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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


April 2015
Vol. XVI, No. 4
[pdf version]

CONTENTS


Court Rules Federal Supply Schedules Subject to Commercial Acquisition Rules
DOD Conducts Mop-Up Operations
DOE Makes Several Changes to Acquisition Procedures
Petition Received on Contractor Political Contributions
Comments Sought on Domestically Nonavailable Articles
Acquisition Regulations Subjected to Spring Cleaning
GSA Proposes to Clarify Terms Incompatible with Law
GSA Proposing Transactional Data Reporting



Court Rules Federal Supply Schedules
Subject to Commercial Acquisition Rules

The United States Court of Appeals for the Federal District has decided that Federal Supply Schedule (FSS) solicitations and contracts are subject to the regulations in Federal Acquisition Regulation (FAR) part 12, Acquisition of Commercial Items, which “prescribes policies and procedures unique to the application of commercial items.” The government had argued that FAR part 12 does not apply to FSS solicitations and contracts because FAR subpart 8.4, Federal Supply Schedules, governs them.

The case, CGI Federal, Inc. v. United States (2014-5143), involved the payments in an FSS solicitation by the Department of Health and Human Service’s Centers for Medicare and Medicaid Services (CMS). CMS uses contractors to determine if Medicare claims were paid correctly. If the contractor identifies an overpayment, CMS sends a demand letter to the provider seeking repayment and pays the contractor a contingency fee. In the 2008 FSS contracts for these recovery services, the contractors invoiced CMS for the contingency fee when the overpayment was collected from the provider, typically 41 days after the demand letter. However, in 2014 CMS resolicited these recovery services, and the requests for quotations (RFQs) included payment terms requiring the contractors to wait to invoice CMS until a provider’s challenge to the repayment request passed the second level of a five-level appeal process, which typically occurs between 120 and 420 days after the demand letter.

CGI, which was one of the contractors performing under the original CMS order, filed a protest to the Government Accountability Office (GAO) challenging the revised payment terms as being inconsistent with customary commercial practice. GAO denied the protest, and the CGI appealed GAO’s decision to the United States Court of Federal Claims, which denied the appeal on the grounds that the additional payment terms do not violate statutory or regulatory provisions. CGI appealed to the Court of Appeals.

FAR part 12 was created to implement the Federal Acquisition Streamlining Act of 1994 (FASA) (Public Law 103-355), which was enacted to “revise and streamline the acquisition laws of the federal government” and “facilitate the acquisition of commercial products.” FASA requires the government to purchase commercial items under commercial terms to the maximum extent practicable. FASA requires that the FAR include “a list of contract clauses to be included in contracts for the acquisition of commercial end items,” and that the list, to “the maximum extent practicable...shall include only those contract clauses that are...determined to be consistent with standard commercial practice.” FASA goes on to require that, “to the maximum extent practicable, only the contract clauses [in the list] may be used in a contract...for the acquisition of commercial items.”

FAR part 12 implements FASA’s mandate by requiring that “contracts for the acquisition of commercial items shall, to the maximum extent practicable, include only those clauses: (1) required to implement provisions of law or executive orders applicable to the acquisition of commercial items; or (2) determined to be consistent with customary commercial practice” (paragraph (a) of FAR 12.301, Solicitation Provisions and Contract Clauses for the Acquisition of Commercial Items). It goes on to preclude the inclusion of “any additional terms or conditions in a solicitation or contract for commercial items in a manner that is inconsistent with customary commercial practice for the item being acquired unless a waiver is approved in accordance with agency procedures” (paragraph (c) of FAR 12.302, Tailoring of Provisions and Clauses for the Acquisition of Commercial Items). (EDITOR’S NOTE: The clauses implementing the FASA mandate are FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders – Commercial Items, and FAR 52.212-4, Contract Terms and Conditions – Commercial Items.)

The FSS program is “a simplified process obtaining commercial supplies and services at prices associated with volume buying” (paragraph (a) of FAR 8.402, General). The General Services Administration (GSA) negotiates the FSS contracts with suppliers of commercial supplies and services and then allows agencies to issue orders for those commercial supplies and services against the underlying FSS contract.

The government agreed that the services solicited in the 2014 RFQs were commercial items and that the revised payment terms were inconsistent with customary commercial practice. However, the government argued that FAR part 12 does not apply to orders made against FSS contracts because FAR subpart 8.4 governs the FSS program, and it does not state that FAR part 12 applies to FSS orders. Furthermore, the government argued that FAR part 12 does not state that its provisions apply to FSS orders.

“The government and the Court of Federal Claims are correct that FAR subpart 8.4 does not explicitly state that FAR part 12 applies to orders made pursuant to existing FSS contracts. We conclude, however, that FAR part 12 applies to this situation expressly by its terms. To the extent there is any perceived inconsistency between FAR subpart 8.4 and FAR part 12, FAR part 12 controls.” The court then cites paragraph (c) of FAR 12.102, Applicability, which states, “Contracts for the acquisition of commercial items are subject to the policies in other parts of the FAR. When a policy in another part of the FAR is inconsistent with a policy in this part, this part 12 shall take precedence for the acquisition of commercial items.” The Court of Appeals sent the case back to the Court of Federal Claims “for proceedings consistent with this decision.”

EDITOR’S NOTE: This is the first time a court has been asked to decide whether FAR part 12 or FAR subpart 8.4 takes precedent. This decision makes clear that there aren’t two sets of rules that apply to commercial supplies and services.



DOD Conducts Mop-Up Operations

The Department of Defense (DOD) took it easy for a second consecutive month, issuing only one final rule, one interim rule, two class deviations, and two memoranda.



DOE Makes Several Changes to Acquisition Procedures

The Department of Energy (DOE) issued several documents making changes to how it conducts business, including to the DOE Acquisition Regulation (DEAR):



Petition Received on Contractor Political Contributions

The Federal Election Commission (FEC) has received a petition from the organization Public Citizen to update language in Title 11 of the Code of Federal Regulations, Part 115, Federal Contractors (11 CFR Part 115), “to provide a more accurate assessment, in conformity with well-established legal precedent, of whether nominally separate entities of the same corporate family constitute a single contractor subject to the restrictions against campaign contributions from federal contractors.”

11 CFR Part 115 prohibits a federal contractor “to make, either directly or indirectly, any contribution or expenditure of money or other thing of value, or to promise expressly or impliedly to make any such contribution or expenditure to any political party, committee, or candidate for federal office or to any person for any political purpose or use.” Public Citizen cites an enforcement action involving Chevron Corporation in which “the Commission has employed permissive standards defining entities within the same corporate family as ‘separate and distinct legal entities,’ allowing a single corporation to create an artificial firewall between one division that solicits and receives federal contracts and another division that makes campaign contributions, despite a preponderance of evidence that the two divisions constitute a single business enterprise. The Commission’s standard places extraordinary and disproportionate emphasis on corporate form. Applying such a loose standard in defining ‘separate and distinct legal entities’ causes irreparable harm to the intent and enforcement of 2 USC § 441c, the law prohibiting campaign contributions by federal contractors.”

Public Citizen requests that the FEC “clarify in 11 CFR Part 115 the factors for determining whether entities of the same corporate family are in fact distinct business entities. This clarification of the rules should establish more exacting scrutiny to protect the integrity of 2 USC § 44lc in conformance with established legal precedents that prevent corporations from creating nominally separate entities that operate as single enterprises to do what would otherwise be illegal for the company as a whole.”

The FEC is seeking comments on the petition, which is available at http://www.fec.gov/fosers, then type “2014-09” in “Search for REG Number.” Comments must be submitted no later than May 29, 2015. Commenters are encouraged to submit comments electronically via the FEC’s website at http://www.fec.gov/fosers, type “2014-09” in “Search for REG Number,” then click on “Add Comment.” As an alternative, commenters may submit comments by email to ContractorPetition@fec.gov, or by mail to the Federal Election Commission, Attn.: Amy L. Rothstein, Assistant General Counsel, 999 E Street NW, Washington, DC 20463. Each commenter must provide his or her first name, last name, city, state, and zip code.



Comments Sought on Domestically Nonavailable Articles

The Buy American Act does not apply to “nonavailable articles” – articles, materials, or supplies that are not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. FAR 25.104, Nonavailable Articles, contains a list of articles that have been determined to be nonavailable because either there is no domestic source for the listed items, or domestic sources can only meet 50% or less of total U.S. government and nongovernment demand.

FAR 25.104(b) requires publication of the list of nonavailable articles for public comment in the Federal Register no less frequently than once every five years. The list was last published for comment on August 7, 2009 (see the September 2009 Federal Contracts Perspective article “Three FAR Changes Proposed”) and adopted without changes (see the July 2010 Federal Contracts Perspective article “FAC 2005-42 Addresses Disclosure of Noncompetitive Contract Justifications, Recovery Act”). Therefore, comments are being sought on whether some articles on the list should be removed because they are now mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. “Specific information with regard to domestic production capacity in relation to U.S. government and nongovernment demand and the quality of domestically produced items would be most helpful in determining whether articles should remain on or be removed from the list.”

Comments on the list of nonavailable items must be submitted no later than May 26, 2015, by any of the following means: (1) http://www.regulations.gov; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street, NW, 2nd Floor, Washington, DC 20405-0001. Cite “FAR Case 2015-001” in all correspondence.



Acquisition Regulations Subjected to Spring Cleaning

With the coming of spring, several departments and agencies (including the Department of Energy – see the article above) have decided to air-out and clean-up their acquisition regulations by updating and simplifying them.



GSA Proposes to Clarify Terms Incompatible with Law

The General Services Administration (GSA) GSA is asking for comments on a proposed class deviation to the FAR and GSA Acquisition Regulation (GSAR) to address common Commercial Supplier Agreement terms that are inconsistent with or create ambiguity with federal law.

GSA defines “Commercial Supplier Agreements” as terms and conditions that are customarily offered to the public by vendors of supplies or services that meet the definition of “commercial item” and are intended to create a binding legal obligation on the end user. Commercial Supplier Agreements are common in information technology acquisitions, including acquisitions of commercial computer software and commercial technical data, but they may apply to any supply or service.

Customarily, commercial item supplies and services are offered to the public under standard agreements that may take a variety of forms, including license agreements, terms of service (TOS), terms of sale or purchase, and similar agreements. These customary, standard Commercial Supplier Agreements typically contain terms and conditions that make sense when the purchaser is a private party but are inappropriate when the purchaser is the government.

Discrepancies between Commercial Supplier Agreements and federal law or the government’s needs create recurrent points of inconsistency, such as the following:

As a result, industry and government representatives must spend significant time and resources tailoring Commercial Supplier Agreements to comply with federal law.

GSA intends to issue a class deviation to clarify the order of precedence in FAR 52.212-4, Contract Terms and Conditions – Commercial Items, by explaining that the terms of FAR 52.212-4 control in the event of a conflict with a Commercial Supplier Agreement.

In addition, the class deviation will implement standard terms and conditions to minimize the need for negotiating the terms of Commercial Supplier Agreements on an individual basis. The new clause will make unenforceable any conflicting or inconsistent Commercial Supplier Agreement terms that are addressed in the class deviation provided an exception is not authorized by a federal statute.

GSA has identified the following fifteen (15) points of inconsistency with federal law that are addressed by this class deviation:

  1. Definition of contracting parties: Contract agreements are between the commercial supplier or licensor and the U.S. government. Government employees or persons acting on behalf of the government will not be bound in their personal capacity by the Commercial Supplier Agreement.

  2. Contract formation: Commercial Supplier Agreements may be integrated into a contract if the terms are included verbatim and are not incorporated by reference. The terms of the deviated clause and other identified elements will supersede any conflict with the Commercial Supplier Agreement. “Click-wrap,” “browse-wrap,” and other such mechanisms that purport to bind the end-user will not bind the government or any government authorized end-user.

  3. Patent indemnity: Any clause giving the commercial supplier or licensor control over any litigation arising from the government’s use of the contractor’s supplies or services is deleted. Such representation when the government is a party is reserved by statute for the Department of Justice.

  4. Automatic renewals of term-limited agreements: Due to Anti-Deficiency Act restrictions, automatic contract renewal clauses are impermissible. Any such Commercial Supplier Agreement clauses are unenforceable.

  5. Future fees or penalties: Future fees – such as attorney fees, cost, or interest – may only be awarded against the government when expressly authorized by statute (for example, the Prompt Payment Act).

  6. Taxes: Any taxes or surcharges that will be passed along to the government will be governed by the terms of the underlying contract. The contracting officer must make a determination of applicability whenever such a request is made.

  7. Payment terms or invoicing: Any Commercial Supplier Agreement terms that purport to establish payment terms or invoicing requirements that contradict the terms of the government contract will be unenforceable. Discrepancies found during an audit must comply with the invoicing procedures from the underlying contract.

  8. Automatic incorporation/deemed acceptance of third party terms: No third party terms may be incorporated into the contract by reference. Incorporation of third party terms after the time of award may only be performed by bilateral contract modification with the approval of the cognizant contracting officer.

  9. State/foreign law governed contracts: Clauses that conflict with the sovereign immunity of the U.S. government cannot apply to litigation where the U.S. government is a defendant because those disputes must be heard either in U.S. District Court or the U.S. Court of Federal Claims. Commercial Supplier Agreement terms that require the resolution of a dispute in a forum other than that expressly authorized by federal law are deleted. Statutes of limitation on potential claims shall be governed by U.S. government law.

  10. Equitable remedies, injunctions, binding arbitration: Equitable remedies, injunctive relief and binding arbitration clauses may not be enforced unless explicitly authorized by agency guidance or statute.

  11. Unilateral termination of Commercial Supplier Agreement by supplier: Commercial suppliers may not unilaterally terminate or suspend a contract unless the supplies or services are generally withdrawn from the commercial market. Remedy from contractual breach by the government must be pursued under the Contract Disputes Act.

  12. Unilateral modification of Commercial Supplier Agreement by supplier: Unilateral changes of the Commercial Supplier Agreement are impermissible and any clause authorizing such changes is unenforceable.

  13. Assignment of Commercial Supplier Agreement or government contract by supplier: The contract, Commercial Supplier Agreement, party rights and party obligations may not be assigned or delegated without express government approval. Payment to a third party financial institution may still be reassigned.

  14. Confidentiality of Commercial Supplier Agreement terms and conditions: The content of the Commercial Supplier Agreement and the final contract pricing may not be deemed confidential. The government may retain other marked confidential information as required by law, regulation, or agency guidance, but will guard such confidential information appropriately.

  15. Audits: Discrepancies found during an audit must comply with the invoicing procedures from the underlying contract. Disputed charges must be resolved through the Disputes clause. Any audits requested by the commercial supplier or licensor will be performed at supplier or licensor’s expense.

This class deviation will apply to all new awards for GSA acquisitions for commercial supplies or services. Existing contracts will be required to incorporate the new terms whenever an option period is exercised or the contract is modified.



GSA Proposing Transactional Data Reporting

GSA is proposing to amend the GSAR to require vendors to report transactional data from orders and prices paid by ordering activities. This would include orders placed against both Federal Supply Schedule (FSS) contract vehicles and GSA’s non-FSS contract vehicles – governmentwide acquisition contracts (GWACs) and governmentwide indefinite-delivery, indefinite-quality (IDIQ) contracts. The proposed rule would require vendors to electronically report the price the government paid for an item or service bought through these GSA acquisition vehicles, thus producing market intelligence that GSA and its partner agencies can use to make cost-effective acquisition decisions.

This proposed rule would create a transactional data reporting clause, GSAR 552.216-75, Transactional Data Reporting, to improve GSA’s ability to conduct price analysis and validate fair and reasonable pricing on both its non-FSS and FSS vehicles. The clause would also allow GSA’s customers to improve their ability to compare prices prior to placing orders under its vehicles. Under GSAR 552.216-75, contractors would report prices paid for products and services delivered during the performance of the contract, including under orders and blanket purchase agreements (BPAs) through a user-friendly, online reporting system. The report would include transactional data elements such as unit measure, quantity of item sold, universal product code, if applicable, prices paid per unit, and total price.

The clause would be applied immediately to GSA’s governmentwide non-FSS vehicles, where transactional data is not already collected through other methods. For FSS vehicles, the clause would be introduced in phases, beginning with a pilot for select products and commoditized services. In addition, GSA would remove burdensome tracking and reporting requirements from GSAR 552.238-74, Industrial Funding Fee and Sales Reporting, for FSS contractors.

Comments on the proposed rule must be submitted by May 4, 2015, identified as “GSAR Case 2013-G504,” 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, 2nd Floor, ATTN: Hada Flowers, Washington, DC 20405-0001.

GSA is interested in conducting a dialogue with industry and interested parties about the proposed change, so it will hold a meeting on April 17, 2015, at 9:00 am at GSA Headquarters, 1800 F St. NW, Washington, DC 20405. The public is asked to pre-register using the following link: https://meet.gsa.gov/e5rpxxbrh14/event/event_info.html.



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