Once the USG issues the award to the Contractor, is the Contractor required to pay consideration for the incorporation of the negotiation PBP schedule? What is the required process, per FAR regulations, to incorporate PBPs into a competitively awarded FFP contract?
This response is based on the information provided. We suggest you discuss with your contracting team, program manager and/or legal department as appropriate.
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DoD guidance is to conduct competitive source selections capturing financing through progress payments. This approach serves to keep the evaluation on a more equal footing. Progress payments are straight forward and would be similar for every offeror. Performance based payments (PBPs) can vary greatly from offeror to offeror and could create perceived unfairness in the evaluation process.
Given that PBPs are a significant cash flow benefit to a contractor, the government expects to reap some of that benefit. The process is outlined in the DFARS.
"DFARS SUBPART 232.10--PERFORMANCE-BASED PAYMENTS ....
DFARS 232.1004 Procedures.
(b) Prior to using performance-based payments, the contracting officer shall—
(i) Agree with the offeror on price using customary progress payments before negotiation begins on the use of performance-based payments, except for modifications to contracts that already use performance-based payments;
(ii) Analyze the performance-based payment schedule using the performance-based payments (PBP) analysis tool. The PBP analysis tool is on the DPAP website in the Cost, Pricing & Finance section, Performance Based Payments - Guide Book & Analysis Tool tab, at
(A) When considering performance-based payments, obtain from the offeror/contractor a proposed performance-based payments schedule that includes all performance-based payments events, completion criteria and event values along with the projected expenditure profile in order to negotiate the value of the performance events. If performance-based payments are deemed practical, the Government will evaluate and negotiate the details of the performance-based payments schedule.
(iii) Negotiate the consideration to be received by the Government if the performance-based payments payment schedule will be more favorable to the contractor than customary progress payments;
(iv) Obtain the approval of the business clearance approving official, or one level above the contracting officer, whichever is higher, for the negotiated consideration; and
(v) Document in the contract file that the performance-based payment schedule provides a mutually beneficial settlement position that reflects adequate consideration to the Government for the improved contractor cash flow."