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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


November 2010
Vol. XI, No. 11

CONTENTS


SBA Establishes Women-Owned Small Business Contracting Program
SBA Increases Size Standards in 69 Industries
Eight More Biobased Products Designated
GTSI Suspended, Reinstated
The DFARS Continues to Metamorphose
Foreign Exemption to CAS Proposed for Removal



SBA Establishes Women-Owned Small Business
Contracting Program

Eleven years after enactment of the Small Business Reauthorization Act of 2000 (Public Law 106-554), the Small Business Administration (SBA) finally implemented Section 811, Procurement Program for Women-Owned Small Business Concerns, which authorized contracting officers to restrict competition to eligible women-owned small businesses (WOSBs). The SBA’s WOSB contracting program permits contracting officers to set-aside acquisitions in 83 industries for exclusive participation by WOSBs and “economically disadvantaged WOSBs” (EDWOSBs). This program will help agencies attain the governmentwide 5% WOSB contracting goal, a goal the government has not been able to achieve.

It took SBA six years to propose a WOSB program, but the program would have restricted the program to four industries in which SBA considered WOSBs to be underrepresented with regard to federal procurement: North American Industry Classification System (NAICS) codes 3328, Coating, Engraving, Heat Treating, and Allied Activities; 3371, Household and Institutional Furniture and Kitchen Cabinet Manufacturing; 4412, Other Motor Vehicle Dealers; and 9281, National Security and International Affairs. In addition, an agency would have had to determine that it had taken part in discrimination against women in those four industries before it could set aside an acquisition for WOSBs.

This did not go over very well with the public – there were 1,720 comments, and 1,591 of those comments recommended that the proposed rule be withdrawn because they believed women had suffered discrimination in more than those four industries, and the majority of those against the proposed rule felt that agencies were not about to declare that they had discriminated against women.

The rule was subsequently revised to increase the number of industries covered by the WOSB program to 32, but the revised rule retained the requirement for agencies to make a determination that they had engaged in discrimination against women. SBA received 38 comments on the revised rule, and it decided to expand the number of covered industries to 83 and delete the requirement for agencies to execute discrimination determinations. This proposal received 998 comments, but almost all of them supported the changes, commended the SBA for its efforts, and urged the SBA to expeditiously promulgate final regulations since WOSBs have been waiting eleven years for the program.

Now, SBA has finalized the WOSB program in Title 13 of the Code of Federal Regulations (CFR), Part 127, Women-Owned Small Business Federal Contract Assistance Procedures. The regulations go into effect February 4, 2011.

The following are the key provisions of 13 CFR Part 127:

To aid small businesses interested in learning about the WOSB program, including eligibility requirements, federal contracting opportunities, and how the program works in general, SBA has issued the “Small Entity Compliance Guide to the WOSB Program.”

To follow the history of the SBA’s WOSB program development, see the July 2006 Federal Contracts Perspective article “SBA Proposes Women-Owned Small Business Program”; the January 2008 Federal Contracts Perspective article “SBA Proposes Set-Aside Program for Women-Owned Small Businesses”; the November 2008 Federal Contracts Perspective article “Women-Owned Business Assistance Program Instituted”; and the April 2010 Federal Contracts Perspective article “SBA Reproposes Women-Owned Small Business Program.”



SBA Increases Size Standards in 69 Industries

The SBA is increasing 46 small business size standards for industries in North American Industry Classification System (NAICS) Sector 44-45, Retail Trade; five industries in NAICS Sector 72, Accommodation and Food Services; and 18 industries in NAICS Sector 81, Other Services. These actions are taken as part of its ongoing initiative to review all size standards.

The following are the previous and revised size standards (in millions of dollars):

Sectors 44-45, Retail TradePrevious      Revised
                 
441210, Recreational Vehicle Dealers7.030.0
441221, Motorcycle, ATV, and Personal Watercraft Dealers7.030.0
441222, Boat Dealers7.030.0
441229, Aircraft Dealers, Retail10.025.5
441310, Automotive Parts and Accessories Stores7.014.0
441320, Tire Dealers7.014.0
442110, Furniture Stores7.019.0
442299, All Other Home Furnishings Stores7.019.0
443111, Household Appliance Stores9.010.0
443112, Radio, Television and Other Electronics Stores9.025.5
443120, Computer and Software Stores9.025.5
443130, Camera and Photographic Supplies Stores7.019.0
444110, Home Centers7.035.5
444120, Paint and Wallpaper Stores7.025.5
444190, Other Building Material Dealers7.019.0
444220, Nursery and Garden Centers7.010.0
445110, Supermarkets and Other Grocery (except Convenience) Stores27.030.0
446110, Pharmacies and Drug Stores7.025.5
446120, Cosmetics, Beauty Supplies and Perfume Stores7.025.5
446130, Optical Goods Stores7.019.0
446191, Food (Health) Supplement Stores7.014.0
447190, Other Gasoline Stations9.014.0
448110, Men’s Clothing Stores9.010.0
448120, Women’s Clothing Stores9.025.5
448130, Children’s and Infants’ Clothing Stores7.030.0
448140, Family Clothing Stores9.035.5
448150, Clothing Accessories Stores7.014.0
448190, Other Clothing Stores7.019.0
448210, Shoe Stores9.025.5
448310, Jewelry Stores7.014.0
448320, Luggage and Leather Goods Stores7.025.5
451110, Sporting Goods Stores7.014.0
451120, Hobby, Toy and Game Stores7.025.5
451130, Sewing, Needlework and Piece Goods Stores7.025.5
451140, Musical Instrument and Supplies Stores7.010.0
451211, Book Stores7.025.5
451220, Prerecorded Tape, Compact Disc and Record Stores7.030.0
452111, Department Stores (except Discount Department Stores)27.030.0
452990, All Other General Merchandise Stores11.030.0
453210, Office Supplies and Stationery Stores7.030.0
453910, Pet and Pet Supplies Stores7.019.0
453930, Manufactured (Mobile) Home Dealers13.014.0
454111, Electronic Shopping25.030.0
454112, Electronic Auctions25.035.5
454113, Mail Order Houses25.035.5
454210, Vending Machine Operators7.010.0
                 
Sector 72, Accommodation and Food ServicesPrevious      Revised
                 
721110, Hotels (except Casino Hotels) and Motels7.030.0
721120, Casino Hotels7.030.0
722211, Limited Service Restaurants7.010.0
722212, Cafeterias7.025.5
722310, Food Service Contractors20.535.5
                 
Sector 81, Other ServicesPrevious      Revised
                 
811122, Automotive Glass Replacement Shops7.010.0
811213, Communication Equipment Repair and Maintenance7.010.0
811219, Other Electronic and Precision Equipment Repair and Maintenance7.019.0
811412, Appliance Repair and Maintenance7.014.0
812191, Diet and Weight Reducing Centers7.019.0
812220, Cemeteries and Crematories7.019.0
812320, Dry-cleaning and Laundry Services (except Coin-Operated)4.55.0
812331, Linen Supply14.030.0
812332, Industrial Launderers14.035.5
812921, Photo Finishing Laboratories (except One-Hour)7.019.0
812922, One-Hour Photo Finishing7.014.0
812930, Parking Lots and Garages7.035.5
813211, Grantmaking Foundations7.030.0
813212, Voluntary Health Organizations7.025.5
813219, Other Grant Making and Giving Services7.035.5
813311, Human Rights Organizations7.025.5
813312, Environment, Conservation and Wildlife Organizations7.014.0
813920, Professional Organizations7.014.0

In addition, the size standard for NAICS 441110, New Car Dealers, is changed from $29.0 million to 200 employees because the high values and sale prices of new cars make a receipts-based size standard impractical and inappropriate for new car dealers.

Fourteen respondents submitted comments on the proposed changes to these NAICS sectors. In response to the comments, the New Car Dealers size standard was changed from the proposed $30.0 million to 200 employees; NAICS 441221, Motorcycle, ATV, and Personal Watercraft Dealers, was changed from the proposed $14.0 million to $30.0 million; and NAICS 41222, Boat Dealers, was changed from the proposed $14.0 million to $30.0 million.

Along with the proposed size standard changes, SBA published its “Size Standards Methodology” and asked for comments. No comments were submitted on the methodology.

For more on the proposed changes, see the November 2009 Federal Contracts Perspective article “SBA Proposes Small Business Size Standard Increases.”



Eight More Biobased Products Designated

The United States Department of Agriculture (USDA) is adding eight sections to Title 7 of the Code of Federal Regulations (CFR), Part 2902, Guidelines for Designating Biobased Products for Federal Procurement (7 CFR Part 2902), to add eight more biobased products to be given preference in federal procurements as provided under Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA), and to specify the minimum level of biobased content to be contained in the procured products.

The following are the new designated items and their Title 7 section numbers:

2902.52, Disposable tableware
2902.53, Expanded polystyrene foam recycling products
2902.54, Heat transfer fluids
2902.55, Ink removers and cleaners
2902.56, Mulch and compost materials
2902.57, Multipurpose lubricants
2902.59, Topical pain relief products
2902.60, Turbine drip oils

The USDA proposed adding nine items to the biobased program (see the March 2010 Federal Contracts Perspective article “USDA Proposes Another Nine Biobased Items”), and five respondents submitted comments. In response to several technical and policy issues raised by the respondents regarding office paper that need to be considered and resolved, USDA has withdrawn office paper from this rule. In addition, USDA has clarified the definition of disposable tableware by adding the italicized words: “products made from, or coated with, plastic resins and used in dining, such as drink ware and dishware, including but not limited to cups, plates, bowls, and serving platters, and that are designed for one-time use. This item does not include disposable cutlery, which is a separate item.”

As a general rule, procuring agencies must purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless products within a designated item: (1) are not reasonably available within a reasonable period of time; (2) fail to meet the reasonable performance standards of the procuring agencies; or (3) are available only at an unreasonable price. The $10,000 threshold applies to federal agencies as a whole and not to agency subgroups such as regional offices or subagencies of the larger federal department or agency.

For more information on the biobased program and all the products in the program, go to http://www.biopreferred.gov/. Also see the February 2005 Federal Contracts Perspective article “USDA Publishes Biobased Products Guidelines”; the August 2005 Federal Contracts Perspective article "Agriculture Proposes Six Biobased Items"; the April 2006 Federal Contracts Perspective article “USDA Designates Six Biobased Products for Procurement”; the September 2006 Federal Contracts Perspective article “USDA Proposes 20 More Biobased Products”; the November 2006 Federal Contracts Perspective article “10 More Biobased Items Proposed”; the June 2008 Federal Contracts Perspective article “USDA Adds 27 Items to Biobased Products List, Exempts DOD and NASA from Requirements”; the November 2008 Federal Contracts Perspective article "Nine More Biobased Items Proposed"; and the November 2009 Federal Contracts Perspective article “USDA Adds Nine More Biobased Items.”



GTSI Suspended, Reinstated

GTSI Corporation, a large systems integrator and information technology (IT) services provider, was suspended on October 1 by the Small Business Administration (SBA) from government contracting for using “fronts” to obtain government contracts reserved for small businesses. Three weeks later, it was reinstated after agreeing to the dismissal of its chief executive officer, general counsel, and the suspension of three other employees; agreeing to cooperate with ongoing investigations; and implementing corrective actions.

GTSI’s problems involve the Department of Homeland Security’s (DHS) FirstSource indefinite-delivery/indefinite-quantity (IDIQ) contracts for IT hardware, software, and associated services. FirstSource is reserved for small businesses. One of the clauses in the contract, FAR 52.219-14, Limitations on Subcontracting, states, “By submission of an offer and execution of a contract, the offeror/contractor agrees that in performance of the contract in the case of a contract for: (1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern; [and] (2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.”

GTSI was a subcontractor for two FirstSource prime contractors. However, those two contractors had “little or no involvement in the performance of the contracts, in direct contravention of applicable laws and regulations regarding the award of small business contracts. The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors, and with contracts not being performed in accordance with applicable law, regulations, and contract terms.”

In addition, SBA claimed that “(a) GTSI represented itself as a prime contractor to third parties; (b) employees of GTSI obtained email addresses from the prime contractor, so that employees of GTSI could appear to be employees of the prime contractor while conducting business with the government; (c) GTSI prepared proposals and sent quotes to the government as if it were the prime responding to bid requests sent to the prime contractor; and (d) GTSI created invoices and placed the letterhead of the prime contractor on the invoice before submitting it to the government, so the invoice would appear to have been created by the prime contractor rather than by GTSI.” In response to these actions, SBA suspended GTSI indefinitely from receiving contracts in accordance with FAR Subpart 9.4, Debarment, Suspension, and Ineligibility.

Then, on October 19, SBA lifted its suspension of GTSI, with conditions:

EDITOR’S NOTE: This might be a precursor to a widespread crackdown on large businesses that use small businesses as fronts to obtain government contracts – a practice that is allegedly widespread throughout the federal small business contracting program.



The DFARS Continues to Metamorphose

The Department of Defense (DOD) continued to issue rules revising the Defense FAR Supplement (DFARS) and the overall DOD acquisition process – seven rules and one DFARS deviation during the month of October. In addition, DOD proposed one more change to the DFARS.



Foreign Exemption to CAS Proposed for Removal

The Cost Accounting Standards Board (CASB) is seeking comments on its notice of proposed rule (NPR) to eliminate the exemption from the Cost Accounting Standards (CAS) for contracts executed and performed entirely outside the United States, its territories, and possessions.

The exemption is in paragraph (b)(14) of Title 48 of the Code of Federal Regulations (CFR), Section 9903.201-1, CAS Applicability (the “(b)(14) overseas exemption”). The (b)(14) overseas exemption has been in effect since 1973.

On September 13, 2005, the CASB issued a staff discussion paper inviting comments regarding whether the (b)(14) overseas exemption should be revised or eliminated (see the October 2005 Federal Contracts Perspective article “Should CAS Apply to Non-U.S. Contracts?”). The CASB received three sets of comments in response to the staff discussion paper, and none supported the revision or elimination of the exemption. The CASB agreed that the exemption should not be deleted or revised, and decided to discontinue its review of the exemption (see the March 2008 Federal Contracts Perspective article “CAS Board Invites Comments on Home Office Expenses”).

However, Section 823 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Public Law 110-417) required the CASB to: (1) review the applicability of CAS to contracts and subcontracts which would be subject to CAS but for the fact that they are executed and performed entirely outside the United States; and (2) determine whether the government would benefit from the application of CAS to such contracts and subcontracts. In response, the CASB solicited comments and information on whether the (b)(14) overseas exemption should be retained, eliminated, or revised (see the May 2009 Federal Contracts Perspective article “Should Foreign Contracts Be Exempt from CAS?”). The CASB also solicited comments directly from three federal government organizations with a significant volume of contracts performed outside the United States – the DOD, the Department of State (DOS), and the United States Agency for International Development (USAID).

The CASB received comments from seven respondents and from the three government organizations. As a result of the comments, the CASB has concluded that the (b)(14) overseas exemption should be eliminated because: (1) there is no accounting basis for the (b)(14) overseas exemption – the place of contract execution and performance is not germane to the fundamental principles and methods used to account for the costs of contract performance; and (2) the volume of affected contractors and subcontractors to be relatively small.

The CASB is inviting interested parties to “identify, comment and provide information on any issues that they believe are important to the subject. This might include comment on whether there is a need to strengthen the CAS clauses to address the prime contractor’s oversight responsibility for ensuring its subcontractors are compliant with CAS where it is applicable.”

Comments on this NPR must be submitted no later than December 20, 2010, identified as “(b)(14) Overseas Exemption NPR,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) e-mail: casb2@omb.eop.gov; (3) fax: 202-395-5105; or (4) mail: Office of Federal Procurement Policy, ATTN: Raymond J.M. Wong, 725 17th Street, NW, Room 9013, Washington, DC 20503.



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