Panoptic Enterprises’


Federal Acquisition Developments, Guidance, and Opinions

May 2012
Vol. XIII, No. 5


FAC 2005-58 Addresses Biobased Procurements, Exports to Iran, Sole Source 8(a) Contracts
GSA Leadership Removed for Extravagent Conference
Executive Compensation Set at $763,029
Mileage Reimbursement Set at 55.5¢/Mile for Autos
VA Proposes Electronic Payment Requests

FAC 2005-58 Addresses Biobased Procurements,
Exports to Iran, Sole Source 8(a) Contracts

Federal Acquisition Circular (FAC) 2005-58 is amending the Federal Acquisition Regulation (FAR) to finalize rules on reporting of biobased products, prohibiting the export of sensitive technology to the government of Iran, and prohibiting the award of a sole-source 8(a) contract over $20,000,000 without a written Justification and Approval (J&A).

GSA Leadership Removed for Extravagent Conference

The General Services Administration (GSA) experienced a massive management upheaval resulting from a Public Buildings Service (PBS) three-day conference for 300 GSA employees held at the M Resort in Las Vegas in October 2010 that cost $822,751 and violated many regulations.

On April 2, the GSA administrator, Martha Johnson, fired the head of the PBS, Robert Peck, and her adviser, Stephen Leeds, before resigning herself over the GSA Inspector General (IG) report on the PBS’ 2010 Western Regions Conference (WRC), which was issued the same day. In addition, four other high-ranking officials were placed on administrative leave.

The conference included a $75,000 contract to provide a bicycle-building project for team-building.

In her resignation letter, Johnson wrote: “The Agency [GSA] has made a significant mis-step. Reports of an internal conference in which taxpayer dollars were squandered led me to launch internal reviews, take disciplinary personnel action, and institute tough new controls to ensure this incident is not repeated. In addition, I feel I must step aside as Administrator so that the Agency can more forward at this time with a fresh leadership team.”

Among the IG’s findings were:

In response to the IG report and before resigning, Johnson took the following actions:

Dan Tangherlini, the Treasury’s assistant secretary for management, will temporarily replace Johnson as GSA administrator until a permanent replacement is nominated and confirmed by the Senate. Prior to his Treasury experience, he was Washington, DC’s city administrator and deputy mayor, and interim general manager of the Washington Metropolitan Area Transit Authority.

NOTE: One of the most troubling aspects of this misconduct is that GSA is responsible for establishing and operating the FAR Secretariat and promulgates the Federal Travel Regulation (FTR). GSA wrote the rules it broke, so GSA cannot use “ignorance” as an excuse!

Executive Compensation Set at $763,029

Lesley Field, the Office of Federal Procurement Policy (OFPP) acting administrator, has decided to increase the “benchmark compensation amount” for senior executives by $69,078, from $693,951 to $763,029 – an 10% increase from the previous amount set two years ago. This figure is “the median (50th percentile) amount of compensation over a recent 12-month period for the five most highly compensated employees in management positions at each home office and each segment of all publicly-owned companies with annual sales over $50 million...” It is 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 $763,029 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 – $763,029 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, 2011, for contractor fiscal year 2011 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.

NOTE: This executive compensation amount has been the subject of much debate, especially considering the scaling back of federal expenditures. In the memorandum that Fields sent to the heads of executive departments and agencies, she wrote the following:

                 This past fall, the administration proposed that Congress, starting with FY 2011, replace the existing statutory formula for calculating the cap on the amount that the federal government will reimburse federal contractors (both defense and civilian)…[T]he president’s plan proposed that Congress put in place a reimbursement cap that would be equal to the pay rate for the federal government’s most senior executives, who are the heads of the 15 cabinet departments and certain other high-level officials. These senior-most federal officials are paid at the rate set for positions at Level I of the Executive Schedule (5 U.S.C. 5312). During calendar year 2011, the pay for Level I positions was $199,700...”

      The president’s proposal was in response to the fact that the existing statutory formula (enacted in 1997) has resulted in the reimbursement cap tripling since the mid-1990s: whereas the reimbursement ceiling for 1995 was $250,000, the statutory formula has resulted in substantial annual increases in the subsequent years, so that by FY 2010 the reimbursement ceiling had reached $693,951. And, as this notice announces, the statutory formula has resulted in a reimbursement ceiling for FY 2011 of $763,029. This is an increase in just one year of nearly $70,000 – and of 10% – in the amount that the taxpayers can be required to reimburse federal contractors for the compensation that the contractors have decided to pay their executives. This rate of growth in the cap (both from 1995 onward, and in this most recent year) has far outpaced the rate of inflation, the rate of growth of private-sector salaries generally, and the rate of growth of federal salaries – forcing our taxpayers to reimburse contractors for levels of executive compensation that cannot be justified for federal contract work.

      This is the direct result of the fact that the statutory formula sets the reimbursement ceiling, and increases it from one year to the next, by reference to considerations that have no relationship to the type of work that contractors are actually performing under federal contracts that are cost-reimbursable or are otherwise cost-based. As noted above, the formula requires that the reimbursement ceiling be set, and adjusted annually, by reference to the amount that equals the following: the median (50th percentile) amount of compensation, over a recent 12-month period, that all publicly-owned companies with annual sales over $50 million have paid to their five most highly compensated employees in management positions at each home office and each segment. It is this formula, and not any comparable improvement in contractor performance (and the benefits that the taxpayers receive from these contracts), that has resulted in the one-year increase of $70,000 (10%) from FY 2010 to FY 2011, and the tripling from 1995 to FY 2011, in the amount that the taxpayers can be required to reimburse federal contractors for the compensation that the contractors have chosen to pay to their senior executives.

      By proposing to replace the existing statutory formula with a reimbursement cap that is tied to the salary of a cabinet official (such as the secretary of defense), the president’s plan would bring parity between the amount that the American public pays for the senior executives of the federal government and for the senior executives of those contractors who perform work for the federal government on a cost-reimbursable or other cost-based arrangement.

      To date, Congress has not adopted the administration’s proposal to replace the existing statutory formula for determining the reimbursement cap.

Mileage Reimbursement Set at 55.5¢/Mile for Autos

The General Services Administration (GSA) is increasing the mileage reimbursement rate for use of a privately owned automobile on official travel from 51¢ per mile to 55.5¢ per mile; the rate for use of a motorcycle on official travel from 48¢ per mile to 52.5¢ per mile; and the rate for use of a privately owned aircraft from $1.29 per mile to $1.31 per mile. These revised rates are effective for travel performed on or after April 12, 2012 (the date GSA Bulletin FTR [Federal Travel Regulation] 12-06 was published), through December 31, 2012.

By law, the automobile reimbursement rate cannot exceed the single standard mileage rate established by the Internal Revenue Service (IRS). The IRS announced a new mileage rate for automobiles of 55.5¢ per mile effective January 1, 2012, so GSA took action to increase the automobile reimbursement rate to match the IRS rate. (NOTE: The IRS and GSA do not necessarily have the same rate.)

GSA formerly published the privately owned vehicle mileage reimbursement rates in the Federal Travel Regulations (FTR). However, it no longer does that, but instead posts the reimbursement rates on the Internet at http://www.gsa.gov/ftr in an FTR Travel/Per Diem Bulletin.

VA Proposes Electronic Payment Requests

The Department of Veterans Affairs (VA) is proposing to amend the VA Acquisition Regulation (VAAR) to add VAAR Subpart 832.10, Electronic Invoicing Requirements, to require contractors to submit payment requests in electronic form. This would enhance customer service, departmental productivity, and facilitate adoption of innovative information technology, including the appropriate use of commercial best practices.

VA issued a class deviation to FAR 32.905, Payment Documentation and Process, which added interim electronic invoicing clause VAAR 852.273-76, Electronic Invoice Submission (see the August 2009 Federal Contracts Perspective article “VA to Encourage Electronic Submission of Invoices”). The clause states, “To improve the timeliness of payments and lower overall administrative costs, VA strongly encourages contractors to submit invoices using its electronic invoicing system. At present, electronic submission is voluntary and any nominal registration fees will be the responsibility of the contractor. VA intends to mandate electronic invoice submission, subject to completion of the federal rulemaking process.” The reason for the class deviation was that FAR 32.905 states that “payment will be based on receipt of a proper invoice and satisfactory contract performance.” The phrase “receipt of a proper invoice” has generally been interpreted to mean a paper invoice.

VA proposes to add VAAR Subpart 832.10 and VAAR 852.273-76, Electronic Submission of Payment Requests, to mandate electronic invoicing to improve the commercial vendor payment process. VAAR 832.1003-1, Data Transmission, and VAAR 852.273-76(c) would require contractors to “submit electronic payment requests through: (a) VA’s Electronic Invoice Presentment and Payment System (See website at http://www.fsc.va.gov/einvoice.asp); or, (b) a system that conforms to the X12 electronic data interchange (EDI) formats established by the Accredited Standards Center (ASC) chartered by the American National Standards Institute (ANSI).”

There would be five circumstances in which the contracting officer would be permitted to require contractors to submit payment requests by mail, through the United States Postal Service (see paragraph (b) of VAAR 832.1003, Electronic Payment Requests, and VAAR 852.273-76(e)):

Comments on this proposed rule must be submitted no later than June 18, 2012, identified as “RIN 2900-AN97–VA Acquisition Regulation: Electronic Submission of Payment Requests,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) by fax to 202 273-9026; or (3) by mail or hand-delivery to Director, Regulations Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW, Room 1068, Washington, DC 20420.

Copyright 2012 by Panoptic Enterprises. All Rights Reserved.

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