On October 21st the Department of Defense (DoD) proposed an amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) intended to address “a more transparent means of documenting the impact of costs incurred during the undefinitized period of an undefinitized contract action on allowable profit.” (DFARS Case 2015–D024.) In other words, when using its Weighted Guidelines, the DoD wants a further breakdown of completed and uncompleted work in order to refine the risk scores that will ultimately impact calculating fee percentage. The Weighted Guidelines are DOD’s structured profit approach for establishing the contracting officer’s negotiating position on profit. The proposed rule is intended to add transparency to the risk scores on contracts where undefinitized work has begun, however there is clearly potential for contracting officers to “disadvantage” the contractor’s potential fee for completing work before definitization.
“The objective of this proposed rule is to gain visibility into the contracting officer’s rationale for the contract type risk values entered on the DD Form 1547.” The essence of the proposal is to separate out the cost incurred during the undefinitized period from the projected costs to completion on DD Form 1547, Weighted Guidelines Application onto lines 24(a) and (b) separately. This will allow the Contracting Officer to assign separate risk values to each. Additionally, it would be required that the Contracting Officer document the reason for the selection of the risk values on Lines 24(a) and (b).
While the transparency provided in the delineation and justification requirements are well intentioned, the proposed rule has the potential to adversely impact the contractor’s fee potential. For example, where portions of the work are completed before definitization, the “mandatory” evaluation criteria already in place under DFARS 215.404-71-3(d)(2) requires the contracting officer to sign a lower risk score, as low as zero where completion is “substantial.” The proposed rule leaves the mandatory criteria in place. Thus, under the proposed rule, it will allow the contracting officer a delineated method to “penalize” the contractor on fee for doing work before definitization.
The proposed rule implicitly recognizes this problem, and attempts to address it by allowing the contractor to add up to 1 point on line 22 to the assigned value for “management/cost control.” This additional point is assessed based on “the submittal of a timely, auditable proposal in furtherance of definitization of a [undefinitized contract action].” In other words, the onus would still be shifted onto the contractor to “get back” the fee that would have otherwise been available on work under a definitized contract.
While on its face the proposed rule will add transparency to the risk scores on contracts where undefinitized work has begun, there is potential for contracting officers to in essence delineate a “penalty” upon the contractors with a lower potential fee for completing work before definitization. While theoretically a similar analysis is currently being conducted, by delineating the work completed from the work to be completed, the proposed rule may further restrict the contracting officer’s ability to analyze an appropriate fee where contractors agree to start work before definitization. Comments on the proposed rule are due December 20th.