[Federal Register Volume 76, Number 26 (Tuesday, February 8, 2011)]
[Rules and Regulations]
[Pages 6696-6699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2772]



48 CFR Part 1816

RIN 2700-AD69

NASA Implementation of Federal Acquisition Regulation (FAR) Award 
Fee Language Revision

AGENCY: National Aeronautics and Space Administration.

ACTION: Interim rule.


SUMMARY: This interim rule revises the NASA FAR Supplement (NFS) to 
implement the FAR Award Fee revision issued in Federal Acquisition 
Circular (FAC) 2005-46.

DATES: Effective Date: February 8, 2011.
    Comment Date: Interested parties should submit written comments to 
NASA at the address below on or before April 11, 2011 to be considered 
in the formulation of the final rule.

ADDRESSES: Interested parties may submit comments, identified by RIN 
number 2700-AD69, via the Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. 
Comments may also be submitted to Bill Roets, NASA Headquarters, Office 
of Procurement, Contract Management Division, Washington, DC 20546. 
Comments may also be submitted by e-mail to [email protected].

Procurement, Contract Management Division (Suite 5G86); (202) 358-4483; 
e-mail: [email protected].


A. Background

    Federal Acquisition Circular (FAC) 2005-46 significantly revised 
FAR Parts 16.305, 16.401, and 16.405-2, incorporating new requirements 
relative to the use of award fee incentives. Specifically, this FAR 
rule implements section 814 of the John Warner 2007 National Defense 
Authorization Act (NDAA) and section 867 of the Duncan Hunter 2009 NDAA 
and requires agencies to:
    (1) Link award fees to acquisition objectives in the areas of cost, 
schedule, and technical performance;
    (2) Clarify that the base fee may be included in a cost plus award 
fee type contract at the discretion of the contracting officer;
    (3) Prescribe narrative ratings when making a percentage of award 
fee available;
    (4) Prohibit the issuance of award fees for a rating period if the 
contractor's performance is judged to be below satisfactory;
    (5) Conduct an analysis and consider the results of the analysis 
when determining whether to use an award fee type contract or not;
    (6) Include specific content in the award fee plans; and
    (7) Prohibit the rolling over of unearned award fees to subsequent 
rating periods.
    These significant revisions in FAR award fee guidance resulted in 
the need

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to make associated changes to the NFS award fee regulations.
    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

    NASA certifies that this interim rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, at 5 U.S.C. 601, et seq., 
because it merely implements the FAR Award Fee revisions and does not 
impose an economic impact beyond that addressed in the FAC 2005-46 
publication of the FAR final rule.
    Therefore, an Initial Regulatory Flexibility Analysis has not been 
performed. NASA will consider comments from small entities concerning 
the affected NFS Part 1816 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. in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because this interim 
rule does not contain any information collection requirements that 
require the approval of the Office of Management and Budget under 44 
U.S.C. 3501, et seq.

D. Determination to Issue an Interim Rule

    In accordance with 41 U.S.C 418(d), NASA has determined that urgent 
and compelling reasons exist to promulgate this interim rule without 
prior opportunity for public comment. This action is necessary to 
harmonize the NFS Award Fee coverage with that in the FAR which was 
effective per FAC 2005-46. However, pursuant to Public Law 98-577 and 
FAR 1.501, NASA 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 1816

    Government procurement.

William P. McNally,
Assistant Administrator for Procurement.

    Accordingly, 48 CFR part 1816 is amended as follows:


1. The authority citation for 48 CFR part 1816 continues to read as 

    Authority:  42 U.S.C. 2455(a), 2473(c)(1).

2. Section 1816.405-270 is revised to read as follows:

1816.405-270  CPAF contracts.

    (a) Use of an award fee incentive requires advance approval by the 
Assistant Administrator for Procurement. Requests for approval, that 
include Determination & Findings (D&F) cited in paragraph (b) of this 
section, shall be submitted to Headquarters Office of Procurement, 
Program Operations Division.
    (b) Contracting officers shall prepare a D&F in accordance with FAR 
16.401(d) prior to using an award fee incentive. In addition to the 
items identified in FAR 16.401(e)(1), D&Fs will include a discussion of 
the other types of contracts considered and shall indicate why an award 
fee incentive is the appropriate choice. Award fee incentives should 
not be used on contracts with a total estimated cost and fee less than 
$2 million per year. Use of award fee incentive for lower-valued 
acquisitions may be authorized in exceptional situations such as 
contract requirements having direct health or safety impacts, where the 
judgmental assessment of the quality of contractor performance is 
    (c) Except as provided in paragraph (d) of this section, an award 
fee incentive may be used in conjunction with other contract types for 
aspects of performance that cannot be objectively assessed. In such 
cases, the cost incentive is based on objective formulas inherent in 
the other contract types (e.g., FPI, CPIF), and the award fee provision 
should not separately incentivize cost performance.
    (d) Award fee incentives shall not be used with a cost-plus-fixed-
fee (CPFF) contract.

3. Section 1816.405-271 is revised to read as follows:

1816.405-271  Base fee.

    (a) A base fee shall not be used on CPAF contracts for which the 
periodic award fee evaluations are final (1816.405-273(a)). In these 
circumstances, contractor performance during any award fee period is 
independent of and has no effect on subsequent performance periods or 
the final results at contract completion. For other contracts, such as 
those for hardware or software development, the procurement officer may 
authorize the use of a base fee not to exceed 3 percent. Base fee shall 
not be used when an award fee incentive is used in conjunction with 
another contract type (e.g., CPIF/AF).
    (b) When a base fee is authorized for use in a CPAF contract, it 
shall be paid only if the final award fee evaluation is 
``satisfactory'' or better. (See 1816.405-273 and 1816.405-275) Pending 
final evaluation, base fee may be paid during the life of the contract 
at defined intervals on a provisional basis. If the final award fee 
evaluation is ``unsatisfactory'', all provisional base fee payments 
shall be refunded to the Government.

4. Section 1816.405-274 is revised to read as follows:

1816.405-274  Award fee evaluation factors.

    (a) Explicit evaluation factors shall be established for each award 
fee period. Factors shall be linked to acquisition objectives which 
shall be defined in terms of contract cost, schedule, and technical 
performance. If used, subfactors should be limited to the minimum 
necessary to ensure a thorough evaluation and an effective incentive.
    (b) Evaluation factors will be developed by the contracting officer 
based upon the characteristics of an individual procurement. Cost 
control, schedule, and technical performance considerations shall be 
included as evaluation factors in all CPAF contracts, as applicable. 
When explicit evaluation factor weightings are used, cost control shall 
be no less than 25 percent of the total weighted evaluation factors. 
The predominant consideration of the cost control evaluation should be 
a measurement of the contractor's performance against the negotiated 
estimated cost of the contract. This estimated cost may include the 
value of undefinitized change orders when appropriate.
    (c)(1) The technical factor must include consideration of risk 
management (including mission success, safety, security, health, export 
control, and damage to the environment, as appropriate) unless waived 
at a level above the contracting officer, with the concurrence of the 
project manager. The rationale for any waiver shall be documented in 
the contract file. When safety, export control, or security are 
considered under the technical factor, the award fee plan shall allow 
the following fee determinations, regardless of contractor performance 
in other evaluation factors, when there is a major breach of safety or 
    (i) For evaluation of service contracts under 1816.405-273(a), an 
overall fee rating of unsatisfactory for any evaluation period in which 
there is a major breach of safety or security.
    (ii) For evaluation of end item contracts under 1816.405-273(b), an 
overall fee rating of unsatisfactory for

[[Page 6698]]

any interim evaluation period in which there is a major breach of 
safety or security. To ensure that the final award fee evaluation at 
contract completion reflects any major breach of safety or security, in 
an interim period, the overall award fee pool shall be reduced by the 
amount of the fee available for the period in which the major breach 
occurred if an unsatisfactory fee rating was assigned because of a 
major breach of safety or security.
    (2) A major breach of safety must be related directly to the work 
on the contract. A major breach of safety is an act or omission of the 
Contractor that consists of an accident, incident, or exposure 
resulting in a fatality or mission failure; or in damage to equipment 
or property equal to or greater than $1 million; or in any ``willful'' 
or ``repeat'' violation cited by the Occupational Safety and Health 
Administration (OSHA) or by a state agency operating under an OSHA 
approved plan.
    (3) A major breach of security may occur on or off Government 
installations, but must be directly related to the work on the 
contract. A major breach of security is an act or omission by the 
contractor that results in compromise of classified information, 
illegal technology transfer, workplace violence resulting in criminal 
conviction, sabotage, compromise or denial of information technology 
services, equipment or property damage from vandalism greater than 
$250,000, or theft greater than $250,000.
    (4) The Assistant Administrator for Procurement shall be notified 
prior to the determination of an unsatisfactory award fee rating 
because of a major breach of safety or security.
    (d) In rare circumstances, contract costs may increase for reasons 
outside the contractor's control and for which the contractor is not 
entitled to an equitable adjustment. One example is a weather-related 
launch delay on a launch support contract. The Government shall take 
such situations into consideration when evaluating contractor cost 
    (e) Emphasis on cost control should be balanced against other 
performance requirement objectives. The contractor should not be 
incentivized to pursue cost control to the point that overall 
performance is significantly degraded. For example, incentivizing an 
underrun that results in direct negative impacts on technical 
performance, safety, or other critical contract objectives is both 
undesirable and counterproductive. Therefore, evaluation of cost 
control shall conform to the following guidelines:
    (1) Normally, the contractor should be given an unsatisfactory 
rating for cost control when there is a significant overrun within its 
control. However, the contractor may receive a satisfactory or higher 
rating for cost control if the overrun is insignificant. Award fee 
ratings should decrease sharply as the size of the overrun increases. 
In any evaluation of contractor overrun performance, the Government 
shall consider the reasons for the overrun and assess the extent and 
effectiveness of the contractor's efforts to control or mitigate the 
    (2) The contractor should normally be rewarded for an underrun 
within its control, up to the maximum award fee rating allocated for 
cost control, provided the adjectival rating for all other award fee 
evaluation factors is very good or higher (see FAR 16.401(e)(iv)).
    (3) The contractor should be rewarded for meeting the estimated 
cost of the contract, but not to the maximum rating allocated for cost 
control, to the degree that the contractor has prudently managed costs 
while meeting contract requirements. No award shall be given in this 
circumstance unless the average adjectival rating for all other award 
fee evaluation factors is satisfactory or higher.
    (f) When an AF arrangement is used in conjunction with another 
contract type, the award fee's cost control factor will only apply to a 
subjective assessment of the contractor's efforts to control costs and 
not the actual cost outcome incentivized under the basic contract type 
(e.g. CPIF, FPIF).
    (g)(1) The contractor's performance against the subcontracting plan 
incorporated in the contract shall be evaluated. Emphasis may be placed 
on the contractor's accomplishment of its goals for subcontracting with 
small business, HUBZone small business, women-owned small business, 
veteran-owned small business, and service-disabled veteran-owned small 
business concerns.
    (2) The contractor's performance against the contract target for 
participation as subcontractors by small disadvantaged business 
concerns in the NAICS Major Groups designated by the Department of 
Commerce (see FAR 19.201(c)) shall also be evaluated if the clause at 
FAR 52.219-26, Small Disadvantaged Business Participation--Incentive 
Subcontracting, is not included in the contract (see FAR 19.1204(c)).
    (3) The contractor's achievements in subcontracting high technology 
efforts as well as the contractor's performance under the Mentor-
Prot[eacute]g[eacute] Program, if applicable, may also be evaluated.
    (4) The evaluation weight given to the contractor's performance 
against the considerations in paragraphs (g)(1) through (g)(3) of this 
section should be significant (up to 15 percent of available award 
fee). The weight should motivate the contractor to focus management 
attention to subcontracting with small, HUBZone, women-owned, veteran-
owned, and service-disabled veteran-owned small business concerns, and 
with small disadvantaged business concerns in designated NAICS Major 
Groups to the maximum extent practicable, consistent with efficient 
contract performance.
    (h) When contract changes are anticipated, the contractor's 
responsiveness to requests for change proposals should be evaluated. 
This evaluation should include the contractor's submission of timely, 
complete proposals and cooperation in negotiating the change.
    (i) Only the award fee performance evaluation factors set forth in 
the performance evaluation plan shall be used to determine award fee 
    (j) The Government may unilaterally modify the applicable award fee 
performance evaluation factors and performance evaluation areas prior 
to the start of an evaluation period. The contracting officer shall 
notify the contractor in writing of any such changes 30 days prior to 
the start of the relevant evaluation period.

5. Section 1816.405-275 is revised to read as follows:

1816.405-275  Award fee evaluation rating.

    (a) All award fee contracts shall utilize the adjectival rating 
categories and associated descriptions as well as the award fee pool 
available to be earned percentages for each adjectival rating category 
contained in FAR 16.401(e)(iv).
    (b) The following numerical scoring system shall be used in 
conjunction with the FAR adjectival rating categories and associated 
descriptions (see FAR 16.401(e)(iv)).
    (1) Excellent (100-91)
    (2) Very good (90-76)
    (3) Good (75-51)
    (4) Satisfactory (50)
    (5) Unsatisfactory (less than 50) No award fee shall be paid for an 
unsatisfactory rating.
    (c) As a benchmark for evaluation, in order to be rated 
``Excellent'' overall, the contractor would typically be under cost, on 
or ahead of schedule, and providing outstanding technical performance.

[[Page 6699]]

    (d) A weighted scoring system appropriate for the circumstances of 
the individual contract requirement should be developed. In this 
system, each evaluation factor (e.g., technical, schedule, cost 
control) is assigned a specific percentage weighting with the 
cumulative weightings of all factors totaling 100. During the award fee 
evaluation, each factor is scored from 0-100 according to the ratings 
defined in 1816.405-275(b). The numerical score for each factor is then 
multiplied by the weighting for that factor to determine the weighted 
score. For example, if the technical factor has a weighting of 60 
percent and the numerical score for that factor is 80, the weighted 
technical score is 48 (80 x 60 percent). The weighted scores for each 
evaluation factor are then added to determine the total award fee 

[FR Doc. 2011-2772 Filed 2-7-11; 8:45 am]