[Federal Register: October 14, 2009 (Volume 74, Number 197)]
[Rules and Regulations]
[Page 52856-52859]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc09-16]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 16
[FAC 2005-37; FAR Case 2008-008; Item VI; Docket 2009-0036, Sequence 1]
RIN 9000-AL42
Federal Acquisition Regulation; FAR Case 2008-008, Award Fee
Language Revision
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Interim rule with request for comments.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are issuing an interim rule
amending the Federal Acquisition Regulation (FAR) to implement section
814 of the John Warner National Defense Authorization Act for Fiscal
Year 2007, section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009, and the Office of Federal
Procurement Policy guidance memorandum dated December 4, 2007, entitled
Appropriate Use of Incentive Contracts.
DATES: Effective Date: October 14, 2009.
Comment Date: Interested parties should submit written comments to
the Regulatory Secretariat on or before December 14, 2009 to be
considered in the formulation of a final rule.
[[Page 52857]]
ADDRESSES: Submit comments identified by FAC 2005-37, FAR case 2008-
008, by any of the following methods:
Regulations.gov: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov.
Submit comments via the Federal eRulemaking portal by inputting
``FAR Case 2008-008'' into the field ``Keyword''. Select the link that
corresponds with FAR Case 2008-008. Follow the instructions provided to
submit your comment. Please include your name, company name (if any),
and ``FAR Case 2008-008'' on your attached document.
Fax: 202-501-4067.
Mail: General Services Administration, Regulatory
Secretariat (VPR), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers,
Washington, DC 20405.
Instructions: Please submit comments only and cite FAC 2005-37, FAR
case 2008-008, in all correspondence related to this case. All comments
received will be posted without change to http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov,
including any personal and/or business confidential information
provided.
FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement
Analyst, at (202) 501-3221 for clarification of content. Please cite
FAC 2005-37, FAR case 2008-008. For information pertaining to status or
publication schedules, contact the Regulatory Secretariat at (202) 501-
4755.
SUPPLEMENTARY INFORMATION:
A. Background
This rule implements the provisions of section 814 of the John
Warner National Defense Authorization Act for Fiscal Year 2007 (Public
Law 109-364), section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (Public Law 110-417), and the
Office of Federal Procurement Policy guidance memorandum dated December
4, 2007, entitled Appropriate Use of Incentive Contracts, which deal
with award and incentive fee contract types, 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.
FAR part 16 has been amended to provide further guidance relative
to: (1) Award fees being linked to acquisition objectives in the areas
of cost, schedule, and technical performance, (2) The percentage of
award fee available for prescribed narrative ratings, (3) Award fees
not being earned if the contractor's overall performance is judged to
be below satisfactory, (4) The analysis required in determining whether
to use an award or incentive fee type contract or not, (5) Award-fee
plan content, (6) The prohibition of the use of the award fee rollover
concept, (7) The requirements relative to award and incentive fee data
collection and performance measures to evaluate such data, and a
reference to FAR 7.105 for consideration of this information in
acquisition planning, and (8) The publishing of best practices.
The Councils are revising the following FAR provisions:
(1) FAR 16.001 is revised to add definitions for the terms
``Rollover of unearned award fee'', ``Award-Fee Board,'' and ``Fee-
Determining Official (FDO)''. This change is made to ensure that all
parties understand what is meant by these terms, which are used in the
new FAR 16.401(e).
(2) FAR 16.404(a) and FAR 16.404(a)(1) have been combined into
16.404. FAR 16.404(a)(2) has been deleted from this section and is now
covered in FAR 16.401(e)(3).
(3) FAR 16.401(d) was changed with the existing content of this
section being moved to FAR 16.401(e) and new content being added. This
new content requires that a determination and finding be made
justifying the use of an incentive or award-fee type contract.
(4) FAR 16.401(e) has been added to require that award fees be
linked to acquisition objectives in the areas of cost, schedule, and
technical performance; that award fees not be earned if the
contractor's overall performance is judged to be below satisfactory;
that award-fee determinations be documented in the contract file; that
the determination and methodology for determining the award fee are
unilateral decisions made solely at the discretion of the Government;
and that all award-fee contracts have an award-fee plan that
establishes the procedures and award-fee board for evaluating award-fee
determinations. This new section also delineates what the required
content shall be for all award-fee plans to include the use of
adjectival ratings and associated descriptions as well as award-fee
pool earned percentages now incorporated into the FAR in Table 16-1.
This new paragraph also provides guidance relative to the use of the
``rollover'' concept. The ``rollover'' of unearned award fee from one
evaluation period to another evaluation period is now prohibited. The
Councils believe ``rollover'' diminishes the effectiveness of the
award-fee rating given for a specific evaluation period, since the
unearned award fee could be earned by the contractor in a subsequent
evaluation period. Further, the ``rollover'' concept is used sparingly
across the Federal Government and its limited use has been trending
downward.
(5) FAR 16.404(b) was deleted and the core content of this section
is now included in FAR 16.401(e). The revisions require that a
determination and finding be made based upon the criteria in FAR
16.401(e)(1) before utilizing an award-fee type contract.
(6) FAR 16.405-2(a) is now FAR 16.405-2 and it was revised to
clarify that base fee can be included in a cost-plus-award-fee (CPAF)
type contract at the discretion of the contracting officer.
(7) FAR 16.405-2(b)(1) has been deleted in its entirety. The
language relative to when an award-fee contract is suitable for use is
in FAR 16.401(e)(1).
(8) FAR 16.405-2(b)(2) has been deleted in its entirety. The
language relative to award-fee criteria motivating contractor
performance has been revised and moved to FAR 16.401(e)(3)(ii).
(9) FAR 16.405-2(b)(3) has been deleted in its entirety. The
language relative to award-fee evaluation intervals has been revised
and moved to 16.401(e)(3)(vi).
(10) FAR 16.405-2(c) has been deleted and the intent of this
section is now included in FAR 16.401(e)(5). The revision requires that
no award-fee contract shall be awarded unless the limitations cited in
this section are met. The limitations include compliance with FAR
16.301-3, FAR 16.401(e)(3), and a determination and finding that
justifies the use of this contract type in accordance with the
suitability items in FAR 16.401(e)(1).
(11) The references utilized in FAR 16.305 and FAR 16.402-1 were
updated to accurately point to the correct FAR sections based upon the
changes herein.
(12) FAR 16.401(f) was added to require the collection of
incentive- and award-fee data within the Federal Government.
(13) FAR 16.401(g) was added to provide the Federal workforce with
best practice type information relative to incentive- and award-fee
contracting.
These changes will affect contracts newly awarded. Any changes to
existing contracts would be handled in accordance with FAR 1.108(d).
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, 1993. This rule is not a major
rule under 5 U.S.C. 804.
[[Page 52858]]
B. Regulatory Flexibility Act
The interim rule is not expected to 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
guidance 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 interim 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
rollover 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.
Therefore, an Initial Regulatory Flexibility Analysis has not been
performed. The Councils will consider comments from small entities
concerning the affected FAR part 16 in accordance with 5 U.S.C. 610.
Interested parties must submit such comments separately and should cite
5 U.S.C 601, et seq. (FAC 2005-37, FAR case 2008-008), in all
correspondence.
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.
Chapter 35, et seq.
D. Determination to Issue an Interim Rule
A determination has been made under the authority of the Secretary
of Defense (DoD), the Administrator of General Services (GSA), and the
Administrator of the National Aeronautics and Space Administration
(NASA) that urgent and compelling reasons exist to promulgate this
interim rule without prior opportunity for public comment. This action
is necessary because section 867 of the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (Public Law 110-417), enacted on
October 14, 2008, requires that the FAR be revised to implement this
provision by October 14, 2009. However, pursuant to Public Law 98-577
and FAR 1.501, the Councils will consider public comments received in
response to this interim rule in the formation of the final rule.
List of Subjects in 48 CFR Part 16
Government procurement.
Dated: October 5, 2009.
Al Matera,
Director, Acquisition Policy Division.
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Therefore, DoD, GSA, and NASA amend 48 CFR part 16 as set forth below:
PART 16--TYPES OF CONTRACTS
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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).
0
2. Add section 16.001 to read as follows:
16.001 Definitions.
As used in this part--
Award-Fee Board means the team of individuals identified in the
award-fee plan who have been designated to assist the Fee-Determining
Official in making award-fee determinations.
Fee-Determining Official (FDO) means the designated Agency
official(s) who reviews the recommendations of the Award-Fee Board in
determining the amount of award fee to be earned by the contractor for
each evaluation period.
Rollover of unearned award fee means the process of transferring
unearned award fee, which the contractor had an opportunity to earn,
from one evaluation period to a subsequent evaluation period, thus
allowing the contractor an additional opportunity to earn that
previously unearned award fee.
0
3. Amend section 16.305 by revising the third and fourth sentences to
read as follows:
16.305 Cost-plus-award-fee contracts.
* * * See 16.401(e) for a more complete description and discussion
of the application of these contracts. See 16.301-3 and 16.401(e)(5)
for limitations.
0
4. Amend section 16.401 by revising paragraph (d); and adding
paragraphs (e) through (g) to read as follows:
16.401 General.
* * * * *
(d) A determination and finding, signed by the head of the
contracting activity, shall be completed for all incentive- and award-
fee contracts justifying that the use of this type of contract is in
the best interest of the Government. This determination shall be
documented in the contract file and, for award-fee contracts, shall
address all of the suitability items in 16.401(e)(1).
(e) Award-fee contracts are a type of incentive contract.
(1) Application. An award-fee contract is suitable for use when--
(i) The work to be performed is such that it is neither feasible
nor effective to devise predetermined objective incentive targets
applicable to cost, schedule, and technical performance;
(ii) The likelihood of meeting acquisition objectives will be
enhanced by using a contract that effectively motivates the contractor
toward exceptional performance and provides the Government with the
flexibility to evaluate both actual performance and the conditions
under which it was achieved; and
(iii) Any additional administrative effort and cost required to
monitor and evaluate performance are justified by the expected benefits
as documented by a risk and cost benefit analysis to be included in the
Determination and Findings referenced in 16.401(e)(5)(iii).
(2) Award-fee amount. The amount of award fee earned shall be
commensurate with the contractor's overall cost, schedule, and
technical performance as measured against contract requirements in
accordance with the criteria stated in the award-fee plan. Award fee
shall not be earned if the contractor's overall cost, schedule, and
technical performance is below satisfactory. The basis for all award-
fee determinations shall be documented in the contract file to include,
at a minimum, a determination that overall cost, schedule and technical
performance is or is not at a satisfactory level. This determination
and the methodology for determining the award fee are unilateral
decisions made solely at the discretion of the Government.
(3) Award-fee plan. All contracts providing for award fees shall be
supported by an award-fee plan that establishes the procedures for
evaluating award fee and an Award-Fee Board for conducting the award-
fee evaluation. Award-fee plans shall--
(i) Be approved by the FDO unless otherwise authorized by agency
procedures;
(ii) Identify the award-fee evaluation criteria and how they are
linked to acquisition objectives which shall be defined in terms of
contract cost, schedule, and technical performance. Criteria should
motivate the contractor to enhance performance in the areas rated, but
not at the expense of at least minimum acceptable performance in all
other areas;
[[Page 52859]]
(iii) Describe how the contractor's performance will be measured
against the award-fee evaluation criteria;
(iv) Utilize the adjectival rating and associated description as
well as the award-fee pool earned percentages shown below in Table 16-
1. Contracting officers may supplement the adjectival rating
description. The method used to determine the adjectival rating must be
documented in the award-fee plan;
Table 16-1
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Award-Fee Pool
Award-Fee Adjectival Rating Available To Be Description
Earned
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Excellent................... 91%--100%......... Contractor has exceeded almost all of the significant award-fee criteria and has met overall cost,
schedule, and technical performance requirements of the contract as defined and measured against the
criteria in the award-fee plan for the award-fee evaluation period.
Very Good................... 76%--90%.......... Contractor has exceeded many of the significant award-fee criteria and has met overall cost, schedule,
and technical performance requirements of the contract as defined and measured against the criteria
in the award-fee plan for the award-fee evaluation period.
Good........................ 51%--75%.......... Contractor has exceeded some of the significant award-fee criteria and has met overall cost, schedule,
and technical performance requirements of the contract as defined and measured against the criteria
in the award-fee plan for the award-fee evaluation period.
Satisfactory................ No Greater Than Contractor has met overall cost, schedule, and technical performance requirements of the contract as
50%. defined and measured against the criteria in the award-fee plan for the award-fee evaluation period.
Unsatisfactory.............. 0%................ Contractor has failed to meet overall cost, schedule, and technical performance requirements of the
contract as defined and measured against the criteria in the award-fee plan for the award-fee
evaluation period.
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(v) Prohibit earning any award fee when a contractor's overall
cost, schedule, and technical performance is below satisfactory;
(vi) Provide for evaluation period(s) to be conducted at stated
intervals during the contract period of performance so that the
contractor will periodically be informed of the quality of its
performance and the areas in which improvement is expected (e.g. six
months, nine months, twelve months, or at specific milestones); and
(vii) Define the total award-fee pool amount and how this amount is
allocated across each evaluation period.
(4) Rollover of unearned award fee. The use of rollover of unearned
award fee is prohibited.
(5) Limitations. No award-fee contract shall be awarded unless--
(i) All of the limitations in 16.301-3, that are applicable to
cost-reimbursement contracts only, are complied with;
(ii) An award-fee plan is completed in accordance with the
requirements in 16.401(e)(3); and
(iii) A determination and finding is completed in accordance with
16.401(d) addressing all of the suitability items in 16.401(e)(1).
(f) Incentive- and Award-Fee Data Collection and Analysis. Each
agency shall collect relevant data on award fee and incentive fees paid
to contractors and include performance measures to evaluate such data
on a regular basis to determine effectiveness of award and incentive
fees as a tool for improving contractor performance and achieving
desired program outcomes. This information should be considered as part
of the acquisition planning process (see 7.105) in determining the
appropriate type of contract to be utilized for future acquisitions.
(g) Incentive- and Award-Fee Best Practices. Each agency head shall
provide mechanisms for sharing proven incentive strategies for the
acquisition of different types of products and services among
contracting and program management officials.
16.402-1 [Amended]
0
4. Amend section 16.402-1 by removing from paragraph (b) ``16.405-2''
and adding ``16.401(e)'' in its place.
0
5. Revise section 16.404 to read as follows:
16.404 Fixed-price contracts with award fees.
Award-fee provisions may be used in fixed-price contracts when the
Government wishes to motivate a contractor and other incentives cannot
be used because contractor performance cannot be measured objectively.
Such contracts shall establish a fixed price (including normal profit)
for the effort. This price will be paid for satisfactory contract
performance. Award fee earned (if any) will be paid in addition to that
fixed price. See 16.401(e) for the requirements relative to utilizing
this contract type.
0
6. Revise section 16.405-2 to read as follows:
16.405-2 Cost-plus-award-fee contracts.
A cost-plus-award-fee contract is a cost-reimbursement contract
that provides for a fee consisting of (1) a base amount fixed at
inception of the contract, if applicable and at the discretion of the
contracting officer, and (2) an award amount that the contractor may
earn in whole or in part during performance and that is sufficient to
provide motivation for excellence in the areas of cost, schedule, and
technical performance. See 16.401(e) for the requirements relative to
utilizing this contract type.
[FR Doc. E9-24579 Filed 10-13-09; 8:45 am]
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