Federal Acquisition Regulation; Award-Fee Language Revision, 60261-60263 [2010-24161]
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Federal Register / Vol. 75, No. 188 / Wednesday, September 29, 2010 / Rules and Regulations
This final rule adopts the interim rule
with one change for clarification. This
clarification entails the addition of the
phrase ‘‘in the aggregate’’ to FAR
16.401(e)(2), Table 16–1, and FAR
16.401(e)(3)(v), to make it clear that the
objective is to consider the contractor’s
cost, schedule, and technical
performance in the aggregate when
performing award-fee assessments.
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Part 16
[FAC 2005–46; FAR Case 2008–008; Item
IV; Docket 2009–0036, Sequence 1]
RIN 9000–AL42
Federal Acquisition Regulation;
Award-Fee Language Revision
Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Final rule.
AGENCIES:
The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) have adopted as final, with
changes, the interim rule amending the
Federal Acquisition Regulation (FAR) to
implement section 814 of the John
Warner National Defense Authorization
Act for Fiscal Year 2007 (Pub. L. 109–
364), section 867 of the Duncan Hunter
National Defense Authorization Act for
Fiscal Year 2009 (Pub. L. 110–417), and
the Office of Federal Procurement
Policy guidance memorandum dated
December 4, 2007 entitled, Appropriate
Use of Incentive Contracts.
DATES: Effective Date: October 29, 2010.
FOR FURTHER INFORMATION CONTACT: For
clarification of content, contact Mr.
Edward Chambers, Procurement
Analyst, at 202–501–3221. For
information pertaining to status or
publication schedules, contact the
Regulatory Secretariat at (202) 501–
4755. Please cite FAC 2005–46, FAR
Case 2008–008.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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A. Background
This rule implements the provisions
of section 814 of the John Warner
National Defense Authorization Act for
Fiscal Year 2007 (Pub. L. 109–364),
section 867 of the Duncan Hunter
National Defense Authorization Act for
Fiscal Year 2009 (Pub. L. 110–417), and
the Office of Federal Procurement
Policy guidance memorandum dated
December 4, 2007, entitled ‘‘Appropriate
Use of Incentive Contracts,’’ by
amending and/or integrating where
appropriate, FAR part 7, Acquisition
Planning, and FAR part 16, Contract
Types, to improve agency use and
decision making when using incentive
contracts.
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B. Discussion and Analysis
An interim rule with request for
comments was published in the Federal
Register on October 14, 2009 (74 FR
52856). The FAR Secretariat received
seven responses to the interim rule.
These responses included a total of 22
comments on 15 issues. Each issue is
discussed in the following sections.
1. Change in DFARS Rule Required
Comment: One respondent wrote that
this interim rule, without concurrent
change to DFARS, particularly in
allowing higher fixed fee, negates the
value of this rule change.
Response: DoD is considering a
possible DFARS case to address this
concern. The Councils further note that
the rationale for allowing a higher fixed
fee is not clear in this comment. In
reading the comment in total, a
reasonable inference is that the
respondent meant to address base fee
and not fixed fee.
2. Clarification Regarding Award-Fee
Rating Definitions
Comment: Two respondents
commented on the need to clarify
whether an unsatisfactory evaluation in
one category (e.g., cost) requires an
overall unsatisfactory rating and thus no
award fee in any category (e.g., schedule
and technical) for the evaluation period.
Response: The Council’s intent with
the use of ‘‘overall cost, schedule, and
technical performance in the aggregate’’
is to avoid the situation where, for
example, contractors would receive no
award fee in an evaluation period if they
were rated below satisfactory on one of
the criteria (e.g., in schedule
performance) and above satisfactory in
other criteria (e.g., technical and cost
performance). The Councils believe that
this would not be equitable. In such a
situation, the contractor could receive a
reduced percentage of the award-fee
amount to account for the below
satisfactory schedule performance, but
they would not receive 100 percent of
the award-fee amount, nor would they
receive zero award fee for that
evaluation period. The final rule adds
clarifying language of ‘‘in the aggregate’’
to FAR 16.401(e)(2), Table 16–1, and
FAR 16.401(e)(3)(v), to make it clear that
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60261
the objective is to consider overall cost,
schedule, and technical performance in
performing award-fee assessments.
3. Requested Clarification as to Whether
Firm Fixed Price Award-Fee Contract Is
an Incentive Fee Type Contract
Comment: One respondent
recommended that the FAR be clarified
as to whether a firm-fixed-price awardfee contract is an incentive-type contract
citing that the language in FAR 16.404,
FAR 16.202–1, and FAR 16.401(a)
appears to be contradictory.
Response: The Councils take no
position on this recommendation
because it is outside the scope of this
case, which was limited to the
implementation of the section 814 of the
John Warner National Defense
Authorization Act for Fiscal Year 2007
(Pub. L. 109–364), section 867 of the
Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009
(Pub. L. 110–417), and the Office of
Federal Procurement Policy guidance
memorandum dated December 4, 2007,
entitled ‘‘Appropriate Use of Incentive
Contracts.’’
4. Permit Use of Rollover Within Certain
Parameters
Comment: Three respondents
recommended that the language
prohibiting the use of rollover be
revised to allow rollover under certain
circumstances and at the discretion of
the head of the contracting activity.
Respondents contend that rollover can
be an effective incentive tool if used
properly.
Response: The Councils disagree with
the respondents. Award fee is structured
to incentivize contractors to perform
throughout the contract. Therefore,
rollover of unearned award fee provides
a disincentive for contractors to perform
throughout the entire period of
performance. If a contractor did not
perform adequately during an award-fee
rating period and was rated
appropriately and then allowed to
recover that unearned award fee in a
subsequent period, the incentive for the
contractor to perform consistently
throughout the entire contract would be
reduced.
5. Interim Rule Presumes Award-Fee
Determinations Represent Only
Subjective Measures and Not Objective
Measures as Well
Comment: One respondent
recommended that the language in FAR
16.401(e)(1)(i) be revised to address the
concept that in addition to subjective
award-fee performance measures that
we also include the use of objective
performance measures.
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Federal Register / Vol. 75, No. 188 / Wednesday, September 29, 2010 / Rules and Regulations
Response: The Councils disagree with
this recommendation. A key tenet in
determining if an award-fee incentive is
suitable for an acquisition is whether
one can devise predetermined objective
incentives applicable to cost, schedule,
and technical performance. If one can,
then an award-fee incentive is not
appropriate and an incentive
arrangement based on predetermined
formula-type incentives should be
utilized instead.
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6. Eliminate Risk and Cost-Benefit
Analysis
Comment: Two respondents
recommended deleting the requirement
to perform a risk and cost-benefit
analysis stating that the content and
methodology for this analysis is not
specified.
Response: The Councils disagree with
this recommendation. The FAR
currently requires that no award-fee
contract shall be awarded unless the
contract amount, performance period,
and expected benefits are sufficient to
warrant the additional administrative
effort. This requirement was reinforced
in the Office of Federal Procurement
Policy guidance memorandum dated
December 4, 2007, entitled ‘‘Appropriate
Use of Incentive Contracts.’’ The
Councils believe it is within the
purview of each Federal agency to
provide supplemental guidance on how
to perform this analysis.
7. Contractor Should Be Allowed To
Earn Award Fee Even if Performance Is
Less Than Satisfactory
Comment: One respondent wrote that
under an award-fee contract, even when
performance is less than satisfactory,
there should be some level of fee
earnings but potentially at a
significantly decreased rate of earnings
since the Government received some
benefit from the work accomplished.
The respondent maintained that even
under a fixed-fee contract, a contractor
can still earn some amount of fee, even
when performance is less than
satisfactory. The respondent
recommended that Table 16–1 include
an additional rating category, entitled
‘‘less than satisfactory,’’ with a
percentage range from 2 percent–48
percent as well as changing ‘‘is below
satisfactory’’ in FAR 16.401(e)(3)(v) to
‘‘fail to meet the basic requirements of
the contract’’.
Response: The Councils disagree with
this recommendation. Section 814 of the
John Warner National Defense
Authorization Act for Fiscal Year 2007
(Pub. L. 109–364) and section 867 of the
Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009
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(Pub. L. 110–417) were very clear that
the FAR ‘‘shall ensure that no award fee
may be paid for contractor performance
that is judged to be below satisfactory
performance’’. The Councils note that
the regulations do allow the use of a
base fee in an award-fee incentive
arrangement.
8. Award-Fee Determination Being
Unilateral Decision
Comment: One respondent
recommended that the language in FAR
16.401(e)(2) regarding the award-fee
determination being a unilateral
decision by the Government be struck
since the Courts have determined that
such decisions are reviewable under the
Contract Disputes Act.
Response: The Councils agree that
award-fee determinations are reviewable
under the Contract Disputes Act but the
language in this section does not
address that issue. This language in FAR
16.401(e)(2) was included to point out
that while the award-fee determination
may be subject to the Contract Disputes
Act, it is still a unilateral decision by
the Government.
9. Consider Different Language Relative
to Adjectival Rating Descriptions
Comment: One respondent
recommended replacing the word
‘‘supplement’’ with ‘‘tailor’’ in the FAR
16.401(e)(3)(iv) sentence, contracting
officers may supplement the adjectival
rating description.
Response: The Councils believe that
these descriptions cannot be tailored but
can be supplemented to fit the specific
needs of the acquisition based upon the
requirements in section 814 of the John
Warner National Defense Authorization
Act for Fiscal Year 2007 (Pub. L. 109–
364) and section 867 of the Duncan
Hunter National Defense Authorization
Act for Fiscal Year 2009 (Pub. L. 110–
417), which stated: The FAR ‘‘shall
establish standards for determining the
percentage of the available award fee, if
any, which contractors should be paid
for performance * * * ’’.
10. Clarification Regarding Adjectival
Descriptions
Comment: One respondent wrote that
the imprecise adjective modifiers in
Table 16–1 could be problematic since
what distinguishes ‘‘almost all of’’ from
‘‘many’’ or what establishes a
‘‘significant’’ criterion for ‘‘insignificant’’
criterion. A second respondent
recommended revising Table 16–1 to
delete the requirement to ‘‘exceed’’
significant award-fee criteria to earn a
better than satisfactory rating.
Response: The Councils disagree and
maintain that the term ‘‘exceeds’’ is a
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reasonable term to differentiate
contractor performance between the
various ratings. In addition, the
adjectives used in the rating table
adequately distinguish between the
different rating levels and provide the
contracting officer with the flexibility to
supplement the descriptions as
appropriate.
11. Published as Interim Rule
Comment: One respondent wrote that
they were disappointed that this rule
change was published as an interim rule
and not a proposed rule and
recommended that the Councils publish
rules of this magnitude as proposed
rules in the future.
Response: The Councils issued a
statement of urgency which was
published in the Federal Register notice
with this interim rule.
12. Stringent Adjectival Ratings
Comment: One respondent wrote that
since Table 16–1 adjectival rating
descriptions and associated percentages
are so stringent, the final rule should
specify that the available award-fee pool
must be at least 20 percent of estimated
costs for complex development
contracts.
Response: The Councils do not
believe that a pre-established award-fee
floor is appropriate since the contracting
officer negotiates a fair and reasonable
award-fee pool for each acquisition
based upon the effort and risk
associated with that acquisition.
13. Consider Different Rating Definitions
Comment: One respondent wrote that
the final rule should include the rating
definitions from the Office of the Under
Secretary of Defense/Acquisition,
Technology, and Logistics/Defense
Procurement and Acquisition Policy
memorandum dated April 24, 2007,
since these ratings are based on meeting
a higher percentage of award-fee criteria
in order to earn higher ratings.
Response: The Councils disagree. The
two rating scales are very similar but the
FAR rating scale provides contracting
officers with more latitude in assigning
ratings against subjective criteria.
14. Utilization of Base Fee
Comment: Two respondents
commented on the utilization of base
fee. One respondent recommended that
the final rule encourage contracting
officers to award base fee on cost-plusaward-fee (CPAF) contracts subject only
to the statutory restrictions on fee cited
at FAR 15.404–4(c)(4)(i). A second
respondent suggested that a minimum
fee be referenced in the base amount of
fee noted in FAR 16.405–2.
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Federal Register / Vol. 75, No. 188 / Wednesday, September 29, 2010 / Rules and Regulations
Response: The Councils believe that
the contracting officer negotiates a fair
and reasonable profit or fee for each
acquisition based upon the effort and
risk associated with that acquisition.
Consequently, it would not be
appropriate to encourage the use of or
set a minimum base-fee rate, since the
establishment of base fee is subject to
negotiation and the specific
circumstances of each acquisition.
15. Eliminate Requirement Relative to
Completing a Determination and
Finding
Comment: One respondent wrote that
the requirement in the interim rule for
a determination and finding (D&F) was
redundant with other FAR requirements
and increases the workload of
overburdened contracting officers
without providing any value added. The
respondent recommended deleting this
requirement in the final rule.
Response: The Councils appreciate
the respondent’s concern for the
contracting officer’s workload but
disagree with eliminating this
requirement from the final rule. The
completion of the D&F and Head of
Contracting Agency approval satisfy the
requirements in section 814 of the John
Warner National Defense Authorization
Act for Fiscal Year 2007 (Pub. L. 109–
364) and section 867 of the Duncan
Hunter National Defense Authorization
Act for Fiscal Year 2009 (Pub. L. 110–
417) to establish the appropriate
approval level for using award-fee
contracts. They are also necessary to
ensure that the suitability factors to use
an award-fee contract are properly
addressed and documented because of
the large investment of resources
required to administer an award-fee
contract.
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C. Regulatory Planning and Review
This is a significant regulatory action
and, therefore, was subject to review
under Section 6(b) of Executive Order
12866, Regulatory Planning and Review,
dated September 30, 1933. This rule is
not a major rule under 5 U.S.C. 804.
D. Regulatory Flexibility Act
The Department of Defense, the
General Services Administration, and
the National Aeronautics and Space
Administration certify that this final
rule 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., because the
rule largely covers a broad range of
aspects of award-fee contracting, whose
upshot will be a more consistent use
and administration of award fees
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Governmentwide which will provide a
small benefit to all entities both large
and small. In addition, the changes
promulgated in this final rule do not
directly affect the current business
processes of Federal contractors. In the
matter of the rule’s prohibition on the
rollover of unearned award fee, the
Councils believe this will have a
negligible impact on small businesses
for the following reasons. First, awardfee contracts are largely the province of
large businesses with large dollar
contracts. Second, the ability to roll over
unearned award fee may have caused
evaluators in the past to be more
conservative in their ratings because of
their awareness that contractors may
have a second opportunity to earn
unearned award fees.
E. Paperwork Reduction Act
The Paperwork Reduction Act does
not apply because the changes to the
FAR do not impose information
collection requirements that require the
approval of the Office of Management
and Budget under 44 U.S.C. chapter 35,
et seq.
List of Subjects in 48 CFR Part 16
Government procurement.
Dated: September 21, 2010.
Edward Loeb,
Director, Acquisition Policy Division.
Accordingly, the interim rule
published in the Federal Register at 74
FR 52856 on October 14, 2009, is
adopted as a final rule with the
following changes:
■
PART 16—TYPES OF CONTRACTS
1. The authority citation for 48 CFR
part 16 continues to read as follows:
■
Authority: 40 U.S.C. 121(c); 10 U.S.C.
chapter 137; and 42 U.S.C. 2473(c).
16.401
[Amended]
2. Amend section 16.401 by—
a. Removing from paragraph (e)(2) the
words ‘‘performance is’’ and adding
‘‘performance in the aggregate is’’ in its
place each time it appears (twice);
■ b. Removing from Table 16–1 that
follows paragraph (e)(3)(iv) the words
‘‘contract as’’ and adding ‘‘contract in the
aggregate as’’ in its place each time it
appears (five times); and
■ c. Removing from paragraph (e)(3)(v)
the words ‘‘performance is’’ and adding
‘‘performance in the aggregate is’’ in its
place.
■
■
[FR Doc. 2010–24161 Filed 9–28–10; 8:45 am]
BILLING CODE 6820–EP–P
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60263
DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Part 19
[FAC 2005–46; FAR Case 2009–020; Item
V; Docket 2010–0103, Sequence 1]
RIN 9000–AL68
Federal Acquisition Regulation;
Offering a Construction Requirement—
8(a) Program
Department of Defense (DoD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Final rule.
AGENCIES:
The Civilian Agency
Acquisition Council and the Defense
Acquisition Regulations Council
(Councils) are issuing a final rule
amending the Federal Acquisition
Regulation (FAR) to revise FAR subpart
19.8, Contracting with the Small
Business Administration (The 8(a)
Program), to conform to the Small
Business Administration (SBA)
regulations. The FAR Council did not
publish this rule for comment because
this change will not have a significant
effect beyond the internal operating
procedures of the Government and will
not have a significant effect on
contractors or offerors. Furthermore,
this requirement has existed in the
Small Business Administration
Regulations since January 1, 2009, and
the FAR is being updated to conform to
these regulations. This revision changes
the location for submitting offering
letters to SBA for a construction
requirement for which a specific offeror
is nominated and impacts internal
procedures that the contracting officer is
now required to follow.
DATES: Effective Date: October 29, 2010
FOR FURTHER INFORMATION CONTACT: For
clarification of content, contact Mr.
Karlos Morgan, Procurement Analyst, at
(202) 501–2364. For information
pertaining to status or publication
schedules, contact the Regulatory
Secretariat at (202) 501–4755. Please
cite FAC 2005–46, FAR case 2009–020.
SUPPLEMENTARY INFORMATION:
SUMMARY:
A. Background
This final rule amends the FAR to
revise FAR 19.804–2(b) to conform to
the SBA regulation 13 CFR
124.502(b)(3). The current FAR requires
sole source offerings for construction
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]]>Agencies
[Federal Register Volume 75, Number 188 (Wednesday, September 29, 2010)]
[Rules and Regulations]
[Pages 60261-60263]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24161]
[[Page 60261]]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 16
[FAC 2005-46; FAR Case 2008-008; Item IV; Docket 2009-0036, Sequence 1]
RIN 9000-AL42
Federal Acquisition Regulation; Award-Fee Language Revision
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have adopted as final, with
changes, the interim rule amending the Federal Acquisition Regulation
(FAR) to implement section 814 of the John Warner National Defense
Authorization Act for Fiscal Year 2007 (Pub. L. 109-364), section 867
of the Duncan Hunter National Defense Authorization Act for Fiscal Year
2009 (Pub. L. 110-417), and the Office of Federal Procurement Policy
guidance memorandum dated December 4, 2007 entitled, Appropriate Use of
Incentive Contracts.
DATES: Effective Date: October 29, 2010.
FOR FURTHER INFORMATION CONTACT: For clarification of content, contact
Mr. Edward Chambers, Procurement Analyst, at 202-501-3221. For
information pertaining to status or publication schedules, contact the
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-46, FAR
Case 2008-008.
SUPPLEMENTARY INFORMATION:
A. Background
This rule implements the provisions of section 814 of the John
Warner National Defense Authorization Act for Fiscal Year 2007 (Pub. L.
109-364), section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (Pub. L. 110-417), and the
Office of Federal Procurement Policy guidance memorandum dated December
4, 2007, entitled ``Appropriate Use of Incentive Contracts,'' by
amending and/or integrating where appropriate, FAR part 7, Acquisition
Planning, and FAR part 16, Contract Types, to improve agency use and
decision making when using incentive contracts.
This final rule adopts the interim rule with one change for
clarification. This clarification entails the addition of the phrase
``in the aggregate'' to FAR 16.401(e)(2), Table 16-1, and FAR
16.401(e)(3)(v), to make it clear that the objective is to consider the
contractor's cost, schedule, and technical performance in the aggregate
when performing award-fee assessments.
B. Discussion and Analysis
An interim rule with request for comments was published in the
Federal Register on October 14, 2009 (74 FR 52856). The FAR Secretariat
received seven responses to the interim rule. These responses included
a total of 22 comments on 15 issues. Each issue is discussed in the
following sections.
1. Change in DFARS Rule Required
Comment: One respondent wrote that this interim rule, without
concurrent change to DFARS, particularly in allowing higher fixed fee,
negates the value of this rule change.
Response: DoD is considering a possible DFARS case to address this
concern. The Councils further note that the rationale for allowing a
higher fixed fee is not clear in this comment. In reading the comment
in total, a reasonable inference is that the respondent meant to
address base fee and not fixed fee.
2. Clarification Regarding Award-Fee Rating Definitions
Comment: Two respondents commented on the need to clarify whether
an unsatisfactory evaluation in one category (e.g., cost) requires an
overall unsatisfactory rating and thus no award fee in any category
(e.g., schedule and technical) for the evaluation period.
Response: The Council's intent with the use of ``overall cost,
schedule, and technical performance in the aggregate'' is to avoid the
situation where, for example, contractors would receive no award fee in
an evaluation period if they were rated below satisfactory on one of
the criteria (e.g., in schedule performance) and above satisfactory in
other criteria (e.g., technical and cost performance). The Councils
believe that this would not be equitable. In such a situation, the
contractor could receive a reduced percentage of the award-fee amount
to account for the below satisfactory schedule performance, but they
would not receive 100 percent of the award-fee amount, nor would they
receive zero award fee for that evaluation period. The final rule adds
clarifying language of ``in the aggregate'' to FAR 16.401(e)(2), Table
16-1, and FAR 16.401(e)(3)(v), to make it clear that the objective is
to consider overall cost, schedule, and technical performance in
performing award-fee assessments.
3. Requested Clarification as to Whether Firm Fixed Price Award-Fee
Contract Is an Incentive Fee Type Contract
Comment: One respondent recommended that the FAR be clarified as to
whether a firm-fixed-price award-fee contract is an incentive-type
contract citing that the language in FAR 16.404, FAR 16.202-1, and FAR
16.401(a) appears to be contradictory.
Response: The Councils take no position on this recommendation
because it is outside the scope of this case, which was limited to the
implementation of the section 814 of the John Warner National Defense
Authorization Act for Fiscal Year 2007 (Pub. L. 109-364), section 867
of the Duncan Hunter National Defense Authorization Act for Fiscal Year
2009 (Pub. L. 110-417), and the Office of Federal Procurement Policy
guidance memorandum dated December 4, 2007, entitled ``Appropriate Use
of Incentive Contracts.''
4. Permit Use of Rollover Within Certain Parameters
Comment: Three respondents recommended that the language
prohibiting the use of rollover be revised to allow rollover under
certain circumstances and at the discretion of the head of the
contracting activity. Respondents contend that rollover can be an
effective incentive tool if used properly.
Response: The Councils disagree with the respondents. Award fee is
structured to incentivize contractors to perform throughout the
contract. Therefore, rollover of unearned award fee provides a
disincentive for contractors to perform throughout the entire period of
performance. If a contractor did not perform adequately during an
award-fee rating period and was rated appropriately and then allowed to
recover that unearned award fee in a subsequent period, the incentive
for the contractor to perform consistently throughout the entire
contract would be reduced.
5. Interim Rule Presumes Award-Fee Determinations Represent Only
Subjective Measures and Not Objective Measures as Well
Comment: One respondent recommended that the language in FAR
16.401(e)(1)(i) be revised to address the concept that in addition to
subjective award-fee performance measures that we also include the use
of objective performance measures.
[[Page 60262]]
Response: The Councils disagree with this recommendation. A key
tenet in determining if an award-fee incentive is suitable for an
acquisition is whether one can devise predetermined objective
incentives applicable to cost, schedule, and technical performance. If
one can, then an award-fee incentive is not appropriate and an
incentive arrangement based on predetermined formula-type incentives
should be utilized instead.
6. Eliminate Risk and Cost-Benefit Analysis
Comment: Two respondents recommended deleting the requirement to
perform a risk and cost-benefit analysis stating that the content and
methodology for this analysis is not specified.
Response: The Councils disagree with this recommendation. The FAR
currently requires that no award-fee contract shall be awarded unless
the contract amount, performance period, and expected benefits are
sufficient to warrant the additional administrative effort. This
requirement was reinforced in the Office of Federal Procurement Policy
guidance memorandum dated December 4, 2007, entitled ``Appropriate Use
of Incentive Contracts.'' The Councils believe it is within the purview
of each Federal agency to provide supplemental guidance on how to
perform this analysis.
7. Contractor Should Be Allowed To Earn Award Fee Even if Performance
Is Less Than Satisfactory
Comment: One respondent wrote that under an award-fee contract,
even when performance is less than satisfactory, there should be some
level of fee earnings but potentially at a significantly decreased rate
of earnings since the Government received some benefit from the work
accomplished. The respondent maintained that even under a fixed-fee
contract, a contractor can still earn some amount of fee, even when
performance is less than satisfactory. The respondent recommended that
Table 16-1 include an additional rating category, entitled ``less than
satisfactory,'' with a percentage range from 2 percent-48 percent as
well as changing ``is below satisfactory'' in FAR 16.401(e)(3)(v) to
``fail to meet the basic requirements of the contract''.
Response: The Councils disagree with this recommendation. Section
814 of the John Warner National Defense Authorization Act for Fiscal
Year 2007 (Pub. L. 109-364) and section 867 of the Duncan Hunter
National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-
417) were very clear that the FAR ``shall ensure that no award fee may
be paid for contractor performance that is judged to be below
satisfactory performance''. The Councils note that the regulations do
allow the use of a base fee in an award-fee incentive arrangement.
8. Award-Fee Determination Being Unilateral Decision
Comment: One respondent recommended that the language in FAR
16.401(e)(2) regarding the award-fee determination being a unilateral
decision by the Government be struck since the Courts have determined
that such decisions are reviewable under the Contract Disputes Act.
Response: The Councils agree that award-fee determinations are
reviewable under the Contract Disputes Act but the language in this
section does not address that issue. This language in FAR 16.401(e)(2)
was included to point out that while the award-fee determination may be
subject to the Contract Disputes Act, it is still a unilateral decision
by the Government.
9. Consider Different Language Relative to Adjectival Rating
Descriptions
Comment: One respondent recommended replacing the word
``supplement'' with ``tailor'' in the FAR 16.401(e)(3)(iv) sentence,
contracting officers may supplement the adjectival rating description.
Response: The Councils believe that these descriptions cannot be
tailored but can be supplemented to fit the specific needs of the
acquisition based upon the requirements in section 814 of the John
Warner National Defense Authorization Act for Fiscal Year 2007 (Pub. L.
109-364) and section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (Pub. L. 110-417), which stated:
The FAR ``shall establish standards for determining the percentage of
the available award fee, if any, which contractors should be paid for
performance * * * ''.
10. Clarification Regarding Adjectival Descriptions
Comment: One respondent wrote that the imprecise adjective
modifiers in Table 16-1 could be problematic since what distinguishes
``almost all of'' from ``many'' or what establishes a ``significant''
criterion for ``insignificant'' criterion. A second respondent
recommended revising Table 16-1 to delete the requirement to ``exceed''
significant award-fee criteria to earn a better than satisfactory
rating.
Response: The Councils disagree and maintain that the term
``exceeds'' is a reasonable term to differentiate contractor
performance between the various ratings. In addition, the adjectives
used in the rating table adequately distinguish between the different
rating levels and provide the contracting officer with the flexibility
to supplement the descriptions as appropriate.
11. Published as Interim Rule
Comment: One respondent wrote that they were disappointed that this
rule change was published as an interim rule and not a proposed rule
and recommended that the Councils publish rules of this magnitude as
proposed rules in the future.
Response: The Councils issued a statement of urgency which was
published in the Federal Register notice with this interim rule.
12. Stringent Adjectival Ratings
Comment: One respondent wrote that since Table 16-1 adjectival
rating descriptions and associated percentages are so stringent, the
final rule should specify that the available award-fee pool must be at
least 20 percent of estimated costs for complex development contracts.
Response: The Councils do not believe that a pre-established award-
fee floor is appropriate since the contracting officer negotiates a
fair and reasonable award-fee pool for each acquisition based upon the
effort and risk associated with that acquisition.
13. Consider Different Rating Definitions
Comment: One respondent wrote that the final rule should include
the rating definitions from the Office of the Under Secretary of
Defense/Acquisition, Technology, and Logistics/Defense Procurement and
Acquisition Policy memorandum dated April 24, 2007, since these ratings
are based on meeting a higher percentage of award-fee criteria in order
to earn higher ratings.
Response: The Councils disagree. The two rating scales are very
similar but the FAR rating scale provides contracting officers with
more latitude in assigning ratings against subjective criteria.
14. Utilization of Base Fee
Comment: Two respondents commented on the utilization of base fee.
One respondent recommended that the final rule encourage contracting
officers to award base fee on cost-plus-award-fee (CPAF) contracts
subject only to the statutory restrictions on fee cited at FAR 15.404-
4(c)(4)(i). A second respondent suggested that a minimum fee be
referenced in the base amount of fee noted in FAR 16.405-2.
[[Page 60263]]
Response: The Councils believe that the contracting officer
negotiates a fair and reasonable profit or fee for each acquisition
based upon the effort and risk associated with that acquisition.
Consequently, it would not be appropriate to encourage the use of or
set a minimum base-fee rate, since the establishment of base fee is
subject to negotiation and the specific circumstances of each
acquisition.
15. Eliminate Requirement Relative to Completing a Determination and
Finding
Comment: One respondent wrote that the requirement in the interim
rule for a determination and finding (D&F) was redundant with other FAR
requirements and increases the workload of overburdened contracting
officers without providing any value added. The respondent recommended
deleting this requirement in the final rule.
Response: The Councils appreciate the respondent's concern for the
contracting officer's workload but disagree with eliminating this
requirement from the final rule. The completion of the D&F and Head of
Contracting Agency approval satisfy the requirements in section 814 of
the John Warner National Defense Authorization Act for Fiscal Year 2007
(Pub. L. 109-364) and section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (Pub. L. 110-417) to establish
the appropriate approval level for using award-fee contracts. They are
also necessary to ensure that the suitability factors to use an award-
fee contract are properly addressed and documented because of the large
investment of resources required to administer an award-fee contract.
C. Regulatory Planning and Review
This is a significant regulatory action and, therefore, was subject
to review under Section 6(b) of Executive Order 12866, Regulatory
Planning and Review, dated September 30, 1933. This rule is not a major
rule under 5 U.S.C. 804.
D. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule 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., because the rule largely covers
a broad range of aspects of award-fee contracting, whose upshot will be
a more consistent use and administration of award fees Governmentwide
which will provide a small benefit to all entities both large and
small. In addition, the changes promulgated in this final rule do not
directly affect the current business processes of Federal contractors.
In the matter of the rule's prohibition on the rollover of unearned
award fee, the Councils believe this will have a negligible impact on
small businesses for the following reasons. First, award-fee contracts
are largely the province of large businesses with large dollar
contracts. Second, the ability to roll over unearned award fee may have
caused evaluators in the past to be more conservative in their ratings
because of their awareness that contractors may have a second
opportunity to earn unearned award fees.
E. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the changes to
the FAR do not impose information collection requirements that require
the approval of the Office of Management and Budget under 44 U.S.C.
chapter 35, et seq.
List of Subjects in 48 CFR Part 16
Government procurement.
Dated: September 21, 2010.
Edward Loeb,
Director, Acquisition Policy Division.
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Accordingly, the interim rule published in the Federal Register at 74
FR 52856 on October 14, 2009, is adopted as a final rule with the
following changes:
PART 16--TYPES OF CONTRACTS
0
1. The authority citation for 48 CFR part 16 continues to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
16.401 [Amended]
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2. Amend section 16.401 by--
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a. Removing from paragraph (e)(2) the words ``performance is'' and
adding ``performance in the aggregate is'' in its place each time it
appears (twice);
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b. Removing from Table 16-1 that follows paragraph (e)(3)(iv) the words
``contract as'' and adding ``contract in the aggregate as'' in its
place each time it appears (five times); and
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c. Removing from paragraph (e)(3)(v) the words ``performance is'' and
adding ``performance in the aggregate is'' in its place.
[FR Doc. 2010-24161 Filed 9-28-10; 8:45 am]
BILLING CODE 6820-EP-P
