FEDERAL CONTRACTS PERSPECTIVE

GSA to Require Transactional Data Reporting
For Federal Supply Schedule Orders

To transform price disclosure and related policies for the General Services Administration’s (GSA) Federal Supply Schedule (FSS) contracts, governmentwide acquisition contracts (GWACs), and governmentwide indefinite-delivery, indefinite-quantity (IDIQ) contracts, GSA is phasing out the disclosures and tracking currently required by the Commercial Sales Practices (CSP) format (see General Services Administration Acquisition Regulation [GSAR] 515.408, Solicitation Provisions and Contract Clauses [for contract pricing]) and the Price Reductions clause (PRC – GSAR 552.238-75), and the associated practice of negotiating pricing based on a model where the government strives to secure the vendor's most favored pricing and maintain this position for the life of the contract. Instead, GSA is adopting a market driven pricing model where vendors submit prices paid by government customers through a new “Transactional Data Reporting” clause, and the government will use this data, along with other pricing information, to ensure a vendor’s offered price is competitive relative to other vendors selling the same or similar items or services.

“Transactional Data Reporting is an attempt to embrace modern technology while moving away from outmoded practices,” writes GSA in the introduction to the rule. “When first introduced in the 1980s, the CSP and PRC helped GSA and its customer agencies maintain advantageous pricing from original equipment manufacturers that held the vast majority of FSS contracts. However, changes in what the government buys and shifts in the federal marketplace have eroded the effectiveness of these tools over time. Additionally, vendors repeatedly single out these pricing tools as among the most complicated and burdensome requirements in federal contracting. By contrast, Transactional Data Reporting provides a less burdensome alternative.”

The CSP is the document through which a contractor relates the pricing, terms, and conditions it offers to its commercial (non-federal) customers. The PRC requires the contractor to maintain the government’s price or discount advantage in relation to the price or discount offered by the contractor to its commercial customers – if the contractor reduces the price of an item to its commercial customers and the item is on a schedule contract, the contractor must reduce the price of the item on the schedule contract similarly (this is called the “tracking customer” provision by GSA).

Among the factors that have eroded the effectiveness of the CSP and PRC over time are: (i) the significant growth of contracts held by resellers with little or no commercial sales against which to negotiate most favored customer pricing; (ii) the prevalence of sales for commercial-off-the-shelf products or other commercial items for which the government is not a market driver; and (iii) the fact that these practices tie pricing for reductions to sales of single items and play little role in blanket purchase agreements and other higher-volume leveraged buying by agencies to achieve greater savings and reduce administrative costs.

Schedule contractors have singled out these pricing tools as among the most complicated and burdensome requirements in federal contracting. The proliferation of resellers has occurred, in part, out of an effort by original equipment manufacturers to shield them from what they see as an overly complex and burdensome process that has created a punitive relationship between the government and its suppliers.

In response, GSA issued a proposed rule that would require that transactional data be reported immediately for non-FSS contracts (GWACs and IDIQs) but rolled out on a pilot basis for the FSS program under select schedules, but FSS contractors under those select schedules would be required to participate (according to the introduction of the proposed rule, schedules for “commercial-off-the-shelf and related commercial products and commoditized services that experience high volume of repetitive purchasing under identical or substantially similar terms and conditions”). For FSS contracts, the requirement would have been paired with an alternate Price Reductions clause that did not include the tracking customer provision. However, FSS contractors would still be subject to the CSP requirements, and GSA would have had the right to request CSP disclosures at any time (for more on the proposed rule, see the April 2015 Federal Contracts Perspective article “GSA Proposing Transactional Data Reporting”).

The following is the transactional data that would be reported for all sales under the contract (GSA would post the reporting instructions at https://vsc.gsa.gov/):

• Contract or Blanket Purchase Agreement (BPA) Number
  
  
• Delivery/Task Order Number/Procurement Instrument Identifier (PIID)
  
  
• Non Federal Entity, if applicable
  
  
• Description of Deliverable
  
  
• Manufacturer Name
  
  
• Manufacturer Part Number
  
  
• Unit Measure (each, hour, case, lot)
  
  
• Quantity of Item Sold
  
  
• Universal Product Code (UPC), if applicable
  
  
• Price Paid Per Unit
  
  
• Total Price

GSA received comments on the proposed rule from 26 industry associations, contractors, individuals, government agencies, and other interested groups. In response to the comments, GSA decided to (1) retain the proposed transactional data elements to be reported; (2) authorize the phased elimination of both the CSP and the PRC; and (3) broaden the pilot to be more reflective of the varied goods and services offered and sold through the FSS program – the pilot will involve the following eight schedules and Special Item Numbers (SINs – groupings within schedules of like commodities or services), which account for more than 40% of the FSS sales volume:

• Schedule 03FAC, Facilities Maintenance and Management: All SINs
  
  
• Schedule 51 V, Hardware Superstore: All SINs
  
  
• Schedule 58 I, Professional Audio/Video, Telemetry/Tracking, Recording/Reproducing and Signal Data Solutions: All SINs
  
  
• Schedule 72, Furnishing and Floor Coverings: All SINs
  
  
• Schedule 73, Food Service, Hospitality, Cleaning Equipment and Supplies, Chemicals and Services: All SINs
  
  
• Schedule 75, Office Products: All SINs
  
  
• Schedule 00CORP, The Professional Services Schedule: Professional Engineering Services (PES) SINs
  
  
• Schedule 70, General Purpose Information Technology Equipment, Software, and Services: SINs 132 8 (Purchase of New Equipment); 132 32, 132 33, and 132 34 (Software); and 132 54 and 132 55 (Commercial Satellite Communications (COMSATCOM))

For FSS contracts, the new Alternate I to GSAR 552.238-74, Industrial Funding Fee and Sales Reporting, is paired to the new Alternate II to the PRC (GSAR 552.238-75), which does not include the customer tracking requirement. Initially, participation in the pilot will be voluntary for FSS contractors with FSS contracts in the schedules/SINs, but they will be encouraged to participate by executing a bilateral modification with GSA. The new reporting clause and corresponding pricing disclosure changes will be applied to newly-awarded FSS contracts in the pilot Schedules/SINs and existing FSS contracts that are up for renewal/extension.

New GSAR 552.216-75, Transactional Data Reporting, applies to all new GWACs and governmentwide IDIQs and may be applied, through a bilateral modification, to any existing GWACs and governmentwide IDIQ contracts that do not contain other transactional data clauses.

NOTE: FSS contracts managed by the Department of Veterans Affairs (VA) are not included in the pilot and will not be affected by this rule.

DOD on Rampage with DFARS Changes

The Department of Defense (DOD) continued its burst of energy, publishing four final rules, one interim rule, four proposed rules (including a massive one that would revamp the regulations on rights in technical data and proprietary data restrictions), one class deviation, one memorandum, and one request for information (on rights in technical data and proprietary data restrictions).

• Defense Contractors Performing Private Security Functions: This finalizes, with an editorial change, the rule that proposed to amend DFARS 252.225-7039, Defense Contractors Performing Private Security Functions Outside the United States, to consolidate requirements in the FAR and DFARS that are applicable to DOD contracts for private security functions performed in designated areas outside the United States.
  
  Federal Acquisition Circular (FAC) 2005-67 added FAR 52.225-26, Contractors Performing Private Security Functions Outside the United States, to address requirements for: (1) private security contractors performing DOD contracts in areas of contingency operations outside the United States; (2) private security contractors performing DOD and non-DOD contracts in areas of combat operations as designated by the Secretary of Defense; and (3) private security contractors performing DOD and non-DOD contracts in areas of other significant military operations as designated by the Secretary of Defense and the Secretary of State (see the July 2013 Federal Contracts Perspective article “FAC 2005-67 Removes Limits on WOSB Set-Asides, Addresses Concerns with Acquisition of Social Media”). Since then, the applicability of DOD’s policies regarding private security contracts have been expanded to cover peace operations or other military operations or exercises.
  
  Rather than amending FAR 52.225-26 to reflect the expanded applicability of DOD’s policies regarding private security contracts, DOD proposed to amend DFARS 252.225-7039 to reflect that expanded applicability and remove all DOD-specific policies regarding contractors performing private security functions from FAR 52.225-26 (a corresponding FAR revision was proposed – see the June 2015 Federal Contracts Perspective article “FAC 2005-82 Finalizes Three Rules”).
  
  In addition, the rule proposed to add the International Standard ISO 18788, Management System for Private Security Operations – Requirements with Guidance for Use, to DFARS 252.225-7039 as an approved alternative to the American National Standard ANSI/ASIS PSC.1-2012, Management System for Quality of Private Security Company Operations – Requirements with Guidance, because many foreign countries do not accept use of foreign national standards.
  
  One respondent submitted comments on the proposed rule, but neither of the respondent's comments were adopted in the final rule. However, for consistency in the terminology used in DFARS 252.225-7039, the term “employees of the contractor” is removed from paragraphs (c)(1) and (2) and replaced with “contractor personnel”.
  
  For more on the proposed rule, see the January 2016 Federal Contracts Perspective article “DOD Addresses Acquisition Policies Outside the U.S.”
  
  
• Deletion of Supplemental Coverage for the Definition of Simplified Acquisition Threshold: This final rule amends DFARS 202.101, Definitions, to remove the supplemental definition for “simplified acquisition threshold,” which established $300,000 as the simplified acquisition threshold for contracts to be awarded and performed, or purchases to be made, outside the United States in support of a humanitarian or peacekeeping operation. Since FAC 2005-88 amended the definition of “simplified acquisition threshold” in FAR 2.101, Definitions, to include the $300,000 threshold for support of a humanitarian or peacekeeping operation, there is no need to retain the supplemental definition in DFARS 202.101.
  
  For more on FAC 2005-88, see the June 2016 Federal Contracts Perspective article “FAC 2005-88 Requires Safeguards of Contractor Information Systems.”
  
  
• New Designated Country – Ukraine: This final rule adds Ukraine as a new designated country under the World Trade Organization Government Procurement Agreement (WTO GPA). Ukraine became a party to the WTO GPA on May 18, 2016.
  
  FAR 25.003, Definitions [applicable to FAR part 25, Foreign Acquisition], defines “WTO GPA countries” as parties to the WTO GPA, and defines “designated country” as either a WTO GPA country, a Free Trade Agreement country, a least developed country, or a Caribbean Basin country. Since Ukraine is now a WTO GPA country and, therefore, a designated country, this rule adds Ukraine to the list of WTO GPA countries within the definition of “designated country” in DFARS 252.225-7017, Photovoltaic Devices; DFARS 252.225-7021, Trade Agreements (Basic and Alternate II), and DFARS 252.225-7045, Balance of Payments Program – Construction Material Under Trade Agreements (Basic and Alternates I, II, and III).
  
  
• Treatment of Interagency and State and Local Purchases: This finalizes, without changes, the rule that proposed to amend DFARS 225.7002-2, Exceptions [to restrictions on food, clothing, fabrics, hand or measuring tools, and flags], to implement Section 897 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016 (Public Law 114-92), Treatment of Interagency and State and Local Purchases When the Department of Defense Acts as Contract Intermediary for the General Services Administration. Section 897 states, “Contracts executed by the Department of Defense as a result of the transfer of contracts from the General Services Administration or for which the Department serves as an item manager for products on behalf of the General Services Administration shall not be subject to requirements under Chapter 148 of Title 10, United States Code [National Defense Technology and Industrial Base, Defense Reinvestment, and Defense Conversion], to the extent such contracts are for purchases of products by other federal agencies or state or local governments.”
  
  To implement Section 897, DOD proposed to amend DFARS 225.7002-2 to add the following exception as paragraph (o): “Acquisitions that are interagency, state, or local purchases that are executed by DOD as a result of the transfer of contracts from the General Services Administration or for which DOD serves as an item manager for products on behalf of the General Services Administration. According to Section 897 of the National Defense Authorization Act for Fiscal Year 2016 (Pub. L. 114-92), such contracts shall not be subject to requirements under Chapter 148 of Title 10, United States Code (including 10 USC 2533a), to the extent such contracts are for purchases of products by other federal agencies or state or local governments.” (NOTE: 10 USC 2533a is popularly known as the “Berry Amendment.”)
  
  One respondent supported the proposed rule, so no changes were made to the final rule. For more on the proposed rule, see the April 2016 Federal Contracts Perspective article “DOD Awakens with Flurry of DFARS Changes.”
  
  
• Pilot Program on Acquisition of Military Purpose Nondevelopmental Items: This interim rule amends DFARS subpart 212.71, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, to implement Section 892 of the NDAA for FY 2016 (Public Law 114-92), Revisions to Pilot Program on Acquisition of Military Purpose Nondevelopmental Items. Section 892 amends Section 866 of the NDAA for FY 2011 (Public Law 111-383) to modify the criteria for use of the pilot program on acquisition of military purpose nondevelopmental items.
  
  Section 866 established the pilot program to assess the feasibility and advisability of acquiring “military-purpose nondevelopmental items” (“a nondevelopmental item that meets a validated military requirement...and has been developed exclusively at private expense”) from “nontraditional defense contractors” (“an entity that is not currently performing and has not performed, for at least the one-year period...any of the following for the Department of Defense: (1) any contract or subcontract that is subject to full coverage under the cost accounting standards...or (2) any other contract in excess of the certified cost or pricing data threshold under which the contractor is required to submit certified cost or pricing data in accordance with streamlined procedures”). Section 866 required that acquisitions under the pilot program be awarded through competitive procedures, and that those acquisitions be limited to those that id not exceed $50,000,000. DFARS subpart 212.71 and the corresponding clause DFARS 252.212-7002, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, were added to implement Section 866.
  
  Section 892 deletes the requirement that contracts under the pilot program be with “nontraditional defense contractors,” deletes the requirement that such contracts be awarded through competitive procedures, and increases the limit on the size of such contracts from $50,000,000 to $100,000,000.
  
  This interim rule amends DFARS subpart 212.71 to conform to the changes made to the pilot program by Section 892 accordingly. In addition, it removes the definitions of “military-purpose nondevelopmental item” and “nondevelopmental item” from DFARS 252.212-7002 and moves them to DFARS 212.7101, Definitions.
  
  Comments on this interim rule must be submitted no later than August 29, 2016, identified as “DFARS Case 2016-D014,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or (4) mail: Defense Acquisition Regulations System, Attn: Dustin Pitsch, OUSD(AT&L)DPAP/ DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
  
  
• Food Services for Dining Facilities on Military Installations: This proposed rule would add DFARS subpart 237.7X, Services for Military Dining Facilities, and the corresponding clause DFARS 252.237-70XX, Operation of a Military Dining Facility, to provide policy and procedures for soliciting offers, evaluating proposals, and awarding contracts for the operation of a military dining facility in accordance with the Randolph-Sheppard Act (20 USC 107, et seq.), the Committee for Purchase from People Who Are Blind or Severely Disabled statute (41 USC 8501, et seq., formerly known as the Javits-Wagner-O'Day [JWOD] Act), the Joint Report and Policy Statement issued in accordance with Section 848 of the NDAA for FY 2006 (Public Law 109-163), and Section 856 of the NDAA for FY 2007 (Public Law 109-364).
  
  The Randolph-Sheppard (R-S) Act applies to contracts for the operation of military dining facilities. It is administered by the Department of Education but operated through state licensing agencies, which are responsible for recruiting, training, and licensing individuals who are blind or have a vision impairment to manage vending facilities (which are defined as “automatic vending machines, cafeterias, snack bars, cart service, shelters, counters, and such other appropriate auxiliary equipment which may be operated by blind licensees and which is necessary for the sale of newspapers, periodicals, confections, tobacco products, foods, beverages, and other articles or services dispensed automatically or manually and prepared on or off the premises”). Solicitations under the R-S Act are awarded under full and open competition, and state licensing agencies are given priority in award. For a state licensing agency’s proposal to be selected for award, the proposal must be in the competitive range and ranked among those proposals which have a reasonable chance of being selected. (NOTE: The Department of Education’s regulations implementing the R-S Act are at 34 CFR part 395, Vending Facility Program for the Blind on Federal and Other Property.)
  
  The Committee for Purchase from People Who Are Blind or Severely Disabled (CFP) statute applies to contracts and subcontracts for dining support services (including mess attendant services). It requires government agencies to purchase certain products and services from a Procurement List maintained by the Committee under the AbilityOne program (http://www.abilityone.gov/). Because acquiring products and services on the Procurement List is mandatory for agencies, the CFP statute is exempt from the competition requirements of the Competition in Contracting Act. (NOTE: The Committee’s regulations are at 41 CFR part 51, Committee for Purchase from People Who Are Blind or Severely Disabled).
  
  During the 1990s, confusion arose about whether contracts for food services at military dining facilities should be subject to the R-S Act or the CFP statute. To resolve the confusion, Section 848 of the NDAA for FY 2006, Statement of Policy and Report Relating to Contracting with Employers of Persons with Disabilities, required DOD, the Department of Education (because of school cafeterias), and the CFP to issue the Joint Policy Statement: “The joint statement of policy shall specifically address the application of those acts to both operation and management of all or any part of a military mess hall, military troop dining facility, or any similar dining facility operated for the purpose of providing meals to members of the Armed Forces...”
  
  The resultant Joint Policy Statement provided that new contracts would be competed under the R-S Act when “the [DOD] solicits a contractor to exercise management responsibility and day-to-day decision making for the overall functioning of a military dining facility, including responsibility for its staff and subcontractors, where the DOD role is generally limited to contract administration functions described in FAR part 42 [Contract Administration and Audit Services]...In all other cases, the contracts will be set aside for JWOD performance (or small businesses if there is no JWOD nonprofit agency capable or interested) when [DOD] needs dining support services (e.g., food preparation services, food serving, ordering and inventory of food, meal planning, cashiers, mess attendants, or other services that support the operation of a dining facility) where [DOD] food service specialists exercise management responsibility over and above those contract administration functions described in FAR part 42.”
  
  Since the issuance of the Joint Policy Statement, the definition of “operation of a military dining facility” has been interpreted inconsistently. In response, Section 856 of the NDAA for FY 2007, Contracting with Employers of Persons with Disabilities, went on to further define “military dining facility” as “a facility owned, operated, leased, or wholly controlled by the Department of Defense and used to provide dining services to members of the Armed Forces, including a cafeteria, military mess hall, military troop dining facility, or any similar dining facility operated for the purpose of providing meals to members of the Armed Forces.” In addition, Section 856 clarified the relationship between the R-S Act and the CFP statute.
  
  While the CFP statute is addressed in FAR subpart 8.7, Acquisition from Nonprofit Agencies Employing People Who Are Blind or Severely Disabled, and DFARS subpart 208.7, the R-S Act, the Joint Policy Statement, and the clarifications in Section 856 of the NDAA for FY 2007 are not addressed in either the FAR or the DFARS. Therefore, DOD is proposing to locate the guidance for food services in DFARS part 237, Service Contracting, (which includes guidance for contracting for various types of services, such as educational services, laundry and dry cleaning, and mortuary services). DOD believes DFARS part 237 is the appropriate location for the food services policy.
  
  The following are the main changes being proposed:
  
  
  • To DFARS 202.101, Definitions, would be added definitions of “military dining facility” (the definition from Section 856 [see above]) and “operation of a military dining facility” (“a facility owned, operated, leased, or wholly controlled by DOD and used to provide dining services to members of the Armed Forces, including a cafeteria, military mess hall, military troop dining facility, or similar dining facility operated with appropriated funds for the purpose of providing meals to members of the Armed Forces”).
    
    
  • Paragraph (a)(ii) would be added to DFARS 205.207, Preparation and Transmittal of Synopses, to require that the advertisement of a solicitation for the operation of a military dining facility in the 50 States, the District of Columbia, Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the U.S. Virgin Islands state that the solicitation is subject to the R-S Act.
    
    
  • Paragraph (c)(ii) would be added to DFARS 212.301, Solicitation Provisions and Contract Clauses for Acquisition of Commercial Items, which would state “when issuing a solicitation for the operation of a military dining facility, as defined in 202.101, include in the evaluation criteria, factors or subfactors for determining if the state licensing agency proposal is comparable to the quality and price available from other providers” (see the definition of “state licensing agency” in DFARS 237.7X01).
    
    
  • The new DFARS subpart 237.7X would include the following:
    
    
    • DFARS 237.7X01, Definitions, would include definitions for “dining support services” (“food preparation services, food serving, ordering and inventory of food, meal planning, cashiers, mess attendant services, or any and all other services that are encompassed by, are included in, or otherwise support the operation of a military dining facility, other than the exercise of management responsibility and day-to-day decision-making authority by a contractor for the overall functioning of a military dining facility”); “mess attendant services (or ‘dining facility attendant services’)” (“those activities required to perform food line support such as setting up the serving lines, serving food and tearing down the serving line, preserving food for subsequent meals, and performing janitorial and custodial duties within dining facilities, including sweeping, mopping, scrubbing, trash removal, pot and pan cleaning, dishwashing, waxing, stripping, buffing, window washing, and other sanitation-related functions”); and “state licensing agency” (“the state agency designated by the Secretary of Education under 34 CFR part 395 to issue licenses to blind persons for the operation of vending facilities on federal and other property”).
      
      
    • DFARS 237.7X02, Policy, would state that “all contracts for the operation of military dining facilities within the 50 States, the District of Columbia, Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the U.S. Virgin Islands are subject to the Randolph-Sheppard Act.” However, the R-S Act does not apply to “any food services or related services that are identified on the Procurement List maintained by the Committee for Purchase from People Who Are Blind or Severely Disabled...Contracts for dining support services (including mess attendant services) in a military dining facility where DOD food services specialists exercise management responsibility over and above those contract administration functions described in FAR part 42 are subject to the Committee for Purchase from People Who Are Blind or Severely Disabled statute.”
      
      
    • DFARS 237.7X03, Procedures for Randolph-Sheppard Act Contracts, would state, “When issuing a solicitation for the operation of a military dining facility, include in the evaluation criteria factors or subfactors for determining if the state licensing agency proposal is comparable to the quality and price available from other providers.” It would go on to provide that “a state licensing agency shall be afforded priority for award of the contract if the state licensing agency has submitted a proposal that: (1) demonstrates that the operation of the military dining facility can be provided with food of a high quality and at a fair and reasonable price comparable to that available from other providers; and (2) has a reasonable chance of being selected for award as determined by the contracting officer after applying the evaluation criteria contained in the solicitation.”
      
      
    • DFARS 237.7X04, Solicitation Provision, requires the inclusion of DFARS 252.237-70XX, Operation of a Military Dining Facility, in all solicitations, including solicitations using the procedures in FAR part 12 for the acquisition of commercial items, that are for operation of a military dining facility within the 50 States, the District of Columbia, Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the U.S. Virgin Islands. It would continue by prohibiting the use of DFARS 252.237-70XX in solicitations for any food services or related services that are identified on the Procurement List maintained by the Committee for Purchase from People Who Are Blind or Severely Disabled.
    
    
  • DFARS 252.237-70XX would contain the definitions in DFARS 237.7X01 and the statement in DFARS 237.7X03 regarding state licensing agency being given priority for award.
  
  Comments on this proposed rule must be submitted no later than August 8, 2016, identified as “DFARS Case 2015-D012,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) fax: 571-372-6094; or (3) mail: Defense Acquisition Regulations System, Attn: Amy Williams, OUSD(AT&L)DPAP/ DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
  
  
• Rights in Technical Data and Validation of Proprietary Data Restrictions: This proposed rule would revise DFARS part 227, Patents, Data, and Copyrights, and corresponding clauses to implement Section 815 of the NDAA for FY 2012 (Public Law 112-81), Rights in Technical Data and Validation of Proprietary Data Restrictions, which revises 10 USC 2320, Rights in Technical Data, and 10 USC 2321, Validation of Proprietary Data Restrictions. Section 815: (1) adds special provisions for handling technical data that are necessary for segregation and reintegration activities (“segregation or reintegration data” would be defined in proposed DFARS 227.001, Definitions, as “technical data or computer software that is more detailed than form, fit, and function data and that is necessary for the segregation of an item or process from, or the reintegration of that item or process [or a physically or functionally equivalent item or process] with, other items or processes”); (2) codifies and revises the policies and procedures regarding deferred ordering of technical data necessary to support DOD major systems or subsystems, weapon systems, or noncommercial items or processes; (3) expands the period in which DOD can challenge an asserted restriction on technical data from three years to six years; (4) rescinds changes to 10 USC 2320 made by Section 824 of the NDAA for FY 2011 (Public Law 111-383); and (5) codifies government purpose rights as the default rights for technical data related to technology developed with mixed funding.
  
  To implement Section 815, this proposed rule would make following significant changes to DFARS part 227:
  
  
  • Besides “segregation of reintegration data,” new DFARS 227.001, Definitions, would include the following definitions that would apply to all of DFARS part 227: “computer database”; “computer program”; “computer software”; “computer software documentation”; “covered government support contractor”; “developed exclusively at private expense”; “developed exclusively at government expense”; “developed with mixed funding”; and “form, fit, and function data”.
    
    
  • DFARS 227.7101, Definitions [applicable to DFARS subpart 227.71, Rights in Technical Data], would be amended to add definitions for the following terms: “detailed manufacturing or process data”; “developed”; “government purpose”; “government purpose rights”; “limited rights”; “Small Business Innovation Research (SBIR) data rights”; “technical data”; and “unlimited rights”.
    
    
  • DFARS 227.7103, Noncommercial Items or Processes, would be amended as follows:
    
    
    • Paragraph (b)(1) of DFARS 227.7103-2, Acquisition of Technical Data, would be revised to add that data managers and requirements personnel are responsible for identifying the government’s minimum needs, including “the return on the government’s investment in the development of computer software (including technology transfer/transition to other programs);...[and] the government’s short-term and long-term reprocurement and sustainment needs, including repair, maintenance, overhaul, spare and repair parts, and technology upgrade/insertion...” Also, it would add “segregation or reintegration data” as a type of data that may be acquired.
      
      
    • Paragraph (c)(2)(ii) of DFARS 227.7103-5, Government Rights, would be added to permit limited rights data to be released when “necessary for the segregation of an item or process from, or the reintegration of that item or process (or a physically or functionally equivalent item or process) with, other items or processes”. In addition, paragraph (c)(3) would be added to require the government to notify the person asserting limited rights that the data is being released for “covered government support contractor activities...as soon as practicable, but not later than 30 days after such release or disclosure...”
      
      
    • Paragraph (c) of DFARS 227.7103-6, Contract Clauses, which prescribes the use of DFARS 252.227-7025, would be revised to require that “the clause shall be incorporated into the contract prior to the government releasing any such technical data to the contractor. See 227.7103-7 when releasing such technical data to offerors or to any person other than the contractor.”
      
      
    • DFARS 227.7103-7, Use and Non-Disclosure Agreement, would be amended as follows:
      
      
      • In paragraph (a)(1), “limited rights” would be replaced with “limited rights or SBIR data rights,” and “restricted rights” would be replaced with “restricted rights or SBIR data rights”.
        
        
      • The disclosure statement in paragraph (c) would be revised to require the notice to use or release data “shall be made prior to such release or disclosure to the recipient, except in cases of emergency repair or overhaul activities, in which case such notice must be made as soon as practicable. The recipient shall destroy (or return to the government at the request of the government) the technical data and all copies in its possession promptly following completion of the authorized activities, and shall notify the contractor that the data have been destroyed (or returned to the government).” The same sort of notice would be required for computer software and commercial item technical data, commercial computer software, and segregation or reintegration data pertaining to commercial computer software.
      
      
    • DFARS 227.7103-8, Deferred Delivery and Deferred Ordering of Technical Data, would be amended to add a description and prescription for proposed DFARS 252.227-7029, Deferred Ordering of Technical Data or Computer Software: DFARS 252.227-7029 “allows the contracting officer to order certain technical data or computer software that was not delivered or otherwise furnished under a contract, but that were generated or utilized in the performance of a contract. The availability of deferred ordering procedures under this clause, however, does not diminish or alter the government’s responsibility for advance planning and proactive management of program needs for technical data...” The clause would be required to be included in “all solicitations and contracts using other than FAR part 12 [Acquisition of Commercial Items] procedures, and in all solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items that are being acquired for (i) a major system or subsystem thereof; or (ii) a weapon system or subsystem thereof.”
      
      
    • To DFARS 227.7103-13, Government Right to Review, Verify, Challenge and Validate Asserted Restrictions, would be added paragraph (d)(1)(iv), which would permit restrictive markings to be challenged at any time if the technical data “are the subject of a fraudulently asserted use or release restriction.”
    
    
  • DFARS 227.7104, Contracts Under the Small Business Innovation Research (SBIR) Program, would be amended to require that DFARS 252.227-7029 be included in SBIR solicitations and contracts that include DFARS 252.227-7018, Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program (see below).
    
    
  • DFARS 227.7201, Definitions [applicable to DFARS subpart 227.72, Rights in Computer Software and Computer Software Documentation], would be amended to add definitions for the following terms: “commercial computer software”; “developed”; “government purpose”; “government purpose rights”; “minor modification”; “noncommercial computer software”; “restricted rights”; and “unlimited rights”.
    
    
  • DFARS 227.7202, Commercial Computer Software and Commercial Computer Software Documentation, would be amended as follows:
    
    
    • Paragraph (c)(1) of DFARS 227.7202-1, Policy, would be amended to replace “except for information” with “except for form, fit, and function data, segregation or reintegration data, or information”, so that it would read as follows: “(c) Offerors and contractors shall not be required to (1) furnish technical information related to commercial computer software or commercial computer software documentation that is not customarily provided to the public except for form, fit, and function data, segregation or reintegration data, or information documenting the specific modifications made at government expense…” (italics added for emphasis).
      
      
    • DFARS 227.7202-3, Rights in Commercial Computer Software or Commercial Computer Software Documentation, would be amended to add a new paragraph (b), which would state: “(b)(1) For segregation and reintegration data, the government may require that its license rights include the right for the government to use, modify, reproduce, release, perform, display, or disclose that data to the extent necessary for the segregation of the commercial computer software from, or the reintegration of that commercial computer software (or functionally equivalent computer software) with, other computer software, items, or processes. Unless the parties agree otherwise...the license shall authorize the government to release the segregation and reintegration data outside the government only if: (i) the recipient of the data is subject to a prohibition on the further reproduction, release, disclosure, or use of that data; and (ii) the contractor or subcontractor asserting the restriction is notified of such reproduction, release, disclosure, or use.”
      
      
    • DFARS 227.7202-4, Contract Clauses, would be amended to add a prescription for the use of DFARS 252.227-7025, Limitations on the Use or Disclosure of Government-Furnished Information with Restrictive Legends or Markings, and proposed DFARS 252.227-7029, Deferred Ordering of Technical Data or Computer Software. Currently, DFARS 252.227-7025 is only required in solicitations and contracts for noncommercial items or processes [see DFARS 227.7103-6, Contract Clauses (for noncommercial items or processes)]; SBIR solicitations and contracts [see DFARS 227.7104, Contracts Under the Small Business Innovation Research (SBIR) Program]; and noncommercial computer software and noncommercial computer software documentation [see DFARS 227.7203-6, Contract Clauses [for noncommercial computer software and noncommercial computer software documentation]).
    
    
  • DFARS 227.7203, Noncommercial Computer Software and Noncommercial Computer Software Documentation, would be amended as follows:
    
    
    • Paragraph (b)(1) of DFARS 227.7203-2, Acquisition of Noncommercial Computer Software and Computer Software Documentation, would be amended to add that data managers and requirements personnel are responsible for identifying the government’s minimum needs, including “the return on the government’s investment in the development of computer software (including technology transfer/transition to other programs); the government's costs to acquire, maintain, store, retrieve, and protect the software or documentation; the government's short-term and long-term reprocurement and sustainment needs, including repair, maintenance, overhaul, spare and repair parts, and technology upgrade/insertion; whether procurement of the software (or functional equivalents thereof) can be accomplished on a form, fit, and function or segregation or reintegration basis...”
      
      
    • Paragraph (d) of DFARS 227.7203-6, Solicitation Provision and Contract Clauses, which prescribes the use of DFARS 252.227-7025, would be amended to add the following requirement: “The clause must be incorporated into the contract prior to the government releasing any such computer software or computer software documentation to the contractor.”
      
      
    • DFARS 227.7203-8, Deferred Delivery and Deferred Ordering of Computer Software and Computer Software Documentation, would be revised to duplicate DFARS 227.7103-8 – the only difference would be that DFARS 227.7203-8 applies to noncommercial computer software and noncommercial computer software documentation, and DFARS 227.7103-8 applies to noncommercial items or processes.
      
      
    • Paragraph (e)(3)(i) of DFARS 227.7203-13, Government Right to Review, Verify, Challenge and Validate Asserted Restrictions, would be amended to change the time period for the government to challenge an asserted restriction from “three years” to “6 years” (two places), and replacing “or has been otherwise made available without restrictions” with “has been otherwise made available without restrictions, or is the subject of a fraudulently asserted use or release restriction” in the sentence “Those limitations on the government’s challenge rights do not apply to software that is publicly available, has been furnished to the government without restrictions, has been otherwise made available without restrictions, or is the subject of a fraudulently asserted use or release restriction” (italics added).
    
    
  • DFARS 252.227-7013, Rights in Technical Data – Noncommercial Items, would be amended to add the definition for “form, fit, and function data” (see proposed DFARS 227.001). In addition, DFARS 252.227-7013 would address limited rights for segregation or reintegration data.
    
    
  • DFARS 252.227-7014, Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation, would be amended to revise the definition of “commercial computer software” (see DFARS 227.7201); add the definition for “form, fit, and function data” (see proposed DFARS 227.001); and add the definition of “segregation or reintegration data” (see proposed DFARS 227.001).
    
    
  • DFARS 252.227-7015, Technical Data – Commercial Items, would be amended to add definitions of “commercial limited rights” and “commercial unlimited rights”; revise the definition of “form, fit, and function data” so it corresponds to that in proposed DFARS 227.001); and add the definition of “segregation or reintegration data” (see proposed DFARS 227.001).
    
    
  • DFARS 252.227-7018, Rights in Noncommercial Technical Data and Computer Software – Small Business Innovation Research (SBIR) Program, would be amended to revise the definition of “form, fit, and function data” so it corresponds to that in proposed DFARS 227.001); and add the definition of “segregation or reintegration data” (see proposed DFARS 227.001).
    
    
  • DFARS 252.227-7025, Limitations on the Use or Disclosure of Government-Furnished Information with Restrictive Legends or Markings, would be revised as follows:
    
    
    • To paragraph (b)(1), which addresses government-furnished information marked with limited rights/restricted rights/SBIR data rights legends, would be added an affirmative obligation for the recipient of such data or commercial data to either destroy the data, or to return to the government (at the government’s discretion), after completion of the authorized activity.
      
      
    • To paragraph (b)(4), which addresses government-furnished information marked with commercial restrictive markings, would be added to an affirmative obligation for the recipient of such data or commercial data to either destroy the data, or to return to the government (at the government’s discretion), after completion of the authorized activity.
      
      
    • A new paragraph (b)(5), which would address government-furnished commercial computer software marked with commercial restrictive markings, would impose an affirmative obligation for the recipient of such data or commercial software to either destroy the software, or return it to the government (at the government’s discretion), after completion of the authorized activity.
      
      
    • To paragraph (b)(6), which addresses the responsibilities of “covered government support contractors” that receive technical data or computer software marked with restrictive legends, would be added the requirement that the contractor “ensure that the party whose name appears in the legend or marking is notified of the release or disclosure as soon as practicable, but not later than 30 days after such release or disclosure.”
      
      
    • The following would be added as new paragraph (e): “The rights and obligations of the parties under this clause shall survive the termination, expiration, or completion of this contract.”
    
    
  • DFARS 252.227-7027, Deferred Ordering of Technical Data or Computer Software, would be removed. DFARS 252.227-7027 would be replaced by DFARS 252.227-7029 (see below). While DFARS 252.227-7027 was used as the point of departure for implementing the new statutory scheme, it was decided to avoid any potential confusion by removing DFARS 252.227-7027 and using DFARS 225.227-7029 for the new statutorily-based deferred ordering framework.
    
    
  • DFARS 252.227-7029, Deferred Ordering of Technical Data or Computer Software, would be added. Using DFARS 252.227-7027 as the base (see above), the clause would implement the statutory deferred ordering scheme codified at 10 USC 2320: (1) the data must have been “generated or utilized” in the performance of a contract or subcontract; (2) the government must determine that the data is needed for an important sustainment or other life cycle support activity for a DOD system; and (3) the government must determine that the data either result from development activities funded in whole or in part by the government, is segregation or reintegration data. The following is a description of each paragraph in the clause:
    
    
    • Paragraph (a), Definitions, would include a definition for a phrase that is used only in this clause: “technical data or computer software generated or utilized in the performance of this contract or any subcontract hereunder.” The phrase includes five elements that are intended to provide clarity and predictability in interpreting whether this criterion is met.
      
      
    • Paragraph (b) would implement the 10 USC 2320(b)(9) statutory requirements for the government to make a deferred order. However, the introduction to the proposed rule states that DOD “concluded that it was unlikely that the legislative intent was to completely preclude the government from having any form of deferred ordering right in basic or applied research contracts where it would be unlikely that the government could make one of the otherwise-required determinations, i.e., that the technical information is needed for sustainment of a major system, weapon system, or noncommercial item (see 252.227-7029(b)(1)(i)). Accordingly, the requirement for those specific elements of a determination are waived for basic or applied research activities (see 252.227-7029(b)(2), when the nature of the contract is such that it is likely to be impracticable to require such a determination, but the circumstances are still directly related to a core objective of the statutory scheme [e.g., to ensure that the government has access to data related to development funded in whole or in part by the government]).
      
      
    • Paragraph (c) would address assertions by the contractor that technical data or computer software pertains to an item or process developed exclusively at private expense. To the extent that disputes might arise regarding the government’s determination that the data related to technologies developed in whole or in part at government expense, those disputes would be governed by the existing procedures in DFARS 252.227-7019, Validation of Asserted Restrictions – Computer Software, or DFARS 252.227-7037, Validation of Asserted Restrictions on Technical Data (see below). Any other dispute arising under the clause would be governed by FAR 52.233-1, Disputes.
      
      
    • Paragraph (d) would clarify that the obligation to deliver data to the government under an appropriate deferred order is not intended to create an implied obligation to preserve data in cases when it would otherwise be unreasonable to do so. However, this is not intended to preclude any individual contract from including a requirement to preserve any such data for a specified period.
      
      
    • Paragraph (e) would implement the statutory limitation on compensation for the contractor’s compliance with an appropriate deferred order (“the contractor shall be compensated only for reasonable costs incurred for converting and delivering the technical data or computer software into the required form”).
      
      
    • Paragraph (f) would state that “the government’s rights to use such technical data or computer software shall be pursuant to the applicable rights in technical data and computer software clause(s), or pursuant to DFARS 227.7202 in the case of commercial computer software, in effect as of the date of award of this contract.”
      
      
    • Paragraph (g) would clarify that the clause is not intended to limit or affect in any way the ability of the government to order through other authorized mechanisms, such as mutual agreement, or bilateral or unilateral modification of the contract.
      
      
    • Paragraph (h) would clarify that the government's ability to require delivery of technical data or computer software is not affected by whether the government exercises its rights to validate asserted restrictions on such technical data or computer software.
      
      
    • Paragraph (i) would clarify that the parties’ rights and obligations established in the clause will survive the end of the contract.
      
      
    • Paragraph (j) would require the clause to be flowed down to lower tier subcontracts in the same manner as the clause is prescribed for use in the prime contract.
    
    
  • DFARS 252.227-7037, Validation of Asserted Restrictions on Technical Data, would be revised by replacing “restrictive markings” with “asserted restrictions” to have consistent nomenclature throughout the clause. In addition, the standard duration of the government’s right to challenge the validity of an asserted restriction would be extended from three years to six years in paragraph (i). However, paragraph (i)(4) would add that there are no time limits on challenging technical data that are the subject of fraudulently asserted restrictions.
  
  Comments on this proposed rule must be submitted no later than September 14, 2016, identified as “DFARS Case 2012-D022,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or (4) mail: Defense Acquisition Regulations System, Attn: Amy Williams, OUSD (AT&L)DPAP/ DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
  
  
  In addition, Section 813 of the NDAA for FY 2016 (Public Law 114-92) requires DOD to establish the Government-Industry Advisory Panel for the purpose of reviewing 10 USC 2320 and 10 USC 2321 regarding rights in technical data and the validation of proprietary data restrictions, and the implementing regulations, to ensure that such statutory and regulatory requirements are best structured to serve the interests of the taxpayers and the national defense. (NOTE: The regulatory implementation of 10 USC 2320 and 10 USC 2321 are in DFARS subpart 227.71 and DFARS subpart 227.72, respectively – see above).
  
  The Government-Industry Advisory Panel has been formed and is seeking information to facilitate a review of 10 USC 2320 and 10 USC 2321. To facilitate the panel’s review, comments are sought on the following:
  
  
  1. Any issues, concerns, benefits, and/or appropriateness of 10 USC 2320 and/or 10 USC 2321.
     
     
  2. Any issues, concerns, benefits, and/or appropriateness of DFARS subpart 227.71 and DFARS subpart 227.72 (and the associated clauses), including the extent to which these regulations are consistent with, and effective in, implementing 10 USC 2320 and 10 USC 2321.
     
     
  3. Any issues, concerns, benefits, and/or appropriateness of DOD’s policy and guidance on intellectual property strategy and management, including the extent to which such DOD policy and guidance is consistent with and effective in further implementing the governing statutes and regulations.
     
     
  4. Any issues or concerns associated with whether and how DOD personnel are prepared and equipped to implement DOD’s intellectual property policy and guidance, and/or the governing statutes and regulations, including through DOD’s training curriculum, or otherwise.
     
     
  5. The current approach in DFARS subpart 227.71 and DFARS subpart 227.72 of extending and adapting the scheme of 10 USC 2320 and 10 USC 2321 to apply to computer software, including the approach whereby most of the statutory scheme is applied to noncommercial computer software but not to commercial computer software.
     
     
  6. The current approach in regulation of treating “Rights in Technical Data” and “Rights in Computer Software and Computer Software Documentation” as two separate topics (i.e., DFARS subpart 227.71 and DFARS subpart 227.72, respectively), or whether they should be merged into a single topic/subpart.
     
     
  7. The applicability of 10 USC 2320 and 10 USC 2321, and the implementing DFARS requirements and clauses, to contracts and subcontracts for commercial items.
     
     
  8. Practices used by DOD in acquiring intellectual property from non-traditional contractors, commercial contractors, and traditional contractors. The request isn't limited to where the law or regulations require a specific practice, but also includes where the DOD uses a practice not required by law/regulation. For example, any of the following:
     
     
     1. What worked or didn't work?
        
        
     2. What was fair or wasn’t fair?
        
        
     3. What practices encourage or discourage non-traditional contractors from entering the defense marketplace?
        
        
     4. What practices encourage or discourage commercial contractors from entering the defense marketplace?
        
        
     5. What practices encourage or discourage traditional contractors from privately investing in new products, technologies, and processes relevant to the missions of the DOD?
     
     
  9. Intellectual property acquisition practices used by DOD that encourage or discourage use of commercial technologies. For example, any of the following:
     
     
     1. What practices encourage or discourage vendors from providing DOD access to innovative products, technologies, and processes that have been developed for commercial use?
        
        
     2. What practices encourage or discourage the transition of DOD specific technologies into the commercial marketplace?
     
     
  10. Any issues, concerns, benefits, and/or appropriateness of DOD’s policy, guidance, and practices that link technical data management and other intellectual property considerations with open systems architectures (OSA), and/or modular open systems approaches (MOSA).
      
      
  11. Any issues, concerns, benefits, and/or appropriateness with Section 1701, Modular Open System Approach in Development of Major Weapon Systems, and Section 1705, Amendments Relating to Technical Data Rights, of the House Armed Services Committee markup of H.R. 4909, the NDAA for FY 2017.
  
  Submit comments no later than July 21, 2016, by either of the following methods: (1) mail: Office of the Assistant Secretary of Defense (Acquisition), ATTN: LTC Andrew Lunoff, Designated Federal Officer (DFO), 3090 Defense Pentagon, Washington, DC 20301-3090; or (2) email: andrew.s.lunoff.mil@mail.mil.
  
  
• Contract Financing: This proposed rule would add DFARS subpart 232.1, Non-Commercial Item Purchase Financing, consisting of DFARS 232.104, Providing Contract Financing, which would state: “For fixed-price contracts with a period of performance in excess of a year that meet the dollar thresholds established in FAR 32.104(d), and for solicitations expected to result in such contracts, in lieu of the requirement at FAR 32.104(d)(1)(ii) for the contractor to demonstrate actual financial need or the unavailability of private financing, DOD has determined that: (1) the use of customary contract financing (see FAR 32.113 [Customary Contract Financing]), other than loan guarantees and advance payments, is in DOD’s best interest; and (2) further justification of its use in individual acquisitions is unnecessary.” (NOTE: The dollar thresholds in FAR 32.104(d) are the simplified acquisition threshold [$150,000] for small businesses, and $2,500,000 for all others.)
  
  The introduction to the proposed rule states, “DOD has determined that the use of such customary contract financing provides improved cash flow as an incentive for commercial companies to do business with DOD, is in DOD's best interest, and requires no further justification of its use.”
  
  Comments on this proposed rule must be submitted no later than August 29, 2016, identified as “DFARS Case 2015-D026,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or (4) mail: Defense Acquisition Regulations System, Attn: Mark Gomersall, OUSD(AT&L)DPAP/ DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
  
  
• Administrative Cost to Issue and Administer a Contract: This proposed rule would revise paragraph (b)(1) of DFARS 252.247-7008, Evaluation of Bids – Basic, and its Alternate I, to reflect that $1,000 is the administrative cost to the government for issuing and administering contracts for the purpose of evaluating bids for multiple awards. The clause currently sets the administrative cost at $500, which has been in effect since 1990. Increasing the administrative cost from $500 to $1,000 would reflect an inflation adjustment based on the increase in the Consumer Price Index since 1990 (see http://data.bls.gov/cgi-bin/cpicalc.pldata).
  
  Comments on this proposed rule must be submitted no later than August 29, 2016, identified as “DFARS Case 2016-D020,” by any of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or (4) mail: Defense Acquisition Regulations System, Attn: Christopher Stiller, OUSD(AT&L) DPAP/DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
  
  
• Class Deviation on Contractor Personnel Performing in United States Africa Command Area of Responsibility: This class deviation requires the inclusion of DFARS 252.225-7980, Contractor Personnel Performing in the United States Africa Command Area of Responsibility (DEVIATION 2016-O0008), instead of DFARS 252.225-7040, Contractor Personnel Supporting U.S. Armed Forces Deployed Outside the United States, in all solicitations and contracts, including those using procedures authorized by FAR part 12, Acquisition of Commercial Items, that will require contractor personnel to perform in the AFRICOM area of responsibility (defined as “the entire continent of Africa, except Egypt”).
  
  This deviation rescinds and supersedes Class Deviation 2016-O0006 (see the March 2016 Federal Contracts Perspective article “DFARS Revised to Conform to FAR PIINs”). The sole difference between the two class deviations is the addition of the following to the definition of “Non-CAAF [Contractors Authorized to Accompany the Force]”: “Government-furnished support to non-CAAF is typically limited to force protection, emergency medical care, and basic human needs (e.g., bottled water, latrine facilities, security, and food when necessary) when performing their jobs in the direct vicinity of U.S. Armed Forces. Non-CAAF status does not apply to contractor personnel in support of applicable operations within the boundaries and territories of the United States.”
  
  
• Pilot Program Regarding Risk-Based Contracting for Smaller Contract Actions Under the Truth in Negotiations Act: This memorandum from Claire Grady, Director, Defense Procurement and Acquisition Policy, to each service’s deputy assistant secretary for procurement/acquisition/contracting, alerts them that Section 899 of NDAA for FY 2016 (Public Law 114-92) authorizes the secretary of defense to “conduct a pilot program to demonstrate the efficacy of using risk-based techniques in requiring the submission of cost and pricing data on a sampling basis for under Section 2306a of Title 10, United States Code (frequently referred to as ‘Truth in Negotiations Act’). This authority affords the department a unique opportunity in a pilot setting to assess the impact(s) of raising the threshold for obtaining certified cost or pricing data from $750,000 to $5,000,000 on prime contracts or subcontracts.”
  
  Ms. Grady encourages each of the services to identify at least one opportunity to test this authority and nominate it for her approval using the template that is attached to the memorandum. “This pilot authority is not to be used prior to October 1, 2016, but you may wish to identify candidate programs now for sole source requests for proposals you intend to issue later this year.”

Supreme Court Issues Two Acquisition-Related Decisions

For the first time in years, the U.S. Supreme Court addressed issues that affect federal acquisition, and it did so twice: once regarding the “rule of two,” the other regarding the False Claims Act.

• Kingdomware Technologies, Inc. v. United States (No. 14-916): In a 9-0 decision written by Justice Clarence Thomas, the Supreme Court ruled in favor of Kingdomware Technologies, Inc., a service-disabled veteran-owned small business that unsuccessfully vied for a federal contract from the Department of Veterans Affairs (VA) to provide emergency-notification services.
  
  In 2012, the VA procured emergency notification services through the Federal Supply Schedule (FSS) for four medical centers for a one-year period, with an option to extend the agreement for two more, from a non-veteran-owned business. After the initial year, VA exercised its option for an additional year, and the agreement ended in 2013.
  
  Kingdomware Technologies, Inc., filed a protest with the Government Accountability Office (GAO) alleging the VA procured multiple contracts through the FSS without employing the “rule of two” (paragraph (d) of 38 USC 8127, Small Business Concerns Owned and Controlled by Veterans: Contracting Goals and Preferences, states: “a contracting officer of the [VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States”). The VA sent a request for quotation to a non-veteran-owned company through the FSS, and it responded with a favorable price that the VA accepted. The VA argued that the “rule of two” did not apply to this particular situation because the VA had already achieved its annual minimum goal for awards to veteran-owned small businesses. The GAO determined that the VA’s actions were unlawful, but the VA declined to follow the GAO’s nonbinding recommendation.
  
  Kingdomware filed suit in the Court of Federal Claims, which ruled in favor of the VA. Kingdomware appealed to the Court of Appeals for the Federal Circuit, which upheld the decision by the Court of Federal Claims.
  
  The Supreme Court overturned the Court of Appeal's decision and ruled in favor of Kingdomware. “Unlike the word ‘may,’ which implies discretion, the word ‘shall’ usually connotes a requirement...Accordingly, the [VA] shall (or must) prefer veteran-owned small businesses when the rule of two is satisfied.”
  
  
• Universal Health Services, Inc. v. United States (No. 15-7, June 16, 2016): In an 8-0 decision written by Justice Clarence Thomas, the Supreme Court adopted the “implied false certification theory of liability,” which treats a payment request as a claimant’s implied certification of compliance with relevant statutes, regulations, or contract requirements that are material conditions of payment, and which treats a failure to disclose a violation as a misrepresentation that renders the claim “false or fraudulent.”
  
  Yarushka Rivera, a teenage beneficiary of Massachusetts’ Medicaid program, received counseling services for several years at Arbour Counseling Services, a mental health facility owned and operated by a subsidiary of petitioner Universal Health Services, Inc. She had an adverse reaction to a medication that a purported doctor at Arbour prescribed after diagnosing her with bipolar disorder. Her condition worsened, and she eventually died of a seizure.
  
  Ms. Rivera’s mother and stepfather later discovered that few Arbour employees were actually licensed to provide mental health counseling or authorized to prescribe medications or offer counseling services without supervision. They filed a suit under 31 USC 3729 et seq. (the False Claims Act, which was enacted in 1863 to stop the massive frauds perpetrated by contractors during the Civil War) seeking to hold Universal Health liable under the “implied false certification” theory, claiming that Universal Health defrauded the Medicaid program by submitting reimbursement claims that made representations about the specific services provided by specific types of professionals, but that failed to disclose serious violations of Massachusetts Medicaid regulations pertaining to staff qualifications and licensing requirements for these services. The Massachusetts Medicaid program, unaware of these deficiencies, paid the claims. Universal Health thus allegedly defrauded the program, which would not have reimbursed the claims had it known that it was billed for mental health services that were performed by unlicensed and unsupervised staff.
  
  The United States Court of Appeals for the First Circuit ruled in favor of Ms. Rivera’s parents, accepting the implied false certification theory. Since the United States of Appeals for the Seventh Circuit had rejected this theory in another case, the Supreme Court decided to resolve the disagreement.
  
  “Implied false certification theory can, at least in some circumstances, provide a basis for liability,” ruled the court. “By punishing defendants who submit ‘false or fraudulent claims,’ the False Claims Act encompasses claims that make fraudulent misrepresentations, which include certain misleading omissions. When, as here, a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.”
  
  Universal Health also asserted that Massachusetts did not expressly designate the qualifications of its employees as a condition of payment, so it should not face False Claims Act liability. The court ruled that the False Claims Act “imposes liability on those who present ‘false or fraudulent claims’ but does not limit such claims to misrepresentations about express conditions of payment…Nor does the common-law meaning of fraud tether liability to violating an express condition of payment. A statement that misleadingly omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.”
  
  However, the court went back to address the “materiality” standard in 31 USC 3729(a)(1)(B), which states a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” is liable to a civil penalty (italics added). The court opined that “the materiality standard is demanding. The False Claims Act is not “an all-purpose antifraud statute, or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial...If the government required contractors to aver their compliance with the entire U.S. Code and Code of Federal Regulations, then under this view, failing to mention noncompliance with any of those requirements would always be material. The False Claims Act does not adopt such an extraordinarily expansive view of liability.”
  
  The Supreme Court sent the case back to the Court of Appeals for the First Circuit for reconsideration. “We emphasize, however, that the False Claims Act is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations. This case centers on allegations of fraud, not medical malpractice. Respondents have alleged that Universal Health misrepresented its compliance with mental health facility requirements that are so central to the provision of mental health counseling that the Medicaid program would not have paid these claims had it known of these violations. Respondents may well have adequately pleaded a violation...But we leave it to the courts below to resolve this.”

Three Rules Proposed for the FAR

Unlike the DOD, the Federal Acquisition Regulation (FAR) Council took it easy, only issuing three proposed rules that are relatively inconsequential.

• Removal of Regulations Relating to Telegraphic Communication: This proposed rule would remove from the FAR the terms “telegram,”, “telegraph,” “telegraphic,” and related terminology to obsolete technologies no longer in use, and replace these terms with references to electronic communications.
  
  This terminology and way of communicating was incorporated into the FAR when it was issued in April 1, 1984. The emergence of electronic means of communication, starting with the facsimile machine, and then followed by email and mobile-phone text messages in the 1990s, resulted in the declining use of telegraph services and use of telegrams.
  
  In addition, the proposed rule would make the following changes:
  
  
  • FAR 49.102, Notice of Termination, would be revised to add the following to the paragraph (a), General: “The notice of termination may be expedited by means of electronic communication capable of providing confirmation of receipt by the contractor.”
    
    
  • FAR 49.601-1, Telegraphic Notice, would be retitled “Electronic Notice,” and would be revised to allow the use of electronic means to notify the contractor of a termination for convenience.
  
  Comments on this proposed rule must be submitted no later than August 5, 2016, identified as “FAR Case 2015-035,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street NW, 2nd Floor, Washington, DC 20405.
  
  
• Strategic Sourcing Documentation: This proposed rule would implement Section 836 of the NDAA for FY 2015 (Public Law 113-291) by amending FAR 8.004, Use of Other Sources, to require contracting officers, when purchasing supplies or services that are offered under the Federal Strategic Sourcing Initiative (FSSI) but the FSSI is not used, to document the contract file to include a brief analysis of the comparative value, including price and nonprice factors, between the supplies and services offered under the FSSI and those offered under the source(s) to be used for the purchase.
  
  The introduction to the proposed rule states that “strategic sourcing is the structured and collaborative process of critically analyzing an organization’s spending patterns to better leverage its purchasing power, reduce costs, and improve overall performance.”
  
  The FSSI is administered by the General Services Administration (GSA). According to the FSSI website (https://strategicsourcing.gov/), it is “a governmentwide program that allows agencies to work together to develop innovative sourcing strategies. FSSI enables the government to leverage its vast buying power, clarify requirements, improve vendor performance, better manage demand and business processes, and meet socioeconomic and environmental responsibilities. FSSI allows the government to approach vendors as a single, coordinated enterprise. Requirements are consolidated across agencies, and the government’s foremost experts on each commodity are brought together to share their experiences and develop solutions that are better than what could be achieved if each agency worked alone.” Currently, the FSSI includes “solutions” for office supplies; information services; janitorial and sanitation supplies; maintenance, repair, and operations; domestic delivery services; print management; and telecommunications expense management services.
  
  To implement Section 836, the following would be added to FAR 8.004 as paragraph (b): “Documentation requirements relating to the Federal Strategic Sourcing Initiative (FSSI). When purchasing supplies or services that are offered under the FSSI, but the FSSI is not used, the contract file shall be documented to include a brief analysis of the comparative value, including price and nonprice factors, between the supplies and services offered under the FSSI and those offered under the source(s) to be used for the purchase (Section 836 of Pub. L. 113-291).”
  
  In addition, this proposed rule would update FAR 13.301, Governmentwide Commercial Purchase Card, to clarify that for micropurchases made using the governmentwide purchase card, purchase card holders are to follow the documentation requirements of Office of Management and Budget (OMB) Circular A–123, Management’s Responsibility for Internal Control; Appendix B, Improving the Management of Government Charge Card Programs (available at https://www.whitehouse.gov/omb/circulars_default/).
  
  Comments on this proposed rule must be submitted no later than August 19, 2016, identified as “FAR Case 2015-015,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street NW, 2nd Floor, Washington, DC 20405.
  
  
• Acquisition Threshold for Special Emergency Procurement Authority: This proposed rule would implement Section 816 of the NDAA for FY 2016 (Public Law 114-92) to raise the simplified acquisition threshold from $300,000 to $750,000 within the United States and from $1,000,000 to $1,500,000 outside the United States for acquisitions of supplies or services that, as determined by the head of the agency, are to be used to support a contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack.
  
  The following would be revised to reflect this special emergency procurement authority: (1) the definition of “simplified acquisition threshold” in FAR 2.101, Definitions; (2) paragraph (b)(1) of FAR 13.003, Policy [for simplified acquisition procedures]; (3) paragraph (b) of FAR 19.203, Relationship Among Small Business Programs; and (4) paragraph (a) of FAR 19.502-2, Total Small Business Set-Asides.
  
  Comments on this proposed rule must be submitted no later than August 19, 2016, identified as “FAR Case 2016-004,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: General Services Administration, Regulatory Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street NW, 2nd Floor, Washington, DC 20405.

OFCCP Revises Sex Discrimination Rules

The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has revised its equal employment opportunity regulations at Title 41 of the Code of Federal Regulations (CFR), part 60-20, Sex Discrimination Guidelines (41 CFR part 60-20), which have not been substantively updated since they were first promulgated in 1970.

41 CFR part 60-20 implements Executive Order 11246, Equal Employment Opportunity, September 24, 1965, which prohibits federal contractors and subcontractors that receive contracts of more than $10,000 during any 12-month period from discriminating “against any employee or applicant for employment because of race, creed, color, or national origin.” Executive Order 11246 was amended by Executive Order 11478, Equal Employment Opportunity in the Federal Government, August 8, 1969, to bar discrimination against federal employees on the basis of race, color, religion, sex, national origin, handicap, and age. Executive Order 13087, Further Amendment to Executive Order 11478, May 28, 1998, added “sexual orientation” to the list of protected categories. (NOTE: Executive Order 11246, as amended, is implemented in FAR subpart 22.8, Equal Employment Opportunity, and the corresponding clause FAR 52.222-26, Equal Opportunity.)

On July 21, 2014, President Obama issued Executive Order 13672, Equal Employment Opportunity Amendments Regarding Sexual Orientation and Gender Identity, which further amended Executive Order 11246 to prohibit federal contractors from discriminating against lesbian, gay, bisexual, and transgender (LGBT) employees, and amended Executive Order 11478 to prohibit discrimination based on gender identity in federal employment (see the August 2014 Federal Contracts Perspective article “Sexual Orientation and Gender Identity Order Issued”).

Considering all these changes made to Executive Order 11246 since 1970, OFCCP decided to update the guidelines, and it published a proposal to completely revise 41 CFR 60-20 (see the March 2015 Federal Contracts Perspective article “OFCCP Proposes Updates to Sex Discrimination Rules”). Proposed 41 CFR 60-20.2, General Prohibition, summarized the proscribed activities: “It is unlawful for a contractor to discriminate against any employee or applicant for employment because of sex. The term ‘sex’ includes, but is not limited to pregnancy, childbirth, or related medical conditions; gender identity; and transgender status.” 41 CFR 60-20.2 then provided 11 examples of unlawful sex-based discriminatory practices, and four examples of employment policies or practices that have an adverse impact on the basis of sex and are not job-related and consistent with business necessity.

OFCCP received 553 comments on the proposal. They include 445 largely identical form-letter comments from 444 individuals expressing general support, apparently as part of an organized comment-writing effort. The 108 remaining comments represented diverse perspectives. In response to the comments, 41 CFR 60-20.2 is finalized with the inclusion of the following three additional examples of unlawful sex-based discriminatory practices:

• Treating men and women differently with regard to the availability of flexible work arrangements;
  
  
• Applying different standards in hiring or promoting men and women on the basis of sex; and
  
  
• Steering women into lower-paying or less desirable jobs on the basis of sex.

In addition, one of the four examples of employment policies or practices that have an adverse impact on the basis of sex (“a policy prohibiting large equipment operators from using a restroom while on the job, which adversely impacts women, who may require the use of restrooms more than men”) is replaced with “conditioning entry into an apprenticeship or training program on performance on a written test, interview, or other selection procedure that has an adverse impact on women where the contractor cannot establish the validity of the selection procedure consistent with the Uniform Guidelines on Employee Selection Procedures, 41 CFR part 60-3.”

EPA Tidies Up the EPAAR

The Environmental Protection Agency (EPA) is tidying up the EPA Acquisition Regulation (EPAAR) by removing EPAAR 1536.201, Evaluation of Contracting Performance, which addressed the evaluation of contractor performance under construction contracts, because it was superseded by FAR 42.1502, Policy (see the September 2013 Federal Contracts Perspective article “FAC 2005-69 Establishes Standardized Past Performance Evaluation Factors and Ratings”).

In addition, paragraph (c) of EPAAR 1537.110, Solicitation Provisions and Contract Clauses [for service contracts], is amended to permit contracting officers to increase the length of time key personnel must be committed to the contract (EPAAR 1552.237-72, Key Personnel, requires “the first 90 days of performance”). Paragraph (c) states, “The contracting officer shall insert the clause at [EPAAR] 1552.237-72, Key Personnel, in solicitations and contracts when it is necessary for contract performance to identify contractor key personnel.” To that is added the following: “Contracting officers have the flexibility to identify the required number of days of key personnel commitment during the early stages of contractor performance. The length of time will be based on the requirements of individual acquisitions when continued assignment is essential to the successful implementation of the program's mission. Therefore, contracting officers may use a clause substantially the same as in EPAAR 1552.237-72, regarding substitution of key personnel. Contracting officers may include a different number of days in excess of the ninety (90) days included in this 1552.237-72clause, if approved at one level above the contracting officer.”

No comments were submitted on the proposed rule, so it is finalized without changes. For more on the proposed rule, see the September 2014 Federal Contracts Perspective article “EPA Proposes to Clean Up the EPAAR.”

GSA Does Some Tidying Up, Too

The General Services Administration (GSA) conducted a little housekeeping of its own on the GSA Acquisition Regulation (GSAR), updating two GSAR parts to reflect current regulations and correspond to the organization of the FAR, and to implement several statutory requirements pertaining to the use of GSA’s sources of supply by non-federal entities.

• Rewrite of Part 515, Contracting by Negotiation: This final rule revises GSAR part 515 and its corresponding provisions and clauses by eliminating obsolete references and reorganizing the text to align with FAR part 15. In addition, several editorial changes are made, such as changing “$100,000” to “simplified acquisition threshold” because the threshold is adjusted for inflation every five years (the simplified acquisition threshold is now $150,000). Finally, several sections that are internal instructions for GSA personnel are removed from the GSAR and placed in the non-regulatory GSA Acquisition Manual (GSAM) part 515 as the requirements apply internally to GSA and not the public.
  
  A proposed rule was published in 2008 that sought to move language and clauses associated with Multiple Award Schedule (MAS) contracts from GSAR part 515 to GSAR part 538, Federal Supply Schedule Contracting (see the November 2008 Federal Contracts Perspective article “GSAR Rewrite Keeps Rolling Along”). However, of all the proposed changes in that proposed rule, only paragraphs (c) and (d) of GSAR 515.209-70, Examination of Records by GSA, and its associated clause GSAR 552.215-71, Examination of Records by GSA (Multiple Award Schedules), have been retained in the proposed rule that was published in 2014 and would consolidate all MAS provisions and clauses together in GSAR part 538 and GSAR 552.238 (as proposed paragraph (d)(9) of GSAR 538.273, FSS Solicitation Provisions and Contract Clauses, and GSAR 552.238-94, Examination of Records by GSA Federal Supply Schedules, respectively) (see the October 2014 Federal Contracts Perspective article “GSA to Update GSAR FSS Provisions/Clauses”). The remaining MAS provisions and clauses will be retained in GSAM part 515 and GSAR 552.215 until this GSAR part 538 rule is finalized.
  
  
• Rewrite of Part 517, Special Contracting Methods: This final rule amends GSAR part 517, Special Contracting Methods, to update requirements for special contracting methods by eliminating out-of-date references and reorganizing the text to align with FAR part 17. The following are the most significant changes being made by this rule:
  
  
  • Paragraph (b) of GSAR 517.200, Scope of Subpart [options], paragraphs (a)(2)(iv) and (a)(2)(v) of GSAR 517.202, and paragraph (a) of GSAR 517.207, Exercise of Options, are deleted.
    
    
  • GSAR 517.203, Solicitations [with options], is removed because it is duplicative of FAR 17.207, Exercise of Options, and GSAR 517.207.
    
    
  • Paragraph (b) of GSAR 517.207 is replaced with new text that clarifies the need for the contracting officer to document the determination to exercise the option.
    
    
  • Administrative and typographical changes.
  
  A proposed rule was published in 2008 to update GSAM part 517 (see the July 2008 Federal Contracts Perspective article “GSAR Undergoing Rewrite”). Though no comments were submitted in response to the proposed rule, no action was taken to finalize it. In 2015, a second proposed rule was published because of additional edits to GSAR part 517 and the length of time since 2008. No comments were submitted in response to the second proposed rule, but the following proposals in the second rule are not adopted in the final rule:
  
  
  • The proposed text in GSAR 517.203 that cross-referenced the requirements in FAR 22.407, Solicitation Provision and Contract Clauses [in construction contracts], when using options was not retained because the FAR adequately addresses the inclusion of option clauses.
    
    
  • The proposed text in GSAR 517.207 that reminded contracting officers to seek new wage determinations when exercising options was not retained since the requirement is adequately addressed in FAR 22.1007, Requirement to Obtain Wage Determinations, and FAR 22.404-12, Labor Standards for Contracts Containing Construction Requirements and Option Provisions That Extend the Term of the Contract.
  
  
• Purchasing by Non-Federal Entities: This finalizes, with changes, the proposal to revise GSAR subpart 538.70, Purchasing by Non-Federal Entities, and corresponding clauses to implement Section 2 of the Federal Supply Schedules Usage Act of 2010 (FSSUA – Public Law 111-263), Section 101 of the Native American Housing Assistance and Self-Determination Reauthorization Act of 2008 (NAHASDA – Public Law 110-411), Section 833 of the NDAA for FY 2007 (Public Law 109-364), and the Local Preparedness Acquisition Act for FY 2008 (LPAA – Public Law 110-248).
  
  
  • The NDAA and the FSSUA provide state and local use of Federal Supply Schedules (FSS) for the purchase of goods and services to be used to facilitate recovery from a major disaster declared by the president under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 USC 5150) (see FAR subpart 26.2, Disaster or Emergency Assistance Activities) or to facilitate recovery from terrorism or nuclear, biological, chemical, or radiological attack. (The FSSUA authorizes the American National Red Cross and “other qualified organizations to use the FSS to facilitate emergency preparedness and disaster relief. “Other qualified organizations” are relief or disaster assistance organizations as described in the Robert T. Stafford Disaster Relief and Emergency Assistance Act.)
    
    
  • Section 211 of the eGovernment Act of 2002 (Public Law 107-347) authorized state, local, regional, and tribal governments to use FSS to acquire automated data processing equipment (including firmware), software, supplies, support equipment, and services (as contained in Schedule 70, General Purpose Commercial Information Technology Equipment, Software, and Services). The LPAA expands the eGovernment Act to authorize state, local, regional, and tribal governments to use FSS for alarm and signal systems, facility management systems, firefighting and rescue equipment, law enforcement and security equipment, marine craft and related equipment, special purpose clothing, and related services (as contained in Schedule 84, Total Solutions for Law Enforcement, Security, Facilities Management, Fire, Rescue, Marine Craft, and Emergency/Disaster Response).
    
    
  • The NAHASDA provides that “each Indian tribe or tribally designated housing entity shall be considered to be an executive agency in carrying out any program, service, or other activity under this act; and each Indian tribe or tribally designated housing entity and each employee of the Indian tribe or tribally designated housing entity shall have access to sources of supply on the same basis as employees of an executive agency.” Therefore, tribes or tribally designated housing entities expending funds from block grants under the NAHASDA may access GSA’s sources of supply, including the Federal Supply Schedules, at their discretion.
  
  This final rule amends GSAR subpart 538.70 and GSAR 552.238-78, Scope of Contract (Eligible Ordering Activities), to reflect the expansion of the FSS as authorized by these statutes. In addition, GSAR 552.238-76, Definition (Federal Supply Schedules) – Recovery Purchasing, and GSAR 552.238-80, Use of Federal Supply Schedule Contracts by Certain Entities – Recovery Purchasing, are removed.
  
  Two respondents submitted comments on the proposed rule, and several editorial changes were made in response. For more on the proposed rule, see the May 2014 Federal Contracts Perspective article “GSA Expands Uses of Industrial Funding Fee.”

OMB Establishes New Software Licensing Policy

The Office of Management and Budget (OMB) has issued the second in a series of information technology (IT) policies to make the acquisition and management of common IT goods and services more efficient and cost-effective (the first policy addressed the acquisition of laptops and desktops – see the November 2015 Federal Contracts Perspective article “OMB Establishes Standard Configurations for Laptop and Desktop Computers”).

“Each year, the federal government spends more than $6 billion on software through more than 42,000 transactions, which results in a fragmented and inefficient marketplace,” wrote Anne Rung, Office of Federal Procurement Policy administrator, and Tony Scott, U.S. Chief Information Officer, in the memorandum with the subject “Category Management Policy 16-1: Improving the Acquisition and Management of Common Information Technology: Software Licensing,” to the 24 departments and agencies covered by the Chief Financial Officers (CFO) Act of 1990 (Public Law 101-576) [see below]. “A recent report by the Government Accountability Office (GAO) [GAO-14-413, Federal Software Licenses: Better Management Needed to Achieve Significant Savings Government-Wide] indicates that agencies buy and manage software licenses in a decentralized manner, struggle to create accurate inventories, often purchase unneeded capabilities, and generally do not share pricing, terms, and conditions across government to facilitate better purchasing. Furthermore, most agencies do not have a designated central oversight authority to manage software agreements.”

Rung and Scott continue: “To fully leverage the government’s vast buying power and implement coordinated government-wide purchasing and usage strategies, improvements must be made at both the agency and the government-wide levels. Agencies need to move to a more centralized and collaborative software management approach so that they can optimize utilization of commercial and COTS [commercial-off-the-shelf] software licenses and maximize the use of best-in-class software purchasing and management solutions. In parallel, government-wide strategies are needed to reduce duplication of efforts, such as increasing the number and use of government-wide software agreements, improving software license management practices through automated IT asset discovery tools and business intelligence software. The success of these government-wide steps depends on the improvements that agencies make to integrate their own license management practices into the government-wide license offerings.”

The following are the steps each participant in the process must take:

• Agencies’ Chief Information Officers (CIOs), in coordination with Chief Acquisition Officers (CAOs) and CFOs, shall:
  
  
  • No later than 45 days after issuance of this memo [that is, July 17], appoint a software manager, who is responsible for managing, through policy and procedure, all agency-wide commercial and COTS software agreements and licenses. The software manager will report to the agency CIO and will work in collaboration with the CIO, CAO, CFO, and other organizations as appropriate.
    
    
  • Maintain a continual agency-wide inventory of software licenses, including all licenses purchased, deployed, and in use, as well as spending on subscription services (to include provisional [that is, cloud] software as a service agreement [SaaS]). “No later than September 30, 2016, covered agencies shall, to the extent practicable, compile a baseline inventory of their commercial and COTS software licenses purchased, deployed, and in use.”
    
    
  • Analyze inventory data to ensure compliance with software license agreements, consolidate redundant applications, and identify other cost-saving opportunities. “Beginning November 30, 2016, and each quarter thereafter, all departments and agencies shall report to the OMB Integrated Data Collection all cost savings and cost avoidance attributable to improved software license management.”
  
  
• Establish a Enterprise Software Category Team (ESCT) – a cross-governmental, cross-functional team of senior IT and acquisition professionals (co-managed by the General Services Administration, the Department of Defense, and OMB) to lead the software effort and help break down silos in the federal government IT acquisition space that can result in decentralization, lack of transparency, and other challenges. It’s primary functions will be to:
  
  
  • Identify and promote existing best-in-class agreements.
    
    
  • Develop new government-wide software agreements and reduce redundancy in software purchasing vehicles.

“As a reminder, generally agencies should not agree to terms and conditions that prohibit the sharing of all prices, terms, and conditions for commercial and COTS software licenses with other government entities (including posting said information to the Acquisition Gateway [https://hallways.cap.gsa.gov/login-information – see the March 2016 Federal Contracts Perspective article “GSA Opens Federal Acquisition Gateway to Public”]). When terms or conditions are identified that seem to preclude an agency from sharing prices paid with other federal agencies, the covered agency shall ensure removal of these terms and conditions during the negotiation process for the contract or the option period renewal.”

The policy memorandum applies only to commercial and COTS software, not custom services or the development of new software.

OMB issued a draft memorandum in December 2015 for comments, and it was adopted, for the most part, in the final memorandum. For more on the draft memorandum, see the January 2016 Federal Contracts Perspective article “OMB Proposes New Software Licensing Policy.”

NOTE: The following are the departments and agencies covered by the CFO Act:

Departments: Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs.

Agencies: Environmental Protection Agency, National Aeronautics and Space Administration, Agency for International Development, General Services Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, Small Business Administration, and Social Security Administration.

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