A. Analysis of Public Comments

In response to the proposed rule, DoD received comments from three respondents. A discussion of the comments is provided below:

1. Making 40 Percent of the Award-Fee Pool Available for the Final Evaluation

a. Comment: The respondents considered the language aligning fee distributions with contract performance and cost schedules. One respondent stated that holding 40 percent of the award fee until the final evaluation does not consider the completion of individual contract line items or undefinitized work.

DoD Response: The purpose of making 40 percent of the award-fee pool available under the final evaluation period is to set aside a sufficient amount to protect the taxpayer's interest in the event a contractor fails to meet contractual obligations. Assuming the contract is properly structured, there is nothing in the rule that prohibits contractors from being paid for completed contract line items or work performed under undefinitized contracts.

b. Comment: The respondents expressed concern that holding 40 percent award fee until the final evaluation does not reward contract performance, particularly if a contract is terminated before the final evaluation. One respondent was concerned that by making a specified percentage of the award fee available for the final evaluation period, in the event of a termination for convenience, the contractor may not have the ability to earn that final award-fee percentage.

DoD response: The rule does not change the current procedures for terminations for convenience. In the event of a termination for convenience prior to the final evaluation period, contractors will be eligible to earn award fee available up to the point of the termination.

c. Comment: One respondent was concerned that holding of 40 percent of the award fee until final evaluation will negatively affect cash  flow. The respondents were also concerned that the proposed rule will increase financial risk to Government contractors and result in an imbalance in the risk/reward relationship. One respondent was  concerned, therefore, that the rule will unfavorably impact DoD's supplier base by adversely impacting suppliers' ability to attract debt and equity investment.

DoD Response: Contractors will continue to be paid incurred costs on cost-type contracts, completed work under fixed-price contracts with progress payments, or milestones achieved under fixed-price contracts with performance-based payments. Accordingly, a contractor's cash flow should not be significantly impacted. Since contractors who consistently meet contractual performance requirements will maximize the amount of award fee earned, there is no imbalance in the risk/reward relationship. There should be little, if any, impact on a superior performer's ability to attract debt and equity investment.

d. Comment: One respondent commented that the 40 percent fee withhold until final evaluation is arbitrary. The respondent requested DoD to consider reducing the 40 percent of the award-fee amount held until final evaluation to a minimum of 20 percent.

DoD response: DoD agrees that under certain circumstances it may be appropriate to establish a lower percentage of award fee to be available for the final evaluation period. Therefore, DFARS 216.405-2(1) has been revised to state that the percentage of award fee available for the final evaluation may be set below 40 percent if the contracting officer determines that a lower percentage is appropriate, and this determination is approved by the head of the contracting activity.

 2. Elimination of Provisional Award-Fee Payments

a. Comment: One respondent was concerned that the elimination of provisional award-fee payments will negatively affect cash flow. One respondent suggested that DoD should provide a definition of "provisional award-fee payments" and consider continuation of provisional award-fee payments, but with more restrictions.

DoD response: DoD understands the respondents' concerns. However, the payment of award fee prior to the end of an award-fee period is not appropriate since the contractor's performance has not been evaluated and the contractor may not earn that paid award fee during that period.Because DoD has made the policy decision that provisional award-fee payments are not appropriate, no definition of the term is required.

b. Comment: One respondent stated that payment for successful completion of elements of multiple-incentive contracts should not be affected by the proposed rule's elimination of provisional award fees.

DoD Response: DoD agrees. There is nothing in the rule that prohibits payment when a contractor has successfully completed elements of a multiple-incentive contract.

3. Selection of Contract Type

a. Comment: According to one respondent, limitations on cost-plus-award-fee (CPAF) contracts have the unintended consequence of encouraging the use of the less desirable cost-plus-fixed-fee (CPFF) contract type.

DoD Response: The purpose of the proposed rule is to ensure the amount of award fees paid on CPAF contracts is commensurate with the contractor's performance. DoD expects contracting officers to utilize appropriate contract types.

b. Comment: One respondent suggested DoD delete the language at DFARS 216.45-2(3)(A)(1).

DoD Response: DoD believes the respondent meant proposed DFARS 216.405-2(3)(i)(A)(2) (renumbered from current DFARS 216.405-(c)(3)(i)(A)(2)), which states that the CPAF contract should not be used to avoid developing objective targets so a cost-plus-incentive-fee (CPIF) contract can be used. This language has not been revised by this rule. CPAF contract types should not be used instead of a CPIF contract type where a CPFF contract type is appropriate.

4. Other Issues

a. Comment: One respondent recommended the reference to the "Government" be revised to reference the "Contracting Officer" in the proposed clause at DFARS 252.216-70XX.

DoD Response: DoD agrees. DFARS 252.216-7005 has been changed accordingly. Furthermore, the reference to  "the Contracting Officer's final evaluation" in DFARS 216.405-2(2) has been revised for clarity to reference  "the fee-determining official's final evaluation."

b. Comment: One respondent suggested that DoD clarify the definition of CPAF such that it includes only contracts that provide for fee only on an award-fee basis, and does not include any hybrid award-fee/incentive-fee contracts.

DoD Response: No change to the definition has been made. Award-fee portions of hybrid contracts shall be subject to the award-fee requirements of this rule.

c. Comment: Respondents suggested that the proposed rule should not be applied retroactively.

DoD Response: The incorporation into an existing contract of the new clause at DFARS 252.216-7005 would require a bilateral modification to that contract. The rule does not require contracting officers to insert DFARS 252.216-7005 into existing contracts. However, in cases where its use may be justified, the contracting officer may insert the clause via a bilateral modification in accordance with FAR 1.108(d).

d. Comment: Respondents suggested that award-fee contract funding modifications should be provided concurrent with the fee-determining official's rating.

DoD Response: This rule has no effect on the timeliness of funding modifications.

e. Comment: Respondents suggested that DoD should reconsider the policy that prohibits roll-over of unearned award fee.

DoD Response: Contractors should not be given a second opportunity to obtain unearned award fees when they fail to meet cost, schedule, and technical performance criteria specified in the contract. The roll-over of unearned award fee would provide a disincentive to ontractors to meet cost, schedule, and technical performance criteria specified in the contract in a given evaluation period if the contractor believes they will be given additional opportunities to obtain that unearned award fee in subsequent evaluation periods.