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Proposed Rule

Defense Federal Acquisition Regulation Supplement; Types of Contracts

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Information about this document as published in the Federal Register.

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Department of Defense (DoD).


Proposed rule with request for comments.


DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to update text on the selection and use of contract types. This proposed rule is a result of a transformation initiative undertaken by DoD to dramatically change the purpose and content of the DFARS.


Comments on the proposed rule should be submitted in writing to the address shown below on or before November 15, 2005, to be considered in the formation of the final rule.


You may submit comments, identified by DFARS Case 2003-D078, using any of the following methods:

○ Federal eRulemaking Portal: Follow the instructions for submitting comments.

○ Defense Acquisition Regulations Web Site:​dar/​dfars.nsf/​pubcomm. Follow the instructions for submitting comments.

○ E-mail: Include DFARS Case 2003-D078 in the subject line of the message.

○ Fax: (703) 602-0350.

○ Mail: Defense Acquisition Regulations Council, Attn: Ms. Robin Schulze, OUSD(AT&L)DPAP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062.

○ Hand Delivery/Courier: Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.

All comments received will be posted to​dar/​dfars.nsf.

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Ms. Robin Schulze, (703) 602-0326.

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A. Background

DFARS Transformation is a major DoD initiative to dramatically change the purpose and content of the DFARS. The objective is to improve the efficiency and effectiveness of the acquisition process, while allowing the acquisition workforce the flexibility to innovate. The transformed DFARS will contain only requirements of law, DoD-wide policies, delegations of FAR authorities, deviations from FAR requirements, and policies/procedures that have a significant effect beyond the internal operating procedures of DoD or a significant cost or administrative impact on contractors or offerors. Additional information on the DFARS Transformation initiative is available at​dpap/​dars/​dfars/​transformation/​index.htm.

This proposed rule is a result of the DFARS Transformation initiative. The proposed DFARS changes—

○ Streamline text on the use of economic price adjustment clauses;

○ Increase, from 3 to 5 years, the standard maximum ordering period under basic ordering agreements;

○ Delete obsolete text on the use of cost-plus-fixed-fee contracts for environmental restoration;

○ Delete unnecessary text on design stability and use of incentive provisions; and

○ Delete procedures for selecting contract type and for use of special economic price adjustment clauses, incentive contracts, and basic ordering agreements. Text on these subjects will be relocated to the new DFARS companion resource, Procedures, Guidance, and Information (PGI). Additional information on PGI is available at​dpap/​dars/​pgi.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

DoD does not expect this rule 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 rule updates and streamlines DFARS text on the use of various contract types, but makes no significant change to DoD contracting policy. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subparts in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2003-D078.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

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List of Subjects in 48 CFR Part 216

  • Government procurement
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Michele P. Peterson,

Editor, Defense Acquisition Regulations System.

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Therefore, DoD proposes to amend 48 CFR part 216 as follows:

1. The authority citation for 48 CFR part 216 continues to read as follows:

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Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

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2. Section 216.104 is removed.

3. Section 216.104-70 is revised to read as follows:

Research and development.

Follow the procedures at PGI 216.104-70 for selecting the appropriate research and development contract type.

4. Section 216.203-4 is revised to read as follows:

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Contract clauses.

(1) Generally, use the clauses at FAR 52.216-2, Economic Price Adjustment—Standard Supplies, FAR 52.216-3, Economic Price Adjustment—Semistandard Supplies, and FAR 52.216-4, Economic Price Adjustment—Labor and Material, only when—

(i) The total contract price exceeds the simplified acquisition threshold; and

(ii) Delivery or performance will not be completed within 6 months after contract award.

(2) Follow the procedures at PGI 216.203-4 when using an economic price adjustment clause based on cost indexes of labor or material.

5. Section 216.306 is amended by revising paragraph (c)(ii) to read as follows:

Cost-plus-fixed-fee contracts.

(c) * * *

(ii) The prohibition in paragraph (c)(i) of this section does not apply to contracts specifically approved in writing, setting forth the reasons therefor, in accordance with the following:

(A) The Secretaries of the military departments are authorized to approve such contracts that are for environmental work only, provided the environmental work is not classified as construction, as defined by 10 U.S.C. 2801.

(B) The Secretary of Defense or designee must approve such contracts that are not for environmental work only or are for environmental work classified as construction.

6. Sections 216.402-2 through 216.403-2 are revised to read as follows:

Technical performance incentives.

See PGI 216.402-2 for guidance on establishing performance incentives.

Fixed-price incentive contracts.
Fixed-price incentive (successive targets) contracts.

See PGI 216.403-2 for guidance on the use of fixed-price incentive (successive targets) contracts.


7. Section 216.404 is removed.

8. Section 216.405-1 is revised to read as follows:

Cost-plus-incentive-fee contracts.

See PGI 216.405-1 for guidance on the use of cost-plus-incentive-fee contracts.

9. Section 216.405-2 is revised to read as follows:

Cost-plus-award-fee contracts.

(b) Application. The cost-plus-award-fee (CPAF) contract may include provisional award fee payments. A provisional award fee payment is a payment made within an evaluation period prior to a final evaluation for that period. The contracting officer may include provisional award fee payments in a CPAF contract on a case-by-case basis, provided those payments—

(i) Are made no more frequently than monthly;

(ii) Are limited to no more than—

(A) For the initial award fee evaluation period, 50 percent of the award fee available for that period; and

(B) For subsequent award fee evaluation periods, 80 percent of the evaluation score for the prior evaluation period times the award fee available for the current period, e.g., if the contractor received 90 percent of the award fee available for the prior evaluation period, provisional payments for the current period shall not exceed 72 percent (90 percent × 80 percent) of the award fee available for the current period;

(iii) Are superceded by an interim or final award fee evaluation for the applicable evaluation period. If provisional payments have exceeded the payment determined by the evaluation score for the applicable period, the contracting officer shall collect the debt in accordance with FAR 32.606; and

(iv) May be discontinued, or reduced in such amounts deemed appropriate by the contracting officer, when the contracting officer determines that the contractor will not achieve a level of performance commensurate with the provisional payment. The contracting officer shall notify the contractor in writing of any discontinuance or reduction in provisional award fee payments.

(c) Limitations.

(i) The CPAF contract shall not be used—

(A) To avoid—

(1) Establishing cost-plus-fixed-fee contracts when the criteria for cost-plus-fixed-fee contracts apply; or

(2) Developing objective targets so a cost-plus-incentive-fee contract can be used; or

(B) For either engineering development or operational system development acquisitions that have specifications suitable for simultaneous research and development and production, except a CPAF contract may be used for individual engineering development or operational system development acquisitions ancillary to the development of a major weapon system or equipment, where—

(1) It is more advantageous; and

(2) The purpose of the acquisition is clearly to determine or solve specific problems associated with the major weapon system or equipment.

(ii) Do not apply the weighted guidelines method to CPAF contracts for either the base (fixed) fee or the award fee.

(iii) The base fee shall not exceed 3 percent of the estimated cost of the contract exclusive of the fee.

(S-70) See PGI 216.405-2 for guidance on the use of CPAF contracts.

10. Section 216.470 is revised to read as follows:

Other applications of award fees.

See PGI 216.470 for guidance on other applications of award fees.

11. Section 216.703 is revised to read as follows:

Basic ordering agreements.

(c) Limitations. The period during which orders may be placed against a basic ordering agreement may not exceed 5 years.

(d) Orders. Follow the procedures at PGI 216.703(d) for issuing orders under basic ordering agreements.

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[FR Doc. 05-18473 Filed 9-15-05; 8:45 am]