[Federal Register Volume 75, Number 99 (Monday, May 24, 2010)]
[Pages 28788-28789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12349]



Department of the Navy

Preferred Supplier Program (PSP)

AGENCY: Department of the Navy, DoD.

ACTION: Notice of proposed policy letter.


SUMMARY: The Deputy Assistant Secretary of the Navy, Acquisition and 
Logistics Management (DASN (A&LM)), is soliciting comments that the 
Department of the Navy (DON) may use in drafting a policy that will 
establish a Preferred Supplier Program (PSP). Under the PSP, 
contractors that have demonstrated exemplary performance, at the 
corporate level; in the areas of cost, schedule, performance, quality, 
and business relations would be granted Preferred Supplier Status 
(PSS). Contractors that achieved PSS would receive more favorable 
contract terms and conditions in DON contracts. Upon approval of the 
policy by the Assistant Secretary of the Navy for Research, Development 
and Acquisition, DON will initiate the pilot phase of the PSP.

DATES: DON invites interested parties from both the public and private 
sectors to provide comments to be considered in the formulation of the 
final policy letter. In particular, DON encourages respondents to offer 
their views as discussed below, in Section D, ``Solicitation of Public 
    Interested parties should submit comments, in writing, to the 
address below, on or before July 23, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:
    E-mail: [email protected].
    Facsimile: 703-614-9394.
    Mail: DASN (A&LM), Attn: Clarence Belton, 1000 Navy Pentagon, Room 
BF992, Washington, DC 20350-1000.
    Instructions: Please submit comments only and cite ``Proposed DON 
PSP Policy Letter'' in all correspondence. All comments received will 
be posted, without change or redaction, to https://acquisition.navy.mil/rda/home/acquisition_one_source/business_opportunities/preferred_supplier, so commenters should not include 
information that they do not wish to be posted (for example, personal 
or business-confidential).

FOR FURTHER INFORMATION CONTACT: Clarence Belton, 703-693-4006 or 
[email protected].


A. Background

    Companies in the private sector that have implemented PSPs have 
significantly improved performance. Cash flow, profit, and contract 
terms and conditions that reduce contractor costs and risk are powerful 
incentives that can be used to motivate contractors to perform at a 
high level. DON and its contractors negotiate these key components of 
the business arrangement contract by contract. As a result of this 
decentralized and individual approach, DON loses an extremely important 
opportunity. This policy would establish the PSP to recover that 
opportunity through the use of favorable contract terms and conditions 
that would be available to Preferred Suppliers (i.e., suppliers that 
have demonstrated exemplary performance, at the corporate level, in the 
areas of cost, schedule, performance, quality, and business relations).
    The proposed policy is now in the conceptual stage. After 
consideration of the comments, DON may publish a draft proposed policy 
letter for additional public comments.

B. Proposed Policy Letter Concepts

    The general outline of the pilot phase of the PSP, to be 
established under the proposed policy letter, is set forth below.
    DASN (A&LM) shall be responsible for the assessment of contractors 
under the PSP. DASN (A&LM) will confer PSS at the corporate level, and 
will not rate individual affiliates or subdivisions of corporations.
    DASN (A&LM) shall use the Contractor Performance Assessment 
Reporting System (CPARS) as the baseline data during the pilot phase of 
the PSP. In the course of the pilot phase, DON also will identify other 
sources of data, including information available to Navy program 
offices and government contract administration organizations that the 
Department may use to supplement CPARS data in implementing the PSP. 
The factors that DASN (A&LM) will use to assess contractors during the 
pilot phase include, at a minimum, the following CPARS areas:

Technical (Quality of Product);
Cost Control;
Management Responsiveness;
Management of Key Personnel;
Utilization of Small Business;
Other CPARS Factors As Appropriate.

    DASN (A&LM) shall assess Energy Efficiency for all contractors as 
an ``excellence factor,'' in addition to the areas above.
    During the pilot phase of the PSP, DON will use a 5-star system 
based upon the 5-color ratings used in CPARS, as follows:

[[Page 28789]]

                             CPARS                                 PSP
Red...........................................................         0
Yellow........................................................         1
Green.........................................................         2
Purple........................................................         3
Dark Blue.....................................................         4

    DON will use the CPARS conversion table above, based upon CPARS 
data, and, as appropriate, other sources of information and weighting 
factors. Contractors must achieve at least a 3-Star rating to be 
designated as a Preferred Supplier.
    If a contractor provides documentation sufficient to establish that 
it has an Energy Efficiency Program, it will receive an additional 
star, up to a maximum rating of 5 Stars. A 5-Star rating can only be 
achieved if the contractor maintains an active Energy Efficiency 
Program, and otherwise has received a 4-Star rating. Failure to 
demonstrate an active Energy Efficiency Program will not diminish the 
contractor's PSP rating.
    During each fiscal year, DASN (A&LM) shall reassess and rate the 
top 25 DON contractors. The top 25 DON contractors will be determined 
by the value of contract awards for the most recent fiscal year. Other 
contractors may apply to join the PSP. DASN (A&LM) shall evaluate all 
applicants currently eligible for assessment in CPARS using the same 
process as it does to evaluate the top 25 contractors. DASN (A&LM) will 
establish a 30-day application period that will begin no later than 
January 1, annually.
    In negotiating contracts with Preferred Suppliers, DON contracting 
officers will be authorized to offer some or all of the following more 
favorable contract terms and conditions:
    [cir] More favorable progress payments.
    [cir] Recognition of PSS in the development of profit or fee based 
upon weighted guidelines.
    [cir] Tailored contract reporting requirements.
    [cir] Special award fee pools.
    PSS shall not be used as a factor or sub-factor in any source 
selection. However, where the contracting officer has a reasonable 
belief that a Preferred Supplier may submit a bid or proposal, the 
solicitation shall contain terms and conditions that will be 
applicable, after award, only if the successful offeror is a Preferred 
    These special terms and conditions, applicable to contracts with 
Preferred Suppliers, shall be consistent with the limitations specified 
in regulations promulgated pursuant to the Federal Acquisition 
Regulatory System.

C. Solicitation of Public Comment

    DON invites interested parties from both the public and private 
sectors to provide comments for consideration in the formulation of a 
policy letter establishing the PSP. In particular, DON seeks to better 
understand how to incentivize contractors, at the corporate level, to 
achieve sustained superior performance in the areas of cost, schedule, 
performance, quality, and business relations. Accordingly, DON welcomes 
feedback regarding the following questions.
    1. What clauses are currently being used in government 
subcontracts, and commercial contracts and subcontracts, to incentivize 
superior performance, at the corporate level, in the areas of cost, 
schedule, performance, quality, and business relations?
    2. What solicitation provisions, contract clauses, and performance 
incentives will provide contractors with the greatest motivation to 
achieve PSS?
    3. Energy Efficiency is a critical DON requirement significantly 
impacting the successful achievement of DON's missions. How should a 
contractor's use of energy, as it relates to the entire life-cycle of a 
product--design, manufacture, use, maintenance, and disposal--be 
considered in the designation of Preferred Suppliers?
    4. Is there any other aspect of the proposed PSP on which you wish 
to comment?

    Dated: May 14, 2010.
A. M. Vallandingham,
Lieutenant Commander, Office of the Judge Advocate General, U.S. Navy, 
Federal Register Liaison Officer.
[FR Doc. 2010-12349 Filed 5-21-10; 8:45 am]