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Mitchell A Bashur is an associate in Holland &
Knight'sTysonsoffice.
Leila S George-Wheeler is an associate in Holland &
Knight's
Washington, D.C. office
On Nov. 27, 2018, the U.S. Department of Defense (DoD) issued Class Deviation 2019-O0001, which, effective
immediately, requires contracting officers to consider the use of
fixed-price contracts, including fixed-price incentive contracts.
The class deviation arises from section 829 of the National Defense
Authorization Act for Fiscal Year 2017 (2017 NDAA), which
established the preference for fixed-price contracts.
The class deviation also includes requirements for certain
high-value contracts. For these contracts, the contracting officer
is required to not just consider the use of a fixed-price contract,
but, in fact, cannot award a cost-type contract unless approved by
the head of the contracting activity. The threshold for this
approval is $50 million for contracts awarded after Oct. 1, 2018,
but before Oct. 1, 2019, and $25 million for contracts awarded on
or after Oct. 1, 2019.
Notably, the class deviation includes a blanket approval for
cost-type research and development contracts valued in excess of
$25 million, so long as the contracting officer determines in
writing that it is not possible to provide an equitable and
sensible allocation of program risk between the government and the
contractor, and that the level of program risk does not permit
realistic pricing.
The class deviation contains one anomaly; although the class
deviation applies "effective immediately," it also
provides that the preference for fixed-price shall apply to
"cost-reimbursement contracts in excess of $50 million to be
awarded after Oct. 1, 2018." This retroactive application
results from DoD delayed implementation of the 2017 NDAA. Section
829 required that the Defense Federal Acquisition Regulation
Supplement (DFARS) be updated "no later than 180 days after
the date of the enactment of this Act" or May 29, 2017.
Despite the extended implementation period, DoD delayed
implementation beyond Oct. 1, 2018—after which Congress
required the preference be applied to contract awards over $50
million. DoD lacked the authority to modify this requirement.
The class deviation remains in effect until it is incorporated
into the DFARS. Holland & Knight's Government Contracts
team will post further updates when the DFARS is updated.
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