[Federal Register Volume 63, Number 43 (Thursday, March 5, 1998)]
[Proposed Rules]
[Pages 11074-11075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5607]
[[Page 11073]]
_______________________________________________________________________
Part III
Department of Defense
General Services Administration
National Aeronautics and Space Administration
_______________________________________________________________________
48 CFR Part 32, et al.
Federal Acquisition Regulation (FAR); and Defense Federal Acquisition
Regulation Supplement (DFARS); Progress Payments; Proposed Rule
Federal Register / Vol. 63, No. 43 / Thursday, March 5, 1998 /
Proposed Rules
[[Page 11074]]
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 32, 52, 232, and 252
Federal Acquisition Regulation (FAR); and Defense Federal
Acquisition Regulation Supplement (DFARS); Progress Payments
AGENCIES: Department of Defense (DOD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Advance notice of proposed rulemaking and public meeting.
-----------------------------------------------------------------------
SUMMARY: A special interagency team formed by the Director of Defense
Procurement has identified potential changes to progress payment
policies and solicits comments from both government and industry
personnel regarding those changes.
Comments may be submitted in two formats: By letter to the address
specified below, or by electronic response on the Director of Defense
Procurement Office of Cost, Pricing, and Finance Internet Home Page:
http://www.acq.osd.mil/dp/cpf. Comments may address any of the
potential changes identified in this notice, as well as any other
changes to existing regulations, forms, or procedures that pertain to
progress payments. Comments should be accompanied by a supporting
rationale for proposed changes.
In addition, a public meeting will be held to discuss the potential
changes under consideration by the interagency team, as well as
comments received in response to this notice.
DATES: Comments should be submitted on or before April 6, 1998.
ADDRESSES: Interested parties should submit written comments to: Chair,
Progress Payments Rewrite Team, Mr. Richard Brown, PDUSD (A&T) DP/CPF,
Room 3C800, The Pentagon, Washington, DC 20301-3060.
Public Meeting: A public meeting will be conducted at the
Headquarters, Defense Logistics Agency, Command Conference Room (Room
2419), 8725 John J. Kingman Road, Fort Belvoir, Virginia, from 9:30
a.m. to 3:00 p.m., local time, on April 23, 1998. Those who plan to
attend the public meeting are asked to pre-register, if possible. The
names of expected attendees should be provided, no later than 4:00
p.m., local time, April 21, 1998, to Mr. Richard Brown, by telephone,
FAX, mail, or e-mail, at the phone number(s) and address indicated
herein. Walk-in attendance will be accommodated. However, pre-
registration is desired, as the names of pre-registrants will be
provided to building security to facilitate building access.
FOR FURTHER INFORMATION CONTACT:
Mr. Richard Brown, by telephone at (703) 695-7197, by FAX at (703) 693-
9616, or by e-mail at brownrg@acq.osd.mil.
SUPPLEMENTARY INFORMATION:
I. Draft Materials
The potential changes to the Federal Acquisition Regulation (FAR)
and Defense Federal Acquisition Regulation Supplement (DFARS) discussed
herein are available in draft form electronically in Microsoft Word 6.0
text format at the Cost, Pricing, and Finance Internet Office Home
Page--http://www.acq.osd.mil/dp/cpf/
Note: The draft changes do not reflect a proposed rule, nor do
they reflect agreement by all members of the interagency team; they
are provided for information and discussion purposes only.
Paper copies may be obtained from Mr. Richard Brown, PDUSD (A&T)
DP/CPF, Washington, DC 20301-3060.
II. Background
The Director of Defense Procurement, Department of Defense,
established a special interagency team, with participants from the
Office of the Under Secretary of Defense (Comptroller), the Military
Departments, the Defense Logistics Agency, the Defense Contract Audit
Agency, the Defense Finance and Accounting Service, the Departments of
Energy and Transportation, and the National Aeronautics and Space
Administration, to review and rewrite FAR Part 32 and Part 52
provisions regarding progress payments, to make them easier to
understand and to minimize the burdens imposed on contractors and
contracting officers. An advance notice of proposed rulemaking (ANPR),
published in the Federal Register on May 1, 1997 (62 FR 23740),
solicited comments on how FAR Subpart 32.5, Progress Payments Based on
Costs, the clause at FAR 52.232.16, Progress Payments, and Standard
Form 1443, Contractor's Request For Progress Payments, might be revised
to improve the process of applying for and administering progress
payments. The interagency team has considered public comments received
in response to the ANPR, reviewed progress payment policies, and
identified potential areas for policy changes. The purpose of this
notice is to provide the public with a preliminary indication of
changes under consideration, and solicit comments and suggestions on
those changes, via public comments and a public hearing. The
interagency working group will submit a report, including a draft
proposed rule, for consideration by the Defense Acquisition Regulations
Council and the Civilian Agency Acquisition Council. Subsequently, a
proposed rule will be published for additional public comments.
III. Overview of Policy Changes Under Consideration
The interagency team has identified the following areas for
potential policy changes. Comments are requested on these areas and any
other ideas interested parties may offer:
A. Elimination of the ``Paid Cost Rule''
Currently, large businesses must have actually paid a subcontractor
before including the payment in progress payment billings. This is the
so-called ``paid cost rule.'' In contrast, small businesses need only
have incurred the subcontract cost, provided the payment will be made
in the ordinary course of business. The interagency team proposes the
elimination of this ``paid cost rule'' by revising the Progress
Payments clause (FAR 52.232-16), as needed, to put large and small
businesses on the same footing.
B. Subcontractor Performance-Based Payments and Commercial Financing
Payments
The interagency team recommends that the Progress Payments clause
(FAR 52.232-16) be revised as necessary to permit prime contractors
that receive progress payments to use performance-based payments or
commercial financing payments with their subcontractors, provided the
subcontracts that include such payments meet the same criteria and use
similar provisions that the Government uses with its prime contractors.
As a consequence, prime contractors will be reimbursed 100 percent of
all subcontractor financing, instead of just progress payment
financing.
C. Expand Use of Performance-Based Payments to Competitive
Solicitations
This would remove the limitation at FAR 32.1000(d), and allow
performance-based payments to be used in competitive solicitations,
provided it is practicable to do so.
[[Page 11075]]
D. Increase Threshold for Progress Payments
The interagency team recommends raising the threshold at FAR
32.502-1(b), for use of progress payments with large businesses, from
$1 million to $2 million. This threshold has not been increased in over
30 years, and should be raised in order to reduce the administrative
burden that small dollar actions place on the contract administration
and payment process.
E. Limit Applicability of Progress Payments on Ordering Contracts
When ordering contracts are used and include a provision for
progress payments, the interagency team recommends that progress
payments be made applicable to only those orders that exceed the
simplified acquisition threshold. This will ease the burden of
administering progress payments on numerous small dollar actions.
F. Eliminate Coverage for Flexible Progress Payments
DoD has not used flexible progress payments in new contracts since
fiscal year 1994. Flexible progress payments are administratively
complex and burdensome, and may be replaced with performance-based
payments in some situations. Consequently, the interagency team
recommends elimination of all DFARS coverage related to flexible
progress payments.
G. Ensure Consideration of Performance-Based Payments
The interagency team recommends additional coverage be added to FAR
32.502-1 to ensure that use of performance-based payments is initially
considered, and deemed impractical by the contracting officer, before a
decision is made to provide customary progress payments. This is a more
appropriate implementation of the 10 U.S.C. 2307(b) requirement that
performance-based payments be used wherever practicable.
H. Clarify Purpose of the Loss Ratio
The interagency team recommends that FAR 32.503-6(f) be revised to
make clear that, on a loss contract, application of the loss ratio
constitutes the adjustment that ensures that progress payments do not
exceed the value of work performed. This is in response to those who
believe that an additional adjustment, over and above the application
of the loss ratio, may be necessary to preclude overpayment of progress
payments.
I. Remove the Limitation on General & Administrative Expenses
This limitation at FAR 32.503-7 applies to only those contractors
that have established an inventory suspense account under 48 CFR
9904.410, Allocation of Business Unit General and Administrative
Expenses to Final Cost Objectives. The provision dates from 1979 and
the interagency team believes it is no longer needed.
J. Remove the Requirement for Contracting Officer Review of Quarterly
Statements
This requirement at FAR 32.503-13 applies to quarterly statements
submitted under price revision contracts, for comparison with progress
payment requests. The interagency team has concluded that it adds
little or no value to progress payment administration, provided the
contracting officer is otherwise adequately administering progress
payments.
List of Subjects in 48 CFR Parts 32, 52, 232, and 252
Government procurement.
Dated: February 27, 1998.
Michele P. Peterson,
Executive Editor, Defense Acquisition, Regulations Council, Department
of Defense.
Edward C. Loeb,
Director, Federal Acquisition, Policy Division, General Services
Administration.
[FR Doc. 98-5607 Filed 3-4-98; 8:45 am]
BILLING CODE 6820-EP-M
