SUPPLEMENTARY INFORMATION:

A. Background

The proposed changes to FAR 32.1000, 32.1003, 32.1004, 32.1005, and 32.1007 and the clause at 52.232-32 are intended to increase the use of performance-based payments as the method of contract financing on Federal Government contracts, and improve the efficiency of performance-based payments when used on these contracts. These proposed changes originated from recommendations submitted by the Department of Defense Performance-based Payments Working Group in their March 8, 2005 report. 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. Discussion

The Councils are proposing to revise the following FAR provisions:

1. The current FAR 32.1001(e) is renumbered to (d) and rephrased to require payments to be made in accordance with each agency's policy.

2. FAR 32.1001(e) is moved from 32.1000 to clarify when use of PBPs is appropriate.

3. FAR 32.1003 is revised to specifically address when PBP's may be used. This revised language clarifies use of PBPs on fixed-priced line items and orders and on Indefinite Delivery-Indefinite Quantity and non-Indefinite Delivery contracts.

4. FAR 32.1004(a)(1), to clarify that events not requiring meaningful effort or action must not be included as events or criteria for PBPs. FAR 32.1004(a)(2)(iii), to specifically state that all cumulative events be identified. FAR 32.1004(b)(2)(ii) requires that the contracting officer must document the rationale for establishing a performance-based payment rate that is below the applicable progress payment rate. FAR 32.1004(c) is added (and the existing (c) renumbered) to clarify that the contracting officer shall not limit the amount of a PBP payment to a percentage of actual incurred cost for the scheduled event or performance criteria. FAR 32.1004(e)(1)(ii) is renumbered to 32.1004(f)(1)(ii) and revised to clarify that solicitations related to competitive source selections should state that the evaluation of the proposed prices will include an adjustment to reflect the estimated cost to the Government of providing each offeror's proposed PBP terms.

5. FAR 32.1007(a) is revised to clarify that the contracting officer responsible for administering the performance-based payments should also be responsible for reviewing, approving, and transmitting the payment requests to the payment office. FAR 32.1007(c) is revised to prohibit actual cost verification unless the purpose is to assist in establishing revised or new PBP milestones or values.

C. Regulatory Flexibility Act

The Councils do not expect this proposed 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 this rule should reduce administrative costs for contractor and the Government, thus further encouraging the use of performance based payments. An Initial Regulatory Flexibility Analysis has, therefore, not been performed. We invite comments from small businesses and other interested parties. The Councils will consider comments from small entities concerning the affected FAR Parts 32 and 52 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. (FAR case 2005-016), in correspondence.

D. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the proposed 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.

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 32 and 52 as set forth below:

1. The authority citation for 48 CFR parts 32 and 52 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).

2. Amend section 32.110 by removing from paragraph (d) “32.1004(d)” and adding “32.1004(e)” in its place.

3. Revise section 32.1000 to read as follows:

This subpart provides policy and procedures for performance-based payments under noncommercial purchases pursuant to Subpart 32.1.

4. Amend section 32.1001 by—

a. Removing from paragraph (c) “32.1003(c)” and adding “32.1003(d))” in its place;

b. Removing paragraph (d); redesignating paragraph (e) as (d); and adding a new paragraph (e); and

c. Revising newly designated paragraph (d).

The revised and added text reads as follows:

(d) Performance-based payments are contract financing payments and, therefore, are not subject to the interest-penalty provisions of prompt payment (see Subpart 32.9). These payments shall be made in accordance with agency policy.

(e) Performance-based payments shall not be used for—

(1) Payments under cost-reimbursement line items;

(2) Contracts for architect-engineer services or construction, or for shipbuilding or ship conversion, alteration, or repair, when the contracts provide for progress payments based upon a percentage or stage of completion; or

(3) Contracts awarded through sealed bid procedures.

5. Amend section 32.1002 by—

a. Removing from the end of paragraph (a) the semi-colon and adding a period in its place; and

b. Removing from the end of paragraph (b) “; or” and adding a period in its place.

6. Revise section 32.1003 to read as follows:

The contracting officer may use performance-based payments for individual orders and contracts provided—

(a) The contracting officer and offeror agree on the performance-based payment terms;

(b) The contract, individual order, or line item is a fixed-price type; ( printed page 75188)

(c) For indefinite delivery contracts, the individual order does not provide for progress payments; and

(d) For other than an indefinite delivery contract, the contract does not provide for progress payments.

7. Amend section 32.1004 by—

a. Revising the 3rd sentence of paragraph (a)(1);

b. Revising paragraph (a)(2)(iii);

c. Revising the introductory text of paragraph (b)(2);

d. Adding a new sentence to the end of paragraph (b)(2)(ii);

e. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f) respectively, and adding a new paragraph (c);

f. Revising the 2nd sentence of the newly redesignated paragraph (f)(1)(ii); and

g. Removing from the newly redesignated paragraph (f)(2)(ii) “(e)(1)(ii)” and adding “(f)(1)(ii)” in its place.

The revised and added text reads as follows:

(a) * * * (1) * * * The signing of contracts or modifications, the exercise of options, the passage of time, or other such occurrences do not represent meaningful efforts or actions and shall not be identified as events or criteria for performance-based payments. * * *

(2) * * *

(iii) The contract must specifically identify cumulative events or criteria and identify which events or criteria are preconditions for the successful achievement of each cumulative event or criterion.

(b) * * *

(2) Total performance-based payments shall—

(ii) * * * Unless otherwise provided in agency procedures, the contracting officer shall document the rationale for establishing the performance-based payment rate if the performance-based payment rate is less than the contractor's applicable progress payment rate.

(c) Payment Amount. The contracting officer shall not limit the amount of a performance-based payment to a percentage of actual incurred cost for the scheduled event or performance criteria.

(f) * * *

(1) * * *

(ii) * * * Unless agencies prescribe other evaluation procedures, if the contracting officer anticipates that the cost of providing performance-based payments would have a significant impact on determining the best value offer, the solicitation should state that the evaluation of the offeror's proposed prices will include an adjustment to reflect the estimated cost to the Government of providing each offeror's proposed performance-based payments (see Alternate I to the provision at 52.232-28).

8. Amend section 32.1005 by—

a. Revising the introductory text of paragraph (a); and

b. Removing from paragraph (b)(2) “32.1004(e)” and adding “32.1004(f)” in its place.

The revised text reads as follows:

(a) Insert the clause at 52.232-32, Performance-Based Payments, in—

9. Amend section 32.1007 by—

a. Revising paragraph (a);

b. Removing from paragraph (b)(2) “32.1004(c)” and adding “32.1004(d)” in its place; and

c. Adding to the end of paragraph (c) a new sentence.

The revised and added text reads as follows:

(a) Responsibility. The contracting officer responsible for administering performance-based payments (see 42.302(a)(12)) for the contract shall review and approve all performance-based payments for that contract.

(c) * * * Reviews shall not include verification of actual cost unless the purpose is to assist in establishing revised or new performance-based payment milestones or values.

10. Amend section 52.232-32 by revising the date of the clause and the second sentence of paragraph (c)(2) to read as follows:

PERFORMANCE-BASED PAYMENTS (DATE)

(c) * * *

(2) * * * The designated payment office will pay approved requests on the _________ [ Contracting Officer insert day as prescribed by agency head; if not prescribed, insert “30th”] day after receipt of the request for performance-based payment by the designated payment office. * * *

(End of clause)