[Federal Register Volume 71, Number 240 (Thursday, December 14, 2006)]
[Proposed Rules]
[Pages 75186-75188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9678]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAR Case 2005-016; Docket 2006-0020; Sequence 14]
RIN 9000-AK64


Federal Acquisition Regulation; FAR Case 2005-016, Performance-
based Payments

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

ACTION: Proposed rule.

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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) to implement recommendations to 
change the regulations related to performance-based payments (PBP).

DATES: Interested parties should submit written comments to the FAR 
Secretariat on or before February 12, 2007 to be considered in the 
formulation of a final rule.

ADDRESSES: Submit comments identified by FAR case 2005-016 by any of 
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Search for any document by first selecting the proper document types 
and selecting ``Federal Acquisition Regulation'' as the agency of 
choice. At the ``Keyword'' prompt, type in the FAR case number (for 
example, FAR Case 2006-001) and click on the ``Submit'' button. Please 
include any personal and/or business information inside the 
document.You may also search for any document by clicking on the 
``Advanced search/document search'' tab at the top of the screen, 
selecting from the agency field ``Federal Acquisition Regulation'', and 
typing the FAR case number in the keyword field. Select the ``Submit'' 
button.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann 
Duarte, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2005-
016 in all correspondence related to this case. All comments received 
will be posted

[[Page 75187]]

without change to http://www.regulations.gov, including any personal 
and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact 
Mr. Jerry Olson at (202) 501-3221. For information pertaining to status 
or publication schedules, contact the FAR Secretariat at (202) 501-
4755. Please cite FAR case 2005-016.

SUPPLEMENTARY INFORMATION:

A. Background

    The proposed changes to FAR 32.1000, 32.1003, 32.1004, 32.1005, and 
32.1007 and the clause at 52.232-32 are intended to increase the use of 
performance-based payments as the method of contract financing on 
Federal Government contracts, and improve the efficiency of 
performance-based payments when used on these contracts. These proposed 
changes originated from recommendations submitted by the Department of 
Defense Performance-based Payments Working Group in their March 8, 2005 
report. 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. Discussion

    The Councils are proposing to revise the following FAR provisions:
    1. The current FAR 32.1001(e) is renumbered to (d) and rephrased to 
require payments to be made in accordance with each agency's policy.
    2. FAR 32.1001(e) is moved from 32.1000 to clarify when use of PBPs 
is appropriate.
    3. FAR 32.1003 is revised to specifically address when PBP's may be 
used. This revised language clarifies use of PBPs on fixed-priced line 
items and orders and on Indefinite Delivery-Indefinite Quantity and 
non-Indefinite Delivery contracts.
    4. FAR 32.1004(a)(1), to clarify that events not requiring 
meaningful effort or action must not be included as events or criteria 
for PBPs. FAR 32.1004(a)(2)(iii), to specifically state that all 
cumulative events be identified. FAR 32.1004(b)(2)(ii) requires that 
the contracting officer must document the rationale for establishing a 
performance-based payment rate that is below the applicable progress 
payment rate. FAR 32.1004(c) is added (and the existing (c) renumbered) 
to clarify that the contracting officer shall not limit the amount of a 
PBP payment to a percentage of actual incurred cost for the scheduled 
event or performance criteria. FAR 32.1004(e)(1)(ii) is renumbered to 
32.1004(f)(1)(ii) and revised to clarify that solicitations related to 
competitive source selections should state that the evaluation of the 
proposed prices will include an adjustment to reflect the estimated 
cost to the Government of providing each offeror's proposed PBP terms.
    5. FAR 32.1007(a) is revised to clarify that the contracting 
officer responsible for administering the performance-based payments 
should also be responsible for reviewing, approving, and transmitting 
the payment requests to the payment office. FAR 32.1007(c) is revised 
to prohibit actual cost verification unless the purpose is to assist in 
establishing revised or new PBP milestones or values.

C. 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 should reduce administrative costs for contractor and 
the Government, thus further encouraging the use of performance based 
payments. An Initial Regulatory Flexibility Analysis has, therefore, 
not been performed. We invite comments from small businesses and other 
interested parties. The Councils will consider comments from small 
entities concerning the affected FAR Parts 32 and 52 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 2005-016), in 
correspondence.

D. 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 32 and 52

    Government procurement.

    Dated: December 7, 2006.
Ralph De Stefano
Director, Contract Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 32 and 
52 as set forth below:
    1. The authority citation for 48 CFR parts 32 and 52 continues 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 32--CONTRACT FINANCING


32.110  [Amended]

    2. Amend section 32.110 by removing from paragraph (d) 
``32.1004(d)'' and adding ``32.1004(e)'' in its place.
    3. Revise section 32.1000 to read as follows:


32.1000  Scope of subpart.

    This subpart provides policy and procedures for performance-based 
payments under noncommercial purchases pursuant to Subpart 32.1.
    4. Amend section 32.1001 by--
    a. Removing from paragraph (c) ``32.1003(c)'' and adding 
``32.1003(d))'' in its place;
    b. Removing paragraph (d); redesignating paragraph (e) as (d); and 
adding a new paragraph (e); and
    c. Revising newly designated paragraph (d).
    The revised and added text reads as follows:


32.1001  Policy.

* * * * *
    (d) Performance-based payments are contract financing payments and, 
therefore, are not subject to the interest-penalty provisions of prompt 
payment (see Subpart 32.9). These payments shall be made in accordance 
with agency policy.
    (e) Performance-based payments shall not be used for--
    (1) Payments under cost-reimbursement line items;
    (2) Contracts for architect-engineer services or construction, or 
for shipbuilding or ship conversion, alteration, or repair, when the 
contracts provide for progress payments based upon a percentage or 
stage of completion; or
    (3) Contracts awarded through sealed bid procedures.


32.1002  [Amended]

    5. Amend section 32.1002 by--
    a. Removing from the end of paragraph (a) the semi-colon and adding 
a period in its place; and
    b. Removing from the end of paragraph (b) ``; or'' and adding a 
period in its place.
    6. Revise section 32.1003 to read as follows:


32.1003  Criteria for use.

    The contracting officer may use performance-based payments for 
individual orders and contracts provided--
    (a) The contracting officer and offeror agree on the performance-
based payment terms;
    (b) The contract, individual order, or line item is a fixed-price 
type;

[[Page 75188]]

    (c) For indefinite delivery contracts, the individual order does 
not provide for progress payments; and
    (d) For other than an indefinite delivery contract, the contract 
does not provide for progress payments.
    7. Amend section 32.1004 by--
    a. Revising the 3rd sentence of paragraph (a)(1);
    b. Revising paragraph (a)(2)(iii);
    c. Revising the introductory text of paragraph (b)(2);
    d. Adding a new sentence to the end of paragraph (b)(2)(ii);
    e. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f) 
respectively, and adding a new paragraph (c);
    f. Revising the 2nd sentence of the newly redesignated paragraph 
(f)(1)(ii); and
    g. Removing from the newly redesignated paragraph (f)(2)(ii) 
``(e)(1)(ii)'' and adding ``(f)(1)(ii)'' in its place.
    The revised and added text reads as follows:


32.1004  Procedures.

* * * * *
    (a) * * * (1) * * * The signing of contracts or modifications, the 
exercise of options, the passage of time, or other such occurrences do 
not represent meaningful efforts or actions and shall not be identified 
as events or criteria for performance-based payments. * * *
* * * * *
    (2) * * *
    (iii) The contract must specifically identify cumulative events or 
criteria and identify which events or criteria are preconditions for 
the successful achievement of each cumulative event or criterion.
* * * * *
    (b) * * *
    (2) Total performance-based payments shall--
* * * * *
    (ii) * * * Unless otherwise provided in agency procedures, the 
contracting officer shall document the rationale for establishing the 
performance-based payment rate if the performance-based payment rate is 
less than the contractor's applicable progress payment rate.
* * * * *
    (c) Payment Amount. The contracting officer shall not limit the 
amount of a performance-based payment to a percentage of actual 
incurred cost for the scheduled event or performance criteria.
* * * * *
    (f) * * *
    (1) * * *
    (ii) * * * Unless agencies prescribe other evaluation procedures, 
if the contracting officer anticipates that the cost of providing 
performance-based payments would have a significant impact on 
determining the best value offer, the solicitation should state that 
the evaluation of the offeror's proposed prices will include an 
adjustment to reflect the estimated cost to the Government of providing 
each offeror's proposed performance-based payments (see Alternate I to 
the provision at 52.232-28).
* * * * *
    8. Amend section 32.1005 by--
    a. Revising the introductory text of paragraph (a); and
    b. Removing from paragraph (b)(2) ``32.1004(e)'' and adding 
``32.1004(f)'' in its place.
    The revised text reads as follows:


32.1005  Solicitation provision and contract clause.

    (a) Insert the clause at 52.232-32, Performance-Based Payments, 
in--
* * * * *
    9. Amend section 32.1007 by--
    a. Revising paragraph (a);
    b. Removing from paragraph (b)(2) ``32.1004(c)'' and adding 
``32.1004(d)'' in its place; and
    c. Adding to the end of paragraph (c) a new sentence.
    The revised and added text reads as follows:


32.1007  Administration and payment of performance-based payments.

    (a) Responsibility. The contracting officer responsible for 
administering performance-based payments (see 42.302(a)(12)) for the 
contract shall review and approve all performance-based payments for 
that contract.
* * * * *
    (c) * * * Reviews shall not include verification of actual cost 
unless the purpose is to assist in establishing revised or new 
performance-based payment milestones or values.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    10. Amend section 52.232-32 by revising the date of the clause and 
the second sentence of paragraph (c)(2) to read as follows:


52.232-32  Performance-Based Payments.

* * * * *
    PERFORMANCE-BASED PAYMENTS (DATE)
* * * * *
    (c) * * *
    (2) * * * The designated payment office will pay approved 
requests on the ------------------ [Contracting Officer insert day 
as prescribed by agency head; if not prescribed, insert ``30th''] 
day after receipt of the request for performance-based payment by 
the designated payment office. * * *
* * * * *
    (End of clause)
[FR Doc. 06-9678 Filed 12-13-06; 8:45 am]
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