[Federal Register Volume 62, Number 51 (Monday, March 17, 1997)]
[Rules and Regulations]
[Pages 12695-12696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6313]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 16 and 52

[FAC 90-46; FAR Case 93-603; Item IV]
RIN 9000-AH07


Federal Acquisition Regulation; Performance Incentives for Fixed-
Price Contracts

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

ACTION: Final rule.

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

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed on a final rule amending 
the Federal Acquisition Regulation (FAR) to permit the use of award-fee 
provisions as performance incentives in fixed-price contracts. This 
regulatory action was not subject to Office of Management and Budget 
review under Executive Order 12866, dated September 30, 1993. This is 
not a major rule under 5 U.S.C. 804.

DATES: Effective May 16, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Ralph DeStefano at (202) 501-1758 
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 FAC 90-46, FAR case 93-603.

SUPPLEMENTARY INFORMATION:

A. Background

    The FAR currently provides for the use of performance incentives 
when used with cost incentives. This FAR revision allows the use of 
performance incentives alone. This revision will allow agencies to 
recognize and reward contractors who exceed minimum standards in terms 
of quality, timeliness, technical ingenuity, and effective management.
    A proposed rule was published in the Federal Register at 61 FR 
31798, June 20, 1996. One comment was received from one respondent. The 
comment was considered in developing the final rule.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not 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 merely 
authorizes the use of performance incentives for contractors under 
fixed-price contracts. The rule authorizes the Government to reward a 
contractor for exceeding minimum performance standards.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose recordkeeping or information collection 
requirements, or collections of information from offerors, contractors, 
or members of the public which require the approval of the Office of 
Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 16 and 52

    Government procurement.

    Dated: March 7, 1997.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, 48 CFR Parts 16 and 52 are amended as set forth below:
    1. The authority citation for 48 CFR Parts 16 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 16--TYPES OF CONTRACTS


16.204  [Amended]

    2. Section 16.204 is amended in the last sentence by removing the 
citation ``16.405'' and inserting ``16.406''.


16.304  [Amended]

    3. Section 16.304 is amended by removing ``16.404-1'' and inserting 
``16.405-1''.


16.305  [Amended]

    4. Section 16.305 is amended by removing ``16.404-2'' and inserting 
``16.405-2'' each time it appears.
    5. Section 16.401 is amended in paragraph (c) by revising the first 
sentence; and adding paragraph (d) to read as follows:


16.401  General.

* * * * *
    (c) The two basic categories of incentive contracts are fixed-price 
incentive contracts (see 16.403 and

[[Page 12696]]

16.404) and cost-reimbursement incentive contracts (see 16.405). * * *
    (d) Award-fee contracts are a type of incentive contract.


16.402-1  [Amended]

    6. Section 16.402-1 is amended in paragraph (b) by removing 
``16.404-2'' and inserting ``16.405-2''.


16.404 and 16.405  [Redesignated as 16.405 and 16.406]

    7. Sections 16.404 and 16.405 are redesignated as 16.405 and 
16.406, respectively.
    8. A new section 16.404 is added to read as follows:


16.404  Fixed-price contracts with award fees.

    (a) Award-fee provisions may be used in fixed-price contracts when 
the Government wishes to motivate a contractor and other incentives 
cannot be used because contractor performance cannot be measured 
objectively. Such contracts shall--
    (1) Establish a fixed price (including normal profit) for the 
effort. This price will be paid for satisfactory contract performance. 
Award fee earned (if any) will be paid in addition to that fixed price; 
and
    (2) Provide for periodic evaluation of the contractor's performance 
against an award-fee plan.
    (b) A solicitation contemplating award of a fixed-price contract 
with award fee shall not be issued unless the following conditions 
exist:
    (1) The administrative costs of conducting award-fee evaluations 
are not expected to exceed the expected benefits;
    (2) Procedures have been established for conducting the award-fee 
evaluation;
    (3) The award-fee board has been established; and
    (4) An individual above the level of the contracting officer 
approved the fixed-price-award-fee incentive.


16.404-1 and 16.404-2  [Redesignated as 16.405-1 and 16.405-2].

    9. Sections 16.404-1 and 16.404-2 are redesignated as 16.405-1 and 
16.405-2, respectively.
    10.-11. The newly designated section 16.406 is amended by revising 
the introductory text of paragraph (e) to read as follows:


16.406  Contract clauses.

* * * * *
    (e) The contracting officer shall insert an appropriate award-fee 
clause in solicitations and contracts when an award-fee contract is 
contemplated, provided that the clause--
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    12. Section 52.216-16 is amended by revising the introductory 
paragraph, and Alternate I introductory text to read as follows:


52.216-16  Incentive Price Revision--Firm Target.

    As prescribed in 16.406(a), insert the following clause:
* * * * *
    Alternate I (APR 1984). As prescribed in 16.406(a), add the 
following paragraph (o) to the basic clause:
* * * * *
    13. Section 52.216-17 is amended by revising the introductory 
paragraph, and Alternate I introductory text to read as follows:


52.216-17  Incentive Price Revision Successive Targets.

    As prescribed in 16.406(b), insert the following clause:
* * * * *
    Alternate I (APR 1984). As prescribed in 16.406(b), add the 
following paragraph (q) to the basic clause:
* * * * *
[FR Doc. 97-6313 Filed 3-14-97; 8:45 am]
BILLING CODE 6820-EP-P