FEDERAL CONTRACTS PERSPECTIVE
Federal Acquisition Developments, Guidance, and Opinions
Vol. XIV, No. 2
FY 2013 National Defense Authorization Act Extends FAR Subpart 13.5 Procedures Through 2014
FAC 2005-65 Extends Task Order Protest Authority
HHSAR Patent and Data Rights Clauses Proposed
Those with Tax Liability Barred from DOD Contracts
FY12 Spending Down 4% to $514 Billion
FY 2013 National Defense Authorization Act
Extends FAR Subpart 13.5 Procedures Through 2014
On January 3, 2013, President Obama signed into law the $633 billion National Defense Authorization Act for Fiscal Year (FY) 2013 (Public Law 112-239). As usual, Title VIII, Acquisition Policy, Acquisition Management, and Related Matters, has several provisions of interest to the acquisition community, particularly those in the Department of Defense (DOD). The most noteworthy is the reinstatement of the authority to use simplified acquisition procedures for commercial items between $150,000 and $6,500,000 through 2014 (see Federal Acquisition Regulation [FAR] subpart 13.5). However, there are several provisions in Title XVI, Industrial Base Matters, and Title XVII, Ending Trafficking in Government Contracting, that have widespread application, such as the transfer to the Small Business Administration (SBA) of responsibility for civilian agencies’ mentor-protégé programs.
- Section 802, Review and Justification of Pass-Through Contracts: The Secretary of Defense, the Secretary of State, and the Administrator of the United States Agency for International Development must issue guidance and regulations within 180 days that require the contracting officer, when an offeror for a contract or a task or delivery order intends to award subcontracts for more than 70% of the total cost of work to be performed under the contract, task or delivery order (see FAR 52.215-22, Limitations on Pass-Through Charges – Identification of Subcontract Effort), to: (1) consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors that will perform the bulk of the work; (2) make a determination that the contracting approach selected is in the best interest of the government; and (3) document the basis for such determination.
- Section 804, Department of Defense Policy on Contractor Profits: The profit guidelines in the Defense FAR Supplement (DFARS) must be reviewed to identify any modifications to such guidelines that are necessary to ensure an appropriate link between contractor profit and contractor performance. The secretary shall consider at least the following: (1) appropriate levels of profit needed to sustain competition in the defense industry, taking into account contractor investment and cash flow; (2) appropriate adjustments to address contract and performance risk assumed by the contractor, taking into account the extent to which such risk is passed on to subcontractors; and (3) appropriate incentives for superior performance in delivering quality products and services in a timely and cost-effective manner, taking into account such factors as prime contractor cost reduction, control of overhead costs, subcontractor cost reduction, subcontractor management, and effective competition (including the use of small business) at the subcontract level.
- Section 811, Limitation on Use of Cost-Type Contracts: The DFARS is to be modified to prohibit the entering into cost-type contracts for the production of major defense acquisition programs unless the Under Secretary of Defense for Acquisition, Technology, and Logistics provides written certification to the congressional defense committees that a cost-type contract is needed to provide a required capability in a timely and cost-effective manner.
- Section 822, Extension of Authority for Use of Simplified Acquisition Procedures for Certain Commercial Items: The authority to use simplified acquisition procedures for commercial items between the simplified acquisition threshold ($150,000) to $6,500,000 is extended from January 1, 2012, to January 1, 2015 (the authority, which is in FAR subpart 13.5, had expired for all of 2012). (NOTE: The Department of Defense has issued a class deviation extending the authority to use FAR subpart 13.5 until January 1, 2015. Also, the Civilian Agencies Acquisition Council has issued a memorandum to all civilian agencies [except the National Aeronautics and Space Administration (NASA)] authorizing them to issue class deviations to change the expiration date of FAR subpart 13.5 to January 1, 2015. The memorandum goes on to state that an expedited FAR case is being processed to change the expiration date.)
- Section 827, Enhancement of Whistleblower Protections for Contractor Employees: The protections afforded in FAR subpart 3.9, Whistleblower Protections for Contractor Employees, are extended to subcontractor employees for DOD and NASA contracts.
- Section 828, Pilot Program for Enhancement of Contractor Employee Whistleblower Protections: Enhanced statutory protections are provided to employees of civilian agency contractors who blow the whistle on waste, fraud, and abuse on federal contracts. Whistleblower remedies are restricted to reasonable attorneys’ fees and expert witnesses’ fees. This pilot program expires in four years.
- Section 830, Repeal of Sunset for Certain Protests of Task and Delivery Order Contracts: The expiration date for the authority to file protests against the placement of task or delivery orders in excess of $10,000,000 issued by DOD, NASA, and the Coast Guard (September 30, 2016) is repealed, making this authority permanent. The September 30, 2016, expiration date still applies to all other agencies.
- Section 833, Contractor Responsibilities in Regulations Relating to Detection and Avoidance of Counterfeit Electronic Parts: Costs associated with the use of counterfeit parts are allowable under defense contracts only if the parts were provided to the contractor as government-furnished property.
- Section 851, Database on Price Trends of Items and Services Under Federal Contracts: The Office of Federal Procurement Policy (OFPP) is to establish and maintain a database of information on price trends for items and services under contracts with the federal government. The information in the database shall be designed to assist federal acquisition officials in: (1) monitoring developments in price trends for items and services under contracts with the federal government; and (2) conducting price or cost analyses for items and services offered to the federal government, or otherwise conducting determinations of the reasonableness of prices for items and services under such offers, and addressing unjustified escalation in prices being paid by the federal government.
- Section 862, Uniform Contract Writing System Requirements: The DOD and OFPP must establish uniform data standards, internal control requirements, independent verification and validation requirements, and business process rules for processing procurement requests, contracts, receipts, and invoices; (2) establish and maintain one or more approved electronic contract writing systems that conform with the these standards, requirements, and rules; and (3) require all agencies to use of approved electronic contract writing systems for all contracts. The Department of State and U. S. Agency for International Development may continue to use their contract writing systems if they can demonstrate to OFPP that prior investment of resources in existing contract writing systems will result in the most cost effective and efficient means to satisfy such requirements.
- Section 1622, Small Business Act Contracting Requirements Training: The Defense Acquisition University (DAU) and the Federal Acquisition Institute (FAI) are each required to develop and provide course on small business contracting requirements, including the requirements for small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women. This course must be successfully completed for an individual to obtain a Federal Acquisition Certification in Contracting (or any successor certification) or the equivalent DOD certification (these are required to work in the contracting field).
- Section 1641, Mentor-Protégé Programs: The Small Business Administration (SBA) is given responsibility for civilian agencies’ mentor-protégé programs (DOD is exempt from this because it already has the necessary statutory and regulatory framework for its mentor-protégé program). The SBA will have to approve each agency’s program plan. This is intended to provide uniformity among the civilian agencies’ mentor-protégé programs.
- Section 1703, Compliance Plan and Certification Requirement: Those receiving a grant, contract, or cooperative agreement in which the estimated value of the services performed outside the United States exceeds $500,000 must certify, prior to award, that: (1) the recipient has implemented a plan to prevent human trafficking; (2) implemented procedures to prevent trafficking and to monitor, detect, and terminate any subcontractor, subgrantee, or employee of the recipient engaging in such activities; and (3) neither the recipient, nor any subcontractor or subgrantee of the recipient, nor any agent is engaged in any of human trafficking.
- Section 1706, Expansion of Penalties for Fraud in Foreign Labor Contracting to Include Attempted Fraud and Work Outside The United States: Anyone who knowingly and with intent to defraud recruits, solicits, or hires a person outside the United States for employment on a government contract performed outside the United States, or on a U.S. military installation outside the United States, by means of materially false or fraudulent pretenses, representations, or promises regarding that employment, is to be fined or imprisoned for not more than five years, or both. Nevertheless, no victim of such crime may be admitted to the United States.
FAC 2005-65 Extends Task Order Protest Authority
Federal Acquisition Circular (FAC) 2005-65 consists of four final rules amending the Federal Acquisition Regulation (FAR): an extension of the expiration date for protests of task and delivery orders; prohibition on contracting with inverted domestic corporations; unallowability of costs associated with foreign contractor excise tax; and implementation of the United States – Colombia Trade Promotion Agreement.
- Extension of Expiration Date for Protests of Task and Delivery: This finalizes, without changes, the interim rule that amended paragraph (a)(10)(ii) of FAR 16.505, Ordering [under indefinite-delivery/indefinite-quantity (IDIQ) contracts], to extend the expiration date for the authority to file protests against the award of task or delivery orders exceeding $10,000,000 from May 27, 2011, to September 30, 2016.
Section 825 of the National Defense Authorization Act for Fiscal Year (FY) 2011 (Public Law 111-383) extended the expiration date for agencies subject to Title 10 of the U.S. Code (that is, the Department of Defense [DOD], the National Aeronautics and Space Administration [NASA], and the Coast Guard). There had been no comparable change to Title 41 of the U.S. Code, which applies to all other agencies, so an interim rule was published amending FAR 16.505(a)(10)(ii) to extend the expiration date for protests against IDIQ orders issued by DOD, NASA, and the Coast Guard that exceeded $10,000,000 (see the August 2011 Federal Contracts Perspective article “FAC 2005-53 Extends Protests of Task/Delivery Orders, Standardizes Unique PIIDs”).
The next year, Section 813 of the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112-81) extended the expiration date for agencies subject to Title 41 of the U.S. Code (that is, all other agencies). An interim rule was published that subsumed the previous interim rule and amended FAR 16.505(a)(10)(ii) to make the extended expiration date subject governmentwide (see the August 2012 Federal Contracts Perspective article “FAC 2005-60 Finalizes Rules on Compensation Reporting, Payments Under T&M Contracts”).
No comments were received on either of the interim rules, so the second interim rule is finalized without changes.
(NOTE: The FY 2013 National Defense Authorization Act (Public Law 112-239) has repealed the expiration date for DOD, NASA, and the Coast Guard, thus making this authority permanent for them. See the preceding article.)
- Prohibition on Contracting with Inverted Domestic Corporations: This finalizes, without changes, the interim rule that amended 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. The same restrictions are already incorporated in the FAR for funds appropriated in Fiscal Years 2008 through 2010 (see the June 2011 Federal Contracts Perspective article “FAC 2005-52 Requires Agencies to Leverage Acquisitions to Foster Sustainable Technologies”). No such restriction was placed on funds appropriated in Fiscal Year 2011.
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).
An interim rule was published that amended paragraph (a) of FAR 9.108-2, Prohibition, to reflect this prohibition on the use of FY 2012 funds. Six respondents submitted comments on the interim rule, but no changes were made to the final rule in response to those comments. For more on the interim rule, see the June 2012 Federal Contracts Perspective article “FAC 2005-59 Extends Rules on Inverted Domestic Corporations, Revises CAS Threshold.”
- Unallowability of Costs Associated With Foreign Contractor Excise Tax: This finalizes, without changes, the proposed rule that would revise FAR 31.205-41, Taxes, to impose a 2% excise tax on payments to any foreign person (including any individual, partnership, corporation, or other form of association) if: (1) the goods provided under a contract with the U.S. government are manufactured or produced in a “covered country”; or (2) the services are provided in a “covered country.” A “covered country” is one that is not a party to an international procurement agreement with the United States.
The James Zadroga 9/11 Health and Compensation Act of 2010 (Public Law 111-347) added a new Section 5000C, Imposition of Tax on Certain Foreign Procurement, to the Internal Revenue Code (Title 26 of the U.S. Code). Section 5000C imposed “on any foreign person that receives a specified federal procurement payment a tax equal to 2 percent of the amount of such specified federal procurement payment.” The statute applies to contracts entered into on or after January 2, 2011, the date it was signed into law. The statute does not apply, however, if the imposition of the tax would be inconsistent with any international agreement.
A proposed rule was published that would revise FAR 31.205-41, Taxes, to add that “any tax imposed under 26 U.S.C. 5000C” is not an allowable cost. In addition, the proposed rule would add “Taxes imposed under 26 U.S.C. 5000C may not be (i) included in the contract price; nor (ii) reimbursed” to FAR 52.229-3, Federal, State, and Local Taxes; FAR 52.229-4, Federal, State, and Local Taxes (State and Local Adjustments); FAR 52.229-6, Taxes – Foreign Fixed-Price Contracts; and FAR 52.229-7, Taxes – Fixed-Price Contract With Foreign Governments. Two respondents submitted comments on the proposed rule, but no changes were made to the final rule in response to those comments. For more on the proposed rule, see the March 2012 Federal Contracts Perspective article “Foreign Contractor Excise Tax Would Be Unallowable.”
- Implementation of the United States – Colombia Trade Promotion Agreement: This finalizes, with a change, the interim rule that implemented the United States-Colombia Trade Promotion Agreement, 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).
The interim rule added 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.
No comments were submitted on the interim rule. However, the final rule corrects the alphabetical order of the listing of the Colombia FTA in the heading of the fourth column of the table in paragraph (b) of FAR 25.401, Exceptions [services that are excluded from the various trade agreements] – switching “Columbia FTA” and “Chile FTA.”
For more on the interim rule, see the June 2012 Federal Contracts Perspective article “FAC 2005-59 Extends Rules on Inverted Domestic Corporations, Revises CAS Threshold.”
HHSAR Patent and Data Rights Clauses Proposed
The Department of Health and Human Services (HHS) is proposing to amend the HHS Acquisition Regulation (HHSAR) to add two clauses: HHSAR 352.227-11, Patent Rights – Exceptional Circumstances, and HHSAR 352.227-14, Rights in Data – Exceptional Circumstances, which will be used in place of FAR 52.227-11, Patent Rights – Ownership by the Contractor, and FAR 52.227-14, Rights in Data – General. These new clauses are intended to ensure that providers will retain their preexisting rights to material and subject inventions in which the provider has a proprietary interest when a Determination of Exceptional Circumstances (DEC) has been executed.
A DEC is executed consistent with the policy and objectives of the Bayh-Dole Act (Title 35 of the U.S. Code, Chapter 18, Patent Rights in Inventions Made with Federal Assistance) to ensure that subject inventions made under contracts and subcontracts (at all tiers) are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations including universities; to ensure that the government obtains sufficient rights in federally supported inventions to meet its needs; to protect the public against nonuse or unreasonable use of inventions; and in the case of fulfilling the mission of HHS to ultimately to benefit the public health.
Under certain circumstances, to ensure that pharmaceutical companies, academia, and others will collaborate with HHS in identifying, testing, developing, and commercializing new drugs, therapeutics, diagnostics, prognostics and prophylactic measures affecting human health, a DEC must be executed, and the contractor’s and subcontractor’s rights in subject inventions should be limited accordingly, consistent with DEC requirements and through appropriate contract clauses. The affected contracts are usually awarded using North American Industry Classification System (NAICS) code 541711, Research and Development in Biotechnology, or NAICS code 541712, Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology).
In the past, a significant number of FAR deviations were processed each time a DEC was executed. According to HHS, “using the proposed HHSAR clauses better addresses the requirements of the Bayh-Dole Act and provides legal protection for the proprietary rights of providers to ensure providers will collaborate with the government and provide access to their promising proprietary material(s) to meet HHS program goals. Therefore, it is believed that the approach outlined in the proposed rule is the most practical and provides benefits to the government, the public health and industry to ensure HHS program goals can be achieved.”
Comments on this proposed rule must be submitted no later than March 11, 2013, identified as “Health and Human Services Acquisition Regulation, Clauses 352.227-11 and 352.227-14,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) fax: 202-690-6902; or (3) mail: HHS/ASFR/OGAPA/Division of Acquisition, ATTN: Cheryl Howe, Room 537H, HHH Building, 200 Independence Avenue SW, Washington, DC 20201.
Those with Tax Liability Barred from DOD Contracts
DOD has issued a DFARS class deviation that prohibits contracting with corporations with an unpaid delinquent tax liability or a felony conviction under a federal law. This prohibition applies to contracts funded by the Continuing Appropriations Resolution of 2012 (Public Law 112-175).
The class deviation provides two provisions and requires the contracting officer to include the one that is appropriate in solicitations that will use funds provided by Public Law 112-175, including the acquisition of commercial items: DFARS 252.209-7997, Representation by Corporations Regarding an Unpaid Delinquent Tax Liability or a Felony Conviction Under Any Federal Law – DOD Appropriations (Deviation 2013-O0006); and DFARS 252.209-7996, Representation by Corporations Regarding a Felony Conviction Under Any Federal Law – DOD Military Construction Appropriations (Deviation 2013-O0006).
DFARS 252.209-7997 requires each contractor to represent whether it: (1) “has any unpaid federal tax liability that has been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability”; or (2) “was convicted of a felony criminal violation under a federal law within the preceding 24 months.”
DFARS 252.209-7996 merely requires each construction contractor to represent whether it was convicted of a felony criminal violation under a federal law within the preceding 24 months.”
If the contractor answers “yes,” the contracting officer shall not award a contract to the contractor. “However, contracting officers may make an award despite these restrictions if the agency debarring and suspending official has considered suspension or debarment of the corporation and has made a written determination that this further action is not necessary to protect the interests of the government.”
FY12 Spending Down 4% to $514 Billion
Federal contracting spending in Fiscal Year (FY) 2012 dropped to $514 billion, down 4% from the $535 billion spending level in FY 2011.
The big loser was the General Services Administration (GSA), which saw its contract spending drop 29%, from $12.1 billion to $8.6 billion ($3.5 billion decrease). The biggest dollar increase winner was the Department of Transportation, which saw its spending increase 26% from $4.8 billion to $6.0 billion ($1.2 billion increase). The biggest percentage increase winner was the Broadcasting Board of Governors, which saw its spending increase 115% from $60 million to $130 million ($70 million increase).
The following are the largest agencies’ FY 2012 spending compared to their FY 2011 spending:
FY 2012 Spending||
FY 2011 Spending
Health and Human Services||
|National Aeronautics and Space Administration||
General Services Administration
|Agency for International Development
|Environmental Protection Agency||
Office of Personnel Management||
Housing and Urban Development||
Social Security Administration||
|National Science Foundation||
|Securities and Exchange Commission
Pension Benefit Guaranty Corporation||
Nuclear Regulatory Commission||
|National Archives and Record Administration||
Broadcasting Board of Governors||
|Small Business Administration||
|Federal Communications Commission
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