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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


August 2010
Vol. XI, No. 8

CONTENTS


Contractors to Report Executive Compensation and Subcontract Awards
Trade Agreements Thresholds Increased
More Guidance and Regulatory Changes from DOD
Nonmanufacturer Rule Waived for Tape Library Storage
OMB Orders Immediate Review of IT Projects
DOE Proposes More Updates to DEAR
Two New Laws Will Affect Contractors



Contractors to Report Executive Compensation
and Subcontract Awards

To empower the American taxpayer with information that may be used to demand greater fiscal discipline from both executive and legislative branches of government, the Federal Acquisition Circular (FAC) 2005-44 amends Federal Acquisition Regulation (FAR) Subpart 4.14, Reporting Executive Compensation and First-Tier Subcontract Award, to require prime contractors to report information on their first-tier subcontract awards of $25,000 or more, the names and total compensation of each of its five most highly compensated executives, and to report similar information on its subcontractors. This applies to contracts and orders that are $25,000 or more, including those for commercial items, and to all businesses regardless of business size or ownership – large, small, small disadvantaged, veteran-owned, women-owned, HUBZone, etc. It does not apply to classified contracts or contracts with individuals.

The Federal Funding Accountability and Transparency Act (Public Law 109-282), enacted to reduce “wasteful and unnecessary spending,” required the Office of Management and Budget (OMB) to establish a free, public, website containing full disclosure of all federal award information for awards of $25,000 or more (see the October 2006 Federal Contracts Perspective article “Federal Awards Website Approved”). The Transparency Act’s initial phase was conducted as a pilot program to test the collection and accessibility of the subcontract data. The pilot program was implemented by FAC 2005-20, which added FAR Subpart 4.14, and required the reporting of certain subcontractor information to the Electronic Subcontract Reporting System (http://www.esrs.gov). To minimize the burden on federal prime contractors and small businesses, the pilot program applied to contracts greater than $500,000,000, and required the contractors to report information on all subcontract awards exceeding $1,000,000 (see the October 2007 Federal Contracts Perspective article “Pilot Program Requires Subcontract Reporting”). Exempted from the pilot program were solicitations and contracts for commercial items and classified solicitations and contracts. The pilot program expired on January 1, 2009.

While the pilot program was being conducted, Congress passed the Government Funding Transparency Act of 2008 (Public Law 110-252). Section 6202 of the Government Funding Transparency Act amended the Transparency Act to require contractors and subcontractors to disclose information on the names and total compensation of their five most highly compensated officers (see the July 2008 Federal Contracts Perspective article “Acquisition-Related Legislation Enacted”). FAC 2005-44 implements the Government Funding Transparency Act.

The revised FAR Subpart 4.14 requires that the revised FAR 52.204-10, Reporting Executive Compensation and First-Tier Subcontract Awards, be included in all solicitations and resultant contracts of $25,000 or more issued on or after the effective date of this interim rule (July 8, 2010) except those that are classified or are with individuals. Contracting officers are required to modify existing indefinite-delivery indefinite-quantity (IDIQ) contracts on a bilateral basis so the clause applies to future orders. This includes modifying blanket purchase agreements under Federal Supply Schedule contracts and task- and delivery-order contracts such as governmentwide acquisition contracts (GWACs).

FAR 52.204-10 contains the following requirements:

In addition, paragraph (a) of FAR 4.1402, Procedures, states, “Agencies shall review contractor reports on a quarterly basis to ensure the information is consistent with contract information. The agency is not required to address data for which the agency would not normally have supporting information, such as the compensation information required of contractors and first-tier subcontractors. However, the agency shall inform the contractor of any inconsistencies with the contract information and require that the contractor correct the report, or provide a reasonable explanation as to why it believes the information is correct.”

Finally, FAR 4.1402(c) states, “If the contractor fails to comply with the reporting requirements, the contracting officer shall exercise appropriate contractual remedies. In addition, the contracting officer shall make the contractor’s failure to comply with the reporting requirements a part of the contractor’s performance information under [FAR] Subpart 42.15 [Contractor Performance Information].”

Comments on the interim rule must be submitted no later than September 7, 2010, identified as “FAC 2005-44, FAR Case 2008-039,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (MVCB), 1800 F Street, NW, Room 4041, ATTN: Hada Flowers, Washington, DC 20405.

Trade Agreements Thresholds Increased

FAC 2005-43 implements the new, increased thresholds for the application of various trade agreements to adjust for inflation over the past two years. In addition, FAC 2005-43 amends the FAR regarding government property, the Registry of Disaster Response Contractors, American Recovery and Reinvestment Act of 2009 (Recovery Act) subcontract reporting procedures, and to clarify the criteria for sole source awards to service-disabled veteran-owned small business concerns.



More Guidance and Regulatory Changes from DOD

The Department of Defense (DOD) was busy once again during July, issuing three interim rules and requesting comments, and issuing a memorandum on revised posting and reporting requirements for the Recovery Act.



Nonmanufacturer Rule Waived for Tape Library Storage

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for configured tape library storage equipment under the North American Industry Classification System (NAICS) code 334112, Computer Storage Device Manufacturing, Product Service Code (PSC) 7025, Automated Data Processing (ADP) Input/Output and Storage Devices, PSC 7035, ADP Support Equipment, and PSC 7045, ADP Supplies. SBA invited the public to comment on this proposed waiver or to provide information on potential small business sources for these products. No comments were submitted in response to the proposed waiver, so the waiver is granted. For more on the proposed waiver, see the July 2010 Federal Contracts Perspective article “Nonmanufacturer Rule Waived for LPG.”

In addition, the SBA is proposing class waivers of the nonmanufacturer rule for (1) liquid chromatography mass spectrometry systems (CS-MS), high performance liquid chromatography (HPLC) systems, gas chromatography mass spectrometry (GC-MS) systems, and inductively coupled plasma mass spectrometry (ICP-MS) systems under NAICS code 334516, Analytical Laboratory Instrument Manufacturing, PSC 6640, Laboratory Equipment and Supplies; and (2) herbicides, insecticides, and fungicides, under NAICS code 325320, Pesticides and Other Agricultural Chemical Manufacturing, PSC 6840, Pest Control Agents and Disinfectants. SBA is inviting the public to comment on these proposed waivers or to provide information on potential small business sources for these products by July 16, 2010, for the proposed spectrometry systems nonmanufacturer rule waiver, and July 29, 2010, for the proposed herbicides, insecticides, and fungicides nonmanufacturer rule waiver, to Amy Garcia, Procurement 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 Section 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.



OMB Orders Immediate Review of IT Projects

The Office of Management and Budget (OMB) Federal Chief Information Officer (CIO), Vivek Kundra, has notified all agencies that “Federal information technology (IT) projects too often cost more than they should, take longer than necessary to deploy, and deliver solutions that do not meet our business needs…We [OMB] are undertaking detailed reviews of the highest risk IT projects across the federal government to address these systemic problems. In order to justify future funding for these projects, agencies will need to demonstrate that project risks can be reduced to acceptable levels through actions such as setting proper project scope, defining clear deliverables and mission-oriented outcomes, and putting in place a strong governance structure with explicit executive sponsorship. Projects which do not meet these criteria will not be continued.”

OMB’s review process will consist of three steps:

  1. Identify Agency High-Risk IT Projects: “The Federal CIO will select, collaboratively with agency CIOs, the high-risk IT projects across the federal government. Using the IT Dashboard and other sources of information, agency CIOs shall describe the risk profile of the largest, most complex IT projects. Risk factors would include: significant cost or schedule variance from the current baseline; performance targets or mission objectives have not been met; frequent re-baselines; or lack of essential executive sponsorship/leadership.”

    The High-Risk IT Investment Analysis review schedule is as follows:


    The list of high-risk projects will be finalized by August 23. It is anticipated that 25 to 30 projects will be selected across the federal government.

  2. Develop Improvement Plans: “Agencies shall submit a proposed improvement plan for each high-risk project. Agencies shall submit proposed improvement plans to OMB no later than 30 days after their high-risk projects are identified. While formal improvement plans are only required for these projects, agency CIOs are accountable for the performance of the entire IT portfolio, not limited to just the high-risk projects. Therefore, similar improvement plans should be applied to other high-risk projects in an agency’s entire IT portfolio.

    “Agency proposed improvement plans should be based on thorough analysis of the projects’ issues and risks. Plans should be comprehensive, risk-adjusted, and reviewed through appropriate agency governance bodies. The plan may incorporate short and long term solutions that may extend through Budget Year 2012. If the agency CIO does not have high confidence in the probability of success of the investment, the agency CIO should recommend that the project be materially altered or terminated."

    Kundra’s memorandum states that proposed improvement plans should include:

    1. Major challenges and causes of variance from the project baseline;

    2. A summary of risks, mitigation strategies, and clear accountability;

    3. Stronger contractor performance metrics and controls for existing contracts, and revised acquisition strategies for contracts expected to be executed within the next fiscal year that address the issues raised in the improvement plan;

    4. A high-level schedule that articulates critical path items;

    5. Agencies should describe how the project’s governance will be more rigorous because of the improvement plan. Agencies should also describe how they will improve both contract and program management oversight internally to ensure better performance; and

    6. The specific corrective actions to turn around the project.

  3. Present Improvement Plans: The proposed improvement plans for the selected high-risk projects will be reviewed in sessions led by the Federal CIO. These sessions will be conducted between September and November. At the session, the agency will brief OMB on the improvement plans, revised schedules, and potential changes to budget requests. The sessions will be used to inform OMB decisions on FY 2012 budget requests and potential FY 2011 apportionments, and will provide feedback and recommendations to agencies concerning project scope, management and oversight.


DOE Proposes More Updates to DEAR

Last month, the Department of Energy (DOE) issued two proposed rules to revise several parts of the DOE Acquisition Regulation (DEAR) (see the July 2010 Federal Contracts Perspective article "DOE Proposes to Update DEAR"). This month, DOE is proposing to update the DEAR to conform to the FAR, the Federal Property Management Regulation, and the Federal Management Regulation; remove out-of-date coverage; and update references. According to DOE, “none of these changes are substantive or of a nature to cause any significant expense for DOE or its contractors.”

The DEAR parts that would be affected by this proposed rule are:

Comments on the proposed changes must be submitted no later than August 2, 2010, identified as “DEAR: Subchapters A, B and C and RIN 1991-AB81,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: DEARrulemaking@hq.doe.gov; or (3) mail: U.S. Department of Energy, Office of Procurement and Assistance Management, MA-611, 1000 Independence Avenue, SW, Washington, DC 20585.



Two New Laws Will Affect Contractors

President Obama has signed two pieces of legislation that will affect how the government conducts business with contractors, and how much information about federal contractors will be available for public scrutiny.



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