This rule may benefit contractors who receive contract financing from the Government in the form of performance-based payments. Performance-based payments do not apply to:

• Payments under cost-reimbursement line-items;

• Contracts awarded under the authority of FAR part 12 or part 13;

• Contracts for architect-engineer services or construction, or for shipbuilding or ship repair, when the contract provides for progress payments based upon a percentage or stage of completion. 

Performance-based payments are tied to the achievement of specific, measurable events or accomplishments that are defined and valued in advance by the parties to the contract. Total performance-based payments cannot exceed 90 percent of the contract price.

This rule removes the DFARS restrictions that limit performance-based payments to amounts not greater than costs incurred up to the time of payment.

If performance-based payments to the contractor based on the negotiated value of completed milestone events are allowed to exceed the total costs incurred up to the time of payment, the cost to the contractor of short-term borrowing will decrease and the cost to the Government of borrowing will increase.

In addition, there is a minimal cost to offerors and the Government related to a new provision at DFARS 252.232-70XX, Performance-Based Payments Representation, that requires each offeror responding to a solicitation that may result in a contract providing performance-based financing to represent whether the output of the offeror’s accounting system is in compliance with Generally Accepted Accounting Principles, as evidenced by audited financial statements.

DoD has performed a regulatory cost analysis on this rule. The following is a summary of the estimated public cost savings and Government costs in millions calculated in perpetuity in 2016 dollars at a 7-percent discount rate: