17.  Arbitrary and Punitive Payment Withholdings

Comment: The payment withholding percentages are punitive in nature and represent an arbitrary estimate based on pressure to incorporate business systems payment withholdings into the DFARS. The amount of the payment withholding should be commensurate with the level of risk to the Government and not set at arbitrary and punitive levels.

Response: When contractors fail to maintain business systems, as is required by the terms and conditions of their contracts, the payment withholding provisions help to protect the Government from the risks of overpayment, increased property losses, or nonconforming goods, among others, against which contractor business systems are designed to ensure. The interim rule would protect the Government by reducing contract payments temporarily during performance in an amount sufficient to mitigate the Government's risk. DoD is relying on the payment withholding amounts, not as a penalty for a deficiency, but as representing a good-faith estimate of the potential loss that is at risk where the actual amounts are difficult to estimate or quantify. The percentage of progress payments, performance-based payments, and interim payments set forth in this rule is in accordance with section 893 of the NDAA.