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|DOD/DARC||RIN: 0750-AK37||Publication ID: Fall 2019|
|Title: Performance-Based Payments (DFARS Case 2019-D002)|
DoD is amending the DFARS to implement section 831 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 (Pub. L. 114-328), which amends 10 U.S.C. 2307 to promote the use of performance-based payments. The primary objective of this rule is to remove restrictions within the DFARS that limit performance-based payments to amounts not greater than costs incurred up to the time of payment. This rule is expected to benefit contractors who receive contract financing from DoD in the form of performance-based payments.
|Agency: Department of Defense(DOD)||Priority: Other Significant|
|RIN Status: Previously published in the Unified Agenda||Agenda Stage of Rulemaking: Final Rule Stage|
|Major: No||Unfunded Mandates: No|
|EO 13771 Designation: Deregulatory|
|CFR Citation: 48 CFR 204 48 CFR 232 48 CFR 252|
|Legal Authority: 41 U.S.C. 1303 Pub. L. 114-328, sec. 831 10 U.S.C. 2307|
Statement of Need:
This regulatory action is required in order to implement section 831 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328). This rule amends the DFARS to implement changes to performance-based payment policies for DoD contracts by amending the policy on performance-based payments at DFARS 232.1001 and amending the clauses at DFARS 252.232-7012, Performance-Based Payments--Whole Contract Basis, and 252.232-7013, Performance-Based Payments--Deliverable Item Basis.
Summary of the Legal Basis:
This regulation is issued under the authorities of section 831 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328) and 41 U.S.C. 1303.
There are no viable alternatives, because the statute requires implementation in the DFARS. DoD had considered instituting a whole new approach to contract financing, in order to incentivize improved contractor performance, but this approach is undergoing further study and analysis.
Anticipated Costs and Benefits:
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:
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:
|Regulatory Flexibility Analysis Required: No||Government Levels Affected: Federal|
|Included in the Regulatory Plan: Yes|
|RIN Data Printed in the FR: No|
Department of Defense
Defense Acquisition Regulations Council
3060 Defense Pentagon, Room 3B941,
Washington, DC 20301-3060