Federal Acquisition Regulation; Performance Incentives for Fixed- Price Contracts

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 16 and 52

[FAC 90-46; FAR Case 93-603; Item IV]

RIN 9000-AH07

Federal Acquisition Regulation; Performance Incentives for Fixed-

Price Contracts

AGENCIES: Department of Defense (DOD), General Services Administration

(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council have agreed on a final rule amending

the Federal Acquisition Regulation (FAR) to permit the use of award-fee

provisions as performance incentives in fixed-price contracts. This

regulatory action was not subject to Office of Management and Budget

review under Executive Order 12866, dated September 30, 1993. This is

not a major rule under 5 U.S.C. 804.

DATES: Effective May 16, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Ralph DeStefano at (202) 501-1758

in reference to this FAR case. For general information, contact the FAR

Secretariat, Room 4037, GS Building, Washington, DC 20405 (202) 501-

4755. Please cite FAC 90-46, FAR case 93-603.

SUPPLEMENTARY INFORMATION:

A. Background

The FAR currently provides for the use of performance incentives

when used with cost incentives. This FAR revision allows the use of

performance incentives alone. This revision will allow agencies to

recognize and reward contractors who exceed minimum standards in terms

of quality, timeliness, technical ingenuity, and effective management.

A proposed rule was published in the Federal Register at 61 FR

31798, June 20, 1996. One comment was received from one respondent. The

comment was considered in developing the final rule.

B. Regulatory Flexibility Act

The Department of Defense, the General Services Administration, and

the National Aeronautics and Space Administration certify that this

final rule will not have a significant economic impact on a substantial

number of small entities within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq., because the rule merely

authorizes the use of performance incentives for contractors under

fixed-price contracts. The rule authorizes the Government to reward a

contractor for exceeding minimum performance standards.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the changes to

the FAR do not impose recordkeeping or information collection

requirements, or collections of information from offerors, contractors,

or members of the public which require the approval of the Office of

Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 16 and 52

Government procurement.

Dated: March 7, 1997.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, 48 CFR Parts 16 and 52 are amended as set forth below:

1. The authority citation for 48 CFR Parts 16 and 52 continues to

read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 16--TYPES OF CONTRACTS

16.204 [Amended]

2. Section 16.204 is amended in the last sentence by removing the

citation ``16.405'' and inserting ``16.406''.

16.304 [Amended]

3. Section 16.304 is amended by removing ``16.404-1'' and inserting

``16.405-1''.

16.305 [Amended]

4. Section 16.305 is amended by removing ``16.404-2'' and inserting

``16.405-2'' each time it appears.

5. Section 16.401 is amended in paragraph (c) by revising the first

sentence; and adding paragraph (d) to read as follows:

16.401 General.

* * * * *

(c) The two basic categories of incentive contracts are fixed-price

incentive contracts (see 16.403 and

[[Page 12696]]

16.404) and cost-reimbursement incentive contracts (see 16.405). * * *

(d) Award-fee contracts are a type of incentive contract.

16.402-1 [Amended]

6. Section 16.402-1 is amended in paragraph (b) by removing

``16.404-2'' and inserting ``16.405-2''.

16.404 and 16.405 [Redesignated as 16.405 and 16.406]

7. Sections 16.404 and 16.405 are redesignated as 16.405 and

16.406, respectively.

8. A new section 16.404 is added to read as follows:

16.404 Fixed-price contracts with award fees.

(a) Award-fee provisions may be used in fixed-price contracts when

the Government wishes to motivate a contractor and other incentives

cannot be used because contractor performance cannot be measured

objectively. Such contracts shall--

(1) Establish a fixed price (including normal profit) for the

effort. This price will be paid for satisfactory contract performance.

Award fee earned (if any) will be paid in addition to that fixed price;

and

(2) Provide for periodic evaluation of the contractor's performance

against an award-fee plan.

(b) A solicitation contemplating award of a fixed-price contract

with award fee shall not be issued unless the following conditions

exist:

(1) The administrative costs of conducting award-fee evaluations

are not expected to exceed the expected benefits;

(2) Procedures have been established for conducting the award-fee

evaluation;

(3) The award-fee board has been established; and

(4) An individual above the level of the contracting officer

approved the fixed-price-award-fee incentive.

16.404-1 and 16.404-2 [Redesignated as 16.405-1 and 16.405-2].

9. Sections 16.404-1 and 16.404-2 are redesignated as 16.405-1 and

16.405-2, respectively.

10.-11. The newly designated section 16.406 is amended by revising

the introductory text of paragraph (e) to read as follows:

16.406 Contract clauses.

* * * * *

(e) The contracting officer shall insert an appropriate award-fee

clause in solicitations and contracts when an award-fee contract is

contemplated, provided that the clause--

* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

12. Section 52.216-16 is amended by revising the introductory

paragraph, and Alternate I introductory text to read as follows:

52.216-16 Incentive Price Revision--Firm Target.

As prescribed in 16.406(a), insert the following clause:

* * * * *

Alternate I (APR 1984). As prescribed in 16.406(a), add the

following paragraph (o) to the basic clause:

* * * * *

13. Section 52.216-17 is amended by revising the introductory

paragraph, and Alternate I introductory text to read as follows:

52.216-17 Incentive Price Revision Successive Targets.

As prescribed in 16.406(b), insert the following clause:

* * * * *

Alternate I (APR 1984). As prescribed in 16.406(b), add the

following paragraph (q) to the basic clause:

* * * * *

[FR Doc. 97-6313 Filed 3-14-97; 8:45 am]

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