[Federal Register: January 3, 2006 (Volume 71, Number 1)]
[Rules and Regulations]
[Page 211-218]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ja06-14]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 2, 7, 11, 12, 16, 37, and 39
[FAC 2005-07; FAR Case 2003-018; Item III]
RIN 9000-AK00
Federal Acquisition Regulation; Change to Performance-based
Acquisition
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) have agreed on a final rule
amending the Federal Acquisition Regulation (FAR) by changing the terms
``performance-based contracting (PBC)'' and ``performance-based service
contracting (PBSC)'' to ``performance-based acquisition (PBA)''
throughout the FAR; adding applicable PBA definitions of ``Performance
Work Statement (PWS)'' and ``Statement of Objectives (SOO)'' and
describing their uses; clarifying the order of precedence for
requirements; eliminating redundancy where found; modifying the
regulation to broaden the scope of PBA and give agencies more
flexibility in applying PBA methods to contracts and orders of varying
complexity; and reducing the burden of force-fitting contracts and
orders into PBA, when it is not appropriate. The title of the rule has
also been changed to reflect the deletion of ``service.''
DATES: Effective Date: February 2, 2006.
FOR FURTHER INFORMATION CONTACT: For clarification of content, contact
Mr. Michael Jackson, Procurement Analyst, at (202) 208-4949. Please
cite FAC 2005-07, FAR case 2003-018. For information pertaining to
status or publication schedules, contact the FAR Secretariat at (202)
501-4755.
SUPPLEMENTARY INFORMATION:
A. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 69 FR 43712 on July 21, 2004, to which 15 commenters
responded. In addition, three respondents submitted comments in
response to FAR Case 2004-004, Incentive for Use of Performance-Based
Contracting for Services, that the Councils determined are more
relevant to this FAR case. The major changes to the proposed rule that
resulted from the public comments and Council deliberations are:
(1) FAR 2.101 Definitions. REVISED the definition of PBA to clarify
its meaning.
(2) FAR 2.101 Definitions. REVISED the definition of PWS to clarify
its meaning.
(3) FAR 2.101 Definitions. REVISED the definition of SOO to clarify
its meaning.
(4) FAR 7.103(r) Agency-head responsibilities. DELETED ``and,
therefore, fixed-price contracts'' from the statement ``For services,
greater use of performance-based acquisition methods and, therefore,
fixed-price contracts * * * should occur for follow-on acquisitions''
because the Councils
[[Page 212]]
believe the appropriate contract type is based on the level of risk and
not the acquisition method.
(5) FAR 11.101(a)(2) Order of precedence for requirements
documents. DELETED ``or function'' because the Councils concluded that
the term ``function'' could be confused with ``detailed design-oriented
documents'' at 11.101(a)(3) thus confusing the order of precedence for
requirements documents.
(6) FAR 16.505(a)(3) Ordering (IDIQ). CHANGED ``performance work
statements must be used to the maximum extent practicable'' to
``performance-based acquisition methods must be used to the maximum
extent practicable'' since either a SOO or PWS can be used in the
solicitation.
(7) FAR 37.000 Scope of subpart. ADDED ``or orders'' after
``contracts'' to clarify the Subpart applies to contracts and orders.
(8) Various Subparts in Part 37. CHANGED the terminology from
``performance-based service acquisitions'' to ``performance-based
acquisitions'' since Part 37 only relates to service acquisitions.
(9) FAR 37.102(e), Agency program officialsresponsibility. ADDED a
requirement that the agency program officials describe the need to be
filled using performance-based acquisition methods to the maximum
extent practicable to facilitate performance-based acquisitions.
(10) FAR 37.601, Performance-based acquisitions. General provisions
as follows:
(a) REBASELINED the rule to the current baseline. Updated baseline
used in the proposed rule to reflect the current FAR baseline.
(b) DELETED 37.601(a) of the proposed rule which stated the
principal objectives of PBAs since the principal objectives are
addressed in the definition.
(c) RELOCATED and revised the detailed provisions for performance
standards to a new FAR section, 37.603, to permit expanded coverage.
The Councils clarified the language to indicate that performance
standards must be measurable and ADDED ``method of assessing contractor
performance'' to the required elements of a PBA since the quality
assurance surveillance plan is not a mandatory element and contractors
should know how they will be assessed during contract performance.
(d) REVISED the performance incentives coverage to simply refer to
the provisions at 16.402-2 since the only unique requirement for PBAs
is the requirement that performance incentives correspond to the
performance standards.
(11) FAR 37.602, Performance work statements:
(a) In paragraph (b) REVERTED back to the existing FAR coverage
with minor modifications because the Councils believe the prior
coverage correctly detailed the requirements.
(b) In paragraph (c), REVISED SOO coverage to clarify that the SOO
is a solicitation document and that performance objectives are the
required results.
(12) FAR 37.603, Performance standards. ADDED coverage to clarify
that performance standards must be measurable and structured to permit
assessment of the contractor's performance.
(13) FAR 37.604, Quality Assurance:
(a) RETITLED the section to Quality Assurance Surveillance Plans to
be consistent with FAR terminology.
(b) REVISED the coverage to simply refer to Subpart 46.4 since the
same requirements apply for PBAs.
(c) ADDED coverage to clarify that the Government prepares the
quality assurance surveillance plan when the solicitation uses a PWS
and that contractors may be required to submit a quality assurance
surveillance plan when the solicitation uses a SOO.
(14) FAR 37.602-3, Selection procedures. DELETED the coverage since
there are no unique requirements for PBAs.
(15) FAR 37.602-4, Contract type. DELETED the coverage since there
are no unique requirements for selecting contract type for PBAs.
(16) FAR 37.602-5, Follow-on and repetitive requirements. DELETED
the coverage since there are no unique requirements for PBAs.
The Councils made changes based on the belief that performance-
based acquisitions share many of the features of non-performance-based
acquisitions. Only those features that are unique to PBA are set forth
in subpart 37.6. Features that are similar, such as the Government's
ability to take deductions for poor performance or non-performance of
contract requirements under the Inspections clause, were not included.
Therefore, the absence of a specific authority in subpart 37.6 should
not be construed as meaning that the authority does not exist under
another part of the FAR.
Disposition of Public Comments
a. Definitions FAR 2.101.
Comment(s): Performance-Based Acquisition. One commenter said the
definition of performance-based acquisitions is unclear, wordy and
obscure and that the demand for ``clear, specific, and objective terms
with measurable outcomes'' was especially troublesome. The same
commenter also said the definition appears to encompass both supplies
and services and asked if ``structuring all aspects'' means
``describing service requirements.'' Another commenter said a
performance-based service acquisition is a subset of performance-based
acquisitions and recommended developing a separate definition for
performance-based service acquisitions and deleting the last sentence
from the definition of performance-based acquisitions. Another
commenter recommended revising the definition to permit ``objective or
subjective terms'' since 37.601(c)(2) clearly permits the use of
subjective standards.
Disposition: The Councils revised the definition to state
performance-based acquisition ``means an acquisition structured around
the results to be achieved as opposed to the manner by which the work
is to be performed.'' The Councils note the performance-based
acquisition definition does encompass both supplies and services;
however, the Councils do not believe a separate definition for
performance-based service acquisitions is needed and believe adding a
definition for performance-based service acquisition would necessitate
a new definition for performance-based supply acquisition with the only
difference being one definition would say ``service'' and the other
would say ``supply.''
Comment(s): Performance Work Statement (PWS). (a) One commenter
recommended defining a PWS as ``a statement of work that describes
service requirements in terms of the results that the contractor must
produce instead of the processes that it must use when performing.''
The same commenter also questioned the difference between technical,
functional, and performance characteristics and said it will be hard to
implement the requirement for ``clarity, specificity, and objectivity''
at the working level ``especially for long term contracts (one year or
longer).'' Another commenter recommended defining a PWS as ``a
statement that identifies the agency's requirements in clear, specific,
measurable, and objective terms that describe technical, functional,
and performance characteristics'' because many PWSs are vague and
impossible to measure and the lack of measurable outcomes allows the
Government to apply subjective judgment that may lead to unfair
contractor penalties. Another commenter recommended changing the
definition to specifically state that the
[[Page 213]]
PWS is a type of SOW so that readers would understand that they are
essentially the same type of document and replacing ``objective terms
that describe'' with ``that identifies the agency requirements in clear
specific, outcome or results-based terms, and with specific
deliverables and tasks identified''. The same commenter also questioned
how to ``describe a requirement objectively.''
Disposition: The Councils revised the definition to say ``a
statement of work for performance-based acquisitions that describes the
required results in clear, specific, and objective terms with
measurable outcomes.'' The Councils believe the results must be
described in ``clear, specific, and objective terms'' to ensure both
parties understand the requirements. The Councils also agree that the
outcomes must be measurable and revised the rule at FAR 37.602-2 (now
37.603) to require that performance standards be measurable and
structured in a way to permit assessment of the contractor's
performance.
(b) One commenter said the ``desired outcome and/or performance
objectives'' terminology at 37.601(d) for performance incentives was
inconsistent with the definition of a performance work statement at
2.101.
Disposition: The Councils agree the terminology was inconsistent.
Instead of revising the language, the Councils deleted that part of the
coverage since performance incentives are covered at FAR 16.402-2. When
performance incentives are used, the rule at 37.601(b)(3) requires that
the performance incentives correspond to the performance standards set
forth in the contract.
Comment(s): Statement of Objectives (SOO). One commenter said the
proposed definition could lead requirements and contracting personnel
to think that a contract need contain only a SOO instead of a PWS.
Another commenter said the definition is so broad that it is
meaningless. The same commenter questioned the meaning of ``high-
level'' and recommended adding ``as they relate to the instant
procurement'' after ``key agency objectives.''
Disposition: The Councils revised 37.602 to clarify that the SOO is
a Government prepared document for use in a solicitation that will form
the basis for a PWS.
Comment(s): Quality Assurance Surveillance Plans. One commenter
recommended adding a definition for quality assurance surveillance plan
to be consistent with the July 2003 Interagency Task Force on
Performance-Based Service Acquisition.
Disposition: Quality assurance surveillance plans are clearly
addressed in FAR 46.401. The Councils are not aware of any issues
related to the requirements in FAR 46.401. As these same requirements
apply to Part 37, the Councils do not believe a new definition is
necessary.
b. Agency-head responsibilities, FAR 7.103(r).
Comment(s): Three commenters said the assumption at 7.103(r) that
greater use of performance-based service acquisitions methods and,
therefore, fixed-price contracts should occur for follow-on acquisition
was incorrect since the determination of appropriate contract type is
based on level of risk and not the acquisition method, i.e.,
performance-based service acquisitions.
Disposition: The Councils agree the appropriate contract type is
based on the level of risk and not the acquisition method and revised
the rule accordingly.
Comment(s): One commenter asked what checks are in place to ensure
that agency heads actually prescribe procedures for ensuring that
knowledge gained from prior acquisitions is used to further refine
requirements and acquisition strategies.
Disposition: Issues of compliance with the FAR are beyond the scope
of this rulemaking. The Councils note that the Government
Accountability Office and other agency auditing functions (e.g., DoD
Inspector General) have responsibility for assessing agency compliance
with the established regulations.
c. Content of written acquisition plans, FAR 7.105.
Comment(s): One commenter recommended revising the rule at FAR
7.105 to require an explanation of the agency's compliance with the
order of precedence for requirement documents at Part 11.101(a).
Disposition: Contracting officers are required to document the
choice of product or services description types used in the acquisition
plan - see FAR 7.105(b)(6). Therefore, additional coverage is not
needed.
Comment(s): One commenter said the requirement at FAR
7.105(b)(4)(i) to ``provide rationale if a performance-based service
acquisitions will not be used or if a performance-based service
acquisitions is contemplated on other than a firm-fixed price basis''
should be changed since determining the appropriate contract type is
independent of the acquisition approach used.
Disposition: The Councils agree that determining contract type is
independent of the acquisition method used; however, the Councils
believe it is appropriate to document why performance-based acquisition
methods and firm-fixed prices were not used given the statutory order
of precedence reflected in FAR 37.102(a)(2). The Councils note that
these provisions were not changed by this rule.
d. Describing agency needs, FAR 11.101. One commenter said the rule
revised the order of precedence for requirements documents by elevating
function-oriented documents above detailed design-oriented documents
and other standards or specifications. The commenter also recommended
adding example of PWS or SOO to clarify the performance and function-
oriented documents.
Disposition: The Councils did not intend to change the order of
precedence at FAR 11.101. The Councils added ``function-oriented'' to
``performance-oriented'' documents to attempt to differentiate between
a PWS and a SOO. Based on this comment, and after further deliberation,
the Councils concluded that the term ``function'' could be confused
with ``detailed design-oriented documents'' thus potentially changing
the order of precedence for requirements documents. To avoid further
confusion, the Councils deleted the term ``function-oriented.'' The
Councils also added examples of what is meant by a ``performance-
oriented document.''
e. Types of contracts, FAR 16.505. One commenter said the rule at
FAR 16.505(a)(3) that requires performance work statements to be used
to the maximum extent practicable contradicts the reason for defining
the SOO in the FAR. Another commenter said the provision should say
performance-based service acquisitions must be used to the maximum
extent possible instead of PWS since both PWS and SOO are acceptable
alternative methods for solicitations.
Disposition: The Councils agree ``performance-based acquisitions''
not ``performance work statements'' should be used to the maximum
extent practical and the rule was revised accordingly.
f. Scope of Part 37. One commenter recommended revising the rule at
FAR 37.000 to reflect a ``preference'' instead of a ``requirement'' for
the use of performance-based service acquisitions to be consistent with
the statutory provisions.
Disposition: The Councils believe ``requiring'' performance-based
acquisition methods to the maximum
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extent practicable has the same meaning as the statutory ``preference''
for performance-based acquisition. The Councils note the provisions
discussed above were not changed by this rule.
g. Service contracts policy, FAR 37.102. One commenter recommended
revising the rule at FAR 37.102(a)(1) to say ``performance work
statements and quality assurance surveillance plans'' instead of
``performance-based service acquisition methods'' because the term
``performance-based service acquisitions methods'' is needlessly vague.
Disposition: While performance work statements and quality
assurance surveillance plans are important elements of performance-
based acquisitions, they are not the only elements, e.g. SOO,
performance standards. The Councils believe it would be redundant to
list all of the elements of performance-based acquisition each time the
term is used.
h. Contracting officer responsibility FAR 37.102. One commenter
recommend revising the rule at FAR 37.103(c) to clarify that the
technical/program personnel initiating the procurement must provide
input to the contracting officer to enable the contracting officer to
ensure performance-based contracting is used to the maximum extent
possible.
Disposition: DoD, GSA, and NASA agree that the program personnel
initiating the procurement need to describe the need to be filled using
performance-based acquisition methods and revised the rule accordingly.
However, the Councils revised FAR 37.102(e) instead of FAR 37.103(c) as
suggested by the commenter since agency program official
responsibilities are described in FAR 37.102(e).
i. Scope of subpart for performance-based service acquisition, FAR
37.600. One commenter recommended revising the rule at FAR 37.600 to
specify that the subpart is applicable to ``delivery'' orders as well
as ``task'' orders since performance-based service acquisitions are not
limited to service acquisitions.
Disposition: While performance-based acquisitions encompass both
supplies and services, the provisions in Part 37 only relate to
contracts for services. Therefore, a reference to ``delivery'' orders
in Part 37 is inappropriate because ``delivery'' orders are used to
acquire supplies see FAR 16.501-1. The rule at FAR 37.000 has been
revised to indicate that FAR Part 37 applies to orders for services, as
well as contracts.
j. General provisions for performance-based service acquisition,
FAR 37.601.
Comment(s): One commenter recommended revising the language at FAR
37.601(a) of the proposed rule to say ``describing the Government's
requirements in terms of the results that the contractor must produce
instead of the processes that it must use when performing'' instead of
``expressing the Government's needs in terms of required performance
objectives and/or desired outcomes, rather than the method of
performance.''
Disposition: The Councils agree the requirements should be
expressed in terms of the results the contractor is expected to achieve
and revised the terminology throughout the rule.
Comment(s): One commenter said the rule ignores the provisions the
Councils recently added to FAR 37.601(a) to implement Section 1431 of
the Services Acquisition Reform Act of 2003 (SARA) which provided
governmentwide authority to treat certain performance-based contracts
or task orders for services as commercial items under certain
circumstances.
Disposition: The commenter is addressing provisions the Councils
added in FAR case 2004-004, Incentives for Use of Performance-Based
Contracting for Services, which implemented sections 1431 and 1433 of
the National Defense Authorization Act for Fiscal Year 2004. That rule
reorganized the existing provision at FAR 37.601 into a new paragraph
(a) and added a new paragraph (b) which references FAR 12.102(g) for
the use of Part 12 procedures for performance-based contracting. The
Councils acknowledge the proposed rule did not properly reflect the
changes made by FAR case 2004-004. The Councils have revised the rule
to reflect the provisions added in FAR case 2004-004 modified to
reflect the revised terminology, i.e., change performance-based
contracting to performance-based acquisitions.
Comment(s): One commenter recommended changing the proposed rule at
FAR 37.601(c)(1) to say a PBSA contract or order shall include ``PWS or
SOO.''
Disposition: While solicitations can include either a PWS or a SOO,
the resulting contract or order must include only a PWS. Therefore, the
Councils did not revise the rule as recommended.
Comment(s): One commenter recommended replacing ``measurable
performance standards'' with ``clear performance standards.'' Another
commenter recommended revising the rule to require use of commercial
language and practices when establishing performance standards and
measuring performance against standards. Another commenter suggested
using the terms ``quantitative'' and ``qualitative'' in lieu of
``objective'' and ``subjective'' because the terms are more appropriate
and less open to misinterpretation. Another commenter said the rule
addressed the critical element of measurable performance standards but
recommended additional provisions to require the standards to be
practicable, reliable, and valid and where feasible, use customary
commercial language and practices.
Disposition: Performance standards must be measurable to enable
assessment of the services performed. The Councils agree the
performance standards can be quantitative or qualitative but believes
it is not necessary to say so. As to using customary commercial
language and practices, the Councils believe customary commercial
language and practices may not always fully satisfy the Government's
needs. Therefore, the Councils did not mandate their use; however, the
Councils note nothing in the rule precludes their use.
Comment(s): Performance incentives, FAR 37.601.(a) One commenter
said the rule eliminates the link between performance and payment since
incentives and disincentives are now optional which means contractors
can be paid in full when performance is less than acceptable as long as
the Government describes its requirements objectively. Another
commenter said that ``to have a PBSC without incentives is to render
the whole concept of measuring performance meaningless - especially if
by default the only available remedy for sub par performance is
termination for default.'' The same commenter also said the rule should
use ``damages'' instead of ``negative incentives'' because the term
``negative incentives''implies penalties that are not necessarily
proportionate to the damage done to the Government. Another commenter
said the ``Inspections of Services'' clauses dating from 1984 and 1993
mandate negative incentives and the proposed rule suggests that
negative incentives are optional.
Disposition: The requirements for using performance incentives for
performance-based acquisitions are no different than those for any
other acquisition method, i.e., performance incentives should be used
when the quality of performance is critical and the incentives will
likely motivate the contractor's performance. As stated in FAR 16.402-
2(a), the performance incentives should relate profit or fee to the
results achieved by the contractor compared with the specified targets,
i.e., the performance standards in the contract. The Councils note that
performance incentives relate the
[[Page 215]]
amount of profit or fee payable under the contract to the contractor's
performance, not the Government's actual ``damages'', and that the term
``negative incentives'' is used in the provisions at FAR 16.402-2(b).
Performance incentives, when included in a contract, are in addition to
the Governments rights under the Inspection of Services clause. The
Councils revised the rule to clarify that performance incentives for
performance-based service acquisitions are the same as performance
incentives for non-performance-based contracts.
(b) One commenter said the rule should refer to FAR Subpart 16.4 if
other types of incentive such as cost incentives apply and recommended
clarifying that performance incentives are not always needed for
performance-based service acquisitions contracts.
Disposition: Incentives other than performance incentives may be
appropriate for performance-based service acquisitions and the rule
does not preclude the use of those other incentives. The rule addresses
performance incentives because the Councils believe it is necessary to
ensure that, when used, the performance incentives are tied to the
performance standards specified in the performance work statement. The
Councils agree that performance incentives are not always appropriate
for performance-based service acquisitions and notes that the rule does
not mandate their use, i.e., the rule says ``if used.''
Comment(s): One commenter applauded the change to remove the
requirement for price or fee reduction since the ``Inspection of
Services'' clause gives the Government adequate recourse.
Disposition: The Councils agree that price or fee reduction flows
from the inspection, warranty, and other clauses and that additional
coverage is not needed in Part 37.
k. Performance work statements and statements of objectives, FAR
37.602.
Comment(s): One commenter recommended a more complete description
of the SOO to clarify that the resulting PWS is included in the
contract. Another commenter recommended using the language in the
proposed rule at FAR 37.602-1(c) as the definition of a SOO in FAR
2.101 because the language at FAR 37.602-1(c) is clearer and more
detailed and meaningful.
Disposition: The Councils revised the rule to clarify that a SOO is
only used in the solicitation and that the resulting contract must
include a PWS. The Councils also revised the definition of SOO to
clarify its meaning; however, the revised definition does not identify
the elements of a SOO as suggested by the commenter because the
Councils believe simply listing the elements would not adequately
define the meaning of a SOO.
Comment(s): Another commenter recommended making the proposed
coverage for performance work statements consistent with the definition
at FAR 2.101 to avoid confusion.
Disposition: The final rule revises the wording of FAR 37.602(b) to
emphasize that the purpose of the performance work statement is to
express the results the Government desires.
Comment(s): One commenter said the Government is writing
performance work statements with ``100% of the time'' as the target
performance and the rule should address when 100 percent is
appropriate, e.g., for mission critical systems.
Disposition: Contracting officers and program personnel must have
the flexibility to decide the appropriate level of performance based on
the specifics of the acquisition. The Councils do not believe it is
feasible or necessary to define when ``100%'' is the appropriate
performance level.
Comment(s): One commenter said that while implied in the proposed
rule at FAR 37.601(b) and 37.601(c), the rule does not specifically
state that a PWS must be developed and incorporated into the contract
or order when the solicitation includes a SOO.
Disposition: The Councils note that the proposed rule at FAR
37.601(c) and the final rule at FAR 37.601(b)(1) both require
performance-based contracts, including orders, include a PWS; however,
the final rule at FAR 37.602 clearly states that the SOO does not
become part of the contract.
l. Quality assurance surveillance plans, FAR 37.604
Comment(s): One commenter recommended revising the rule to say
quality assurance surveillance plans are internal government documents
that should not be incorporated into contracts because the Government
should not make its quality assurance plan contractually binding or
disclose the plan to the contractor since unannounced inspections are
often essential to sound quality assurance. Two other commenters
recommended making quality assurance surveillance plans mandatory
elements of performance-based acquisition. One of the commenters also
said the rule does not clearly state whether or not quality assurance
surveillance plans are required and questioned whether the quality
assurance surveillance plans were required for non-performance-based
acquisitions procurement.
Disposition: The Councils agree the FAR should not require
inclusion of quality assurance surveillance plans in all performance-
based acquisitions; however, the Councils believe there may be
circumstances when it could be appropriate to include the quality
assurance surveillance plans in the contract, e.g., the quality
assurance surveillance plans outlines the method of assessing
contractor performance against the performance standards. The Councils
note that nothing in the rule requires that the QASP be incorporated in
the contract. While the Councils believe the FAR should not mandate
inclusion of a quality assurance surveillance plans in all performance-
based acquisitions, the Councils do believe all performance-based
acquisitions should contain the method of assessing contractor
performance against performance standards and the Councils revised the
rule accordingly. Lastly, the Councils believe the quality assurance
coverage in FAR Subpart 37.6 has led to significant confusion and notes
that much of the quality assurance coverage in FAR Subpart 37.6
duplicates coverage in FAR Subpart 46.4, Government Contract Quality
Assurance. As the same requirements apply to performance-based
acquisitions, the Councils eliminated the duplicative coverage from FAR
Subpart 37.6.
Comment(s): One commenter recommended replacing the term ``desired
outcomes'' with ``requirements'' to be consistent with the definition
of a performance work statement at FAR 2.101.
Disposition: The Councils agree the terminology was inconsistent
with the performance work statement definition and the rule no longer
uses the terminology.
Comment(s): One commenter recommended adding the responsibilities
of the Government, including the responsibility to provide performance
feedback to the contractor on a regular basis and in an objective
fashion, to the rule.
Disposition: The Councils believe Government personnel notify
contractors when they believe the contractors are not meeting the
contract quality requirements in the contract; however, the contractor,
not the Government, is responsible for meeting the contract quality
requirements. As with any acquisition, the level of contract quality
requirements and Government contract quality assurance surveillance
will vary based on the
[[Page 216]]
particular acquisition. In some cases, the quality assurance
surveillance may be limited to inspection at time of acceptance.
Comment(s): One commenter recommended changing the title of FAR
37.602-2 from ``Quality Assurance'' to ``Quality Assurance Surveillance
Plan'' (QASP) to be consistent with the ``Seven Steps Guide'' or
changing the title to ``Performance Management Plan'' or ``Performance-
Based Management Plan'' to ensure the plans do not become checklists to
measure performance.
Disposition: The Councils renamed the section of the rule to
``Quality Assurance Surveillance Plan'' to be consistent with FAR
terminology. The Councils do not understand how changing the title
would ensure that the plans were not used as checklists.
m. Selection procedures, FAR 37.602-3. One commenter said requiring
agencies to use competitive negotiations when appropriate suggests that
competitive negotiations is better than other contracting methods when
it comes to obtaining best value which seems to be inconsistent with
the definition of best value in FAR 2.101 and 6.401(b).
Disposition: The Councils agree the rule was inconsistent with the
definition of best value and the provisions at FAR 6.401 that permit
use of competitive proposals when sealed bids are not appropriate. The
Councils deleted the provisions at FAR 37.602-3 because they believe
the competition requirements and best value are adequately addressed in
FAR 6.401(b) and 2.101, respectively.
n. Contract type and follow-on and repetitive requirements, FAR
37.602-4 and 37.602-5. One commenter said assuming that services that
can be ``defined objectively'' lend themselves more readily to fixed
pricing than other services, has no basis in contracting fact or
theory. Another commenter recommended deleting the first sentence of
the proposed FAR 37.602-4 because it is critical to continue to stress
the importance of selecting a contract type that motivates a contractor
to perform at optimal levels while complying with the order of
precedence. Another commenter said contract type should not limit
performance-based service acquisitions use. Another commenter said the
proposed language at FAR 37.602-4 (Contract Type) and 37.602-5 (Follow-
on and repetitive requirements) adds to the general misconception that
fixed-price contracts or task orders go hand-in-hand with performance-
based service acquisitions. The commenter recommended changing both
references to say the type of contract or order issued should be
appropriate for the type of work to be performed.
Disposition: The Councils agree that the rationale for selecting
the appropriate contract type for performance-based acquisitions is no
different than the rationale for selecting the appropriate contract
type for non-performance-based acquisitions. Fixed-price contracts are
appropriate when the risk involved is minimal or can be predicted with
an acceptable degree of certainty and a reasonable basis for firm
pricing exists. While recognizing the statutory order of precedence at
FAR 37.102(a)(2), nothing in the statutory order of precedence changes
the rationale for selecting contract type. To avoid further confusion,
the Councils eliminated the coverage from Subpart 37.6.
o. General.
Comment(s): One commenter expressed concern that the September 7,
2004, Office of Federal Procurement Policy(OFFP) memorandum, entitled
``Increasing the Use of Performance-Based Service Acquisition,''
rescinded the 1998 OFPP ``Guide to Best Practices for Performance-Based
Service Contracting'' without any suitable replacement. The commenter
said the Seven Steps to PBSA Guide does not provide sufficient guidance
to meet the demonstrated needs of the agencies and entire acquisition
community. The commenter hopes the Services Contracting Center of
Excellence required by the SARA will provide meaningful information to
assist Federal agencies with their performance-based service
acquisitions efforts.
Disposition: The OFPP memorandum, guide, and Acquisition Center of
Excellence for Service Contracting are beyond the scope of the
Councils. They note OFPP is working with an interagency team to
incorporate current policy, regulations, and vetted samples into the
Government-wide PBSA guide, Seven Steps to PBSA. The Councils sent this
recommendation to OFPP for its consideration.
Comment(s): One commenter recommended repealing the term
``performance-based contracting'' because the rule does not clearly
override the current FAR terminology.
Disposition: As detailed in the summary of the proposed rule in the
Federal Register, the Councils are changing the term from
``performance-based contracting'' to ``performance-based acquisition.''
Additionally, once the final rule is published, the FAR will no longer
have a definition for performance-based contracting.
Comment(s): One commenter said that performance-based acquisitions
is broader than PBSC and could be used for more innovative ways of
procurement but just changing the name will not get people to do more
performance-based work. Another commenter said the proposed rule is a
strong and needed step toward clarifying actions and responsibilities,
especially in addressing definitions and acquisition planning. Another
commenter commends the Councils on this proposed guidance particularly
on the encouragement of fixed-price contracts.
Disposition: The Councils agree that simply changing the name will
not increase the use of performance-based acquisition; however, the
rule also clarifies performance-based terms and elements. The Councils
intend these clarifications to help increase the use of performance-
based acquisition. Also, they revised the rule to clarify that the
rationale for determining contract type is no different for
performance-based acquisition than any other acquisition. While the
Councils encourage the use of fixed-price contracts whenever
appropriate, the Councils do not encourage the use of fixed-price
contracts when it is not appropriate (i.e., too much risk or no
reasonable basis for firm pricing).
Comment(s): One commenter said the rule should contain a strong
statement to emphasize that performance-based contracting requires an
end product or service that can be measured and that labor hour
instruments are level-of-effort contracts with no definite deliverable.
Disposition: By definition, all contracts require delivery of
supplies or performance of services. The deciding factor for
performance-based acquisitions is whether or not the contract has
measurable performance standards. The Councils believe that T&M/LH
contracts can have measurable performance standards. Therefore, the
rule does not preclude the use of T&M/LH contracts for performance-
based acquisitions.
Comment(s): Two commenters recommended consistent use of ``contract
or order'' throughout the entire proposed rule.
Disposition: The Councils do not believe it is necessary to state
``or order'' after each use of ``contract,'' and to simplify the rule,
the Councils identified orders in the Scope of part.
Comment(s): One commenter said use of the term ``to the maximum
extent practicable'' is vague and will provide an easy way to avoid
performance-based acquisitions.
Disposition: The Councils believe the term ``to the maximum extent
[[Page 217]]
practicable'' provides Contracting Officers the appropriate flexibility
to determine when performance-based acquisition methods should be used
to fulfill the agency's requirements.
Comment(s): One commenter said the rule does not address
performance plans which are highlighted in AFI 63-124. The commenter
also said the rule addresses contractor assessment but fails to address
contract assessment and oversight which is required in Public Law 107-
107. The Air Force uses a performance plan to document both contract
and contractor assessment. Suggest you address contract oversight in
this section.
Disposition: The requirements of Section 801 of Public Law 107-107
are unique to DoD. DoD unique requirements are addressed in the Defense
Federal Acquisition Regulations and are beyond the scope of this rule.
Comment(s): One commenter stated ``low-bid contracting'' is
valuable for purchasing services in the context of fair pre-
qualification requirements and that the rule does not clearly provide
for the two-step process. The commenter requested the Councils clarify
when low-bid would be appropriate for performance-based acquisitions.
Disposition: The Councils assume the commenter is referring to
sealed bidding procedures. Under those procedures, ``low-bid'' is only
appropriate when the award will be based on price and price-related
factors.
p. The following comments were submitted under FAR case 2004-004,
but pertain to this FAR case.
Comment(s): One commenter recommended changing the term ``quality
assurance'' with ``performance assessment'' in FAR 37.601(a)(2) to be
consistent with DoD's ``Guidebook for Performance-Based Services
Acquisitions.''
Disposition: Quality assurance is the term consistently used
throughout the FAR to monitor contractor performance and to ensure
compliance with contract requirements. The instructions contained in
the referenced Guidebook pertain only to the Department of Defense.
Comment(s): One commenter suggested that the Councils move the
reference to quality assurance surveillance plans from FAR 37.601(a)(2)
and make it a new subparagraph (5) to emphasize the importance of
quality assurance surveillance plans.
Disposition: See paragraph l for the discussion of changes to the
rule for quality assurance surveillance plans.
Comment(s): One commenter recommended changing the language in FAR
12.102(g)(1)(iv) to: ``Includes appropriate quality assurance
provisions (see 12.208)'' instead of ``includes a quality assurance
surveillance plan.''
Disposition: The Councils deleted the requirement to include a
quality assurance surveillance plan in the contract to be consistent
with provisions in Part 37.
Comment(s): One commenter recommended revisions to FAR 37.601(a) to
provide for additional flexibility when using performance-based
contracts for services.
Disposition: FAR 37.601(a) was revised to provide clarification to
agencies and the acquisition community on the use of performance-based
service acquisitions techniques.
This is not a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
B. 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 does not
impose any costs on either small or large businesses.
C. 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.
3501, et seq.
List of Subjects in 48 CFR Parts 2, 7, 11, 12, 16, 37, and 39
Government procurement.
Dated: December 22, 2005.
Gerald Zaffos,
Director, Contract Policy Division.
0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 7, 11, 12, 16, 37,
and 39 as set forth below:
0
1. The authority citation for 48 CFR parts 2, 7, 11, 12, 16, 37, and 39
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).
PART 2--DEFINITIONS OF WORDS AND TERMS
0
2. Amend section 2.101 in paragraph (b)(2) by removing the definition
``Performance-based contracting'' and adding, in alphabetical order,
the definitions ``Performance-based acquisition (PBA)'', ``Performance
Work Statement'', and ``Statement of Objectives (SOO)'' to read as
follows:
2.101 Definitions.
* * * * *
(b) * * *
(2) * * *
Performance-based acquisition (PBA) means an acquisition structured
around the results to be achieved as opposed to the manner by which the
work is to be performed.
Performance Work Statement (PWS) means a statement of work for
performance-based acquisitions that describes the required results in
clear, specific and objective terms with measurable outcomes.
* * * * *
Statement of Objectives (SOO) means a Government-prepared document
incorporated into the solicitation that states the overall performance
objectives. It is used in solicitations when the Government intends to
provide the maximum flexibility to each offeror to propose an
innovative approach.
* * * * *
PART 7--ACQUISITION PLANNING
0
3. Amend section 7.103 by revising paragraph (r) to read as follows:
7.103 Agency-head responsibilities.
* * * * *
(r) Ensuring that knowledge gained from prior acquisitions is used
to further refine requirements and acquisition strategies. For
services, greater use of performance-based acquisition methods should
occur for follow-on acquisitions.
* * * * *
0
4. Amend section 7.105 by--
0
a. Removing from the last sentence of the introductory text
``contracting'' and adding ``acquisition'' in its place;
0
b. Revising the last sentence in paragraph (b)(4)(i); and
0
c. Removing from paragraph (b)(6) ``contracting'' and adding
``acquisition'' in its place.
The revised text reads as follows:
7.105 Contents of written acquisition plans.
* * * * *
(b) * * *
(4) Acquisition considerations.
(i) * * * Provide rationale if a performance-based acquisition
[[Page 218]]
will not be used or if a performance-based acquisition for services is
contemplated on other than a firm-fixed-price basis (see 37.102(a),
16.103(d), and 16.505(a)(3)).
* * * * *
PART 11--DESCRIBING AGENCY NEEDS
0
5. Amend section 11.101 by revising paragraph (a)(2) to read as
follows:
11.101 Order of precedence for requirements documents.
(a) * * *
(2) Performance-oriented documents (e.g., a PWS or SOO). (See
2.101.)
* * * * *
PART 12--ACQUISITION OF COMMERCIAL ITEMS
12.102 [Amended]
0
6. Amend section 12.102 in paragraph (g)(1)(iii) by removing
``contracting'' and adding ``acquisition'' in its place.
PART 16--TYPES OF CONTRACTS
0
7. Amend section 16.505 by revising paragraph (a)(3) to read as
follows:
16.505 Ordering.
(a) * * *
(3) Performance-based acquisition methods must be used to the
maximum extent practicable, if the contract or order is for services
(see 37.102(a) and Subpart 37.6).
* * * * *
PART 37--SERVICE CONTRACTING
0
8. Amend section 37.000 by revising the second and third sentences to
read as follows:
37.000 Scope of part.
* * * This part applies to all contracts and orders for services
regardless of the contract type or kind of service being acquired. This
part requires the use of performance-based acquisitions for services to
the maximum extent practicable and prescribes policies and procedures
for use of performance-based acquisition methods (see Subpart 37.6). *
* *
0
9. Amend section 37.102 by--
0
a. Removing from the first sentence of the introductory text of
paragraph (a) ``contracting'' and adding ``acquisition'' in its place;
and removing from the second sentence ``contracts,'' and adding
``contracts or orders,'' in its place;
0
b. Removing from paragraph (a)(1) ``contracting'' and adding
``acquisition'' in its place; and
0
c. Adding a sentence to the end of paragraph (e) to read as follows:
37.102 Policy.
* * * * *
(e) * * * To the maximum extent practicable, the program officials
shall describe the need to be filled using performance-based
acquisition methods.
* * * * *
37.103 [Amended]
0
10. Amend section 37.103 by removing from paragraph (c) ``contracting''
and adding ``acquisition'' in its place.
0
11. Revise Subpart 37.6 to read as follows:
Subpart 37.6--Performance-Based Acquisition
Sec.
37.600 Scope of subpart.
37.601 General.
37.602 Performance work statement.
37.603 Performance standards.
37.604 Quality assurance surveillance plans.
37.600 Scope of subpart.
This subpart prescribes policies and procedures for acquiring
services using performance-based acquisition methods.
37.601 General.
(a) Solicitations may use either a performance work statement or a
statement of objectives (see 37.602).
(b) Performance-based contracts for services shall include--
(1) A performance work statement (PWS);
(2) Measurable performance standards (i.e., in terms of quality,
timeliness, quantity, etc.) and the method of assessing contractor
performance against performance standards; and
(3) Performance incentives where appropriate. When used, the
performance incentives shall correspond to the performance standards
set forth in the contract (see 16.402-2).
(c) See 12.102(g) for the use of Part 12 procedures for
performance-based acquisitions.
37.602 Performance work statement.
(a) A Performance work statement (PWS) may be prepared by the
Government or result from a Statement of objectives (SOO) prepared by
the Government where the offeror proposes the PWS.
(b) Agencies shall, to the maximum extent practicable--
(1) Describe the work in terms of the required results rather than
either ``how'' the work is to be accomplished or the number of hours to
be provided (see 11.002(a)(2) and 11.101);
(2) Enable assessment of work performance against measurable
performance standards;
(3) Rely on the use of measurable performance standards and
financial incentives in a competitive environment to encourage
competitors to develop and institute innovative and cost-effective
methods of performing the work.
(c) Offerors use the SOO to develop the PWS; however, the SOO does
not become part of the contract. The SOO shall, at a minimum, include--
(1) Purpose;
(2) Scope or mission;
(3) Period and place of performance;
(4) Background;
(5) Performance objectives, i.e., required results; and
(6) Any operating constraints.
37.603 Performance standards.
(a) Performance standards establish the performance level required
by the Government to meet the contract requirements. The standards
shall be measurable and structured to permit an assessment of the
contractor's performance.
(b) When offerors propose performance standards in response to a
SOO, agencies shall evaluate the proposed standards to determine if
they meet agency needs.
37.604 Quality assurance surveillance plans.
Requirements for quality assurance and quality assurance
surveillance plans are in Subpart 46.4. The Government may either
prepare the quality assurance surveillance plan or require the offerors
to submit a proposed quality assurance surveillance plan for the
Government's consideration in development of the Government's plan.
PART 39--ACQUISITION OF INFORMATION TECHNOLOGY
39.104 [Amended]
0
12. Amend section 39.104 by removing from paragraph (b) ``contract''
and adding ``acquisition'' in its place.
[FR Doc. 05-24548 Filed 12-30-05; 8:45 am]
BILLING CODE 6820-EP-S