Notice2024-30947
Department of Defense Progress Payment Incentive Pilot
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 30, 2024
Issuing agencies
Defense DepartmentDefense Acquisition Regulations System
Abstract
DoD is seeking public input to inform the implementation of a section of the National Defense Authorization Act for Fiscal Year 2024 that authorizes DoD to establish a pilot program to incentivize performance for specific, measurable criteria under approved contracts by increasing the customary progress payment rate.
Full Text
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<title>Federal Register, Volume 89 Issue 249 (Monday, December 30, 2024)</title>
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[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106450-106451]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30947]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
[Docket Number DARS-2024-0038]
Department of Defense Progress Payment Incentive Pilot
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Request for information.
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SUMMARY: DoD is seeking public input to inform the implementation of a
section of the National Defense Authorization Act for Fiscal Year 2024
that authorizes DoD to establish a pilot program to incentivize
performance for specific, measurable criteria under approved contracts
by increasing the customary progress payment rate.
DATES: DoD will consider all comments received by January 29, 2025.
ADDRESSES: Submit comments to the questions provided below, using
either of the following methods:
[cir] Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Search for ``Docket Number DARS-2024-0038.'' Select ``Comment'' and
follow the instructions to submit a comment. Please include your name,
company name (if any), and ``Docket Number DARS-2024-0038'' on any
attached document(s).
[cir] Email: <a href="/cdn-cgi/l/email-protection#29465a4d07594c475d484e464707465c5a4d0448045a07444b51074d594a04594a4f694448404507444045"><span class="__cf_email__" data-cfemail="3c534f58124c5952485d5b53521253494f58115d114f12515e4412584c5f114c5f5a7c515d555012515550">[email protected]</span></a>. Include
``DoD Progress Payment Incentive Pilot'' in the subject line of the
message.
Comments received generally will be posted without change to
<a href="https://www.regulations.gov">https://www.regulations.gov</a>, including any personal information
provided. To confirm receipt of your comment(s), please check <a href="https://www.regulations.gov">https://www.regulations.gov</a>, approximately two to three days after submission
to verify posting.
FOR FURTHER INFORMATION CONTACT: Ms. Sara Higgins, telephone 937-200-
4020.
SUPPLEMENTARY INFORMATION:
A. Background
Section 874 of the National Defense Authorization Act for Fiscal
Year 2024 authorizes the Under Secretary of Defense for Acquisition and
Sustainment to establish and implement a progress payment pilot program
to incentivize contractor performance on a contract-by-contract basis.
By statute, the incentive criteria must be clear and measurable, and
contractor participation must be voluntary.
This notice requests comments and information from the public on
DoD's possible implementation of the pilot program, in accordance with
section 874. DoD is particularly interested in comments and information
from companies currently in the Defense Industrial Base.
B. Possible Implementation
DoD is planning to focus the Progress Payment Incentive Pilot
(PPIP) on payment time to subcontractors in order to improve cash flow
throughout the supply base. This is a key interest area highlighted in
the 2023 Defense Contract Finance Study, available at <a href="https://www.acq.osd.mil/asda/dpc/pcf/finance-study.html">https://www.acq.osd.mil/asda/dpc/pcf/finance-study.html</a>.
DoD is particularly interested in comments and information from all
business sizes with regard to DoD's notional eligibility and incentive
criteria, and supporting documentation concept, especially the
following:
1. Eligibility Criteria
Section 874 authorizes an increase of up to 10 percentage points
higher than the current customary progress payment rate (80 percent for
large businesses) for contractor performance against clear, measurable
criteria on a contract-by-contract basis. To be eligible for the PPIP,
a participant must be eligible for customary progress payments, and
their
[[Page 106451]]
participation must be voluntary. Notionally, the participant must be
performing under a new sole-source, noncommercial, definitized contract
or order. The progress payment rate for small entities has been
temporarily increased to 95 percent, which is 5 percentage points
higher than the maximimum incentive rate eligible to be earned under
the authority of section 874. Therefore, the pilot program will be open
only to other than small entities.
For inclusion in the pilot program, DoD is planning to require
contract actions to be nominated by the cognizant contracting officer
and approved by the Director, Price, Cost and Finance, Defense Pricing,
Contracting, and Acquisition Policy during the preaward phase of the
acquisition, since the extent of contract financing provided by the
Government is required to be a consideration in price negotiations
after contract award. It is also anticipated that the nominated
contract or order must have a performance period of no more than three
years to ensure that all performance, including options and potential
new work, will be completed before the pilot program's sunset date.
DoD anticipates requiring that the bill of material, excluding
material from affiliated concerns and indirect costs, will constitute
at least 25 percent of the nominated contract or order's estimated
value to ensure the incentive benefits the supply chain and to assess
the efficacy of using an increased progress payment rate as an
incentive.
To optimize pilot program participation and to collect insights
from multiple sources, DoD plans to approve only one contract per
parent entity (including all divisions, business segments,
subsidiaries, etc.).
2. Incentive Criteria
DoD anticipates structuring the progress payment incentive as
follows, with a focus on incentivizing payment time to the supply base:
a. The maximum incentive (a progress payment rate of 90 percent in
lieu of the customary 80 percent rate for large businesses) may be
earned if more than 95 percent of the cumulative invoice dollars have
been or will be paid within 20 calendar days of receipt of subcontract
invoices.
b. A progress payment rate of 85 percent may be earned if more than
85 percent but less than or equal to 95 percent of the cumulative
invoice dollars have been or will be paid within 20 calendar days of
receipt of subcontract invoices.
c. If 85 percent or less of the cumulative invoice dollars have
been or will be paid within 20 calendar days of receipt of subcontract
invoices, no incentive is earned, and the customary large business
progress payment rate of 80 percent will be used.
d. DoD plans to reassess the progress payment rate with each
contractor request for progress payment, based on the reported payment
time for cumulative subcontract invoice dollars. If the contractor's
performance against the incentive criterion merits an increase or
decrease to the progress payment rate currently on contract, it is
anticipated that the rate will be changed by a unilateral contract
modification.
e. If the progress payment rate on the contract is decreased based
on the contractor's cumulative performance against the incentive
criterion, this may result in an overpayment status. For purposes of
overpayments arising in this manner, the expectation is not to issue a
demand for repayment, but to withhold additional progress payments
until either--
(1) The progress payment rate is increased as a result of the
contractor's performance against the incentive criterion; or
(2) The incurred cost increases to the point that the total
incurred cost multiplied by the current progress payment rate is
greater than the amount of progress payments already paid to the
contractor.
3. Supporting Documentation Concept
DoD plans to measure contractor performance against incentive
criteria through the use of a Government-provided spreadsheet, which
the PPIP participant will submit as an attachment to each SF 1443,
Contractor's Request for Progress Payment. It is envisioned that the
completed spreadsheet will list each subcontract delivery invoice
reflected in the incurred cost claimed in the progress payment request
and include the following information at a minimum:
[cir] Subcontractor, supplier, or vendor name;
[cir] Subcontract or purchase order number; part number;
description of part or service;
[cir] Subcontract invoice number and any tracking number affixed by
the prime;
[cir] Subcontract invoice date;
[cir] Subcontract invoice amount;
[cir] Actual or anticipated date of invoice payment;
[cir] Amount of payment;
[cir] Calculated payment time (date of payment minus date of
invoice) for the invoice; and
[cir] Any unpaid amount on the invoice.
The spreadsheet will calculate the percentage of cumulative
subcontract invoice dollars paid within the established payment time
criterion. It is planned that the PPIP participant will update and mark
new and actual payment data with each progress payment request.
It is anticipated that the PPIP participant will be required to
provide any additional documentation required by the contracting
officer to support its claimed progress against incentive criteria. DoD
plans for the Defense Contract Audit Agency to audit PPIP participants'
claimed subcontract payment timing semi-annually.
Authority: DoD Instruction 5000.35, Defense Acquisition Regulations
(DAR) System.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
[FR Doc. 2024-30947 Filed 12-27-24; 8:45 am]
BILLING CODE 6001-FR-P
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