Government Contracts Monitor

Navy Announces Proposed Preferred Supplier Program

June 14, 2010

This October, the Navy plans to introduce a “Preferred Supplier Program” to reward contractors that have exhibited “exemplary performance” in the areas of cost, schedule, performance, quality, and business relations. Preferred Supplier Status (PSS) will provide contractors with better cash flow, profit, and contract terms. Importantly, PSS only impacts contract performance and will not be a factor in source selection.

PSS will be based on a 5-star scale, and contractors receiving 3 stars will become eligible for PSS. Award of the stars will initially be based on the Contractor Performance Assessment Reporting System (CPARS) data in the areas of technical (quality of product), schedule, cost control, management responsiveness, management of key personnel, and utilization of small business. Additionally, the Program will promote energy efficiency by awarding an additional star to contractors with an Energy Efficiency program (as a result, only contractors with such a program are eligible for a 5^th star).

PSS entitles contractors to special contract terms and conditions, such as:

more favorable progress payments
recognition of PSS in development of profit or fee based upon weighted guidelines
tailored contract reporting requirements
special award fee pools

Under the proposed program, the Navy will use the favorable PSS solicitation terms and conditions if it appears likely that a PSS contractor will respond. However, the PSS terms will only become effective if a PSS contractor is awarded the contract.

The PSS program is modeled after similar programs in the private sector that have incentivized contractors to perform at higher levels. The Navy believes PSS will more effectively improve contractor performance than its current practice of contract-by-contract negotiation.

The Navy will accept comments on the proposed program until July 23, 2010 and hopes to release the program in October. Information about submitting comments is available here.

Note: In light of reports that the Navy planned to withdraw the program, on June 11, 2010 the Department confirmed that it plans to go forward with the Preferred Supplier Program and that the June 1, 2010 notice is still active and available for comment.