[Federal Register Volume 60, Number 161 (Monday, August 21, 1995)]
[Rules and Regulations]
[Pages 43402-43405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20663]
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ENVIRONMENTAL PROTECTION AGENCY
48 CFR Parts 1516 and 1552
[FRL-5282-5]
Acquisition Regulation; Cost-Plus-Award Fee Contracts
AGENCY: Environmental Protection Agency.
ACTION: Final rule.
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SUMMARY: This document revises the EPA Acquisition Regulation (EPAAR)
coverage on cost-plus-award fee (CPAF) contracts. The rule is necessary
to update and clarify EPA policy regarding CPAF contracts, and to give
Contracting Officers (COs) greater flexibility in tailoring award fee
plans to individual contracts.
EFFECTIVE DATE: October 20, 1995.
FOR FURTHER INFORMATION CONTACT: Environmental Protection Agency,
Office of Acquisition Management (3802F), 401 M Street SW, Washington,
DC 20460, Attn: Louise Senzel (202) 260-6204.
SUPPLEMENTARY INFORMATION:
A. Background
The proposed rule was published in the Federal Register (60 FR
5888) on January 31, 1995, providing for a 30-day comment period. The
comment period was extended by publication in the Federal Register (60
FR 10535) on February 27, 1995, for an additional 30 days.
Interested persons have been afforded an opportunity to participate
in the making of this rule. Due consideration has been given to the 14
comments received. The following is a summary of each comment received
and the Agency's disposition of these comments.
1. The commentary accompanying the proposed rule says that the
intent is to encourage contractors to perform at the ``above
satisfactory'' or ``excellent'' levels. While this is an admirable
intent, there is no logical reason to provide no reward at all for
``satisfactory'' performance. EPA should study FAR 15.901 (b) and (c).
The Agency is aware of the intent of profit as described in FAR
subparts 15.901 (b) and (c). Contractors that perform on a
``satisfactory'' basis will still receive base fee. The Agency policy
is that there is no award fee for this level of performance. The Agency
is creating a greater incentive for high quality performance. Rewarding
work that is satisfactory will not achieve this goal.
2. The proposed rule makes no connection between the ratings
(frequently determined by averaging inputs from EPA field personnel,
who are the real ``customers'' of the contract) and the award fee.
Thus, there would be no accountability for those making award fee
decisions. The proposed rule is an incentive to take advantage of a
contractor rather than working to establish a long-term win-win
relationship. This is a bad approach to business and a worse approach
to government.
Agency internal procedures set forth the process for performing
award fee evaluations, and describe the relationship between the
ratings of field personnel and the award fee. However, EPA does not
believe that it is necessary to describe the details of our internal
processes which establish accountability, in the EPA Acquisition
Regulation. The EPA disagrees that the rule is an incentive to take
advantage of a contractor. The proposed rule represents the intent of
the National Performance Review which calls for elimination of
unnecessary rulemaking for internal procedures and practices, and
focuses on outcomes not processes.
3. What is the purpose of high ratings and low award fee? If the
ratings and award fee are not correlated to each other, to what do they
correlate? This approach sends the message to the contractor that the
award fee process is subjective, rather than objective.
The EPA does not believe that there will be high ratings and low
award fee. The EPA will pay equivalent fee for the rating received.
Award fee is an objective process that requires subjective review of
the quality of a contractor's performance. No matter how objectively
and well the process parameters are described, the process must still
rely on the qualitative judgment of the reviewers in assessing a rating
for the contractor's performance.
4. The proposed rule would allow EPA to make unilateral changes to
the award fee plan after contract award. Thus, performance would not be
evaluated on the same basis that enticed submission of a proposal. This
is ``bait and switch'' at its worst. There would be no appeal of these
changes.
The award fee process always permitted the Government to make
unilateral changes to the award fee plan after contract award. However,
this is not ``bait and switch'' as the rule will require the contractor
to be notified at least 30 days in advance of the basis for determining
award fee. Generally, the practice has been to prospectively amend the
award fee plan, i.e., the new plan will impact the activities performed
after the change in plan and will not apply retroactively to work
already performed.
5. EPA seems to believe that contractors look at base fee and award
fee as a single number, so that if a contractor received zero award fee
out of a (3% pool) and 3% base fee, it received 50% of the available
fee. This is inconsistent with the FAR approach to fee and is ``logic''
not subscribed to by any contractor.
This is not what EPA believes. EPA believes that award fee should
not be given for work that is satisfactory or less. EPA believes that
to award ``satisfactory'' work will provide a negative incentive for
contractors to perform at higher levels of performance.
6. Government work is already less profitable than other work. A
typical
[[Page 43403]]
CPAF contract has a 7% fee (3% base and 4% award), but that is before:
award fee ratings; award fee erosion due to level of effort;
unallowable costs; late payment (EPA ignores the Prompt Payment Act);
arbitrary withholdings, etc. Commercial work profit ranges of 10-30%
are typical, with little paperwork and few hassles. Reducing the
likelihood of earning award fee is not the way to attract the highest
qualified contractors. By removing the financial incentives to
participate, the proposed rule will drive away innovative and higher
qualified contractors at just the time EPA needs them most.
Primarily, commercial work is performed on a fixed price basis not
a cost reimbursement one. Typically, Government fixed price contracts
have much higher profit/fees than cost reimbursement work. Fee on cost
reimbursable contracts is currently limited statutorily. Other Federal
agencies use these same limits. The EPA believes that by awarding high
performance, the Agency will continue to attract highly qualified
contractors who are capable and interested in performing work in
support of our environmental mission. EPA's payment record under the
Prompt Payment Act is exemplary. Although an award fee determination
may be late, this is not a violation of the Prompt Payment Act.
7. While the words of the proposed rule emphasize quality, the
numbers (and EPA's consistent behavior) emphasize price.
The Agency has previously instituted policy to ensure that there is
a floor for award fee to ensure that there is an appropriate size award
fee pool even in a competitive acquisition.
8. The EPA award fee process needs to be re-thought, but the
proposed rule is a giant step in the wrong direction.
The EPA believes that this is a step in the right direction to
incentivize contractor performance.
9. For the rating levels of ``unsatisfactory'', ``satisfactory'',
``above satisfactory'', and ``excellent'', specific rating factors or
criteria must be spelled out under EPAAR 1516.4 since the rule provides
for unilateral contract modification of the Award Fee Plan. Spelling
out specific rating factors or criteria would minimize the risk of
unwarranted or unfair subjectivity on the part of individuals involved
or responsible for performance evaluations and ratings. Also, it would
make it clear to contractors what is expected in order to achieve the
rating levels. Furthermore, it would assure consistency in the
administration of the rating scheme, rather than leaving it to
individual discretion and/or case by case variances. The award fee is
to be considered an incentive to motivate performance for mutual
benefit with a sense of partnership between the Agency and the
contractor to help achieve the Agency's program goal, in the public
interest (FAR 16.404-2(b)(2). ``* * * The criteria and rating plan
should motivate the contractor to improve performance in the areas
rated, but not at the expense of at least minimum acceptable
performance in all other areas''.)
The recommended guidance for rating levels and factors are included
in proposed Agency internal guidance procedures. However, there will be
some latitude on the part of the drafters of an individual acquisition
to tailor the process to meet the needs of the specific requirement.
Additionally, the specific information regarding rating factors or
criteria will be spelled out in detail in the award fee plan which is
part of the contract. This will notify contractors as to the basis and
methodology for evaluation of their performance.
10. The Award Fee Rule must also provide for full disclosure of not
only the numeric ratings in the Award Fee Plan but, more importantly,
the actual ratings and bases to the contractor, for both program
management and technical performance. Furthermore, it should provide
for an administrative review process prior to the Fee Determination
Official's (FDO) determination, in addition to contractor self-
evaluation, inasmuch as the proposed rule indicates that the FDO's
determination is not subject to appeal under the Disputes clause. Oral
debriefings of the ratings by the Contracting Officer (CO) alone do not
do full justice to this unilateral process.
The award fee plan will identify the ratings and bases for
evaluation. The plan will also identify the manner in which the award
fee process will be carried out. Agency internal guidance outlines the
process to be followed. However, there must be latitude for exercise of
discretion to tailor processes to meet the needs of specific
acquisitions. There is nothing that limits the CO to provide solely
oral debriefings on contractor performance. The award fee notice should
provide ample information for the contractor to understand the basis
for the award fee determined. Additionally, the CO may choose to
provide additional debriefings with the assistance of the Project
Officer or any other individuals that the CO wishes to assist.
11. The proposed rule does not indicate when the earned award fee
shall be authorized to be paid. The rule must include a payment
authorization period such as within sixty (60) days after the last day
of the performance period.
Agency internal guidance provides procedures to be followed when
using the award fee process. The contractor will be notified of
timeframes in the award fee plan.
12. In relation to 1552.216-70(b), if and when the FDO disregards
or otherwise takes exception to the Performance Evaluation Board's
(PEB) assessment of the quality of contractor performance and reduces
the recommended fee, the FDO must indicate the reasons thereof to the
contractor.
The purpose of the award fee modification is not only to provide
the amount of fee awarded, but also to provide an understanding to the
contractor of the evaluation of the quality of their performance. The
Agency is interested in notifying contractors what they are doing well
and in what areas they need to improve performance. The FDO would focus
on the total evaluation of the contractor's performance, not
necessarily on the difference between contractor's or PEB award fee
recommendations.
13. The rule should define the duration of Performance Period. In
view of the Agency's unilateral policy shift to not award fee for
``satisfactory'' performance level (albeit it is regarded by the Agency
as a motivation factor for improved performance) and the resulting
additional risk of loss of fee, the period of performance should revert
back to trimester from the current semester system thereby affording
opportunities to the contractor to demonstrate improvement on a more
frequent performance review basis.
The contract amount, performance period, and expected benefits must
be sufficient to warrant the additional administrative effort and cost
associated with CPAF contracts. The EPA recognizes that award fee
evaluations should be conducted as often as reasonable to provide
contractors with the maximum amount of feedback on performance and
create the greatest amount of incentive for high quality performance.
However, the cost of the process should never outweigh the value of the
feedback. Agency internal procedures recommend timeframes for
performing award fee evaluations and stress the importance of timely
processing of these modifications. The individual acqusition should
determine the frequency of evaluations.
14. Under 1516.404-271, the effective date of applicability should
be indicated. Also clarification is needed
[[Page 43404]]
whether it is the Agency's policy intent to unilaterally modify
existing CPAF contracts and those that are under evaluation but not yet
awarded.
The rule will apply to all solicitations for CPAF contracts issued
after the effective date of the rule. It does not apply to exercise of
options for contracts awarded prior to the implementation of the rule.
The Agency does not intend to unilaterally modify existing contracts
nor those that are under evaluation, but not yet awarded.
EPA has not changed the final rule from the proposed rule as a
result of these comments. This rule replaces Sections 1516.404-270
through 1516.404-274 and deletes 1516.404-275 through 1516.404-2710 of
the EPAAR. EPA has determined that codification of the Agency's
procedures for the award fee process is unnecessary since these
procedures are internal to EPA. Consequently, EPA will include these
internal procedures in an Agency Directive. Internal procedures are
those which encompass any aspect of preparing, establishing, modifying,
and administering the award fee plan. The revised EPAAR only states the
Agency's general policy and objectives in using award fee contracts.
Award fee may be earned only when the contractor's performance is
rated above satisfactory or excellent. No award fee may be earned if
performance is rated satisfactory or unsatisfactory. This approach to
cost-plus-award-fee contracts is designed to motivate contractors to
achieve excellent performance and to improve cost-plus-award-fee
contracting at EPA.
Section 1516.405 is revised and Section 1552.216-75 is added to
address base and award fee limitations in accordance with the FAR.
Section 1552.216-70 is revised to clarify EPA's policy on the payment
of fee under CPAF contracts.
B. Executive Order 12866
This is not a major rule as defined in Executive Order 12866;
therefore, no review was required by the Office of Management and
Budget (OMB).
C. Paperwork Reduction Act
The rule does not contain any recordkeeping or information
collection requirements that require the approval of OMB under 44
U.S.C. 3501 et. seq.
D. Regulatory Flexibility Act
The rule will not have an impact on small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. since
it does not impose any new requirements for compliance on contractors,
large or small. The EPA certifies that this rule will not impact small
entities. Therefore, no regulatory flexibility analysis has been
prepared.
List of Subjects in 48 CFR Parts 1516 and 1552
Government Procurement.
For the reasons set out in the preamble, Parts 1516 and 1552 of
Title 48 of the Code of Federal Regulations are amended as set forth
below:
1. The authority citation for Parts 1516 and 1552 continues to read
as follows:
Authority: Sec 205(c), 63 Stat. 390, as amended, 40 U.S.C.
486(c).
2. Subpart 1516.4 is amended by revising Sections 1516.404-270
through 1516.404-274 to read as follows and by removing Sections
1516.404-275 through 1516.404-2710.
1516.404-270 Scope.
This subsection establishes the EPA policy for cost-plus- award-fee
(CPAF) type contracts.
1516.404-271 Applicability.
Contracting Officers shall consider all contract actions conforming
to the limitations of FAR 16.404-2(c) as candidates for award as a CPAF
contract.
1516.404-272 Definitions.
(a) Performance Evaluation Board (PEB). Group of Government
officials responsible for assessing the quality of contract performance
and recommending the appropriate fee.
(b) Fee Determination Official. Individual responsible for
reviewing the recommendations of the PEB and making the final
determination of the amount of award fee to be awarded to the
contractor.
1516.404-273 Limitations.
(a) No award fee may be earned if the Fee Determination Official
determines that contractor performance has been satisfactory or less
than satisfactory. A contractor may earn award fee only for performance
rated above satisfactory or excellent. All award fee plans shall
disclose to offerors the numerical rating necessary to be deemed
``above satisfactory'' or ``excellent'' for award fee purposes.
(b) The base fee shall not exceed three percent of the estimated
cost of the contract, exclusive of the fee.
(c) Unearned award fee may not be carried forward from one
performance period into a subsequent performance period unless approved
by the FDO.
(d) The payment of award fee on a provisional basis is not
authorized.
1516.404-274 Waiver.
The Chief of the Contracting Office may waive the limitations in
paragraphs (a), (b), and (d) of 1516.404-273 on a case-by-case basis
when unusual or compelling circumstances exist. The waiver shall be
supported by a justification and coordinated with the Procurement
Policy Branch in the Office of Acquisition Management.
3. Section 1516.405 is revised to read as follows:
1516.405 Contract clauses.
(a) The Contracting Officer shall insert the clause at 1552.216-70,
Award Fee (SEPT 1995), in solicitations and contracts when a cost-plus-
award-fee contract is contemplated.
(b) The Contracting Officer shall insert the clause at 1552.216-75,
Base Fee and Award Fee Proposal (SEPT 1995), in all solicitations which
contemplate the award of cost-plus-award-fee contracts. The Contracting
Officer shall insert the appropriate percentages in accordance with FAR
15.903(d).
4. Section 1552.216-70 is revised to read as follows:
1552.216-70 Award Fee.
As prescribed in 1516.405(a), insert the following clause:
Award Fee (Sept 1995)
(a) The Government shall pay the contractor a base fee, if any,
and such additional fee as may be earned, as provided in the award
fee plan incorporated into the Schedule.
(b) Award fee determinations made by the Government under this
contract are unilaterally determined by the Fee Determination
Official (FDO) and are not subject to appeal under the Disputes
clause.
(c) The Government may unilaterally change the award fee plan at
any time, via contract modification, at least thirty (30) calendar
days prior to the beginning of the applicable evaluation period.
Changes issued in a unilateral modification are not subject to
equitable adjustments, consideration, or any other renegotiation of
the contract.
(End of Clause)
5. Section 1552.216-75 is added to read as follows:
1552.216-75 Base Fee and Award Fee Proposal.
As prescribed in 1516.405(b), insert the following clause.
Base Fee and Award Fee Proposal (Sept 1995)
For the purpose of this solicitation, offerors shall propose a
combination of base fee and award fee within the maximum fee limitation
of ______% as stated in FAR 15.903(d). Base fee shall not exceed 3% of
the estimated cost,
[[Page 43405]]
excluding fee, and the award fee shall not be less than ______% of the
total estimated cost, excluding fee. The combined percentage of base
and award fee does not exceed ______% of the total estimated cost,
excluding fee.
(End of Clause)
Dated: August 7, 1995.
Jeanette Brown,
Acting Director, Office of Acquisition Management.
[FR Doc. 95-20663 Filed 8-18-95; 8:45 am]
BILLING CODE 6560-50-P
