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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


January 2012
Vol. XIII, No. 1

CONTENTS


Procurement Thresholds Adjusted for Trade Agreements Acts
CAS Applicability Threshold Change Finalized
FIPS 161 Proposed for Removal from FAR
New AGAR Clause on Labor Law Violations
Prompt Payment Interest Rate Set at 2%
President Directs Energy Savings Projects
CAS 412 and 413 Harmonized with Pension Protection Act
DOE Proposes Legal Management Requirements
Use Purchase Cards for Small Business Awards



Procurement Thresholds Adjusted for
Trade Agreements Acts

The United States Trade Representative (USTR) has adjusted the procurement thresholds for implementation of the World Trade Organization Agreement on Government Procurement and the various free trade agreements to compensate for changes in the value of the dollar since the last time the thresholds were adjusted in 2010. These revised thresholds are effective for calendar years 2012 and 2013.

Half of the thresholds are reduced by the USTR, reflecting the diminished value of the dollar against other foreign currencies over the past two years.

The following are the revised thresholds (see Federal Acquisition Regulation (FAR) Subpart 25.4, Trade Agreements) (with the previous thresholds in parentheses):

For more on the previous adjustments made by the USTR in 2010, see the January 2010 Federal Contracts Perspective article “Thresholds for Trade Agreements Adjusted.”



CAS Applicability Threshold Change Finalized

The Cost Accounting Standards Board (CASB) is finalizing, without change, the interim rule that revised the threshold for the applicability of Cost Accounting Standards (CAS) from “$650,000” to “the Truth in Negotiations Act (TINA) threshold, as adjusted for inflation.” The change was made because the CAS applicability threshold is statutorily tied to the TINA threshold, which was changed to $700,000 about a year ago as required by Section 807 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) (“on October 1 of each year that is evenly divisible by five, the Federal Acquisition Regulatory Council shall adjust each acquisition-related dollar threshold provided by law...to the baseline constant dollar value of that threshold”) (for more on the most recent five-year threshold adjustment, see the September 2010 Federal Contracts Perspective article “Federal Acquisition-Related Thresholds Adjusted for Inflation”). This change obviates the need to revise the CAS regulations to reflect the new TINA threshold every time the TINA threshold is adjusted (that is, every five years).

Two respondents submitted comments on the interim rule, but the CASB decided not to make any changes to the final rule. For more on the interim rule, see the August 2011 Federal Contracts Perspective article “CAS Applicability Threshold Changed to Reflect TINA.”



FIPS 161 Proposed for Removal from FAR

A proposed rule would remove from the FAR all references to Federal Information Processing Standard (FIPS) 161, Electronic Data Interchange (EDI) (http://www.itl.nist.gov/fipspubs/fip161-2.htm), because the Secretary of Commerce determined that it was obsolete and had not been updated to adopt current voluntary industry standards, federal specifications, federal data standards, or current good practices for information security.

The withdrawal of FIPS 161 has made portions of FAR 53.105, Computer Generation [of forms], obsolete. Therefore, this proposed rule would remove paragraph (a)(1), which states that agencies may computer-generate the forms in FAR Part 53, Forms, provided “the form is in an electronic format that complies with Federal Information Processing Standard Number 161...”, and would revise paragraph (b) (which would be redesignated as paragraph (a)(2)) to clarify that the American National Standards Institute (ANSI) X12 series of standards on Electronic Data Interchange (EDI) are the valid standards to use for computer-generated forms.

In addition to clarifying that FIPS 161 is no longer in use, public comments are invited to identify other voluntary industry standards, federal specifications, federal data standards, or current good practices for the computer generation of forms.

Comments on this proposed rule must be submitted no later than February 21, 2012, identified as “FAR Case 2011-022,” 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), ATTN: Hada Flowers, 1275 First Street, NE, 7th Floor, Washington, DC 20417.



New AGAR Clause on Labor Law Violations

The U.S. Department of Agriculture (USDA) is adding a new clause to the Agriculture Acquisition Regulation (AGAR), AGAR 452.222-7001, Labor Law Violations, to ensure USDA contractors and subcontractors comply with all applicable labor laws. The clause is to be included in all USDA contracts exceeding the simplified acquisition threshold ($150,000).

The text of the clause is as follows:

     “In accepting this contract award, the contractor certifies that it is in compliance with all applicable labor laws and that, to the best of its knowledge, its subcontractors of any tier, and suppliers, are also in compliance with all applicable labor laws. The Department of Agriculture will vigorously pursue corrective action against the contractor and/or any tier subcontractor (or supplier) in the event of a violation of labor law made in the provision of supplies and/or services under this or any other government contract. The contractor is responsible for promptly reporting to the contracting officer when formal allegations or formal findings of non-compliance of labor laws are determined. The Department of Agriculture considers certification under this clause to be a certification for purposes of the False Claims Act. The Department will cooperate as appropriate regarding labor laws applicable to the contract which are enforced by other agencies.”

This is a “direct final rule” that will go into effect on February 29, 2012. Comments on the rule are being solicited, and “if any timely significant adverse comments are received, this final rule will be withdrawn in part or in whole by publication of a document in the Federal Register within 30 days after the comment period ends.”

Comments on this direct final rule must be submitted no later than January 30, 2012, identified as “48 CFR 422 Direct Final Rule,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email to: Procurement@usda.gov; (3) mail to: Office of Procurement and Property Management, Procurement Policy Division, MAIL STOP 9306, U.S. Department of Agriculture, 1400 Independence Avenue SW, Washington, DC 20250-9303; or (4) by hand delivery/courier to: Room 262, Reporters’ Building, 300 7th Street SW, Washington, DC.



Prompt Payment Interest Rate Set at 2%

The Treasury Department has established 2% (2.0%) as the interest rate for the computation of payments made between January 1, 2012, and June 30, 2012, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (July 1, 2011, through December 31, 2011) was 2 1/2% (2.5%). The interest rate for January 1, 2011, through June 30, 2011, was 2 5/8% (2.625%).

All prompt payment interest rates since 1980 (in six-month increments) are available at http://www.treasurydirect.gov/govt/rates/tcir/tcir_opdprmt2.htm.

FAR Subpart 32.9, Prompt Payment; FAR Subpart 33.2, Disputes and Appeals; FAR 31.205-10, Cost of Money; and Cost Accounting Standard (CAS) 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, are affected by this interest rate.



President Directs Energy Savings Projects

On December 2, President Obama issued a memorandum to all department and agency heads to “evaluate their facilities, identify potential savings, and appropriately leverage both private and public sector funding to invest in comprehensive energy conservation projects that cut energy costs.”

Agencies are to do this by implementing “energy conservation measures (ECMs) in federal buildings with a payback time of less than 10 years, consistent with real property and capital improvement plans. Agencies shall prioritize ECMs with the greatest return on investment, leveraging both direct appropriations and performance contracting...the federal government shall enter into a minimum of $2 billion in performance-based contracts in federal building energy efficiency within 24 months from the date of this memorandum...agencies are encouraged to enter into installation-wide and portfolio-wide performance contracts and undertake comprehensive projects that include short-term and long-term ECMs, consistent with government-wide small business contracting policies.”

The president defines a “performance-based contract” as “a contract that identifies expected deliverables, performance measures, or outcomes, and makes payment contingent on their successful achievement. Performance-based contracts also use appropriate techniques, which may include consequences or incentives to ensure that the agreed-upon value to the agency is received.” Performance-based contracts are addressed in FAR Subpart 37.6, Performance-Based Acquisition.



CAS 412 and 413 Harmonized with Pension Protection Act

The Cost Accounting Standards Board (CASB) has issued a rule harmonizing Cost Accounting Standard (CAS) 412, Cost Accounting Standard for Composition and Measurement of Pension Cost, and CAS 413, Adjustment and Allocation of Pension Cost, with the Pension Protection Act of 2006 (Public Law 109-280) (PPA). This rule recognizes a “minimum actuarial liability” and “minimum normal cost,” which are measured on a basis consistent with the liability measurement used to determine the PPA minimum required contribution, and accelerate the recognition of actuarial gains and losses. (NOTE: The CAS are in Chapter 99 of Title 48 of the Code of Federal Regulations, Part 9904. CAS 412 is 9904.412, and CAS 413 is 9904.413.)

The PPA amended the minimum funding requirements and tax-deductibility of pension plans under the Employee Retirement Income Security Act of 1974 (ERISA). The PPA required the CASB to revise CAS 412 and CAS 413 to harmonize with the amended ERISA minimum required contribution.

Basic conceptual differences exist between the CAS and the PPA. The PPA utilizes a settlement or liquidation approach to value pension plan assets and liabilities, including the use of accrued benefit obligations and interest rates based on current corporate bond rates. CAS 412 and CAS 413 utilized the going concern approach to plan asset and liability valuation – they assume the company (or, in this case, the pension plan) will continue in business, and follow accrual accounting principles that incorporate assumptions about future years of employees’ service and salary increases that are absent from the settlement approach.

The primary harmonization provisions are consolidated within the “CAS Pension Harmonization Rule” in paragraph (b)(7) of 9904.412-50, Techniques for Application. This consolidation eliminates the need to revise many long-standing provisions of CAS 412 and clearly identifies the special accounting practices required for harmonization.

The following are other changes made by this rule:



DOE Proposes Legal Management Requirements

The Department of Energy (DOE) is proposing to revise the DOE Acquisition Regulation (DEAR) to provide rules for handling of legal matters and associated costs by certain contractors with contracts exceeding $100,000,000.

DOE’s high dollar contracts generally provide, at least in part, for reimbursement of costs. Legal costs, including the cost of litigation, are allowable under such cost-reimbursement arrangements if they are reasonable and incurred in accordance with the applicable cost principles and contract clauses. Consequently, DOE monitors, supervises, and controls the legal costs that it reimburses.

This proposed rule would consolidate requirements related to initiation and notification of litigation in Title 10 of the Code of Federal Regulations (CFR), Part 719, Contractor Legal Management Requirements, Subpart D, Requests From Contractor To Initiate, Defend and Settle Legal Matters. Corresponding revisions to the DEAR to clarify and streamline existing requirements, improve efficiency of contractor legal management, and facilitate oversight over the expenditure of taxpayer dollars would be as follows:

Comments on this proposed rule must be submitted no later than February 27, 2012, identified as “RIN 1990-AA37,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email to: DOE.719comments@hq.doe.gov; (3) mail to: Lisa Pinder, Administrative Assistant, U.S. Department of Energy, Office of General Counsel, GC-60, 1000 Independence Ave. SW, Washington, DC 20585; or (4) by hand delivery/courier to: Lisa Pinder, Administrative Assistant, U.S. Department of Energy, GC-60, 1000 Independence Ave. SW, Washington, DC, 20585.



Use Purchase Cards for Small Business Awards

Office of Federal Procurement Policy (OFPP) administrator Daniel Gordon and Office of Management and Budget (OMB) controller Danny Werfel have issued a memorandum to all chief acquisition officers and chief financial officers reminding them of “the importance of considering small businesses when buying goods and services at or below the micro-purchase threshold [$3,000]. Although these low-dollar purchases are not subject to small business set-aside requirements...this memorandum serves as a reminder that agency purchase cardholders should consider small businesses, to the maximum extent practicable, when making micro-purchases.”

The majority of the 260,000 purchase cards in circulation are in the hands of front-line personnel so they can effectively and efficiently support mission delivery. Paragraph (b) of FAR 13.201, General [actions at or below the micro-purchase threshold], states, “The governmentwide commercial purchase card shall be the preferred method to purchase and to pay for micro-purchases.” This preference is because the purchase card gives front-line personnel the means to acquire relatively low-dollar goods and services quickly while reducing administrative processing costs and creating efficiency in the procurement process.

“Agencies already buy a significant amount of products and services from small businesses using purchase cards...In fiscal year 2010, according to commercial industry data, agencies used the General Services Administration’s (GSA) SmartPay® purchase cards to transact approximately $6 billion with small businesses at or below the micro-purchase threshold. This level of spending represents approximately 30% of the total annual government purchase card spend.” To increase the spend rate above 30%, Section 1332 of the Small Business Jobs Act of 2010 (Public Law 111-240) requires OMB to issue guidelines on increasing small business participation when using the purchase card below the micro-purchase threshold. Accordingly, OMB is directing agencies to “update their purchase cardholder training to include appropriate consideration of small businesses and provide appropriate direction to the purchase cardholders at the next practical opportunity...”



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