Performance Based Payments limited to cost incurred

(legacy post)

As a matter of information, DoD published a proposed rule in the Federal Register on 4-30-2019 implementing the NDAA changes.  Public comments are due by July 1, 2019.

Joanna Haner said:

Following up on the discussion linked above.

The NDAA FY 17 prohibits conditioning PBPs to cost incurred. The DFARS clause was supposed to be updated to this effect and that has not happened yet.

I am in a similar situation as the OP in the previous thread. Does the NDAA FY 17 rule trump the DFARS rule? Or do we need to wait for the DFARS amendment/modification to be published for this rule to be followed by Government customers?

Appreciate any feedback.

Thanks!

I'm happy with the points I made in the linked thread. I believe they are still accurate today. Adding some thoughts:

1. The DFARS language is in impermissible conflict with the FAR and the FAR PBP clause. It is in impermissible conflict with statute.

2. The angst about PBP events in excess of contractor incurred costs is based on a false premise. There is nothing impermissible about advance payments; see FAR Part 32, which permits them when circumstances dictate it's reasonable to do so.

I appreciate the responses, thank you.

So my take aways from these discussions are:

1. The current DFARS rule on tying performance based payments to cost incurred is in violation of the law (NDAA FY17),

2. We must wait for the FAR councils to provide guidance or update the regulation to incorporate the new rule on PBPs,

3. The KO does not have to go by what's in the law until it's incorporated into the regulations,

4. The FAR/DFARS clauses in my contract govern (in this case, the DFARS clause that includes the language tying PBPs to cost incurred is in my contract).

So based on the above, we can't bill milestones in full if the milestone amount exceeds the costs incurred for the milestone.

Do you guys concur this is the conclusion?

If you are a contractor with a contract in hand, I think you should invoice according to the instructions in your contract.

Upon receipt of your proper invoice, the contracting officer will do whatever he or she decides to do.

Joanna Haner said:

So based on the above, we can't bill milestones in full if the milestone amount exceeds the costs incurred for the milestone

Yes.  However, note that the DFARS clauses do not incorporate the cost principles of FAR Part 31 as the standard for determining costs.  Further, the clauses do not limit costs to direct costs, but include indirect costs, again without consideration of the cost principles.  Thus, unless there is another clause in your contract incorporating the cost principles for these purposes, you can include unallowable costs in the calculation of costs incurred.

Retreadfed said:

Yes.  However, note that the DFARS clauses do not incorporate the cost principles of FAR Part 31 as the standard for determining costs.  Further, the clauses do not limit costs to direct costs, but include indirect costs, again without consideration of the cost principles.  Thus, unless there is another clause in your contract incorporating the cost principles for these purposes, you can include unallowable costs in the calculation of costs incurred.

Thanks!