DATE: December 13, 2000

FROM: Barry McVay, CPCM

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Profit Incentives to Produce Innovative New Technologies

SOURCE: Federal Register, December 13, 2000, Vol. 65, No. 240, page 77829

AGENCIES: Department of Defense (DOD)

ACTION: Final Rule

SYNOPSIS: DOD is amending DFARS Subpart 215.4, Contract Pricing, to implement Section 813 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65), which requires DOD to review its profit guidelines to determine whether "appropriate modifications, such as placing increased emphasis on technical risk as a factor for determining appropriate profit margins, would provide an increased profit incentive for contractors to develop and produce complex and innovative new technologies."

EDITOR'S NOTE: For more on the proposed rule, see the May 22, 2000, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Profit Incentives to Produce Innovative New Technologies."

EFFECTIVE DATE: December 13, 2000.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations Council, OUSD (AT&L) DP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; 703-602-0288; fax: 703-602-0350. Cite DFARS Case 2000-D300 when referring to this final rule.

SUPPLEMENTAL INFORMATION: On May 22, 2000, DOD published a proposed rule that would amend the weighted guidelines method of profit computation at DFARS 215.404-71-2, Performance Risk, to combine the management and cost control elements of the performance risk factor; to establish a new "technology incentive" range for technical risk; and to modify slightly some of the cost control standards. In addition, the proposed rule would amend paragraph (b) of DFARS 215.404-4, Profit, to clarify that DOD departments and agencies "must use a structured approach for developing a prenegotiation profit or fee objective on any negotiated contract action when cost or pricing data is obtained..."

Five sources submitted comments on the proposed rule, and DOD is adopting the proposed rule as final, except for two changes in paragraph (c)(3) of DFARS 215.404-71-2: (1) a statement is added that the technology incentive range may be used for acquisitions that include application of innovative new technologies (in addition to the development and production of innovative new technologies); and (2) language is added to specify that the technology incentive range "does not apply to efforts restricted to studies, analyses, or demonstrations that have a technical report as their primary deliverable."

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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