[Federal Register Volume 74, Number 197 (Wednesday, October 14, 2009)]
[Rules and Regulations]
[Pages 52856-52859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-24579]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 16

[FAC 2005-37; FAR Case 2008-008; Item VI; Docket 2009-0036, Sequence 1]
RIN 9000-AL42


Federal Acquisition Regulation; FAR Case 2008-008, Award Fee 
Language Revision

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

ACTION: Interim rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are issuing an interim rule 
amending the Federal Acquisition Regulation (FAR) to implement section 
814 of the John Warner National Defense Authorization Act for Fiscal 
Year 2007, section 867 of the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009, and the Office of Federal 
Procurement Policy guidance memorandum dated December 4, 2007, entitled 
Appropriate Use of Incentive Contracts.

DATES: Effective Date: October 14, 2009.
    Comment Date: Interested parties should submit written comments to 
the Regulatory Secretariat on or before December 14, 2009 to be 
considered in the formulation of a final rule.

[[Page 52857]]


ADDRESSES: Submit comments identified by FAC 2005-37, FAR case 2008-
008, by any of the following methods:
     Regulations.gov: http://www.regulations.gov.
    Submit comments via the Federal eRulemaking portal by inputting 
``FAR Case 2008-008'' into the field ``Keyword''. Select the link that 
corresponds with FAR Case 2008-008. Follow the instructions provided to 
submit your comment. Please include your name, company name (if any), 
and ``FAR Case 2008-008'' on your attached document.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VPR), 1800 F Street, NW., Room 4041, ATTN: Hada Flowers, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAC 2005-37, FAR 
case 2008-008, in all correspondence related to this case. All comments 
received will be posted without change to http://www.regulations.gov, 
including any personal and/or business confidential information 
provided.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at (202) 501-3221 for clarification of content. Please cite 
FAC 2005-37, FAR case 2008-008. For information pertaining to status or 
publication schedules, contact the Regulatory Secretariat at (202) 501-
4755.

SUPPLEMENTARY INFORMATION:

A. Background

    This rule implements the provisions of section 814 of the John 
Warner National Defense Authorization Act for Fiscal Year 2007 (Public 
Law 109-364), section 867 of the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009 (Public Law 110-417), and the 
Office of Federal Procurement Policy guidance memorandum dated December 
4, 2007, entitled Appropriate Use of Incentive Contracts, which deal 
with award and incentive fee contract types, by amending and/or 
integrating where appropriate, FAR part 7, Acquisition Planning, and 
FAR part 16, Contract Types, to improve agency use and decision making 
when using incentive contracts.
    FAR part 16 has been amended to provide further guidance relative 
to: (1) Award fees being linked to acquisition objectives in the areas 
of cost, schedule, and technical performance, (2) The percentage of 
award fee available for prescribed narrative ratings, (3) Award fees 
not being earned if the contractor's overall performance is judged to 
be below satisfactory, (4) The analysis required in determining whether 
to use an award or incentive fee type contract or not, (5) Award-fee 
plan content, (6) The prohibition of the use of the award fee rollover 
concept, (7) The requirements relative to award and incentive fee data 
collection and performance measures to evaluate such data, and a 
reference to FAR 7.105 for consideration of this information in 
acquisition planning, and (8) The publishing of best practices.
    The Councils are revising the following FAR provisions:
    (1) FAR 16.001 is revised to add definitions for the terms 
``Rollover of unearned award fee'', ``Award-Fee Board,'' and ``Fee-
Determining Official (FDO)''. This change is made to ensure that all 
parties understand what is meant by these terms, which are used in the 
new FAR 16.401(e).
    (2) FAR 16.404(a) and FAR 16.404(a)(1) have been combined into 
16.404. FAR 16.404(a)(2) has been deleted from this section and is now 
covered in FAR 16.401(e)(3).
    (3) FAR 16.401(d) was changed with the existing content of this 
section being moved to FAR 16.401(e) and new content being added. This 
new content requires that a determination and finding be made 
justifying the use of an incentive or award-fee type contract.
    (4) FAR 16.401(e) has been added to require that award fees be 
linked to acquisition objectives in the areas of cost, schedule, and 
technical performance; that award fees not be earned if the 
contractor's overall performance is judged to be below satisfactory; 
that award-fee determinations be documented in the contract file; that 
the determination and methodology for determining the award fee are 
unilateral decisions made solely at the discretion of the Government; 
and that all award-fee contracts have an award-fee plan that 
establishes the procedures and award-fee board for evaluating award-fee 
determinations. This new section also delineates what the required 
content shall be for all award-fee plans to include the use of 
adjectival ratings and associated descriptions as well as award-fee 
pool earned percentages now incorporated into the FAR in Table 16-1. 
This new paragraph also provides guidance relative to the use of the 
``rollover'' concept. The ``rollover'' of unearned award fee from one 
evaluation period to another evaluation period is now prohibited. The 
Councils believe ``rollover'' diminishes the effectiveness of the 
award-fee rating given for a specific evaluation period, since the 
unearned award fee could be earned by the contractor in a subsequent 
evaluation period. Further, the ``rollover'' concept is used sparingly 
across the Federal Government and its limited use has been trending 
downward.
    (5) FAR 16.404(b) was deleted and the core content of this section 
is now included in FAR 16.401(e). The revisions require that a 
determination and finding be made based upon the criteria in FAR 
16.401(e)(1) before utilizing an award-fee type contract.
    (6) FAR 16.405-2(a) is now FAR 16.405-2 and it was revised to 
clarify that base fee can be included in a cost-plus-award-fee (CPAF) 
type contract at the discretion of the contracting officer.
    (7) FAR 16.405-2(b)(1) has been deleted in its entirety. The 
language relative to when an award-fee contract is suitable for use is 
in FAR 16.401(e)(1).
    (8) FAR 16.405-2(b)(2) has been deleted in its entirety. The 
language relative to award-fee criteria motivating contractor 
performance has been revised and moved to FAR 16.401(e)(3)(ii).
    (9) FAR 16.405-2(b)(3) has been deleted in its entirety. The 
language relative to award-fee evaluation intervals has been revised 
and moved to 16.401(e)(3)(vi).
    (10) FAR 16.405-2(c) has been deleted and the intent of this 
section is now included in FAR 16.401(e)(5). The revision requires that 
no award-fee contract shall be awarded unless the limitations cited in 
this section are met. The limitations include compliance with FAR 
16.301-3, FAR 16.401(e)(3), and a determination and finding that 
justifies the use of this contract type in accordance with the 
suitability items in FAR 16.401(e)(1).
    (11) The references utilized in FAR 16.305 and FAR 16.402-1 were 
updated to accurately point to the correct FAR sections based upon the 
changes herein.
    (12) FAR 16.401(f) was added to require the collection of 
incentive- and award-fee data within the Federal Government.
    (13) FAR 16.401(g) was added to provide the Federal workforce with 
best practice type information relative to incentive- and award-fee 
contracting.
    These changes will affect contracts newly awarded. Any changes to 
existing contracts would be handled in accordance with FAR 1.108(d).
    This is a significant regulatory action and, therefore, was 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.

[[Page 52858]]

B. Regulatory Flexibility Act

    The interim rule is not expected 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 the 
guidance largely covers a broad range of aspects of award-fee 
contracting, whose upshot will be a more consistent use and 
administration of award fees Governmentwide which will provide a small 
benefit to all entities both large and small. In addition, the changes 
promulgated in this interim rule do not directly affect the current 
business processes of Federal contractors. In the matter of the rule's 
prohibition on the rollover of unearned award fee, the Councils believe 
this will have a negligible impact on small businesses for the 
following reasons. First, award-fee contracts are largely the province 
of large businesses with large dollar contracts. Second, the ability to 
rollover unearned award fee may have caused evaluators in the past to 
be more conservative in their ratings because of their awareness that 
contractors may have a second opportunity to earn unearned award fees.
    Therefore, an Initial Regulatory Flexibility Analysis has not been 
performed. The Councils will consider comments from small entities 
concerning the affected FAR part 16 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. (FAC 2005-37, FAR case 2008-008), in all 
correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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. 
Chapter 35, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary because section 867 of the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009 (Public Law 110-417), enacted on 
October 14, 2008, requires that the FAR be revised to implement this 
provision by October 14, 2009. However, pursuant to Public Law 98-577 
and FAR 1.501, the Councils will consider public comments received in 
response to this interim rule in the formation of the final rule.

List of Subjects in 48 CFR Part 16

    Government procurement.

    Dated: October 5, 2009.
Al Matera,
Director, Acquisition Policy Division.

0
Therefore, DoD, GSA, and NASA amend 48 CFR part 16 as set forth below:

PART 16--TYPES OF CONTRACTS

0
1. The authority citation for 48 CFR part 16 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).

0
2. Add section 16.001 to read as follows:


16.001  Definitions.

    As used in this part--
    Award-Fee Board means the team of individuals identified in the 
award-fee plan who have been designated to assist the Fee-Determining 
Official in making award-fee determinations.
    Fee-Determining Official (FDO) means the designated Agency 
official(s) who reviews the recommendations of the Award-Fee Board in 
determining the amount of award fee to be earned by the contractor for 
each evaluation period.
    Rollover of unearned award fee means the process of transferring 
unearned award fee, which the contractor had an opportunity to earn, 
from one evaluation period to a subsequent evaluation period, thus 
allowing the contractor an additional opportunity to earn that 
previously unearned award fee.

0
3. Amend section 16.305 by revising the third and fourth sentences to 
read as follows:


16.305  Cost-plus-award-fee contracts.

    * * * See 16.401(e) for a more complete description and discussion 
of the application of these contracts. See 16.301-3 and 16.401(e)(5) 
for limitations.

0
4. Amend section 16.401 by revising paragraph (d); and adding 
paragraphs (e) through (g) to read as follows:


16.401  General.

* * * * *
    (d) A determination and finding, signed by the head of the 
contracting activity, shall be completed for all incentive- and award-
fee contracts justifying that the use of this type of contract is in 
the best interest of the Government. This determination shall be 
documented in the contract file and, for award-fee contracts, shall 
address all of the suitability items in 16.401(e)(1).
    (e) Award-fee contracts are a type of incentive contract.
    (1) Application. An award-fee contract is suitable for use when--
    (i) The work to be performed is such that it is neither feasible 
nor effective to devise predetermined objective incentive targets 
applicable to cost, schedule, and technical performance;
    (ii) The likelihood of meeting acquisition objectives will be 
enhanced by using a contract that effectively motivates the contractor 
toward exceptional performance and provides the Government with the 
flexibility to evaluate both actual performance and the conditions 
under which it was achieved; and
    (iii) Any additional administrative effort and cost required to 
monitor and evaluate performance are justified by the expected benefits 
as documented by a risk and cost benefit analysis to be included in the 
Determination and Findings referenced in 16.401(e)(5)(iii).
    (2) Award-fee amount. The amount of award fee earned shall be 
commensurate with the contractor's overall cost, schedule, and 
technical performance as measured against contract requirements in 
accordance with the criteria stated in the award-fee plan. Award fee 
shall not be earned if the contractor's overall cost, schedule, and 
technical performance is below satisfactory. The basis for all award-
fee determinations shall be documented in the contract file to include, 
at a minimum, a determination that overall cost, schedule and technical 
performance is or is not at a satisfactory level. This determination 
and the methodology for determining the award fee are unilateral 
decisions made solely at the discretion of the Government.
    (3) Award-fee plan. All contracts providing for award fees shall be 
supported by an award-fee plan that establishes the procedures for 
evaluating award fee and an Award-Fee Board for conducting the award-
fee evaluation. Award-fee plans shall--
    (i) Be approved by the FDO unless otherwise authorized by agency 
procedures;
    (ii) Identify the award-fee evaluation criteria and how they are 
linked to acquisition objectives which shall be defined in terms of 
contract cost, schedule, and technical performance. Criteria should 
motivate the contractor to enhance performance in the areas rated, but 
not at the expense of at least minimum acceptable performance in all 
other areas;

[[Page 52859]]

    (iii) Describe how the contractor's performance will be measured 
against the award-fee evaluation criteria;
    (iv) Utilize the adjectival rating and associated description as 
well as the award-fee pool earned percentages shown below in Table 16-
1. Contracting officers may supplement the adjectival rating 
description. The method used to determine the adjectival rating must be 
documented in the award-fee plan;

                                                                       Table 16-1
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                                Award-Fee Pool
 Award-Fee Adjectival Rating    Available To Be                                                 Description
                                    Earned
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Excellent...................  91%--100%.........  Contractor has exceeded almost all of the significant award-fee criteria and has met overall cost,
                                                   schedule, and technical performance requirements of the contract as defined and measured against the
                                                   criteria in the award-fee plan for the award-fee evaluation period.
Very Good...................  76%--90%..........  Contractor has exceeded many of the significant award-fee criteria and has met overall cost, schedule,
                                                   and technical performance requirements of the contract as defined and measured against the criteria
                                                   in the award-fee plan for the award-fee evaluation period.
Good........................  51%--75%..........  Contractor has exceeded some of the significant award-fee criteria and has met overall cost, schedule,
                                                   and technical performance requirements of the contract as defined and measured against the criteria
                                                   in the award-fee plan for the award-fee evaluation period.
Satisfactory................  No Greater Than     Contractor has met overall cost, schedule, and technical performance requirements of the contract as
                               50%.                defined and measured against the criteria in the award-fee plan for the award-fee evaluation period.
Unsatisfactory..............  0%................  Contractor has failed to meet overall cost, schedule, and technical performance requirements of the
                                                   contract as defined and measured against the criteria in the award-fee plan for the award-fee
                                                   evaluation period.
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    (v) Prohibit earning any award fee when a contractor's overall 
cost, schedule, and technical performance is below satisfactory;
    (vi) Provide for evaluation period(s) to be conducted at stated 
intervals during the contract period of performance so that the 
contractor will periodically be informed of the quality of its 
performance and the areas in which improvement is expected (e.g. six 
months, nine months, twelve months, or at specific milestones); and
    (vii) Define the total award-fee pool amount and how this amount is 
allocated across each evaluation period.
    (4) Rollover of unearned award fee. The use of rollover of unearned 
award fee is prohibited.
    (5) Limitations. No award-fee contract shall be awarded unless--
    (i) All of the limitations in 16.301-3, that are applicable to 
cost-reimbursement contracts only, are complied with;
    (ii) An award-fee plan is completed in accordance with the 
requirements in 16.401(e)(3); and
    (iii) A determination and finding is completed in accordance with 
16.401(d) addressing all of the suitability items in 16.401(e)(1).
    (f) Incentive- and Award-Fee Data Collection and Analysis. Each 
agency shall collect relevant data on award fee and incentive fees paid 
to contractors and include performance measures to evaluate such data 
on a regular basis to determine effectiveness of award and incentive 
fees as a tool for improving contractor performance and achieving 
desired program outcomes. This information should be considered as part 
of the acquisition planning process (see 7.105) in determining the 
appropriate type of contract to be utilized for future acquisitions.
    (g) Incentive- and Award-Fee Best Practices. Each agency head shall 
provide mechanisms for sharing proven incentive strategies for the 
acquisition of different types of products and services among 
contracting and program management officials.


16.402-1  [Amended]

0
4. Amend section 16.402-1 by removing from paragraph (b) ``16.405-2'' 
and adding ``16.401(e)'' in its place.

0
5. Revise section 16.404 to read as follows:


16.404  Fixed-price contracts with award fees.

    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 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. See 16.401(e) for the requirements relative to utilizing 
this contract type.

0
6. Revise section 16.405-2 to read as follows:


16.405-2  Cost-plus-award-fee contracts.

    A cost-plus-award-fee contract is a cost-reimbursement contract 
that provides for a fee consisting of (1) a base amount fixed at 
inception of the contract, if applicable and at the discretion of the 
contracting officer, and (2) an award amount that the contractor may 
earn in whole or in part during performance and that is sufficient to 
provide motivation for excellence in the areas of cost, schedule, and 
technical performance. See 16.401(e) for the requirements relative to 
utilizing this contract type.
[FR Doc. E9-24579 Filed 10-13-09; 8:45 am]
BILLING CODE 6820-EP-S