[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Proposed Rules]
[Pages 40284-40287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19486]


      

[[Page 40283]]


_______________________________________________________________________

Part II

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 7, et al.



Federal Acquisition Regulation; Service Contracting; Proposed Rule and 
Proposed Collection; Comment Request Entitled Service Contracting; 
Notice

  Federal Register / Vol. 61, No. 149 / Thursday, August 1, 1996 / 
Proposed Rules  

[[Page 40284]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 7, 15, 16, 37, 46, and 52

RIN 9000-AH14
[FAR Case 95-311]


Federal Acquisition Regulation; Service Contracting

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation to implement Office of Federal Procurement 
Policy (OFPP) Policy Letter 91-2, Service Contracting (previously 
considered under withdrawn FAR Case 91-85, Services Contracting). The 
OFPP policy letter prescribes policies and procedures for use of 
performance-based contracting methods. This regulatory action was not 
subject to Office of Management and Budget review under Executive Order 
12866, dated September 30, 1993. This action is not a major rule under 
5 U.S.C. 804.

DATES: Comments should be submitted on or before September 30, 1996 to 
be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVRS), 18th and F 
Streets, NW, Room 4037, Washington, DC 20405.
    Please cite FAR case 95-311 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT:
Mr. Peter O'Such at (202) 501-1759 in reference to this FAR case. For 
general information, contact the FAR Secretariat, Room 4037, GS 
Building, Washington, DC 20405 (202) 501-4755. Please cite FAR case 95-
311.

SUPPLEMENTARY INFORMATION: 

A. Background

    This proposed rule amends FAR Parts 7, 15, 16, 37, 46, and 52 to 
establish policy for the Government's acquisition of services through 
the use of performance-based contracting methods.

B. Regulatory Flexibility Act

    The proposed changes may 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 of the 
burden associated with identifying uncompensated overtime hours and 
rates included in proposals and subcontractor proposals under the new 
provision 52.327-XX, Identification of Uncompensated Overtime. An 
Initial Regulatory Flexibility Analysis has been prepared and is 
summarized as follows:
    The proposed rule amends the Federal Acquisition Regulation (FAR) 
Parts 7, 15, 16, 37, 46, and 52 to implement the Office of Federal 
Procurement Policy (OFPP) Policy Letter 91-2, Service Contracting, and 
makes other revisions to part 37. One of the revisions implements the 
statutory requirement of section 834, Public Law 103-510, concerning 
uncompensated overtime. Although the statutory requirement applies only 
to DOD, both GSA and NASA have agreed the language is appropriate for 
Governmentwide use. The Regulatory Flexibility Act applies only to the 
language being added to the FAR concerning uncompensated overtime. The 
rule will affect all small businesses that submit offers for services 
estimated at $100,000 or more. Work hours provided, not the task to be 
performed, are addressed by this rule.
    The requirements concerning uncompensated overtime in this proposed 
rule are currently in the Defense Federal Acquisition Regulation 
(DFARS). When this proposed rule is implemented in the FAR as a final 
rule, the DFARS language will be removed. There are no alternatives.
    The Initial Regulatory Flexibility Analysis (IRFA) will be provided 
to the Chief Counsel for Advocacy for the Small Business 
Administration. A copy of the IRFA may be obtained from the FAR 
Secretariat. Comments are invited. Comments from small entities 
concerning the affected FAR subpart will be considered in accordance 
with 5 U.S.C. 610. Such comments must be submitted separately and 
should cite 5 U.S.C. 601, et seq. (FAR case 95-311), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (Public Law 104-13) is deemed 
to apply because the proposed rule contains information collection 
requirements. Accordingly, a request for approval of a new information 
collection requirement concerning the Service Contracting/Solicitation 
provision, ``Identification of Uncompensated Overtime'', is being 
submitted to the Office of Management and Budget under 44 U.S.C. 
3507(d), et seq. Public comments concerning this request will be 
invited through a Federal Register notice appearing in the Notices 
section of this issue.

List of Subjects in 48 CFR Parts 7, 15, 16, 37, 46, and 52

    Government procurement.

    Dated: July 25, 1996.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Parts 7, 15, 16, 37, 46, and 
52 be amended as set forth below:
    1. The authority citation for 48 CFR Parts 7, 15, 16, 37, 46, and 
52 continues to read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 7--ACQUISITION PLANNING

    2. Section 7.103 is amended by adding paragraph (q) to read as 
follows:


7.103  Agency-head responsibilities.

 * * * * *
    (q) Ensuring that knowledge gained from prior acquisitions is used 
to further refine requirements and acquisition strategies. For 
services, greater use of performance-based contracting methods should 
occur for follow-on acquisitions.
    3. Section 7.105 is amended in the introductory text by adding a 
sentence at the end of the paragraph; by revising paragraphs (a)(1), 
(a)(4), and (b)(6); by redesignating paragraphs (b)(18) through (b)(20) 
as (b)(19) through (b)(21) and adding a new (b)(18) to read as follows:


7.105  Contents of written acquisition plans.

    * * * Acquisition plans for service contracts shall describe the 
strategies for implementing performance-based contracting methods or 
provide rationale for not using those methods (see subpart 37.5).
    (a) Acquisition background and objectives. (1) Statement of need. 
Introduce the plan by a brief statement of need. Summarize the 
technical and contractual history of the acquisition. Discuss feasible 
acquisition alternatives, the impact of prior acquisitions on those 
alternatives, the impact of prior acquisitions on those alternatives, 
and any related in-house effort.
* * * * *
    (4) Capability or performance. Specify the required capabilities or 
performance characteristics of the supplies or the performance 
standards of the services

[[Page 40285]]

being acquired and state how they are related to the need.
* * * * *
    (b) * * *
    (6) Product or service descriptions. Explain the choice of product 
or service description types (including performance-based contracting 
descriptions) to be used in the acquisition.
* * * * *
    (18) Contract administration. Describe how the contract will be 
administered. In contracts for services, include how inspection and 
acceptance corresponding to the work statement's performance criteria 
will be enforced.
* * * * *

PART 15--CONTRACTING BY NEGOTIATION

    4. Section 15.611 is amended in paragraph (c) by revising the 
second sentence to read as follows:


15.611  Best and final offers.

* * * * *
    (c) * * * If discussions are reopened, the contracting officer 
shall, in accordance with agency procedures, issue an additional 
request for best and final offers to all offerors still within the 
competitive range.
* * * * *

PART 16--TYPES OF CONTRACTS

    5. Section 16.104 is amended by adding paragraph (k) to read as 
follows:


16. 104  Factors in selecting contract types.

* * * * *
    (k) Acquisition history. Contractor risk usually decreases as the 
requirement is repetitively acquired. Also, product descriptions or 
descriptions of services to be performed can be more clearly defined.
    6. Section 16.402-2 is amended by revising the heading and 
paragraph (a); by redesignating paragraphs (b) through (g) as (c) 
through (h) and adding a new paragraph (b); and by revising the newly 
designated paragraph (e) to read as follows:


16.402-2  Performance incentives.

    (a) Performance incentives may be considered in connection with 
specific product characteristics (e.g., a missile range, an aircraft 
speed, an engine thrust, or a vehicle maneuverability) or other 
specific elements of the contractor's performance. These incentives 
should be designed to relate profit or fee to results achieved by the 
contractor, compared with specified targets.
    (b) Performance incentives may be considered in connection with 
service contracts for performance of objectively measurable tasks when 
quality of performance is critical and incentives are likely to 
motivate the contractor.
* * * * *
    (e) Performance tests and/or assessments of work performance are 
generally essential in order to determine the degree of attainment of 
performance targets. Therefore, the contract must be as specified as 
possible in establishing test criteria (such as testing conditions, 
instrumentation precision, and data interpretation), and performance 
standards (such as the quality levels of services to be provided).
* * * * *
    7. Section 16.404-1 is amended by revising the introductory text of 
paragraph (b)(1), and the last sentence of paragraph (b)(2) to read as 
follows:


16.404-1  Cost-plus-incentive-fee contracts.

* * * * *
    (b) Application. (1) A cost-plus-incentive-fee contract is 
appropriate for services or development and test programs when (i) * * 
*.
* * * * *
    (2) * * * This approach may also apply to other acquisitions, if 
the use of both cost and technical performance incentives is desirable 
and administratively practical.
* * * * *

PART 37--SERVICE CONTRACTING

    8. Section 37.000 is revised to read as follows:


37.000  Scope of part.

    This part prescribes general policy and procedures for acquiring 
services by contract, and includes but does not limit coverage to only 
those services to which the Service Contract Act of 1965 applies (see 
37.107). This part requires the use of performance-based contracting to 
the maximum extent practicable and prescribes policies and procedures 
for use of performance-based contracting methods; distinguishes between 
contracts for personal services and those for nonpersonal services; and 
includes special conditions to be observed in acquiring advisory and 
assistance services. Dismantling, demolition, or removal of 
improvements is covered in subpart 37.3. This part does not regulate 
the obtaining of services by direct appointment, under normal civil 
service employment procedures, or by cooperative agreement.
    9. Section 37.101 is amended by adding, in alphabetical order, the 
definition ``Performance-based contracting'' to read as follows:


37.101  Definitions.

* * * * *
    Performance-based contracting means structuring all aspects of an 
acquisition around the purpose of the work to be performed as opposed 
to the manner by which the work is to be performed or broad and 
imprecise statements of work.
* * * * *
    10. Section 37.102 is amended by adding paragraph (d) to read as 
follows:


37.102  Policy.

* * * * *
    (d) The preferred way of acquiring services is through use of 
performance-based contracting methods rather than on the basis of 
buying hours.
    11. Section 37.103 is amended by redesignating paragraphs (d) and 
(e) and adding a new paragraph (d) to read as follows:


37.103  Contracting officer responsibility.

* * * * *
    (d) Ensure that performance-based contracting methods are used to 
the maximum extent practicable when acquiring services.
* * * * *
    12. Section 37.106 is amended by adding paragraph (c) to read as 
follows:


37.106  Funding and term of service contracts.

* * * * *
    (c) Agencies with statutory multiyear authority shall consider the 
use of this authority to encourage and promote economical business 
operations when acquiring services.
    13. Sections 37.115 through 37.115-3 are added to read as follows:

Sec.
37.115  Uncompensated overtime.
37.115-1  Scope.
37.115-2  General policy.
37.115-3  Solicitation provision.
* * * * *


37.115  Uncompensated overtime.


37.115-1  Scope.

    This section implements Section 834 of Public Law 101-510 (10 
U.S.C. 2331).


37.115-2  General policy.

    (a) When professional or technical services are acquired on the 
basis of the number of hours to be provided, rather than on the task to 
be performed, the solicitation shall require offerors to identify 
uncompensated overtime hours and the uncompensated overtime rate for 
direct charge Fair Labor Standards Act--exempt personnel included in 
their proposals and subcontractor

[[Page 40286]]

proposals. This includes uncompensated overtime hours that are in 
indirect cost pools for personnel whose regular hours are normally 
charged direct.
    (b) Use of uncompensated overtime is not encouraged.


37.115-3  Solicitation provision.

    Use the provision at 52.237-XX, Identification of Uncompensated 
Overtime, in all solicitations valued at $100,000 or more, for 
professional or technical services to be acquired on the basis of the 
number of hours to be provided.
    14. Subpart 37.5, consisting of sections 37.500 through 37.502-5 is 
added to read as follows:

Subpart 37.5--Performance-Based Contracting

Sec.
37.500  Scope of subpart.
37.501  General.
37.502  Elements of performance-based contracting.
37.502-1  Statements or work.
37.502-2  Quality assurance.
37.502-3  Selection procedures.
37.502-4  Contract type.
37.502-5  Follow-on and repetitive requirements.


37.500  Scope of subpart.

    This subpart prescribes policies and procedures for use of 
performance-based contracting methods. It implements OFPP Policy Letter 
91-2, Service Contracting.


37.501  General.

    Performance-based contracting methods provide the means to ensure 
that required performance quality levels are achieved and that with 
respect to fixed price contracts, payment is made only for services 
which meet contract standards. Performance-based contracts--
    (a) Describe the requirements in terms of results required rather 
than the methods of performance of the work;
    (b) Use measurable (i.e., terms of quality, timeliness, quantity, 
etc.) performance and quality assurance surveillance plans (see 
46.103(a), and 46.401(a));
    (c) Specify procedures for reduction of award fee or for reductions 
to the price of a fixed-price contract when services are not performed 
or do not meet contract requirements (see 46.407(f)); and
    (d) Include performance incentives where appropriate.


37.502  Elements of performance-based contracting.


37.502-1  Statements of work.

    Generally, statements or work shall define requirement in clear, 
concise language identifying specific work to be accomplished. 
Statements of work must be individually tailored to consider the period 
of performance, deliverable items, if any, and the desired degree of 
performance flexibility (see 11.105). However, in the case of task 
order contracts, the statement of work need only define the scope of 
the overall contract (see 16.504(a)(4)(iii)). Each task issued under a 
task order contract shall clearly describe all services to be performed 
(see 16.505(a)(2)). When preparing statements or work, agencies shall, 
to the maximum extent practicable--
    (a) Describe the work in terms of ``what'' is to be the required 
output rather than either ``how'' the work is to be accomplished or the 
number of hours to be provided;
    (b) Enable assessment of work performance against measurable 
performance standards;
    (c) Rely on the use of measurable performance standards and 
financial incentives in a competitive environment to encourage 
competitors to develop and institute innovative and cost effective 
methods of performing the work; and
    (d) Avoid combining requirements into a single acquisition that is 
too broad for the agency or a prospective contractor to manage 
effectively.


37.502-2  Quality assurance.

    Agencies shall develop quality assurance surveillance plans when 
acquiring services (see subpart 46.2). These plans shall recognize the 
responsibility of the contractor (see 46.105) to carry out its quality 
control obligations and shall contain measurable inspection and 
acceptance criteria corresponding to the performance standards 
contained in the statement of work. The quality assurance plans shall 
focus on the level of performance required by the statement of work, 
rather than the methodology used by the contractor to achieve that 
level of performance.


37.502-3  Selection procedures.

    Agencies shall use competitive negotiations where appropriate to 
ensure selection of services that offer the best value to the 
Government, cost and other factors considered.


37.502-4  Contract type.

    Contract types most likely to motivate contractors to perform at 
optimal levels shall be chosen (see subpart 16.1). To the maximum 
extent practicable, performance incentives, either positive or negative 
or both, shall be incorporated into the contract to encourage 
contractors to increase efficiency and maximize performance (see 
subpart 16.4). These incentives shall correspond to the specific 
performance standards in the quality assurance surveillance plan and 
shall be capable of being objectively measured.


37.502-5  Follow-on and repetitive requirements.

    When acquiring services which previously have been provided by 
contract, agencies shall rely on the experience gained from the prior 
contract to incorporate performance-based contracting methods to the 
maximum extent practicable.

PART 46--QUALITY ASSURANCE

    15. Section 46.103 is amended by revising paragraph (a) to read as 
follows:


46.103  Contracting office responsibilities.

* * * * *
    (a) Receiving from the activity responsible for technical 
requirements any specifications for inspection, testing, and other 
contract quality requirements essential to ensure the integrity of the 
supplies or services (the activity responsible for technical 
requirements is responsible for prescribing contract quality 
requirements, such as inspection and testing requirements or, for 
service contracts, a quality assurance surveillance plan);
* * * * *
    16. Section 46.401 is amended by revising paragraph (a) to read as 
follows:


46.401  General.

    (a) Government contract quality assurance shall be performed at 
such times (including any stage of manufacture or performance of 
services) and places (including subcontractors' plants) as may be 
necessary to determine that the supplies or services conform to 
contract requirements. Quality assurance surveillance plans should be 
prepared in conjunction with the preparation of the statement of work. 
The plans should specify--
    (1) All work requiring surveillance, and
    (2) The method of surveillance.
* * * * *
    17. Section 46.407 is amended by revising the introductory 
paragraph (c)(1), and adding a new second and third sentence to (f) to 
read as follows:

[[Page 40287]]

46.407  Noncomforming supplies or services.

* * * * *
    (c)(1) In situations not covered by paragraph (b) of this section, 
the contracting officer shall ordinarily reject supplies or services 
when the nonconformance is critical or major. However, there may be 
circumstances (e.g., reasons of economy or urgency) when acceptance of 
such supplies or services is determined by the contracting officer to 
be in the Government's interest. The contracting officer shall make 
this determination, based upon--
* * * * *
    (f) * * * For services, the contracting officer can consider 
identifying the value of the individual work requirements or tasks 
(subdivisions) which may be subject to price or fee reduction. This 
value may be used to determine an equitable adjustment for 
nonconforming services. * * *
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    18. Section 52.237-XX is added to read as follows:


52.237-XX  Identification of uncompensated overtime.

    As prescribed in 37.115-3, insert the following provision:

Identification of Uncompensated Overtime (Date)

    (a) Definitions. As used in this provision--
    Uncompensated overtime means the hours worked in excess of an 
average of 40 hours per week by direct charge employees who are 
exempt from the Fair Labor Standards Act, without additional 
compensation. Compensated personal absences such as holidays, 
vacations, and sick leave shall be included in the normal work week 
for purposes of computing uncompensated overtime hours.
    Uncompensated overtime rate is the rate which results from 
multiplying the hourly rate for a 40 hour work week by 40, and then 
dividing by the proposed hours per week. For example, 45 hours 
proposed on a 40 hour work week basis at $20 per hour would be 
converted to an uncompensated overtime rate of $17.78 per hour 
($20.00 x 40 divided by 45 = $17.78).
    (b) For any hours proposed against which an uncompensated 
overtime rate is applied, the offeror shall identity in its proposal 
the hours in excess of an average of 40 hours per week, by labor 
category at the same level of detail as compensated hours, and the 
uncompensated overtime rate per hour, whether at the prime or 
subcontract level. This includes uncompensated overtime hours that 
are in indirect cost pools for personnel whose regular hours are 
normally charged direct.
    (c) The offeror's accounting practices used to estimate 
uncompensated overtime must be consistent with its cost accounting 
practices used to accumulate and report uncompensated overtime 
hours.
    (d) Proposals which include unrealistically low labor rates, or 
which do not otherwise demonstrate cost realism, will be considered 
in a risk assessment and evaluated for award in accordance with that 
assessment.
    (e) The offeror shall include a copy of its policy addressing 
uncompensated overtime with its proposals.

(End of provision)

[FR Doc. 96-19486 Filed 7-31-96; 8:45 am]
BILLING CODE 6820-EP-M