[Federal Register: July 11, 2006 (Volume 71, Number 132)]
[Rules and Regulations]               
[Page 39006-39008]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Defense Acquisition Regulations System

48 CFR Part 216

[DFARS Case 2003-D078]

Defense Federal Acquisition Regulation Supplement; Types of 

AGENCY: Defense Acquisition Regulations System, Department of Defense 

ACTION: Final rule.


SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to update text on the 
selection and use of contract types. This rule is a result of a 
transformation initiative undertaken by DoD to dramatically change the 
purpose and content of the DFARS.

EFFECTIVE DATE: July 11, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Robin Schulze, Defense Acquisition 
Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0326; 
facsimile (703) 602-0350. Please cite DFARS Case 2003-D078.


A. Background

    DFARS Transformation is a major DoD initiative to dramatically 
change the purpose and content of the DFARS. The objective is to 
improve the efficiency and effectiveness of the acquisition process, 
while allowing the acquisition workforce the flexibility to innovate. 
The transformed DFARS will contain only requirements of law, DoD-wide 
policies, delegations of FAR authorities, deviations from FAR 
requirements, and policies/procedures that have a significant effect 
beyond the internal operating procedures of DoD or a significant cost 
or administrative impact on contractors or offerors. Additional 
information on the DFARS Transformation initiative is available at 

    This final rule is a result of the DFARS Transformation initiative. 
The DFARS changes--
     Streamline text on the use of economic price adjustment 
     Increase, from 3 to 5 years, the standard maximum ordering 
period under basic ordering agreements;
     Delete obsolete text on the use of cost-plus-fixed-fee 
contracts for environmental restoration;

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     Delete unnecessary text on design stability and use of 
incentive provisions; and
     Delete procedures for selecting contract type and for use 
of special economic price adjustment clauses, incentive contracts, and 
basic ordering agreements. Text on these subjects has been relocated to 
the DFARS companion resource, Procedures, Guidance, and Information 
(PGI), available at http:// www. acq.osd.mil/ dpap/ dars/pgi.

    DoD published a proposed rule at 70 FR 54694 on September 16, 2005. 
DoD received no comments on the proposed rule. Therefore, DoD has 
adopted the proposed rule as a final rule without change.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. 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 the rule updates and streamlines DFARS text, but makes no 
significant change to DoD contracting policy.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply, because the rule does 
not impose any information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Part 216

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR part 216 is amended as follows:


1. The authority citation for 48 CFR part 216 continues to read as 

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

216.104  [Removed]

2. Section 216.104 is removed.

3. Section 216.104-70 is revised to read as follows:

Sec.  216.104-70  Research and development.

    Follow the procedures at PGI 216.104-70 for selecting the 
appropriate research and development contract type.

4. Section 216.203-4 is revised to read as follows:

Sec.  216.203-4  Contract clauses.

    (1) Generally, use the clauses at FAR 52.216-2, Economic Price 
Adjustment--Standard Supplies, FAR 52.216-3, Economic Price 
Adjustment--Semistandard Supplies, and FAR 52.216-4, Economic Price 
Adjustment--Labor and Material, only when--
    (i) The total contract price exceeds the simplified acquisition 
threshold; and
    (ii) Delivery or performance will not be completed within 6 months 
after contract award.
    (2) Follow the procedures at PGI 216.203-4 when using an economic 
price adjustment clause based on cost indexes of labor or material.

5. Section 216.306 is amended by revising paragraph (c)(ii) to read as 

216.306  Cost-plus-fixed-fee contracts.

    (c) * * *
    (ii) The prohibition in paragraph (c)(i) of this section does not 
apply to contracts specifically approved in writing, setting forth the 
reasons therefor, in accordance with the following:
    (A) The Secretaries of the military departments are authorized to 
approve such contracts that are for environmental work only, provided 
the environmental work is not classified as construction, as defined by 
10 U.S.C. 2801.
    (B) The Secretary of Defense or designee must approve such 
contracts that are not for environmental work only or are for 
environmental work classified as construction.

6. Sections 216.402-2 through 216.403-2 are revised to read as follows:

216.402-2  Technical performance incentives.

    See PGI 216.402-2 for guidance on establishing performance 

216.403  Fixed-price incentive contracts.

216.403-2  Fixed-price incentive (successive targets) contracts.

    See PGI 216.403-2 for guidance on the use of fixed-price incentive 
(successive targets) contracts.

216.404  [Removed]

7. Section 216.404 is removed.

8. Section 216.405-1 is revised to read as follows:

216.405-1  Cost-plus-incentive-fee contracts.

    See PGI 216.405-1 for guidance on the use of cost-plus-incentive-
fee contracts.

9. Section 216.405-2 is revised to read as follows:

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

    (b) Application. The cost-plus-award-fee (CPAF) contract may 
include provisional award fee payments. A provisional award fee payment 
is a payment made within an evaluation period prior to a final 
evaluation for that period. The contracting officer may include 
provisional award fee payments in a CPAF contract on a case-by-case 
basis, provided those payments--
    (i) Are made no more frequently than monthly;
    (ii) Are limited to no more than--
    (A) For the initial award fee evaluation period, 50 percent of the 
award fee available for that period; and
    (B) For subsequent award fee evaluation periods, 80 percent of the 
evaluation score for the prior evaluation period times the award fee 
available for the current period, e.g., if the contractor received 90 
percent of the award fee available for the prior evaluation period, 
provisional payments for the current period shall not exceed 72 percent 
(90 percent x 80 percent) of the award fee available for the current 
    (iii) Are superseded by an interim or final award fee evaluation 
for the applicable evaluation period. If provisional payments have 
exceeded the payment determined by the evaluation score for the 
applicable period, the contracting officer shall collect the debt in 
accordance with FAR 32.606; and
    (iv) May be discontinued, or reduced in such amounts deemed 
appropriate by the contracting officer, when the contracting officer 
determines that the contractor will not achieve a level of performance 
commensurate with the provisional payment. The contracting officer 
shall notify the contractor in writing of any discontinuance or 
reduction in provisional award fee payments.
    (c) Limitations.
    (i) The CPAF contract shall not be used--
    (A) To avoid--
    (1) Establishing cost-plus-fixed-fee contracts when the criteria 
for cost-plus-fixed-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 CPAF 
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

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    (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 CPAF contracts 
for either the base (fixed) fee or the award fee.
    (iii) The base fee shall not exceed 3 percent of the estimated cost 
of the contract exclusive of the fee.
    (S-70) See PGI 216.405-2 for guidance on the use of CPAF contracts.

10. Section 216.470 is revised to read as follows:

216.470  Other applications of award fees.

    See PGI 216.470 for guidance on other applications of award fees.

11. Section 216.703 is revised to read as follows:

216.703  Basic ordering agreements.

    (c) Limitations. The period during which orders may be placed 
against a basic ordering agreement may not exceed 5 years.
    (d) Orders. Follow the procedures at PGI 216.703(d) for issuing 
orders under basic ordering agreements.

 [FR Doc. E6-10838 Filed 7-10-06; 8:45 am]