.215-76 [Removal]
7. Section 1852.215-76 is removed.
8. Sections 1852.215-77, 1852.215-78 and 1852.215-79 are revised to
read as follows:
1852.215-77 Preproposal/Pre-bid Conference.
As prescribed in 1815.407-70(d), insert the following provision:
Preproposal/Pre-Bid Conference (December 1988)
(a) A preproposal/pre-bid conference will be held as indicated
below:
Date:
Time:
Location:
Other Information, as applicable:
(Insert the applicable conference information.)
(b) Attendance at the preproposal/pre-bid conference is
recommended; however, attendance is neither required nor a
prerequisite for proposal/bid submission and will not be considered
in the evaluation.
(End of provision)
1852.215-78 Make or Buy Program Requirements.
As prescribed in 1815.708-70(a), insert the following provision:
Make or Buy Program Requirements (December 1988)
The offeror shall submit a Make-or-Buy Program in accordance
with the requirements of Federal Acquisition Regulation (FAR)
15.705. The offeror shall include the following supporting
documentation with its proposal:
(a) A description of each major item or work effort (see FAR
15.704).
(b) Categorization of each major item or work effort as ``must
make,'' ``must buy,'' or ``can either make or buy.''
(c) For each item or work effort categorized as ``can either
make or buy,'' a proposal either to ``make'' or ``buy.''
(d) Reasons for (i) categorizing items and work effort as ``must
make'' or ``must buy'' and (ii) proposing to ``make'' or ``buy''
those categorized as ``can either make or buy.'' The reasons must
include the consideration given to the applicable evaluation factors
described in the solicitation and be in sufficient detail to permit
the Contracting Officer to evaluate the categorization and proposal.
(e) Designation of the offeror's plant or division proposed to
make each item or perform each work effort and a statement as to
whether the existing or proposed new facility is in or near a labor
surplus area.
(f) Identification of proposed subcontractors, if known, and
their location and size status.
(g) Any recommendations to defer make-or-buy decisions when
categorization of some items or work efforts is impracticable at the
time of submission.
(End of provision)
1852.215-79 Price Adjustment for ``Make-or-Buy'' Changes.
As prescribed in 1815.708-70(b), insert the following clause:
Price Adjustment for ``Make-or-Buy'' Changes (December 1988)
The following make-or-buy items are subject to the provisions of
paragraph (d) of the clause at FAR 52.215-21, Change or Additions to
Make-or-Buy Program, of this contract:
Item Description
Make-or-Buy Determination
(End of clause)
1852.215-80 [Removed]
8. Section 1852.215-80 is removed.
9. Sections 1852.215-81 and 1852.215-82 are revised to read as
follows:
1852.215-81 Proposed Page Limitations.
As prescribed in 1815.407-70(g), insert the following provision:
Proposal Page Limitations (January 1994)
(a) The following page limitations are established for each
portion of the proposal submitted in response to this solicitation.
[[Page 52344]]
------------------------------------------------------------------------
Proposed Section (List each volume
or section) Page Limit (Specify limit)
------------------------------------------------------------------------
...................................
...................................
...................................
...................................
------------------------------------------------------------------------
(b) A page is defined as one side of a sheet, 8\1/2\'' x 11'',
with at least one inch margins on all sides, using not smaller than
12 characters per inch (or equivalent) type. Foldouts count as an
equivalent number of 8\1/2\'' x 11'' pages. The metric standard
format most closely approximating the described standard 8\1/2\''
x 11'' size may also be used.
(c) Title pages and tables of contents are excluded from the
page counts specified in paragraph (a) of this provision. In
addition, the Cost section of your proposal is not page limited.
However, this section is to be strictly limited to cost and price
information. Information that can be construed as belonging in one
of the other sections of the proposal will be so construed and
counted against that section's page limitation.
(d) If Best and Final Offers (BAFOs) are requested, separate
page limitations will be specified in the Government's request for
that submission.
(e) Pages submitted in excess of the limitations specified in
this provision will not be evaluated by the Government and will be
returned to the offeror.
(End of provision)
1852.215-82 Offeror Oral Presentations.
As prescribed in 1815.407-70(h), insert the following provision:
Offeror Oral Presentations (November 1993)
(a) Offerors are invited to give an oral presentation to the
Government on the structure and general content of their proposals.
These presentations are intended to assist Government evaluation by
providing a ``roadmap'' to understanding proposals, i.e., an
overview of the proposal organization and layout, and where required
information and elements are located. Although the offeror's basic
approach to satisfying solicitation requirements may be explained,
it is to be done so only in general terms and only to expedite the
Government's formal evaluation.
(b) The Government will not engage in any discussions during the
oral presentation, and no proposal revisions will be accepted as
part of the presentation. The Government's evaluation of offeror
proposals will be based on the contents of the initial proposal, and
any information not included in the initial proposal that is
provided at the oral presentation will not be evaluated.
(c) Offerors should indicate in their proposals if they wish to
give an oral presentation. These presentations are not mandatory,
and electing not to give a presentation will not, in itself, affect
proposal evaluation.
(d) Because the presentations are intended to assist the
Government's evaluation, they will be scheduled to take place prior
to commencement of the formal initial evaluation, normally within
three days after proposal receipt. Offerors unable to accommodate
this schedule forfeit their opportunity to provide a presentation.
(e) The presentations will consist of an offeror briefing not to
exceed ____ (insert 1 or 2) hours to be followed by a question and
answer period. The order of offeror presentations will be determined
at random. The exact time and place of the presentation, along with
any other guidance, will be provided to the offeror by the
contracting officer or his/her representative.
(f) Presentation materials are not required, but if used, the
Government will retain one copy in its official file as a historical
record of the presentation even though these materials will not be
used in the Government's evaluation process.
(End of provision)
1852.215-83 [Removed]
10. Section 1852.215-83 is removed.
1852.215-84 [Amended]
11. As prescribed in 1815.7003, insert the following clause:
Ombudsman (October 1996)
An ombudsman has been appointed to hear and facilitate the
resolution of concerns from offerors, potential offerors, and
contractors during the preaward and postaward phases of this
acquisition. When requested, the ombudsman will maintain strict
confidentiality as to the source of the concern. The existence of
the ombudsman is not to diminish the authority of the contracting
officer, the Source Evaluation Board, or the selection official.
Further, the ombudsman does not participate in the evaluation of
proposals, the source selection process, or the adjudication of
formal contract disputes. Therefore, before consulting with an
ombudsman, interested parties must first address their concerns,
issues, disagreements, and/or recommendations to the contracting
officer for resolution. If resolution cannot be made by the
contracting officer, interested parties may contact the installation
ombudsman, ______ (Insert name), at ________ (Insert telephone
number).
Concerns, issues, disagreements, and recommendations which
cannot be resolved at the installation may be referred to the NASA
ombudsman, the Deputy Administrator for Procurement, at 202-358-
2090. Please do not contact the ombudsman to request copies of the
solicilation, verify offer due date, or clarify technical
requirements. Such inquiries shall be directed to the contracting
officer or as specified elsewhere in this document.
(End of clause)
1852.216-72 [Removed]
12. Section 1852.216-72 is removed.
13. Sections 1852.216-73, 1852.216-74, 1852.216-75, 1852.216-76,
1852.216-77 and 1852.216-78 are revised to read as follows:
1852.216-73 Estimated cost and cost sharing.
As prescribed in 1816.307-70(a), insert the following clause:
Estimated Cost and Cost Sharing (December 1991)
(a) It is estimated that the total cost of performing the work
under this contract will be $____
(b) For performance of the work under this contract, the
Contractor shall be reimbursed for not more than ____ percent of the
costs of performance determined to be allowable under the Allowable
Cost and Payment clause. The remaining ____ percent or more of the
costs of performance so determined shall constitute the Contractor's
share, for which it will not be reimbursed by the Government.
(c) For purposes the ______ (insert ``Limitation of Cost'' or
``Limitation of Funds'') clause, the total estimated cost to the
Government is hereby established as $____ (insert estimated
Government share); this amount is the maximum Government liability.
(d) The Contractor shall maintain records of all contract costs
claimed by the Contractor as constituting part of its share. Those
records shall be subject to audit by the Government. Costs
contributed by the Contractor shall not be charged to the Government
under any other grant, contract, or agreement (including allocation
to other grants, contracts, or agreements as part of an independent
research and development program).
(End of clause)
1852.216-74 Estimated Cost and Fixed Fee.
As prescribed in 1816.307-70(b), insert the following clause:
Estimated Cost and Fixed Fee (December 1991)
The estimated cost of this contract is ____ exclusive of the
fixed fee of ____. The total estimated cost and fixed fee is ____.
(End of clause)
1852.216-75 Payment of Fixed Fee.
As prescribed in 1816.307-70(c), insert the following clause:
Payment of Fixed Fee (December 1988)
The fixed fee shall be paid in monthly installments based upon
the percentage of completion of work as determined by the
Contracting Officer.
(End of clause)
1852.216-76 Award Fee for Service Contracts.
As prescribed in 1816.405-70(a), insert the following clause:
Award Fee for Service Contracts (October 1996)
(a) The contractor can earn award fee from a minimum of zero
dollars to the maximum stated in NASA FAR Supplement clause
1852.216-85, ``Estimated Cost and Award Fee'' in this contract.
(b) Beginning 6 \1\ months after the effective date of this
contract, the Government shall
[[Page 52345]]
evaluate the Contractor's performance every 6 months to determine
the amount of award fee earned by the contractor during the period.
The Contractor may submit a self-evaluation of performance for each
evaluation period under consideration. These self-evaluations will
be considered by the Government in its evaluation. The Government's
Fee Determination Official (FDO) will determine the award fee
amounts based on the Contractor's performance in accordance with
(identify performance evaluation plan). The plan may be revised
unilaterally by the Government prior to the beginning of any rating
period to redirect emphasis.
---------------------------------------------------------------------------
\1\ (A period of time greater or lesser than 6 months may be
substituted in accordance with 18-16.404-272(a).)
---------------------------------------------------------------------------
(c) The Government will advise the Contractor in writing of the
evaluation results. The (insert payment office) will make payment
based on (Insert method of authorizing award fee payment, e.g.,
issuance of unilateral modification by contracting officer).
(d) After 85 percent of the potential award fee has been paid,
the Contracting Officer may direct the withholding of further
payment of award fee until a reserve is set aside in an amount that
the Contracting Officer considers necessary to protect the
Government's interest. This reserve shall not exceed 15 percent of
the total potential award fee.
(e) The amount of award fee which can be awarded in each
evaluation period is limited to the amounts set forth at (identify
location of award fee amounts). Award fee which is not earned in an
evaluation period cannot be reallocated to future evaluation
periods.
(f) Award fee determinations made by the Government under this
contract are not subject to the Disputes clause.
Alternate I (October 1996)
As prescribed in 1816.405-70(a), insert the following paragraph
(f) and reletter existing paragraph (f) to (g):
(f) (1) Pending a determination of the amount of award fee
earned for an evaluation period, a portion of the available award
fee for that period will be paid to the contractor on a (Insert the
frequency of provisional payments (not more often than monthly))
basis. The portion paid will be ____ (insert percentage (not to
exceed 80 percent)) percent of the current period's available amount
or the equivalent of the prior period's interim fee, whichever is
lower; provided, however, that when the Contracting Officer
determines that the Contractor will not achieve a level of
performance commensurate with the provisional rate, payment of
provisional award fee will be discontinued or reduced in such
amounts as the Contracting Officer deems appropriate. The
Contracting Officer will notify the Contractor in writing if it is
determined that such discontinuance or reduction is appropriate.
This determination is not subject to the Disputes clause.
(2) In the event the amount of award fee earned, as determined
by the FDO, is less than the sum of the provisional payments made
for that period, the Contractor will either credit the next payment
voucher for the amount of such overpayment or refund the difference
to the Government, as directed by the Contracting Officer.
(3) Provisional award fee payments will (insert ``not'' if
appropriate) be made prior to the first award fee determination by the
Government.
(End of clause)
1852.216-77 Award Fee for End Item Contracts.
As prescribed in 1816.405-70(b), insert the following clause:
Award Fee for End Item Contracts (October 1996)
(a) The contractor can earn award fee, or base fee, if any, from
a minimum of zero dollars to the maximum stated in NASA FAR
Supplement clause 1852.216-85, ``Estimated Cost and Award Fee'' in
this contract. All award fee evaluations, with the exception of the
last evaluation, will be interim evaluations. At the last
evaluation, which is final, the Contractor's performance for the
entire contract will be evaluated to determine total earned award
fee. No award fee or base fee will be paid to the Contractor if the
final award fee evaluation is ``poor/unsatisfactory.''
(b) Beginning 6 \1\ months after the effective date of this
contract, the Government will evaluate the Contractor's interim
performance every 6 \1\ months to monitor Contractor performance
prior to contract completion and to provide feedback to the
Contractor. The evaluation will be performed in accordance with
(identify performance evaluation plan) to this contract. The
Contractor may submit a self-evaluation of performance for each
period under consideration. These self-evaluations will be
considered by the Government in its evaluation. The Government will
advise the Contractor in writing of the evaluation results. The plan
may be revised unilaterally by the Government prior to the beginning
of any rating period to redirect emphasis.
---------------------------------------------------------------------------
\1\ (A period of time greater or lesser than 6 months may be
substituted in accordance with 1816.404-272(a).)
(c) (1) Base fee, if applicable, will be paid in (Insert
``monthly'', or less frequent period) installments based on the
percent of completion of the work as determined by the Contracting
Officer.
(2) Interim award fee payments will be made to the Contractor
based on each interim evaluation. The amount of the interim award
fee payment is limited to the lesser of the interim evaluation score
or 80 percent of the fee allocated to that period less any
provisional payments made during the period. All interim award fee
payments will be superseded by the final award fee determination.
(3) Provisional awar
FR Doc. 96-25189 Rewrite of the NASA FAR Supplement (NFS)
d fee payments will (insert ``not'' if
applicable) be made under this contract pending each interim
evaluation. If applicable, provisional award fee payments will be
made to the Contractor on a (insert the frequency of provisional
payments (not more often than monthly)) basis. The amount of award
fee which will be provisionally paid in each evaluation period is
limited to (Insert a percent not to exceed 80 percent) of the prior
interim evaluation score (see (insert applicable cite)). Provisional
award fee payments made each evaluation period will be superseded by
the interim award fee evaluation for that period. If provisional
payments made exceed the interim evaluation score, the Contractor
will either credit the next payment voucher for the amount of such
overpayment or refund the difference to the Government, as directed
by the Contracting Officer. If the Government determines that (i)
the total amount of provisional fee payments will apparently
substantially exceed the anticipated final evaluation score, or (ii)
the prior interim evaluation is ``poor/unsatisfactory,'' the
Contracting Officer will direct the suspension or reduction of the
future payments and/or request a prompt refund of excess payments as
appropriate. Written notification of the determination will be
provided to the Contractor with a copy to the Deputy Chief Financial
Officer (Finance). This determination is not subject to the Disputes
clause.
(4) All interim (and provisional, if applicable) fee payments
will be superseded by the fee determination made in the final award
fee evaluation. The Government will then pay the Contractor, or the
Contractor will refund to the Government the difference between the
final award fee determination and the cumulative provisional fee
payments. If the final award fee evaluation is ``poor/
unsatisfactory,'' any base fee paid will be refunded to the
Government.
(5) Payment of base fee, if applicable, will be made based on
submission of an invoice by the Contractor. Payment of award fee
will be made by the (insert payment office) based on (insert method
of making award fee payment, e.g., issuance of a unilateral
modification by the Contracting Officer).
(d) Award fee determinations made by the Government under this
contract are not subject to the Dispute clause.
(End of clause)
1852.216-78 Firm Fixed price.
As prescribed in 1816.202-70, insert the following clause:
Firm Fixed Price (December 1988)
The total firm fixed price of this contract is $____ (insert the
appropriate amount).
(End of clause)
1852.216-79 [Removed]
14. Section 1852.216-79 is removed.
15. Sections 1852.216-80 and 1852.216-81 are revised to read as
follows:
1852.216-80 Task Ordering Procedure.
As prescribed in 1816.506-70, insert the following clause:
Task Ordering Procedure (October 1996)
(a) Only the Contracting Officer may issue task orders to the
Contractor, providing specific authorization or direction to perform
work within the scope of the contract and as specified in the
schedule. The Contractor may incur costs under this contract in
performance of task orders and task order modifications issued in
accordance with this
[[Page 52346]]
clause. No other costs are authorized unless otherwise specified in
the contract or expressly authorized by the Contracting Officer.
(b) Prior to issuing a task order, the Contracting Officer shall
provide the Contractor with the following data:
(1) A functional description of the work identifying the
objectives or results desired from the contemplated task order.
(2) Proposed performance standards to be used as criteria for
determining whether the work requirements have been met.
(3) A request for a task plan from the Contractor to include the
technical approach, period of performance, appropriate cost
information, and any other information required to determine the
reasonableness of the Contractor's proposal.
(c) Within ____ calendar days after receipt of the Contracting
Officer's request, the Contractor shall submit a task plan
conforming to the request.
(d) After review and any necessary discussions, the Contracting
Officer may issue a task order to the Contractor containing, as a
minimum, the following:
(1) Date of the order.
(2) Contract number and order number.
(3) Functional description of the work identifying the
objectives or results desired from the task order, including special
instructions or other information necessary for performance of the
task.
(4) Performance standards, and where appropriate, quality
assurance standards.
(5) Maximum dollar amount authorized (cost and fee or price).
This includes allocation of award fee among award fee periods, if
applicable.
(6) Any other resources (travel, materials, equipment,
facilities, etc.) authorized.
(7) Delivery/performance schedule including start and end dates.
(8) If contract funding is by individual task order, accounting
and appropriation data.
(e) The Contractor shall provide acknowledgment of receipt to
the Contracting Officer within __ calendar days after receipt of the
task order.
(f) If time constraints do not permit issuance of a fully
defined task order in accordance with the procedures described in
paragraphs (a) through (d), a task order which includes a ceiling
price may be issued.
(g) The Contracting Officer may amend tasks in the same manner
in which they were issued.
(h) In the event of a conflict between the requirements of the
task order and the Contractor's approved task plan, the task order
shall prevail.
(End of clause)
Alternate I (October 1996)
As prescribed in 1816.506-70, insert the following paragraph (i)
if the contract does not include 533M reporting:
(i) Contractor shall submit monthly task order progress reports.
As a minimum, the reports shall contain the following information:
(1) Contract number, task order number, and date of the order.
(2) Task ceiling price.
(3) Cost and hours incurred to date for each issued task.
(4) Costs and hours estimated to complete each issued task.
(5) Significant issues/problems associated with a task.
(6) Cost summary of the status of all tasks issued under the
contract.
1852.216-81 Estimated Cost.
As prescribed in 1816.307-70(d), insert the following clause:
Estimated Cost (December 1988)
The total estimated cost for complete performance of this
contract is $____ (Insert total estimated cost of the contract). See
FAR clause 52.216-11, Cost Contract--No Fee, of this contract.
(End of clause)
1852.216-82 [Removed]
16. Section 1852.216-82 is removed.
17. Sections 1852.216-83, 1852.216-84 and 1852.216-85 are revised
to read as follows:
1852.216-83 Fixed Price Incentive.
As prescribed in 1816.405-70(c), insert the following clause:
Fixed Price Incentive (October 1996)
The target cost of this contract is $____ The Target profit of
this contract is $____. The target price (target cost plus target
profit) of this contract is $____. [The ceiling price is $____.]
The cost sharing for target cost underruns is:
Government ____ percent Contractor ____ percent.
The cost sharing for target cost overruns is:
Government ____ percent Contractor ____ percent.
(End of clause)
1852.216-84 Estimated Cost and Incentive Fee.
As prescribed in 1816.405-70(d), insert the following clause:
Estimated Cost and Incentive Fee (October 1996)
The target cost of this contract is $____. The target fee of
this contract is $____. The total target cost and target fee as
contemplated by the Incentive Fee clause of this contract are $____.
The maximum fee is $____.
The minimum fee is $____.
The cost sharing for cost underruns is: Government ____ percent
Contractor ____ percent.
The cost sharing for cost overruns is: Government ____ percent
Contractor ____ percent.
(End of clause)
1852.216-85 Estimated Cost and Award Fee.
As prescribed in 1816.405-70(e), insert the following clause:
Estimated Cost and Award Fee (September 1993)
The estimated cost of this contract is $____. The maximum
available award fee, excluding base fee, if any, is $____. The base
fee is $____. Total estimated cost, base fee, and maximum award fee
are $____.
(End of clause)
Alternate I (September 1993)
As prescribed in 1816.405-70(e), insert the following sentence
at the end of the clause:
The maximum positive performance incentive is $____. The maximum
negative performance incentive is (1).
(1) For research development hardware contracts, insert [equal
to total earned award fee (including any base fee)]. For production
hardware contracts, insert ($ total potential award fee amount,
including any base fee).
(End of clause)
1852.216-86 [Removed]
18. Section 1852.216-86 is removed.
1852.216-87, 1852.216-88, 1852.216-89 [Revised]
19. Sections 1852.216-87, 1852.216-88 and 1852.216-89 are revised
to read as follows:
1852.216-87 Submission of Vouchers for Payment.
As prescribed in 1816.307-70(e), insert the following clause:
Submission of Vouchers for Payment (December 1988)
(a) Public vouchers for payment of costs shall include a
reference to this contract (Insert the contract number) and be
forwarded to: (Insert the mailing address for submission of cost
vouchers.)
This is the designated billing office for cost vouchers for
purposes of the Prompt Payment clause of this contract.
(b) The Contractor shall prepare vouchers as follows:
(1) One original Standard Form (SF) 1034, SR 1035, or equivalent
Contractor's attachment.
(2) Seven copies of SF 1034A, SF1035A, or equivalent
Contractor's attachment.
(3) The Contractor shall mark SF 1034A copies 1, 2, 3, 4, and
such other copies as may be directed by the Contracting Officer by
insertion in the memorandum block the names and addresses as
follows:
(i) Copy 1 NASA Contracting Officer;
(ii) Copy 2 Auditor;
(iii) Copy 3 Contractor;
(iv) Copy 4 Contract administration office; and
(v) Copy 5 Project management office.
(c) Public vouchers for payment of fee shall be prepared
similarly and be forwarded to: (Insert the mailing address for
submission of fee vouchers.)
[[Page 52347]]
This is the designated billing office for fee vouchers for
purposes of the Prompt Payment clause of this contract.
(d) In the event that amounts are withheld from payment in
accordance with provisions of this contract, a separate voucher for
the amount withheld will be required before payment for that amount
may be made.
1852.216-88 Performance Incentive.
As prescribed in 1816.405-70(f), insert the following clause:
Performance Incentive (October 1996)
(a) A performance incentive applies to the following hardware
item(s) delivered under this contract: (1)
The performance incentive will measure the performance of those
items against the salient hardware performance requirement, called
``unit(s) of measurement,'' e.g., months in service or amount of
data transmitted, identified below. The performance incentive
becomes effective when the hardware is put into service. It includes
a standard performance level, a positive incentive, and a negative
incentive, which are described in this clause.
(b) Standard performance level. At the standard performance
level, the Contractor has met the contract requirement for the unit
of measurement. Neither positive nor negative incentives apply when
this level is achieved but not exceeded. The standard performance
level for (1) __ is established as follows: (2)
(c) Positive incentive. The Contractor earns a separate positive
incentive amount for each hardware item listed in paragraph (a) of
this clause when the standard performance level for that item is
exceeded. The amount earned for each item varies with the units of
measurement achieved, up to a maximum positive performance incentive
amount of $XX (3) X per item. The units of measurement and
the incentive amounts associated with achieving each unit are shown
below: (4)
(d) Negative incentive. The Contractor will pay to the
Government a negative incentive amount for each hardware item that
fails to achieve the standard performance level. The amount to be
paid for each item varies with the units of measurement achieved, up
to the maximum negative incentive amount of $ (5) X. The units
of measurement and the incentive amounts associated with achieving
each unit are shown below: (6)
(e) The final calculation of positive or negative performance
incentive amounts shall be done with performance (as defined by the
unit of measurement) ceases or when the maximum positive incentive
is reached.
(1) When the Contracting Officer determines that the performance
level achieved fell below the standard performance level, the
Contractor will either pay the amount due the Government or credit
the next payment voucher for the amount due, as directed by the
Contracting Officer.
(2) When the performance level exceeds the standard level, the
Contractor may request payment of the incentive amount associated
with a given level of performance, provided that such payments shall
not be more frequent than monthly. When performance ceases or the
maximum positive incentive is reached, the Government shall
calculate the final performance incentive earned and unpaid and
promptly remit it to the contractor.
(f) If performance cannot be demonstrated, through no fault of
the Contractor, within (insert number of months or years) after the
date of hardware acceptance by the Government, the Contractor will
be paid (insert percentage) of the maximum performance incentive.
(g) The decisions made as to the amount(s) of positive or
negative incentives are subject to the Disputes clause.
(1) Insert applicable item number(s) and/or nomenclature.
(2) Insert a specific unit of measurement for each hardware item
listed in (1) and each salient characteristic, if more than one.
(3) Insert the maximum positive performance incentive amount
(see 1816.402-270(e) (1) and (2)).
(4) Insert all units of measurement and associated dollar
amounts up to the maximum performance incentive.
(5) For research and development hardware contracts, insert
(equal to total earned award fee (including any base fee)). For
production hardware contracts, insert ($____ (total potential award
fee amount, including any base fee)) (see 1816.402-270(2)(ii)).
(6) Insert all units of measurement and associated dollar
amounts up to the maximum negative performance incentive.
(End of clause)
1852.216-89 Assignment and Release Forms.
As prescribed at 1816.307-70(f), insert the following clause:
Assignment and Release Forms (October 1996)
The Contractor shall use the following forms to fulfill the
assignment and release requirements of FAR Clause 52.216-7,
Allowable Cost and Payment, and FAR Clause 52.216-13, Allowable Cost
and Payment (Facilities):
NASA Form 778, Contractor's Release
NASA Form 779, Assignee's Release
NASA Form 780, Contractor's Assignment of Refunds, Rebates, Credits,
and Other Amounts
Computer generated forms are acceptable, provided that they
comply with FAR Clause 52.253-1.
(End of clause)
PART 1870--NASA SUPPLEMENTARY REGULATIONS
Subpart 1870.3--[Removed]
20. Subpart 1870.3, NASA Source Evaluation, is removed.
[FR Doc. 96-25189 Filed 10-4-96; 8:45 am]
BILLING CODE 7510-01-M
Complete official Federal Register PDF
FR Doc. 96-25188 Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52307-52325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25188]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 64 and 68
[CC Docket 96-128; FCC 96-388]
Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Communications Commission (``Commission'') adopts
a Report and Order implementing Section 276 of the Communications Act
of 1934, as amended by the Telecommunications Act of 1996 (``1996
Act''). In the Report and Order, the Commission adopts new rules and
policies governing the payphone industry that: establish a plan to
ensure fair compensation for ``each and every completed intrastate and
interstate call using [a] payphone[,]'' discontinue intrastate and
interstate carrier access charge payphone service elements and payments
and intrastate and interstate payphone subsidies from basic exchange
services, prescribe nonstructural safeguards for Bell Operating Company
(``BOC'') payphones, permit the BOCs to negotiate with payphone
location providers on the interLATA carrier presubscribed to their
payphones, permit all payphone service providers to negotiate with
location providers on the intraLATA carrier presubscribed to their
payphones, and adopt guidelines for use by the states in establishing
public interest payphones to be located ``where there would otherwise
not be a payphone[.]'' As set forth in the Report and Order and
explained below, the Commission is issuing the Report and Order to
comply with the statutory mandate of Section 276 of the 1996 Act of
``promot[ing] competition among payphone service providers and
promot[ing] the widespread deployment of payphone services to the
benefit of the general public * * *.''
EFFECTIVE DATES: The revision of the heading of subpart M and the
authority citation of part 64 and the amendment to Sec. 64.1301 and new
Sec. 64.1340 become effective November 6, 1996. The amendments to
Sec. 64.703 and new Sec. 64.1330 become effective December 16, 1996.
Section 64.1301 is removed and Secs. 64.1300, 64.1310 and 64.1320
become effective October 7, 1997. Sections 68.2 and 68.3 become
effective April 15, 1997.
FOR FURTHER INFORMATION CONTACT: Michael Carowitz, 202-418-0960,
Enforcement Division, Common Carrier Bureau.
[[Page 52308]]
SUPPLEMENTARY INFORMATION: On June 4, 1996, the Commission adopted a
Notice of Proposed Rulemaking (``NPRM'') [61 FR 33074] to implement
Section 276 of the Telecommunications Act of 1996. This is a summary of
the Commission's Report and Order in CC Docket No. 96-128, adopted and
released on September 20, 1996. The full text of the Report and Order
is available for inspection and copying during normal business hours in
the FCC Reference Center, Room 239, 1919 M Street, N.W., Washington,
D.C. The complete text of the Report and Order may also be purchased
from the Commission's duplicating contractor, International
Transcription Services, 2100 M Street, N.W., Suite 140, Washington,
D.C. 20037, (202) 857-3800. The Report and Order contains new or
modified information collections subject to the Paperwork Reduction Act
of 1995 (PRA). It has been submitted to the Office of Management and
Budget (OMB) for review under the PRA. OMB, the general public, and
other federal agencies are invited to comment on the new or modified
information collections contained in this proceeding.
Parties must file any petitions for reconsideration of the Report
and Order within 30 days from release of that document. The Commission
waives the requirements of Section 1.4 of its rules to establish this
new date of public notice in light of the deadline established in the
1996 Act to complete this proceeding. Parties may file oppositions to
the petitions for reconsideration pursuant to Section 1.106(g) of the
rules, except that oppositions to the petitions must be filed within
seven (7) days after the date for filing the petitions for
reconsideration. The Commission will not issue a separate notice of any
petitions for reconsideration; the Report and Order serves as notice to
all interested parties of the due dates for petitions and oppositions.
In addition, the Commission waives Section 1.106(h) of the rules and
will not accept reply comments in response to oppositions. The
Commission concludes that these actions are necessary to complete all
Commission action in this proceeding, which involves issues concerning
the expedited implementation of the 1996 Act, by the statutory deadline
of November 8, 1996. The Commission will consider all relevant and
timely petitions and oppositions before final action is taken in this
proceeding.
Petitions for reconsideration must comply with Sections 1.106 and
1.49 and all other applicable sections of the Commission's rules.
Petitions also must clearly identify the specific portion of the Report
and Order for which relief is sought. If a portion of a party's
arguments does not fall under a particular topic listed in the outline
of the Report and Order, such arguments should be included in a clearly
labeled section at the beginning or end of the filing. Parties may not
file more than a total of ten (10) pages of ex parte submissions,
excluding cover letters. This 10 page limit does not include: (1)
written ex parte filings made solely to disclose an oral ex parte
contact; (2) written material submitted at the time of an oral
presentation to Commission staff that provides a brief outline of the
presentation; or (3) written material filed in response to direct
requests from Commission staff. Ex parte filings in excess of this
limit will not be considered as part of the record in this proceeding.
To file a petition for reconsideration in this proceeding parties
must file an original and ten copies of all petitions and oppositions.
Petitions and oppositions should be sent to the Office of the
Secretary, Federal Communications Commission, Washington, DC 20554. If
parties want each Commissioner to have a personal copy of their
documents, an original plus fourteen copies must be filed. In addition,
participants should submit two additional copies directly to the Common
Carrier Bureau, Enforcement Division, Room 6008, 2025 M Street NW,
Washington, D.C. 20554. The petitions and oppositions will be available
for public inspection during regular business hours in the Dockets
Reference Room (Room 230) of the Federal Communications Commission,
1919 M Street, NW., Washington, DC 20554. Copies of the petition and
any subsequently filed documents in this matter may be obtained from
ITS, Inc., 2100 M Street, NW., Suite 140, Washington, DC 20037, (202)
857-3800.
Paperwork Reduction Act
The Report and Order contains a new or modified information
collection. The Commission, as part of its continuing effort to reduce
paperwork burdens, invites the general public and the Office of
Management and Budget (OMB) to comment on the following information
collections contained in the Report and Order as required by the
Paperwork Reduction Act of 1995, Public Law No. 104-13. OMB
notification of action is due 60 days from the date of publication of
the Report and Order in the Federal Register. Comments should address:
(a) whether the proposed or modified information collection is
necessary for the proper performance of the functions of the
Commission, including whether the information shall have practical
utility; (b) the accuracy of the Commission's burden estimates; (c)
ways to enhance the quality, utility, and clarity of the information
collected; and (d) ways to minimize the burden of the collection of
information on the respondents, including the use of automated
collection techniques or other forms of information technology.
OMB Control Number: None.
Title: Implementation of the Payphone Reclassification and
Compensation Provisions of the Telecommunications Act of 1996, CC
Docket No. 96-128.
Form No.: N/A.
Type of Review: New collections.
Respondents: State, local or tribal government; business or other
for-profit, including small businesses.
------------------------------------------------------------------------
Estimated Total
Number of time per Annual
Section/title respondents response burden
(hours) (hours)
------------------------------------------------------------------------
a. State Review/Removal of State
Regulations Concerning Adequacy
of Local Coin Rate Disclosure... 50 50 2,500
b. State Review/Removal of Market
Entry or Exit Requirements...... 50 50 2,500
c. State Showing of Proof of
Market Failure for Exception to
Market-Rate Local Coin Call
Requirement..................... 50 50 2,500
d. State Review/Removal of
Adequacy of Provision of Public
Interest Payphones.............. 50 50 2,500
e. Payphone Providers'
Transmission of Specific
Payphone Coding Digits.......... 1 197 20 3,940
f. Interexchange Carriers'
Provision of Tracking of All
Compensable Calls............... 275 100 27,500
g. Interexchange Carriers'
Initiation of Annual
Verification of Per Call
Tracking Functions.............. 275 20 5,500
h. LEC Verification of Disputed
ANIs and Maintaining and Making
Available the Verification Data. 400 .5 800
i. LEC Provision of Timely
Notification of Payphone
Disconnection................... 400 .5 200
j. LEC Indication on the
Payphone's Monthly Bill That the
Amount Due is for Payphone
Services........................ 400 10 4,000
[[Page 52309]]
k. LEC Tariff Filings............ 400 100 40,000
l. Reclassification of LEC-Owned
Payphones....................... 400 100 40,000
m. Reclassification of AT&T
Payphones....................... 1 100 100
n. Payphone Provider's
Verification of its Status to
IXC Paying Compensation......... 1 197 1 197
o. Payphone Provider's Posting of
Local Coin Call Rate on Each
Payphone Placard................ 197 20 3,940
------------------------------------------------------------------------
1 This estimate was obtained by reference to the Regulatory Flexibility
Analysis in the Implementation of the Local Competition Provisions of
the Telecommunications Act of 1996, Report and Order, CC Docket No. 96-
98, FCC 96-325 (rel. August 8, 1996).2 Id.
Total Annual Burden: 136,177 hours.
Estimated Costs per Respondent: $0.
Needs and Uses: The new and modified collections in this Report and
Order are necessary to implement the provisions of Section 276 of the
Telecommunications Act of 1996.
OMB Approval Number: 3060-0721.
Title: Report of Local Exchange Companies (``LECs'') of Cost
Accounting Studies.
Form No.: N/A.
Type of Review: Revised Collection.
Respondents: Business or other for-profit, including small
businesses.
Number of Respondents: 400.
Estimated Time per Response: 50 hours.
Total Annual Burden: 20,000 hours.
Estimated Cost per Respondent: $0.
Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to
``establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A),
incumbent LECs are required to offer individual central office coin
transmission services to payphone service providers (``PSPs'') under a
nondiscriminatory, public tariffed offering if the LECs provide those
services for their own operations. Because the incumbent LECs may have
an incentive to charge their competitors unreasonably high prices for
these services, the Commission requires them to submit cost support for
their central office coin services, on a one-time basis. The report
would contain engineering studies, time and wage studies, and other
cost accounting studies to identify the direct cost of central office
coin services. This will ensure that the services are reasonably priced
and do not include subsidies.
OMB Approval Number: 3060-0719.
Title: Quarterly Report of IntraLATA Carriers Listing Payphone
Automatic Number Identification (ANIs).
Form No.: N/A.
Type of Review: Revised collection.
Respondents: Business or other for-profit, including small
businesses.
Number of Respondents: 400.
Estimated Time per Response: 3.5 hours.
Total Annual Burden: 5,600 hours.
Estimated Cost per Respondent: $0.
Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to
``establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A),
intraLATA carriers are required to provide to interexchange carriers
(``IXCs'') a quarterly report listing payphone automatic payphone
identifications (``ANIs''). Without provision of this report,
resolution of disputed ANIs would be rendered very difficult. IXCs
would not be able to discern which ANIs pertain to payphones and
therefore would not be able to ascertain which dial-around calls were
originated by payphones for compensation purposes. There would be no
way to guard against possible fraud. Without this collection, lengthy
investigations would be necessary to verify claims. The report allows
IXCs to determine which dial-around calls are made from payphones. The
data, which must be maintained for at least 18 months after the close
of a compensation period, will facilitate verification of disputed
ANIs. The Order does not specify the manner in which IntraLATA carriers
must provide carrier-payors with the list of payphone ANIs. IntraLATA
carriers are free to use any technologies at their disposal to
distribute the necessary information, including innovative approaches
such as posting the information on the Internet or distributing the
information via electronic mail.
OMB Approval Number: 3060-0723.
Title: Public Disclosure of Network Information by Bell Operating
Companies (``BOCs'').
Form No.: N/A.
Type of Review: Revised collections.
Respondents: Business or other for-profit, including small
businesses.
Number of Respondents: 7.
Estimated Time per Response: 50 hours.
Total Annual Burden: 350 hours.
Estimated Cost per Respondent: $0.
Needs and Uses: Pursuant to Section 276(b)(1)(C) provisions that
prescribe a set of nonstructural safeguards for BOC payphone services,
to foster development of competition in the provision of local
telephone service, 47 U.S.C. Sec. 276(B)(1)(C), the BOCs are required
to publicly disclose changes in their networks or new network services
at two different points in time. First, disclosure would occur at the
``make/buy'' point: when a BOC decides to make for itself, or procure
from an unaffiliated entity, any product whose design affects or relies
on the network interface. Second, a BOC would publicly disclose
technical information about a new service 12 months before it is
introduced. If the BOC could introduce the service within 12 months of
the make/buy point, it would make a public disclosure at the make/buy
point. In no event, however, would the public disclosure occur less
than six months before the introduction of the service. Without
provision of these reports, the industry would be unable to ascertain
whether the BOCs designing new network services or changing network
technical specifications are to the advantage of their own payphones,
or might disadvantage BOC payphone competitors. The requirement for a
minimum 6-month period of public disclosure prior to the introduction
of a new service is vital to ensure that BOCs do not design new network
services or change network technical specifications to the advantage of
their own payphones.
OMB Approval Number: 3060-0724.
Title: Annual Report of IXCs Listing the Compensation Amount Paid
to Payphone Providers and the Number of Payees.
Form No.: N/A.
Type of Review: Revised collection.
Respondents: Business or other for-profit, including small
businesses.
Number of Respondents: 275.
Estimated Time per Response: 2 hours.
Total Annual Burden: 550 hours.
Estimated Cost per Respondent: $0.
[[Page 52310]]
Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to
``establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), IXCs,
who are responsible for paying per-call compensation to payphone
providers, are required to provide annual reports to the Common Carrier
Bureau listing the amount of compensation paid to payphone providers
and the number of payees. Without provision of this report, the
Commission would be unable to ensure that all the IXCs are paying their
respective compensation obligations. The report is intended to be very
brief, and the reporting requirement will be terminated after the
carriers have filed their reports for the 1999 calendar year. In
addition, for further flexibility, the Chief, Common Carrier Bureau, is
delegated the authority to establish the details, as necessary, of this
annual report, including the authority to extend or limit the scope of
this report.
OMB Approval Number: 3060-0726.
Title: Quarterly Report of IXCs Listing the Number of Dial Around
Calls for Which Compensation is Being Paid to Payphone Owners.
Form No.: N/A.
Type of Review: Revised collections.
Respondents: Business or other for-profit, including small
businesses.
Number of Respondents: 275.
Estimated Time per Response: 2 hours.
Total Annual Burden: 550 hours.
Estimated Cost per Respondent: $0.
Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to
``establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), IXCs,
who are responsible for paying per-call compensation to payphone
providers are required to provide to payphone providers a quarterly
report listing the dial-around calls made from each payphone provider's
payphones. Without provision of this report, payphone providers would
be unable to ascertain the compensation amount to be paid by the IXCs.
The report allows each payphone provider to determine how many dial-
around calls to the IXC generating the report were originated by each
of the payphone provider's payphones. The Commission weighed several
alternatives to achieve optimum efficiency and the least burdensome
approach, before imposing this requirement. This requirement is imposed
on the IXCs because they have the greatest ability and incentive to
establish the most efficient means of administering the payment of
compensation.
SUMMARY OF REPORT AND ORDER
I. Background
1. Section 276(b)(1)(A) of the 1996 Act directs the Commission to
establish a compensation plan to ensure ``that all payphone service
providers are fairly compensated for each and every completed
intrastate and interstate call'' from their payphones. Section
276(b)(1)(B) mandates that the Commission ``discontinue the intrastate
and interstate carrier access charge payphone service elements and
payments * * * and all intrastate and interstate subsidies from basic
exchange and exchange access revenues.'' In addition, Section
276(b)(1)(D) directs the Commission to consider whether BOCs should be
granted certain rights already available to all other payphone service
providers (``PSPs'') to participate in the location provider's
selection of presubscribed interLATA carrier, while Section
276(b)(1)(E) grants certain rights to all PSPs to participate in the
selection of presubscribed intraLATA carriers. Together with the other
subsections of Section 276, these three provisions help to establish
regulatory parity for all PSPs, whether independent payphone providers
or incumbent LECs (both independent LECs and BOCs).
II. Discussion
2. In the Report and Order, the Commission adopts new rules and
policies governing the payphone industry that: (1) establish a plan to
ensure fair compensation for ``each and every completed intrastate and
interstate call using [a] payphone[;]'' (2) discontinue intrastate and
interstate carrier access charge payphone service elements and payments
and intrastate and interstate payphone subsidies from basic exchange
services; (3) prescribe nonstructural safeguards for Bell Operating
Company (``BOC'') payphones; (4) permit the BOCs to negotiate with
payphone location providers on the interLATA carrier presubscribed to
their payphones; (5) permit all payphone service providers to negotiate
with location providers on the intraLATA carrier presubscribed to their
payphones; and (6) adopt guidelines for use by the states in
establishing public interest payphones to be located ``where there
would otherwise not be a payphone[.]''
3. The Telecommunications Act of 1996 fundamentally changes
telecommunications regulation. The 1996 Act erects a ``pro-competitive
deregulatory national framework designed to accelerate rapid private
sector deployment of advanced telecommunications and information
technologies and services to all Americans by opening all
telecommunications markets to competition.'' In this proceeding the
Commission advances the twin goals of Section 276 of the Act of
``promot[ing] competition among payphone service providers and
promot[ing] the widespread deployment of payphone services to the
benefit of the general public * * *.'' To this end, the Commission
seeks to eliminate those regulatory constraints that inhibit the
ability both to enter and exit the payphone marketplace, and to compete
for the right to provide services to customers through payphones. At
the same time, the Commission recognizes that a transition period is
necessary to eliminate the effects of some long-standing barriers to
full competition in the payphone market. For this reason, the
Commission will continue for a limited time to regulate certain aspects
of the payphone market, but only until such time as the market evolves
to erase these sources of market distortions.
A. Compensation for Each and Every Completed Intrastate and Interstate
Call Originated by Payphones
4. In the Report and Order, consistent with Section 276, the
Commission establishes a plan to ensure fair compensation for all
calls. The Commission concludes that fair compensation can be ensured
best when the PSP can track the calls made from the payphone on a call-
by-call basis and be assured efficient payment for those calls; when
the market can set a fair rate for the call; and when the caller has
the information necessary to make an informed choice as to whether to
make the call and incur the compensation charge.
1. Payphone Calls Subject to this Rulemaking and Compensation Amount
5. The Commission concludes that, once competitive market
conditions exist, the most appropriate way to ensure that PSPs receive
fair compensation for each call is to let the market set the price for
individual calls originated on payphones. It is only in cases where the
market does not or cannot function properly that the Commission needs
to take affirmative steps to ensure fair compensation, such as in the
following situations. First, because the Telephone Operator Consumer
Services Improvement Act (TOCSIA) requires all payphones to
[[Page 52311]]
unblock access to alternative operator service providers (OSPs) through
the use of access codes (including 800 access numbers), PSPs cannot
block access to toll free numbers generally. However, TOCSIA does not
prohibit an interexchange carrier (IXC) from blocking subscriber 800
numbers from payphones, particularly if the IXC wants to avoid paying
the per-call compensation charge on these calls. This uneven bargaining
between parties necessitates the Commission's involvement. Second, the
Commission concludes that each state should, in light of the instant
proceeding, examine and modify its regulations applicable to payphones
and PSPs, particularly those rules that impose market entry or exit
requirements, and others that are not competitively neutral and
consistent with the requirements of Section 276 of the Act. The
Commission concludes that, for purposes of ensuring fair compensation
through a competitive marketplace, states need only remove those
regulations that restrict competition, and they need not address those
regulations that, on a competitively neutral basis, provide consumers
with information and price disclosure. Third, the Commission concludes
that callers should have information in every instance about the price
of the calls they make from payphones. To this end, the Commission
requires that each payphone clearly indicate the local coin rate within
the informational placard on each payphone.
6. While the most appropriate way to ensure fair compensation is to
let the market set the price for individual payphone calls, the
Commission concludes that this transition to market-based rates should
occur in two phases. Because local exchange carriers (LECs) will
terminate, pursuant to Section 276(b)(1)(b), subsidies for their
payphones within one year of the effective date of the rules adopted in
this proceeding, LECs will not be eligible to receive compensation
under Section 276(b)(1)(a) until that termination date. This one-year
period before per-call compensation is effective, as discussed below,
will be the first phase of implementing the rules adopted in this
proceeding. During this first phase, states may continue to set the
local coin rate in the same manner as they currently do. States may,
however, move to market-based local coin rates anytime during this one-
year period. In addition, the states must conduct its examination of
payphone regulations during this one-year period to review and remove,
if necessary, those regulations that affect competition, such as entry
and exit restrictions. IXCs will pay compensation for access code calls
and subscriber 800 calls on a flat-rate basis. In addition, all
payphones must provide free access to dialtone, emergency calls, and
telecommunications relay service calls for the hearing disabled.
7. In the second phase, which will begin one year after the
effective date of rules adopted in this proceeding, LECs will have
already terminated the subsidies prohibited by Section 276(b)(1)(B),
and per-call tracking capabilities will be in place. The carriers to
whom payphone calls are routed will be responsible for tracking each
compensable call and remitting per-call compensation to the PSP. During
this second year, which is the first year of per-call compensation (as
opposed to flat-rate compensation), the market will be allowed to set
the rate for local coin calls, unless the state can show that there are
market failures within the state that would not allow market-based
rates. In addition, during the second phase, which will be the first
year of per-call compensation (after the initial year of flat-rate
compensation), to allow the Commission to ascertain the status of
competition in the payphone marketplace, the Commission concludes that
IXCs must pay PSPs a default rate of $.35 for each compensable call,
which may be changed by mutual agreement. PSPs will be required to post
the local coin rate they choose to charge at each payphone. During the
second phase, the Commission may review, at the Commission's option,
the deregulation of local coin rates nationwide and determine whether
marketplace disfunctions exist, such as locational monopolies caused by
the size of the location with an exclusive PSP contract or the caller's
lack of time to identify potential substitute payphones, and should be
addressed by the Commission. If the Commission finds that the
deregulation of local coin rates warrants a modification of its
approach due to market failures, the Commission may choose to set a cap
on the number of calls subject to compensation from particular
payphones to limit the exercise of locational market power. Absent such
a finding, at the conclusion of the second phase, the market-based
local coin rate at these payphones will be the default compensation
rate for all compensable calls in absence of an agreement between the
PSP and the carrier-payor.
8. Ensuring Fair Compensation. To ensure fair compensation, the
Commission concludes that it must provide for compensation for access
code calls and subscriber 800 and other toll-free number calls, whether
they are intrastate or interstate in destination.
9. The Commission concludes that it must ensure fair compensation
for 0+ calls that use BOC payphones. The Commission concludes that once
the BOCs reclassify their payphones and terminate all subsidies,
pursuant to Section 276(b)(1)(B), they may receive the per-call
compensation established by the Report and Order, so long as they do
not otherwise receive compensation for use of their payphones in
originating 0+ calls. The Commission concludes further that, in the
absence of a contract providing compensation to the PSP for intraLATA
0+ calls, the PSP shall be eligible to collect per-call compensation
from the carrier to whom the call is routed. The Commission also
concludes that when a caller dials ``0'' and the payphone subsequently
translates this digit, unbeknownst to the caller, into an 800 access
number (i.e., as a way of presubscribing the payphone to a particular
IXC), such a call is not compensable as an access code call, because it
does not put the caller into contact with an alternative carrier.
10. The Commission concludes that PSPs should receive compensation
for international calls. The Commission concludes that it has authority
under Sections 4(i) and 201(b) of the Communications Act of 1934, as
amended, to ensure that PSPs are fairly compensated for international
as well as interstate and intrastate calls using their payphones in the
United States.
11. Local Coin Calls. The Commission concludes that full and
unfettered competition is the best way of achieving Congress' dual
objectives to promote ``competition among payphone service providers
and promote the widespread deployment of payphone services to the
benefit of the general public.'' Once competitive conditions exist, the
Commission believes that the market should set the compensation amount
for all payphone calls, including local coin calls. Because the
Commission has an obligation under Section 276 to ensure that the
compensation for all local coin calls is fair, it concludes that the
market should be allowed to set the price for all compensable calls,
including a local coin call.
12. Section 276(b)(1)(A) gives the Commission both the jurisdiction
to ensure fair compensation for local coin calls and the mandate to
establish a plan to compensate PSPs on a per-call basis. Based on the
record in this proceeding, the Commission concludes that a
deregulatory, market-based approach to setting local coin rates is
appropriate, because existing local coin rates are not
[[Page 52312]]
necessarily fairly compensatory. The Commission recognizes, however,
that the competitive conditions, which are a prerequisite to a
deregulatory, market-based approach, do not currently exist and cannot
be achieved immediately. Many states impose regulations on PSPs,
including certain requirements that must be fulfilled before a PSP can
enter or exit the payphone marketplace. In addition, in some locations,
because of the size of the location with an exclusive PSP contract or
the caller's lack of time to identify potential substitute payphones,
the PSP may be able to charge an inflated rate for local calls based on
its monopoly, pursuant to an exclusive contract with the location
provider, on all payphones at the location. The Commission concludes
that such monopoly arrangements, in the absence of regulatory
oversight, could impair competition.
13. Based on these concerns, the Commission concludes that the
overall transition to market-based local coin rates should not occur
immediately. As discussed below, LECs will not be required to
terminate, pursuant to Section 276(b)(1)(b), certain subsidies
associated with their payphones until April 15, 1997. LECs will not be
eligible to receive per-call compensation under Section 276(b)(1)(a)
for one year, when all such subsidies are terminated. For this one-year
period, the states will be responsible for both ensuring that PSPs are
fairly compensated for local coin calls and protecting consumers from
excessive rates. Eventually, when fully competitive conditions exist,
the marketplace will address both concerns. The Commission concludes
that, during this one-year period before per-call, as opposed to flat-
rate, compensation becomes effective, states may continue to set the
local coin rate in the same manner as they currently do. States may,
however, move to market-based local coin rates anytime during this one-
year period, and are encouraged to do so. In addition, the Commission
concludes that during the same period, the states should take
additional action to ensure that payphone competition is promoted. The
Commission believes that ease of entry and exit in this market will
foster competition and allow the market, rather than regulation, to
dictate the behavior of the various parties in the payphone industry.
To this end, each state should examine and modify its regulations
applicable to payphones and PSPs, removing, in particular, those rules
that impose market entry or exit requirements. The Commission concludes
that, for purposes of ensuring fair compensation through a competitive
marketplace, the states should remove only those regulations that
affect payphone competition; the states remain free at all times to
impose regulations, on a competitively neutral basis, to provide
consumers with information and price disclosure. In addition, the
states at all times must ensure that access to dialtone, emergency
calls, and telecommunications relay service calls for the hearing
disabled is available from all payphones at no charge to the caller.
14. At the conclusion of this first one-year period, the market
will be allowed to set the price for a local coin call, as discussed
more fully above. However, the Commission concludes that it should make
an exception to the market-based approach for states that are able to
demonstrate to the Commission that there are market failures within the
state that would not allow market-based rates. Such a detailed showing
could consist of, for example, a detailed summary of the record of a
state proceeding that examines the costs of providing payphone service
within that state and the reasons why the public interest is served by
having the state set rates within that market. In addition, under the
Commission's deregulatory, market-based approach, when states have
concerns about possible market failures, such as that of payphone
locations that charge monopoly rates, they are empowered to act by, for
example, mandating that additional PSPs be allowed to provide
payphones, or requiring that the PSP secure its contract through a
competitive bidding process that ensures the lowest possible rate for
callers. If a market failure persists after such action, the state
should recommend the matter to the Commission for possible
investigation. In addition, during the second phase, after the initial
year of flat-rate compensation, the Commission may review, at its
option, the deregulation of local coin rates nationwide and determine
whether marketplace disfunctions, such as locational monopolies where
the size of the location or the caller's lack of time to identify
potential substitute payphones, exist and should be addressed by the
Commission. At this point, if the Commission finds that the
deregulation of local coin rates warrants a modification of its
approach due to market failures, the Commission may choose, for
example, to set a cap on the number of calls subject to compensation
from particular payphones to limit the exercise of locational market
power. Absent such a finding, at the conclusion of the second phase,
the market-based local coin rate at these payphones will be the default
compensation rate for all compensable calls in absence of an agreement
between the PSP and the carrier-payor.
15. With regard to ``411'' directory-assistance calls, the
Commission noted that, while incumbent LECs in many jurisdictions
currently do not charge the payphone caller for ``411'' calls made from
their own phones, the LECs charge independent payphone providers for
directory-assistance calls made from their payphones, and are not
always allowed by the state to pass those charges on to callers. The
Commission concludes that it must ensure fair compensation for ``411''
and other directory assistance calls from payphones by permitting the
PSP to charge a market-based rate for this service, although a PSP may
decline to charge for this service if it chooses. In addition, to help
ensure that a LEC does not discriminate in favor of its own payphones,
the Commission concludes that if the incumbent LEC imposes a fee on
independent payphone providers for ``411'' calls, then the LEC must
impute the same fee to its own payphones for this service.
16. Completed Calls. The Commission concludes that a ``completed
call'' is a call that is answered by the called party. The Commission
has previously found that, where an 800 calling card call is routed
through an IXC's platform, it should not be viewed as two distinct
calls--one to the platform and one to the called party. In addition, in
Florida Public Telecommunications Ass'n v. FCC, the United States Court
of Appeals for the District of Columbia Circuit emphasized the one-call
nature of a subscriber 800 call from the caller's point of view. To
comply with this the mandate of Section 276, the Commission concludes
that multiple sequential calls made through the use of a payphone's
``#'' button should be counted as separate calls for compensation
purposes.
17. The Commission concludes that Section 276(b)(1)(A) was not
intended to apply to both incoming and outgoing calls. Because PSPs may
block incoming calls, they are able to restrict use of their payphones
if they are concerned about a lack of compensation. For this reason,
the Commission concludes that incoming calls are not within the purview
of Section 276, and it is not required, as a result, to address them in
the order.
18. Payphone Fraud. The Commission has recognized, since it first
addressed the issue of compensation for subscriber
[[Page 52313]]
800 calls in 1991, that a PSP ``could attach an autodialer to a
payphone and have it place repeated 800 calls * * * to increase the
amount of compensation [it] receives.'' Section 227(b)(1) of the Act
states that it is unlawful for any person to use an autodialer to call
``any service for which the called party is charged for the call[.]''
The Commission concludes that this provision bars the use of
autodialers to generate payphone compensation by calling toll-free 800
numbers, which are billed to the called party. The Commission will
aggressively take action against those involved in such fraud. The
Commission has the authority under the 1996 Act and its rules to take
civil enforcement action against a payphone provider who deliberately
violates the Commission's compensation rules by placing toll-free calls
simply to obtain compensation from the carriers. More importantly, such
activity may be fraud by wire and subject to criminal penalties.
19. The Commission has previously adopted a definition of
``payphone'' in the access code call compensation proceeding, although
the definition is used only for purposes of the billing and collection
of the compensation in that proceeding. It concluded that payphones
appearing on the LEC-provided customer-owned, coin-operated telephone
(``COCOT'') lists were payphones that are eligible for compensation. If
a payphone provider does not subscribe to an identifiable payphone
service, or if its payphone is omitted from the COCOT list in error,
the provider is required to provide alternative verification
information to the IXC paying compensation. The Commission concludes
that this definition of ``payphone,'' regardless if the payphone in
question is independently- or LEC-provided, will be sufficient for the
payment of compensation as mandated by Section 276 and the instant
proceeding. In addition, as discussed below, all payphones will be
required to transmit specific payphone coding digits as a part of their
automatic number identification (``ANI''), which will assist in
identifying them to compensation payors. Beyond the immediate purposes
of paying compensation, the Commission concludes that a payphone is any
telephone made available to the public on a fee-per-call basis,
independent of any other commercial transaction, for the purpose of
making telephone calls, whether the telephone is coin-operated or is
activated either by calling collect or using a calling card.
20. Compensation Amount. Because the Commission has established
that the payphone marketplace has low entry and exit barriers and will
likely become increasingly competitive, it concludes that the market
(or the states, where there are special circumstances) is best able to
set the appropriate price for payphone calls in the long term. The
Commission concludes further that the appropriate per-call compensation
amount ultimately is the amount the particular payphone charges for a
local coin call, because the market will determine the fair
compensation rate for those calls. For example, if the rate at a
particular payphone is $.35, absent an agreement between the PSP and
the carrier-payor for a different amount, then the PSP should receive
$.35 for each compensable call (access code, subscriber 800, and
directory assistance). If a rate is compensatory for local coin calls,
then it is an appropriate compensation amount for other calls as well,
because the cost of originating the various types of payphone calls are
similar. Although the Commission tentatively concluded in the NPRM that
PSPs should be compensated for their costs in originating calls, as
these costs are measured by appropriate cost-based surrogates, the
Commission now concludes that deregulated local coin rates are the best
available surrogates for payphone costs and are superior to the cost
surrogate data provided by the commenters.
21. The Commission concludes that the per-call compensation amount
equal to the local coin rate is a default rate that will apply only in
the absence of a negotiated agreement between the parties. PSPs, IXCs,
subscriber 800 carriers, and intraLATA carriers may agree on an amount
for some or all compensable calls that is either higher or lower than
the local coin rate at a given payphone. In absence of an agreement,
the PSP shall be entitled to receive compensation for compensable calls
at a per-call rate equal to its local coin rate, which represents the
market-based rate for a call at the payphone in question.
22. To allow the Commission to ascertain the status of competition
in the payphone marketplace, it concludes that it should establish the
default per-call rate for two years before leaving it to the market to
set rate, absent any changes in the Commission's rules. More
specifically, for the first year after the effective date of the rules
adopted in this proceeding, IXCs will pay flat-rate compensation to
PSPs. After the initial year, when per-call tracking capabilities will
be in place, the Commission concludes that IXCs will be required to pay
a default rate of $.35 per call, which is the local coin rate in four
of the five states that have deregulated their local calling rates. The
Commission concludes that the market-based rate in these states is the
best evidence of a per-call compensation amount that will fairly
compensate PSPs. Therefore, for the limited purpose of calculating
compensation for PSPs for the first two years of compensation (one year
of flat-rate and one year of per-call compensation), the Commission
will use a default rate of $.35 per call, which is the rate in the
majority of states that have allowed the market to determine the
appropriate local coin rate. The carrier-payor and the PSP may agree to
a compensation rate that is different, and, therefore, the default rate
would not apply. For coinless payphones, which by definition do not
have a local coin rate, the default rate will remain $.35 per call for
as long as this rate is fairly compensable under Section 276(b)(1)(A).
23. Section 276(d) states that ``in this section, the term
`payphone service' means the provision of public or semi-public pay
telephones * * *.'' Pursuant to this definition, all subsidies for
semi-public payphones are terminated under Section 276(b)(1)(B), just
as they are for public payphones, ``in favor of a compensation plan as
specified in subparagraph (A)[.]'' Therefore, the Commission concludes
that semi-public payphones are entitled to receive per-call
compensation in the same manner as public payphones.
24. The Commission rejects the argument by four states that Section
276 applies only to payphones provided by the BOCs. While Section
276(a), which the states cite as support for their argument, applies
only to the BOCs, as do Sections 276(b)(1)(C) and Section 276(b)(1)(D),
the remainder of Section 276 applies to all payphones, regardless of
their provider. Therefore, based on the plain language of the statute,
the Commission concludes that Section 276 grants us the requisite
authority to adopt rules that apply to all payphones, regardless of
their provider, except where the language clearly applies only to the
BOCs.
2. Entities Required To Pay Compensation
25. The Commission concludes that the primary economic beneficiary
of payphone calls should compensate the PSPs. It concludes that the
``carrier-pays'' system for per-call compensation places the payment
obligation on the primary economic beneficiary in the least burdensome,
most cost effective manner. The Commission has previously adopted such
an approach in the access code compensation proceeding, and the
compensation
[[Page 52314]]
participants have created a payment system that is an appropriate model
for this proceeding. In addition, under the carrier-pays system,
individual carriers, while obligated to pay a specified per-call rate
to PSPs, have the option of recovering a different amount from their
customers, including no amount at all. The Commission concludes further
that all IXCs that carry calls from payphones are required to pay per-
call compensation.
26. The Commission concludes that it is the underlying, facilities-
based carrier that should be required to pay compensation to the PSP in
lieu of a non-facilities-based carrier that resells services, for
example, to specific subscribers or to debit card users. Although the
Commission has concluded that the primary economic beneficiary of
payphone calls should bear the burden of paying compensation for these
calls, it concludes that, in the interests of administrative efficiency
and lower costs, facilities-based carriers should pay the per-call
compensation for the calls received by their reseller customers. The
Commission concludes further that the facilities-based carriers may
recover the expense of payphone per-call compensation from their
reseller customers as they deem appropriate, including negotiating
future contract provisions that would require the reseller to reimburse
the facilities-based carrier for the actual payphone compensation
amounts associated with that particular reseller. While the Commission
has not placed the burden of paying per-call compensation directly on
resellers or debit card providers, it concludes that the underlying
carrier must begin paying compensation on all compensable calls
facilitated by its reseller and debit card customers and it is, in
turn, permitted to impose the payphone compensation amounts on these
customers.
3. Ability of Carriers To Track Calls From Payphones
27. Based on the information in the record, the Commission
concludes that the requisite technology exists for IXCs to track calls
from payphones. The Commission recognizes, however, that tracking
capabilities vary from carrier to carrier, and that it may be
appropriate, for an interim period, for some carriers to pay
compensation for ``each and every completed intrastate and interstate
call'' on a flat-rate basis until per-call tracking capabilities are
put into place.
28. The Commission concludes further that, as stated in the NPRM,
it is the responsibility of the carrier, whether it provides intraLATA
or interLATA services, as the primary economic beneficiary of the
payphone calls, to track the calls it receives from payphones, although
the carrier has the option of performing the tracking itself or
contracting out these functions to another party, such as a LEC or
clearinghouse. In other words, while the Commission assigns the burden
of tracking on the carrier receiving the call from a payphone, parties
to a contract may find it economically advantageous to place this
tracking responsibility on another party. The Commission declines to
require LECs or PSPs to perform per-call tracking themselves. Neither
LECs nor PSPs are the primary economic beneficiaries of payphone calls.
The Commission concludes, however, that LECs, PSPs, and the carriers
receiving payphone calls should be able to take advantage of each
other's technological capabilities through the contracting process. To
this end, the Commission concludes that no standardized technology for
tracking calls is necessary, and that IXCs may use the technology of
their choice to meet their tracking obligations.
29. The Commission concludes that each payphone should be required
to generate 07 or 27 coding digits within the ANI for the carrier to
track calls. Currently under the Commission's rules, LECs are required
to tariff federally originating line screening (``OLS'') services that
provide a discrete code to identify payphones that are maintained by
non-LEC providers. The Commission concludes that LECs should be
required to provide similar coding digits for their own payphones.
30. In view of the current difficulties in tracking such calls, the
Commission concludes that a transition is warranted for requiring
carriers to track compensable calls. Therefore, the Commission requires
carriers to provide for tracking of all compensable calls they receive
from payphones, through any arrangement they choose, as soon as
possible, but no later than one year from the effective date of the
rules adopted in this proceeding. Until that date, carriers must pay
flat-rate compensation, as specified below.
31. The Commission recognizes that implementing a per-call tracking
capability will require new investments for some carriers, particularly
small carriers, but it concludes that the mandate of Section 276 that
the Commission ensure a fair ``per call compensation plan'' for ``each
and every completed intrastate and interstate call'' requires these
carriers to provide tracking for calls for which they receive revenue,
even though they previously did not have to compensate the PSP for many
of these calls. The Commission concludes further that, by permitting
carriers to contract out their per-call tracking responsibility, and by
allowing a transition for tracking subscriber 800 calls, it will have
taken the appropriate steps to minimize the per-call tracking burden on
small carriers. In addition, the Commission concludes that, to parallel
the obligation of the facilities-based carrier to pay compensation, the
underlying facilities-based carrier has the burden of tracking calls to
its reseller customers, and it may recover that cost from the reseller,
if it chooses.
32. The Commission concludes that carriers should be required to
initiate an annual verification of their per-call tracking functions to
be made available for FCC inspection upon request, to ensure that they
are tracking all of the calls for which they are obligated to pay
compensation. The Commission requires this verification for a one-year
period, the 1998 calendar year, and delegates to the Chief, Common
Carrier Bureau, the authority to establish the form and content, if
necessary, of the verification documentation of these per-call tracking
capabilities. The Commission concludes that requiring carriers to
maintain the appropriate records and certify as to the accuracy of both
the data and the tracking methodology would facilitate the prompt and
accurate payment of per-call compensation. The Commission also
concludes that PSPs should be allowed to inspect this certification,
apart from any proprietary network data. In addition, the Commission
expects that the PSPs and carriers performing the tracking will work
together to reconcile or explain any PSP data that are inconsistent
with the annual certification.
4. Administration of Per-Call Compensation
33. The Commission concludes that it should adopt a direct-billing
arrangement between IXCs and PSPs, once tracking capabilities are in
place, that would build on the arrangement established in the access
code call compensation proceeding, with the addition of the requirement
that these carriers must send back to each PSP a statement indicating
the number of toll-free and access code calls that each carrier has
received from each of that PSP's payphones. This arrangement places the
burden of billing and collecting compensation on the parties who
benefit the most from calls from payphones--carriers and PSPs. As with
the tracking of calls, carrier-payors are free to use clearinghouses,
similar to
[[Page 52315]]
those that exist for access code call compensation, or to contract out
the direct-billing arrangement associated with the payment of
compensation.
34. The Commission requires that the carrier responsible for paying
compensation file each year a brief report with the Common Carrier
Bureau listing the total compensation paid to PSPs for intrastate,
interstate, and international calls; the number of compensable calls
carried by the carrier; and the number of payees. This requirement will
apply to calendar year 1998, when tracking capabilities are in place
and compensation is being paid on a per-call basis. The Commission
concludes further that, once per-call compensation is routinely paid by
IXCs, this reporting requirement will be terminated after the carriers
have filed their reports for the 1998 calendar year. Carrier-payors
should file their reports as soon as possible after the end of the
calendar year, but no later than the end of the first quarter of the
following year. To implement the reporting requirement, the Commission
delegates to the Chief, Common Carrier Bureau, the authority to
establish the form and content, if necessary, of the annual report
listing the total amount of compensation paid to PSPs, including the
authority to extend or limit the scope of this report.
35. The Commission concludes that it must establish minimal
regulatory guidelines for the payphone industry regarding resolution of
disputed ANIs to give LECs a greater incentive to provide accurate and
timely verification of ANIs for independently provided payphones. While
any party may file a complaint with the Commission about disputed ANIs,
the Commission concludes that the better practice is for LECs who
maintain the list of ANIs to work with both carrier-payors and PSPs to
resolve disputes more efficiently and quickly before lodging a
complaint with the Commission. The Commission also concludes that it
should require that each LEC must submit to each carrier-payor on a
quarterly basis a list of ANIs of all payphones in the LEC's service
area (called the ``COCOT list'' in the access code call compensation
proceeding).
36. The Commission concludes that the following guidelines will
facilitate the proper verification of payphone ANIs by LECs. First,
LECs must provide a list of payphone ANIs to carrier-payors within 30
days of the close of each compensation period (i.e., each quarter).
Second, LECs must provide verification of disputed ANIs on request, in
a timely fashion. Such verification data must be maintained and
available for at least 18 months after the close of a compensation
period. Third, once a LEC makes a positive identification of an
installed payphone, the carrier-payor must accept claims for that
payphone's ANI until the LEC provides information, on a timely basis,
that the payphone has been disconnected. Fourth, a LEC must respond to
all requests for ANI verification, even if the verification is a
negative response. Carrier-payors are not required to pay compensation
once the LEC verifies that the particular ANI is not associated with a
COCOT line for which compensation must be paid. Fifth, carrier-payors
should be able to refuse payment for compensation claims that are
submitted long after they were due. Carriers should not refuse payment
on timeliness grounds, however, for ANIs submitted by a PSP up to one
year after the end of the period in question. Further, the period for a
PSP to bring a complaint to the Commission based on an ANI disputed by
the carrier-payor will not begin to accrue until the carrier-payor
issues a final denial of the claim. The Commission concludes that the
guidelines, as outlined above, will facilitate the proper verification
of payphones without imposing undue burdens on LECs, PSPs, or carrier-
payors.
37. Because a carrier-payor's administrative expenses are
presumably reduced through the payment of compensation on a quarterly,
as opposed to monthly, basis, the Commission concludes that the
reasonable trade-off is that the carrier remains liable, as discussed
above, for compensation claims that are submitted within one year of
the end of the compensation period in question. The parties may
themselves revisit this issue if they elect a shorter compensation
period. Sprint argues that a carrier should be allowed to defer
payments to individual PSPs until the amount due aggregates to $10 from
that carrier to the particular PSP for all of its payphones. The
Commission agrees and concludes that such a requirement would reduce
the administrative expenses associated with the payment of
compensation. If PSPs would like to charge interest on overdue payments
from IXCs, as suggested by APCC, they should negotiate such a provision
in their compensation agreement with the particular carrier.
38. The Commission concludes that the payment of compensation would
be facilitated and some disputes avoided if LECs were required to state
affirmatively on their bills to PSPs that the bills are for payphone
service. The Commission concludes that LECs, who have knowledge that a
particular phone line is used for a payphone, must indicate on that
payphone's monthly bill that the amount due is for payphone service.
The Commission also agrees with CompTel's suggestion that the
registration of all payphones with a central resource or clearinghouse
would reduce administrative costs for all parties and would avoid
duplication of efforts. The Commission declines, however, to mandate
the creation of a central resource or clearinghouse for compensation
purposes, and believes that the parties themselves are better able to
establish such a resource that would be directly connected to the
payment of compensation.
5. Interim Compensation Mechanism
39. Because the IXCs required to pay compensation to PSPs are not
required to track individual compensable calls until one year from the
effective date of the rules adopted in this proceeding, the Commission
concludes that PSPs should be paid monthly compensation on a flat rate
by IXCs with annual toll revenues in excess of $100 million, beginning
on the effective date of the rules adopted in this proceeding. Unlike
the per-call compensation mechanism adopted in the Report and Order,
the interim flat-rate compensation obligation applies to both
facilities-based IXCs and resellers that have respective toll revenues
of $100 million per year. This flat-rate monthly compensation will
apply proportionally to individual IXCs, based on their respective
annual toll revenues. For reasons of administrative convenience of the
parties, the Commission concludes that it should model the interim
mechanism adopted in the Report and Order on that set forth in the
access code call compensation proceeding. In the access code
compensation proceeding, CC Docket No. 91-35, the Commission excused
several carriers from the obligation to pay flat-rate compensation for
originating access code calls, because they certified that they were
not providers of ``operator services,'' as defined by TOCSIA. The
Commission notes that Section 276's requirement that it ensure fair
compensation for ``each and every completed intrastate and interstate
call,'' including access code calls, supersedes the compensation
obligations established in CC Docket No. 91-35, including the waivers
granted to AT&T and Sprint. Because Section 276 is the statutory
authority for mandating per-call compensation for all compensable
calls, including access code calls, the statutory exclusion in TOCSIA
for those carriers that are not providers of ``operator services'' is
no
[[Page 52316]]
longer a basis for being excused from the obligation to pay either the
total flat-rate compensation amount established in the instant
proceeding, or a portion thereof.
40. When the Commission adopted a compensation mechanism for
interstate access code calls, it concluded that, because they did not
involve use of a ``carrier-specific access code'' and were routed
directly to an end user, subscriber 800 calls were not within the class
of calls for which TOCSIA directed the Commission to consider
compensation. The Commission, therefore, limited compensation to
interstate ``access code calls.'' In the Florida Payphone decision, the
United States Court of Appeals for the District of Columbia Circuit
found no reason to distinguish between the routing of access code calls
and subscriber 800 calls. Therefore, it reversed and remanded the case
to the Commission to ``consider the need to prescribe compensation for
subscriber 800 calls `routed to providers of operator services that are
other than the presubscribed provider of operator services.' '' For the
limited purpose of calculating compensation for PSPs on a flat-rate
basis until per-call compensation becomes mandatory the Commission will
use a rate of $.35 per call, which is the rate in the majority of
states that have allowed the market to determine the appropriate local
coin rate.
41. The Commission next re-examines the average number of access
code calls originated by a payphone per month. In 1992, the Commission
found that the average was 15 calls. As summarized below, data on the
record in the instant proceeding indicate that the average number of
access code calls per month is now considerably higher. In addition,
similar data show the volume of subscriber 800 calls generated by the
average payphone.
42. Based on the call volume data provided by the PSPs, the
Commission concludes that, for purposes of calculating flat-rate
compensation, that the average payphone originates a combined total of
131 access code calls and subscriber 800 calls per month. When 131
calls per month is multiplied by the $.35 compensation amount, the
monthly flat-rate compensation amount is $45.85. The Commission
concludes that this $45.85 flat-rate amount must be paid by carriers,
proportionally to their annual toll revenues, to PSPs. This flat-rate
obligation applies to access code calls and subscriber 800 calls
originated on or after the effective date of the rules adopted in this
proceeding. PSPs that are affiliated with LECs will not be eligible for
this interim compensation until the first day following their
reclassification and transfer of payment equipment along with the
termination of subsidies, as discussed below.
B. Reclassification of Incumbent LEC-Owned Payphones
43. In the foregoing Part, the Commission establishes rules and
guidelines to ensure that PSPs are fairly compensated for calls
originating at their payphones. For certain PSPs--those who are LECs--
the new compensation arrangement can be implemented only upon the
discontinuance of the regulatory system under which they now recover
their costs of providing payphone service. In this Part, the Commission
describes the necessary steps for the LECs' transition to the new
compensation framework, and sets a schedule for the LECs' implementing
actions.
44. Section 276(b)(1)(B) directs the Commission to ``discontinue
the intrastate and interstate carrier access charge payphone service
elements and payments in effect on such date of enactment, and all
intrastate and interstate payphone subsidies from basic exchange and
exchange access revenues, in favor of a [per-call] compensation
plan[.]'' Currently, incumbent LEC payphones, classified as part of the
network, recover their costs from Carrier Common Line (CCL) charges
assessed on those carriers that connect with the incumbent LEC. In
order to comply with Section 276(b)(1)(B) by removing payphone costs
from the CCL charge and all intrastate and interstate payphone
subsidies from basic exchange and exchange access revenues, the
Commission adopts requirements on: (1) the prospective classification
of incumbent LEC payphones as Customer Premises Equipment (CPE); (2)
the transfer of incumbent LEC payphone equipment assets from regulated
to nonregulated status; (3) the termination of access charge
compensation and all other subsidies for incumbent LEC payphones; and
(4) the classification of AT&T payphones.
1. Classification of LEC Payphones as CPE
i. CPE Deregulation
45. The Commission concludes that to best effectuate the 1996 Act's
mandate that access charge payphone service elements and payphone
subsidies from basic exchange and exchange access revenues be
discontinued, incumbent LEC payphones should be treated as deregulated
and detariffed CPE. The Commission determined in Computer II that CPE
should be deregulated and detariffed to ensure that the costs
associated with regulated services are separated from the competitive
provision of the equipment used in conjunction with those services. The
Commission concluded that CPE should be unbundled from its underlying
transmission service in order to prevent improper cross-subsidization.
Consistent with this prior finding, it concludes that LEC payphones
must be treated as unregulated, detariffed CPE in order to ensure that
no subsidies are provided from basic exchange and exchange access
revenues or access charge payphone service elements as required by the
Act.
ii. Unbundling of Payphone Services
46. The Commission concludes, pursuant to Computer II, Section 201,
202, and 276 of the Act, and previous CPE decisions, that incumbent
LECs must offer individual central office coin transmission services to
PSPs under nondiscriminatory, public, tariffed offerings if the LECs
provide those services for their own operations. Under Computer II, all
carriers must unbundle basic transmission services from CPE. Moreover,
Section 202 of the Act prohibits a carrier from discriminating
unreasonably in its provision of basic service. The Commission
concludes that incumbent LECs must provide coin service so competitive
payphone providers can offer payphone services using either instrument-
implemented ``smart payphones'' or ``dumb'' payphones that utilize
central office coin services, or some combination of the two in a
manner similar to the LECs. Because the incumbent LECs have used
central office coin services in the past, but have not made these
services available to independent payphone providers for use in their
provision of payphone services, the Commission requires that incumbent
LEC provision of coin transmission services on an unbundled basis be
treated as a new service under the Commission's price cap rules.
Because incumbent LECs may have an incentive to charge their
competitors unreasonably high prices for these services, the Commission
concludes that the new services test is necessary to ensure that
central office coin services are priced reasonably. Incumbent LECs not
currently subject to price cap regulation must submit cost support for
their central office coin services, pursuant to Sections 61.38, 61.39,
or 61.50(i) of the Commission's rules. Incumbent LECs must file tariffs
with the Commission for these services no later than January 15, 1997.
To the extent that this requirement precludes
[[Page 52317]]
the BOCs from complying with the Computer II, Computer III, and ONA
network information disclosure requirements, the Commission waives the
notice period in order to ensure that these services are provided on a
timely basis consistent with the other deregulatory requirements of
this order. Pursuant to this waiver, network information disclosure on
the basic network payphone services must be made by the BOCs by January
15, 1997.
47. The Commission concludes that tariffs for payphone services
must be filed with the Commission as part of the LECs' access services
to ensure that the services are reasonably priced and do not include
subsidies. This requirement is consistent with the Section 276
prescription that all subsidies be removed from payphone operations.
Accordingly, the Commission concludes that Computer III tariff
procedures and pricing are more appropriate for basic payphone services
provided by LECs to other payphone providers. Pursuant to Section
276(c), any inconsistent state requirements with regard to this matter
are preempted.
iii. Other LEC Payphone Services
48. The Commission concludes that incumbent LECs should provide
certain other services to other payphone providers if they provide
those services to their own payphone operations. These services must be
made available by the LEC or its affiliate to other payphone providers
on a comparable basis in order to ensure that other payphone providers
do not receive discriminatory service from the LECs once LEC payphones
are deregulated, and to ensure that other payphone providers can
compete with LEC payphone operations. The Commission concludes that
fraud protection, special numbering assignments, and installation and
maintenance of basic payphone services should be available to other
providers of payphone services on a nondiscriminatory basis. Validation
services are required by another proceeding. Regarding billing and
collection services, the Commission concludes that if a LEC provides
basic, tariffed payphone services that will only function in
conjunction with billing and collection services from the LEC, the LEC
must provide the billing and collection services it provides to its own
payphone operations for these services to independent payphone
providers on a nondiscriminatory basis. The Commission expects this
requirement to apply, for example, in situations where coin services
require the LEC to monitor coin deposits and such information is not
otherwise available to third parties for billing and collection. It
adopts this requirement to ensure that when a LEC has structured its
payphone services in a way that they could not operate without the LECs
billing and collection services, those services will be available to
other payphone providers on the same basis they are available to the
LEC.
iv. Registration and Demarcation Point for Payphones
49. The Commission amends its Part 68 rules to provide for the
registration of central-office-implemented coin payphones to enable
independent pay
FR Doc. 96-25188 Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996
phone providers as well as the LECs to utilize ``dumb''
payphones. Under the Coin Registration Order, 49 FR 27763 (July 6,
1984), and current Part 68 rules, only instrument-implemented payphones
can be registered for connection to the network. Amending the
Commission's rules enables independent payphone providers to have the
same choices as LECs in providing payphone services. Accordingly, the
Commission adopts amendments to Section 68.2(a)(1) and Section 68.3 of
the Commission's rules to facilitate registration of both instrument-
implemented and central-office-implemented payphones. The Commission
grandfathers existing LEC payphones from the Commission's revised Part
68 requirements, unless the basic functionality in the payphones is
changed. The Commission requires incumbent LECs to submit proposed
interconnection requirements to effectuate such interconnection within
90 days of the effective date of this order. The California Payphone
Association (CPA) filed before the Commission a Petition for Rule
Making requesting that Section 68.2(a)(1) of the rules be amended to
allow for the registration of all coin-operated telephones and that the
Commission re-examine and clarify its interpretation of Section
68.2(a)(1). The Commission notes that its decision in the Report and
Order addresses the relief requested in the CPA petition. The Report
and Order also effectively grants a petition filed by the Public
Telephone Council to treat payphones as CPE, and resolves the issues
raised in RM 8723 regarding exclusion of public payphones from end user
access charges.
50. Consistent with the Commission's objective of treating
incumbent LEC and independent payphone providers' payphones in a
similar manner, the Commission concludes that the demarcation point
must be the same as incumbent LECs use for independent payphone
providers today. Accordingly, the demarcation for all new LEC payphones
must be consistent with the minimum point of entry, demarcation point
standards for other wireline services. The Commission grandfathers the
location of all existing LEC payphones in place on the effective date
of this order because of the difficulty and cost of moving these
payphones to meet the Commission's new demarcation point requirements.
Similarly, the Commission does not require that network interfaces be
placed for existing LEC payphones unless these payphones are
substantially refurbished, for example, upgraded from dumb to smart
payphones or replaced.
2. Reclassification or Transfer of Payphone Equipment to Nonregulated
Status
51. The Commission's nonstructural safeguards include the cost
allocation rules and affiliate transactions rules adopted in the Joint
Cost Order. Under those rules, the BOCs and other incumbent LECs must
classify each of their activities as regulated or nonregulated in
accordance with the Commission's requirements. The Commission now
requires that the BOCs and other incumbent LECs, subject to the
Commission's joint cost rules, classify their payphone operations as
nonregulated for Part 32 accounting purposes. The Commission notes,
however, that the BOCs or other incumbent LECs are free to provide
these services using structurally separate affiliates if they choose to
do so. Therefore, the discussion below will address two possible
approaches a carrier may take in reclassifying its payphone activities
as nonregulated: (1) A carrier may maintain its payphone assets on the
carrier's books but treat the assets as nonregulated, or (2) a carrier
may transfer its payphone assets to a separate affiliate engaged in
nonregulated activities.
i. Specific Assets Reclassified or Transferred
52. The payphone assets to be reclassified or transferred include
all facilities related to payphone service, including associated
accumulated depreciation and deferred income tax liabilities. The
Commission, however, does not include as payphone assets to be
reclassified or transferred the loops connecting the payphones to the
network, the central office ``coin-service,'' or operator service
facilities supporting incumbent LEC payphones because these are part of
network equipment necessary to support basic telephone services.
[[Page 52318]]
ii. Accounting Treatment for Assets Reclassified or Transferred
53. Whether a carrier should account for the transfer or
reclassification of the payphone assets from regulated to nonregulated
status at ``fair market value'' or the net book value of the assets is
determined on whether a carrier maintains the assets in its regulated
Part 32 accounts or instead transfers the payphone assets to a separate
affiliate or an operating division within the carrier that is treated
as an affiliate.
54. Carriers that do not transfer the payphone assets to a separate
affiliate make no reclassification accounting entries to their Part 32
regulated accounts. The reclassification of these assets to
nonregulated status is accomplished instead through the operation of
Part 64 cost allocation rules. Accordingly, the Commission concludes
that payphone investment in Account 32.2351, Public telephone terminal
equipment, and any other assets used in the provision of payphone
service, along with the associated accumulated depreciation and
deferred income tax liabilities should be directly assigned or
allocated to nonregulated activities pursuant to cost allocation rules.
LECs should establish whatever Part 64 cost pools are needed and should
file revisions to their cost allocations manuals within sixty (60) days
prior to the effective date of the change.
55. Carriers that transfer their payphone assets to either a
separate affiliate or an operating division that has no joint and
common use of assets or resources with the LEC and maintains a separate
set of books in accordance with Section 32.23(b) of the Commission's
rules must account for the transfer according to the affiliate
transactions rules of Section 32.27(c) which require that the transfer
be recorded at the higher of fair market value or cost less all
applicable valuation reserves (net book cost). Fair market value has
been defined as ``the price at which the property would change hands
between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of
relevant facts.'' The Commission concludes, that in instances when the
transfer of payphone assets is governed by Section 32.27(c), it is
appropriate that the going concern value associated with the payphone
business be taken into consideration in determining fair market value.
Such going concern value should include intangible assets such as
location contracts that add value to the payphone business. These
intangible assets would be considered in the theoretical purchase price
negotiated by a willing buyer and seller. The Commission does not
believe, however, that the intangible asset value of BOC or LEC brand
names should be included in the determination of going concern or fair
market value because a BOC or a LEC would not transfer the right to use
its brand name to a third party willing buyer.
56. The difference in accounting treatment for payphone assets
either reclassified as nonregulated pursuant to the Commission's Part
64 cost allocation rules or transferred to a separate affiliate and
accounted for in accordance with the Commission's Part 32 affiliate
transactions rules stems primarily from the fact that in one instance
there is no transfer, only a reallocation of assets to nonregulated
status, and in the other instance, there has been an actual transfer.
In addition, in the first instance the Commission's rules are designed
to promote fair cost allocation between regulated and nonregulated
activities; in the second instance, the Commission's rules are designed
to protect against cross-subsidies between separate companies by
capturing any appreciated value of assets transferred on the books of
the carrier.
iii. Other Matters
57. The Commission requires the LECs to reclassify any pay
telephone investments recorded in Account 32.2351, Public telephone
terminal equipment, and other assets used in the provision of payphone
service, along with the associated accumulated depreciation and
deferred income tax liabilities, from regulated to nonregulated status
pursuant to the Commission's Part 64 and Part 32 rules by April 15,
1997 when the associated revised tariffs are effective. The Commission
thus agrees with Ameritech that it should adopt its tentative
conclusion that a phase-in period is unnecessary.
3. Termination of Access Charge Compensation and Other Subsidies
58. In the telephone network, payphones, as well as all other
telephones, are connected to the local switch by means of a subscriber
line. The costs of the subscriber line that are allocated to the
interstate jurisdiction are recovered through two separate charges: a
flat-rate SLC assessed upon the end-user customer who subscribes to
local service; and a per-minute CCL charge assessed upon IXCs that
recovers the balance of the interstate subscriber line costs not
recovered through the SLC. LEC payphone costs are also included in the
CCL charge. The CCL charge, however, applies to interstate switched
access service that is unrelated to payphone service costs. While
independent payphone providers are required to pay the SLC for the loop
used by each of their payphones, LECs have not been required to pay
this charge because the subscriber lines connected to LEC payphones
have been recovered entirely through the CCL charge.
59. The Commission concludes that to implement Section 276
(b)(1)(B) of the 1996 Act, incumbent LECs must reduce their interstate
CCL charges by an amount equal to the interstate allocation of payphone
costs currently recovered through those charges. LECs subject to the
price cap rules would treat this as an exogenous cost change to the
Common Line basket pursuant to Section 61.45(d) of the Commission's
rules. The incumbent LECs' residential SLC is limited to $3.50 per
month and their multi-line business SLC is currently subject to a $6.00
per month cap. Those LECs with interstate subscriber line costs that
exceed this amount recover a portion of the interstate costs of
subscriber lines through the CCL charge. The issue of the appropriate
interstate SLC has been referred to a Federal-State Joint Board.
60. Incumbent LECs today generally recover payphone costs allocated
to the interstate jurisdiction through the per-minute carrier CCL
charge they assess on IXCs and other interstate access customers for
originating and terminating interstate calls. The incumbent LEC
assesses the independent payphone provider a SLC (at the multi-line
business rate) to recover the payphone common line costs associated
with that phone. In the case of competitive payphones, an independent
payphone provider recovers its payphone costs out of the revenue it
receives from end users, premises owners, and OSPs to whom its
payphones are presubscribed. The 1996 Act mandates that the Commission
``discontinue the intrastate and interstate carrier access charge
payphone service elements and payments * * * and all intrastate and
interstate subsidies from basic exchange and exchange access
revenues[.]''
61. Accordingly, the Commission adopts rules that provide for the
removal from regulated intrastate and interstate rate structures of all
charges that recover the costs of payphones (i.e., the costs of
payphone sets, not including the costs of the lines connecting those
sets to the public switched network, which, like the lines
[[Page 52319]]
connecting competitive payphones to the network, will continue to be
treated as regulated). Therefore, the Commission concludes that
incumbent LECs must file revised CCL tariffs with the Common Carrier
Bureau no later than January 15, 1997 to reduce their interstate CCL
charges by an amount equal to the interstate allocation of payphone
costs currently recovered through those charges, scheduled to take
effect April 15, 1997. LECs subject to the price cap rules must treat
this as an exogenous cost change to the Common Line basket pursuant to
Section 61.45(d)(1)(v) of the Commission's rules. Incumbent LECs must
identify and report accounts that contain costs attributable to their
payphone operations. Incumbent LECs must identify specific cost pools
and allocators that are required to capture the nonregulated investment
and expenses associated with their payphone operations. LECs must file
this information with the Common Carrier Bureau by January 15, 1997.
62. LECs that file tariffs pursuant to Section 61.38 or Section
61.39, rate-of-return regulation, or Section 61.50, optional incentive
regulation, must file tariffs to revise interstate CCL rates to remove
the payphone investment and any other assets used in the provision of
payphone service along with the accumulated depreciation and deferred
income tax liabilities from the common line costs recovered through
those rates. As stated previously, these LECs must reclassify payphone
assets from regulated to nonregulated activity pursuant to Part 64
rules. Expenses incurred after payphones are deregulated should be
classified as nonregulated expenses. The CCL rate reduction must
account for overhead costs assigned to common line costs as a result of
payphone investment and expenses. The Commission requires these LECs to
recalculate their CCL rates, using the same data and methods they used
to develop their current CCL rates, except those calculations should
exclude payphone costs.
63. Price cap LECs are also required to revise their CCL rates,
using the following method to remove payphone costs from their CCL
rates. First, price cap LECs should develop a common line revenue
requirement using ARMIS costs for calendar year 1995. Second, price cap
LECs are required to develop a payphone cost allocator equal to the
payphone costs in Section 69.501(d) divided by total common line costs,
based on 1995 ARMIS data. Each LEC is required to reduce its PCI in the
common line basket by this payphone cost allocator minus one.
64. The Commission requires, pursuant to the mandate of Section
276(b)(1)(B), incumbent LECs to remove from their intrastate rates any
charges that recover the costs of payphones. Revised intrastate rates
must be effective no later than April 15, 1997. Parties did not submit
state-specific information regarding the intrastate rate elements that
recover payphone costs. States must determine the intrastate rates
elements that must be removed to eliminate any intrastate subsidies
within this time frame.
65. Finally, the Commission concludes that, to avoid discrimination
among payphone providers, the multiline business SLC must apply to
subscriber lines that terminate at both LEC and competitive payphones.
It concludes that the removal of payphone costs from the CCL and the
payment or imputation of a SLC to the subscriber line that terminates
at a LEC nonregulated payphone will result in the recovery of LEC
payphone costs on a more cost-causative basis consistent with the
requirements of the 1996 Act. No action the Commission takes in the
Report and Order affects the authority of states to address the state
ratemaking implications of reclassification or transfer of payphone
assets.
4. Deregulation of AT&T Payphones
66. The Commission concludes that AT&T payphones must be
deregulated, detariffed and treated as CPE. The Commission concluded
that there is a competitive market for payphones, and, pursuant to
Section 276, subsidies must be removed from payphone service. AT&T
payphones have been treated like BOC payphones for regulatory purposes.
It would be incongruous to deregulate payphone equipment owned by all
other carriers except AT&T. The Commission concludes, therefore, that
AT&T payphones must be removed from regulation and treated as
independent PSPs' payphones. Accordingly, the Commission requires that
AT&T follow the same procedures discussed above for valuing LEC
payphone assets and transferring them to nonregulated status. After
deregulation, AT&T payphones will be subject to the same requirements
as independent payphone provider payphones.
67. With regard to the issue of bundling of transmission capacity
and payphone CPE, the Commission does not have a sufficient record to
revise, with regard to payphone CPE, the Commission's conclusion in the
Computer II proceeding that there are public interest benefits in
unbundling CPE from the underlying transmission service. The issue of
IXC CPE bundling will be addressed in the Interstate, Interexchange
Marketplace proceeding.
C. Nonstructural Safeguards for BOC Provision of Payphone Service
68. The foregoing parts establish a compensation arrangement that
applies equally to the payphone operations of the BOCs, other LECs,
AT&T and PSPs not affiliated with LECs. In this part, the Commission
addresses certain operating requirements that are imposed only on the
BOCs' payphone operations.
69. Section 276(b)(1)(C) directs the Commission to ``prescribe a
set of nonstructural safeguards for Bell operating company payphone
service to implement the provisions of paragraphs (1) and (2) of
subsection (a), which safeguards shall, at a minimum, include the
nonstructural safeguards equal to those adopted in the Computer
Inquiry--III (CC Docket No. 90-623) proceeding[.]'' As referred to in
Section 276(b)(1)(C), Section 276(a) provides that a BOC ``(1) shall
not subsidize its payphone service directly or indirectly from its
telephone exchange service operations or its exchange access
operations; and (2) shall not prefer or discriminate in favor of its
payphone service.''
a. Nonstructural Safeguards
70. In addition to the accounting safeguards that the Commission
will adopt with respect to payphone services in the accounting
safeguards proceeding, it concludes that the Computer III and ONA
nonstructural safeguards will provide an appropriate regulatory
framework to ensure that BOCs do not discriminate or cross-subsidize in
their provision of payphone service. The Commission and the BOCs have
substantial experience in the application of these safeguards that will
facilitate their use in the context of BOC payphone services. Pursuant
to these requirements, the Commission notes that any basic services
provided by a BOC to its payphone affiliate must be available on a
nondiscriminatory basis to other payphone providers and that payphone
providers may request additional unbundled payphone services through
the 120 day ONA service request process. To ensure that the BOCs comply
with the Computer III and ONA nonstructural separation requirements for
the provision of payphone services, the Commission requires that,
within 90 days following publication of a summary of the Report and
Order in the Federal Register, BOCs must file CEI plans describing how
they will comply with the Computer III unbundling, CEI parameters,
accounting requirements, CPNI requirements as
[[Page 52320]]
modified by Section 222 of the 1996 Act, network disclosure
requirements, and installation, maintenance, and quality
nondiscrimination requirements. Except for the Commission's Part 64
cost allocation rules and Part 32 affiliate transaction rules, the
Commission declines to apply the Computer III nonstructural safeguards
to other LECs.
b. BOC CEI Plans
71. The Commission requires that each BOC file, within 90 days
following publication of a summary of the Report and Order in the
Federal Register, an initial CEI plan describing how it intends to
comply with the CEI equal access parameters and nonstructural
safeguards for the provision of payphone services. In Computer III, CEI
plans have been an integral part of ensuring that BOCs do not
discriminate in providing basic underlying services to enhanced
services providers. The Commission likewise requires the filing of CEI
plans for payphone services, even though the Commission has
traditionally only required such plans for the BOC provision of
enhanced services, to ensure that the BOCs provide payphone services in
a nondiscriminatory manner and consistent with other Computer III and
ONA requirements. Finally, the Commission concludes that this
requirement is consistent with the requirement in Section 276 that the
Commission establish safeguards, at a minimum, ``equal to those adopted
in the Computer III Inquiry.''
72. In a CEI plan, a BOC must describe how it intends to comply
with the CEI ``equal access'' parameters for the specific payphone
service it intends to offer. The CEI equal access parameters include:
interface functionality; unbundling of basic services; resale;
technical characteristics; installation, maintenance, and repair; end
user access; CEI availability; minimization of transport costs; and
availability to all interested customers or enhanced service providers.
73. In its CEI plan, a BOC must explain how it will unbundle basic
payphone services. Thus, a BOC must indicate how it plans to unbundle,
and associate with a specific rate element in a tariff, the basic
services and basic service functions that underlie its provision of
payphone service. Nonproprietary information used by the BOC in
providing the unbundled basic services will be made available as part
of CEI. In addition, any options available to the BOC in the provision
of such basic services or functions would be included in the unbundled
offerings.
74. A BOC also must explain in its CEI plan how it will comply with
the CPNI requirements. The Commission has continued to require
compliance with the Computer III and ONA CPNI requirements that are not
inconsistent with Section 222 of the 1996 Act, which was immediately
effective. In the CPNI NPRM, the Commission is currently examining a
carrier's obligations under the CPNI provisions of the 1996 Act.
75. BOCs must comply with the Computer III and ONA network
information disclosure requirements. The BOCs cannot design new network
services or change network technical specifications to the advantage of
their own payphones. Pursuant to these rules, the BOCs must disclose
information about changes in their networks or new network services at
two different points in time. First, disclosure must occur at the
``make/buy'' point: when a BOC decides to make for itself, or procure
from an unaffiliated entity, any product whose design affects or relies
on the network interface. Second, a BOC must publicly disclose
technical information about a new service 12 months before it is
introduced. If the BOC can introduce the service within 12 months of
the make/buy point, it would make a public disclosure at the make/buy
point. The public disclosure, however, must not occur less than six
months before the introduction of the service.
76. In addition, BOCs must comply with the Computer III and ONA
requirements regarding nondiscrimination in the quality of service,
installation, and maintenance. BOCs must indicate in their CEI plans
how they will comply with these requirements. The Commission does not
impose any new continuing reporting requirement because BOCs are
already subject to reporting requirements pursuant to Computer III and
ONA. BOCs must report on payphone services as they do for other basic
services.
D. Ability of BOCs to Negotiate With Location Providers on the
Presubscribed Interlata Carrier
77. Section 276(b)(1)(D) of the 1996 Act directs the Commission to
eliminate the court-ordered competitive barrier prohibiting the BOCs
from participating in the selection of presubscribed interLATA carriers
to their payphones, unless the Commission finds such activity to be
contrary to the public interest.
78. Payphone providers, both PSPs and independent LECs, compete in
the market for payphone services by offering location providers a
commission on coin and 0+ traffic originating from the payphones
located on the location providers' premises. In turn, these payphone
service providers earn revenues by contracting for the presubscription
of 0+ traffic originating from their payphones. The 1996 Act directs
the Commission to provide similar rights to the BOCs, unless the
Commission determines it is not in the public interest. The Commission
concludes that it would not be contrary to the public interest to allow
the BOCs to negotiate with location providers with respect to the
selecting and contracting for the interLATA carriers presubscribed to
their payphones. The Commission first finds that the payphone industry
is competitive and characterized by low barriers to entry which would
act to prevent the BOCs from exercising market power in the provision
of payphone services. The Commission explains that, although the BOCs
currently have a large share of the payphone services market, there are
also thousands of competitors. These competitors range in size from
very small entities with only a handful of payphones, to the major long
distance companies. The Commission finds that the existence of these
many small competitors demonstrates that entry is relatively easy and
does not require investment or scale levels that would deter many
potential competitors. The Commission also concludes that any ability
that the BOCs might have to raise prices to end users above competitive
levels is severely restricted by the ability of end users to dial
around the presubscribed interLATA carrier. The Commission explains
that a sustained effort by the BOCs to pass on monopoly price levels to
consumers would induce more end users to take advantage of this
alternative.
79. The Commission also determines that the nonstructural and
accounting safeguards required with respect to the BOCs' payphone
operations are sufficient to deter the BOCs from improperly subsidizing
those operations from their local access services or discriminating in
the provision of local access services to the detriment of their
payphone competitors. As discussed previously, the Commission is
applying all Computer III and ONA nonstructural and accounting
safeguards to the BOCs' provision of payphone services, and requiring
that any basic services provided by a BOC to its own payphone
operations to be available on a nondiscriminatory basis to other
payphone providers. The Commission concludes that these safeguards
provide an appropriate regulatory framework to ensure that BOCs do not
engage in improper subsidization or discriminate
[[Page 52321]]
in the provision of services required by their payphone competitors.
For these reasons, and because it finds that the statutory language
reflects a Congressional determination that structural separation of
the BOCs' payphone operations from their core business is neither
necessary nor appropriate, the Commission declines to impose such
structural separation on the BOCs' payphone business. The Commission
does require that the nonstructural and accounting safeguards
established pursuant to Section 276(b)(1)(C) of the 1996 Act be in
place before the BOCs are allowed to participate in the interLATA
presubscription process for their payphones. Specifically, the Report
and Order requires a BOC to submit and receive approval of an initial
CEI plan filed pursuant to Section 276(b)(1)(C) as a precondition to
being authorized to engage in the conduct authorized by Section
276(b)(1)(D).
80. The Report and Order recognizes that location providers are to
retain the ultimate decision-making authority in determining interLATA
services in connection with the choice of payphone providers. The
Commission finds that if strong competition is established in the
payphone industry, location providers will be assured of the ultimate
choice of the interLATA carrier serving payphones on their premises
through the selection of PSPs. The Commission concludes that
competition in the payphone industry is sufficiently strong to ensure
that location providers have freedom of choice concerning the interLATA
carrier for payphones on their premises. The Commission emphasizes,
however, that a location provider's ability to choose should be
protected from unjust and unreasonable practices which seek to
foreclose meaningful choice. Such practices as unreasonable
interference with pre-existing agreements between location providers
and PSPs or carriers, or conduct which is unduly coercive of the
location provider's right to choose the carrier for payphones on its
premises, may constitute violations of Section 201 of the
Communications Act.
81. The Commission rejects the argument that the presubscription
rights specified in Section 276(b)(1)(D) constitute the provision of
interLATA service subject to the restrictions of Sections 271 and 272
of the 1996 Act. The Commission finds that the statutory language
authorizing the BOCs to ``select and contract with, the carriers that
carry interLATA calls from their payphones,'' grants the BOCs no more
than the right to participate as a contractual intermediary between a
location provider and a third-party interLATA carrier. Such conduct
does not amount to the provision of interLATA telecommunications
service addressed under Sections 271 and 272. The Commission does find,
however, that, for purposes of Section 276, resale by a BOC of
interLATA service for its in-region presubscribed payphones lies
outside of the specific rights granted by Section 276(b)(1)(D) of the
1996 Act, and is subject to the requirements set forth in Section
271(b).
82. The Commission affirms its tentative conclusion in the NPRM
that the 1996 Act grandfathers all contracts in force between location
providers and PSPs or interLATA or intraLATA carriers which were in
force and effect as of February 8, 1996.
E. Ability of Payphone Service Providers to Negotiate With Location
Providers on the Presubscribed Intralata Carrier
83. The Commission affirms its tentative conclusion in the NPRM
that all PSPs should have the right to negotiate with location
providers concerning the intraLATA carriers presubscribed to their
payphones. The Commission also concludes that state regulations which
require the routing of intraLATA calls to the incumbent LEC are
inconsistent with this provision of the 1996 Act. Pursuant to the
specific authority in Section 276(c), the Commission concludes that all
such state requirements are therefore preempted by the Commission's
regulations.
84. The Commission also affirms its tentative conclusion in the
NPRM that intraLATA carriers presubscribed to payphones should be
required to meet the Commission's minimum standards for routing and
handling emergency calls. By mandating the application of minimum
standards to intraLATA carriers presubscribed to payphones, the
Commission seeks to ensure that individuals receive timely and proper
assistance when they rely on payphones for 0- and 911 emergency calls.
F. Establishment of Public Interest Payphones
85. Section 276(b)(2) of the 1996 Act directs the Commission to
``determine whether public interest payphones, which are provided in
the interest of public health, safety, and welfare, in locations where
there would otherwise not be a payphone, should be maintained, and if
so, ensure that such public interest payphones are supported fairly and
equitably.'' The Commission concludes that there is a need to ensure
the maintenance of public interest payphones that serve public policy
interests in health, safety, and welfare, in locations where there
might not otherwise be a payphone as a result of the operation of the
market. The Commission explains that all payphones serve the public
interest by providing access to basic communications services. The
Commission expresses particular concern about the role served by
payphones in providing access to emergency services, especially in
isolated locations and areas with low levels of residential phone
penetration. The Commission recognizes, however, the potential that a
freely competitive marketplace may not provide for payphones in
locations where they serve important public policy objectives, but
which, for various reasons, may not be economically self-supporting.
With the elimination of subsidies which have helped to support such
payphones in the past, as directed by the 1996 Act, it is possible that
many of these payphones could disappear absent the availability of
alternative methods to ensure their existence.
86. The Commission concludes that primary responsibility for
administering and funding public interest payphone programs should be
left to the states, subject to guidelines adopted by the Commission.
The Commission finds that the states are better equipped than the
Commission to respond to geographic and socio-economic factors
affecting the need for such payphones that are too diverse to be
effectively addressed on a national basis.
87. While leaving broad discretion to the states with respect to
the implementation of public interest payphone programs, the Commission
finds that the adoption of certain minimum guidelines is necessary to
meet its statutory obligation to ensure that public interest payphones
are funded fairly and equitably. The Commission adopts as a definition
of ``public interest payphone,'' a payphone which (1) fulfills a public
policy objective in health, safety, or public welfare, (2) is not
provided for a location provider with an existing contract for the
provision of a payphone, and (3) would not otherwise exist as a result
of the operation of the competitive marketplace. The Commission
concludes that reliance on the public interest payphone provisions of
the 1996 Act should be limited to instances where a payphone location
serves a strong public interest that would not be fulfilled by the
normal operation of the market. The Commission also concludes that the
statutory language requires a national guideline that companies
providing public interest payphones be fairly
[[Page 52322]]
compensated for the cost of such services. The states have discretion
with respect to funding their respective public interest payphone
programs, so long as the funding mechanism, (1) ``fairly and
equitably'' distributes the cost of such a program, and (2) does not
involve the use of subsidies prohibited by Section 276(b)(1)(B) of the
1996 Act. State programs supporting public interest payphones are also
subject to the provision of Section 253(b) of the 1996 Act which
requires that such a program be implemented on a ``competitively
neutral basis.'' The Commission specifically recognizes that states may
address the need for public interest payphones by adopting appropriate
rules in conjunction with their state universal service plans pursuant
to Section 254(f) of the 1996 Act. The Commission finds that the
implementation of a public interest payphone program is consistent with
the goals of universal service.
88. Also in furtherance of its statutory responsibility under
Section 276(b)(2), the Commission directs each state to review whether
it has adequately provided for public interest payphones in a manner
consistent with the Report and Order. Each state is required, within
two years of the date of issuance of the Report and Order, to evaluate
whether it needs to take any measures to ensure that payphones serving
important public interests will continue to exist in light of the
elimination of subsidies and other competitive provisions established
pursuant to Section 276 of the 1996 Act, and that any existing programs
are administered and funded consistent with the Commission's rules. The
Commission also provides that interested parties may file petitions
with the Commission challenging state requirements that are believed to
be inconsistent with Section 276(b)(2) or guidelines adopted by the
Commission implementing the provisions of that Section.
G. Other Issues
1. Dialing Parity
89. The Commission affirms its tentative conclusion in the NPRM
that the benefits of dialing parity adopted pursuant to Section
251(b)(3) of the 1996 Act should extend to all payphone location
providers. The Commission finds that dialing parity is an important
element in fostering vigorous competition in the payphone industry, as
in the local exchange and long distance industry, by ensuring that each
customer has the freedom and the flexibility to choose among different
carriers for different services without the burden of dialing access
codes. The Commission concludes that the technical and timing
requirements established pursuant to Section 251(b)(3), and Section
271(c)(2)(B), should apply equally to payphones.
90. The Commission also concludes that the unblocking of carrier
access codes mandated by the Telephone Operator Consumer Services
Improvement Act of 1990 (``TOCSIA''), Section 226 of the Act, and the
Commission's rules for interstate calls, should also apply to
intrastate (including local) access code calls. Given the existence of
compensation and the pro-competitive purpose of Section 276 of the 1996
Act, and the absence of any technical limitations, the Commission finds
that unblocked access for all access code calls from payphones is
required.
2. Letterless Keypads
91. The Commission affirms its tentative conclusion in the NPRM
that the use of letterless keypads on payphones violates both TOCSIA
and the 1996 Act. The Commission finds that an exclusively numeric
payphone keypad defeats a caller's attempt to reach its OSP of choice
through the use of commonly-used ``vanity'' access sequences such as
AT&T's ``1-800-CALL-ATT'' and MCI's ``1-800-COLLECT.'' Such access
sequences, which can be easily remembered by consumers, require the
presence of both alphabetic and numeric characters on payphone keypads.
The Commission finds no plausible purpose for letterless keypads other
than to restrict access to a non-presubscribed carrier. The Commission
determines that it has authority to take enforcement action, including
forfeitures, if such devices are used, and orders that OSPs may not pay
commissions to PSPs utilizing such devices.
3. Oncor Petition
92. The Commission denies the petition of Oncor Communications,
Inc., filed August 7, 1995, requesting that the Commission prescribe
compensation for public payphone premises owners and presubscribed
OSPs. The Commission invited comment on Oncor's petition by Public
Notice released September 12, 1995. The Commission finds that the
presubscribed OSP incurs no costs when a consumer makes an access code
call from a payphone, and it would be inequitable to require any party
to compensate the presubscribed OSP because the caller chose not to use
it. The Commission also notes that the rules adopted in the Report and
Order will ensure that PSPs are fairly compensated for calls that
originate from their payphones, and market forces will ensure that the
PSPs fairly compensate premises owners.
III. Conclusion
93. In the Report and Order, the Commission establishes procedures
that will ensure that all payphone service providers are fairly
compensated for every completed intrastate, interstate and
international call, except for those calls excepted by statute, and
adopts interim compensation until the new compensation procedures are
effective. The Commission also establishes procedures that ensure that
all subsidies from basic exchange and exchange access revenues are
removed simultaneous with the LECs' receipt of compensation for calls
from LEC payphones. The Commission requires the BOCs to comply with
certain nonstructural safeguards for their provision of payphone
service, and allows them to negotiate with location providers for
selecting and contracting with the carriers that provide interLATA
service from their payphones. The Report and Order also sets forth
guidelines for public interest payphones, and establishes guidelines
for states to use in their proceedings for funding of such payphones.
IV. Ordering Clauses
94. Accordingly, pursuant to authority contained in Sections 1, 4,
201-205, 215, 218, 219, 220, 226, and 276 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 154, 201-205, 215, 218, 219, 220, 226,
and 276, it is ordered that the policies, rules, and requirements set
forth herein are adopted.
95. It is further ordered, that 47 CFR Part 64, Sections 64.1301
and 64.1340, are amended as set forth below, effective November 6,
1996, and that 47 CFR Part 64, Sections 64.1330 and 64.703 are amended
as set forth below, effective December 16, 1996.
96. It is further ordered, that 47 CFR Part 64, Section 64.1301 is
removed and Sections 64.1300, 64.1310 and 64.1320, are amended as set
forth below, effective October 7, 1997.
97. It is further ordered, that 47 CFR Part 68, is amended as set
forth below, effective April 15, 1997.
98. It is further ordered, that local exchange carriers shall
reclassify their payphone assets and related expenses to nonregulated
status on April 15, 1997.
99. It is further ordered, that carriers required to file a cost
allocation manual pursuant to 47 CFR Section 64.903 or by Commission
order shall file revisions to their manuals implementing the
[[Page 52323]]
reclassification required herein no later than February 14, 1997.
100. It is further ordered, that local exchange carriers shall file
tariff revisions required by paras. 180 to 187 of the Report and Order
on January 15, 1997, to be effective April 15, 1997.
101. It is further ordered, the Bell Operating Companies are
granted waivers of the time requirements of the Computer II and the
Computer III network disclosure requirements in order to provide basic
network payphone services by April 15, 1997. Pursuant to this waiver,
network disclosure notification for these basic network payphone
services must be filed no later than January 15, 1997.
102. It is further ordered, that the Bell Operating Companies shall
file CEI plans for the provision of payphone service not later than
Janaury 6, 1997.
103. It is further ordered, that the waivers of Section 64.1301 of
the Commission's Rules granted to AT&T and Sprint in the proceedings
referenced in para. 119 of the Report and Order are revoked, effective
30 days after publication of a summary of this Report and Order in the
Federal Register.
104. It is further ordered, that the proceedings initiated by our
Memorandum Opinion and Order on Further Reconsideration and Second
Further Notice of Proposed Rulemaking in CC Docket 91-35, 60 FR 48957
(September 21, 1995), Policies and Rules Concerning Operator Service
Access and Pay Telephone Compensation, 10 FCC Rcd 11457 (1995), are
terminated.
105. It is further ordered, that the July 18, 1988 Petition of the
Public Telephone Council for a declaratory ruling that BOC Payphones
should be treated as CPE is dismissed as moot.
106. It is further ordered, that the August 7, 1995 Petition of
Oncor Communications, Inc. Requesting Compensation for Competitive
Payphone Premises Owners and Presubscribed Operator Services Providers
is denied.
107. It is further ordered, that the proceedings entitled Amendment
of Section 69.2 (m) and (ee) of the Commission's Rules to Include
Independent Public Payphones Within the ``Public Telephone'' Exemption
from End User Common Line Access Charges, RM 8723, are terminated.
108. It is further ordered, that the December 28, 1989 Petition of
the California Payphone Association is dismissed as moot.
109. It is further ordered, that the provisions set forth in
Section 1.4 of the Commission's rules establishing the date of public
notice for this Report and Order are waived, and petitions for
reconsideration shall be filed within 30 days of release of this
document, and oppositions to the petitions must be filed within seven
(7) days after the date for filing the petitions for reconsideration.
For purposes of this proceeding, Section 1.106(h) of the Commission's
Rules is waived, and the Commission will not accept replies to
oppositions.
List of Subjects
47 CFR Part 64
Communications common carriers, Payphone compensation, Operator
service access, Telephone.
47 CFR Part 68
Administrative practice and procedure, Communications common
carrier, Communications equipment, Labeling, Reporting and record
keeping requirements, Telephone.
Federal Communications Commission.
Shirley S. Suggs,
Chief, Publications Branch.
Rule Changes
Parts 64 and 68 of Title 47 of the Code of Federal Regulations are
amended as follows:
PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
1. Effective November 6, 1996, the authority citation for Part 64
is revised to read as follows:
Authority: 47 U.S.C. 154, unless otherwise noted. Interpret or
apply 47 U.S.C. 201, 218, 226, 228, 276 unless otherwise noted.
2. Effective December 16, 1996, Sec. 64.703(b) is amended by
removing the word ``and'' at the end of paragraph (b)(2), and by
redesignating paragraph (b)(3) as paragraph (b)(4); and adding a new
paragraph (b)(3) to read as follows:
Sec. 67.703 Consumer information.
* * * * *
(b) * * *
(3) In the case of a pay telephone, the local coin rate for the pay
telephone location; and
* * * * *
3. Effective November 6, 1996, the heading of Subpart M of Part 64
is revised to read as follows:
Subpart M--Payphone Compensation
4. Effective November 6, 1996, Sec. 64.1301 is amended by revising
the first sentence of paragraph (a) and paragraph (b) to read as
follows:
Sec. 64.1301 Competitive payphone compensation.
(a) Each payphone service provider eligible to receive compensation
shall be paid $45.85 per payphone per month for originating access code
and toll-free calls. * * *
(b) This compensation shall be paid by interexchange carriers
(IXCs) that earn annual toll revenues in excess of $100 million, as
reported in the FCC staff report entitled ``Long Distance Market
Shares.'' Each individual IXC's compensation obligation shall be set in
accordance with its relative share of toll revenues among IXCs required
to pay compensation. For example, if total toll revenues of IXCs
required to pay compensation is $50 billion, and one of these IXCs had
$5 billion of total toll revenues, the IXC must pay $4.585 per payphone
per month.
* * * * *
5. Effective December 16, 1996, Sec. 64.1330 is added to subpart M
to read as follows:
Sec. 64.1330 State review of payphone entry and exit regulations and
public interest payphones.
(a) Each state must review and remove any of its regulations
applicable to payphones and payphone service providers that impose
market entry or exit requirements.
(b) Each state must ensure that access to dialtone, emergency
calls, and telecommunications relay service calls for the hearing
disabled is available from all payphones at no charge to the caller.
(c) Each state must review its rules and policies to determine
whether it has provided for public interest payphones consistent with
applicable Commission guidelines, evaluate whether it needs to take
measures to ensure that such payphones will continue to exist in light
of the Commission's implementation of Section 276 of the Communications
Act, and administer and fund such programs so that such payphones are
supported fairly and equitably. This review must be completed by
September 20, 1998.
6. Effective November 6, 1996, Sec. 64.1340 is added to read as
follows:
Sec. 64.1340 Right to negotiate.
Unless prohibited by Commission order, payphone service providers
have the right to negotiate with the location provider on the location
provider's selecting and contracting with, and, subject to the terms of
any agreement with the location provider, to select and contract with,
the carriers that carry interLATA and intraLATA calls from their
payphones.
[[Page 52324]]
7. Effective October 7, 1997, Sec. 64.1300 is added to subpart M to
read as follows:
Sec. 64.1300 Payphone compensation obligation.
(a) Except as provided herein, every carrier to whom a completed
call from a payphone is routed shall compensate the payphone service
provider for the call at a rate agreed upon by the parties by contract.
(b) The compensation obligation set forth herein shall not apply to
calls to emergency numbers, calls by hearing disabled persons to a
telecommunications relay service or local calls for which the caller
has made the required coin deposit.
(c) In the absence of an agreement as required by paragraph (a) of
this section, the carrier obligated to compensate the payphone service
provider shall do so at a per-call rate equal to its local coin rate at
the payphone in question.
(d) For the initial one-year period during which carriers are
required to pay per-call compensation, in the absence of an agreement
as required by paragraph (a) of this section, the carrier is obligated
to compensate the payphone service provider at a per-call rate of $.35
per call. After this initial one-year period of per-call compensation,
paragraph (c) of this section will apply.
Sec. 64.1301 [Removed]
8. Effective October 7, 1997, Sec. 64.1301 is removed.
9. Effective October 7, 1997, section 64.1310 is added to read as
follows:
Sec. 64.1310 Payphone compensation payment procedures.
(a) It is the responsibility of each carrier to whom a compensable
call from a payphone is routed to track, or arrange for the tracking
of, each such call so that it may accurately compute the compensation
required by Section 64.1300(a).
(b) Carriers and payphone service providers shall establish
arrangements for the billing and collection of compensation for calls
subject to Section 64.1300(a).
(c) Local Exchange Carriers must provide to carriers required to
pay compensation pursuant to Section 64.1300(a) a list of payphone
numbers in their service areas. The list must be provided on a
quarterly basis. Local Exchange Carriers must verify disputed numbers
in a timely manner, and must maintain verification data for 18 months
after close of the compensation period.
(d) Local Exchange Carriers must respond to all carrier requests
for payphone number verification in connection with the compensation
requirements herein, even if such verification is a negative response.
(e) A payphone service provider that seeks compensation for
payphones that are not included on the Local Exchange Carrier's list
satisfies its obligation to provide alternative reasonable verification
to a payor carrier if it provides to that carrier:
(1) A notarized affidavit attesting that each of the payphones for
which the payphone service provider seeks compensation is a payphone
that was in working order as of the last day of the compensation
period; and
(2) Corroborating evidence that each such payphone is owned by the
payphone service provider seeking compensation and was in working order
on the last day of the compensation period. Corroborating evidence
shall include, at a minimum, the telephone bill for the last month of
the billing quarter indicating use of a line screening service.
10. Effective October 7, 1997, Sec. 64.1320 is added subpart M to
read as follows:
Sec. 64.1320 Payphone compensation verification and reports.
(a) Carriers subject to payment of compensation pursuant to Section
64.1300(a) shall conduct an annual verification of calls routed to them
that are subject to such compensation and file a report with the Chief,
Common Carrier Bureau within 90 days of the end of the calendar year,
provided, however, that such verification and report shall not be
required for calls received after December 31, 1998.
(b) The annual verification required in this section shall list the
total amount of compensation paid to payphone service providers for
intrastate, interstate and international calls, the number of
compensable calls received by the carrier and the number of payees.
PART 68--CONNECTION OF TERMINAL EQUIPMENT TO THE TELEPHONE NETWORK
11. The authority citation for Part 68 is revised to read as
follows:
Authority: 47 U.S.C. 151, 154, 155, 201-5, 208, 215, 218, 226,
227, 303, 313, 314, 403, 404, 410, 602.
12. Effective April 15, 1997, Sec. 68.2(a)(1) is revised to read as
follows:
Sec. 68.2 Scope.
(a) * * *
(1) Of all terminal equipment to the public switched telephone
network, for use in conjunction with all services other than party line
service;
* * * * *
13. Effective April 15, 1997, Sec. 68.3 is amended by adding the
definitions of ``central-office implemented telephone'' and
``instrument implemented telephone'' in alphabetical order and removing
the definitions of ``coin-implemented telephone'' and ``coin service''
to read as follows:
Sec. 68.3 Definitions.
* * * * *
Central-office implemented telephone: A telephone executing coin
acceptance requiring coin service signaling from the central office.
* * * * *
Instrument-implemented telephone: A telephone containing all
circuitry required to execute coin acceptance and related functions
within the instrument itself and not requiring coin service signaling
from the central office.
* * * * *
This Attachment will not be published in the Code of Federal
Regulations.
Attachment--Interim Compensation Obligations
----------------------------------------------------------------------------------------------------------------
1995 Total
toll services Percent of Amount per
Company revenues total toll phone per
(dollar in revenues month
millions)
----------------------------------------------------------------------------------------------------------------
AT&T Companies:
AT&T Communications, Inc.................................... $38,069 56.69 $25.9923406
Alascom, Inc................................................ 325 0.48 0.2219000
MCI Telecommunciations Corp................................. 12,924 19.25 8.8241091
Sprint Communications Co.................................... 7,277 10.84 4.9685115
LDDS Worldcom............................................... 3,640 5.42 2.4852799
[[Page 52325]]
Frontier Companies:
Allnet Comm. Svcs. dba Frontier Comm. Svcs.................. 827 1.23 0.5646501
Frontier Communications Intl, Inc........................... 309 0.46 0.2109757
Frontier Comm. of the North Central Region.................. 133 0.20 0.0908083
Frontier Communications of the West, Inc.................... 127 0.19 0.0867117
Cable & Wireless Communications, Inc........................ 700 1.04 0.4779384
LCI International Telecom Corp.............................. 671 1.00 0.4581381
Excel Telecommunications, Inc............................... 363 0.54 0.2478452
Telco Communications Group, Inc............................. 215 0.32 0.1467954
Midcom Communications, Inc.................................. 204 0.30 0.1392849
Tel Save, Inc \9\........................................... 180 0.27 0.1228985
U.S. Long Distance, Inc..................................... 155 0.23 0.1058292
Vartex Telecom, Inc......................................... 125 0.19 0.0853461
General Communication, Inc.................................. 120 0.18 0.0819323
Business Telecom, Inc....................................... 115 0.17 0.0785185
Oncor Communications, Inc................................... 111 0.17 0.0757874
The Furst Group, Inc........................................ 109 0.16 0.0744218
American Network Exchange, Inc.............................. 101 0.15 0.0689597
-----------------------------------------------
Total..................................................... 67,153 100.00 45.85
----------------------------------------------------------------------------------------------------------------
[FR Doc. 96-25188 Filed 10-4-96; 8:45 am]
BILLING CODE 6712-01-P
Complete official Federal Register PDF
FR Doc. 96-25121 Board of Contract Appeals; Rules of Procedure of the General Services Administration Board of Contract Appeals: Standard Proceedings and Expedited Proceedings
[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52347-52370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25121]
=======================================================================
-----------------------------------------------------------------------
GENERAL SERVICES ADMINISTRATION
48 CFR Parts 6101 and 6102
RIN Number 3090-AF99
Board of Contract Appeals; Rules of Procedure of the General
Services Administration Board of Contract Appeals: Standard Proceedings
and Expedited Proceedings
AGENCY: Board of Contract Appeals, General Services Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document contains final revisions to the rules governing
proceedings before the General Services Administration Board of
Contract Appeals (Board). It supersedes the current rules of procedure
of the Board which are contained in 48 CFR part 6101, in their
entirety. The rules governing the standard proceedings of the Board are
now contained in part 6101, while rules governing expedited
proceedings--including alternative dispute resolution (ADR)--are
contained in part 6102. The Board, by majority vote, has adopted these
revised rules pursuant to its authority contained in the Contract
Disputes Act of 1978 (41 U.S.C. 601-613). The revised rules will govern
proceedings before the Board in contract appeals (41 U.S.C. 601-613),
as well as any ADR proceedings handled by the Board pursuant to
authority delegated by the Administrator of General Services.
EFFECTIVE DATE: October 7, 1996.
FOR FURTHER INFORMATION CONTACT: Margaret S. Pfunder, Deputy Chief
Counsel, GSA Board of Contract Appeals, telephone (202) 501-0272,
Internet address Margaret.P[email protected]..
SUPPLEMENTARY INFORMATION:
A. Regulatory Flexibility Act
The General Services Administration certifies that these revisions
will not have a significant economic impact on a substantial number of
small entities within the meaning of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.).
[[Page 52348]]
B. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the rule does
not impose recordkeeping or information collection requirements, or the
collection of information from offerors, contractors, or members of the
public which require the approval of OMB under 44 U.S.C. 3501 et seq.
C. Effective Dates
These rules are applicable to all proceedings filed on or after
October 7, 1996. Protests and related proceedings are governed by the
rules in effect at the time the underlying protests were filed.
D. Background
On June 24, 1996, the Board published in the Federal Register (61
FR 32410) a notice inviting written comments on proposed revisions to
its rules of procedure. This notice announced the Board's intention to
revise its existing rules of procedure, 48 CFR part 6101, and explained
the purpose of the proposed revisions was to implement section 5101 of
the Defense Authorization Act for Fiscal Year 1996 (Pub. L. 104-106),
which eliminated the Board's jurisdiction to hear and decide bid
protests which were filed on or after August 8, 1996, regarding
procurements of automatic data processing (ADP) equipment and services.
This final rule implements section 5101 by eliminating all references
to bid protests in the Board's rules of procedure.
This rule (Part 6102) also describes the techniques intended to
shorten and simplify, when appropriate, the formal proceedings used by
the Board to resolve contract disputes. In particular, the rules
expressly permit the use of ADR. The Board will make its services
available for ADR proceedings involving any agency in contract and
procurement matters at any stage, even if no contracting officer
decision has been issued or is contemplated. For agencies other than
GSA, The Board will provide ADR services on a reimbursable basis.
E. Summary of Comments and Changes
The Board received written comments from six commentators.
Commentators included the offices of general counsel of three federal
agencies, the office of the chief trial attorney of a federal agency,
and one private legal practitioner. The Board carefully considered each
comment, and adopted many of the suggestions made by the commentators.
The more significant comments are discussed below in a section-by-
section format.
Part 6101
Section 6101.4 (Appeal File): One commentator suggested that
Section 6101.4(a)(6) be revised to eliminate the requirement that bid
abstracts be made part of the appeal file. Abstracts are often relevant
in cases alleging a mistake in bids and in vehicle auction cases in
which the Government seeks to recover actual damages. Accordingly, the
Board revised this provision to require that the appeal file contain
the abstract of bids only ``if relevant.''
Section 6101.5 (Filing Cases; Time Limits for Filing; Docketing):
One commentator suggested that since special or limited participation
in a case is discretionary with the Board, it should be granted only
after a motion is filed. Section 6101.5(a)(4) has been revised to make
this requirement explicit.
Section 6101.6 (Appearances; Notice of Appearance): One
commentator pointed out that not all agency regulations permit an
agency to be represented before the Board by a contracting officer or
contracting officer's authorized representative. Section 6101.6(a)(2)
has been revised to permit such representation if not prohibited by
``agency regulation or otherwise.''
In accordance with the suggestion of a commentator, Section
6101.6(b) has been revised to require that attorneys representing
parties before the Board list the state bars to which they are admitted
and their state bar numbers or other bar identifiers in the notice of
appearance.
One commentator suggested that a motion for withdrawal of
appearance is unnecessary if the new attorney enters an appearance at
the time of the requested withdrawal. Section 6101.6(c) has been
revised to require a person who has filed a notice of appearance and
who wishes to withdraw from a case to file a motion which provides the
name, address, telephone number, and facsimile machine number of the
person who will assume responsibility for representation of the party
in question. If the motion is accompanied by a statement from the
successor representative that the established case schedule will be
met, the motion need not state the grounds for withdrawal.
Section 6101.7 (Pleadings in Appeals): In response to the
suggestion of one commentator, Section 6101.7(b), governing the
complaint, now provides that the Board may designate a notice of
appeal, a claim submission, or any other document as the complaint ``if
the document sufficiently states the factual basis and amount of the
claim.''
Section 6101.8 (Motions): In Section 6101.8(c), the list of
dispositive motions that may be made before the Board has been modified
at the suggestion of one commentator to include motions to dismiss
without prejudice.
Section 6101.17 (Interrogatories to Parties; Requests for
Admission; Requests for Production of Documents): One commentator
suggested eliminating the requirement that parties obtain permission of
the Board before participating in discovery, citing an appellant's
ability to use the Freedom of Information Act to obtain information.
The Board determined to retain this provision, noting that early
discovery may be requested by either party whenever needed, and that
the provision is a useful means of monitoring case development and
controlling the expenditure of effort.
Section 6101.17(c) has been revised in response to the comment that
the rule does not require that answers to requests for admission be
sworn. The last two sentences of Section 6101.7(c) now state that any
matter admitted is conclusively established for the purpose of the
pending action, unless the Board on motion permits withdrawal or
amendment of the admission, and that any admission made in the case may
not be used against the party making it in any other proceeding.
Section 6101.32 (Reconsideration; Amendment of Decision; New
hearing) and Section 6101.33 (Relief from Decision or Order): One
commentator suggested that these rules should clarify whether the
filing of an appeal of a Board decision with the United States Court of
Appeals for the Federal Circuit wrests from the Board jurisdiction to
consider motions under these two sections. Similarly, the same
commentator suggested clarifying that a motion pending under Section
6101.32(d) or Section 6101.33(d) tolls the time for filing an appeal
with the Court of Appeals for the Federal Circuit. The Board believes
that these matters are not appropriately resolved by rules of
procedure. It did not modify these rules.
``Offer of Judgment'' rule: Two commentators suggested that an
``offer of judgment'' provision similar to Federal Rule of Civil
Procedure 68 should be adopted by the Board. The commentators believe
that the rule encourages a realistic, prompt, and thorough assessment
of claims and leads to the settlement of matters in dispute between the
parties. The Board knows of no statute that would permit adoption of
such a rule, and therefore did not accept the suggestion.
[[Page 52349]]
Part 6102
Section 6102.1 (Variation from Standard Proceedings): At the
suggestion of one commentator, the Board revised this rule to clarify
that expedited proceedings other than small claims and accelerated
procedures (Sections 6102.2 and 6102.3) are used only when the parties
agree to use them, and when the Board deems such proceedings to be in
the best interest of the parties, the Board, and the resolution of
contract disputes.
Section 6102.4 (Alternative Dispute Resolution): Although strongly
supportive of the Board's efforts to make ADR services available to
parties upon request, two commentators queried whether the Board had
sufficient statutory or delegated authority for this expanded role.
They also suggested that the rule clarify whether these services were
to be provide on a reimbursable basis.
The Administrator of General Services has delegated the needed
authority to the Board. The delegation specifies that when the Board
makes ADR services available to agencies other than GSA, the services
will be provided on a reimbursable basis. The Section has been revised
to state more clearly that the Board will make its services available
for ADR proceedings involving any agency in contract and procurement
matters at any stage, even if no contracting officer decision has been
issued or is contemplated.
Section 6102.4(b)(1): At the suggestion of one commentator, Section
6102.4(b)(1) has been redrafted to clarify that, if ADR is agreed to by
the parties and the Board, the parties may request that the Board's
chairman appoint a particular judge or judges as the Neutral, or that
the chairman appoint any judge or judges as the Neutral.
Two commentators suggested that, if the ADR involves a case pending
before the Board, the parties should be allowed to choose whether a
panel chairman who serves as a Neutral be permitted to retain the case
should the ADR be unsuccessful. In response, Section 6102.4(b)(1) now
provides that, if the ADR is unsuccessful and has involved mediation,
the panel chairman shall not retain the case; if the ADR is
unsuccessful and has not involved mediation, the panel chairman shall
consider the parties' views and decide whether to retain the case.
Section 6102.4(b)(2): One commentator suggested that the Board
specify what would happen to material developed during an ADR
proceeding, which is not retained by the Board after the proceeding is
concluded or otherwise terminated. The Board does not believe that
particular procedures need be specified the rules. The Section has been
revised, however, to clarify that material created by a party for the
purpose of an ADR proceeding is to be used solely for that proceeding
unless the parties agree otherwise.
Section 6102.4(c): In accordance with the suggestion of one
commentator, this section has been revised to state that the Board will
consider the use of any ADR technique propose by the parties which is
deemed to be fair, reasonable, and in the best interest of the parties,
the Board, and the resolution of contract disputes.
One commentator suggested that a mediator be precluded from
discussing the ADR with other judges. In recognition of this concern,
Section 6102.4(c)(1) has been revised to provide that no judge who has
participated in discussions about a mediation will participate in a
Board decision of the case if the ADR is unsuccessful.
One commentator suggested that this section should specify when ADR
is most effective. Although the Board believes these considerations
need not be presented in a rule, it agrees with the commentator that
ADR is most effective as a dispute resolution technique when the
essential elements of a successful ADR environment exist. These
elements include: a genuine desire by the parties to resolve the
dispute through ADR; an agreement by the parties as to the general type
of ADR to be conducted and the rules to be used in conducting the ADR;
and a willingness by the parties to have present at a non-binding ADR
proceeding a principal with authority to agree to the settlement of the
case.
List of Subjects
48 CFR Part 6101
Administrative practice and procedure, Government procurement.
48 CFR Part 6102
Administrative practice and procedure, Government procurement.
For the reasons set out in the preamble, 48 CFR chapter 61 is
amended as follows:
1. Part 6101 is revised to read as follows:
PART 6101--RULES OF PROCEDURE OF THE GENERAL SERVICES
ADMINISTRATION BOARD OF CONTRACT APPEALS (STANDARD PROCEEDINGS)
Sec.
6101.0 Foreword.
6101.1 Scope of rules; definitions; construction; rulings and
orders; panels; situs [Rule 101].
6101.2 Time; enlargement; computation [Rule 102].
6101.3 Service of papers [Rule 103].
6101.4 Appeal file [Rule 104].
6101.5 Filing cases; time limits for filing; docketing [Rule 105].
6101.6 Appearances; notice of appearance [Rule 106].
6101.7 Pleadings in appeals [Rule 107].
6101.8 Motions [Rule 108].
6101.9 Election of hearing or record submission [Rule 109].
6101.10 Conferences; conference memorandum; prehearing order;
prehearing and presubmission briefs [Rule 110].
6101.11 Submission on the record without a hearing [Rule 111].
6101.12 Record of Board proceedings [Rule 112].
6101.13 [Reserved].
6101.14 [Reserved].
6101.15 General provisions governing discovery [Rule 115].
6101.16 Depositions [Rule 116].
6101.17 Interrogatories to parties; requests for admission;
requests for production of documents [Rule 117].
6101.18 Sanctions and other proceedings [Rule 118].
6101.19 Hearings: scheduling; notice; unexcused absences [Rule
119].
6101.20 Subpoenas [Rule 120].
6101.21 Hearing procedures [Rule 121].
6101.22 Admissibility and weight and evidence [Rule 122].
6101.23 Exhibits [Rule 123].
6101.24 Transcripts of proceedings; corrections [Rule 124].
6101.25 Briefs and memoranda of law [Rule 125].
6101.26 Consolidation; separate hearings; separate determination of
liability [Rule 126].
6101.27 Stay of suspension of proceedings; dismissals in lieu of
stay or suspension [Rule 127].
6101.28 Dismissals [Rule 128].
6101.29 Decisions: format; procedure [Rule 129].
6101.30 Full Board consideration [Rule 130].
6101.31 Clerical mistakes [Rule 131].
6101.32 Reconsideration; amendment of decisions; new hearings [Rule
132].
6101.33 Relief from decision or order [Rule 133].
6101.34 Harmless error [Rule 134].
6101.35 Award of costs [Rule 135].
6101.36 Payment of Board awards [Rule 136].
6101.37 Record on review of a Board decision [Rule 137].
6101.38 Office of the Clerk of the Board [Rule 138].
[[Page 52350]]
6101.39 Seal of the Board [Rule 139].
6101.40 Forms [Rule 140].
Appendix--Forms Nos. 1-5.
Form 1--Notice of Appeal, GSA Form 2465.
Form 2--Notice of Appearance.
Form 3--Subpoena, GSA Form 9534.
Form 4--Government Certificate of Finality.
Form 5--Appellant/Applicant Certificate of Finality.
Authority: 41 U.S.C. 601-613.
6101.0 Foreword.
(a) The General Services Administration Board of Contract Appeals
was established under the Contract Disputes Act of 1978, 41 U.S.C. 601-
613, as an independent tribunal to hear and decide contract disputes
between government contractors and the General Services Administration
(GSA) and other executive agencies of the United States.
(b) As an agency board established under the Contract Disputes Act,
the Board is required to ``provide to the fullest extent practicable,
informal, expeditious and inexpensive resolution of disputes.'' 41
U.S.C. 607(e). The rules in part 6101 represent the Board's concerted
effort to be responsive to this charge in standard proceedings. In
further response to this mandate, the Board also uses a variety of
techniques intended to shorten and simplify, when appropriate, the
proceedings normally used to resolve contract disputes. These
techniques are described in part 6102.
(c) As indicated in part 6102, the Board fully supports the use of
alternative dispute resolution (ADR) in all appropriate cases. To
encourage the prompt, expert, and inexpensive resolution of contract
disputes as promoted by the Federal Acquisition Streamlining Act of
1994, Public Law 103-355, 108 Stat. 3243, the Board will also make a
Board Neutral available for an ADR proceeding, as described in 6102.4,
either before or after the issuance of a decision by a contracting
officer of any agency if a joint written request is submitted to the
Office of the Clerk of the Board by the parties.
(d) The Board also conducts proceedings as required under other
laws. In all matters before it, the Board will act in accordance with
this part and Part 6102 and applicable standards of conduct so that the
integrity, impartiality, and independence of the Board are preserved.
6101.1 Scope of rules; definitions; construction; rulings and orders;
and panels; situs [Rule 101].
(a) Scope. The rules contained in this part and Part 6102 govern
proceedings in all cases filed with the Board on or after October 7,
1996, and all further proceedings in cases then pending, except to the
extent that, in the opinion of the Board, their use in a particular
case pending on the effective date would be infeasible or would work an
injustice, in which event the former procedure applies. The Board will
look to the rules in this part and Part 6102 for guidance in conducting
other proceedings authorized by law.
(b) Definitions--(1) Appeal; appellant. The term ``appeal'' means a
contract dispute filed with the Board. The term ``appellant'' means as
party filing an appeal.
(2) Application; applicant. The term ``application'' means a
submission to the Board of a request for award of costs, under the
Equal Access to Justice Act, 5 U.S.C. 504, pursuant to 6101.35. The
term ``applicant'' means a party filing an application.
(3) Board judge; judge. The term ``Board judge'' or ``judge''
means a member of the Board.
(4) Case. The term ``case'' means an appeal, petition, or
application.
(5) Filing. (i) Any document, other than a notice of appeal or an
application for award of costs, is filed when it is received by the
Office of the Clerk of the Board during the Board's working hours. A
notice of appeal or an application for award of costs is filed upon the
earlier of:
(A) Its receipt by the Office of the Clerk of the Board or
(B) If mailed, the date on which it is mailed. A United States
Postal Service postmark shall be prima facie evidence that the document
with which it is associated was mailed on the date thereof.
(ii) Facsimile transmissions to the Board and the parties are
permitted. Parties are expected to submit their facsimile machine
numbers with their filings. The Board's facsimile machine number is:
(202) 501-0664. The filing of a document by facsimile transmission
occurs upon receipt by the Board of the entire printed submission.
Parties are specfically cautioned that deadlines for the filing of
cases will not be extended merely because the Board's facsimile machine
is busy or otherwise unavailable at the time on which the filing is
due.
(6) Party. The term ``party'' means an appeallant, applicant,
petitioner, or respondent.
(7) Petition; petitioner. The term ``petition'' means a request
filed under 41 U.S.C. 605(c)(4) that the Board direct a contracting
officer to issue a written decision on a claim. The term ``petitioner''
means a party submitting a petition.
(8) Respondent. The term ``respondent'' means the Government agency
whose decision, action, or inaction is the subject of an appeal,
petition, or appplication.
(9) Working day. The term ``working day'' means any date other than
a Saturday, Sunday, or federal holiday.
(10) Working hours. The Board's working hours are 8:00 a.m. to 4:30
p.m., Eastern Time, on each working day.
(c) Construction. The rules in this part and part 6102 shall be
construed to secure the just, speedy, and inexpensive resolution of
every case. The Board looks to the Federal Rules of Civil Procedure for
guidance in construing those Board rules which are similar to Federal
Rules.
(d) Rulings, orders, and directions. The Board may apply the rules
in this part and part 6102 and make such rulings and issue such orders
and directions as are necessary to secure the just, speedy, and
inexpensive resolution of every case before the Board. Any ruling,
order, or direction that the Board may make or issue pursuant to the
rules in this part and part 6102 may be made on the motion or request
of any party or on the initiative of the Board. The Board may also
amend, alter, or vacate a ruling, order, or direction upon such terms
as are just. In making rulings and issuing orders and directions
pursuant to the rules in this part and part 6102, the Board takes into
consideration those Federal Rules of Civil Procedure which address
matters not specifically covered in this part and part 6102.
(e) Panels. Each case will be assigned to a panel consisting of
three judges, with one member designated as the panel chairman, in
accordance with such procedures as may be established by the Board. The
panel chairman is responsible for processing the case, including
scheduling and conducting proceedings and hearings. In addition, the
panel chairman may, without participation by other panel members,
decide an appeal under the small claims procedure (6102.2), rule on
nondispositive motions (except for amounts in controversy under
6102.2(a)(2)), and dismiss a case if no party objects (6101.28(c)). All
other matters, except for those before the full Board under 6101.30,
are decided for the Board by a majority of the panel.
(f) Situs. The address of the Office of the Clerk of the Board is:
Room 7022, General Services Administration Building, 18th and F
Streets, NW., Washington, DC 20405. The Clerk's telephone number is:
(202) 501-0116. The Clerk's facsimile machine number is (702) 501-0664.
[[Page 52351]]
6101.2 Time: enlargement; computation [Rule 102].
(a) Time for performing required actions. All time limitations
prescribed in the rules in this part and part 6102 or in any order or
direction given by the Board are maximums, and the action required
should be accomplished in less time whenever possible.
(b) Enlarging time. Upon request of a party for good cause shown,
the Board may enlarge any time prescribed by the rules in this part and
part 6102 or by an order or direction of the Board. The exception is
the time limit for filing appeals (6101.5(b)(1)). A written request is
required, but in exigent circumstances an oral request may be made and
followed by a written request. An enlargement of time may be granted
even through the request was filed after the time for taking the
required action expired, but the party requesting the enlargement must
show good cause for its inability to make the request before that time
expired.
(c) Computing time. Except as otherwise required by law, in
computing a period of time prescribed by the rules in this part and
part 6102 or by order of the Board, the day from which the designated
period of time begins to run shall not counted, but the last day of the
period shall be counted unless that day is (1) a Saturday, a Sunday, or
a federal holiday, or (2) a day on which the Office of the Clerk of the
Board is required to close earlier than 4:30 p.m., or does not open at
all, as in the case of inclement weather, in which event the period
shall include the next working day. Except as otherwise provided in
this paragraph, when the period of time prescribed or allowed is less
than 11 days, any intervening Saturday, Sunday, or federal holiday
shall not be counted. When the period of time prescribed or allowed is
11 days or more, intervening Saturdays, Sundays, and federal holidays
shall be counted. Time for filing any document or copy thereof with the
Board expires when the Office of the Clerk of the Board closes on the
last day on which such filing may be made.
6101.3 Service of papers [Rule 103].
(a) On whom and when service must be made. When a party sends a
document to the Board it must at the same time send a copy to the other
party by mail or some other equally or more expeditious means of
transmittal. Subpoenas (6101.20) and documents filed in camera
(6101.12(h)) are exceptions to this requirement. Any papers required to
be served on a party (except requests for discovery and responses
thereto, unless ordered by the Board to be filed) shall be filed with
the Board before service or within a reasonable time thereafter.
(b) Proof of service. Except when service is not required, a party
sending a document to the Board must indicate to the Board that a copy
has also been sent to the other party. This may be done by certificate
of service, by the notation of a photostatic copy (cc:), or by any
other means that can reasonably be expected to indicate to the Board
that the other party has been provided a copy.
(c) Failure to make service. If a document sent to the Board by a
party does not indicate that a copy has been served on the other party,
the Board may return the document to the party that submitted it with
such directions as it considers appropriate, or the Board may inquire
whether a party has received a copy and note on the record the fact of
inquiry and the response, and may also direct the party that submitted
the document to serve a copy on the other party. In the absence of
proof of service a document may be treated by the Board as not properly
filed.
6101.4 Appeal file [Rule 104].
(a) Submission to the Board by the contracting officer. (1) Within
30 calendar days from receipt of notice that an appeal has been filed,
or within such time as the Board may allow, the contracting officer
shall file with the Board appeal file exhibits consisting of all
documents and other tangible things relevant to the claim and to the
contracting officer's decision which has been appealed, including:
(i) The contracting officer's decision, if any, from which the
appeal is taken;
(ii) The contract, if any, including amendments, specifications,
plans, and drawings;
(iii) All correspondence between the parties that is relevant to
the appeal, including the written claim or claims that are the subject
of the appeal, and evidence of their certification, if any;
(iv) Affidavits or statements of any witnesses on the matter in
dispute and transcripts of any testimony taken before the filing of the
notice of appeal;
(v) All documents and other tangible things on which the
contracting officer relied in making the decision, and any
correspondence relating thereto;
(vi) The abstract of bids, if relevant; and
(vii) Any additional existing evidence or information deemed
necessary to determine the merits of the appeal.
(2) The contracting officer shall serve a copy of the appeal file
on the appellant at the same time that the contracting officer files it
with the Board, except that
(i) The contracting officer need not serve on the appellant those
documents furnished the Board in camera pursuant to 6101.12(h), and
(ii) The contracting officer shall serve documents submitted under
protective order only on those individuals who have been granted access
to such documents by the Board. However, the contracting officer must
serve on the appellant a list identifying the specific documents filed
in camera or under protective order with the Board, giving sufficient
details necessary for their recognition. This list must also be filed
with the Board as an exhibit to the appeal file.
(b) Submission to the Board by the appellant. Within 30 calendar
days after filing of the respondent's appeal file exhibits, or within
such time as the Board may allow, the appellant shall file with the
Board for inclusion in the appeal file documents or other tangible
things relevant to the appeal that have not been submitted by the
contracting officer. The appellant shall serve a copy of its additional
exhibits upon the respondent at the same time as it files them with the
Board.
(c) Submissions on order of the Board. The Board may, at any time
during the pendency of the appeal, require any party to file other
documents and tangible things as additional exhibits.
(d) Organization of the appeal file. Appeal file exhibits may be
originals or true, legible, and complete copies. They shall be arranged
in chronological order within each submission, earliest documents
first; bound in a loose-leaf binder on the left margin except where
size or shape makes such binding impracticable; numbered; tabbed; and
indexed. The numbering shall be consecutive, in whole arabic numerals
(no letters, decimals, or fractions), and continuous from one
submission to the next, so that the complete file, after all
submissions, will consist of one set of consecutively numbered
exhibits. In addition, the pages within each exhibit shall be numbered
consecutively unless the exhibit already is paginated in a logical
manner. Consecutive pagination of the entire file is not required. The
index should include the date and a brief description of each exhibit
and shall indicate which exhibits, if any, have been filed with the
Board in camera or under protective order or otherwise have not been
served on every other party.
(e) Lengthy or bulky materials. The Board may waive the requirement
to furnish other parties copies or duplicates of bulky, lengthy, or
outsized
[[Page 52352]]
materials submitted to the Board as exhibits.
(f) Use of appeal file as evidence. All exhibits in the appeal
file, except for those as to which an objection has been sustained, are
part of the record upon which the Board will render its decision.
Unless otherwise ordered by the Board, objection to any exhibit may be
made at any time before the first witness is sworn or, if the appeal is
submitted on the record pursuant to 6101.11, at any time prior to or
concurrent with the first record submission. The Board may enlarge the
time for such objections and will consider an objection made during a
hearing if the ground for objection could not reasonably have been
earlier known to the objecting party. If an objection is sustained, the
Board will so note in the record.
(g) When appeal file not required. Upon motion of a party, the
Board may postpone or dispense with the submission of any or all appeal
file exhibits.
6101.5 Filing cases; time limits for filing; docketing [Rule 105].
(a) Filing cases. Filing of a case occurs as provided in
6101.1(b)(5).
(1) Notice of appeal. (i) A notice of appeal shall be in writing
and should be signed by the appellant or by the appellant's attorney or
authorized representative. If the appeal is from a contracting
officer's decision, the notice of appeal should describe the decision
in enough detail to enable the Board to differentiate that decision
from any other; the appellant can satisfy this requirement by attaching
to the notice of appeal a copy of the contracting officer's decision.
If an appeal is taken from the failure of a contracting officer to
issue a decision, the notice of appeal should describe in detail the
claim that the contracting officer has failed to decide; the appellant
can satisfy this requirement by attaching a copy of the written claim
submission to the notice of appeal.
(ii) A written notice in any form, including the one specified in
the appendix to this part and part 6102, is sufficient to initiate an
appeal. The notice of appeal should include the following information:
(A) The number and date of the contract;
(B) The name of the agency and the component thereof against which
the claim has been asserted;
(C) The name of the contracting officer whose decision or failure
to decide is appealed and the date of the decision, if any;
(D) A brief account of the circumstances giving rise to the appeal;
and
(E) An estimate of the amount of money in controversy, if any and
if known.
(iii) The appellant must send a copy of the notice of appeal to the
contracting officer whose decision is appealed or, if there has been no
decision, to the contracting officer before whom the appellant's claim
is pending.
(2) Petition. (i) A petition shall be in writing and signed by the
petitioner or by the petitioner's attorney or authorized
representative. The petition should describe in detail the claim that
the contracting officer has failed to decide; the contractor can
satisfy this requirement by attaching to the petition a copy of the
written claim submission.
(ii) The petition should include the following information:
(A) The number and date of the contract;
(B) The name of the agency and the component thereof against which
the claim has been asserted; and
(C) The name of the contracting officer whose decision is sought.
(3) Application. An application for costs shall meet all
requirements specified in 6101.35(c).
(4) Other participation. The Board may, on motion, in its
discretion, permit an entity to participate in a case in a special or
limited way, such as by filing an amicus curiae brief.
(b) Time limits for filing--(1) Appeals. (i) An appeal from a
decision of a contracting officer shall be filed no later than 90
calendar days after the date the appellant receives that decision.
(ii) An appeal may be filed with the Board should the contracting
officer fail or refuse to issue a timely decision on a claim submitted
in writing, properly certified if required.
(2) Applications. An application for costs shall be filed within 30
calendar days of a final disposition in the under-lying appeal, as
provided in 6101.35(b).
(c) Notice of docketing. Notices of appeal, petitions, and
applications will be docketed by the Office of the Clerk of the Board,
and a written notice of docketing will be sent promptly to all parties.
6101.6 Appearances; notice of appearance [Rule 106].
(a) Appearances before the Board--(1) Appellant; petitioner;
applicant. Any appellant, petitioner, or applicant may appear before
the Board by an attorney-at-law licensed to practice in a state,
commonwealth, or territory of the United States, or in the District of
Columbia. An individual appellant, petitioner, or applicant may appear
in his own behalf; a corporation, trust, or association may appear by
one of its officers or by any other authorized employee; and a
partnership may appear by one of its members or by any other authorized
employee.
(2) Respondent. The respondent may appear before the Board by an
attorney-at-law licensed to practice in a state, commonwealth, or
territory of the United States, or in the District of Columbia.
Alternatively, if not prohibited by agency regulation or otherwise, the
respondent may appear by the contracting officer or by the contracting
officer's authorized representative.
(b) Notice of appearance. Unless a notice of appearance is filed by
some other person, the person signing the notice of appeal, petition,
or application shall be deemed to have appeared on behalf of the
appellant, petitioner, or applicant, and the head of the respondent
agency's litigation office shall be deemed to have appeared on behalf
of the respondent. A notice of appearance in the form specified in the
appendix to this part and Part 6102 is sufficient. Attorneys
representing parties before the Board are required to list the state
bars to which they are admitted and their state bar numbers or other
bar identifiers.
(c) Withdrawal of appearance. Any person who has filed a notice of
appearance and who wishes to withdraw from a case must file a motion
which includes the name, address, telephone number, and facsimile
machine number of the person who will assume responsibility for
representation of the party in question. The motion shall state the
grounds for withdrawal unless it is accompanied by a representation
from the successor representative or existing co-counsel that the
established case schedule will be met.
6101.7 Pleadings in appeals [Rule 107].
(a) Pleadings required and permitted. Except as the Board may
otherwise order, the Board requires the submission of a complaint and
an answer. In appropriate circumstances, the Board may order or permit
a reply to an answer.
(b) Complaint. No later than 30 calendar days after the docketing
of the appeal, the appellant shall file with the Board a complaint
setting forth its claim or claims in simple, concise, and direct terms.
The complaint should set forth the factual basis of the claim or
claims, with appropriate reference to the contract provisions, and
should state the amount in controversy, or an estimate
[[Page 52353]]
thereof, if any and if known. No particular form is prescribed for a
complaint, and the Board may designate the notice of appeal, a claim
submission, or any other document as the complaint, either on its own
initiative or on request of the appellant, if such document
sufficiently states the factual basis and amount of the claim.
(c) Answer. No later than 30 calendar days after the filing of the
complaint or of the Board's designation of a complaint, the respondent
shall file with the Board an answer setting forth simple, concise, and
direct statements of its defenses to the claim or claims asserted in
the complaint, as well as any affirmative defenses it chooses to
assert. A dispositive motion or a motion for a more definite statement
may be filed in lieu of the answer only with the permission of the
Board. If no answer is timely filed, the board may enter a general
denial, in which case the respondent may thereafter amend the answer to
assert affirmative defenses only by leave of the Board and as otherwise
prescribed by paragraph (f) of this section. The Board will inform the
parties when it enters a general denial on behalf of the respondent.
(d) Reply to an answer. If the Board orders or permits a reply to
an answer, it shall be filed as directed by the Board.
(e) Modifications to requirement for pleadings. If the appellant
has elected the small claims procedure provided by 6102.2 or the
accelerated procedure provided by 6102.3, the submission of pleadings
shall be governed by the applicable section.
(f) Amendment of pleadings. Each party to an appeal may amend its
pleadings once without leave of the Board at any time before a
responsive pleading is filed; if the pleading is one to which no
responsive pleading is permitted, such amendment may be made at any
time within 20 calendar days after it is served or, in small claims
proceedings under 6102.2, within 10 working days after it is served.
The Board may permit the parties to amend pleadings further on
conditions fair to both parties. If a response to the unamended
pleading was required by the rules in this part or by an order of the
Board, a response to the amended pleading shall be filed no later than
30 calendar days after the filing of the amended pleading or, in small
claims proceedings, no later than 15 calendar days after the filing of
the amended pleading. 6101.12(e) concerns amendments to pleadings to
conform to the evidence.
6101.8 Motions [Rule 108].
(a) How motions are made. Motions may be oral or written. A written
motion shall indicate the relief sought and, either in the text of the
motion or in an accompanying legal memorandum, the grounds therefor. In
addition, a motion for summary relief shall comply with the
requirements of paragraph (g) of this section. 6101.25 prescribes the
form and content of legal memoranda. Oral motions shall be made on the
record and in the presence of the other party.
(b) When motions may be made. A motion filed in lieu of an answer
pursuant to 6101.7(c) shall be filed no later than the date on which
the answer is required to be filed or such later date as may be
established by the Board. Any other dispositive motion shall be made as
soon as practicable after the grounds therefor are known. Any other
motion shall be made promptly or as required by this part.
(c) Dispositive motions. The following dispositive motions may
properly be made before the Board:
(1) Motions to dismiss for lack of jurisdiction or for failure to
state a claim upon which relief can be granted;
(2) Motions to dismiss for failure to prosecute;
(3) Motions for summary relief (analogous to summary judgment); and
(4) Any other motion to dismiss.
(d) Other motions. Other motions may be made in good faith and in
proper form.
(e) Jurisdictional questions. The Board may at any time consider
the issue of its jurisdiction to decide a case. When all facts touching
upon the Board's jurisdiction are not to record, or in other
appropriate circumstances, a decision on a jurisdictional question may
be deferred pending a hearing on the merits or the filing of record
submissions.
(f) Procedure. Unless otherwise directed by the Board, a party may
respond to a written motion other than a motion pursuant to 6101.30,
6101.31, 6101.32, or 6101.33 at any time within 20 calendar days after
the filing of the motion. Responses to motions pursuant to 6101.30,
6101.31, 6101.32, or 6101.33 may be made only as permitted or directed
by the Board. The Board may permit hearing or oral argument on written
motions and may require additional submissions from any of the parties.
(g) Motions for summary relief. (1) A motion for summary relief
should be filed only when a party believes that, based upon uncontested
material facts, it is entitled to relief in whole or in part as a
matter of law. A motion for summary relief should be filed as soon as
feasible, to allow the Board to rule on the motion in advance of a
scheduled hearing date.
(2) With each motion for summary relief, there shall be served and
filed a separate document titled Statement of Uncontested Facts, which
shall contain in separately numbered paragraphs all of the material
facts upon which the moving party bases its motion and as to which it
contends there is no genuine issue. This statement shall include
references to the supporting affidavits or declarations and documents,
if any, and to the 6101.4 appeal file exhibits relied upon to support
such statement.
(3) An opposing party shall file with its opposition (or cross-
motion) a separate document titled Statement of Genuine Issues. This
document shall identify, by reference to specific paragraph numbers in
the moving party's Statement of Uncontested Facts, those facts as to
which the opposing party claims there is a genuine issue necessary to
be litigated. An opposing party shall state the precise nature of its
disagreement and give its version of the facts. This statement shall
include references to the supporting affidavits or declarations and
documents, if any, and to the 6101.4 appeal file exhibits that
demonstrate the existence of a genuine dispute. An opposing party may
also file a Statement of Uncontested Facts as to any relevant matters
not covered by the moving party's statement.
(4) When a motion for summary relief is made and supported as
provided in this section, an opposing party may not rest upon the mere
allegations or denials of its pleadings, but the opposing party's
response, by affidavits or as otherwise provided by this section, must
set forth specific facts showing that there is a genuine issue of
material fact. If the opposing party does not so respond, summary
relief, if appropriate, shall be entered against that party. For good
cause shown, if an opposing party cannot present facts essential to
justify its opposition, the Board may defer ruling on the motion to
permit affidavits to be obtained or depositions to be taken or other
discovery to be conducted, or may made such other order as is just.
(h) Effect of pending motion. Except as this part and part 6102
provide or the Board may order, a pending motion shall not excuse the
parties from proceeding with the case in accordance with this part and
part 6102 and the orders and directions of the Board.
6101.9 Election of hearing or record submission [Rule 109].
Each party shall inform the Board, in writing, whether it elects a
hearing or submission of its case on the record
[[Page 52354]]
pursuant to 6101.11. Such an election may be filed at any time unless a
time for filing is prescribed by the Board. A party electing to submit
its case on the record pursuant to 6101.11 may also elect to appear at
a hearing solely to cross-examine any witness presented by the opposing
party, provided that the Board is informed of that party's intention
within 10 working days of its receipt of notice of the election of
hearing by the other party. If a hearing is elected, the election
should state where and when the electing party desires the hearing to
be held and should explain the reasons for its choices. A hearing will
be held if either party elects one. If a party's decision whether to
elect a hearing is dependent upon the intentions of the other party, it
shall consult with the other party before filing its election. If there
is to be a hearing, it will be held at a time and place prescribed by
the Board after consultation with the party or parties electing the
hearing. The record submissions from a party that has elected to submit
its case on the record shall be due as provided in 6101.11.
6101.10 Conferences; conference memorandum; prehearing order;
prehearing and presubmission briefs [Rule 110].
(a) Conferences. The Board may convene the parties in conference,
either by telephone or in person, for any purpose. The conference may
be stenographically or electronically recorded, at the discretion of
the Board. Matters to be considered and actions to be taken at a
conference may include:
(1) Simplifying, clarifying, or severing the issues;
(2) Stipulations, admissions, agreements, and rulings to govern the
admissibility of evidence, understandings on matters already of record,
or other similar means of avoiding unnecessary proof;
(3) Plans, schedules, and rulings to facilitate discovery;
(4) Limiting the number of witnesses and other means of avoiding
cumulative evidence;
(5) Stipulations or agreements disposing of matters in dispute; or
(6) Ways to expedite disposition of the case or to facilitate
settlement of the dispute, including, if the parties and the Board
agree, the use of alternative dispute resolution techniques, as
provided in 6102.1 and 6102.4.
(b) Conference memorandum. The Board may prepare a memorandum of
the results of a conference or issue an order reflecting any actions
taken, or both. A memorandum or order so issued shall be placed in the
record of the case and sent to each party. Each party shall have 5
working days after receipt of a memorandum to object to the substance
of it.
(c) Prehearing order. The Board may issue a prehearing or
presubmission order to govern the proceedings in a case.
(d) Prehearing or presubmission briefs. A party may, by leave of
the Board, file a prehearing or presubmission brief at any time before
the hearing or upon or before the date on which first record
submissions are due.
6101.11 Submission on the record without a hearing [Rule 111].
(a) Submission on the record. (1) A party may elect to submit its
case on the record without a hearing. A party submitting its case on
the record may include in its written record submission or submissions:
(i) Any relevant documents or other tangible things it wishes the
Board to admit into evidence;
(ii) Affidavits, depositions, and other discovery materials that
set forth relevant evidence; and
(iii) A brief or memorandum of law.
(2) The Board may require the submission of additional evidence or
briefs and may order oral argument in a case submitted on the record.
(b) Time for submission. (1) If both parties have elected to submit
the case on the record, the Board will issue an order prescribing the
time for initial and, if appropriate, reply record submissions.
(2) If one party has elected a hearing and the other party has
elected to submit its case on the record, the party submitting on the
record shall make its initial submission no later than the commencement
of the hearing or at an earlier date if the Board so orders, and a
further submission in the form of a brief at the time for submission of
posthearing briefs.
(c) Objections to evidence. Unless otherwise directed by the Board,
objections to evidence (other than the appeal file and supplements
thereto) in a record submission may be made within 10 working days
after the filing of the submission. Replies to such objections, if any,
may be made within 10 working days after the filing of the objection.
The Board may rule on such objections in its opinion deciding the
merits or otherwise disposing of the case.
6101.12 Record of Board proceedings [Rule 112].
(a) Composition of the record for decision. (1) The record upon
which any decision of the Board will be rendered consists of:
(i) The notice of appeal, petition, or application;
(ii) Appeal file exhibits other than those as to which objection
has been sustained;
(iii) Hearing exhibits other than those as to which an objection
has been sustained;
(iv) Pleadings;
(v) Motions and responses thereto;
(vi) Memoranda, orders, rulings, and directions to the parties
issued by the Board;
(vii) Documents and other tangible things admitted in evidence by
the Board;
(viii) Written transcripts or electronic recordings of proceedings;
(ix) Stipulations and admissions by the parties;
(x) Depositions, or parts thereof, received in evidence;
(xi) Written interrogatories and responses received in evidence;
(xii) Briefs and memoranda of law; and
(xiii) Anything else that the Board may designate.
(2) All other papers and documents in a case are part of the
administrative record of the proceedings. The administrative record
shall include file and hearing exhibits offered but not received in
evidence in a case; it may also include correspondence with and between
the parties, and depositions, interrogatories, offers of proof
contained in the transcript, and other documents that are not part of
the record for decision.
(b) Time for entry into the record. Except as the Board may
otherwise order, nothing other than posthearing briefs will be received
into the record after a hearing is completed. In cases submitted on the
record without a hearing, nothing will be received into the record
after the time for filing of the last record submission. Briefs will be
due as provided in 6101.25(b).
(c) Closing of the record. Except as the Board may otherwise order,
no proof shall be received in evidence after a hearing is completed or,
in cases submitted on the record without a hearing, after notice by the
Board to the parties that the record is closed and that the case is
ready for decision.
(d) Notice that the case is ready for decision. The Board will give
written notice to the parties when the record is closed and the case is
ready for decision.
(e) Amendments to conform to the evidence. When issues within the
proper scope of a case, but not raised in the pleadings, have been
raised without objection or with permission of the Board at a hearing
(see 6101.21(h)) or in
[[Page 52355]]
record submissions, they shall be treated in all respects as if they
had been raised in the pleadings. The Board may formally amend the
pleadings to conform to the proof or may order that the record be
deemed to contain pleadings so amended.
(f) Enlargement of the record. The Board may at any time require or
permit enlargement of the record with additional evidence and briefs.
It may reopen the record to receive additional evidence and oral
argument at a hearing.
(g) Inspection of the record of proceedings; release of any paper,
document, or tangible thing prohibited. Except for any part thereof
that is subject to a protective order or deemed an in camera
submission, the record of proceedings in a case shall be made available
for inspection by any person. Such record shall be made available at
the Office of the Clerk of the Board during the Board's normal working
hours, as soon as practicable given the demands on the Board of
processing the subject case and other cases. Except as provided in
6101.23(c) and 6101.37(d), no paper, document, or tangible thing which
is part of the record of proceedings in a case may be released from the
offices of the Board. Copies may be obtained by any person as provided
in 6101.38(d). If such inspection or copying involves more than minimal
costs to the Board, reimbursement will be required.
(h) Protected and in camera submissions. (1) A party may by motion
request that the Board receive and hold materials under conditions that
would limit access to them on the ground that such documents are
privileged or confidential, or sensitive in some other way. The moving
party must state the grounds for such limited access. The board may
also determine on its own initiative to hold materials under such
conditions. The manner in which such materials will be held, the
persons who shall have access to them, and the conditions (if any)
under which such access will be allowed will be specified in an order
of the Board. If the materials are held under such an order, they will
be part of the record of the case. If the Board denies the motion, the
materials may be returned to the party that submitted them. If the
moving party asks, however, that the materials be placed in the
administrative record, in camera, for the purpose of possible later
review of the Board's denial, the Board will comply with the request.
(2) A party may also ask, or the Board may direct, that testimony
be received under protective order or in camera. The procedures under
paragraph (h)(1) of this section shall be followed with respect to such
request or direction.
6101.13 [Reserved].
6101.14 [Reserved].
6101.15 General provisions governing discovery [Rule 115].
(a) Discovery methods. The parties may obtain discovery by one or
more of the following methods:
(1) Depositions upon oral examination or written questions;
(2) Written interrogatories;
(3) Requests for production of documents or other tangible things;
and
(4) Requests for admission.
(b) Scope of discovery. Except as otherwise limited by order of the
Board in accordance with this part and part 6102, the parties may
obtain discovery regarding any matter, not privileged, which is
relevant to the subject matter involved in the pending case, whether it
relates to the claim or defense of a party, including the existence,
description, nature, custody, condition, and location of any books,
documents, or other tangible things, and the identity and location of
persons having knowledge of any discoverable matter. It is not a ground
for objection that the information sought will be inadmissible if the
information sought appears reasonably calculated to lead to the
discovery of admissible evidence.
(c) Discovery limits. The Board may limit the frequency or extent
of use of the discovery methods set forth in this section if it
determines that:
(1) The discovery sought is unreasonably cumulative or duplicative,
or is obtainable from some other source that is more convenient, less
burdensome, or less expensive;
(2) The party seeking discovery has had ample opportunity by
discovery in the case to obtain the information sought; or
(3) The discovery is unduly burdensome and expensive, taking into
account the needs of the case, the amount in controversy, limitations
on the parties' resources, and the importance of the issues at stake.
(d) Conduct of discovery. Parties may engage in discovery only to
the extent the Board enters an order which either incorporates an
agreed plan and schedule acceptable to the Board or otherwise permits
such discovery as the moving party can demonstrate is required for the
expeditious, fair, and reasonable resolution of the case.
(e) Discovery conference. Upon request of a party or on its own
initiative, the Board may at any time hold an informal meeting or
telephone conference with the parties to identify the issues for
discovery purposes; establish a plan and schedule for discovery; set
limitations on discovery, if any; and determine such other matters as
are necessary for the proper management of discovery. The Board may
include in the conference such other matters as it deems appropriate in
accordance with 6101.10.
(f) Discovery objections. (1) In connection with any discovery
procedure, the Board, on motion or on its own initiative, may make any
order which justice requires to protect a party or person from
annoyance, embarrassment, oppression, or undue burden or expense,
including, but not limited to, one or more of the following:
(i) That the discovery not be had;
(ii) That the discovery be had only on specified terms and
conditions, including a designation of the time and place, or that the
scope of discovery be limited to certain matters;
(iii) That the discovery be conducted with no one present except
persons designated by the Board; and
(iv) That confidential information not be disclosed or that it be
disclosed only in a designated way.
(2) Unless otherwise ordered by the Board, any objection to a
discovery request must be filed within 15 calendar days after receipt.
A party shall fully respond to any discovery request to which it does
not file a timely objection. The parties are required to make a good
faith effort to resolve objections to discovery requests informally.
(3) A party receiving an objection to a discovery request, or a
party which believes that another party's response to a discovery
request is incomplete or entirely absent, may file a motion to compel a
response, but such a motion must include a representation that the
moving party has tried in good faith, prior to filing the motion, to
resolve the matter informally. The motion to compel shall include a
copy of each discovery request at issue and the response, if any.
(g) Failure to make or cooperate in discovery; sanctions. If a
party fails
(i) To appear for a deposition, after being served with a proper
notice;
(ii) To serve answers or objections to interrogatories submitted
under 6101.17, after proper service of interrogatories; or
(iii) To serve a written response to a request for inspection,
production, and copying of any documents and things under 6101.17, the
party seeking discovery may move the Board to impose appropriate
sanctions under 6101.18.
(h) Subpoenas. A party may request the issuance of a subpoena in
aid of
[[Page 52356]]
discovery under the provision of 6101.20.
6101.16 Depositions [Rule 116].
(a) When depositions may be taken. Upon request of a party, the
Board may order the taking of testimony of any person by deposition
upon oral examination or written questions before an officer authorized
to administer oaths at the place of examination. Attendance of
witnesses may be compelled by subpoena as provided in 6101.20, and the
Board may upon motion order that the testimony at a deposition be
recorded by other than stenographic means, in which event the order may
designate the manner of recording, preserving, and filing the
deposition and may include other provisions to ensure that the recorded
testimony will be accurate and trustworthy. If the order is made, a
party may, nevertheless, arrange to have a stenographic transcription
made at its own expense.
(b) Depositions: time; place; manner of taking. The time, place,
and manner of taking depositions, including the taking of depositions
by telephone, shall be as agreed upon by the parties or, failing such
agreement, as ordered by the Board. A deposition taken by telephone is
taken at the place where the deponent is to answer questions.
(c) Use of depositions. At a hearing on the merits or upon a motion
or interlocutory proceeding, any part or all of a deposition, so far as
admissible and as though the witness were then present and testifying,
may be used against a party who was present or represented at the
taking of the deposition or who had reasonable notice thereof, in
accordance with any of the following provisions:
(1) Any deposition may be used by a party for the purpose of
contradicting or impeaching the testimony of the deponent as a witness.
(2) The deposition of a party or of anyone who at the time of
taking the deposition was an officer, director, or managing agent, or a
person designated to testify on behalf of a public or private
corporation, partnership or association, or governmental agency which
is a party may be used by an adverse party for any purpose.
(3) The deposition of a witness, whether or not a party, may be
used by a party for any purpose in its own behalf if the Board finds
that:
(i) The witness is dead;
(ii) The attendance of the witness at the place of hearing cannot
be reasonably obtained, unless it appears that the absence of the
witness was procured by the party offering the deposition;
(iii) The witness is unable to attend or testify because of
illness, infirmity, age, or imprisonment;
(iv) The party offering the deposition has been unable to procure
the attendance of the witness by subpoena; or
(v) Upon request and notice, exceptional circumstances exist which
make it desirable in the interest of justice and with due regard to the
importance of presenting the testimony of witnesses orally in open
hearing, to allow the deposition to be used.
(4) If only part of a deposition is offered in evidence by a party,
an adverse party may require the offering party to introduce any other
part which in fairness ought to be considered with the part introduced.
(d) Depositions pending appeal from a decision of the Board.
(1) If an appeal has been taken from a decision of the Board, or
before the taking of an appeal if the time therefor has not expired,
the Board may allow the taking of depositions of witnesses to
perpetuate their testimony for use in the event of further proceedings
before the Board. In such case, the party that desires to perpetuate
testimony may make a motion before the Board for leave to take the
depositions as if the action were pending before the Board. The motion
shall show:
(i) The names and addresses of the persons to be examined and the
substance of the testimony which the moving party expects to elicit
from each; and
(ii) The reasons for perpetuating the testimony of the persons
named.
(2) If the Board finds that the perpetuation of testimony is proper
to avoid a failure or a delay of justice, it may order the depositions
to be taken and may make orders of the character provided for in
6101.15 and in this section. Thereupon, the depositions may be taken
and used as prescribed in this part for depositions taken in actions
pending before the Board. Upon request and for good cause shown, a
judge may issue or obtain a subpoena, in accordance with 6101.20, for
the purpose of perpetuating testimony by deposition during the pendency
of an appeal from a Board decision.
6101.17 Interrogatories to parties; requests for admission; requests
for production of documents [Rule 117].
Upon order from the Board permitting such discovery, a party may
serve on another party written interrogatories, requests for admission,
and requests for production of documents.
(a) Written interrogatories. Written interrogatories shall be
answered separately in writing, signed under oath or accompanied by a
declaration under penalty of perjury, and answered within 30 calender
days after service. Objections shall be filed within the time limits
set forth in 6101.15(f)(2). An interrogatory otherwise proper is not
necessarily objectionable merely because an answer to the interrogatory
may involve an opinion or contention that relates to fact or the
application of law to fact, but the Board may order that such an
interrogatory need not be answered until after designated discovery has
been completed or until a conference has been held, or some other event
has occurred.
(b) Option to produce business records. Where the answer to an
interrogatory may be derived or ascertained from the business records
of the party upon which the interrogatory has been served, or from an
examination, audit, or inspection of such business records, including a
compilation, abstract, or summary thereof, and the burden of deriving
or ascertaining the answer is substantially the same for the party
serving the interrogatory as for the party served, it is a sufficient
answer to such interrogatory to specify the records from which the
answer may be derived or ascertained and to afford to the party serving
the interrogatory reasonable opportunity to examine, audit, or inspect
such records and to make copies, compilations, abstracts, or summaries
thereof. Such specification shall be in sufficient detail to permit the
interrogating party to locate and to identify, as readily as can the
party served, the records from which the answer may be ascertained.
(c) Written requests for admission. A written request for the
admission of the truth of any matter, within the proper scope of
discovery, that relates to statements or opinions of fact or of the
application of law to fact, including the genuineness of any documents,
is to be answered in writing and signed within 30 calendar days after
service. Objections shall be filed within the time limits set forth in
6101.15(f)(2). Otherwise, the matter therein may be deemed to be
admitted. Any matter admitted is conclusively established for the
purpose of the pending action, unless the Board on motion permits
withdrawal or amendment of the admission. Any admission made by a party
under this paragraph is for the purpose of the pending action only and
is not an admission for any other purpose, nor may it be used against
the party in any other proceeding.
(d) Written requests for production of documents. A written request
for the
[[Page 52357]]
production, inspection, and copying of any documents and things shall
be answered within 30 calendar days after service. Objections shall be
filed within the time limits set forth in 6101.15(f)(2).
(e) Change in time for response. Upon request of a party, or on its
own initiative, the Board may prescribe a period of time other than
that specified in this section.
(f) Responses. A party that has responded to written
interrogatories, requests for admission, or requests for production of
documents, upon becoming aware of deficiencies or inaccuracies in its
original responses, or upon acquiring additional information or
additional documents relevant thereto, shall, as quickly as
practicable, and as often as necessary, supplement its responses to the
requesting party with correct and sufficient additional information and
such additional documents as are necessary to give a complete and
accurate response to the request.
6101.18 Sanctions and other proceedings [Rule 118].
(a) Standards. All parties and their representatives, attorneys,
and any expert/consultant retained by them or their attorneys, must
obey directions and orders prescribed by the Board and adhere to
standards of conduct applicable to such parties and persons. As to an
attorney, the standards include the rules of professional conduct and
ethics of the jurisdictions in which an attorney is licensed to
practice, to the extent that those rules are relevant to conduct
affecting the integrity of the Board, its process, and its proceedings.
The Board will also look to voluntary professional guidelines in
evaluating an individual's conduct.
(b) Sanctions. When a party or its representative or attorney or
any expert/consultant fails to comply with any direction or order
issued by the Board (including an order to provide or permit
discovery), or engages in misconduct affecting the Board, its process,
or its proceedings, the Board may make such orders as are just,
including the imposition of appropriate sanctions. The sanctions
include:
(1) Taking the facts pertaining to the matter in dispute to be
established for the purpose of the case in accordance with the
contention of the party submitting the discovery request;
(2) Forbidding challenge of the accuracy of any evidence;
(3) Refusing to allow the disobedient party to support or oppose
designated claims or defenses;
(4) Prohibiting the disobedient party from introducing in evidence
designated documents or items of testimony;
(5) Striking pleadings or parts thereof, or staying further
proceedings until the order is obeyed;
(6) Dismissing the case or any part thereof;
(7) Enforcing the protective order and disciplining individuals
subject to such other violation thereof, including disqualifying a
party's representative, attorney, or expert/consultant from further
participation in the case; or
(8) Imposing such other sanctions as the Board deems appropriate.
(c) Denial of access to protected material for prior violations of
protective orders. The Board may in its discretion deny access to
protected material to any person found to have previously violated the
Board's protective order.
(d) Disciplinary proceedings.--(1) In addition to the other
procedures in this section, the Board may discipline individual party
representatives, attorneys, and experts/consultants for a violation of
any Board order or direction or standard of conduct applicable to such
individual where the violation seriously affects the integrity of the
Board's process or proceedings. Sanctions may be public or private, and
may include admonishment, disqualification from a particular matter,
referral to an appropriate licensing authority, or such other action as
circumstances may warrant.
(2) The Board in its discretion may suspend an individual from
appearing before the Board as a party representative, attorney, or
expert/consultant if, after affording such individual notice and an
opportunity to be heard, a majority of the members of the full Board
determines such a sanction is warranted.
6101.19 Hearings: scheduling; notice; unexcused absences [Rule 119].
(a) Scheduling of hearings. Hearings will be held at the time and
place ordered by the Board and will be scheduled at the discretion of
the Board. In scheduling hearings, the Board will consider the
requirements of this part and part 6102, the need for orderly
management of the Board's caseload, and the stated desires of the
parties as expressed in their elections filed pursuant to 6101.9 or
otherwise. The time or place for hearing may be changed by the Board at
any time.
(b) Notice of hearing. Notice of hearing will be by written order
of the Board. Notice of changes in the hearing schedule will also be by
written order when practicable but may be oral in exigent
circumstances. Except as the Board may otherwise order, each party that
plans to attend the hearing shall, within 10 working days of receipt
of:
(1) A written notice of hearing or
(2) Any notice of a change in hearing schedule stating that an
acknowledgment is required, notify the Board in writing that it will
attend the hearing.
(c) Unexcused absence from hearing. In the event of the unexcused
absence of a party from a hearing, the hearing will proceed, and the
absent party will be deemed to have elected to submit its case on the
record pursuant to 6101.11.
6101.20 Subpoenas [Rule 120].
(a) Voluntary cooperation in lieu of subpoena. Each party is
expected to:
(1) Cooperate by making available witnesses and evidence under its
control, when requested by another party, without issuance of a
subpoena; and
(2) Secure voluntary attendance of third-party witnesses and
production of evidence by third parties, and when practicable, without
issuance of a subpoena.
(b) General. Upon the written request of any party filed with the
Office of the Clerk of the Board, or on the initiative of a judge, a
subpoena may be issued that commands the person to whom it is directed
to:
(1) Attend and give testimony at a deposition in a city or county
where that person resides or is employed or transacts business in
person, or at another location convenient to that person that is
specifically determined by the Board;
(2) Attend and give testimony at a hearing; and
(3) Produce the books, papers, documents, and other tangible things
designated in the subpoen
FR Doc. 96-25121 Board of Contract Appeals; Rules of Procedure of the General Services Administration Board of Contract Appeals: Standard Proceedings and Expedited Proceedings
a.
(c) Request for subpoena. A request for a subpoena shall state the
reasonable scope and general relevance to the case of the testimony and
of any documentary evidence sought. A request for a subpoena shall be
filed at least 15 calendar days before the testimony of a witness or
documentary evidence is to be provided. The Board may, in its
discretion, honor requests for subpoenas not made within this time
limitation.
(d) Form; issuance. Every subpoena shall be in the form specified
in the appendix to this part and part 6102. Unless a party has the
approval of a judge to submit a subpoena in blank (in whole or in
part), a party shall submit to the judge a completed subpoena (save the
``Return on Service'' portion). In issuing a subpoena to a requesting
party,
[[Page 52358]]
the judge shall sign the subpoena. The party to whom the subpoena is
issued shall complete the subpoena before service.
(2) If the person subpoenaed is located in a foreign country, a
letter rotatory or a subpoena may be issued and served under the
circumstances and in the manner provided in 28 U.S.C. 1781-1784.
(e) Service. (1) The party requesting a subpoena shall arrange for
service. Service shall be made as soon as practicable after the
subpoena has been issued.
(2) A subpoena requiring the attendance of a witness at a
deposition or hearing may be served at any place. A subpoena may be
served by a United States marshal or deputy marshal, or by any other
person who is not a party and not less than 18 years of age. Service of
a subpoena upon a person named therein shall be made by personal
delivery of a copy to that person and tender of the fees for one day's
attendance and the mileage allowed by 28 U.S.C. 1821 or other
applicable law; however, where the subpoena is issued on behalf of the
Government, money payments need not be tendered in advance of
attendance.
(f) Proof of service. The person serving the subpoena shall make
proof of service thereof to the Board promptly and in any event before
the date on which the person served must respond to the subpoena. Proof
of service shall be made by completion and execution and submission to
the Board of the ``Return on Service'' portion of a duplicate copy of
the subpoena issued by a judge. If service is made by a person other
than a United States marshal or his deputy, that person shall make an
affidavit as proof by executing the ``Return on Service'' in the
presence of a notary.
(g) Motion to quash or to modify. Upon written motion by the person
subpoenaed or by a party, made within 14 calendar days after service,
but in any event not later than the time specified in the subpoena for
compliance, the Board may
(1) Quash or modify the subpoena if it is unreasonable and
oppressive or for other good cause shown, or
(2) Require the party in whose behalf the subpoena was issued to
advance the reasonable cost of producing subpoenaed documentary
evidence. Where circumstances require, the Board may act upon such a
motion at any time after a copy has been served upon opposing parties.
(h) Contumacy or refusal to obey a subpoena. In a case of contumacy
or refusal to obey a subpoena by a person who resides, is found, or
transacts business within the jurisdiction of a United States district
court, the Board shall apply to the court through the Attorney General
of the United States for an order requiring the person to appear before
the board to give testimony, produce evidence or both. If a person
fails to obey such an order, the court may punish that person for
contempt of court.
6101.21 Hearing procedures [Rule 121].
(a) Nature and conduct of hearings. Except when necessary to
maintain the confidentiality of protected material or testimony, or
material submitted in camera, all hearings on the merits of cases shall
be open to the public and conducted insofar as is convenient in regular
hearing rooms. All other acts or proceedings may be done or conducted
by the Board either in its offices or at other places.
(b) Continuances; change of location. Whenever practicable, a
hearing will be conducted in one continuous session or a series of
consecutive sessions at a single location. However, the Board may at
any time continue the hearing to a future date and may arrange to
conduct the hearing in more than one location. The Board may also
continue a hearing to permit a party to conduct additional discovery on
conditions established by the Board. In exercising its discretion to
continue a hearing or to change its location, the Board will give due
consideration to the same elements (set forth in 6101.19(a)) that it
considers in scheduling hearings.
(c) Availability of witnesses, documents, and other tangible
things. It is the responsibility of a party desiring to call any
witness, or to use any document or other tangible thing as an exhibit
in the course of a hearing, to ensure that whoever it wishes to call
and whatever it wishes to use is available at the hearing.
(d) Enlargement of the record. The Board may at any time during the
conduct of a hearing require evidence or argument in addition to that
put forth by the parties.
(e) Examination of witnesses. Witnesses before the Board will
testify under oath or affirmation. A party or the Board may obtain an
answer from any witness to any question that is not the subject of an
objection that the Board sustains.
(f) Refusal to be sworn. If a person called as a witness refuses to
be sworn or to affirm before testifying, the Board may direct that
witness to do so and, in the event of continued refusal, the Board may
permit the taking of testimony without oath or affirmation.
Alternatively, the Board may refuse to permit the examination of that
witness, in which event it may state for the record the inferences it
draws from the witness's refusal to testify under oath or affirmation.
Alternatively, the Board may issue a subpoena to compel that witness to
testify under oath or affirmation, and in the event of the witness's
continued refusal to swear or affirm, may seek enforcement of that
subpoena pursuant to 6101.20(h).
(g) Refusal to answer. If a witness refuses to answer a question
put to him in the course of his testimony, the Board may direct that
witness to answer and, in the event of continued refusal, the Board may
state for the record the inferences if draws from the refusal to
answer. Alternatively, the Board may issue a subpoena to compel that
witness to testify and, in the event of the witness's continued refusal
to testify, may seek enforcement of that subpoena pursuant to
6101.20(h).
(h) Issues not raised by pleadings. If evidence is objected to at a
hearing on the ground that it is not within the issues raised by the
pleadings, it may nevertheless be admitted by the Board if it is within
the proper scope of the case. If such evidence is admitted, the Board
may grant the objecting party a continuance to enable it to meet such
evidence. If such evidence is admitted, the pleadings may be amended to
conform to the evidence, as provided by 6101.12(e).
(i) Delay by parties. If the Board determines that the hearing is
being unreasonably delayed by the failure of a party to produce
evidence, or by the undue prolongation of the presentation of evidence,
it may, by written order or by ruling from the bench, prescribe a time
or times within which the presentation of evidence must be concluded,
establish time limits on the direct or cross-examination of witnesses,
and enforce such order or ruling by appropriate sanctions.
6101.22 Admissibility and weight of evidence [Rule 122].
(a) Admissibility. Any relevant evidence may be received. The Board
may exclude relevant evidence to avoid unfair prejudice, confusion of
the issues, undue delay, waste of time, or needless presentation of
cumulative evidence. Hearsay evidence is admissible unless the Board
finds it unreliable or untrustworthy.
(b) Federal Rules of Evidence. As a general matter, and subject to
the other provisions of this section, the Board will base its
evidentiary rulings on the Federal Rules of Evidence.
[[Page 52359]]
(c) Weight and credibility. The Board will determine the weight to
be given to evidence and the credibility to be accorded witnesses.
(d) Submission of evidence in camera. 6101.12(h) governs
submissions in camera.
6101.23 Exhibits [Rule 123].
(a) Marking of exhibits. (1) Documents and other tangible things
offered in evidence by a party will be marked for identification by the
Board during the hearing or, if it is convenient for the Board and the
parties, before the commencement of the hearing. They will be numbered
consecutively as the exhibits of the party offering them.
(2) If a party elects to proceed on the record without a hearing
pursuant to 6101.11, documentary evidence submitted by that party will
be numbered consecutively by the Board as appeal file exhibits.
(b) Copies as exhibits. Except upon objection sustained by the
Board for good cause shown, copies of documents may be offered and
received into evidence as exhibits, provided they are of equal
legibility and quality as the originals, and such copies shall have the
same force and effect as if they were the originals. If the Board so
directs, a party offering a copy of a document as an exhibit shall have
the original available at the hearing for examination by the Board and
any other party. When the original of a document has been received into
evidence as an exhibit, an accurate copy thereof may be substituted in
evidence for the original by leave of the Board at any time.
(c) Withdrawal of documentary exhibits and other papers. With the
permission of the Board, a party may remove an exhibit during the
course of a proceeding. Otherwise, except as provided in 6101.37(d), no
withdrawal of any papers in the Board's file is permitted. Inspection
of the file at the Board's offices is permitted by 6101.12(g).
(d) Disposition of physical exhibits. Any physical (as opposed to
documentary) exhibit may be disposed of by the Board at any time more
than 90 calendar days after the expiration of the period for appeal
from the decision of the Board, unless it has been earlier withdrawn by
the party that submitted it.
6101.24 Transcripts of proceedings; corrections [Rule 124].
(a) Transcripts Except as the Board may otherwise order, all
hearings, other than those under the small claims procedure prescribed
by 6102.2, will be stenographically or electronically recorded and
transcribed. Any other hearing or conference will be recorded or
transcribed only by order of the Board. Copies or transcriptions of
stenographic or electronic recordings not ordered to be transcribed by
the Board will be furnished to the parties or other persons only on
conditions prescribed by the Board, which may include the payment of
the costs of copying or transcription. Each party is responsible for
obtaining its own copy of the transcript if one is prepared.
(b) Corrections Corrections to an official transcript will be made
only when they involve errors affecting its substance. The Board may
order such corrections on motion or on its own initiative, and only
after notice to the parties giving them opportunity to object. Such
corrections will ordinarily be made either by hand with pen and ink or
by the appending of an errata sheet, but when no other method of
correction is practicable the Board may require the reporter to provide
substitute or additional pages.
6101.25 Briefs and memoranda of law [Rule 125].
(a) Form and content of briefs and memoranda of law. Briefs and
memoranda of law shall be typewritten on standard size 8\1/2\ by 11-
inch paper. Otherwise, no particular form or organization is
prescribed. Posthearing briefs should, at a minimum, succinctly set
forth
(1) The facts of the case with citations to those places in the
record where supporting evidence can be found and
(2) Argument with citations to supporting legal authorities.
Memoranda of law should generally adhere as closely as practicable to
the form and content of briefs.
(b) Submission of posthearing briefs. Except as the Board may
otherwise order, posthearing briefs shall be filed 30 calendar days
after the Board's receipt of the transcript; reply briefs, if filed,
shall be filed 15 calendar days after the parties' receipt of the
initial posthearing briefs. The Board will notify the parties of the
date of its receipt of the transcript. In the event one party has
elected a hearing and the other party has elected to submit its case on
the record pursuant to 6101.11, the filing of record submissions in the
form of briefs shall be governed by this section.
6101.26 Consolidation; separate hearings; separate determination of
liability [Rule 126].
(a) Consolidation. When cases involving common questions of law or
fact are pending, the Board may:
(1) Order a joint hearing of any or all of the matters at issue in
the cases;
(2) Order the cases consolidated; or
(3) Make such other orders concerning the proceedings therein as
are intended to avoid unnecessary costs or delay.
(b) Separate hearings. The Board may order a separate hearing of
any case or cases or of any claims or issues or number of claims or
issues therein. The Board may enter appropriate orders or decisions
with respect to any claims or issues that are heard separately.
(c) Separate determinations of liability. The Board may:
(1) Limit a hearing to those issues of law and fact relating to the
right of a party to recover, reserving the determination of the amount
of recovery, if any, for other proceedings; and
(2) In its decision of an appeal, irrespective of whether there is
evidence in the record concerning the amount of recovery, and whether
or not a stipulation or order has been made, reserve determination of
the amount of recovery for other proceedings. In any instance in which
the Board has reserved its determination of the amount of recovery for
other proceedings, its decision on the question of the right to recover
shall be final, subject to the provisions of 6101.30 through 6101.33.
6101.27 Stay or suspension of proceedings; dismissals in lieu of stay
or suspension [Rule 127].
(a) Stay of proceedings to obtain contracting officer's decision.
The Board may in its discretion stay proceedings to permit a
contracting officer to issue a decision when an appeal has been taken
from the contracting officer's alleged failure to render a timely
decision.
(b) Suspension for other cause. The Board may suspend proceedings
in a case for good cause. The order suspending proceedings will
prescribe the duration of the suspension or the conditions on which it
will expire. The order may also prescribe actions to be taken by the
parties during the period of suspension or following its expiration.
(c) Dismissal in lieu of stay or suspension. When circumstances
beyond the control of the Board prevent the continuation of proceedings
in a case, the Board may, in lieu of issuing an order suspending
proceedings, dismiss the case without prejudice to reinstatement. Such
a dismissal may require reinstatement by a date certain or within a
certain period of time after the occurrence of a specified event. If
the order of dismissal does not otherwise provide, it will be subject
to the provisions of 6101.28(b).
[[Page 52360]]
6101.28 Dismissals [Rule 128].
(a) Generally. A case may be dismissed by the Board on motion of
either party. A case may also be dismissed for reasons cited by the
Board in a show cause order to which response has been permitted. Every
dismissal shall be with prejudice to reinstatement of the case unless a
dismissal without prejudice has been requested by a party or specified
in a show cause order.
(b) Dismissal without prejudice. When a case has been dismissed
without prejudice to its reinstatement and neither party has requested,
within the period of time specified in this paragraph, that the case be
reinstated, the case shall be deemed to have been dismissed with
prejudice as of the expiration of 180 calendar days from the date of
dismissal, or such other period as the Board may prescribe.
(c) Issuance of order. An order of dismissal shall be issued by the
panel of judges to which the case has been assigned if the motion is
contested or if the Board is acting consequent to its own show cause
order. An order of dismissal may be issued by the panel chairman alone
if the motion to dismiss is not contested.
6101.29 Decisions: format; procedure [Rule 129].
Except as provided in 6102.2 (small claims procedure), decisions of
the Board will be made in writing upon the record as prescribed in
6101.12. Each of the parties will be furnished a copy of the decision
certified by the Office of the Clerk of the Board, and the date of the
receipt thereof by each party will be established in the record.
6101.30 Full Board consideration [Rule 130].
(a) Requests. (1) A request for full Board consideration is not
favored. Ordinarily, full Board consideration will be ordered only when
(i) It is necessary to secure or maintain uniformity of Board
decisions, or
(ii) The matter to be referred is one of exceptional importance.
(2) A request for full Board consideration may be made by either
party on any date which is both
(i) After the panel to which the case is assigned has issued its
decision on a motion for reconsideration or relief from decision and
(ii) Within 10 working days after the date on which that party
receives that decision. Any party making a request for full Board
consideration shall state concisely in the motion the precise grounds
on which the request is based.
(3) The full Board on its own may initiate consideration of a
matter
(i) At any time while the case is before the Board,
(ii) No later than the last date on which any party may file a
motion for reconsideration or relief from decision or order, or
(iii) If such a motion is filed by a party, within ten days after a
panel has resolved it.
(b) Consideration. Promptly after such a request is made, a ballot
will be taken among the judges; if a majority of them favors the
request, the request will be granted. The result of the vote will
promptly be reported by the Board through an order. The concurring or
dissenting view of any judge who wishes to express such a view may
issue at the time of such order or at any time thereafter.
(c) Decisions. If full Board consideration is granted, a vote shall
be taken promptly on the pending matter. After this vote is taken, the
Board shall promptly, by order, issue its determination, which shall
include the concurring or dissenting view of any judge who wishes to
express such a view.
6101.31 Clerical mistakes [Rule 131].
Clerical mistakes in decisions, orders, or other parts of the
record, and errors arising therein through oversight or inadvertence,
may be corrected by the Board at any time on its own initiative or upon
motion of a party on such terms, if any, as the Board may prescribe.
During the pendency of an appeal to another tribunal, such mistakes may
be corrected only with leave of the appellate tribunal.
6101.32 Reconsideration; amendment of decisions; new hearings [Rule
132].
(a) Grounds. Reconsideration may be granted, a decision or order
may be altered or amended, or a new hearing may be granted, for any of
the reasons stated in 6101.33(a) and the reasons established by the
rules of common law or equity applicable as between private parties in
the courts of the United States. Reconsideration, or a new hearing, may
be granted on all or any of the issues. Arguments already made and
reinterpretations of old evidence are not sufficient grounds for
granting reconsideration. On granting a motion for a new hearing, the
Board may open the decision if one has been issued, take additional
testimony, amend findings of fact and conclusions of law, or make new
findings and conclusions and direct the entry of a new decision.
(b) Procedure. (1) Any motion under this section shall comply with
the provisions of 6101.8 and shall set forth:
(i) The reason or reasons why the Board should consider the motion;
and
(ii) The relief sought and the grounds therefor.
(2) If the Board concludes that the reasons asserted for its
consideration of the motion are insufficient, it may deny the motion
without considering the relief sought and the grounds asserted
therefor. If the Board grants the motion, it will issue an appropriate
order which may include directions to the parties for further
proceedings.
(c) Time for filing. A motion for reconsideration, to alter or
amend a decision or order, or for a new hearing shall be filed in an
appeal or petition within 30 calendar days and in an application within
7 working days after the date of receipt by the moving party of the
decision or order. Not later than 30 calendar days after issuance of a
decision or order, the Board may, on its own initiative, order
reconsideration or a new hearing or alter or amend a decision or order
for any reason that would justify such action on motion of a party.
(d) Effect of motion. A motion pending under this section does not
affect the finality of a decision or suspend its operation.
6101.33 Relief from decision or order [Rule 133].
(a) Grounds. The Board may relieve a party from the operation of a
final decision or order for any of the following reasons:
(1) Newly discovered evidence which could not have been earlier
discovered, even through due diligence;
(2) Justifiable or excusable mistake, inadvertence, surprise, or
neglect;
(3) Fraud, misrepresentation, or other misconduct of an adverse
party;
(4) The decision has been satisfied, released, or discharged, or a
prior decision upon which it is based has been reversed or otherwise
vacated, and it is no longer equitable that the decision should have
prospective application;
(5) The decision is void, whether for lack of jurisdiction or
otherwise; or
(6) Any other ground justifying relief from the operation of the
decision or order.
(b) Procedure. Any motion under this section shall comply with the
provisions of 6101.8 and 6101.32(b), and will be considered and ruled
upon by the Board as provided in 6101.32.
(c) Time for filing. Any motion under this section shall be filed
as soon as practicable after the discovery of the reasons therefor, but
in any event no later than 120 calendar days or, in appeals under the
small claims
[[Page 52361]]
procedure of 6102.2, no later than 30 calendar days after the date of
the moving party's receipt of the decision or order from which relief
is sought. In considering the timeliness of a motion filed under this
section, the Board may consider when the grounds therefor should
reasonably have been known to the moving party.
(d) Effect of motion. A motion pending under this section does not
affect the finality of a decision or suspend its operation.
6101.34 Harmless error [Rule 134].
No error in the admission or exclusion of evidence, and no error or
defect in any ruling, order, or decision of the Board, and no other
error in anything done or omitted to be done by the Board will be a
ground for granting a new hearing or for vacating, reconsidering,
modifying, or otherwise disturbing a decision or order of the Board
unless refusal to act upon such error will prejudice a party or work a
substantial injustice. At every stage of the proceedings the Board will
disregard any error or defect that does not affect the substantial
rights of the parties.
6101.35 Award of costs [Rule 135].
(a) Applications for costs. An appropriate party in a proceeding
before the Board may apply for an award of costs, including if
applicable an award of attorney fees, under the Equal Access to Justice
Act, 5 U.S.C. 504, or any other provision that may entitle that party
to such an award, subsequent to the Board's decision in the proceeding.
For purposes of this section, ``decision'' includes orders of dismissal
resulting from settlement agreements that bring to an end the
proceedings before the Board.
(b) Time for filing. A party seeking an award may submit an
application no later than 30 calendar days after a final disposition in
the underlying appeal. In the case of an appeal that is adjudicated,
the Board's decision becomes final (for purposes of this section) when
it is not appealed to the United States Court of Appeals for the
Federal Circuit within the time permitted for appeal or, if the
decision is appealed, when the time for petitioning the Supreme Court
for certiorari has expired. In the case of an appeal that is resolved
as a result of settlement, the Board's disposition becomes final (for
purposes of this section) after receipt by the applicant of the order
granting or dismissing the appeal.
(c) Application requirements. An application for costs shall:
(1) Identify the applicant and the appeal for which costs are
sought, and the amount being sought;
(2) Establish that all applicable prerequisites for an award have
been satisfied, including a succinct statement of why the applicant is
eligible for an award of costs;
(3) Be accompanied by an exhibit fully documenting any fees or
expenses being sought, including the cost of any study, analysis,
engineering report, test, project, or similar matter. The date and a
description of all services rendered or costs incurred shall be
submitted for each profession firm or individual whose services are
covered by the application, showing the hours spent in connection with
the proceeding by each individual, a description of the particular
services performed by specific date, the rate at which each fee has
been computed, any expenses for which reimbursement is sought, and the
total amount paid or payable by the applicant on account of the sought-
after costs. Except in exceptional circumstances, all exhibits
supporting applications for fees or expenses sought shall be publicly
available. The Board may require the applicant to provide vouchers,
receipts, or other substantiation for any costs claimed and/or to
submit to an audit by the Government of the claimed costs;
(4) Be signed by the applicant or an authorized officer, employee,
or attorney of the applicant;
(5) Contain or be accompanied by a written verification under oath
or affirmation, or declaration under penalty of perjury, that the
information provided in the application is true and correct;
(6) If the applicant asserts that it is a qualifying small business
concern, contain evidence thereof; and
(7) If the application requests reimbursement of attorney fees that
exceed the statutory rate, explain why an increase in the cost of
living or a special factor, such as the limited availability of
qualified attorneys for the proceedings involved, justifies such fees.
(d) Proceedings. (1) Within 30 calendar days after receipt by the
respondent of an application under this section, the respondent may
file an answer. The answer shall explain in detail any objects to the
award requested and set out the legal and factual bases supporting the
respondent's position. If the respondent contends that any fees for
consultants or expert witnesses for which reimbursement is sought in
the application exceed the highest rate of compensation for expert
witnesses paid by the agency, the respondent shall include in the
answer evidence of such highest rate.
(2) Further proceedings shall be held only by order of the Board
and only when necessary for full and fair resolution of the issues
arising from the application. Such proceedings shall be minimized to
the extent possible and shall not include relitigation of the case on
the merits. A request that the Board order further proceedings under
this section shall describe the disputed issues and explain why
additional proceedings are necessary to resolve those issues.
(e) Decision. Any award ordered by the Board shall be paid pursuant
to 6101.36.
6101.36 Payment of Board awards [Rule 136].
(a) Generally. When permitted by law, payment of Board awards may
be made in accordance with 31 U.S.C. 1304. Awards by the Board pursuant
to the Equal Access to Justice Act shall be directly payable by the
respondent agency over which the applicant has prevailed in the
underlying appeal.
(b) Conditions for payment. Before a party may obtain payment of a
Board award pursuant to 31 U.S.C. 1304, one of the following must
occur:
(1) Both parties must, by execution of a Certificate of Finality,
waive their rights to relief under 6101.32 and 6101.33 and also their
rights to appeal the decision of the Board; or
(2) The time for filing an appeal must expire.
(c) Procedure for filing of certificates of finality. Whenever the
Board issues a decision or an order awarding a party any amount of
money, it will attach to the copy of the decision sent to each party
forms such as those illustrated in the appendix to this part and part
6102. The conditions for payment prescribed in paragraph (b)(1) of this
section are satisfied if each of the parties returns a completed and
duly executed copy of this form to the Board. When the form is executed
on behalf of an appellant or applicant by an attorney or other
representative, proof of signatory authority shall also be furnished.
Upon receipt of completed and duly executed Certificates of Finality
from the parties, the Board will forward a copy of each such
certificate (together with proof of signatory authority, if required)
and a certified copy of its decision to the
[[Page 52362]]
United States Department of the Treasury to be certified for payment.
(d) Procedure in absence of certificate of finality. When one or
both of the parties fails to submit a duly executed Certificate of
Finality, but the conditions for payment have been satisfied as
provided in paragraph (b)(2) of this section, the appellant or
applicant may file a written request that the Board forward its
decision to the United States Department of the Treasury for payment.
Thereupon, the Board will forward a copy of that request and a
certified copy of its decision to the United States Department of the
Treasury to be certified for payment.
(e) Stipulated award. When an appeal is settled, the parties may
file with the Board a stipulation setting forth the amount of the award
and stating
(1) That they will not seek reconsideration of, or relief from, the
Board's decision, and
(2) That they will not appeal the decision. The Board will adopt
the parties' stipulation by decision. The Board's decision under this
paragraph is an adjudication of the case on the merits.
6101.37 Record on review of a Board decision [Rule 137].
(a) Record on review. When a party has appealed a Board decision to
the United States Court of Appeals for the Federal Circuit, the record
on review shall consist of the decision sought to be reviewed, the
record before the Board as described in 6101.12, and such other
material as may be required by the Court of Appeals.
(b) Notice. At the same time a party seeking review of a Board
decision files a notice of appeal, that party shall provide a copy of
the notice to the Board.
(c) Filing of certified list of record materials. Promptly after
service upon the Board of a copy of the notice of appeal of a Board
decision, the Office of the Clerk of the Board shall file with the
Clerk of the United States Court of Appeals for the Federal Circuit a
certified list of all documents, transcripts of testimony, exhibits,
and other materials constituting the record, or a list of such parts
thereof as the parties may designate, adequately describing each. The
Board will retain the record and transmit any part thereof to the Court
upon the Court's order during the pendency of the appeal.
(d) Request by attorney of record to review record. When a case is
on appeal, an attorney of record may request permission from the Board
to sign out the record on appeal to review and copy, for a reasonable
period of time, if the attorney is unable to gain access to the record
from another source.
6101.38 Office of the Clerk of the Board [Rule 138].
(a) Open for the filing of papers. The Office of the Clerk of the
Board shall receive all papers submitted for filing, and shall be open
for this purpose from 8:00 a.m. to 4:30 p.m., Eastern Time, on each day
that is not a Saturday, Sunday, federal holiday, a day on which the
Office is required to close earlier than 4:30 p.m., or a day on which
the Office does not open at all, as in the case of inclement weather.
(b) Decisions and orders. The Office of the Clerk shall keep in
such form and manner as the Board may prescribe a correct copy of each
decision or order of the Board subject to review and any other order or
decision which the Board may direct to be kept.
(c) Docket. The Office of the Clerk shall keep a docket on which
shall be entered the title and nature of all cases brought before the
Board, the names of the persons filing such cases, the names of the
attorneys or other persons appearing for the parties, and a record of
all proceedings.
(d) Copies and certification of papers. Upon the request of any
person, copies of papers and documents in a case may be provided by the
Office of the Clerk. If making such copies involves more than minimal
costs to the Board, reimbursement will be required. When required, the
Office of the Clerk will certify copies of papers and documents as a
true record of the Board. Except as provided in 6101.23(c) and
6101.37(d), the Office of the Clerk will not release original records
in its possession to any person.
6101.39 Seal of the Board [Rule 139].
The Seal of the Board shall be a circular boss, the center portion
of which shall depict the Seal of the General Services Administration.
The outer margin of the seal shall bear the legend ``Board of Contract
Appeals.'' The Seal shall be the means of authentication of all
records, notices, orders, dismissals, opinions, subpoenas, and
certificates issued by the Board.
6101.40 Forms [Rule 140].
The forms contained in the appendix to this part and part 6102 are
sufficient under these parts and are intended to indicate the
simplicity and brevity of statement which the rules in those parts
contemplate. The subpoena form is a required form, and it may not be
altered.
Appendix to Part 6101--Form Nos. 1-5
Form 1--Notice of Appeal, GSA Form 2465
Form 2--Notice of Appearance
Form 3--Subpoena, GSA Form 9534
Form 4--Government Certificate of Finality
Form 5--Appellant/Applicant Certificate of Finality
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2. Part 6102 is added to read as follows:
PART 6102--RULES OF PROCEDURE OF THE GENERAL SERVICES
ADMINISTRATION BOARD OF CONTRACT APPEALS (EXPEDITED PROCEEDINGS)
Sec.
6102.1 Variation from standard proceedings [Rule 201].
6102.2 Small claims procedure [Rule 202].
6102.3 Accelerated procedure [Rule 203].
6102.4 Alternative dispute resolution [Rule 204].
Authority: 41 U.S.C. 601-613.
6102.1 Variation from standard proceedings [Rule 201].
The ultimate purpose of any Board proceeding is to resolve fairly
and expeditiously any dispute properly before the Board. When, during
the normal course of a Board proceeding, the parties agree that a
change in established procedure will promote this end, the Board will
make that change if it is deemed to be feasible and in the best
interest of the parties, the Board, and the resolution of contract
disputes. The following are examples of these changes:
(a) Establishing an expedited schedule of proceedings, such as by
limiting the times provided in part 6101 of this chapter for various
filings, to facilitate a prompt resolution of the case;
(b) Developing a record and rendering a decision on the issue of
entitlement prior to reviewing the issue of quantum in a party's claim;
(c) Developing a record and rendering a decision on any legal or
factual issue in advance of others when that issue is deemed critical
to resolving the case or effecting a settlement of any items in
dispute; and
(d) Developing a record regarding relevant facts through an on-the-
record round-table discussion with sworn witnesses, counsel, and the
panel chairman rather than through formal direct and cross-examination
of each of these same witnesses. This discussion shall be controlled by
the panel chairman. It may be conducted, for example, through the
presentation of narrative statements of witnesses or on an issue by
issue basis. The panel chairman may also request that the parties'
counsel or representatives present opening and/or closing statements in
lieu of written briefs.
6102.2 Small claims procedure [Rule 202].
(a) Election.--(1) The small claims procedure is available solely
at the appellant's election, and only when there is a monetary amount
in dispute and that amount is $50,000 or less. Such election shall be
made no later than 30 calendar days after the appellant's receipt of
the agency answer, unless the panel chairman enlarges the time for good
cause shown.
(2) At the request of the Government, or on its own initiative, the
Board may determine whether the amount in dispute is greater than
$50,000, such that the election is inappropriate. The Government shall
raise any objection to the election no later than 10 working days after
receipt of a notice of election.
(b) Decision. The panel chairman may issue a decision, which may be
in summary form, orally or in writing. A decision which is issued
orally shall be reduced to writing; however, such a decision takes
effect at the time it is rendered, prior to being reduced to writing. A
decision shall be final and conclusive and shall not be set aside
except in case of fraud. A decision shall have no value as precedent.
(c) Procedure. Promptly after receipt of the appellant's election
of the small claims procedure, the Board shall establish a schedule of
proceedings that will allow for the timely resolution of the appeal.
Pleadings, discovery, and other prehearing activities may be restricted
or eliminated.
(d) Time of decision. Whenever possible, the panel chairman shall
resolve an appeal under this procedure within 120 calendar days from
the Board's receipt of the election. The time for processing an appeal
under this procedure may be extended if the appellant has not adhered
to the established schedule. Either party's failure to abide by the
Board's schedule may result in the Board drawing evidentiary inference
adverse to the party at fault.
6102.3 Accelerated procedure [Rule 203].
(a) Election.--(1) The accelerated procedure is available solely at
the appellant's election, and only when there is a monetary amount in
dispute and that amount is $100,000 or less. Such election shall be
made no later than 30 calendar days after the appellant's receipt of
the agency answer, unless the panel chairman enlarges the time for good
cause shown.
(2) At the request of the Government, or on its own initiative, the
Board may determine whether the amount in dispute is greater than
$100,000, such that the election is inappropriate. The Government shall
raise any objection to the election no later than 10 working days after
receipt of a notice of election.
(b) Decision. Each decision shall be rendered by the panel chairman
with the concurrence of one of the other judges assigned to the panel;
in the event the two judges disagree, the third judge assigned to the
panel will participate in the decision.
(c) Procedure. Promptly after receipt of the appellant's election
of the accelerated procedure, the Board shall establish a schedule of
proceedings that will allow for the timely resolution of the appeal.
Pleadings may be simplified, and discovery and other prehearing
activities may be restricted or eliminated.
(d) Time of decision. Whenever possible, the panel chairman shall
resolve an appeal under this procedure within 180 calendar days from
the Board's receipt of the election. The time for processing an appeal
under this procedure may be extended if the appellant has not adhered
to the established schedule. Either party's failure to abide by the
Board's schedule may result in the Board drawing evidentiary inferences
adverse to the party at fault.
6102.4 Alternative dispute resolution [Rule 204].
(a) Availability of ADR procedures. The Board will make its
services available for ADR proceedings in contract and procurement
matters involving any agency, regardless of whether the agency uses the
Board to resolve its Contract Disputes Act appeals.
(1) ADR subsequent to docketing of case at the Board. Parties are
encouraged to consider the feasibility of using ADR as soon as their
case is docketed. If, however, at any time during the course of a Board
proceeding, the parties agree that their dispute may be resolved
through the use of an ADR technique, the panel chairman may suspend
proceedings for a reasonable period of time while the parties and the
Board attempt to resolve the dispute in this manner. The use of an ADR
technique will not toll any relevant statutory time limit for deciding
the case.
(2) Other ADR. Upon request, the Board will make a Board Neutral
available for an ADR proceeding involving any agency in any contract or
procurement matter at any stage of a procurement, even if no
contracting officer decision has been issued or is contemplated. To
initiate an ADR proceeding, the parties shall jointly request the ADR
in writing and direct such request to the Office of the Clerk of the
Board. For agencies other than GSA, the Board will provide ADR services
on a reimbursable basis.
(b) Conduct of ADR.--(1) Selection of Board Neutral. If ADR is
agreed to by
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the parties and the Board, the parties may request the appointment of
one or more Board judges to act as a Board Neutral or Neutrals. The
parties may request that the Board's chairman appoint a particular
judge or judges as the Board Neutral, or ask the Board's chairman to
appoint any judge or judges as the Neutral. If, when ADR has been
requested for a case that has already been docketed with the Board, as
provided in paragraph (a)(1) of this section, the parties may request
that the panel chairman serve as the Board Neutral. In such a
situation, if the ADR is unsuccessful,
(i) If the ADR has involved mediation, the panel chairman shall not
retain the case, and
(ii) If the ADR has not involved mediation, the panel chairman,
after considering the parties' views, shall decide whether to retain
the case.
(2) Retention and confidentiality of materials. The Board will
review materials submitted by a party for an ADR proceeding, but will
not retain such materials after the proceeding is concluded or
otherwise terminated. Material created by a party for the purpose of an
ADR proceeding is to be used solely for that proceeding unless the
parties agree otherwise. Parties may request a protective order in an
ADR proceeding in the manner provided in 6101.12(h).
(c) Types of ADR. ADR is not defined by any single procedure or set
of procedures. The Board will consider the use of any technique
proposed by the parties which is deemed to be fair, reasonable, and in
the best interest of the parties, the Board, and the resolution of
contract disputes. The following are examples of available techniques:
(1) Mediation. The Board Neutral, as mediator, aids the parties in
settling their case. The mediator engages in ex parte discussions with
the parties and facilitates the transmission of settlement offers.
Although not authorized to render a decision in the dispute, the
mediator may discuss with the parties, on a confidential basis, the
strengths and weaknesses of their positions. No judge who has
participated in discussions about the mediation will participate in a
Board decision of the case if the ADR is unsuccessful.
(2) Neutral case evaluation. The parties agree to present to the
Board Neutral information on which the Board Neutral bases a non-
binding, oral, advisory opinion. The manner in which the information is
presented will vary from case to case depending upon the agreement of
the parties. Presentations generally fall between two extremes, ranging
from an informal proffer of evidence together with limited argument
from the parties to a more formal presentation of oral and documentary
evidence and argument from counsel, such as through a mini-trial.
(3) Binding decision. One or more Board judges render a decision
which, by prior agreement of the parties, is to be binding and non-
appealable. As in the non-binding evaluation of a case by a Board
Neutral, the manner in which information is presented for a binding
decision may vary depending on the circumstances of the particular
case.
(4) Other procedures. In addition to other ADR techniques,
including modifications to those listed in this section, as agreed to
by the Board and parties, the parties may use ADR techniques that do
not require direct Board involvement.
(5) Selective use of standard procedures. Parties considering the
use of ADR are encouraged to adapt for their purposes any provisions in
part 6101 which they believe will be useful. This includes but is not
limited to provisions concerning record submittals, pretrial discovery
procedures, and hearings.
Dated: September 26, 1996.
Robert W. Parker,
Vice Chairman.
[FR Doc. 96-25121 Filed 10-4-96; 8:45 am]
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