82 FR 34416 - NASA Federal Acquisition Regulation Supplement: Award Term (NFS Case 2016-N027)

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Federal Register Volume 82, Issue 141 (July 25, 2017)

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.

[Federal Register Volume 82, Number 141 (Tuesday, July 25, 2017)]
[Rules and Regulations]
[Pages 34416-34419]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-15520]


=======================================================================
-----------------------------------------------------------------------

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1816 and 1852

RIN 2700-AE32


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

AGENCY: National Aeronautics and Space Administration.

ACTION: Final rule.

-----------------------------------------------------------------------

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:

I. Background

    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

[[Page 34417]]

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

[[Page 34418]]

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:

0
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

0
2. Amend section 1816.001 by adding in alphabetical order the 
definition ``Term-determining official'' to read as follows:


1816.001   Definitions.

* * * * *
    Term-determining official means the designated Agency official who 
reviews the recommendations of the Award-Term Board in determining 
whether the contractor is eligible for an award term.
* * * * *

0
3. Add section 1816.405-277 to read as follows:


1816.405-277   Award term.

    (a) An award term enables a contractor to become eligible for 
additional periods of performance or ordering periods under a service 
contract (as defined in FAR 37.101) by achieving and sustaining the 
prescribed performance levels under the contract. It incentivizes the 
contractor for maintaining superior performance by providing an 
opportunity for extensions of the contract term.
    (b) Award terms are best suited for acquisitions where a longer 
term relationship (generally more than five years) between the 
Government and a contractor would provide significant benefits to both. 
Motivating excellent performance, fostering contractor capital 
investment, and increasing the desirability of the award, thus 
potentially increasing competition, are benefits that may justify the 
use of award terms.
    (c) While the administrative burden and cost of more frequent 
procurements to both the Government and potential offerors should be 
considered when determining whether to use award terms, this decision 
must be weighed against market stability, the potential changes and 
advancements in technology, and flexibility to change direction with 
mission changes and associated frequent procurements.
    (d) Award terms may be used in conjunction with contract options 
under FAR 17.2. Award terms are similar to contract options in that 
they are conditioned on the Government's continuing need for the 
contract and the availability of funds. However, FAR 17.207(c)(7) 
states the contracting officer must determine that the contractor's 
performance has been acceptable, e.g., received satisfactory ratings. 
In contrast, to become eligible for an award term, the contractor must 
maintain a level of performance above acceptable as specified in the 
Award Term Plan (see 1816.405-277(i)). In contracts with both option 
periods and award terms, the award term period of performance or 
ordering period shall begin after completion of any option period of 
performance or ordering period.
    (e) Contracts with award terms shall include a base period of 
performance or ordering period and may include a designated number of 
option periods during which the Government will observe and evaluate 
the contractor's performance allowing the contractor to earn an award 
term. Additionally, as specified in the Award Term Plan, the contractor 
may also be evaluated for additional award terms during performance of 
an earned award term. If the contractor meets or exceeds the 
performance requirements, there is an on-going need for and desire to 
continue the contract, funds are available, and the contractor is not 
listed in the System for Award Management Exclusions, then the 
contractor may be eligible for contract extension for the period of the 
award term.
    (f) Contracts with award terms shall comply with FAR and NFS 
restrictions on the overall contract length, such as the 5-year period 
of performance limitation found at NFS 1817.204.
    (g) Award terms may only be used in acquisitions for services 
exceeding $20 million dollars. Use of award terms for lower-valued 
acquisitions may be authorized in exceptional situations such as 
contract requirements having direct health or safety impacts, where the 
judgmental assessment of the quality of contractor performance is 
critical.
    (h) Consistent with the Competition in Contracting Act and general 
procurement principles, the potential award term periods in a 
procurement must be priced, evaluated, and considered in the initial 
contract selection process in order to be valid.
    (i) All contracts including award terms shall be supported by an 
Award Term Plan that establishes criteria for earning an award term and 
the methodology and schedule for evaluating contractor performance. A 
copy of the Award Term Plan shall be included in the contract. The 
contracting officer may unilaterally revise the Award Term Plan. Award 
Term Plans shall--
    (1) Identify the officials to include Term-Determining Official 
involved in the award term evaluation and their function;
    (2) Identify and describe each evaluation factor, any subfactors, 
related performance standards, adjectival ratings, and numerical ranges 
or weights to be used. The contracting officer should follow the 
guidance at 1816.405-274 in establishing award term evaluation factors 
and 1816.405-275 in establishing adjectival rating categories, 
associated descriptions, numerical scoring system, and weighted scoring 
system;
    (3) Specify the annual overall rating required for the contractor 
to be eligible for an award term that reflects a level of performance 
above acceptable and the number of award terms the contractor may 
qualify for based on the rating score;
    (4) Identify the evaluation period(s) and the evaluation schedule 
to be conducted at stated intervals during the contract period of 
performance or ordering period so that the contractor will periodically 
be informed of the quality of its performance and the areas in which 
improvement is expected (e.g., six months, nine months, twelve months, 
or at other specific milestones), and when the decision points are for 
the determination that the contractor is eligible for an award term; 
and
    (5) Identify the contract's base period of performance or ordering 
period, any option period(s), and total award-term periods(s). Award 
term periods shall not exceed one year.
    (j)(1) The Government has the unilateral right not to grant or to 
cancel award term periods and the associated Award Term Plans if--
    (i) The contractor has failed to achieve the required performance 
measures for the corresponding evaluation period;
    (ii) After earning an award term, the contractor fails to earn an 
award term in any succeeding year of contract performance, the 
contracting officer may cancel any award terms that the contractor has 
earned, but that have not begun;

[[Page 34419]]

    (iii) The contracting officer notifies the contractor that the 
Government no longer has a need for the award term period before the 
time an award term period is to begin;
    (iv) The contractor represented that it was a small business 
concern prior to award of the contract, the contract was set-aside for 
small businesses, and the contractor rerepresents in accordance with 
FAR clause 52.219-28 Post-Award Small Business Program 
Rerepresentation, that it is no longer a small business; or
    (v) The contracting officer notifies the contractor that funds are 
not available for the award term.
    (2) When an award term period is not granted or cancelled, any--
    (i) Prior award term periods for which the contractor remains 
otherwise eligible are unaffected.
    (ii) Subsequent award term periods are also cancelled.
    (k) Cancellation of an award term period that has not yet commenced 
for any of the reasons set forth in paragraph (j) of this section shall 
not be considered either a termination for convenience or termination 
for default, and shall not entitle the contractor to any termination 
settlement or any other compensation. If the award term is cancelled, a 
unilateral modification will cite the clause as the authority.

0
4. Amend section 1816.406-70 by adding paragraph (g) to read as 
follows:


1816.406-70   NASA contract clauses.

* * * * *
    (g) Insert the clause at 1852.216-72, Award Term in solicitations 
and contracts for services exceeding $20 million when award terms are 
contemplated.

PART 1852--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Add section 1852.216-72 to read as follows:


1852.216-72   Award term.

    As prescribed in 1816.406-70(g), insert the following clause:

AWARD TERM

(AUG 2017)
    (a) Based on overall Contractor performance as evaluated in 
accordance with the Award Term Plan, the Contracting Officer may 
extend the contract for the number and duration of award terms as 
set forth in the Award Term Plan.
    (b) The Contracting Officer will execute any earned award term 
period(s) through a unilateral contract modification. All contract 
provisions continue to apply throughout the contract period of 
performance or ordering period, including any award term period(s).
    (c) The Government will evaluate offerors for award purposes by 
adding the total price for all options and award terms to the price 
for the basic requirement. This evaluation will not obligate the 
Government to exercise any options or award term periods.
    (d) The Award Term Plan is attached in Section J. The Award Term 
Plan provides the methodology and schedule for evaluating Contractor 
performance, determining eligibility for an award term, and, 
together with Agency need for the contract and availability of 
funding, serves as the basis for award term decisions. The 
Contracting Officer may unilaterally revise the Award Term Plan. Any 
changes to the Award Term Plan will be in writing and incorporated 
into the contract through a unilateral modification citing this 
clause prior to the commencement of any evaluation period. The 
Contracting Officer will consult with the Contractor prior to the 
issuance of a revised Award Term Plan; however, the Contractor's 
consent is not required.
    (e) The award term evaluation(s) will be completed in accordance 
with the schedule in the Award Term Plan. The Contractor will be 
notified of the results and its eligibility to be considered for the 
respective award term no later than 120 days after the evaluation 
period set forth in the Award Term Plan. The Contractor may request 
a review of an award term evaluation which has resulted in the 
Contractor not earning the award term. The request shall be 
submitted in writing to the Contracting Officer within 15 days after 
notification of the results of the evaluation.
    (f)(1) The Government has the unilateral right not to grant or 
to cancel award term periods and the associated Award Term Plan if--
    (i) The Contractor has failed to achieve the required 
performance measures for the corresponding evaluation period;
    (ii) After earning an award term, the Contractor fails to earn 
an award term in any succeeding year of contract performance, the 
Contracting Officer may cancel any award terms that the Contractor 
has earned, but that have not begun;
    (iii) The Contracting Officer has notified the Contractor that 
the Government no longer has a need for the award term period before 
the time an award term period is to begin;
    (iv) The Contractor represented that it was a small business 
concern prior to award of this contract, the contract was set-aside 
for small businesses, and the Contractor rerepresents in accordance 
with FAR clause 52.219-28, Post-Award Small Business Program 
Rerepresentation, that it is no longer a small business; or
    (v) The Contracting Officer has notified the Contractor that 
funds are not available for the award term.
    (2) When an award term period is not granted or cancelled, any--
    (i) Prior award term periods for which the contractor remains 
otherwise eligible are unaffected, except as provided in paragraph 
(g) of this clause; or
    (ii) Subsequent award term periods are also cancelled.
    (g) Cancellation of an award term period that has not yet 
started for any of the reasons set forth in paragraph (f) of this 
clause shall not be considered either a termination for convenience 
or termination for default, and shall not entitle the Contractor to 
any termination settlement or any other compensation.
    (h) Cancellation of an award term period that has not yet 
commenced for any of the reasons set forth in paragraphs (f) and (g) 
of this clause shall not be considered either a termination for 
convenience or termination for default, and shall not entitle the 
Contractor to any termination settlement or any other compensation. 
If the award term is cancelled, a unilateral modification will cite 
this clause as the authority.
    (i) Funds are not presently available for any award term. The 
Government's obligation under any award term is contingent upon the 
availability of appropriated funds from which payment can be made. 
No legal liability on the part of the Government for any award term 
payment may arise until funds are made available to the Contracting 
Officer for an award term and until the Contractor receives notice 
of such availability, to be confirmed in writing by the Contracting 
Officer.

(End of clause)

[FR Doc. 2017-15520 Filed 7-24-17; 8:45 am]
BILLING CODE 7510-13-P