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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


June 2009
Vol. X, No. 6

CONTENTS


Defense Weapons Systems Acquisition Process to be Reformed by New Statute
GSAR Rewrite Picking Up Momentum
Two Changes to FAR Proposed
DOE Revises DEAR Security Clause
Executive Compensation Benchmark Raised to $684,181
Several Waivers of the Nonmanufacturer Rule Granted
False Claims Act Coverage Expanded



Defense Weapons Systems Acquisition
Process to be Reformed by New Statute

On May 22, at a ceremony in the Rose Garden, President Barack Obama signed Public Law 111-23, the Weapons Systems Acquisition Reform Act of 2009. “I reject the notion that we have to waste billions of taxpayer dollars to keep this nation secure. When it comes to purchasing weapons systems and developing defense projects, the choice we face is between investments that are designed to keep the American people safe and those that are simply designed to make a defense company or a contractor rich,” said the president prior to signing the legislation. “The bill I'm signing today...reforms a system where taxpayers are charged too much for weapons systems that too often arrive late – a system that suffers from spending on unproven technologies, outdated weapons, and a general lack of oversight.”

President Obama said the purpose of the law is to “limit cost overruns before they spiral out of control. It will strengthen oversight and accountability by appointing officials who will be charged with closely monitoring the weapons systems we’re purchasing to ensure that costs are controlled. If the cost of certain defense projects continue to grow year after year, those projects will be closely reviewed, and if they don’t provide the value we need, they will be terminated. This law will also enhance competition and end conflicts of interest in the weapons acquisitions process so that American taxpayers and the American military can get the best weapons at the lowest cost.”

Title I, of the act, Acquisition Organization, establishes several new positions:

In addition, the Secretary of Defense is to designate a senior official responsible for conducting and overseeing performance assessments and “root cause analyses” for major defense acquisition programs. A “root cause analysis” is defined as “an assessment of the underlying cause or causes of shortcomings in cost, schedule, or performance of the program, including the role, if any, of (1) unrealistic performance expectations; (2) unrealistic baseline estimates for cost or schedule; (3) immature technologies or excessive manufacturing or integration risk; (4) unanticipated design, engineering, manufacturing, or technology integration issues arising during program performance; (5) changes in procurement quantities; (6) inadequate program funding or funding instability; (7) poor performance by government or contractor personnel responsible for program management; or (8) any other matters.”

Title II, Acquisition Policy, makes the following changes to DOD's acquisition processes:



GSAR Rewrite Picking Up Momentum

The General Services Administration (GSA) issued five final rewritten GSA Acquisition Regulation (GSAR) parts, and proposed another during May.



Two Changes to FAR Proposed

During May, two proposed rules to amend the FAR were published:



DOE Revises DEAR Security Clause

The Department of Energy (DOE) is amending DOE Acquisition Regulation (DEAR) 952.204-2, Security (formerly “Security Requirements”) to require contractors and subcontractors to conduct a background review of any uncleared applicant or employee who will require access to DOE classified information or special nuclear material, and to test the individual for illegal drugs. The contractor or subcontractor must evaluate the individual based on its own processes and consistent with applicable law, and then send specific information to the cognizant local DOE security office.

The proposed rule would have required the contractor or subcontractor to conduct background checks that included the collection and review of items such as credit and local law enforcement checks, and contacts with personal references and certain past employers. Then it required contractors to assess the “job qualifications and suitability” of uncleared applicants and employees before assigning them to positions requiring an access authorization, and before requesting that DOE process the individual for an access authorization. A contractor or subcontractor would have to determine the applicant’s or employee’s “suitability” by assessing the possible impact of “adverse information” found in the background and other checks and deciding whether it is “confident” that the individual would pass the rigorous background investigation conducted by DOE. A contractor’s assessment of the information would be guided by the criteria in 10 CFR 710.8, Criteria [for Determining Eligibility for Access to Classified Matter or Special Nuclear Material].

Three organizations submitted comments: two DOE national laboratories and one aircraft manufacturer. After considering the comments, DOE decided to finalize the rule with several revisions, including to DEAR 952.204-2(h)(2) to eliminate the requirement that a contractor consider the criteria in 10 CFR 710.8 in determining whether to select an individual for a position requiring an access authorization. In particular, the requirement that a contractor determine an applicant's “suitability”' for an access authorization has been removed. Rather, the contractor or subcontractor must conduct a background review of such individuals prior to selection, evaluate the individual based on its own processes and consistent with applicable law, and then send the following information to DOE: date the review was conducted; each entity that provided information concerning the individual; a certification that the review was conducted in accordance with all applicable laws, regulations, and executive orders; a certification that all information collected during the review was reviewed and evaluated in accordance with the contractor’s personnel policies; and the results of the test for illegal drugs.

In addition, DEAR 904.404, Solicitation Provision and Contract Clause, which specifies the security clauses to be used in DOE contracts, is revised to to add a requirement in paragraph (d)(1) that DEAR 952.204-2 is required to be included in any contract that will involve contractor employees’ access to special nuclear material. This change reflects past DOE practice and is being added to make the instruction clear and complete.

For more on the proposed rule, see the March 2008 Federal Contracts Perspective article “DOE Proposes Revising DEAR Security Clause.”



Executive Compensation Benchmark Raised to $684,181

Leslie Field, the Office of Federal Procurement Policy (OFPP) acting administrator, has decided to increase the “benchmark compensation amount” for senior executives by $71,985, from $612,196 to $684,181 – an 11.8% increase. This figure is “the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year...” It was determined based on commercially available surveys made available by the Securities and Exchange Commission and after consultation with the director of the Defense Contract Audit Agency.

The $684,181 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for “the five most highly compensated employees in management positions at each home office and each segment of the contractor.” However, the benchmark compensation amount is not a limit on the compensation an executive may receive – $684,181 is the maximum allowable amount the government will reimburse contractors for their senior executives’ compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2009, for contractor fiscal year 2009 and subsequent contractor fiscal years unless and until revised by the Office of Management and Budget (OMB), which is required to set the benchmark compensation amount annually. (OFPP is part of OMB.)

Questions concerning this may be addressed to Raymond Wong, OFPP, at 202-395-6805.



Several Waivers of the Nonmanufacturer Rule Granted

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for the following industries: conductor and cable (aluminum), North American Industry Classification System (NAICS) code 331319, product service code (PSC) 6145; conductor and control cable (copper), NAICS code 331422, PSC 6145; truck trailer manufacturing, NAICS code 336212, PSC 2330; all-terrain vehicles (ATVs), wheeled or tracked, manufacturing; snowmobiles and parts; off-road all terrain vehicles (ATVs); wheeled or tracked manufacturing, NAICS code 336999, PSC 2330; and noncurrent-carrying wiring device manufacturing – dead end tees and connectors, guy strain and link assemblies, bolts, washers, turnbuckles, twisted clips, steel angle assemblies, yoke plates, compression T connectors, press dies, anchor shackles, and clevis ball and clevis sockets, yoke plates and grounding clamps, NAICS code 335932, PSC 5975.

SBA invited the public to comment on these proposed waivers or to provide information on potential small business sources for these products. No comments were submitted in response to the proposed waivers, so the waivers are granted. For more on the proposed nonmanufacturer rule waivers for these industries, see the April 2009 Federal Contracts Perspective article “Several Nonmanufacturer Rule Waivers Proposed.”

EDITOR'S NOTE: Public Law 100-656, enacted November 15, 1988, requires those with federal contracts that are set-aside for small businesses or awarded through the 8(a) program to provide the product of a small business manufacturer or processor if the recipient is not the actual manufacturer or processor (see paragraph (f) of FAR 19.102, Size Standards). This is called the “nonmanufacturer rule.” However, SBA may waive this requirement if there are no small business manufacturers or processors.

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/class_waiver.pdf.



False Claims Act Coverage Expanded

On May 20, 2009, President signed into law the Fraud Enforcement and Recovery Act of 2009 (Public Law 111-21), to improve enforcement of mortgage fraud, securities and commodities fraud, financial institution fraud, and other frauds related to federal assistance and relief programs, and for the recovery of funds lost to these frauds.

Though the act is primarily concerned with mortgage and securities fraud, Section 4 of the act affects all government contractors in that it expands liability under the False Claims Act for making false or fraudulent claims to the federal government, and makes a person liable under the False Claims Act for presenting a false or fraudulent claim for payment or approval (liability under the False Claims Act had been limited to claims presented to an officer or employee of the federal government). Also, it requires persons who violate the False Claims Act to reimburse the federal government for the costs of a civil action to recover penalties or damages.



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