[Federal Register Volume 64, Number 216 (Tuesday, November 9, 1999)]
[Rules and Regulations]
[Pages 61031-61033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29038]
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DEPARTMENT OF DEFENSE
48 CFR Part 215
[DFARS Case 99-D001]
Defense Federal Acquisition Regulation Supplement; Weighted
Guidelines and Performance-Based Payments
AGENCY: Department of Defense (DoD).
ACTION: Final rule.
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SUMMARY: The Director of Defense Procurement has issued a final rule
amending the Defense Federal Acquisition Regulation Supplement (DFARS)
to modify the weighted guidelines method of computing profit
objectives. The rule adds contracts with performance-based payments to
the types of contracts that affect a contractor's cost risk.
EFFECTIVE DATE: November 9, 1999.
FOR FURTHER INFORMATION CONTACT: Ms. Sandra G. Haberlin, Defense
Acquisition Regulations Council, PDUSD (AT&L) DP (DAR), IMD 3D139, 3062
Defense Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0289;
telefax (703) 602-0350. Please cite DFARS Case 99-D001.
SUPPLEMENTARY INFORMATION:
A. Background
DFARS 215.404-4, Profit, requires contracting officers to use the
weighted guidelines method of developing a prenegotiation profit or fee
objective on most negotiated contract actions that require cost
analysis. This method focuses on three profit factors: performance
risk, contract type risk, and facilities capital employed. Calculations
using these profit factors result in values that become part of the
profit objective.
For contract type risk, the calculations include an assessment of
the degree of cost risk that the contractor accepts under varying
contract types as adjusted by the costs of contractor-provided
financing. Prior to issuance of this final rule, DFARS 215.404-71-3,
Contract type risk and working capital adjustment, provided only two
financing choices for fixed-price and fixed-price incentive contracts:
The contract either would provide progress payments or would offer no
financing. This final rule adds contracts with performance-based
payments as a third choice.
This rule amends DFARS 215.404-71-3 as follows:
1. Adds firm-fixed-price and fixed-price incentive contracts with
performance-based payments to the table of contract types at 215.404-
71-3(c).
2. Adds evaluation criteria at 215.404-71-3(d) that contracting
officers should consider when determining the value for contract type
risk associated with contracts using performance-based payments.
3. Removes the reference to the flexible progress payments type of
financing at 215.404-71-3(e)(3). DoD does not permit the use of
flexible progress payments for contracts awarded as a result of
solicitations issued on or after November 11, 1993. A final rule,
published in the Federal Register on February 23, 1999 (64 FR 8731),
removed references to flexible progress payments from DFARS Part 232.
The change to 215.404-71-3(e)(3) in this final rule does not reflect a
policy change but merely removes obsolete language.
4. Makes editorial changes.
DoD published a proposed rule in the Federal Register on May 4,
1999 (64 FR 23814). Three sources submitted comments on the proposed
rule. DoD considered all comments in the development of the final rule.
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 certifies 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 most contracts awarded to small entities have a dollar value
less than the simplified acquisition threshold and, therefore, would
not use the weighted guidelines method of profit computation. The
weighted guidelines method normally is used to compute profit
objectives on negotiated contract actions at or above $500,000.
[[Page 61032]]
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.
List of Subjects in 48 CFR Part 215
Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
Therefore, 48 CFR part 215 is amended as follows:
1. The authority citation for 48 CFR part 215 continues to read as
follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
PART 215--CONTRACTING BY NEGOTIATION
2. Section 215.404-71-3 is amended by revising paragraphs (c), (d),
and (e) to read as follows:
215.404-71-3 Contract type risk and working capital adjustment.
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(c) Values: Normal and designated ranges.
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Normal
Contract type Notes value Designated range (percent)
(percent)
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Firm-fixed-price, no financing......................... (1) 5.0 4 to 6.
Firm-fixed-price, with performance-based payments...... (6) 4.0 2.5 to 5.5
Firm-fixed-price, with progress payments............... (2) 3.0 2 to 4.
Fixed-price incentive, no financing.................... (1) 3.0 2 to 4.
Fixed-price incentive, with performance-based payments. (6) 2.0 0.5 to 3.5.
Fixed-price with redetermination provision............. (3) ........... ...............................
Fixed-price incentive, with progress payments.......... (2) 1.0 0 to 2.
Cost-plus-incentive-free............................... (4) 1.0 0 to 2.
Cost-plus-fixed-fee.................................... (4) 0.5 0 to 1.
Time-and-materials (including overhaul contracts priced (5) 0.5 0 to 1.
on time-and-materials basis).
Labor-hour............................................. (5) 0.5 0 to 1.
Firm-fixed-price, level-of-effort...................... (5) 0.5 0 to 1.
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(1) ``No financing'' means either that the contract does not
provide progress payments or performance-based payments, or that the
contract provides them only on a limited basis, such as financing of
first articles. Do not compute a working capital adjustment.
(2) When the contract contains provisions for progress payments,
compute a working capital adjustment (Block 26).
(3) For the purposes of assigning profit values, treat a fixed-
price contract with redetermination provisions as if it were a fixed-
price incentive contract with below normal conditions.
(4) Cost-plus contracts shall not receive the working capital
adjustment.
(5) These types of contracts are considered cost-plus-fixed-fee
contracts for the purposes of assigning profit values. They shall not
receive the working capital adjustment in Block 26. However, they may
receive higher than normal values within the designated range to the
extent that portions of cost are fixed.
(6) When the contract contains provisions for performance-based
payments, do not compute a working capital adjustment.
(d) Evaluation criteria.
(1) General. The contracting officer should consider elements that
affect contract type risk such as--
(i) Length of contract;
(ii) Adequacy of cost data for projections;
(iii) Economic environment;
(iv) Nature and extent of subcontracted activity;
(v) Protection provided to the contractor under contract provisions
(e.g., economic price adjustment clauses);
(vi) The ceilings and share lines contained in incentive
provisions;
(vii) Risks associated with contracts for foreign military sales
(FMS) that are not funded by U.S. appropriations; and
(viii) When the contract contains provisions for performance-based
payments--
(A) The frequency of payments;
(B) The total amount of payments compared to the maximum allowable
amount specified at FAR 32.1004(b)(2); and
(C) The risk of the payment schedule to the contractor.
(2) Mandatory. The contracting officer shall assess the extent to
which costs have been incurred prior to the definitization of the
contract action (also see 217.7404-6(a)). The assessment shall include
any reduced contractor risk on both the contract before definitization
and the remaining portion of the contract. When costs have been
incurred prior to definitization, generally regard the contract type
risk to be in the low end of the designated range. If a substantial
portion of the costs have been incurred prior to definitization, the
contracting officer may assign a value as low as 0 percent, regardless
of contract type.
(3) Above normal conditions. The contracting officer may assign a
higher than normal value when there is substantial contract type risk.
Indicators of this are--
(i) Efforts where there is minimal cost history;
(ii) Long-term contracts without provisions protecting the
contractor, particularly when there is considerable economic
uncertainty;
(iii) Incentive provisions (e.g., cost and performance incentives)
that place a high degree of risk on the contractor;
(iv) FMS sales (other than those under DoD cooperative logistics
support arrangements or those made from U.S. Government inventories or
stocks) where the contractor can demonstrate that there are substantial
risks above those normally present in DoD contracts for similar items;
or
(v) An aggressive performance-based payment schedule that increases
risk.
(4) Below normal conditions. The contracting officer may assign a
lower than normal value when the contract type risk is low. Indicators
of this are--
(i) Very mature product line with extensive cost history;
(ii) Relative short-term contracts;
(iii) Contractual provisions that substantially reduce the
contractor's risk;
(iv) Incentive provisions that place a low degree of risk on the
contractor;
(v) Performance-based payments totaling the maximum allowable
amount(s) specified at FAR 32.1004(b)(2); or
[[Page 61033]]
(vi) A performance-based payment schedule that is routine with
minimal risk.
(e) Costs financed.
(1) Costs financed equal total costs multiplied by the portion
(percent) of costs financed by the contractor.
(2) Total costs equal Block 20 (i.e., all allowable costs,
including general and administrative and independent research and
development/bid and proposal, but excluding facilities capital cost of
money), reduced as appropriate when--
(i) The contractor has little cash investment (e.g., subcontractor
progress payments liquidated late in period of performance);
(ii) Some costs are covered by special financing provisions, such
as advance payments; or
(iii) The contract is multiyear and there are special funding
arrangements.
(3) The portion that the contractor finances is generally the
portion not covered by progress payments, i.e., 100 percent minus the
customary progress payment rate (see FAR 32.501). For example, if a
contractor receives progress payments at 75 percent, the portion that
the contractor finances is 25 percent. On contracts that provide
progress payments to small businesses, use the customary progress
payment rate for large businesses.
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[FR Doc. 99-29038 Filed 11-8-99 8:45 am]
BILLING CODE 5000-04-M