Federal Register / Vol. 76, No. 30 / Monday, February 14, 2011 / Rules and Regulations 8303 

perform activities conducive to the use 

of VCS. 

J. Executive Order 12898: Federal 

Actions To Address Environmental 

Justice in Minority Populations and 

Low-Income Population 

Executive Order (EO) 12898 (59 FR 

7629 (Feb. 16, 1994)) establishes federal 

executive policy on environmental 

justice. Its main provision directs 

federal agencies, to the greatest extent 

practicable and permitted by law, to 

make environmental justice part of their 

mission by identifying and addressing, 

as appropriate, disproportionately high 

and adverse human health or 

environmental effects of their programs, 

policies, and activities on minority 

populations and low-income 

populations in the United States. 

EPA lacks the discretionary authority 

to address environmental justice in this 

rulemaking. 

K. Congressional Review Act 

The Congressional Review Act, 5 

U.S.C. 801 et seq., as added by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, generally provides 

that before a rule may take effect, the 

agency promulgating the rule must 

submit a rule report, which includes a 

copy of the rule, to each House of the 

Congress and to the Comptroller General 

of the United States. EPA will submit a 

report containing this rule and other 

required information to the U.S. Senate, 

the U.S. House of Representatives, and 

the Comptroller General of the United 

States prior to publication of the rule in 

the Federal Register. A major rule 

cannot take effect until 60 days after it 

is published in the Federal Register. 

This action is not a ‘‘major rule’’ as 

defined by 5 U.S.C. section 804(2). This 

rule will be effective February 14, 2011. 

L. Petitions for Judicial Review 

Under section 307(b)(1) of the Clean 

Air Act, petitions for judicial review of 

this action must be filed in the United 

States Court of Appeals for the 

appropriate circuit by April 15, 2011. 

Filing a petition for reconsideration by 

the Administrator of this final rule does 

not affect the finality of this rule for the 

purposes of judicial review nor does it 

extend the time within which a petition 

for judicial review may be filed, and 

shall not postpone the effectiveness of 

such rule or action. This action may not 

be challenged later in proceedings to 

enforce its requirements (see section 

307(b)(2)). 

Authority: 42 U.S.C. 7401 et seq. 

Dated: January 3, 2011. 

Jared Blumenfeld, 

Regional Administrator, Region IX. 

[FR Doc. 2011–3027 Filed 2–11–11; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 216 and 252 

RIN 0750–AF51 

Defense Federal Acquisition 

Regulation Supplement; Award-Fee 

Contracts (DFARS Case 2006–D021) 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule. 

SUMMARY: DoD is issuing a final rule 

amending the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) to address award-fee contracts, 

including eliminating the use of 

provisional award-fee payments. 

DATES: Effective Date: February 14, 

2011. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Mark Gomersall, Defense Acquisition 

Regulations System, OUSD (AT&L) 

DPAP/DARS, 3060 Defense Pentagon, 

Room 3B855, Washington, DC 20301– 

3060. Telephone 703–602–0302; 

facsimile 703–602–0350. Please cite 

DFARS Case 2006–D021. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD published a proposed rule in the 

Federal Register (75 FR 22728) on April 

30, 2010, to revise guidance for awardfee evaluations and payments, eliminate 

the use of provisional award-fee 

payments, and incorporate DoD policy 

guidance on the use of objective criteria. 

A new clause entitled Award Fee sets 

forth the use of award fees in DoD 

contracts. 

II. Discussion and Analysis 

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 

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8304 Federal Register / Vol. 76, No. 30 / Monday, February 14, 2011 / Rules and Regulations 

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-plusaward-fee (CPAF) contracts have the 

unintended consequence of encouraging 

the use of the less desirable cost-plusfixed-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 216.405–2(c)(3)(i)(A)(2)), 

which states that the CPAF contract 

should not be used to avoid developing 

objective targets so a cost-plusincentive-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 contractors 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. 

B. Other Change 

In addition to changes made in 

response to the public comments, the 

phrase ‘‘held for’’ has been replaced by 

the phrase ‘‘available for’’ in DFARS 

216.405–2(1) to better reflect DoD 

policy. 

III. Executive Order 12866 

This is not a significant regulatory 

action and, therefore, was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

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

804. 

IV. Regulatory Flexibility Act 

DoD certifies 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 most contracts awarded to 

small entities use simplified acquisition 

procedures or are awarded on a 

competitive fixed-price basis and do not 

utilize award-fee type incentives. Of the 

1.16 million contracts awarded to small 

businesses in Fiscal Year 2010, less than 

0.1 percent were award-fee contracts. 

The rule prohibits roll-over of 

unearned award fee, and requires that at 

least 40 percent of the award-fee pool be 

available for the final performance 

evaluation with the intent of 

incentivizing the contractor throughout 

performance of the contract. Any impact 

of these requirements on small 

businesses that do have award-fee 

contracts is mitigated by the fact that 

contractors will continue to be paid 

costs on cost-type contracts, and 

progress or performance-based 

payments on fixed-price contracts. 

Therefore, contractors’ cash flow will 

not be impacted significantly unless 

there is a failure to meet the 

performance criteria in the contract. 

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Federal Register / Vol. 76, No. 30 / Monday, February 14, 2011 / Rules and Regulations 8305 

Furthermore, the final rule provides 

more flexibility regarding the 

requirement that 40 percent of the 

award-fee pool must be available for the 

final evaluation period. With the 

approval of the head of the contracting 

activity, the contracting officer can 

determine that, in some cases, a 

percentage of less than 40 percent of the 

award-fee pool is appropriate to be 

made available for the final evaluation 

period. 

Additionally, no comments were 

received in response to publication of 

the proposed rule with respect to the 

impact of the proposed rule on small 

entities. 

V. Paperwork Reduction Act 

The final rule does not impose any 

information collection requirements that 

require the approval of the Office of 

Management and Budget under the 

Paperwork Reduction Act (44 U.S.C. 

3501, et seq.). 

List of Subjects in 48 CFR Parts 216 and 

252 

Government procurement. 

Ynette R. Shelkin, 

Editor, Defense Acquisition Regulations 

System. 

Therefore, 48 CFR parts 216 and 252 

are amended as follows: 

■ 1. The authority citation for 48 CFR 

parts 216 and 252 continues to read as 

follows: 

Authority: 41 U.S.C. 421 and 48 CFR 

chapter 1. 

PART 216—TYPES OF CONTRACTS 

■ 2. Revise section 216.401, paragraph 

(e), to read as follows: 

216.401 General. 

* * * * * 

(e) Award-fee plans required in FAR 

16.401(e) shall be incorporated into all 

award-fee type contracts. Follow the 

procedures at PGI 216.401(e) when 

planning to award an award-fee 

contract. 

■ 3. Add section 216.401–71 to read as 

follows: 

216.401–71 Objective criteria. 

(1) Contracting officers shall use 

objective criteria to the maximum extent 

possible to measure contract 

performance. Objective criteria are 

associated with cost-plus-incentive-fee 

and fixed-price–incentive contracts. 

(2) When objective criteria exist but 

the contracting officer determines that it 

is in the best interest of the Government 

also to incentivize subjective elements 

of performance, the most appropriate 

contract type is a multiple-incentive 

contract containing both objective 

incentives and subjective award-fee 

criteria (i.e., cost-plus-incentive-fee/ 

award-fee or fixed-price-incentive/ 

award-fee). 

(3) See PGI 216.401(e) for guidance on 

the use of award-fee contracts. 

■ 4. Revise section 216.405–2 to read as 

follows: 

216.405–2 Cost-plus-award-fee contracts. 

(1) Award-fee pool. The award-fee 

pool is the total available award fee for 

each evaluation period for the life of the 

contract. The contracting officer shall 

perform an analysis of appropriate fee 

distribution to ensure at least 40 percent 

of the award fee is available for the final 

evaluation so that the award fee is 

appropriately distributed over all 

evaluation periods to incentivize the 

contractor throughout performance of 

the contract. 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 (HCA). 

The HCA may not delegate this approval 

authority. 

(2) Award-fee evaluation and 

payments. Award-fee payments other 

than payments resulting from the 

evaluation at the end of an award-fee 

period are prohibited. (This prohibition 

does not apply to base-fee payments.) 

The fee-determining official’s rating for 

award-fee evaluations will be provided 

to the contractor within 45 calendar 

days of the end of the period being 

evaluated. The final award-fee payment 

will be consistent with the feedetermining official’s final evaluation of 

the contractor’s overall performance 

against the cost, schedule, and 

performance outcomes specified in the 

award-fee plan. 

(3) Limitations. 

(i) The cost-plus-award-fee contract 

shall not be used— 

(A) To avoid— 

(1) Establishing cost-plus-fixed-fee 

contracts when the criteria for cost-plusfixed-fee contracts apply; or 

(2) Developing objective targets so a 

cost-plus-incentive-fee contract can be 

used; or 

(B) For either engineering 

development or operational system 

development acquisitions that have 

specifications suitable for simultaneous 

research and development and 

production, except a cost-plus-awardfee contract may be used for individual 

engineering development or operational 

system development acquisitions 

ancillary to the development of a major 

weapon system or equipment, where— 

(1) It is more advantageous; and 

(2) The purpose of the acquisition is 

clearly to determine or solve specific 

problems associated with the major 

weapon system or equipment. 

(ii) Do not apply the weighted 

guidelines method to cost-plus-awardfee contracts for either the base (fixed) 

fee or the award fee. 

(iii) The base fee shall not exceed 

three percent of the estimated cost of the 

contract exclusive of the fee. 

(4) See PGI 216.405–2 for guidance on 

the use of cost-plus-award-fee contracts. 

■ 5. Revise section 216.406 to read as 

follows: 

216.406 Contract clauses. 

(e)(1) Use the clause at 252.216–7004, 

Award Fee Reduction or Denial for 

Jeopardizing the Health or Safety of 

Government Personnel, in all 

solicitations and contracts containing 

award-fee provisions. 

(2) Use the clause at 252.216–7005, 

Award Fee, in solicitations and 

contracts when an award-fee contract is 

contemplated. 

PART 252—SOLICITATION 

PROVISIONS AND CONTRACT 

CLAUSES 

■ 6. Add section 252.216–7005 to read 

as follows: 

252.216–7005 Award Fee. 

As prescribed in 216.406(e)(2), insert 

the following clause: 

AWARD FEE (FEB 2011) 

The Contractor may earn award fee from a 

minimum of zero dollars to the maximum 

amount stated in the award-fee plan in this 

contract. In no event will award fee be paid 

to the Contractor for any evaluation period in 

which the Government rates the Contractor’s 

overall cost, schedule, and technical 

performance below satisfactory. The 

Contracting Officer may unilaterally revise 

the award-fee plan prior to the beginning of 

any rating period in order to redirect 

contractor emphasis. 

(End of clause) 

[FR Doc. 2011–3116 Filed 2–11–11; 8:45 am] 

BILLING CODE 5001–08–P 

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