Department of Defense Progress Payment Incentive Pilot, 106450-106451 [2024-30947]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106450-106451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30947]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

[Docket Number DARS-2024-0038]


Department of Defense Progress Payment Incentive Pilot

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Request for information.

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SUMMARY: DoD is seeking public input to inform the implementation of a 
section of the National Defense Authorization Act for Fiscal Year 2024 
that authorizes DoD to establish a pilot program to incentivize 
performance for specific, measurable criteria under approved contracts 
by increasing the customary progress payment rate.

DATES: DoD will consider all comments received by January 29, 2025.

ADDRESSES: Submit comments to the questions provided below, using 
either of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for ``Docket Number DARS-2024-0038.'' Select ``Comment'' and 
follow the instructions to submit a comment. Please include your name, 
company name (if any), and ``Docket Number DARS-2024-0038'' on any 
attached document(s).
    [cir] Email: [email protected]. Include 
``DoD Progress Payment Incentive Pilot'' in the subject line of the 
message.
    Comments received generally will be posted without change to 
https://www.regulations.gov, including any personal information 
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission 
to verify posting.

FOR FURTHER INFORMATION CONTACT: Ms. Sara Higgins, telephone 937-200-
4020.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 874 of the National Defense Authorization Act for Fiscal 
Year 2024 authorizes the Under Secretary of Defense for Acquisition and 
Sustainment to establish and implement a progress payment pilot program 
to incentivize contractor performance on a contract-by-contract basis. 
By statute, the incentive criteria must be clear and measurable, and 
contractor participation must be voluntary.
    This notice requests comments and information from the public on 
DoD's possible implementation of the pilot program, in accordance with 
section 874. DoD is particularly interested in comments and information 
from companies currently in the Defense Industrial Base.

B. Possible Implementation

    DoD is planning to focus the Progress Payment Incentive Pilot 
(PPIP) on payment time to subcontractors in order to improve cash flow 
throughout the supply base. This is a key interest area highlighted in 
the 2023 Defense Contract Finance Study, available at https://www.acq.osd.mil/asda/dpc/pcf/finance-study.html.
    DoD is particularly interested in comments and information from all 
business sizes with regard to DoD's notional eligibility and incentive 
criteria, and supporting documentation concept, especially the 
following:

1. Eligibility Criteria

    Section 874 authorizes an increase of up to 10 percentage points 
higher than the current customary progress payment rate (80 percent for 
large businesses) for contractor performance against clear, measurable 
criteria on a contract-by-contract basis. To be eligible for the PPIP, 
a participant must be eligible for customary progress payments, and 
their

[[Page 106451]]

participation must be voluntary. Notionally, the participant must be 
performing under a new sole-source, noncommercial, definitized contract 
or order. The progress payment rate for small entities has been 
temporarily increased to 95 percent, which is 5 percentage points 
higher than the maximimum incentive rate eligible to be earned under 
the authority of section 874. Therefore, the pilot program will be open 
only to other than small entities.
    For inclusion in the pilot program, DoD is planning to require 
contract actions to be nominated by the cognizant contracting officer 
and approved by the Director, Price, Cost and Finance, Defense Pricing, 
Contracting, and Acquisition Policy during the preaward phase of the 
acquisition, since the extent of contract financing provided by the 
Government is required to be a consideration in price negotiations 
after contract award. It is also anticipated that the nominated 
contract or order must have a performance period of no more than three 
years to ensure that all performance, including options and potential 
new work, will be completed before the pilot program's sunset date.
    DoD anticipates requiring that the bill of material, excluding 
material from affiliated concerns and indirect costs, will constitute 
at least 25 percent of the nominated contract or order's estimated 
value to ensure the incentive benefits the supply chain and to assess 
the efficacy of using an increased progress payment rate as an 
incentive.
    To optimize pilot program participation and to collect insights 
from multiple sources, DoD plans to approve only one contract per 
parent entity (including all divisions, business segments, 
subsidiaries, etc.).

2. Incentive Criteria

    DoD anticipates structuring the progress payment incentive as 
follows, with a focus on incentivizing payment time to the supply base:
    a. The maximum incentive (a progress payment rate of 90 percent in 
lieu of the customary 80 percent rate for large businesses) may be 
earned if more than 95 percent of the cumulative invoice dollars have 
been or will be paid within 20 calendar days of receipt of subcontract 
invoices.
    b. A progress payment rate of 85 percent may be earned if more than 
85 percent but less than or equal to 95 percent of the cumulative 
invoice dollars have been or will be paid within 20 calendar days of 
receipt of subcontract invoices.
    c. If 85 percent or less of the cumulative invoice dollars have 
been or will be paid within 20 calendar days of receipt of subcontract 
invoices, no incentive is earned, and the customary large business 
progress payment rate of 80 percent will be used.
    d. DoD plans to reassess the progress payment rate with each 
contractor request for progress payment, based on the reported payment 
time for cumulative subcontract invoice dollars. If the contractor's 
performance against the incentive criterion merits an increase or 
decrease to the progress payment rate currently on contract, it is 
anticipated that the rate will be changed by a unilateral contract 
modification.
    e. If the progress payment rate on the contract is decreased based 
on the contractor's cumulative performance against the incentive 
criterion, this may result in an overpayment status. For purposes of 
overpayments arising in this manner, the expectation is not to issue a 
demand for repayment, but to withhold additional progress payments 
until either--
    (1) The progress payment rate is increased as a result of the 
contractor's performance against the incentive criterion; or
    (2) The incurred cost increases to the point that the total 
incurred cost multiplied by the current progress payment rate is 
greater than the amount of progress payments already paid to the 
contractor.

3. Supporting Documentation Concept

    DoD plans to measure contractor performance against incentive 
criteria through the use of a Government-provided spreadsheet, which 
the PPIP participant will submit as an attachment to each SF 1443, 
Contractor's Request for Progress Payment. It is envisioned that the 
completed spreadsheet will list each subcontract delivery invoice 
reflected in the incurred cost claimed in the progress payment request 
and include the following information at a minimum:
    [cir] Subcontractor, supplier, or vendor name;
    [cir] Subcontract or purchase order number; part number; 
description of part or service;
    [cir] Subcontract invoice number and any tracking number affixed by 
the prime;
    [cir] Subcontract invoice date;
    [cir] Subcontract invoice amount;
    [cir] Actual or anticipated date of invoice payment;
    [cir] Amount of payment;
    [cir] Calculated payment time (date of payment minus date of 
invoice) for the invoice; and
    [cir] Any unpaid amount on the invoice.
    The spreadsheet will calculate the percentage of cumulative 
subcontract invoice dollars paid within the established payment time 
criterion. It is planned that the PPIP participant will update and mark 
new and actual payment data with each progress payment request.
    It is anticipated that the PPIP participant will be required to 
provide any additional documentation required by the contracting 
officer to support its claimed progress against incentive criteria. DoD 
plans for the Defense Contract Audit Agency to audit PPIP participants' 
claimed subcontract payment timing semi-annually.
    Authority: DoD Instruction 5000.35, Defense Acquisition Regulations 
(DAR) System.

Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
[FR Doc. 2024-30947 Filed 12-27-24; 8:45 am]
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