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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


October 2016
Vol. XVII, No. 10
[pdf version]

CONTENTS


FAC 2005-91 Finalizes Rule on Women-Owned Small Business Sole Source Contracts
DOD Proposes Changes to Its Mentor-Protégé Program
Federal Minimum Wage Increased to $10.20/Hour for 2017
Increase Proposed to Settlement Audit Threshold
Acquisition of Order-Level Materials Proposed for FSS
Labor Finalizes Rule on Contractors’ Paid Sick Leave
NASA Prohibited from Using DCAA



FAC 2005-91 Finalizes Rule on Women-Owned
Small Business Sole Source Contracts

Federal Acquisition Circular (FAC) 2005-91 conducted a lot of housekeeping, finalizing interim rules on awarding sole source contracts for women-owned small businesses, contractor reporting of veterans’ employment, prohibiting contracting with corporations with delinquent taxes or a felony conviction, and the compensation cap for contractor and subcontractor employees; and finalizing proposed rules on contractors performing private security functions, the unique identification of entities receiving federal awards, and contract consolidation and bundling. In addition, FAC 2005-91 included final rules making Ukraine and Moldova “designated countries” and amending multi-year contract authority; and included an interim rule on non-retaliation for disclosure of compensation information.



DOD Proposes Changes to Its Mentor-Protégé Program

The Department of Defense (DOD) has issued a proposal to amend the Defense FAR Supplement (DFARS) coverage of its mentor-protégé program to make changes mandated by the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Public Law 114-92). In addition, DOD finalized rules prohibiting the use of cost-plus contracts for military construction and family housing projects, revising the rights in technical data relating to major weapon systems, and making Moldova a “designated country.” Also, DOD issued one proposed rule, one class deviation, and three acquisition-related memoranda to the DOD contracting community.



Federal Minimum Wage Increased to $10.20/Hour for 2017

The Department of Labor has announced that the applicable minimum wage rate to be paid to workers performing work on or in connection with federal contracts covered by Executive Order 13658, beginning January 1, 2017, is increased from $10.15 to $10.20 per hour.

Executive Order 13658, Establishing a Minimum Wage for Contractors, was signed by President Obama on February 12, 2014 (see the March 2014 Federal Contracts Perspective article “President Issues Executive Order Mandating $10.10/Hour Minimum Wage”), and it raised the hourly minimum wage paid by contractors to workers performing work on covered federal contracts to $10.10 per hour, beginning January 1, 2015. Further, the executive order stated that the Department of Labor would adjust the minimum wage annually (beginning January 1, 2016) to reflect inflation during the year as reflected in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.

In 2015, the Department of Labor determined that the CPI increased by 0.345% in 2015, so the minimum wage would be $10.15 per hour beginning January 1, 2016 (see the October 2015 Federal Contracts Perspective article “Federal Minimum Wage Increased to $10.15/Hour for 2016”).

Now, the Department of Labor has determined that the CPI index increased by 0.278% in 2016, and this produces a minimum wage of $10.20 per hour, which will go into effect on January 1, 2017.

The required minimum cash wage that must be paid to tipped employees performing work on or in connection with covered contracts is increased from $5.85 to $6.80/hour ($4.90/hour was the original minimum cash wage for tipped employees established in the executive order).



Increase Proposed to Settlement Audit Threshold

To alleviate contract close-out backlogs and enable contracting officers to deobligate excess funds from terminated contracts more quickly, it is proposed that FAR 49.107, Audit of Prime Contract Settlement Proposals and Subcontract Settlements, be amended to raise the dollar threshold requirement for the audit of prime contract termination settlement proposals and subcontract termination settlement proposals from $100,000 to the threshold for obtaining certified cost or pricing data, which is currently $750,000 (see paragraph (a)(1) of FAR 15.403-4, Requiring Certified Cost or Pricing Data (10 USC 2306a and 41 USC Chapter 35)). This change would be made to FAR 49.107(a), which addresses prime contract termination settlement proposals, and to FAR 49.107(b), which addresses subcontract termination settlement proposals. (EDITOR’S NOTE: FAR 49.001, Definitions, defines “settlement proposal” as “a proposal for effecting settlement of a contract terminated in whole or in part, submitted by a contractor or subcontractor in the form, and supported by the data, required by this part [FAR part 49, Termination of Contracts]”.)

Comments on this proposed rule must be submitted no later than November 14, 2016, identified as “FAR Case 2016-039,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat Division (MVCB), ATTN: Ms. Flowers, 1800 F Street NW, 2nd Floor, Washington, DC 20405.



Acquisition of Order-Level Materials Proposed for FSS

The General Services Administration (GSA) is proposing to add a GSA Acquisition Regulation (GSAR) subpart 538.70, Order-Level Materials, which would authorize the acquisition of order-level materials when placing a task order or establishing a blanket purchase agreement (BPA) against a Federal Supply Schedule (FSS) contract.

According to proposed GSAR 538.7100, Definitions, “order-level materials” are “supplies and/or services acquired in direct support of an individual task or delivery order placed against a Federal Supply Schedule (FSS) contract, when the supplies and/or services are not known at the time of schedule contract award. The prices of order-level materials are not established in the FSS contract.”

It had been common practice for contracting officers issuing orders against FSS contracts to add “incidental” non-FSS items to the order for convenience – for example, adding non-FSS cables to an FSS order for computers. In support of this, the General Accounting Office (now the Government Accountability Office [GAO]) decided in ViON Corporation, B-275063.3, B-275069.2 (February 4, 1997), that “an agency may procure FSS items and non-FSS items that are incidental to the FSS items under a single FSS procurement, so long as they meet the needs of the ordering agency and offer the lowest aggregate price, and if the cost of the non-FSS items is small compared to the total cost of the procurement.”

However, the U.S. Court of Federal Claims (COFC) overruled the GAO in ATA Defense Industries, Inc., No. 97-382C (June 27, 1997), finding that “it is fundamentally inconsistent with Congress’ unambiguous statutory mandate in the CICA [Competition in Contracting Act of 1984, which is Sections 2701-2753 of the Deficit Reduction Act of 1984 (Public Law 98-369)] to allow a contracting officer, when purchasing products against the FSS, to include in the purchase order ‘incidental’ products that are competitively available, unless the prices charged for these ‘incidental’ products are the product of full and open competition…The authority of an agency to purchase products against the FSS does not extend to incidentals.”

The GAO announced it was yielding to the COFC in Pyxis Corporation, B-282469, B-282469.2 (July 15, 1999): “We are persuaded, in light of the analysis of the court in ATA, that there is no statutory authority for the ‘incidentals’ test enunciated in ViON...We conclude that it was improper for the agency here to include non-FSS items in the delivery orders without ensuring that it had complied with the regulations governing purchase of those non-FSS items.”

In response, FAC 2001-8 added paragraph (d) to FAR 8.401, General, to permit the addition of “items not on the Federal Supply Schedule (also referred to as open market items) to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order only if (1) all applicable acquisition regulations have been followed (e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15), and small business programs (Part 19)); (2) the ordering office contracting officer has determined the price for the items not on the Federal Supply Schedule is reasonable; (3) the items are clearly labeled on the order as items not on the Federal Supply Schedule; and (4) all clauses applicable to items not on the Federal Supply Schedule are included in the order” (see the July 2002 Federal Contracts Perspective article “FAC 2001-08 Restricts 'Incidental Items' on FSS Orders, Moves Definitions, Adds Relocation Costs”). (EDITOR’S NOTE: With subsequent changes, this text moved from FAR 8.401 to its present location as FAR 8.402(f).)

The ATA decision has been costing GSA money over the years. GSA assesses an “industrial funding fee” (IFF) of 0.75% of the cost of each FSS order – in essence, a 0.75% sales tax. Removing “incidentals” from FSS orders deprives GSA of 0.75% of the cost of the “incidentals” – $7,500,000 for every billion dollars spent on “incidentals” in FSS orders. To rectify this situation, GSA is proposing to amend the GSAR as follows:

Comments on this proposed rule must be submitted no later than November 8, 2016, identified as “GSAR Case 2016-G506,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat Division (MVCB), ATTN: Ms. Flowers, 1800 F Street NW, 2nd Floor, Washington, DC 20405.



Labor Finalizes Rule on Contractors’ Paid Sick Leave

The Department of Labor (DOL) has issued a 126 page rule finalizing the proposal that would implement Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors, which requires federal contractors and subcontractors to provide their employees with up to seven days of paid sick leave annually, including paid leave allowing for family care (see the October 2015 Federal Contracts Perspective article “President Orders Paid Sick Leave for Employees of Federal Contractors”).

The new regulations are Title 29 of the Code of Federal Regulations (CFR), Part 13, Establishing Paid Sick Leave For Federal Contractors (29 CFR part 13). The most important provisions are in the following sections:

DOL published a proposed rule to implement Executive Order 13706 and requested comments on it (see the March 2016 Federal Contracts Perspective article “Labor Proposes Regulations Requiring Federal Contractors to Provide Sick Leave”). More than 35,000 individuals and entities submitted comments: labor organizations; contractors and contractor associations; worker advocates; advocacy groups; members of Congress; local government agencies; small businesses; and workers. About 30,000 comments came from individuals who submitted identical comments through interested organizations. Of the remaining 5,000 comments, the vast majority were either in favor of expanding the rules to cover more workers or provide more coverage (recommended by labor groups) or restricting the rules to cover fewer workers or provide less coverage (recommended by business groups). Few of the comments were adopted in the final rule, primarily because the purpose of the rule was to implement Executive Order 13706 and there was little room for interpretation. The majority of the changes to the final rule were to clarify various aspects of the proposed rule, such as the definitions of terms, and to make editorial corrections.

NASA Prohibited from Using DCAA

The National Aeronautics and Space Administration (NASA) is issuing an interim rule that adds NASA FAR Supplement (NFS) 1852.232-80, Submission of Vouchers for Payment, to implement revisions to the voucher submittal and payment process. This is necessary because Section 893 of the NDAA for FY 2016 (Public Law 114-92), “Improved Auditing of Contracts,” prohibits the Defense Contract Audit Agency (DCAA) from performing audit work for non-Defense agencies until DCAA’s backlog of incurred cost audits is below 18 months. NASA had delegated to DCAA the task of reviewing contractor requests for payment under its cost-type contracts. Since DCAA’s current backlog of cost audits is greater than 18 months, DCAA has ceased cost voucher audit support to NASA, thus jeopardizing the timely payment to contractors.

In response to the prohibition in Section 893 and to ensure the continued prompt payment to its suppliers, NASA has added NFS 1852.232-80, which is to be included in all cost-reimbursement contracts. The clause: (1) designates the NASA Shared Services Center (NSSC) at FMD Accounts Payable, Bldg. 1111, Jerry Hlass Road, Stennis Space Center, MS 39529, as the payment office; (2) requires the contractor to submit all vouchers electronically (except classified vouchers) using the steps described at NSSC’s Vendor Payment information Web site at https://www.nssc.nasa.gov/vendorpayment; (3) requires that the vouchers must include a “(i) breakdown of billed labor costs and associated contractor generated supporting documentation for billed direct labor costs to include rates used and number of hours incurred; (ii) breakdown of billed other direct costs (ODCs) and associated contractor generated supporting documentation for billed ODCs; [and] (iii) indirect rate(s) used to calculate the amount of billed indirect expenses.”

Also, the interim rule makes the following additional changes to the NFS:

Comments on this interim rule must be submitted by November 14, 2016, identified as “NFS Case 2016-N025,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: John.J.Lopez@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: John J. Lopez, LP-011, 300 E Street SW, Washington, DC 20546-0001.





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