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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

June 2012
Vol. XIII, No. 6

CONTENTS

FAC 2005-59 Extends Rules on Inverted Domestic Corporations,
Revises CAS Threshold

Federal Acquisition Circular (FAC) 2005-59 contains three rules that amend the Federal Acquisition Regulation (FAR) to revise the threshold for the application of cost accounting standards, apply the rules that prohibit contracting with inverted domestic corporations to Fiscal Year (FY) 2012 funds, and implement the United States-Colombia Trade Promotion Agreement.

• Revision of Cost Accounting Standards (CAS) Threshold: This final rule revises the threshold for the application of the CAS from $650,000 to $700,000. This threshold increase, which is reflected in paragraph (b)(1) of FAR 30.201-4, Contract Clauses, and the corresponding CAS clauses (FAR 52.230-1, Cost Accounting Standards Notices and Certification; FAR 52.230-2, Cost Accounting Standards; FAR 52.230-3, Disclosure and Consistency of Cost Accounting Practices; FAR 52.230-4, Disclosure and Consistency of Cost Accounting Practices – Foreign Concerns; and FAR 52.230-5, Cost Accounting Standards – Educational Institution), implements a recent rule of the Cost Accounting Standards Board (CASB) and statutory requirements.
  
  The CAS applicability threshold is statutorily tied to the Truth in Negotiations Act (TINA) threshold, which was increased from $650,000 to $700,000 in 2010 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”). However, the CASB changed “$650,000” to “the Truth in Negotiations Act (TINA) threshold, as adjusted for inflation (41 U.S.C. 1908 [Inflation Adjustment of Acquisition-Related Dollar Thresholds] and 41 U.S.C. 1502(b)(1)(B) [Cost Accounting Standards])”, thus obviating 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). Nevertheless, the FAR cites the specific dollar value of the TINA threshold – “$700,000” – for improved clarity. Therefore, the FAR will be revised when the TINA threshold is adjusted every five years.
  
  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.” For more on the CASB’s revision of the CAS threshold, see the January 2012 Federal Contracts Perspective article “CAS Applicability Threshold Change Finalized.”
  
  
• Prohibition on Contracting with Inverted Domestic Corporations: This interim rule amends FAR 9.108, Prohibition on Contracting with Inverted Domestic Corporations, to implement Section 738 of Division C of the Consolidated Appropriations Act of 2012 (Public Law 112-74), which prohibits the use of FY 2012 appropriated funds for contracting with any foreign incorporated entity that is treated as an inverted domestic corporation, or with a subsidiary of such a corporation. Paragraph (a) of FAR 9.108-2, Prohibition, is revised to reflect this prohibition on the use of FY 2012 funds.
  
  An inverted domestic corporation is one that used to be incorporated in the United States but now is incorporated in a foreign country, or is a subsidiary whose parent corporation is incorporated in a foreign country (see the definition of “inverted domestic corporation” in FAR 9.108-1, Definitions).
  
  The same governmentwide prohibition was contained in the FY 2008, 2009, and 2010 appropriations acts, but not in the FY 2011 appropriations act. As in the FY 2008, 2009, and 2010 appropriations acts, the prohibition does not apply when using FY 2012 funds for a contract entered into before the date the funds were appropriated (which was December 23, 2011, the date the president signed the act – see FAR 9.108-2(b)(4)).
  
  Comments on this interim rule must be submitted no later than July 9, 2012, identified as “FAC 2005-59, FAR Case 2012-013,” 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.
  
  
• Implementation of the United States-Colombia Trade Promotion Agreement: This interim rule implements the United States-Colombia Trade Promotion Agreement, which is a free trade agreement that provides for mutually non-discriminatory treatment of eligible products and services from Colombia. The agreement is designated as the "Colombia Free Trade Agreement" (FTA) in the FAR.
  
  The thresholds for the application of the Columbia FTA are $77,494 for supplies and services, and $7,777,000 for construction (see paragraph (b) of FAR 25.402, General).
  
  This interim rule adds Colombia to the definition of “Free Trade Agreement country” in several locations in the FAR: FAR 25.003, Definitions; FAR 52.225-3, Buy American Act – Free Trade Agreements – Israeli Trade Act; FAR 52.225-5, Trade Agreements; FAR 52.225-11, Buy American Act – Construction Materials under Trade Agreements; and FAR 52.225-23, Required Use of American Iron, Steel, and Manufactured Goods – Buy American Act – Construction Materials Under Trade Agreements.
  
  Because the excluded services for the Colombia FTA are the same as for the Bahrain FTA, Dominican Republic-Central American FTA, Chile FTA, North American FTA (NAFTA), Oman FTA, and Peru FTA, the table that follows paragraph (b) of FAR 25.401, is amended to add “Columbia FTA” to the header of the column with these other FTAs.
  
  Comments on this interim rule must be submitted no later than July 9, 2012, identified as “FAC 2005-59, FAR Case 2012-012,” 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.
  
  For more on the recent adjustments of procurement thresholds for the various trade agreements acts, see the January 2012 Federal Contracts Perspective article “Procurement Thresholds Adjusted for Trade Agreements Acts.”

FAR Rule Would Address Nondisplacement of Workers

A proposed rule has been issued that would amend the FAR to implement Executive Order (EO) 13495, Nondisplacement of Qualified Workers Under Service Contracts, and the Department of Labor’s (DOL's) implementing regulations that require service contractors and their subcontractors under successor contracts to offer employees of the predecessor contractor and its subcontractors a right of first refusal of employment for positions for which they are qualified (see the March 2009 Federal Contracts Perspective article “Obama Issues Four Labor-Related Executive Orders” and the September 2011 Federal Contracts Perspective article “Displaced Service Workers Get Right of First Refusal”).

This proposed rule would add FAR Subpart 22.12, Nondisplacement of Qualified Workers Under Service Contracts, and new clause FAR 52.222-XX, Nondisplacement of Qualified Workers, to express the policy in EO 13495 that service contractors and their subcontractors under successor contracts must offer employees of the predecessor contractor and its subcontractors a right of first refusal of employment for positions for which they are qualified. The text of FAR 52.222-XX is included in Section 5 of EO 13495, and it is to be included “in solicitations for and service contracts that succeed contracts for performance of the same or similar work at the same location.”

Section 3 of the EO and proposed FAR 22.1203-2, Exemptions, exclude the following service contracts and subcontracts from coverage:

• Those under the simplified acquisition threshold ($150,000);
  
  
• Those through the AbilityOne Program under the rules of the Committee for Purchase From People Who Are Blind or Severely Disabled (41 United States Code [USC] Chapter 85);
  
  
• Guard, elevator operator, messenger, or custodial services provided by sheltered workshops employing the “severely handicapped” as described in 40 USC Section 593, Protection for Veterans Preference Employees;
  
  
• Vending facility agreements entered into under the Randolph-Sheppard Act (20 USC Section 107, Vending Facilities for Blind in Federal Buildings); and
  
  
• Employees who were hired to work under a federal service contract and one or more nonfederal service contracts as part of a single job, provided the employees were not deployed in a manner that was designed to avoid the purposes of EO 13495.

In addition, Section 4 of the EO and proposed FAR 22.1203-3, Waiver, provide the head of a contracting department or agency with the authority to waive the application of the EO to a contract, subcontract, or purchase order upon a determination that its application would impair the ability of the government to procure services on an economical and efficient basis or would not serve the purposes of the EO. When waiving any or all of the provisions of the EO, the agency shall notify the DOL of its waiver decision and provide the DOL a copy of its written analysis no later than five business days after the solicitation issuance date.

Comments on this proposed rule must be submitted no later than July 2, 2012, identified as “FAR Case 2011-028,” 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.

SBA Proposes Changes on Use of MACs

The Small Business Administration (SBA) is proposing to amend its regulations in Title 13 of the Code of Federal Regulations (CFR), Part 125, Government Contracting Programs (13 CFR Part 125), to increase consideration of small businesses in the establishment and use of multiple award contracts (MACs). These changes would implement Section 1331, Reservation of Prime Contract Awards for Small Businesses, of the Small Business Jobs Act of 2010 (Public Law 111-240) (for more on the provisions of Public Law 111-240, see the October 2010 Federal Contracts Perspective article “Parity Among Small Business Programs Mandated by Statute”). In addition, SBA is proposing to amend 13 CFR Part 121, Small Business Size Regulations, to explain how small business size standards are assigned to MACs and orders issued against them.

Federal agencies increasingly use MACs, including Federal Supply Schedule (FSS) contracts (see FAR Subpart 8.4, Federal Supply Schedules) and indefinite-delivery indefinite-quantity (IDIQ) contracts (see FAR Subpart 16.5, Indefinite-Delivery Contracts), to acquire a wide range of products and services. Section 1331 of Public Law 111-240 directed OFPP, SBA, and the General Services Administration (GSA) to issue regulations permitting federal agencies to “(1) set aside part or parts of a multiple award contract for small business concerns...; (2) notwithstanding the fair opportunity requirements...set aside orders placed against multiple award contracts for small business concerns...; and (3) reserve one or more contract awards for small business concerns under full and open multiple award procurements...” OFPP, SBA, and GSA requested that the FAR be amended to provide federal agencies with guidance they can use while SBA completes the drafting and coordination of a proposed rule that will provide more specific guidance, and FAC 2005-54 was issued (see the December 2011 Federal Contracts Perspective article “FAC 2005-54 Permits Small Business Set-Asides For Multiple-Award Contracts”). This proposed rule would provide that more specific guidance.

The following are the primary changes being proposed by SBA:

• Definitions of Terms and Identifying Corresponding Processes: Section 1331 covers three authorities: (i) partial set-asides; (ii) contract reserves; and (iii) order set-asides for small businesses. The proposed rule provides guidance on each of these authorities, defining key terms and laying out processes for each tool.
  
  
  • Partial Set-Asides. Proposed paragraph (n) of Section 125.1, What definitions are important to SBA’s Government Contracting Programs?, would define “partial set-aside for a multiple award contract” as “a contracting vehicle that can be used: when market research indicates that a total set-aside is not appropriate; the procurement can be broken up into smaller discrete portions or discrete categories such as by Contract Line Items, Special Item Numbers, Sectors or Functional Areas or other equivalent; and two or more small business concerns, 8(a) BD [business development] participants, HUBZone SBCs [small business concerns], SDVO [service-disabled veteran-owned] SBCs, WOSBs [women-owned small businesses] or EDWOSBs [economically disadvantaged WOSBs] are expected to submit an offer on the set-aside part or parts of the requirement at a fair market price.”
    
    Proposed paragraph (e)(3) of Section 125.2, What are SBA’s and the procuring agency’s responsibilities when providing contracting assistance to small businesses?, would allow small businesses to submit offers on the set-aside portion, non-set-aside portion, or both. This approach would replace the more cumbersome process described in FAR 19.502-3, Partial Set-Asides, in which small businesses must submit responsive offers on the non-set-aside portion of the acquisition to be considered for the set-aside portion. This partial set-aside process has proven to be unnecessarily complicated, which has resulted in its underutilization over time.
    
    
  • Contract Reserves. Section 125.2(e)(4) would allow the contracting officer to reserve a MAC established through full and open competition if the requirement cannot be broken into discrete components to support a partial set-aside and market research shows that either at least two small businesses could perform on a part of the contract or at least one small business could perform all of the contract. While reserves have been used by a number of agencies, many have reserved awards for small businesses only to make them compete on an unrestricted basis with other-than-small business contract holders because of the statutory requirement to provide a fair opportunity for all multiple award contract holders to be considered. To address this, paragraph (e)(4)(ii) provides that orders must be set-aside aside for small businesses if the rule-of-two or any alternative set-aside requirements provided in SBA’s small business program have been met.
    
    
  • Order Set-Asides. Section 125.2(e)(6) would permit the contracting officer to set-aside orders against MACs that were competed on a full and open basis (that is, not set-aside, partially set-aside, or reserved) when the rule-of-two is met. The solicitation and resulting contract would state either “(A) based on the results of market research, orders issued against the Multiple Award Contract will be set-aside for small businesses or any subcategory of small businesses whenever the rule of two or any alternative set-aside requirements provided in the small business program have been met; or (B) the agency is preserving the right to consider set-asides using the rule of two or any alternative set-aside requirements provided in the small business program, on an order-by-order basis.”
  
  
• Documentation of Consideration Given to the Section 1331 Authorities. Section 125.2(e)(1)(i) would require that “the contracting officer must set-aside a Multiple Award Contract if the requirements for a set-aside are met. This includes set-asides for small businesses, 8(a) participants, HUBZone SBCs, SDVO SBCs, WOSBs or EDWOSBs.” If the contracting officer decides not to set-aside the MAC, Section 125.2(e)(1)(iii) would require the contracting officer to document the contract file with the reasons. In addition, where an agency commits to using or preserving the right to use set-asides for orders under multiple award contracts that have not been set-aside, partially set-aside, or reserved (Section 125.2(e)(6) – see above), the contracting officer must document the file whenever a task order or delivery order is not set-aside for a small business.
  
  
• Application of Size Standards to MACs. SBA’s current rules require that a North American Industry Classification System (NAICS) code and corresponding size standard be assigned to all contracts and all orders under contracts greater than five years. SBA has seen agencies assign multiple NAICS codes to a multiple award contract where a business may be small for one or more of the NAICs codes, but not all, and the agency receives credit for an award to a small business even though the business is not small for the NAICs code assigned to that particular order. For MACs, paragraphs (c)(i)(A) and (B) of Section 121.402, What size standards are applicable to Federal Government Contracting Programs?, would require the contracting officer to “(A) assign the solicitation a single NAICS code and corresponding size standard which best describes the principal purpose of the acquisition…only if the NAICS code will also best describe the principal purpose of each order to be placed under the Multiple Award Contract. If a service NAICS code has been assigned to the Multiple Award Contract, then a service NAICS code must be assigned to the solicitation for the order, including an order for services that also requires some supplies; or (B) divide the solicitation into discrete categories (Contract Line Item Numbers (CLINs), Special Item Numbers (SINs), Sectors, Functional Areas (FAs), or the equivalent), and assign each discrete category the single NAICS code and size standard that best describes the principal purpose of the good or services to be acquired under that category (CLIN, SIN, Sector, FA or equivalent)...above. A concern must meet the applicable size standard for each category (CLIN, SIN, Sector, FA or equivalent) for which it seeks an award as a small business concern.”

Comments on this proposed rule must be submitted no later than July 16, 2012, identified as “RIN: 3245-AG20,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail or hand delivery/courier to Dean Koppel, Assistant Director, Office of Policy and Research, Office of Government Contracting, U.S. Small Business Administration, 409 Third Street SW, Washington, DC 20416.

Jordan Confirmed as New OFPP Administrator

Joseph Jordan has been confirmed as the next Office of Federal Procurement Policy (OFPP) administrator. The Senate confirmed Jordan on a voice vote on May 24. He replaces Daniel Gordon, who was OFPP administrator until he resigned to take a position at George Washington University Law School on January 1, 2012.

Jordan joined the Office of Management and Budget (OMB) as an advisor in December 2011 in anticipation of his nomination to the OFPP post. Prior to taking the OMB position, he was an associate administrator of government contracting and business development for the Small Business Administration (SBA). He held that position for three years.

OFPP Continues Acquisition “Myth-Busting”

Lesley Field, OFPP Acting Administrator, has issued a second “Myth-Busting” memorandum to all chief acquisition officers, senior procurement executives, and chief information officers. Last year, OFPP’s first “Myth-Busting” memorandum addressed misconceptions on the part of federal agencies regarding communications with industry during the acquisition process (see the March 2011 Federal Contracts Perspective article “OFPP Addresses Communications With Industry”). This second memorandum addresses misconceptions on the part of some in the vendor community. As in last year’s memorandum, OFPP highlights the misconceptions in the attachment to the memorandum (“Vendor Misconceptions about Communications with the Federal Government”) and, for each one, provides the facts about the federal procurement process, with the goal of improving the productivity of communications. Also, the attachment provides additional information and strategies for both agencies and vendors to promote more effective communication (within applicable ethics rules, procurement integrity requirements, and other applicable statutes and regulations).

OFPP “busts” the following eight additional “myths” in this memorandum:

1. Misconception – “The best way to present my company’s capabilities is by marketing directly to Contracting Officers and/or signing them up for my mailing list.”
   
   Fact – Contracting officers and program managers are often inundated with general marketing material that doesn’t reach the right people at the right time. As an alternative, vendors can take advantage of the various outreach sessions that agencies hold for the purpose of connecting contracting officers and program managers with companies whose skills are needed.
   
   
2. Misconception – “It is a good idea to bring only business development and marketing people to meetings with the agency’s technical staff.”
   
   Fact – In meetings with government technical personnel, it’s far more valuable for you to bring subject matter experts to the meeting rather than focusing on the sales pitch.
   
   
3. Misconception – “Attending industry days and outreach events is not valuable because the agency doesn’t provide new information.”
   
   Fact – Industry days and outreach events can be a valuable source of information for potential vendors and are increasingly being used to leverage scarce staff resources.
   
   
4. Misconception – “Agencies generally have already determined their requirements and acquisition approach so our impact during the pre-RFP phase is limited.”
   
   Fact – Early and specific industry input is valuable. Agencies generally spend a great deal of effort collecting and analyzing information about capabilities within the marketplace. The more specific you can be about what works, what doesn’t, and how it can be improved, the better.
   
   
5. Misconception – “If I meet one-on-one with agency personnel, they may share my proprietary data with my competition.”
   
   Fact – Agency personnel have a responsibility to protect proprietary information from disclosure outside the Government and will not share it with other companies.
   
   
6. Misconception – “Agencies have an obligation not to share information about their contracts, such as prices, with other agencies, similar to the obligation they have not to disclose proprietary information to the public.”
   
   Fact – There are no general limitations on the disclosure of information regarding existing contracts between agencies within the Government. In fact, agencies are encouraged to share pricing information to ensure that we are getting the best value for our taxpayers.
   
   
7. Misconception – “To develop my new proposal, I don’t really need to tailor my solution to the specific solicitation since the government won’t read my proposal that closely anyway.”
   
   Fact – Offerors should tailor each proposal to the evaluation criteria, proposal instructions, and specific requirements of the solicitation to which they are responding. Contracting Officers and evaluation team members read proposals closely for compliance with the proposal instructions and must evaluate them against the evaluation factors and the statement of work in the solicitation.
   
   
8. Misconception – “If I lose the competition, I shouldn’t bother to ask for a debriefing. The Contracting Officer won’t share any helpful information with me.”
   
   Fact – Unsuccessful offerors should ask for a debriefing to understand the award decision and to improve future proposals.

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