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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

March 2009
Vol. X, No. 3

CONTENTS

$787 Billion Stimulus Package Passed,
Spending To Be “Transparent and Accountable”

On February 17, President Obama signed Public Law 111-5, the American Recovery and Reinvestment Act of 2009 (Recovery Act), which provides $787 billion in tax relief, loans, and spending “for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal stabilization...” The next day, the Office of Management and Budget Director Peter Orszag issued “Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009,” the first installment of governmentwide guidance for carrying out programs and activities enacted in the Recovery Act. “The [Obama] Administration is committed to investing Recovery Act dollars with an unprecedented level of transparency and accountability so Americans know where their tax dollars are going and how they are being spent,” writes Mr. Orszag. “Of particular note, the guidance addresses federal agency requirements to provide spending and performance data to the ‘Recovery.gov’ website. To deliver a website that allows citizens to hold the government accountable for every dollar spent, the law and guidance require federal agencies to implement mechanisms to accurately track, monitor, and report on taxpayer funds.”

The following are key provisions of the Recovery Act:

• Section 1512, Reports on Use of Funds: Requires all “recipients” of recovery funds (that is, all those receiving recovery funds directly from the federal government through grants, loans, and contracts) to submit a report no later than 10 days after the end of each calendar quarter that contains: “(1) the total amount of recovery funds received from that agency; (2) the amount of recovery funds received that were expended or obligated to projects or activities; (3) a detailed list of all projects or activities for which recovery funds were expended or obligated, including: (A) the name of the project or activity; (B) a description of the project or activity; (C) an evaluation of the completion status of the project or activity; [and] (D) an estimate of the number of jobs created and the number of jobs retained by the project or activity...and; (4) detailed information on any subcontracts or subgrants awarded by the recipient to include the data elements required to comply with the Federal Funding Accountability and Transparency Act of 2006 (Public Law 109–282)...” No later than 30 days after the end of each calendar quarter, the agencies are to publish the information on a website.
  
  
• Section 1514, Inspector General Reviews: Any inspector general of a federal department or executive agency shall review, as appropriate, any concerns raised by the public about specific investments using funds made available in the Recovery Act. The findings of such reviews are to be posted on the inspector general's website.
  
  
• Section 1515, Access of Offices of Inspector General to Certain Records and Employees: Any representative of an appropriate inspector general is authorized to examine any records of any contractor or grantee receiving recovery funds, any of its subcontractors or subgrantees, or any state or local agency administering such contract subcontract, grant, or subgrant; and to interview any officer or employee of the contractor.
  
  
• Section 1521, Establishment of the Recovery Accountability and Transparency Board: This new board will conduct oversight of recovery funds to prevent fraud, waste, and abuse.
  
  
• Section 1523, Functions of the Board: The functions of the board shall include: “(A) reviewing whether the reporting of contracts and grants using covered funds meets applicable standards and specifies the purpose of the contract or grant and measures of performance; (B) reviewing whether competition requirements applicable to contracts and grants using covered funds have been satisfied; (C) auditing or reviewing covered funds to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring and referring matters it considers appropriate for investigation to the inspector general for the agency that disbursed the covered funds; (D) reviewing whether there are sufficient qualified acquisition and grant personnel overseeing covered funds; (E) reviewing whether personnel whose duties involve acquisitions or grants made with covered funds receive adequate training; and (F) reviewing whether there are appropriate mechanisms for interagency collaboration relating to covered funds...” The board will report to the president and Congress, and will post the reports on its website.
  
  
• Section 1553, Protecting State and Local Government and Contractor Whistleblowers: “An employee of any non-federal employer receiving covered funds may not be discharged, demoted, or otherwise discriminated against as a reprisal for disclosing...to the Board, an inspector general, the Comptroller General [of the Government Accountability Office (GAO)], a member of Congress, a state or federal regulatory or law enforcement agency, a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct), a court or grand jury, the head of a federal agency, or their representatives, information that the employee reasonably believes is evidence of: (1) gross mismanagement of an agency contract or grant relating to covered funds; (2) a gross waste of covered funds; (3) a substantial and specific danger to public health or safety related to the implementation or use of covered funds; (4) an abuse of authority related to the implementation or use of covered funds; or (5) a violation of law, rule, or regulation related to an agency contract (including the competition for or negotiation of a contract) or grant, awarded or issued relating to covered funds.”
  
  
• Section 1554, Special Contracting Provisions: “To the maximum extent possible, contracts funded under this act shall be awarded as fixed-price contracts through the use of competitive procedures. A summary of any contract awarded with such funds that is not fixed-price and not awarded using competitive procedures shall be posted in a special section of the [Board's] website...”
  
  
• Section 1602, Preference for Quick-Start Activities: “In using funds made available in this act for infrastructure investment, recipients shall give preference to activities that can be started and completed expeditiously, including a goal of using at least 50 percent of the funds for activities that can be initiated not later than 120 days after the date of the enactment of this act.”
  
  
• Section 1605, Use of American Iron, Steel, and Manufactured Goods: “None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.'
  
  
• Section 1606, Wage Rate Requirements: “All laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the federal government pursuant to this act shall be paid wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the Secretary of Labor.”
  
  
• Section 1611, Hiring American Workers in Companies Receiving TARP [Troubled Assets Relief Program] Funding: “It shall be unlawful for any recipient of funding under title I of the Emergency Economic Stabilization Act of 2008 (Public Law 110–343) [i.e., TARP]...to hire any nonimmigrant...unless the recipient is in compliance with the requirements for an H–1B dependent employer...”

The following are key provisions of OMB’s Recovery Act guidance:

• 1.2, What is the goal of this Guidance?: “To establish and clarify the required steps federal agencies must take to meet the following crucial accountability objectives:
  
  
  • Funds are awarded and distributed in a prompt, fair, and reasonable manner;
    
    
  • The recipients and uses of all funds are transparent to the public, and the public benefits of these funds are reported clearly, accurately, and in a timely manner;
    
    
  • Funds are used for authorized purposes and instances of fraud, waste, error, and abuse are mitigated;
    
    
  • Projects funded under this Act avoid unnecessary delays and cost overruns; and
    
    
  • Program goals are achieved, including specific program outcomes and improved results on broader economic indicators.”
  
  
• 2.6, What is required for award level transaction data?: “Recovery Act award obligations will be reported according to the current procedures for USASpending.gov...Information will be reported to USASpending.gov through FPDS [Federal Procurement Data System – https://www.fpds.gov]...Current reporting under the Federal Funding Accountability and Transparency Act only requires information above $25,000 to be reported to USASpending.gov. The Recovery Act requires reporting on all funding...For obligations that are funded by both recovery and non-recovery funds, agencies must record each line of accounting in financial systems and in business systems separately.”
  
  
• 2.9, What reporting will be collected from recipients of Federal funding for reporting on Recovery.gov?: “See Section 1512 of the Recovery Act...The final guidance issued by OMB for the Recovery Act will lay out in more detail specific reporting instructions and how the data collection for this reporting will work governmentwide.”
  
  
• 2.12, What are the requirements for agency websites?: “Agencies are not required to develop new websites dedicated to recovery efforts. The initiative is designed to create one portal where the public can find and analyze information and report potential fraud, waste and abuse pertaining to the Recovery Act. As such, www.recovery.gov is intended as the single, consolidated portal to that information. Multiple websites will confuse the public. Each agency should, however, dedicate a section of its primary website to Recovery Act activities within one week of issuance of this guidance. Those pages must be consistently identified with a URL that identifies the key entry page to that information with a “/recovery” extension, i.e., www.agency.gov/recovery.”
  
  
• 4.2, Can agencies co-mingle Recovery Act and non-Recovery Act funds?: “No. To maximize transparency of Recovery Act spending required by Congress and the Administration, agencies must not co-mingle Recovery Act funds with other funds...”
  
  
• 6.1 Are there actions, beyond standard practice, that agencies must take while planning for contract awards under the Recovery Act?: “The critical importance of the Recovery Act, and the funds it will make available to stimulate the American economy, require heightened management attention on acquisition planning in order to:
  
  
  • Mitigate schedule, cost, and performance risk;
    
    
  • Define contract requirements that deliver meaningful and measurable outcomes consistent with agency plans and the goals of Recovery Act;
    
    
  • Obtain maximum practicable competition;
    
    
  • Maximize opportunities for small businesses to compete for agency contracts and to participate as subcontractors;
    
    
  • Use supplies and services provided by nonprofit agencies employing people who are blind or severely disabled as provided in FAR [Federal Acquisition Regulation] Subpart 8.7 [Acquisition from Nonprofit Agencies Employing People Who Are Blind or Severely Disabled];
    
    
  • Expeditiously award contracts using available streamlining flexibilities;
    
    
  • Apply sufficient and adequately trained workforce to responsibly plan, evaluate, award, and monitor contracts;
    
    
  • Ensure an adequate number of qualified government personnel are available to perform inherently governmental functions during the acquisition life-cycle; and
    
    
  • Provide appropriate agency oversight at critical decision points.”
  
  6.1 goes on to state, “Although the law calls on agencies to commence expenditures and activities as quickly as possible consistent with prudent management, this statement, by itself, does not constitute a sufficient justification to support award of a federal contract on a non-competitive basis...To the maximum extent practicable, contracts using Recovery Act funds shall be awarded as fixed-price contracts using competitive procedures...Existing fixed-price contracts that were competitively awarded may be used to obligate funds expeditiously...A summary of any contract or order (or modification to an existing contract or order), including a description of the required products and services, using such funds shall be posted in a special section of the website Recovery.gov unless the contract or order is both fixed-price and competitively awarded...Agencies must provide maximum practicable opportunities for small businesses to compete for agency contracts and to participate as subcontractors in contracts awarded by agencies. Agencies may take advantage of any authorized small business contracting program...Contract financing is not a normal practice in commercial item fixed-price contracting. However, tight credit markets may make it difficult for some contractors to secure the cash flow they need to fund their operations. Increased management and oversight must be provided if government financing is provided to ensure accountability for these taxpayer funds.”
  
  
• 6.2, Are there actions, beyond standard practice, that agencies must take related to solicitation of offers and award of contracts under the Recovery Act?: The answer is “yes.” A presolicitation notice and an award notice must be posted on FedBizOpps (http://www.fbo.gov) for any order exceeding $25,000, including governmentwide acquisition contracts (GWACs), multi-agency contracts, and Federal Supply Schedule contracts. Also, for each contract or order (or modification to an existing contract or order) over $500,000, agencies must provide a summary of the contract or order (or modification to an existing contract or order), including a description of the required products and services, and link it to Recovery.gov. In addition, a summary of any contract or order (or modification to an existing contract or order), including a description of the required products and services, using recovery funds must be posted in a special section of Recovery.gov unless the contract or order is both fixed-price and competitively awarded. Finally, agencies are cautioned that “the Recovery Act does not independently trigger use of emergency procurement authorities in FAR Part 18 [Emergency Acquisitions]. These authorities are triggered in limited, statutorily identified, circumstances, such as in support of a contingency operation or to facilitate the defense against or recovery from nuclear, biological, chemical, or radiological attack against the United States. Unless one of these circumstances exists, the special emergency authorities in FAR Part 18 shall not be used.”
  
  
• 6.6, We know we will need more acquisition people to carry out our agency’s responsibilities under the Recovery Act. How do we meet this need?: “Once you’ve determined your workforce needs, determine if there are agency resources that can be reallocated. If there are immediate, temporary needs that cannot be filled from within your agency, OFPP [Office of Federal Procurement Policy] and the Federal Acquisition Institute can assist in identifying human capital and other resources. Assistance could be in a variety of forms, such as interagency collaboration, details, or teaming.” If an agency identifies a need for short-term supplemental acquisition personnel, it should consider rehiring federal retirees, utilizing the direct hire authority granted to civilian agencies to hire acquisition professionals, hiring veterans, and hiring persons with disabilities.

FEHBAR Rate Setting Process Clarified

The Office of Personnel Management (OPM) has amended paragraph (b) of Federal Employees Health Benefits Program Acquisition Regulation (FEHBAR) 1652.216-70, Accounting and Price Adjustment, to clarify the rate setting process for community rated carriers with respect to Similarly Sized Subscriber Groups (SSSG), and remove the ban on adjustments based on rate reconciliation for the final year of Federal Employees Health Benefits Program (FEHBP) contracts. Because information technology and electronic transmission and storage of data now make it possible to efficiently perform rate reconciliation for the final contract year, OPM will begin conducting such rate reconciliation on community rated contracts that terminate after January 1, 2009.

One FEHBP carrier submitted comments on the proposed rule, and a minor editorial change was made. For more on the proposed rule, see the October 2008 Federal Contracts Perspective article “FEHBAR Would Clarify Rate Setting Process.”

Termination of Nonmanufacturer Rule Waiver Proposed

The Small Business Administration (SBA) is proposing to terminate a waiver of the nonmanufacturer rule for warehouse trucks and tractors, self-propelled, under North American Industry Classification System (NAICS) code 333319, product service code (PSC) 3930, based on SBA’s recent discovery of small business manufacturers for items within this class of product. SBA granted the waiver for PSC 3930 on September 13, 1990.

Terminating this waiver will require recipients of contracts set aside for small businesses, service-disabled veteran-owned small businesses, or participants in SBA’s 8(a) Business Development Program to provide the products of small business manufacturers or processors on such contracts.

SBA is inviting the public to comment on this proposed waiver termination by February 27, 2009, to Edith G. Butler, Program Analyst, Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

The SBA regulation on the nonmanufacturer rule is in Title 13 of the Code of Federal Regulations (CFR), Business and Credit Administration; Part 121, Small Business Size Standards; under paragraph (b) of 121.406, How Does a Small Business Concern Qualify to Provide Manufactured Products Under Small Business Set-Aside or MED [Minority Enterprise Development] Procurements? The SBA regulation on the waiver of the nonmanufacturer rule is 13 CFR 121.1202, When Will a Waiver of the Nonmanufacturer Rule Be Granted for a Class of Products?

A complete list of products for which the nonmanufacturer rule has been waived is available at http://www.sba.gov/idc/groups/public/documents/sba_program_office/gcbd_ non_mfg_approved.pdf.

DOD Suspends SDB Evaluation Adjustment One More Year

To comply with Section 801 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261), which prohibits the Department of Defense (DOD) from granting to small disadvantaged businesses (SDBs) a 10% price evaluation adjustment in certain acquisitions for a one-year period when it achieves the 5% goal for contract awards to SDBs, DOD is suspending the 10% SDB price evaluation adjustment from March 13, 2009, to March 12, 2010, because it exceeded the 5% SDB goal in Fiscal Year 2008. For more on the SDB price evaluation adjustment, see FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns.

EDITOR'S NOTE: DOD’s 10% evaluation adjustment for SDBs was found to be unconstitutional by the United States Court of Appeals for the Federal Circuit (see the January 2009 Federal Contracts Perspective article “Court Strikes Down DOD’S Small and Disadvantaged Business Contract Goal”). The DOD memorandum announcing the suspension states, “On November 4, 2008, in the case of Rothe Development Corp. v. Dept. of Defense, the U.S. Court of Appeals for the Federal Circuit found 10 United States Code (U.S.C.) §2323 unconstitutional. The appellate court returned the case to the U.S. District Court for the Western District of Texas with orders to enter judgment. The scope of the District Court’s final decision, expected in the near future, will affect the future viability of section 2323. Additional guidance will be provided at that time.” Section 801 of Public Law 105-261 amended 10 U.S.C. §2323.

Obama Issues Four Labor-Related Executive Orders

President Obama got off to a quick start tackling federal acquisition by issuing four executive orders addressing labor issues within the first two weeks of office – three of which overturned executive orders issued by President George W. Bush, which had overturned President Clinton executive orders.

• Executive Order 13494, Economy in Government Contracting: The president ordered that agencies “shall treat as unallowable the costs of any activities undertaken to persuade employees – whether employees of the recipient of the federal disbursements or of any other entity – to exercise or not to exercise, or concerning the manner of exercising, the right to organize and bargain collectively through representatives of the employees’ own choosing. Such unallowable costs shall be excluded from any billing, claim, proposal, or disbursement applicable to any such federal government contract.” It goes on to identify the following as examples of costs that are unallowable: “(a) preparing and distributing materials; (b) hiring or consulting legal counsel or consultants; (c) holding meetings (including paying the salaries of the attendees at meetings held for this purpose); and (d) planning or conducting activities by managers, supervisors, or union representatives during work hours.” The FAR is to be amended to implement this executive order within 150 days of the executive order’s effective date (that is, by June 29, 2009).
  
  
• Executive Order 13495, Nondisplacement of Qualified Workers Under Service Contracts: The president enunciated policy that “service contracts and solicitations for such contracts shall include a clause that requires the contractor, and its subcontractors, under a contract that succeeds a contract for performance of the same or similar services at the same location, to offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of the award of the successor contract, a right of first refusal of employment under the contract in positions for which they are qualified. There shall be no employment openings under the contract until such right of first refusal has been provided.” The executive order prescribes the text of the clause that must be included in all service contracts and solicitations exceeding the simplified acquisition threshold ($100,000), “Nondisplacement of Qualified Workers.” However, “if the head of a contracting department or agency finds that the application of any of the requirements of this order would not serve the purposes of this order or would impair the ability of the federal government to procure services on an economical and efficient basis, the head of such department or agency may exempt its department or agency from the requirements of any or all of the provisions of this order with respect to a particular contract, subcontract, or purchase order or any class of contracts, subcontracts, or purchase orders.”
  
  Any contractor or subcontractor that fails to comply with this clause or commits willful violations, along with its responsible officers and any firm in which the contractor or subcontractor has a substantial interest, shall be debarred for up to three years, but only after the contractor or subcontractor has been afforded an opportunity for a hearing.
  
  The FAR is to be amended to implement this executive order within 180 days of the executive order’s effective date (that is, by July 29, 2009).
  
  NOTE: This executive order rescinds President George W. Bush’s Executive Order 13204, Revocation of Executive Order on Nondisplacement of Qualified Workers Under Certain Contracts, which in turn rescinded President Clinton’s Executive Order 12933, which directed federal agencies to include in public building maintenance contracts a clause that requires successor contractors to give their predecessors’ employees the right of first refusal to employment openings under the new contract. So we've gone full circle, and then some, since Executive Order 13495 applies to all service contracts, not just public building maintenance contracts. For more on Executive Order 13204, see the March 2001 Federal Contracts Perspective article “Bush Issues Three Acquisition-Related Orders Involving Labor Issues in FAR Part 22.”
  
  
• Executive Order 13496, Notification of Employee Rights Under Federal Labor Laws: This executive order directs that a clause be included in all contracts exceeding the simplified acquisition threshold ($100,000), and all subcontracts of such contracts, that requires the contractor (or subcontractor) “to post a notice, of such size and in such form, and containing such content as the Secretary of Labor shall prescribe, in conspicuous places in and about its plants and offices where employees covered by the National Labor Relations Act engage in activities relating to the performance of the contract...” The National Labor Relations Act gives workers the right to organize and bargain collectively.
  
  Contractors or subcontractors that fail to post the notice, do not comply with the provisions of the notice, or do not comply with related rules may have their contracts cancelled, terminated, or suspended in whole or in part, and be declared ineligible for further government contracts.
  
  NOTE: This executive order rescinds President George W. Bush’s Executive Order 13201, Notification of Employee Rights Concerning Payment of Union Dues or Fees, which rescinded President Clinton’s Executive Order 12836, which rescinded President George H. W. Bush’s Executive Order 12800, which required contractors and subcontractors to post notices alerting nonunion employees that they cannot be forced to pay fees to unions to support activities not related to collective bargaining, such as contributions to support political candidates. Again, around we go – this time twice around! For more on Executive Order 13201, see the March 2001 Federal Contracts Perspective article “Bush Issues Three Acquisition-Related Orders Involving Labor Issues in FAR Part 22.”
  
  
• Executive Order 13502, Use of Project Labor Agreements for Federal Construction Projects: This executive order permits (and does not require) agencies, when awarding any contract in connection with a large-scale construction project (that is, $25 million or more), to “require that every contractor or subcontractor on the project agree, for that project, to negotiate or become a party to a project labor agreement with one or more appropriate labor organizations.” This decision is to be made on a project-by-project basis.
  
  A “project labor agreement” is defined as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.” A project labor agreement “(a) binds all contractors and subcontractors on the construction project...(b) allows all contractors and subcontractors to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements; (c) contains guarantees against strikes, lockouts, and similar job disruptions; (d) sets forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the project labor agreement; (e) provides other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health; and (f) fully conforms to all statutes, regulations, and executive orders.”
  
  The FAR is to be amended to implement this executive order within 120 days of the executive order’s effective date (that is, by June 5, 2009).
  
  NOTE: This executive order rescinds President George W. Bush’s Executive Order 13202, Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects, which rescinded the part of President Clinton’s Executive Order 12836 that rescinded President George H. W. Bush’s Executive Order 12818, which prohibited the government from using any contract provisions that required bidders to enter into agreements with labor unions that required employees to join a union or pay union dues. For more on Executive Order 13202, see the March 2001 Federal Contracts Perspective article “Bush Issues Three Acquisition-Related Orders Involving Labor Issues in FAR Part 22.”
  
  Executive Order 13502 also rescinds President George W. Bush’s Executive Order 13208, which amended Executive Order 13202 to permit the head of an agency to exempt a project from the provisions of Executive Order 13202 if one or more of the project’s construction contracts were awarded prior to the issuance of Executive Order 13202 and were subject to a project labor agreement. For more on Executive Order 13208, see the May 2001 Federal Contracts Perspective article “Existing Project Labor Agreements ‘Grandfathered’.”

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