Performance-Based Payments (DFARS Case 2019-D002)
| Published date | 30 April 2019 |
| Citation | 84 FR 18221 |
| Record Number | 2019-08487 |
| Section | Proposed rules |
| Court | Defense Acquisition Regulations System |
Federal Register, Volume 84 Issue 83 (Tuesday, April 30, 2019)
[Federal Register Volume 84, Number 83 (Tuesday, April 30, 2019)]
[Proposed Rules]
[Pages 18221-18225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08487]
[[Page 18221]]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 204, 232, and 252
[Docket DARS-2019-0019]
RIN 0750-AK37
Performance-Based Payments (DFARS Case 2019-D002)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Proposed rule.
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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition
Regulation Supplement (DFARS) to implement a section of the National
Defense Authorization Act for Fiscal Year 2017, which amends 10 U.S.C.
2307 to address the use of performance-based payments.
DATES: Comment Date: Comments on the proposed rule should be submitted
in writing to the address shown below on or before July 1, 2019, to be
considered in the formation of a final rule.
ADDRESSES: Submission of Comments: Submit comments identified by DFARS
Case 2019-D002, using any of the following methods:
[cir] Federal eRulemaking Portal: http://www.regulations.gov.
Search for ``DFARS Case 2019-D002.'' Select ``Comment Now'' and follow
the instructions provided to submit a comment. Please include ``DFARS
Case 2019-D002'' on any attached documents.
[cir] Email: [email protected]. Include DFARS Case 2019-D002 in
the subject line of the message.
[cir] Fax: 571-372-6094.
[cir] Mail: Defense Acquisition Regulations System, Attn: Ms. Amy
G. Williams, OUSD(A&S)DPC/DARS, Room 3B941, 3060 Defense Pentagon,
Washington, DC 20301-3060.
Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To
confirm receipt of your comment(s), please check www.regulations.gov,
approximately two to three days after submission to verify posting
(except allow 30 days for posting of comments submitted by mail).
FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, DPC/DARS, at 571-
372-6106.
SUPPLEMENTARY INFORMATION:
I. Background
DoD is proposing to amend DFARS subpart 232.10, Performance-Based
Payments; amend the clauses at DFARS 252.232-7012, Performance-Based
Payments--Whole Contract Basis, and DFARS 252.232-7013, Performance-
Based Payments--Deliverable Item Basis; and add a new provision at
252.232-70XX, Performance-Based Payments--Representation, to implement
section 831 the National Defense Authorization Act (NDAA) for Fiscal
Year (FY) 2017, which amends 10 U.S.C. 2307 to address the use of
performance-based payments.
A proposed rule was published in the Federal Register on August 23,
2018 (83 FR 42831), under DFARS Case 2017-D019, Performance-Based
Payments and Progress Payments. That rule proposed to implement section
831 and also revise progress payments and performance-based payments
policies and procedures for DoD contracts. That proposed rule was
withdrawn by a notice published in the Federal Register on October 4,
2018 (83 FR 47867). This rule addresses only the amendments to the
DFARS required by section 831.
II. Discussion and Analysis
A. Preference for Performance-Based Payments
Performance-based payments are a method of contract financing that
may be available under fixed-price contracts, except for contracts
awarded using Sealed Bidding procedures. Performance-based payments
differ from the more traditional progress payments based on costs
because these contract financing payments are made on the basis of the
contractor's achievement of objective, quantifiably measurable events,
results, or accomplishments that are defined and valued in the contract
prior to performance. It is a preferred method of contracting as it may
reduce oversight and compliance costs to the Government. It also has
benefits for contractors as it should help cash flow, reduce the cost
of oversight and compliance, and allows the management team to focus on
technical and schedule progress.
Section 831 amends 10 U.S.C. 2307(b)(1) by requiring, whenever
practicable, that payment under the authority of 10 U.S.C. 2307(a)
shall be made using performance-based payments. Federal Acquisition
Regulation (FAR) 32.1001(a) already states that performance-based
payments are the preferred Government financing method when the
contracting officer finds them practical, and the contractor agrees to
their use.
B. Relationship of Performance-Based Payments to Costs Incurred
DFARS case 2011-D045, published in the Federal Register on March
31, 2014 (77 FR 4638), mandated that cumulative performance-based
payments shall not exceed the cumulative cost incurred on the contract
or delivery item, whichever is applicable, at any point during contract
performance. That requirement was supported by the statement at FAR
32.1004(b)(2)(i) that contract financing should only be provided to the
extent actually needed for contract performance and the statement at
FAR 32.1004(b)(3)(ii) that the contracting officer must ensure that
performance-based payments ``are not expected to result in an
unreasonably low or negative level of contractor investment in the
contract.''
Section 831 amended 10 U.S.C. 2307 by adding paragraph (b)(2),
which provides that performance-based payments shall not be conditioned
upon costs incurred in contract performance but only on the achievement
of negotiated performance outcomes. Therefore, this rule proposes to
remove the restrictions at DFARS 232.1001(a) and paragraph (b)(i) of
the clauses at DFARS 252.232-7012 and 252.232-7013 that limit
performance-based payments to amounts not greater than costs incurred
up to the time of payment. However, the requirement for contractors to
report costs incurred when requesting performance-based payments is
retained, in order to have the data necessary for negotiation of
performance-based payments on future contracts.
Section 831 also added paragraph (b)(3) to 10 U.S.C. 2307, which
addresses the eligibility for performance-based payments of
nontraditional defense contractors and other private sector companies.
This has been added to the policy at DFARS 232.1001.
10 U.S.C. 2307(b)(4), as added by section 831, requires contractors
to be in compliance with Generally Accepted Accounting Principles in
order to receive performance-based payments, with no requirement for a
Government-unique accounting systems or practices as a prerequisite to
receive performance-based payments. This requirement has been
incorporated at DFARS 232.1003-70 and the clauses at DFARS 252.232-7012
and 252.232-7013. This rule also proposes a new representation by each
offeror, if performance-based payments are anticipated, as to whether
the output of its accounting system is in compliance with Generally
Accepted
[[Page 18222]]
Accounting Principles, as evidenced by audited financial statements.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold and for Commercial Items, Including Commercially Available
Off-the-Shelf Items
This rule proposes to amend the clauses at DFARS 252.232-7012 and
252.232-7013. These clauses do not apply to contracts at or below the
simplified acquisition threshold or for the acquisition of commercial
items. In accordance with 10 U.S.C. 2307(f) and 41 U.S.C. 4505, FAR
32.201 provides that payment for commercial items may be made under
such terms and conditions as the agency head determines are appropriate
or customary in the commercial marketplace and are in the best interest
of the United States. Furthermore, FAR 32.202-1 states that Government
financing of commercial purchases is expected to be different from that
used for noncommercial purchases. While the contracting officer may
adapt techniques and procedures from the noncommercial subparts for use
in implementing commercial contract financing arrangements, the
contracting officer must have a full understanding of effects of the
differing contract environments and of what is needed to protect the
interests of the Government in commercial contract financing.
IV. Expected Cost Impact
This rule proposes to amend the DFARS to implement changes to
performance-based payment policies for DoD contracts by amending the
policy on performance-based payments at DFARS 232.1001 and amending the
clauses at DFARS 252.232-7012, Performance-Based Payments--Whole
Contract Basis, and 252.232-7013, Performance-Based Payments--
Deliverable Item Basis.
This rule may benefit contractors who receive contract financing
from the Government in the form of performance-based payments.
Performance-based payments do not apply to--
Payments under cost-reimbursement line-items;
Contracts awarded under the authority of FAR part 12 or
part 13;
Contracts for architect-engineer services or construction,
or for shipbuilding or ship repair, when the contract provides for
progress payments based upon a percentage or stage of completion.
Performance-based payments are tied to the achievement of specific,
measurable events or accomplishments that are defined and valued in
advance by the parties to the contract. Total performance-based
payments cannot exceed 90 percent of the contract price.
This rulemaking proposes to remove the DFARS restrictions that
limit performance-based payments to amounts not greater than costs
incurred up to the time of payment.
If performance-based payments to the contractor based on the
negotiated value of completed milestone events are allowed to exceed
the total costs incurred up to the time of payment, the cost to the
contractor of short-term borrowing will decrease and the cost to the
Government of borrowing will increase.
In addition, there is a minimal cost to offerors and the Government
related to a new provision at DFARS 252.232-70XX, Performance-Based
Payments--Representation, that requires each offeror responding to a
solicitation that may result in a contract providing performance-based
financing to represent whether the output of the offeror's accounting
system is in compliance with Generally Accepted Accounting Principles,
as evidenced by audited financial statements.
DoD has performed a regulatory cost analysis on this rule. The
following is a summary of the estimated public cost savings and
Government costs in millions calculated in perpetuity in 2016 dollars
at a 7-percent discount rate:
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Summary Public Government Total
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Present Value................................................... -$53.971 $27.338 -$26.633
Annualized Costs................................................ -3.778 1.914 -1.864
Annualized Value Costs (as of 2016 if Year 1 is 2019)........... -3.084 1.562 -1.522
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To access the complete Regulatory Cost Analysis, go to the Federal
eRulmaking Portal at www.regulations.gov, search for ``DFARS Case 2019-
D002,'' click ``Open Docket,'' and view ``Supporting Documents.''
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, dated September 30, 1993. This rule is not a major rule under 5
U.S.C. 804.
VI. Executive Order 13771
This rule is expected to be an E.O. 13771, Reducing Regulation and
Controlling Regulatory Costs, deregulatory action. The total annualized
value of the cost savings is $1,521,836. Details on the estimated cost
savings can be found in section IV. of this preamble.
VII. Regulatory Flexibility Act
DoD expects that this proposed rule may 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. Therefore, an
initial regulatory flexibility analysis has been prepared and is
summarized as follows:
This rule proposes to implement section 831 the National Defense
Authorization Act (NDAA) for Fiscal Year (FY) 2017, which amends 10
U.S.C. 2307 to address the use of performance-based payments.
The primary objective of this rule is to remove the restrictions at
DFARS 232.1001(a) and the clauses at 252.232-7012(b)(i) and 252.232-
7013(b)(i) that limit performance-based payments to amounts not greater
than costs incurred up to the time of payment, as required 10 U.S.C.
2307.
This rule will apply to approximately 50 small entities per year
that submit offers and are awarded contracts that provide performance-
based contract payments from DoD, as well as an additional 5 offerors
that submit offers in response to solicitations that may result in
contracts that provide performance-based payments but do not receive an
award.
[[Page 18223]]
This rule adds a reporting requirement that will require an entry
in the annual representations and certifications with regard to whether
the output of the offeror's accounting system is in compliance with
Generally Accepted Accounting Principles, as evidenced by audited
financial statements. DoD estimates that the skill necessary for this
requirement is at the journeyman level and that each entry will require
an average of 6 minutes.
The rule does not duplicate, overlap, or conflict with any other
Federal rules.
This rule will not have a significant economic impact on small
entities. The burden imposed by the new representation is minimal. The
net impact is likely to benefit small entities, to the extent that the
entity may receive an increase in cash flow if the negotiated value of
performance-based payment events exceeds the actual costs incurred at
the time of event completion. There are no significant alternatives
consistent with the stated objectives of the statute.
DoD invites comments from small business concerns and other
interested parties on the expected impact of this rule on small
entities.
DoD will also consider comments from small entities concerning the
existing regulations in subparts affected by this rule in accordance
with 5 U.S.C. 610. Interested parties must submit such comments
separately and should cite 5 U.S.C. 610 (DFARS Case 2018-D043), in
correspondence.
XIII. Paperwork Reduction Act
This rule affects the information collection requirements at DFARS
subpart 232.10 (and associated clauses at DFARS 252.232-7012 and
252.232-7013, currently approved under OMB Control Number 0704-0359,
DFARS Part 232, Contract Financing. The impact, however, is negligible,
because only the last three lines of the table are deleted, which do
not impose the predominance of the burden. This rule also adds a new
information collection requirement that requires the approval of the
Office of Management and Budget under the Paperwork Reduction Act (44
U.S.C. chapter 35). Accordingly, DoD has submitted a request for
approval of a new information collection requirement concerning the
provision at 252.232-70XX, Performance-Based Payments--Representation
to the Office of Management and Budget.
A. Public reporting burden for this collection of information is
estimated to average 0.1 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
The annual reporting burden estimated as follows:
Respondents: 144.
Responses per respondent: 1.
Total annual responses: 144.
Preparation hours per response: 0.1 hours.
Total response Burden Hours: 14.4.
B. Request for Comments Regarding Paperwork Burden.
Written comments and recommendations on the proposed information
collection, including suggestions for reducing this burden, should be
sent to Ms. Jasmeet Seehra at the Office of Management and Budget, Desk
Officer for DoD, Room 10236, New Executive Office Building, Washington,
DC 20503, or email [email protected], with a copy to the
Defense Acquisition Regulations System, Attn: Ms. Amy G. Williams,
OUSD(A&S)DPC/DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC
20301-3060. Comments can be received from 30 to 60 days after the date
of this notice, but comments to OMB will be most useful if received by
OMB within 30 days after the date of this notice.
Public comments are particularly invited on: Whether this
collection of information is necessary for the proper performance of
functions of the DFARS, and will have practical utility; whether our
estimate of the public burden of this collection of information is
accurate, and based on valid assumptions and methodology; ways to
enhance the quality, utility, and clarity of the information to be
collected; and ways in which we can minimize the burden of the
collection of information on those who are to respond, through the use
of appropriate technological collection techniques or other forms of
information technology.
To request more information on this proposed information collection
or to obtain a copy of the proposal and associated collection
instruments, please write to the Defense Acquisition Regulations
System, Attn: Ms. Amy G. Williams, OUSD(A&S)DPC/DARS, Room 3B941, 3060
Defense Pentagon, Washington, DC 20301-3060, or email
[email protected]. Include DFARS Case 2019-D002 in the subject line of
the message.
List of Subjects in 48 CFR Parts 204, 232, and 252
Government procurement.
Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.
Therefore, 48 CFR parts 204, 232, and 252 are proposed to be
amended as follows:
0
1. The authority citation for 48 CFR parts 204, 232, and 252 continues
to read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
PART 204--ADMINISTRATIVE MATTERS
0
2. Amend section 204.1202 by--
0
a. Revising the section heading;
0
b. Redesignating paragraph (2)(xiii) as (2)(xiv); and
0
c. Adding a new paragraph (2)(xiii)
The revision and addition read as follows:
204.1202 Solicitation provision and contract clause.
* * * * *
(2) * * *
(xiii) 252.232-70XX, Performance-Based Payments--Representation.
* * * * *
PART 232--CONTRACT FINANCING
0
3. In section 232.1001, revise paragraph (a) to read as follows:
232.1001 Policy.
(a) In accordance with 10 U.S.C. 2307(b)(2), performance-based
payments shall not be conditioned upon costs incurred in contract
performance, but on the achievement of performance outcomes. Private
sector companies, including nontraditional defense contractors, are
eligible for performance-based payments, consistent with best
commercial practices.
* * * * *
0
4. Revise section 232.1003-70 to read as follows:
232.1003-70 Criteria for use.
In accordance with 10 U.S.C. 2307(b), the output of a contractor's
accounting system shall be in compliance with Generally Accepted
Accounting Principles, as evidenced by audited financial statements, in
order to receive performance-based payments. 10 U.S.C. 2307 does not
grant the Defense Contract Audit Agency the authority to audit
compliance with Generally Accepted Accounting Principles.
0
5. Amend section 232.1005-70 by--
0
a. Designating the introductory text as paragraph (a);
[[Page 18224]]
0
b. Redesignating paragraphs (a) and (b) as paragraphs (a)(1) and (2),
respectively; and
0
c. Adding a new paragraph (b).
The addition reads as follows:
232.1003-70 Criteria for use.
* * * * *
(b) Use the provision at 252.232-70XX, Performance-Based Payments--
Representation, in solicitations where the resulting contract may
include performance-based payments.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
6. Amend section 252.204-7007 by--
0
a. Removing the provision date of ``(APR 2018)'' and adding ``(DATE)''
in its place; and
0
b. Adding paragraph (d)(2)(vi) to read as follows:
252.204-7007 Alternate A, Annual Representations and Certifications.
* * * * *
(d) * * *
(2) * * *
_(vi) 252.232-70XX, Performance-Based Payments--Representation.
* * * * *
0
7. Amend section 252.232-7012 by--
0
a. In the clause introductory text, removing ``232.1005-70(a)'' and
adding ``232.1005-70(a)(1)'' in its place;
0
b. Removing the clause date of ``(MAR 2014)'' and adding ``(DATE)'' in
its place;
0
c. Redesignating paragraphs (b)(i) through (iii) as (c)(1) through (3),
respectively;
0
d. Adding a new paragraph (b); and
0
e. Revising paragraph (c)(1).
The addition and revision reads as follows:
252.232-7012 Performance-Based Payments-Whole-Contract Basis.
* * * * *
(b) In accordance with 10 U.S.C. 2307(b), the output of the
Contractor's accounting system shall be in compliance with Generally
Accepted Accounting Principles, as evidenced by audited financial
statements, in order to receive performance-based payments.
(c)(1) The Contractor shall, in addition to providing the
information required by FAR 52.232-32, submit supporting information
for all payment requests using the following format:
[GRAPHIC] [TIFF OMITTED] TP30AP19.000
* * * * *
0
8. Amend section 252.232-7013 by--
0
a. In the clause introductory text, removing ``232.1005-70(b)'' and
adding ``232.1005-70(a)(2)'' in its place;
0
b. Removing the clause date of (APR 2014)'' and adding ``(DATE)'' in
its place;
0
c. Redesignating paragraphs (b)(i) through (iii) as (c)(1) through (3),
respectively;
0
d. Adding a new paragraph (b); and
[[Page 18225]]
0
e. Revising newly redesignated paragraph (c)(1).
The addition and revision read as follows:
252.232-7013 Performance-Based Payments--Deliverable-Item Basis.
* * * * *
(b) In accordance with 10 U.S.C. 2307(b), the output of the
Contractor's accounting system shall be in compliance with Generally
Accepted Accounting Principles, as evidenced by audited financial
statements, in order to receive performance-based payments.
(c)(1) The Contractor shall, in addition to providing the
information required by FAR 52.232-32, submit supporting information
for all payment requests using the following format:
[GRAPHIC] [TIFF OMITTED] TP30AP19.001
* * * * *
0
9. Add section 252.232-70XX to read as follows:
252.232-70XX Performance-Based Payments--Representation
As prescribed in 232.1005-70(b), use the following provision:
Performance-Based Payments-Representation (DATE)
(a) In accordance with 10 U.S.C. 2307(b), the output of a
contractor's accounting system shall be in compliance with Generally
Accepted Accounting Principles in order to receive performance-based
payments.
(b) The Offeror represents that the output of its accounting
system is [ ] is not [ ] in compliance with Generally Accepted
Accounting Principles, as evidenced by audited financial statements.
(End of Provision)
[FR Doc. 2019-08487 Filed 4-29-19; 8:45 am]
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