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DOD/DARC RIN: 0750-AK37 Publication ID: Fall 2019 
Title: Performance-Based Payments (DFARS Case 2019-D002) 
Abstract:

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   
Legal Deadline:
Action Source Description Date
Final  Statutory  120 days after enactment  04/22/2017 

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.

Alternatives:

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:

  • 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: 

SUMMARY

Public

Government

Total

Present Value

-$53.997

$27.338

-$26.659

Annualized Costs

-$3.778

$1.914

-$1.864

Annualized Value Costs

(as of 2016 if Year 1 is 2019)

-$3.084

$1.562

-$1.522

Risks:

Timetable:
Action Date FR Cite
NPRM  04/30/2019  84 FR 18221   
NPRM Comment Period End  07/01/2019 
Final Action  01/00/2020 
Regulatory Flexibility Analysis Required: No  Government Levels Affected: Federal 
Federalism: No 
Included in the Regulatory Plan: Yes 
RIN Data Printed in the FR: No 
Agency Contact:
Jennifer Hawes
Department of Defense
Defense Acquisition Regulations Council
3060 Defense Pentagon, Room 3B941,
Washington, DC 20301-3060
Phone:571 372-6115
Email: jennifer.l.hawes2.civ@mail.mil