UPDATE – Performance-Based Payments and Progress Payments (DFARS Case 2017-D019)

UPDATE to Proposed Rule by Defense Acquisition Regulations System on 09/10/2018 Performance-Based Payments and Progress Payments DFARS Case 2017-D019

Due in large part to the opposition voiced by Contractors and Industry Associations, the Department of Defense has rescinded the Department of Defense’s (DoD) supplement to the Federal Acquisition Regulation (DFARS) proposed rule that would have brought significant change to the progress payments and performance-based payments process for DoD contractors. As proposed, the new rule would have significantly reduced interim payments from 80 percent of incurred cost to 50 percent.
Earlier this week, Deputy Secretary of Defense Patrick M. Shanahan released a statement that the “proposed amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) were prematurely released, absent full coordination. As a result, the Department will rescind the proposed amendments. In coordination with industry, the Department will create a revised rule to implement section 831 of the FY2017 NDAA.”

The DoD has now committed to work with industry to implement the recommendations contained within Section 831 of the FY2017 National Defense Authorization Act (NDAA) which called for a preference for performance-based payments and imply a desire to move away from progress payments. As stated within the NDAA, Performance-based payments are “not conditioned upon costs incurred in contract performance but on the achievement of performance outcome.” It is clear that a change to progress and performance-based payments is coming, but hopefully ,the DOD can team with Industry to make changes that will work for all parties and avoid the significant impact to cash flow that would have resulted from the original proposed rule.