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Preferred Supplier Program (PSP)

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Department of the Navy, DoD.


Notice of proposed policy letter.


The Deputy Assistant Secretary of the Navy, Acquisition and Logistics Management (DASN (A&LM)), is soliciting comments that the Department of the Navy (DON) may use in drafting a policy that will establish a Preferred Supplier Program (PSP). Under the PSP, contractors that have demonstrated exemplary performance, at the corporate level; in the areas of cost, schedule, performance, quality, and business relations would be granted Preferred Supplier Status (PSS). Contractors that achieved PSS would receive more favorable contract terms and conditions in DON contracts. Upon approval of the policy by the Assistant Secretary of the Navy for Research, Development and Acquisition, DON will initiate the pilot phase of the PSP.


DON invites interested parties from both the public and private sectors to provide comments to be considered in the formulation of the final policy letter. In particular, DON encourages respondents to offer their views as discussed below, in Section D, “Solicitation of Public Comment.”

Interested parties should submit comments, in writing, to the address below, on or before July 23, 2010.


Comments may be submitted by any of the following methods:


Facsimile: 703-614-9394.

Mail: DASN (A&LM), Attn: Clarence Belton, 1000 Navy Pentagon, Room BF992, Washington, DC 20350-1000.

Instructions: Please submit comments only and cite “Proposed DON PSP Policy Letter” in all correspondence. All comments received will be posted, without change or redaction, to​rda/​home/​acquisition_​one_​source/​business_​opportunities/​preferred_​supplier, so commenters should not include information that they do not wish to be posted (for example, personal or business-confidential).

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Clarence Belton, 703-693-4006 or

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A. Background

Companies in the private sector that have implemented PSPs have significantly improved performance. Cash flow, profit, and contract terms and conditions that reduce contractor costs and risk are powerful incentives that can be used to motivate contractors to perform at a high level. DON and its contractors negotiate these key components of the business arrangement contract by contract. As a result of this decentralized and individual approach, DON loses an extremely important opportunity. This policy would establish the PSP to recover that opportunity through the use of favorable contract terms and conditions that would be available to Preferred Suppliers (i.e., suppliers that have demonstrated exemplary performance, at the corporate level, in the areas of cost, schedule, performance, quality, and business relations).

The proposed policy is now in the conceptual stage. After consideration of the comments, DON may publish a draft proposed policy letter for additional public comments.

B. Proposed Policy Letter Concepts

The general outline of the pilot phase of the PSP, to be established under the proposed policy letter, is set forth below.

DASN (A&LM) shall be responsible for the assessment of contractors under the PSP. DASN (A&LM) will confer PSS at the corporate level, and will not rate individual affiliates or subdivisions of corporations.

DASN (A&LM) shall use the Contractor Performance Assessment Reporting System (CPARS) as the baseline data during the pilot phase of the PSP. In the course of the pilot phase, DON also will identify other sources of data, including information available to Navy program offices and government contract administration organizations that the Department may use to supplement CPARS data in implementing the PSP. The factors that DASN (A&LM) will use to assess contractors during the pilot phase include, at a minimum, the following CPARS areas:

Technical (Quality of Product);


Cost Control;

Management Responsiveness;

Management of Key Personnel;

Utilization of Small Business;

Other CPARS Factors As Appropriate.

DASN (A&LM) shall assess Energy Efficiency for all contractors as an “excellence factor,” in addition to the areas above.

During the pilot phase of the PSP, DON will use a 5-star system based upon the 5-color ratings used in CPARS, as follows:Start Printed Page 28789

Dark Blue4

DON will use the CPARS conversion table above, based upon CPARS data, and, as appropriate, other sources of information and weighting factors. Contractors must achieve at least a 3-Star rating to be designated as a Preferred Supplier.

If a contractor provides documentation sufficient to establish that it has an Energy Efficiency Program, it will receive an additional star, up to a maximum rating of 5 Stars. A 5-Star rating can only be achieved if the contractor maintains an active Energy Efficiency Program, and otherwise has received a 4-Star rating. Failure to demonstrate an active Energy Efficiency Program will not diminish the contractor's PSP rating.

During each fiscal year, DASN (A&LM) shall reassess and rate the top 25 DON contractors. The top 25 DON contractors will be determined by the value of contract awards for the most recent fiscal year. Other contractors may apply to join the PSP. DASN (A&LM) shall evaluate all applicants currently eligible for assessment in CPARS using the same process as it does to evaluate the top 25 contractors. DASN (A&LM) will establish a 30-day application period that will begin no later than January 1, annually.

In negotiating contracts with Preferred Suppliers, DON contracting officers will be authorized to offer some or all of the following more favorable contract terms and conditions:

○ More favorable progress payments.

○ Recognition of PSS in the development of profit or fee based upon weighted guidelines.

○ Tailored contract reporting requirements.

○ Special award fee pools.

PSS shall not be used as a factor or sub-factor in any source selection. However, where the contracting officer has a reasonable belief that a Preferred Supplier may submit a bid or proposal, the solicitation shall contain terms and conditions that will be applicable, after award, only if the successful offeror is a Preferred Supplier.

These special terms and conditions, applicable to contracts with Preferred Suppliers, shall be consistent with the limitations specified in regulations promulgated pursuant to the Federal Acquisition Regulatory System.

C. Solicitation of Public Comment

DON invites interested parties from both the public and private sectors to provide comments for consideration in the formulation of a policy letter establishing the PSP. In particular, DON seeks to better understand how to incentivize contractors, at the corporate level, to achieve sustained superior performance in the areas of cost, schedule, performance, quality, and business relations. Accordingly, DON welcomes feedback regarding the following questions.

1. What clauses are currently being used in government subcontracts, and commercial contracts and subcontracts, to incentivize superior performance, at the corporate level, in the areas of cost, schedule, performance, quality, and business relations?

2. What solicitation provisions, contract clauses, and performance incentives will provide contractors with the greatest motivation to achieve PSS?

3. Energy Efficiency is a critical DON requirement significantly impacting the successful achievement of DON's missions. How should a contractor's use of energy, as it relates to the entire life-cycle of a product—design, manufacture, use, maintenance, and disposal—be considered in the designation of Preferred Suppliers?

4. Is there any other aspect of the proposed PSP on which you wish to comment?

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Dated: May 14, 2010.

A. M. Vallandingham,

Lieutenant Commander, Office of the Judge Advocate General, U.S. Navy, Federal Register Liaison Officer.

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[FR Doc. 2010-12349 Filed 5-21-10; 8:45 am]