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Origin. COWC Recommendation: Federal Acquisition Regulations should provide clear policy regarding the use of payment withholds on business system deficiencies. Mr. Shay Assad, Director, Defense Procurement and Acquisition Policy committed to making those changes during November Hearing.

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Presentation Transcript
origin
Origin
  • COWC Recommendation:
    • Federal Acquisition Regulations should provide clear policy regarding the use of payment withholds on business system deficiencies

Mr. Shay Assad, Director, Defense Procurement and Acquisition Policy committed to making those changes during November Hearing

  • Proposed DFARS rule published (DFARS Case 2009-D038, Business Systems – Definition and Administration) on January 15, 2010
dcma suggestions last august
DCMA Suggestions Last August

There should be a common list of the Business Systems

Each should be supported by a clause

Each should have objective standards/expectations

Each should identify specific remedies

Each should have criteria for approval/disapproval

need for regulatory changes
Need for Regulatory Changes

COWC Slide from August Hearing

DFARS 242.7502(a)(4)

“The ACO will consider whether it is appropriate to suspend a percentage of progress payments or reimbursement of costs proportionate to the estimated cost risk to the Government, considering

audit reports or other relevant input, until the

contractor submits a corrective action plan

acceptable to the ACO and corrects the

deficiencies.”

progress payment coverage referenced in 242 7502
Progress Payment Coverage Referenced in 242.7502
  • FAR 32.503-6(a)  Suspension or reduction of payments.
    • “ The contracting officer shall take these actions only in accordance with the contract terms and never precipitately or arbitrarily. These actions should be taken only after—
    • Notifying the contractor of the intended action and providing an opportunity for discussion;
    • Evaluating the effect of the action on the contractor’s operations, based on the contractor’s financial condition, projected cash requirements, and the existing or available credit arrangements; and
    • Considering the general equities of the particular situation.”
existing remedies for withholding suspending payments for system deficiencies
Existing Remedies for Withholding/Suspending Payments for System Deficiencies*
  • Progress Payment Clause (FAR 52.232-16)
    • (c) Reduction or suspension. The Contracting Officer may reduce or suspend progress payments …after finding upon substantial evidence any of the following conditions: (1) The Contractor failed to comply with any material requirement of this contract
  • Performance-Based Payments Clause (FAR 52.232-32)
    • (e) Reduction or suspension of performance based payments. The Contracting Officer may reduce or suspend progress payments …after finding upon substantial evidence any of the following conditions: (1) The Contractor failed to comply with any material requirement of this contract
  • Fixed Fee (FAR 52.216-8)
    • (b) “…after payment of 85 percent of the fixed fee, the Contracting Officer may withhold further payment of fee until a reserve is set aside in an amount that the Contracting officer considers necessary to protect the Government’s interest. This reserve shall not exceed 15 percent of the total fixed fee or $100,000, whichever is less.”
  • Incentive Fee (FAR 52.216-10)
    • (c) Withholding of payment. “…After payment of 85 percent of the fixed fee, the Contracting Officer may withhold further payment of fee until a reserve is set aside in an amount that the Contracting officer considers necessary to protect the Government’s interest. This reserve shall not exceed 15 percent of the total fixed fee or $100,000, whichever is less.
  • Allowable Cost and Payment (FAR 52.216-7)
    • Provides the ability to withhold (suspend/disapprove) payment of costs where allowabilty (including reasonableness & allocability) is questioned as a direct result of a specific system deficiency.

*MMAS Clause Notwithstanding but…

conclusion
Conclusion
  • Where a deficiency poses a material risk of an inappropriate payment, the existing clauses suffice.
  • But that infers causality or a ”logical nexus” that does not exist for all deficiencies.
    • Some deficiencies are mitigated by Government action
    • In some business systems, too difficult to determine amount of costs potentially affected (e.g., Earned Value)
    • Some deficiencies may not impact the allowability of costs directly but harm Department in other ways (e.g., protracted negotiations, more intense Government reviews)
  • New Business System clause needed to withhold funds for all deficiencies requiring correction