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Barry McVay's

FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


DECEMBER 2000
Vol. I, No. 12

CONTENTS

Contracting Officers Fail to Obtain Quotes for FSS Orders for Services
Comments Sought on FAR Reverse Auctions
Proposed FAR Changes on Electronic Signatures, Cargo
Experience Requirements for IT Workers Restricted
DOD to Increase Use of Performance-Based Payments
Proposal to Allow Agencies to Accept 8(a) Requirements
SBA Increases Some Health Care Size Standards
OFCCP Revises EEO Regulations



GAO Finds Many DOD Contracting Officers Fail to
Obtain Quotes Before Placing FSS Orders for Services

On November 28, 2000, the General Accounting Office (GAO) released a report on its assessment of "whether [Department of Defense (DOD)] contracting officers were following [the General Services Administration's (GSA)] established procedures to ensure fair and reasonable prices and whether guidance and regulations regarding purchases [of services] under the Federal Supply Schedule (FSS) were adequate." In 17 of 22 orders GAO reviewed, it found the contracting officer did not follow GSA's established procedures by failing to seek competitive quotes from multiple contractors. These 17 orders were valued at $60.5 million (the other five orders were valued at $52.2 million).

The report, titled "Contract Management: Not Following Procedures Undermines Best Pricing Under GSA's Schedule" (GAO-01-125), was commissioned by the Senate's Armed Services Committee's Readiness and Management Support Subcommittee because of concerns "that there is inadequate oversight and accountability over using new contract vehicles and techniques to acquire services faster..."

The FSS is one of the fastest growing contract vehicles -- orders under the FSS for information technology services increased from $1.2 billion in FY98 to about $4.4 billion in FY 2000. A significant reason for this increase is the speed with which orders can be placed -- it takes only an average of 15 days to place an order under a FSS contract compared to 268 days to award a contract using a traditional method. Therefore, GAO chose to review compliance with GSA's procedures for information technology services ordered through the FSS.

GSA's "Ordering Procedures for Services (Requiring a Statement of Work)" (http://www.fss.gsa.gov/schedules/ordInsSv.cfm), which GSA maintains take precedence over the procedures in paragraphs (b)(2) and (b)(3) of Federal Acquisition Regulation (FAR) 8.404, Using Schedules, requires ordering agencies to (1) prepare a request for quotes, (2) send the request for quotes to at least three FSS contractors based on an initial evaluation of catalogs and price lists, and (3) evaluate the quotes and select the contractor to receive the order based on factors identified in the request. The ordering procedures also state that the ordering office is responsible for considering the level of effort and mix of labor proposed to perform specific tasks and for making a determination that the total price is fair and reasonable.

To prepare the report, GAO identified four large DOD buying commands (one for each military department, and the Defense Supply Service), then selected the largest orders for information technology services purchased in Fiscal Year 1999 using the FSS. In total, the 22 orders selected were worth $112.7 million. GAO found that:

GAO concluded that DOD "has significantly undermined its ability to ensure that it is getting the best information technology services at the best prices. Moreover, the lack of clear guidance on when to seek competitive quotes for services has increased the risk that agencies will not identify and acquire the lowest cost alternatives to meet their needs."

GAO recommended that the Office of Federal Procurement Policy (OFPP) take steps to revise the FAR to incorporate the requirements contained in the ordering procedures for services to obtain competitive quotes, specifically to describe the procedures and when they should be used. GAO also recommended that the FAR address whether sole source orders for services may be placed using the FSS. "If sole source orders are allowed, the guidance should provide instructions on what steps contracting officers should take to ensure that prices are fair and reasonable and that orders result in the lowest overall cost alternative meeting the government's needs."

In response to the report, GSA stated that it would continue its outreach programs, such as "making presentations at GSA seminars and enhancing the agency's website." GSA also said it would "pursue additional efforts to educate agencies about ordering procedures and the best practices for managing their buys." OFPP said it agreed that the FAR guidance was insufficient, and that it would be working to prepare a FAR revision that would address GAO's recommendations as well as some additional issues.

EDITOR'S NOTE: In March 2000, GAO issued a report titled "Few Competing Proposals for Large DOD Information Technology Orders" which found that 16 of 22 task- and delivery-orders over $5 million were awarded without competing proposals. See the April 2000 Federal Contracts Perspective article "DODIG, GAO Point Out Acquisition Deficiencies."



Comments Sought on FAR Reverse Auctions Coverage

On October 31, the Civilian Agency Acquisition Council and Defense Acquisition Regulations Council published a request for comments on whether there is a need for FAR guidance on the conduct of electronic "reverse auctions," and, if so, what should the guidance be.

In a normal auction, several buyers bid on an item, and the highest bidder wins. In a reverse auction, multiple sellers bid down on the requirements of a single buyer, and the lowest bidder wins. Recently, several agencies have conducted reverse auctions on an experimental basis with promising results. Since there is no coverage in the FAR on reverse auctions, some have called for such coverage. Others point to paragraph (d) of FAR 1.102, Statement of Guiding Principles for the Federal Acquisition System, which permits any technique that is not expressly prohibited, and claim no FAR coverage is needed. Still others say reverse auctions are so new there is not enough information available to develop meaningful guidance.

Therefore, comments are being sought on a variety of topics related to reverse auctions:

Submit comments on or before January 2, 2001, to General Services Administration, FAR Secretariat (MVR), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405; e-mail: Auction@gsa.gov. Cite "reverse auction notice" in all correspondence related to this request for comments.



Proposed FAR Changes on Electronic Signatures, Cargo

There were two proposed FAR changes published in November:



Experience Requirements for IT Workers Restricted

On October 30, 2000, Public Law 106-398, the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 was signed into law by President Clinton. While most of its provisions are specific to the Department of Defense, there are several that apply governmentwide. Possibly the most noteworthy is in Section 813, Appropriate Use of Requirements Regarding Experience and Education of Contractor Personnel in the Procurement of Information Technology [IT] Services. It requires that the FAR be amended within 180 days (that is, by April 28, 2001) to "provide that solicitations for the procurement of information technology services shall not set forth any minimum experience or educational requirement for proposed contractor personnel in order for a bidder to be eligible for award of a contract unless (1) the contracting officer first determines that the needs of the executive agency cannot be met without any such requirement; or (2) the needs of the executive agency require the use of a type of contract other than a performance-based contract."

The following are some other acquisition-related provisions of the law:



DOD to Increase Use of Performance-Based Payments

On November 13, 2000, Under Secretary of Defense Jacques Gansler issued a memorandum to the secretaries of the military departments stating that DOD "must take maximum advantage of the benefits of performance-based payments as the preferred means of providing contract financing under fixed-price contracts by making this form of payment the primary and most commonly used form of contract financing."

Performance-based payments are contract financing payments made after achievement of predetermined goals, such as performance objectives or defined events. Federal Acquisition Circular (FAC) 97-16 amended FAR Subpart 32.10, Performance-Based Payments, to make performance-based payments "the preferred government financing method when the contracting officer finds them practical, and the contractor agrees to their use" (FAR 32.1001, Policy). (EDITOR'S NOTE: For more on FAC 97-16, see the April 2000 Federal Contracts Dispatch article "FAC 97-16 Revises Contract Financing Rules, Small Business Competitiveness Demo Program.")

In addition to making performance-based payments the preferred government financing method, FAC 97-16 also removed the prohibitions on using performance-based payments on research and development and competitively negotiated acquisitions (from FAR 32.1000, Scope of Subpart), and now permits prime contractors with cost-type contracts to use performance-based payments on fixed-price subcontracts (see FAR 32.110, Payment of Subcontractors Under Cost-Reimbursement Prime Contracts).

Based on the changes made by FAC 97-16, Gansler directs that performance-based payments be "the primary form of contract in at least 25% of contracts valued at $2 million or more. By fiscal year 2005, this method of financing should be the most prevalent form used in fixed-price contracts, such as those for complex services or for production efforts...Exceptions to the use of this contract financing technique should only be agreed to by the contracting officer when supported by a sound business case justification."

The under secretary attached to the memorandum "The Case for Performance-Based Payments (PBP)". It lists the following as "advantages of using PBP":



Proposal to Allow Agencies to Accept 8(a) Requirements

The Small Business Administration (SBA) is proposing to amend its 8(a) regulations to permit procuring agencies to accept requirements for the 8(a) program without obtaining prior SBA approval. This move is intended to make the 8(a) program more attractive to agencies by reducing its procurement lead-time by up to twelve days. Agencies have decreased their use of the 8(a) program in favor of quicker and easier methods: indefinite-delivery/indefinite-quantity (IDIQ) contracts, multiple award contracts, governmentwide acquisition contracts (GWACs), federal supply schedules, credit card purchases, and the use of simplified procedures to acquire commercial items up to $5,000,000 (see FAR Subpart 13.5, Test Program for Certain Commercial Items).

Comments must be submitted by January 8, 2001, to Linda Williams, Associate Administrator for Policy, Planning, and Liaison, 409 Third Street, SW, Washington, DC 20416.



SBA Increases Some Health Care Size Standards

The SBA is increasing the small business size standards for 18 health care industries and retaining the existing $5 million size standard for the remaining 12 health care industries in the North American Industry Classification System (NAICS) Sector 62, Health Care and Social Assistance. This was done to better define the size of business that should be eligible for federal small business assistance programs. The changes are effective December 18, 2000.

The following are the Sector 62 industries and their small business size standards (in millions):

Subsector 621 -- Ambulatory Health Care Services
621111Offices of Physicians (except Mental Health Specialists)$7.5
621112Offices of Physicians, Mental Health Specialists$7.5
621210Offices of Dentists$5.0
621310Offices of Chiropractors$5.0
621320Offices of Optometrists$5.0
621330Offices of Mental Health Practitioners (except Physicians)$5.0
621340Offices of Physical, Occupational and Speech Therapists and Audiologists$5.0
621391Offices of Podiatrists$5.0
621399Offices of All Other Miscellaneous Health Practitioners$5.0
621410Family Planning Centers$7.5
621420Outpatient Mental Health and Substance Abuse Centers$7.5
621491HMO [Health Maintenance Organization] Medical Centers$7.5
621492Kidney Dialysis Centers$25.0
621493Freestanding Ambulatory Surgical and Emergency Centers$7.5
621498All Other Outpatient Care Centers$7.5
621511Medical Laboratories$10.0
621512Diagnostic Imaging Centers$10.0
621610Home Health Care Services$10.0
621910Ambulance Services$5.0
621991Blood and Organ Banks$7.5
621999All Other Miscellaneous Ambulatory Health Care Services$7.5
Subsector 622 -- Hospitals
622110General Medical and Surgical Hospitals$25.0
622210Psychiatric and Substance Abuse Hospitals$25.0
622310Specialty (except Psychiatric and Substance Abuse) Hospitals$5.0
Subsector 623 -- Nursing and Residential Care Facilities
623110Nursing Care Facilities$10.0
623210Residential Mental Retardation Facilities$7.5
623220Residential Mental Health and Substance Abuse Facilities$5.0
623311Continuing Care Retirement Communities$10.0
623312Homes for the Elderly$5.0
623990Other Residential Care Facilities$5.0


OFCCP Revises EEO Regulations

The Office of Federal Contract Compliance Programs (OFCCP) has revised its equal employment opportunity (EEO) regulations to change the emphasis from the development of a written affirmative action program (AAP) to a performance-based standard that incorporates an AAP into the contractor's overall management plan.

OFCCP's regulations, which are in 41 CFR Part 60-2, Affirmative Action Programs, requires government nonconstruction contractors and subcontractors with 50 or more employees and a contract of $50,000 or more to prepare and implement a written AAP for each of their establishments. Compliance with OFCCP's regulations by federal contractors is addressed in FAR Subpart 22.8, Equal Employment Opportunity.

The following are some of the more significant changes being made to the regulations:

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