[Federal Register Volume 63, Number 43 (Thursday, March 5, 1998)]
[Proposed Rules]
[Pages 11074-11075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5607]



[[Page 11073]]

_______________________________________________________________________

Part III

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 32, et al.



Federal Acquisition Regulation (FAR); and Defense Federal Acquisition 
Regulation Supplement (DFARS); Progress Payments; Proposed Rule

  Federal Register / Vol. 63, No. 43 / Thursday, March 5, 1998 / 
Proposed Rules  

[[Page 11074]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32, 52, 232, and 252


Federal Acquisition Regulation (FAR); and Defense Federal 
Acquisition Regulation Supplement (DFARS); Progress Payments

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

ACTION: Advance notice of proposed rulemaking and public meeting.

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SUMMARY: A special interagency team formed by the Director of Defense 
Procurement has identified potential changes to progress payment 
policies and solicits comments from both government and industry 
personnel regarding those changes.
    Comments may be submitted in two formats: By letter to the address 
specified below, or by electronic response on the Director of Defense 
Procurement Office of Cost, Pricing, and Finance Internet Home Page: 
http://www.acq.osd.mil/dp/cpf. Comments may address any of the 
potential changes identified in this notice, as well as any other 
changes to existing regulations, forms, or procedures that pertain to 
progress payments. Comments should be accompanied by a supporting 
rationale for proposed changes.
    In addition, a public meeting will be held to discuss the potential 
changes under consideration by the interagency team, as well as 
comments received in response to this notice.

DATES: Comments should be submitted on or before April 6, 1998.

ADDRESSES: Interested parties should submit written comments to: Chair, 
Progress Payments Rewrite Team, Mr. Richard Brown, PDUSD (A&T) DP/CPF, 
Room 3C800, The Pentagon, Washington, DC 20301-3060.

    Public Meeting: A public meeting will be conducted at the 
Headquarters, Defense Logistics Agency, Command Conference Room (Room 
2419), 8725 John J. Kingman Road, Fort Belvoir, Virginia, from 9:30 
a.m. to 3:00 p.m., local time, on April 23, 1998. Those who plan to 
attend the public meeting are asked to pre-register, if possible. The 
names of expected attendees should be provided, no later than 4:00 
p.m., local time, April 21, 1998, to Mr. Richard Brown, by telephone, 
FAX, mail, or e-mail, at the phone number(s) and address indicated 
herein. Walk-in attendance will be accommodated. However, pre-
registration is desired, as the names of pre-registrants will be 
provided to building security to facilitate building access.

FOR FURTHER INFORMATION CONTACT:
Mr. Richard Brown, by telephone at (703) 695-7197, by FAX at (703) 693-
9616, or by e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

I. Draft Materials

    The potential changes to the Federal Acquisition Regulation (FAR) 
and Defense Federal Acquisition Regulation Supplement (DFARS) discussed 
herein are available in draft form electronically in Microsoft Word 6.0 
text format at the Cost, Pricing, and Finance Internet Office Home 
Page--http://www.acq.osd.mil/dp/cpf/

 Note: The draft changes do not reflect a proposed rule, nor do 
they reflect agreement by all members of the interagency team; they 
are provided for information and discussion purposes only.

    Paper copies may be obtained from Mr. Richard Brown, PDUSD (A&T) 
DP/CPF, Washington, DC 20301-3060.

II. Background

    The Director of Defense Procurement, Department of Defense, 
established a special interagency team, with participants from the 
Office of the Under Secretary of Defense (Comptroller), the Military 
Departments, the Defense Logistics Agency, the Defense Contract Audit 
Agency, the Defense Finance and Accounting Service, the Departments of 
Energy and Transportation, and the National Aeronautics and Space 
Administration, to review and rewrite FAR Part 32 and Part 52 
provisions regarding progress payments, to make them easier to 
understand and to minimize the burdens imposed on contractors and 
contracting officers. An advance notice of proposed rulemaking (ANPR), 
published in the Federal Register on May 1, 1997 (62 FR 23740), 
solicited comments on how FAR Subpart 32.5, Progress Payments Based on 
Costs, the clause at FAR 52.232.16, Progress Payments, and Standard 
Form 1443, Contractor's Request For Progress Payments, might be revised 
to improve the process of applying for and administering progress 
payments. The interagency team has considered public comments received 
in response to the ANPR, reviewed progress payment policies, and 
identified potential areas for policy changes. The purpose of this 
notice is to provide the public with a preliminary indication of 
changes under consideration, and solicit comments and suggestions on 
those changes, via public comments and a public hearing. The 
interagency working group will submit a report, including a draft 
proposed rule, for consideration by the Defense Acquisition Regulations 
Council and the Civilian Agency Acquisition Council. Subsequently, a 
proposed rule will be published for additional public comments.

III. Overview of Policy Changes Under Consideration

    The interagency team has identified the following areas for 
potential policy changes. Comments are requested on these areas and any 
other ideas interested parties may offer:

A. Elimination of the ``Paid Cost Rule''

    Currently, large businesses must have actually paid a subcontractor 
before including the payment in progress payment billings. This is the 
so-called ``paid cost rule.'' In contrast, small businesses need only 
have incurred the subcontract cost, provided the payment will be made 
in the ordinary course of business. The interagency team proposes the 
elimination of this ``paid cost rule'' by revising the Progress 
Payments clause (FAR 52.232-16), as needed, to put large and small 
businesses on the same footing.

B. Subcontractor Performance-Based Payments and Commercial Financing 
Payments

    The interagency team recommends that the Progress Payments clause 
(FAR 52.232-16) be revised as necessary to permit prime contractors 
that receive progress payments to use performance-based payments or 
commercial financing payments with their subcontractors, provided the 
subcontracts that include such payments meet the same criteria and use 
similar provisions that the Government uses with its prime contractors. 
As a consequence, prime contractors will be reimbursed 100 percent of 
all subcontractor financing, instead of just progress payment 
financing.

C. Expand Use of Performance-Based Payments to Competitive 
Solicitations

    This would remove the limitation at FAR 32.1000(d), and allow 
performance-based payments to be used in competitive solicitations, 
provided it is practicable to do so.

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D. Increase Threshold for Progress Payments

    The interagency team recommends raising the threshold at FAR 
32.502-1(b), for use of progress payments with large businesses, from 
$1 million to $2 million. This threshold has not been increased in over 
30 years, and should be raised in order to reduce the administrative 
burden that small dollar actions place on the contract administration 
and payment process.

E. Limit Applicability of Progress Payments on Ordering Contracts

    When ordering contracts are used and include a provision for 
progress payments, the interagency team recommends that progress 
payments be made applicable to only those orders that exceed the 
simplified acquisition threshold. This will ease the burden of 
administering progress payments on numerous small dollar actions.

F. Eliminate Coverage for Flexible Progress Payments

    DoD has not used flexible progress payments in new contracts since 
fiscal year 1994. Flexible progress payments are administratively 
complex and burdensome, and may be replaced with performance-based 
payments in some situations. Consequently, the interagency team 
recommends elimination of all DFARS coverage related to flexible 
progress payments.

G. Ensure Consideration of Performance-Based Payments

    The interagency team recommends additional coverage be added to FAR 
32.502-1 to ensure that use of performance-based payments is initially 
considered, and deemed impractical by the contracting officer, before a 
decision is made to provide customary progress payments. This is a more 
appropriate implementation of the 10 U.S.C. 2307(b) requirement that 
performance-based payments be used wherever practicable.

H. Clarify Purpose of the Loss Ratio

    The interagency team recommends that FAR 32.503-6(f) be revised to 
make clear that, on a loss contract, application of the loss ratio 
constitutes the adjustment that ensures that progress payments do not 
exceed the value of work performed. This is in response to those who 
believe that an additional adjustment, over and above the application 
of the loss ratio, may be necessary to preclude overpayment of progress 
payments.

I. Remove the Limitation on General & Administrative Expenses

    This limitation at FAR 32.503-7 applies to only those contractors 
that have established an inventory suspense account under 48 CFR 
9904.410, Allocation of Business Unit General and Administrative 
Expenses to Final Cost Objectives. The provision dates from 1979 and 
the interagency team believes it is no longer needed.

J. Remove the Requirement for Contracting Officer Review of Quarterly 
Statements

    This requirement at FAR 32.503-13 applies to quarterly statements 
submitted under price revision contracts, for comparison with progress 
payment requests. The interagency team has concluded that it adds 
little or no value to progress payment administration, provided the 
contracting officer is otherwise adequately administering progress 
payments.

List of Subjects in 48 CFR Parts 32, 52, 232, and 252

    Government procurement.

    Dated: February 27, 1998.
Michele P. Peterson,
Executive Editor, Defense Acquisition, Regulations Council, Department 
of Defense.

Edward C. Loeb,
Director, Federal Acquisition, Policy Division, General Services 
Administration.
[FR Doc. 98-5607 Filed 3-4-98; 8:45 am]
BILLING CODE 6820-EP-M