[Federal Register Volume 69, Number 139 (Wednesday, July 21, 2004)]
[Proposed Rules]
[Pages 43712-43714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16534]



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Part IV





Department of Defense





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General Services Administration





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National Aeronautics and Space Administration





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48 CFR Parts 2, 7, 11, 16, 37, and 39



Federal Acquisition Regulation; Performance-Based Service Acquisition; 
Proposed Rule

  Federal Register / Vol. 69, No. 139 / Wednesday, July 21, 2004 / 
Proposed Rules  

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 7, 11, 16, 37, 39

[FAR Case 2003-018]
RIN 9000-AK00


Federal Acquisition Regulation; Performance-Based Service 
Acquisition

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

ACTION: Proposed rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) by: changing the terms 
``performance-based contracting (PBC) and performance-based service 
contracting (PBSC)'' to ``performance-based acquisition (PBA) or 
performance-based service acquisition (PBSA)'' in areas of the FAR 
where appropriate; adding applicable PBSA definitions clarifying the 
order of precedence for requirements; modifying the regulation to 
broaden the scope of PBA and give agencies more flexibility in applying 
PBSA methods to contracts and orders of varying complexity and reduce 
the burden of force-fitting contracts and orders into PBA, when it is 
not appropriate.

DATES: Interested parties should submit comments in writing on or 
before September 20, 2004, to be considered in the formulation of a 
final rule.

ADDRESSES: Submit comments identified by FAR case 2003-018 by any of 
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web Site: http://www.acqnet.gov/far/ProposedRules/proposed.htm. Click on the FAR case number to submit comments.
     E-mail: [email protected]. Include FAR case 2003-
018 in the subject line of the message.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VR), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2003-
018 in all correspondence related to this case. All comments received 
will be posted without change to http://www.acqnet.gov/far/ProposedRules/proposed.htm, including any personal information 
provided.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Ms. Julia Wise, Procurement Analyst, 
at (202) 208-1168. Please cite FAR case 2003-018.

SUPPLEMENTARY INFORMATION:

A. Background

    Since the 1980s, performance-based contracting (PBC) and 
performance-based service contracting (PBSC) (now performance-based 
acquisition (PBA) and performance-based service acquisition (PBSA)) has 
been articulated in regulation, guidance, and policy. The intent has 
always been for agencies to contract for results describing their needs 
in terms of what is to be achieved, not how it is to be done. Law and 
regulation established a preference for PBA.
    There are many laws and policies that impact how PBA methods are 
applied to contracts and orders. Among the most important of these 
reforms are the Government Performance and Results Act of 1993, the 
Federal Acquisition Streamlining Act of 1994 (FASA), and the Clinger-
Cohen Act of 1996, Section 821(a) of the Floyd D. Spence National 
Defense Authorization Act for Fiscal Year 2001 (Pub. L. 106-398), and 
Section 1431 and 1433 of the National Defense Authorization Act for 
Fiscal Year 2004 (P.L. 108-136). All of these laws send an important 
message about performance in federal programs and acquisitions and that 
is that agencies should: (1) use PBA methods to the maximum extent 
practicable when acquiring services, and (2) carefully select 
acquisition and contract administration strategies, methods, and 
techniques that best accommodate the requirements.
    Over the last two decades, agencies have made moderate progress in 
implementing PBA methods on service contracts but have experienced 
difficulties in applying PBA techniques effectively. In April 2002, the 
Office of Federal Procurement Policy (OFPP) convened an interagency 
working group to establish a broader understanding of the requirements 
of PBSA, and identify ways to increase agency use of PBSA. The group 
focused their efforts on three areas of change:
    (1) Modifying the Federal Acquisition Regulation (FAR) to give 
agencies flexibility in applying PBSA;
    (2) Modifying reporting requirements to ensure that PBSA is applied 
appropriately; and
    (3) Improving the quality, currency, and availability of guidance.
    In the interim, General Accounting Office (GAO) conducted an audit 
on performance-based service contracting and issued a report dated 
September 2002, ``Contract Management: Guidance Needed for Using 
Performance-Based Service Contracting (GAO-02-1049),'' that raised 
concerns as to whether agencies have a good understanding of 
performance-based contracting and how to take full advantage of it. The 
audit findings stated, that some agency officials said they would like 
better guidance on performance-based contracting, particularly with 
respect to how it can be applied in more complex situations. It further 
states that agency officials said that there is a need for better 
criteria on which contracts should be labeled as performance-based.
    In July 2003, OFPP issued a report, ``Performance-Based Service 
Acquisition: Contracting for the Future,'' that captured the 
interagency working group's PBA concerns, issues, and recommendations. 
The report includes recommendations to change current regulations and 
guidance to give agencies more flexibility in applying PBSA 
effectively, appropriately, and consistently (see www.acqnet.gov for 
the complete report). Most of the recommended FAR revisions are adopted 
in this proposed rule because the changes will make PBA more flexible, 
thus increasing agency use of PBA methods on services contracts and 
orders.
    In addition, the OFPP is working with an interagency team to 
incorporate current policy, regulations, and vetted samples into the 
Governmentwide-PBSA guide, Seven Steps to PBSA (see www.acqnet.gov for 
the online guide); and interagency working group to develop appropriate 
guidance for reporting PBAs in the Federal Procurement Data System-Next 
Generation (FPDS-NG).
    The proposed rule amends the FAR to modify--
     FAR Part 2 to include the definitions ``performance work 
statement'' and ``statement of objectives'' to support changes to FAR 
Part 37;
     FAR Parts 2, 7, 11, 16, 37 and 39 to incorporate the new 
PBA and PBSA terms, where applicable; and
     FAR Parts 11 and 37 to broaden the scope of PBSA, reduce 
the burden of

[[Page 43713]]

force-fitting requirements into PBAs when it does not apply, and give 
agencies more flexibility in applying PBSA techniques to contracts and 
orders of varying complexity.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule to 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 this rule affects the Government's use of PBA methods on 
service contracts and intends to give agencies more flexibility in 
applying PBA methods to service contracts and orders of varying 
complexity. An Initial Regulatory Flexibility Analysis has, therefore, 
not been performed. The Councils invite comments from small businesses 
and other interested parties. We will consider comments from small 
entities concerning the affected FAR Parts 2, 7, 11, 16, 37, and 39 in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 601, et seq. (FAR Case 
2003-018), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose 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 Parts 2, 7, 11, 16, 37, and 39

    Government procurement.

    Dated: July 13, 2004.
Laura Auletta,
Director, Contract Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 7, 
11, 16, 37, and 39 as set forth below:
    1. The authority citation for 48 CFR parts 2, 7, 11, 16, 37, and 39 
is revised to read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 2--DEFINITIONS OF WORDS AND TERMS

    2. Amend section 2.101 by revising the definition ``performance-
based contracting,'' and adding in alphabetical order, the definitions 
``performance work statement'' and ``statement of work objectives'' to 
read as follows:


2.101  Definitions.

* * * * *
    Performance-based acquisition (PBA) means structuring all aspects 
of an acquisition around the purpose of the work to be performed with 
the contract or order requirements set forth in clear, specific, and 
objective terms with measurable outcomes as opposed to either the 
manner by which the work is to be performed or broad and imprecise 
statements of work. For services, a performance-based acquisition is 
commonly referred to as a performance-based service acquisition (PBSA).
    Performance Work Statement (PWS) means a statement that identifies 
the agency's requirements in clear, specific and objective terms that 
describe technical, functional and performance characteristics.
* * * * *
    Statement of Objectives (SOO) means a statement that identifies the 
agency's high-level requirements by summarizing key agency objectives, 
desired outcomes, or both.
* * * * *

PART 7--ACQUISITION PLANNING

    3. Amend section 7.103 by revising paragraph (r) to read as 
follows:


7.103  Agency-head responsibilities.

* * * * *
    (r) Ensuring that knowledge gained from prior acquisitions is used 
to further refine requirements and acquisition strategies. For 
services, greater use of performance-based service acquisition (PBSA) 
methods and, therefore, fixed-price contracts (see 37.602-4) should 
occur for follow-on acquisitions.
* * * * *
    4. Amend section 7.105 by revising the last sentences of the 
introductory paragraph and paragraph (b)(4)(i); and by revising 
paragraph (b)(6) to read as follows:


7.105  Contents of written acquisition plans.

    * * * Acquisition plans for service contracts or orders must 
describe the strategies for implementing PBSA methods or must provide 
rationale for not using those methods (see Subpart 37.6).
* * * * *
    (b) * * *
    (4) Acquisition considerations. (i) * * * Provide rationale if a 
PBSA will not be used or if a PBSA is contemplated on other than a 
firm-fixed-price basis (see 37.102(a), 16.103(d), and 16.505(a)(3)).
* * * * *
    (6) Product or service descriptions. Explain the choice of product 
or service description types (including PBSA descriptions) to be used 
in the acquisition.
* * * * *

PART 11--DESCRIBING AGENCY NEEDS

    5. Amend section 11.101 by revising paragraph (a)(2) to read as 
follows:


11.101  Order of precedence for requirements documents.

    (a) * * *
    (2) Performance or function-oriented documents.
* * * * *

PART 16--TYPES OF CONTRACTS

    6. Amend section 16.505 by revising paragraph (a)(3) to read as 
follows:


16.505  Ordering.

    (a) * * *
    (3) Performance work statements must be used to the maximum extent 
practicable, if the contract or order is for services (see 37.102(a) 
and 37.602-1).
* * * * *

PART 37--SERVICE CONTRACTING

    7. Amend section 37.000 by revising the third sentence to read as 
follows:


37.000  Scope of part.

    * * * This part requires the use of performance-based service 
acquisition (PBSA) to the maximum extent practicable and prescribes 
policies and procedures for use of PBSA methods (see Subpart 37.6). * * 
*
    8. Amend section 37.102 by revising the introductory text of 
paragraphs (a) and (a)(1) to read as follows:


37.102  Policy.

    (a) Performance-based service acquisition (see Subpart 37.6) is the 
preferred method for acquiring services (Public Law 106-398, section 
821). When acquiring services, including those acquired under supply 
contracts or orders, agencies must--
    (1) Use performance-based service acquisition methods to the 
maximum extent practicable, except for--
* * * * *
    9. Revise subpart 37.6 to read as follows:

Subpart 37.6--Performance-Based Service Acquisition

Sec.

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37.600 Scope of subpart.
37.601 General.
37.602 Elements of a performance-based service acquisition.
37.602-1 Performance work statements (PWSs) and statements of 
objectives (SOOs).
37.602-2 Quality assurance.
37.602-3 Selection procedures.
37.602-4 Contract type.
37.602-5 Follow-on and repetitive requirements.

Subpart 37.6--Performance-Based Service Acquisition


37.600  Scope of subpart.

    This subpart prescribes policies and procedures for use of 
performance-based service acquisition (PBSA) methods. PBSA includes 
performance-based contracts and performance-based task orders.


37.601  General.

    (a) The principal objective of PBSA is to obtain optimal 
performance by expressing Government needs in terms of required 
performance objectives and/or desired outcomes, rather than the method 
of performance, to encourage industry-driven, competitive solutions.
    (b) Solicitations for PBSA may use either a performance work 
statement (PWS) or a statement of objectives (see 37.602-1).
    (c) PBSA contracts or orders shall include--
    (1) A PWS (see 37.602-1); and
    (2) Measurable performance standards. These standards may be 
objective (e.g., response time) or subjective (e.g., customer 
satisfaction), but shall reflect the level of service required by the 
Government to meet mission objectives. Standards shall enable 
assessment of contractor performance to determine whether performance 
objectives and/or desired outcomes are being met.
    (d) PBSA contracts or orders may include performance incentives to 
promote contractor achievement of the desired outcomes and/or 
performance objectives articulated in the contract or order. 
Performance incentives may be of any type, including positive, 
negative, monetary, or non-monetary. Performance incentives, if used, 
shall correspond to the performance standards set forth in the contract 
or order.


37.602  Elements of a performance-based service acquisition.


37.602-1  Performance work statements (PWSs) and statements of 
objectives (SOOs).

    (a) A PWS may be prepared by the Government or resultfrom a SOO 
prepared by the Government where the offeror proposes the PWS.
    (b) A PWS shall describe the work in terms of the purpose of the 
work to be performed rather than either ``how'' the work is to be 
accomplished or the number of hours to be provided (see 11.002(a)(2) 
and 11.101);
    (c) When a SOO is used in lieu of a PWS in a solicitation, the SOO 
shall, at a minimum, include the following information with respect to 
the acquisition:
    (1) Purpose.
    (2) Scope or mission.
    (3) Period and place of performance.
    (4) Background.
    (5) Performance objectives and/or desired outcomes.
    (6) Any operating constraints.


37.602-2  Quality assurance.

    (a) Quality assurance surveillance plans shall address the means 
for assessing contractor accomplishment of the Government's performance 
objectives and/or desired outcomes stated in the contract and 
compliance with the appropriate inspection clauses. Agencies shall 
develop quality assurance surveillance plans when acquiring services 
(see 46.103 and 46.401(a)) or, as appropriate, rely on a contractor's 
commercial quality assurance system (see 46.102). 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 contract. The quality assurance surveillance 
plans shall focus on the level of performance required by the PWS, 
rather than the methodology used by the contractor to achieve that 
level of performance.
    (b) The level of surveillance described in the plan should be 
commensurate with the dollar value, risk, and complexity of the 
acquisition and should utilize commercial practices to the maximum 
extent practicable. For example, in some simplified acquisitions the 
Government may decide that the inspection clauses in the contract or 
order provide adequate means of surveillance, without requiring a 
detailed quality assurance surveillance plan.
    (c) Plans shall enable the contracting officer to take appropriate 
action in accordance with the contract or order and 46.407, as 
appropriate.


37.602-3  Selection procedures.

    Agencies shall use competitive negotiations, when appropriate, to 
ensure selection of services that offer the best value to the 
Government, cost and other factors considered (see 15.304).


37.602-4  Contract type.

    Agencies shall follow the order of precedence set forth in 
37.102(a)(2) for selecting contract and order types. Fixed-price 
contracts or orders are generally appropriate for services that can be 
defined objectively and for which the risk of performance is manageable 
(see Subpart 16.1).


37.602-5  Follow-on and repetitive requirements.

    When acquiring services that previously have been provided by 
contract or order, agencies shall rely on the experience gained from 
the prior contract or order to incorporate PBSA methods to the maximum 
extent practicable. This will facilitate the use of fixed-price 
contracts or orders for such requirements for services. (See 7.105 for 
requirement to address PBSA strategies in acquisition plans. See also 
16.104(k)).

PART 39--ACQUISITION OF INFORMATION TECHNOLOGY

    10. Amend 39.104 by revising paragraph (b) to read as follows:


39.104  Information technology services.

* * * * *
    (b) Require the use of other than a performance-based service 
acquisition (see Subpart 37.6).
[FR Doc. 04-16534 Filed 7-20-04; 8:45 am]
BILLING CODE 6820-EP-S