DOD issues new performance-based payments rule -- this time, without including progress payments

By Marjorie Censer  / April 8, 2020

The Pentagon issued a final rule today implementing part of the Fiscal Year 2017 National Defense Authorization Act, which called for a preference for performance-based payments.

A version of the rule was released in 2018, setting off a firestorm after it included changes to progress payments as well. That version was eventually withdrawn under pressure from Capitol Hill and industry associations.

The rule issued today includes "a number of changes" that "are expected to increase support for the rule, such as permitting alternate forms of security for performance-based payments and clarifying that an acceptable accounting system is not required for incurred costs under the performance-based payments clause," according to a Federal Register notice.

Industry groups told Inside Defense they are pleased the rule focuses solely on performance-based payments and includes some of their suggested changes.

Alan Chvotkin of the Professional Services Council said in an interview that the rule marks a significant improvement from the one proposed in 2018.

DOD "took a very wrong turn when they published their proposed rule in 2018," he said. "It's taken way too long to unravel that."

Wes Hallman of the National Defense Industrial Association said DOD "took to heart several of the comments that we made previously." He said he has received similar feedback from NDIA members.

"Obviously pulling it out from the issues surrounding progress-based payments was important," Hallman said.

Corbin Evans of NDIA told Inside Defense the new rule will "ease the burden" on contractors by simplifying the process involved in letting companies use performance-based payments.

Chvotkin agreed that the new rule moves the Pentagon in the right direction, but said there remain "some bumps" for both contractors and the government in implementation.

"This final rule introduces a new set of words and phrases that we're just going to have work through over time," he said.

Chvotkin praised the rule's potential to accelerate cash flow for contractors, which he noted is needed even more during the coronavirus crisis.

"That's a good news issue for contractors all the time [and] particularly in this COVID-19 environment," he added.