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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: July 21, 2004

SUBJECT: Federal Acquisition Regulation (FAR); Performance-Based Service Acquisition

SOURCE: Federal Register, July 21, 2004, Vol. 69, No. 139, page 43711

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed that FAR Subpart 37.6, Performance-Based Contracting, be amended to broaden the scope of "performance-based acquisition" (PBA) and give agencies more flexibility in applying "performance-based service acquisition" (PBSA) methods to contracts and orders of varying complexity, thus reducing the tendency to force PBA on contracts and orders when it is not appropriate.

DATES: Comments should be submitted on or before September 20, 2004.

ADDRESSES: Submit comments, identified by "FAR Case 2003-018," to: (1) http://www.regulations.gov; (2) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (3) e-mail: farcase.2003-018@gsa.gov; (4) fax: 202-501-4067; or (5) mail: General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405.

FOR FURTHER INFORMATION CONTACT: Julia Wise, 202-208-1168.

SUPPLEMENTAL INFORMATION: Under a performance-based contract, an agency describes its needs in terms of what is to be achieved, not how it is to be done. Various laws, including Section 821(a) of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398), and Sections 1431 and 1433 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), state that agencies should (1) use performance-based contracting methods to the maximum extent practicable when acquiring services, and (2) carefully select acquisition and contract administration strategies, methods, and techniques that best accommodate the requirements. (EDITOR'S NOTE: For more on the implementation of Section 821 of Public Law 106-398, see the May 2, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-25, Performance-Based Contracting and Information Technology Contractor Personnel," Item I. For more on the implementation of Sections 1431 and 1433 of Public Law 108-136, see the June 18, 2004, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 2001-24, Miscellaneous Amendments," Item (1).)

Agencies have made moderate progress in implementing performance-based contracting methods on service contracts but have experienced difficulties in applying them effectively. In April 2002, the Office of Federal Procurement Policy (OFPP) convened an interagency working group to establish a broader understanding of the requirements of performance-based service contracting, and identify ways to increase its use. The group focused its efforts on three areas of change:

1. Modifying the FAR to give agencies flexibility in applying performance-based service contracting;
2. Modifying reporting requirements to ensure that applying performance-based service contracting is applied appropriately; and
3. Improving the quality, currency, and availability of guidance.

In July 2003, the working group reported its findings, and this proposed rule reflects most of the group's recommendations. The following are the major changes being proposed:

• It would change "performance-based contracting" to "performance-based acquisition" (PBA) and "performance-based service contracting" to "performance-based service acquisition" (PBSA) throughout the FAR: paragraph (r) of FAR 7.103, Agency-Head Responsibilities; the introductory paragraph, paragraph (b)(4)(i), and paragraph (b)(6) of FAR 7.105, Contents of Written Acquisition Plans; paragraph (a)(3) of FAR 16.505, Ordering; FAR 37.000, Scope of Part; paragraphs (a) and (a)(1) of FAR 37.102, Policy; FAR Subpart 37.6 (which would be renamed "Performance-Based Service Acquisition"); and paragraph (b) of FAR 39.104, Information Technology Services.

• FAR 2.101, Definitions, would be amended to add the change "performance-based contracting" to "performance-based acquisition" (PBA), and to add the following two definitions:
  
        "Performance Work Statement (PWS) means a statement that identifies the agency's requirements in clear, specific and objective terms that describe technical, functional and performance characteristics."
        "Statement of Objectives (SOO) means a statement that identifies the agency's high-level requirements by summarizing key agency objectives, desired outcomes, or both."
  
  
• Paragraph (a)(2) of FAR 11.101, Order of Precedence for Requirements Documents, would be revised to change "performance-oriented documents" to "performance or function-oriented documents."
  
  
• FAR Subpart 37.6 would be revised as follows:
  
  
  • Besides changing "performance-based contracting methods" to "performance-based service acquisition (PBSA) methods" in FAR 37.600 Scope of Subpart, a sentence would be added to clarify that "PBSA includes performance-based contracts and performance-based task orders."
    
    
  • FAR 37.601, General, would be revised to remove the current four characteristics of performance-based contracts ("(a) describe the requirements in terms of results required...(b) use measurable performance standards...and quality assurance surveillance plans...(c) specify procedures for reductions of fee or for reductions to the price of a fixed-price contract when services are not performed or do not meet contract requirements; and (d) include performance incentives where appropriate"), and replace them with two required characteristics for PBSA contracts: "A PWS...and measurable performance standards." Also, it would retain performance incentives as an optional characteristic, but would make fee and price reductions optional as well (instead of required as is currently the case) by defining them as a performance incentive as well. Finally, it would allow PBSA solicitations to use either a PWS or a SOO (but remember that one of the two required characteristics of a PBSA contract is that it have a PWS, not a SOO).
    
    
  • The title of FAR 37.602, Elements of Performance-Based Contracting, would be changed to "Elements of a Performance-Based Service Acquisition."
    
    
  • The title of FAR 37.602-1, Statements of Work, would be changed to "Performance Work Statements (PWSs) and Statements of Objectives (SOOs)." In addition, the following information would be required in a SOO When it is used in lieu of a PWS in a solicitation: (1) purpose; (2) scope or mission; (3) period and place of performance; (4) background; (5) performance objectives and/or desired outcomes; and (6) any operating constraints.
    
    
  • FAR 37.602-2, Quality Assurance, would be amended to permit agencies to rely on a contractor's commercial quality assurance system instead of developing a quality assurance surveillance plan. Also, it would state, "The level of surveillance described in the plan should be commensurate with the dollar value, risk, and complexity of the acquisition and should utilize commercial practices to the maximum extent practicable. For example, in some simplified acquisitions the government may decide that the inspection clauses in the contract or order provide adequate means of surveillance, without requiring a detailed quality assurance surveillance plan."
    
    
  • FAR 37.602-4, Contract Type, would be revised to remove the language pertaining to performance incentives.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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