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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


September 2015
Vol. XVI, No. 9
[pdf version]

CONTENTS


DOD Issues Regulations on Network Penetration Reporting and Contracting for Cloud Services
Updates for 2017 Version of NAICS Proposed
NASA Increases Capitalization Threshold
DOD Enters into Supply Security Arrangement with Spain



DOD Issues Regulations on Network Penetration
Reporting and Contracting for Cloud Services

The Department of Defense (DOD) has amended the Defense Federal Acquisition Regulation Supplement (DFARS) to require contractors and subcontractors to report cyber incidents that affect a contractor information system or defense information in its possession, and to provide guidance on the acquisition of cloud services. In addition, DOD has finalized several interim and proposed rules, and has proposed regulations required by Congress on the evaluating the price reasonableness of commercial items.



Updates for 2017 Version of NAICS Proposed

The Office of Management and Budget (OMB) is seeking comments on the advisability of adopting the recommendations of its Economic Classification Policy Committee (ECPC) on updating the North American Industry Classification System (NAICS) for 2017. The ECPC, which is comprised of representatives of the Bureau of Economic Analysis, Bureau of Labor Statistics, and Census Bureau, recommends an update of the industry classification system to clarify existing industry definitions and content, recognize new and emerging industries, and correct errors and omissions in the 2012 version of the NAICS.

The NAICS is a system for classifying individual business locations (establishments) by type of economic activity. Its purposes are to: (1) facilitate the collection, tabulation, presentation, and analysis of data relating to establishments, and (2) promote uniformity and comparability in the presentation and analysis of statistical data describing the North American economy. Mexico and Canada have collaborated on NAICS with the ECPC to make the industry statistics produced by the three countries comparable.

In May 2014, OMB solicited proposals on changes to the structure and content of the NAICS for inclusion in a potential 2017 revision (see the June 2014 Federal Contracts Perspective article “Proposals Sought for NAICS 2017”). OMB sought proposals/comments in four areas: new and emerging industries; electronic dissemination of NAICS 2017; updating the structure of the oil and gas industries; and updating the treatment of manufacturing units that outsource transformation (factoryless goods producers [FGPs]). More than 22,000 comments were submitted addressing FGPs, and OMB decided not to implement any changes involving FGPs in NAICS 2017. There were 113 other comments addressing other aspects of OMB’s solicitation, and OMB has published ECPC’s recommendations on proposed revisions to NAICS 2017. The recommendations have been kept to 28 industries – the minimum needed to significantly improve the relevance and efficiency of the NAICS and to avoid any unnecessary cost and disruption of statistical data collection resulting from changes in NAICS 2017. Most of the changes involve industries petroleum and natural gas extraction, mining, major household appliance manufacturing, electronic shopping and mail-order houses, and research and development in nanotechnology. The proposed changes are listed in two tables: one lists, in NAICS 2012 order, the disposition of all industries that the ECPC recommends for change and their resulting relationship to NAICS United States 2017 proposed industries; the other lists, in NAICS 2017 order, the ECPC recommended NAICS 2017 changes cross-walked to their NAICS 2012 content.

Comments on the proposed NAICS 2017 changes must be submitted no later than October 5, 2015, identified as “DFARS Case 2013-D034,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: naics@omb.eop.gov (put “NAICS17” in the subject line); (3) fax: 202-395-7245; or (4) mail: Katherine K. Wallman, Chief Statistician, Office of Management and Budget, 10201 New Executive Office Building, Washington, DC 20503.



NASA Increases Capitalization Threshold

The National Aeronautics and Space Administration (NASA) has issued an interim rule amending the NASA FAR Supplement (NFS) to increase its capitalization threshold from $100,000 to $500,000.

The Statement of Federal Financial Accounting Standard (SFFAS) No. 6, Accounting for Property, Plant, and Equipment, requires federal agencies to record as property and equipment all items that meet certain characteristics, such as a useful life of two years or more, and it permits agencies to establish individual capitalization thresholds and useful life policies because of their diverse sizes and uses of property, plant, and equipment. SFFAS No. 6 was issued in November 1995. The current NASA capitalization threshold of $100,000 was established when SFFAS No. 6 was initially implemented.

The Government Accountability Office (GAO) recommends that capitalization thresholds be periodically reevaluated to ensure their continuing relevance. Recently, the NASA Office of the Chief Financial Officer (CFO) conducted a review of the current NASA capitalization threshold and determined that it should be increased from $100,000 to $500,000.

To implement this increase in the capitalization threshold, this interim rule makes the following changes:

Comments on this interim rule must be submitted no later than October 26, 2015, identified as “NFS Case 2015-N004,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: Andrew.ORourke@NASA.gov; (3) fax: 202-358-3082; or (4) mail: National Aeronautics and Space Administration, Headquarters, Office of Procurement, Contract and Grant Policy Division, Attn: Andrew O’Rourke, Room 5L32, 300 E Street SW, Washington, DC 20546-0001.

In addition to the capitalization threshold rule, NASA is proposing to amend NFS 1852.223-70, Safety and Health, to: (1) narrow its application by decreasing the reporting burden on contractors, and (2) reinforce the measures contractors at NASA facilities must take to protect the safety of their workers, NASA employees, the public, and high value assets.

NFS 1852.223-70 is included in contracts when: (1) the contractor’s work will be conducted completely or partly on premises owned or controlled by the government; (2) the work includes construction, alteration, or repair of facilities in excess of the simplified acquisition threshold ($150,000); (3) the work involves hazards that could endanger the public, astronauts and pilots, the NASA workforce (including contractor employees working on NASA contracts), or high value equipment or property, and the hazards are not adequately addressed by Occupational Safety and Health Administration (OSHA) or Department of Transportation (DOT) regulations; or (4) the assessed risk and consequences of a failure to properly manage and control the hazard warrants use of the clause.

The clause requires the contractor to report certain mishaps or close calls (“a situation or occurrence with no injury, no damage or only minor damage [less than $1,000] but possesses the potential to cause any type mishap, or any injury, damage, or negative mission impact”), investigate these incidents, and provide a report to the contracting officer on the incident and corrective action taken in response to the incident. The clause also contains reporting requirements related to the contract safety and health plan which is required under NASA contracts that contains NFS 1852.223-70.

While NFS 1852.223-70 requires the contractor to take all reasonable safety and occupational health measures in performing the contract, it does not specify what these measures should include. In addition, while the clause provides for remedies if the contractor’s failure or refusal to comply with safety and health measures and to institute prompt corrective action, it does not specify applicable remedies.

The proposed rule addresses both reducing the burden on contractors, is more specific on the safety and health measures the contractor must take when working on a federal facility, and specifies the remedies the government may take for failure to maintain an effective safety and health program. The proposed rule would make the following changes to NFS 1852.223-70:

Comments on this proposed rule must be submitted no later than October 13, 2015, identified by RIN number 2700-AE16, by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) email: marilyn.chambers@nasa.gov.



DOD Enters into Supply Security Arrangement with Spain

The Department of Defense (DOD) has entered into a security of supplies arrangement with Spain. A security of supplies arrangement allows persons in the United States to request DOD assistance of the DOD in seeking priority delivery of supplies under the Defense Priorities and Allocation System (DPAS) from parties in those countries.

The Department of Commerce, which administers the DPAS, is adding Spain to the list of countries with which DOD has such arrangements. The list is in Title 15 of the Code of Federal Regulations (CFR); Part 700, Defense Priorities and Allocations System; Section 700.57, Military Assistance Programs with Other Nations and International Organizations (15 CFR 700.57).

With the addition of Spain, the list now includes Australia, Finland, Italy, The Netherlands, Spain, Sweden, and the United Kingdom.





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