NASA Federal Acquisition Regulation Supplement: Award Term (NFS Case 2016-N027)

SUMMARY: NASA is issuing a final rule amending the NASA Federal Acquisition Regulation (FAR) Supplement (NFS) to add policy on the use of additional contract periods of performance or "award terms" as a contract incentive.

DATES: Effective: August 24, 2017.

FOR FURTHER INFORMATION CONTACT: Marilyn E. Chambers, telephone 202-358-5154.

SUPPLEMENTARY INFORMATION: NASA published a proposed rule in the Federal Register at 81 FR 89038 on December 9, 2016, to implement policy addressing the use of "award terms" or additional contract periods of performance for which a contractor may earn if the contractor's performance is superior, the Government has an on-going need for the requirement, and funds are available for the additional period of performance. The policy provides a non-monetary incentive for contractors whose performance is excellent. An award term incentive would be used where a longer term relationship (generally more than five years) between the Government and a contractor would provide benefits to both parties. Benefits of award term incentives include a more stable business relationship both for the contractor and its employees (thus retaining a skilled, experienced workforce), motivating excellent performance (including cost savings), fostering contractor capital investment, increasing the desirability of the award (potentially increasing competition), and reduced administrative costs and disruptions in preparing for and negotiating replacement contracts.

Award terms are an incentive and not the same as exercising an option as set forth in FAR 17.207. While there are similarities between an award term and an option, such as funds must be available and the requirement must fulfill an existing Government need, the key difference is that an option may be exercised when the contractor's performance is acceptable, while earning an award term requires sustained excellent performance. Two respondents submitted comments on the proposed rule.

II. Discussion and Analysis

NASA reviewed the public comments in the development of the final rule. An editorial change was made to the rule for clarification. No other changes to the proposed rule were made. A discussion of the comments and the change made to the rule as a result of those comments are provided as follows:

A. Changes. No changes are being made to the final rule as a result of the public comments received with the exception of a minor editorial change.

B. Analysis of Public Comments.

Comment: One respondent stated exceeding the five-year limit on contracts using award terms, could limit competition, limit the range of solutions available to NASA, and raise prices for the government and would lead to sole source contracting, reduced competition, and higher costs to the government.

Response: FAR 17.204(e) states, unless otherwise approved in accordance with agency procedures, the total of the basic and option periods shall not exceed 5 years in the case of services. NFS 1817.204(e) provides for exceptions to the 5-year period of performance limitation under Agency contracts. Concerning the impact of the use of award terms on competition, range of solutions available to NASA, and prices, the rule at 1816.405-277(c)states the factors to consider when determining whether to use award terms include, market stability, the potential changes and advancements in technology, and flexibility to change direction with mission changes.

Comment: One respondent stated that contractors would be more interested in proposing on a contract if the contract has the potential for additional years of business. The respondent opined a better course of action is for NASA to issue a request for proposals allowing for the incumbent contractor on an award term contract to compete for a follow-on contract alongside any other interested parties and that this competition would provide NASA with a range of potential solutions and lower costs.

Response: As stated in the policy, the benefits of a longer-term relationship versus more frequent competitions must be considered when determining if an award term incentive is appropriate. The factors considered in this decision would be documented in the Determination and Findings, required in under current NFS policy for incentive contracts, and provided to the Associate Administrator for Procurement for review and approval.

Comment: One respondent inquired about NASA's current award term policy, Procurement Information Circular (PIC) 06-02, Use of Award Term Incentive, dated January 25, 2006, and NASA's current use of award term incentives. Additionally, the respondent referenced an award term contracting pilot program in the late 1990's with the intent of assessing the use of award term contracts at NASA. The respondent questioned how the pilot and (PIC) informed this rule.

Response: The PIC and pilot program the respondent references are more than a decade old. The pilot was conducted to provide information from the NASA procurement organizations on their use of award term incentives. At the time of that pilot, NASA had 12 award term contracts. As discussed in the Initial Regulatory Flexibility Analysis contained in the proposed rule, NASA has ten award term contracts. The PIC was used as a starting point for drafting this rule. Additional research on the use of award term contracts and comments from the NASA procurement organizations also contributed to the formulation of this rule.

Comment: Another respondent stated the proposed clause is ambiguous, specifically, paragraph (a) states that the CO "may" award a term, but paragraph (f) gives reasons for not awarding a term. The respondent questioned, if none of those reasons apply, must the CO award a term and, if so what does the "may" mean and, if not, why have paragraph (f).

Response: Paragraph (a) of the clause is a general statement that the contracting officer will rely on the Award Term Plan to determine if the contractor is eligible for an award term. "May" is used in paragraph (a) because the decision to extend the contract for the number and duration of award terms is discretionary, i.e., a contractor may earn an award term based on meeting the requirements of the Award Term Plan, but the contracting officer, for a variety of reasons, may decide not to grant the award term. NASA agrees there is some overlap of paragraphs (a) and (f). To remove this overlap, paragraph (a) is revised to remove the phrase "subject to the Government's continuing need for the contract and the availability of funds." Paragraph (f) of the clause, which addresses the Government's right not to grant or cancel the award term, states the award term may not be granted if the there is no continuing need or if funds are not available.

III. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 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

NASA prepared a Final Regulatory Flexibility Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

The objective of this rule is to implement policy in the NASA Federal Acquisition Regulation Supplement (NFS) to address the use of "award terms" or additional contract periods of performance for which a contractor may earn if the contractor's performance is superior, the Government has an on-going need for the requirement, and funds are available for the additional period of performance. This policy provides a non-monetary incentive for contractors whose performance is sustained at an excellent level.

No comments were received in response to the initial regulatory flexibility analysis.

The Federal Procurement Data System (FPDS) does not track award fee contracts, but a survey of NASA's procurement organizations shows there are currently 10 active award term contracts. Of these, six are with small businesses. A range of services are covered, such as logistics, facilities or technical management and information technology.

There are no special reporting, recordkeeping, and other compliance requirements associated with this rule.

The rule does not duplicate, overlap, or conflict with any other Federal rules.

NASA was unable to identify any alternatives that would reduce the economic impact on small entities. However, NASA does not expect this rule to have any significant economic impact on small entities, because it does not impose any new requirements on contractors.

V. Paperwork Reduction Act

The rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 1816 and 1852

Government procurement.

Manuel Quinones,

NASA FAR Supplement Manager.

Accordingly, 48 CFR parts 1816 and 1852 are amended as follows:

1. The authority citation for parts 1816 and 1852 continues to read as follows:

Authority: 51 U.S.C. 20113(a) and 48 CFR chapter 1.

PART 1816--TYPES OF CONTRACTS

2. Amend section 1816.001 by adding in alphabetical order the definition "Term-determining official" to read as follows:

1816.001 Definitions.

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--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "48 CFR Parts 1816 and 1852"

RIN Number: "RIN 2700-AE32"

Citation: "82 FR 34416"

Federal Register Page Number: "34416"

"Rules and Regulations"