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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: July 24, 2000

FROM: Barry McVay, CPCM

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Profit Policy

SOURCE: Federal Register, July 24, 2000, Vol. 65, No. 142, page 45574

AGENCIES: Department of Defense (DOD)

ACTION: Proposed Rule

SYNOPSIS: DOD is proposing to amend DFARS Subpart 215.4, Contract Pricing, to change DOD profit policy to reduce and eventually eliminate emphasis on facilities investment, increase emphasis on performance risk, and encourage contractor cost efficiency.

EDITOR'S NOTE: For more on the earlier proposed rule to revise the profit policy in DFARS 215.4 to encourage contractors to develop and produce complex and innovative new technologies, see the May 22, 2000, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Profit Incentives to Produce Innovative New Technologies."

For more on the advanced notice of proposed rulemaking that led to the May 22, 2000, proposed rule, see the February 10, 2000, FEDERAL CONTRACTS DISPATCH "Defense Federal Acquisition Regulation Supplement (DFARS); Profit Policy."

DATES: Comments on the proposed rule must be submitted by September 22, 2000.

ADDRESSES: Submit comments on the proposed rule to Defense Acquisition Regulations Council, Attn: Ms. Amy Williams, OUSD (AT&L) DP (DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062; fax: 703-602-0350; e-mail: dfars@acq.osd.mil. Cite DFARS Case 2000-D018 in all correspondence related to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, 703-602-0288.

SUPPLEMENTAL INFORMATION: The basis of the existing DOD profit policy in DFARS 215.404-71, Weighted Guidelines Method, was a report published in 1985 on the Defense Financial and Investment Review (DFAIR). One of the key DFAIR objectives was to encourage defense contractors to invest in productivity-enhancing facilities. However, since 1985, the defense industry has downsized and consolidated in response to substantial reductions in the defense budget, and the defense industry now has excess capacity and underutilized facilities. In this environment, rewarding contractors for investing in facilities is counterproductive. So the primary purpose of this proposed rule is to reduce and eventually eliminate facilities investment as a factor in establishing profit objectives on sole-source, negotiated contracts. However, this proposed rule includes the changes in the May 22, 2000, proposed rule that encourage contractors to develop and produce complex and innovative new technologies.

The following are the changes that would be made by this proposed rule:

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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