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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


April 2009
Vol. X, No. 4

CONTENTS


Obama Directs More Fixed-Price Contracts and Fewer Sole Source Contracts
FAC 2005-32 Implements Recovery Act
FAC 2005-31 Finalizes Size Rerepresentation Rule
GAO Seeks Help in Fighting Recovery Act Waste, Fraud
Omnibus Appropriations Act Addresses Insourcing
DOD Ordered to Cease Giving Preference to SDBs
Labor Rescinds Regs on Notification of Employees
Approved Nonmanufacturer Rule Waivers to be Reviewed
One Nonmanufacturer Rule Waiver Terminated
Several Nonmanufacturer Rule Waivers Proposed
One Rewritten GSAR Part Finalized, Another Proposed
DOE Issues Rule Promoting Energy-Efficient Products
DHS Proposes Prohibiting Guard Services by Felons



Obama Directs More Fixed-Price Contracts
and Fewer Sole Source Contracts

On March 4, President Obama issued a memorandum to the heads of departments and agencies decrying the “significant increase in the dollars awarded without full and open competition and increase in the dollars obligated through cost-reimbursement contracts” in the past eight years, and directing the Office of Management and Budget (OMB) to develop and issue guidance by September 30, 2009, to “maximize the use of full and open competition and other competitive procurement processes” and “govern the appropriate use and oversight of all contract types...”

While acknowledging that spending contracts has more than doubled since 2001, reaching over $500 billion in 2008, the President noted “dollars obligated under cost-reimbursement contracts nearly doubled, from $71 billion in 2000 to $135 billion in 2008.” Cost-reimbursement contracts and sole-source contracts create "a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the needs of the federal government or the interests of the American taxpayer.” He goes on to state that “there shall be a preference for fixed-price type contracts.”

Besides calling for restraint on sole-source and cost-reimbursement contracts, the President targeted the outsourcing of services under OMB Circular A-76, Performance of Commercial Activities. “The line between inherently governmental activities that should not be outsourced and commercial activities that may be subject to private sector competition has been blurred and inadequately defined. As a result, contractors may be performing inherently governmental functions. Agencies and departments must operate under clear rules prescribing when outsourcing is and is not appropriate...[T]he federal government must ensure that those functions that are inherently governmental in nature are performed by executive agencies and are not outsourced.”

To rectify the situation, President Obama has directed OMB, the Department of Defense (DOD), the National Aeronautics and Space Administration (NASA), the General Services Administration (GSA), the Office of Personnel Management (OPM), and any other agencies selected by OMB to develop and issue, by July 1, 2009, guidance to assist agencies in reviewing existing contracts to identify those contracts “that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. Such corrective action may include modifying or canceling such contracts...”

Finally, the President has directed OMB, DOD, NASA, GSA, OPM, and other agencies selected by OMB, with input from the public, to develop and issue, by September 30, 2009, governmentwide guidance to:



FAC 2005-32 Implements Recovery Act

Less than six weeks after President Obama signed into law the $787 billion American Recovery and Reinvestment Act of 2009 (Recovery Act) (Public Law 111-5), Federal Acquisition Circular (FAC) 2005-32 added five interim rules amending the Federal Acquisition Regulation (FAR) to implement provisions of the act, and one complementary rule that applies to non-Recovery Act contract actions. All six rules are effective March 31, 2009, and all solicitations issued, and contracts awarded, on or after March 31, 2009, regardless of dollar amount, are subject to the rules. This includes contracts and subcontracts for commercial items and commercial off-the-shelf items. (EDITOR'S NOTE: For more on the Recovery Act, see the March 2009 Federal Contracts Perspective article “$787 Billion Stimulus Package Passed, Spending To Be ‘Transparent and Accountable’”).



FAC 2005-31 Finalizes Size Rerepresentation Rule

FAC 2005-31 is one of those collection of housekeeping rules that gets issued every once in a while. It consists of five rules that probably won't matter to most federal contractors, but they could be very important to those contractors affected by them.



GAO Seeks Help in Fighting Recovery Act Waste, Fraud

The Government Accounting Office (GAO) is urging private citizens, government workers, contractors, and others to assist in fighting waste, fraud, abuse, or mismanagement of Recovery Act funds by reporting to FraudNet. FraudNet is available at http://www.gao.gov/fraudnet/fraudnet.htm; by calling 1-800-424-5454 (an automated answering system); by sending an e-mail to fraudnet@gao.gov; by sending a fax to 202-512-3086; or by writing to GAO FraudNet, 441 G Street, NW, Mail Stop 4T21, Washington, DC 20548.

“Congress and the President have insisted on accountability and transparency over Recovery Act funds, and we at GAO are taking steps to help ensure that accountability. The public can help to identify improper activities or weaknesses in programs that warrant scrutiny. FraudNET can play an important role in alerting GAO, potentially early on, to questionable uses of Recovery Act funds,” said Gene L. Dodaro, Acting Comptroller General of the United States and head of the GAO.

Evidence or suspicions of abuse may be provided anonymously and GAO treats all inquiries confidentially. Internet information is transmitted over a secure connection. Tipsters are asked to provide as much detail as possible about their allegations. GAO may refer allegations for follow-up to its own investigative units, appropriate inspector general offices, or to the Justice Department. Past reports of alleged mismanagement and wrongdoing have covered topics as varied as the misappropriation of funds, security violations, and contractor fraud.



Omnibus Appropriations Act Addresses Insourcing

Public Law 111-8, the Omnibus Appropriations Act of 2009, which provided $410 billion to fund most civilian agencies through the rest of fiscal year 2009, contains three provisions that address federal contracting issues:



DOD Ordered to Cease Giving Preference to SDBs

Upon receiving the final decision from the U.S. District Court for the Western District of Texas in the case Rothe Development Corporation v. Department of Defense and Department of the Air Force, the Department of Defense (DOD) Under Secretary for Acquisition, Technology and Logistics (AT&L) John Young, Jr. directed that any action that relies “exclusively on the authority of 10 U.S.C. §2323 should cease” as of February 26, 2009, the date of the District Court’s final decision.

DOD was authorized to give small disadvantaged businesses (SDBs) a 10% evaluation preference by 10 U.S.C. §2323. However, this provision was found to be unconstitutional by the United States Court of Appeals for the Federal Circuit, which returned the case to the District Court with orders to enter judgment. The District Court ordered that the application of 10 U.S.C. §2323 cease, and the Under Secretary issued the memo directing immediate cessation.

For more information on the Rothe Development case, see the January 2009 Federal Contracts Perspective article “Court Strikes Down DOD’s Small and Disadvantaged Business Contract Goal,” and the March 2009 Federal Contracts Perspective article “DOD Suspends SDB Evaluation Adjustment One More Year.”



Labor Rescinds Regs on Notification of Employees

To comply with President Obama’s Executive Order 13296, Notification of Employee Rights Under Federal Labor Laws, which rescinded President Bush’s Executive Order 13201, the Department of Labor (DOL) has rescinded Title 29 of the Code of Federal Regulations, Part 470, Obligations of Federal Contractors and Subcontractors; Notice of Employee Rights Concerning Payment of Union Dues or Fees. Executive Order 13201, and the implementing 29 CFR Part 470, 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. However, because Executive Order 13296 rescinded Executive Order 13201, DOL no longer had authority to enforce those regulations, so DOL has removed those regulations.

Besides rescinding Executive Order 13201, Executive Order 13296 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.

For more on Executive Order 13296, see the March 2009 Federal Contracts Perspective article “Obama Issues Four Labor-Related Executive Orders.” 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.”



Approved Nonmanufacturer Rule Waivers to be Reviewed

The Small Business Administration (SBA) is conducting a periodic review of approved class waivers from the Nonmanufacturer Rule for products in effect as of March 17, 2009, to determine if there are any small business manufacturers or processors for the products on the list of approved class waivers. Nonmanufacturer waivers are granted when no small business manufacturers are supplying the classes of products to the government. When a nonmanufacturer waiver is granted, small businesses dealers are allowed to supply the products of any manufacturer on a federal contract set aside for small businesses, service-disabled veteran-owned small businesses or participants in SBA’s 8(a) program.

A list of products on SBA’s List of Approved Class Waivers is included in the March 26, 2009, Federal Register notice at http://edocket.access.gpo.gov/2009/pdf/E9-6741.pdf.

Comments and source information must be submitted by April 27, 2009, to Edith G. Butler, Program Analyst, by telephone at 202-619–0422; by FAX at 202-481–1788; or my e-mail at Edith.Butler@sba.gov.



One Nonmanufacturer Rule Waiver Terminated

The SBA is terminating 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.

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

For more on the proposal to terminate the waiver, see the March 2009 Federal Contracts Perspective article “Termination of Nonmanufacturer Rule Waiver Proposed.”



Several Nonmanufacturer Rule Waivers Proposed

On the other hand, the SBA is proposing to waive the nonmanufacturer rules for the following industries:

SBA is inviting the public to comment on these proposed waivers by March 24, 2009, to Edith G. Butler, Program Analyst, Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.



One Rewritten GSAR Part Finalized, Another Proposed

The General Services Administration (GSA) continues its GSA Acquisition Regulation (GSAR) rewrite, finalizing GSAR Part 509, Contractor Qualifications, and proposing a rewritten GSAR Part 523, Environment, Conservation, Occupational Safety and Drug-Free Workplace.



DOE Issues Rule Promoting Energy-Efficient Products

The Department of Energy (DOE) has issued a final rule that establishes guidelines for compliance by federal agencies with the provisions of the Energy Policy Act of 2005 (Public Law 109-58), which added Section 553 to the National Energy Conservation Policy Act (NECPA). Section 553 requires federal agencies to procure ENERGY STAR qualified and Federal Energy Management Program (FEMP) designated products in procurements involving energy consuming products and systems. NECPA Section 553 authorizes the head of agency to invoke either of two exceptions to this requirement: (1) an ENERGY STAR qualified product or FEMP designated product is not cost-effective over the life of the product taking energy cost savings into account; or (2) no ENERGY STAR qualified product or FEMP designated product is reasonably available that meets the functional requirements of the agency.

The final rule amends Title 10 of the Code of Federal Regulations (CFR), Energy; Chapter 436, Federal Energy Management and Planning Programs, to add Subpart C, Agency Procurement of Energy Efficient Products, which consists of Sections 436.40, Purpose and Scope; 436.41, Definitions; 436.42, Evaluation of Life-Cycle Cost Effectiveness; and 436.43, Procurement Planning.

Thirteen respondents submitted comments on the proposed rule. The most significant difference between the proposed and final rules is the final rule does not include a requirement for each agency to report on its progress toward implementing the procurement requirements of Section 553 in its annual report on energy management to the president. The report would have been required to include: (1) the number of covered products excepted by the head of the agency; (2) the value of the excepted procurements; (3) a description of the products for which exceptions were granted; and (4) the reasons the exceptions were granted. However, after considering comments opposing the reporting requirement, “DOE recognizes that there are several existing reporting requirements through which DOE can obtain information on exceptions found under Section 533 of NECPA, without the need to establish a separate reporting requirement through regulation. Specifically, federal agencies are currently required to provide information for DOE's annual report on energy use and the Office of Federal Procurement Policy’s annual report on green purchasing requirements. DOE will coordinate with the Office of Management and Budget to incorporate information regarding the finding of exemptions under Section 533 of NECPA as part of the data collected for the these annual reports. By relying on existing reporting schemes, DOE avoids any potential redundancy in reporting requirements for Federal agencies. Therefore, DOE is not establishing a reporting requirement in today's final rule.”

For more on the proposed rule, see the July 2007 Federal Contracts Perspective article “DOE Proposes Regs for Energy Efficient Products.”



DHS Proposes Prohibiting Guard Services by Felons

The Department of Homeland Security (DHS) is proposing to amend its Homeland Security Acquisition Regulation (HSAR) to add HSAR 3009.171 and HSAR 3052.209-XX, both titled “Prohibition on Federal Protective Service [FPS] Guard Services Contracts with Business Concerns Owned, Controlled, or Operated by an Individual Convicted of a Felony,” to implement the Federal Protective Service Guard Contracting Reform Act of 2008 (Public Law 110-356).

The rule proposes that serious felonies that cast doubt on the integrity or business ethics of a business concern will disqualify a business from being awarded an FPS contract for guard services. HSAR 3009.171-5, Serious Felonies Prohibiting Award, provides the following as examples of serious felony convictions: fraud arising out of a contract with the federal, state or local government; bribery, graft or a conflict of interest; threatened or actual harm to a government official, family member or government property; crimes of violence; threat to national security; commercial bribery; counterfeiting, forgery, or trafficking in vehicles in vehicles the identification numbers of which have been altered; obstruction of justice, perjury or subornation of perjury, or bribery of a witness; felony for attempt to evade or defeat federal tax or felony for willful failure to collect or pay over federal tax.

HSAR 3052.209-XX(f) would require the offeror to disclose whether it is or is not a business concern owned, controlled, or operated by an individual convicted of a felony. If an offeror represents that it is owned, controlled, or operated by an individual convicted of a felony, it will need to submit an “award request” providing the basis for the request and details regarding the felony conviction (paragraph (d)). The information in the award request would include: the name and date of birth of the individual convicted of a felony; the age of the conviction, nature, and circumstances surrounding the conviction; protective measures taken by the individual or business concern to reduce or eliminate the risk of further misconduct, whether the individual has made full restitution for the felony; and whether the individual has accepted responsibility for past misconduct resulting in the felony conviction (paragraph (d)(4)). “If the contracting officer, in his or her sole discretion, is unable to affirmatively determine that the subject felony is not a serious felony as defined by this regulation, or that such individual no longer owns, controls or operates the business concern, the contracting officer shall deny the award request” (paragraph (d)(2)).

In addition, paragraph (h) of the clause would provide that, after award of an indefinite delivery/indefinite quantity (IDIQ) contract, blanket purchase agreement (BPA), or other contractual instrument that may result in the issuance of task orders, calls, or exercise of options to extend the term of the contract, the contractor must provide notice of a felony conviction of any person who owns, controls, or operates the business concern. The contracting officer would review the conviction and make a new determination of eligibility prior to the issuance of any task order, call, or exercise of any option.

Finally, paragraph (e) of HSAR 3009.171-6, Guidelines for Contracting Officers, would allow the contracting officer to review the basis for the award request and assess the risk associated with the felony conviction. The contracting officer could award a contract for guard services to a business concern owned, controlled, or operated by an individual convicted of a felony if the contracting officer determines “that the conviction of an otherwise serious felony is of such age, or committed under such circumstances, that the underlying felonious misconduct no longer calls into question the individual or business concern's integrity or business ethics, or that it is not inconsistent with the mission of the Federal Protective Service.” Prior to such an award, the contracting officer would have to obtain the approval of the Head of the Contracting Activity for U.S. Immigration and Customs Enforcement (ICE).

Comments on the proposed rule must be submitted no later than April 17, 2009, by either of the following means: (1) eRulemaking Portal: http://www.regulations.gov; or (2) by mail to: Department of Homeland Security, Office of the Chief Procurement Officer, Acquisition Policy and Legislation, ATTN: Gloria Sochon, 245 Murray Drive, Bldg. 410 (RDS) Washington, DC 20528. Identify comments as “DHS-2009-0017.”



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