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Proposed Rule

Defense Federal Acquisition Regulation Supplement Award-Fee Contracts (DFARS Case 2006-D021)

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


Proposed rule with request for comments.


DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to address award-fee contracts, including eliminating the use of provisional award-fee payments.


Comments on the proposed rule should be submitted to the address shown below on or before June 29, 2010, to be considered in the formation of the final rule.


You may submit comments, identified by DFARS Case 2006-D021, using any of the following methods:

Federal eRulemaking Portal: Follow the instructions for submitting comments.

E-mail: Include DFARS Case 2006-D021 in the subject line of the message.

Fax: 703-602-0350.

Mail: Defense Acquisition Regulations System, Attn: Mr. Mark Gomersall, OUSD(AT&L)DPAP(DARS), 3060 Defense Pentagon, Room 3B855, Washington, DC 20301-3060.

Comments received generally will be posted without change to, including any personal information provided.

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Mr. Mark Gomersall, 703-602-0302.

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A. Background

This DFARS case proposes to revise guidance for award-fee evaluations and payments and to eliminate the use of provisional award-fee payments. One new clause is provided as part of this rule to detail the use of award fees. In addition, this rule incorporates DoD policy guidance on the use of objective criteria.

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 Start Printed Page 22729substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. because most contracts awarded to small entities use simplified acquisition procedures or are awarded on a competitive fixed-price basis and do not utilize award-fee type incentives. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

DoD will also consider comments from small entities concerning the existing regulations in subparts affected by this rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (DFARS Case 2006-D021) in correspondence.

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 Parts 216 and 252

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Ynette R. Shelkin,

Editor, Defense Acquisition Regulations System.

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Therefore, DoD proposes to amend 48 CFR parts 216 and 252 as follows:

1. The authority citation for 48 CFR parts 216 and 252 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. Add sections 216.401 and 216.401-70 to read as follows:


(e) Award-fee plans required in FAR 16.401(e) must be incorporated into all award-fee type contracts.

Objective criteria.

(1) Contracting officers will use objective criteria to the maximum extent possible to measure contract performance. Objective criteria are associated with cost-plus-incentive-fee and fixed-price incentive contracts.

(2) When objective criteria exist but the contracting officer determines that it is in the best interest of the Government also to incentivize subjective elements of performance, the most appropriate contract type is a multiple-incentive contract containing both objective incentives and subjective award-fee criteria (i.e., cost-plus-incentive-fee/award-fee or fixed-price-incentive/award-fee).

(3) See PGI 216.401-70 for guidance on the use of award-fee contracts.

3. Revise section 216.405-2 to read as follows:

Cost-plus-award-fee contracts.

(1) Award-fee pool. The award-fee pool is the total available award fee for each evaluation period for the life of the contract. The contracting officer must perform an analysis of appropriate fee distribution to ensure at least 40% of the award fee is held for the final evaluation so that the award fee is appropriately distributed over all evaluation periods to incentivize the contractor throughout performance of the contract.

(2) Award-fee evaluation and payments. Award-fee payments other than payments resulting from the evaluation at the end of an award-fee period are prohibited. (This prohibition does not apply to base-fee payments.) The fee-determining official's rating for award-fee evaluations will be provided to the contractor within 45 calendar days of the end of the period being evaluated. The final award-fee payment will be consistent with the contracting officer's final evaluation of the contractor's overall performance against the cost, schedule, and performance outcomes specified in the award-fee plan.

(3) 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 three percent of the estimated cost of the contract exclusive of the fee.

(4) See PGI 216.405-2 for guidance on the use of cost-plus-award-fee contracts.

4. Add section 216.406 to read as follows:

Contract clauses.

(e) Use the clause at 252.216-70XX, Award Fee, in solicitations and contracts when an award-fee contract is contemplated.

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5. Add section 252.216-70XX to read as follows:

Award fee.

As prescribed in 216.406(e), insert the following clause:


The Contractor may earn award fee from a minimum of zero dollars to the maximum amount stated in the award-fee plan in this contract. In no event will award fee be paid to the Contractor for any evaluation period in which the Government rates the Contractor's overall cost, schedule, and technical performance below satisfactory. The Government may unilaterally revise the award-fee plan prior to the beginning of any rating period in order to redirect Contractor emphasis.

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[FR Doc. 2010-9881 Filed 4-29-10; 8:45 am]