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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


September 2016
Vol. XVII, No. 9
[pdf version]

CONTENTS


FAC 2005-90 Establishes “Fair Pay and Safe Workplaces” Representation
DOD Issues Rules on Counterfeit Electronic Parts
OMB Issues Policy on Mobile Devices and Services
GAO Bans Protestor from Protesting
IRS Issues Regulations on 2% Foreign Procurement Tax
OMB Issues 2017 Version of the NAICS
Federal Source Code Policy Established
NASA Clarifies Award Fee Evaluations and Payments



FAC 2005-90 Establishes “Fair Pay and Safe Workplaces” Representation

Federal Acquisition Circular (FAC) 2005-90 implements Executive Order 13673, Fair Pay and Safe Workplaces, by adding new Federal Acquisition Regulation (FAR) subpart 22.20, Fair Pay and Safe Workplaces, which requires each offeror to represent whether there has been any administrative merits determination, arbitral award or decision, or civil judgment rendered against it within the preceding three-years of any of 14 labor laws and executive orders (and “equivalent state laws”), and to disclose those violations to the contracting officer for consideration in determining the offeror’s “responsibility.” In conjunction with FAC 2005-90, the Department of Labor (DOL) published guidance on how the contracting officer is to assess a contractor’s overall record of labor law compliance and carry out his or her other duties under the executive order. (For more on Executive Order 13673, see the September 2014 Federal Contracts Perspective article “Obama Issues Order Requiring That Contractors Provide ‘Fair Pay and Safe Workplaces’”).

The FAR rule goes into effect on October 25, 2016.

The labor laws covered by Executive Order 13673 and the implementing FAR rule and DOL guidance are:

In addition, the executive order requires contractors and subcontractors to provide their workers on federal contracts with information each pay period regarding how their pay is calculated (a wage statement) and provide notice to those workers whom they treat as independent contractors.

The proposed FAR subpart 22.20 would provide direction to contracting officers on how they are to obtain disclosures from contractors on their labor law violations; how to consider disclosures when making responsibility determinations and decisions whether to exercise options; and how to work with agency labor compliance advisors (ALCAs), a new position created by Executive Order 13673 who will advise contracting officers in assessing labor law violations, mitigating factors, and remedial measures. New solicitation provisions and contract clauses were proposed in FAR part 52 to incorporate into contracts with estimated values exceeding $500,000, and into subcontracts over that value (other than subcontracts for commercially available off-the-shelf [COTS] items).

Simultaneously, DOL issued a proposed “Guidance for Executive Order 13673, Fair Pay and Safe Workplaces” that would work hand-in-hand with the FAR rule. DOL’s proposed guidance would provide proposed definitions; how to determine whether a labor law decision is reportable; what information about labor law decisions must be disclosed; how to analyze the severity of labor law violations; and the role of ALCAs, DOL, and other enforcement agencies in addressing labor law violations. (For more on the FAR proposed rule and DOL’s proposed guidance, see the June 2015 Federal Contracts Perspective article “FAR Council, Labor Issue Proposed Regulations, Guidance on ‘Fair Pay and Safe Workplaces’ Executive Order.” Also, see https://www.dol.gov/asp/fairpayandsafeworkplaces/.)

In response to the request for comments on the proposed FAR rule, 927 respondents submitted comments (along with about 11,600 mass mailings); in response to the request for comments on DOL’s proposed guidance, 109 respondents submitted comments (along with 7,814 mass mailings and form letters). Many respondents submitted comments to both the FAR Council and DOL. In response, the following significant changes are made to the FAR final rule and the DOL final guidance:

FAR Final Rule

DOL Guidance

Besides revising the guidance to reflect the changes made to the FAR final rule, the following significant changes are made to each section of DOL’s guidance:

EDITOR’S NOTE: A fact sheet issued with Executive Order 13673 observed that “the vast majority of federal contractors have clean records. The Department of Labor estimates that the overwhelming majority of companies with federal contracts have no federal workplace violations in the past three years.” Yet the FAR final rule states that it will cost $474,000,000 in the first year to implement the rule and $260,000,000 each year afterward to maintain tracking mechanisms and business systems, and to file required reports. For what purpose? All of these laws are on the books, and the information contractors must certify and provide is contained in various federal databases already. The problem is that the databases aren’t interconnected or easy to use. So the Obama Administration's answer is to require contractors to provide the information to a new database (and we all know how well the federal government runs its databases)! Essentially, the executive order is a sop to one of President Obama’s key constituencies – labor – and offerors, contractors, and contracting officers will be forced to deal with more make-work for little benefit. And it will cost the federal taxpayers billions of dollars (the contractors aren’t going to absorb that cost)! But that’s how the federal government works in the 21st century, and why the government continues to become more and more bloated.



DOD Issues Rules on Counterfeit Electronic Parts

The Department of Defense (DOD) continues to amend the Defense FAR Supplement (DFARS) to implement amendments to Section 818, Detection and Avoidance of Counterfeit Electronic Parts, of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2012 (Public Law 112-81), by issuing two final rules and one proposed rule. Section 818 directs the secretary of defense to “conduct an assessment of Department of Defense acquisition policies and systems for the detection and avoidance of counterfeit electronic parts,” and it has been amended repeatedly by subsequent NDAAs.

In addition to these three rules, DOD issued during August four final rules, three proposed rules, a class deviation, and two memoranda.



OMB Issues Policy on Mobile Devices and Services

The Office of Management and Budget (OMB) has issued the third 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. This policy, “Category Management Policy 16-3: Improving the Acquisition and Management of Common Information Technology: Mobile Devices and Services,” seeks to improve the acquisition and management of $1 billion worth of mobile devices and services (such as cell phones and cell phone services) spent each year by consolidating contracts, mandating use of one or more government-wide best-in-class contract solutions, improving demand management, and increasing accountability of agency officials. According to the OMBlog issued by Anne Rung, Administrator of the Office of Federal Procurement Policy (OFPP), and Tony Scott, U.S. Chief Information Officer, “it will help simplify the federal marketplace for mobile devices and services by reducing fragmentation and duplication of the over 1,200 separate mobile agreements and more than 200 unique service plans managed by the federal government.” (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”; the second policy addressed software licensing – see the July 2016 Federal Contracts Perspective article “OMB Establishes New Software Licensing Policy”).

The policy directs agencies to report all mobile service usage and pricing data to a centrally managed system, eliminate unnecessary inventory and services, and use government- or agency-wide solutions, if appropriate.

The primary difference between the draft memorandum (see the April 2016 Federal Contracts Perspective article “OMB Issues Draft Policy on Mobile Devices”) and the final memorandum is the inclusion of Appendix A, Mobile Services Category Team (MSCT) Roles and Responsibilities. The MSCT is led by OMB, DOD, the General Services Administration (GSA), and the Department of Homeland Security, and comprised of mobile devices and services subject matter experts. “The MSCT will develop a strategic plan no later than October 31, 2016, to be evaluated annually, for at least one next generation governmentwide acquisition solution to be awarded prior to May 31, 2018. The strategic plan, including an implementation plan for mobile devices and services, should reduce the total cost of ownership and improve enterprise management of mobile technology while minimizing risk and redundancy.”



GAO Bans Protestor from Protesting

In an extremely rare action, the Government Accountability Officer (GAO) has suspended a protestor from protesting for one year because of “abuse of process.”

The protestor, Latvian Connection, LLC, of Healdsburg, CA, and Kuwait City, Kuwait, which represents that it is a service-disabled veteran-owned small business (SDVOSB), protested the issuance of a task order by the Defense Information Systems Agency (DISA) to ManTech Advanced Systems International, Inc. for engineering services, maintaining that DISA improperly failed to set aside the acquisition for small businesses and to post the solicitation on Federal Business Opportunities (FedBizOpps – https://www.fbo.gov). The total value of the task order was $1,360,923.93 (B-413442, Latvian Connection LLC, August 18, 2016).

First of all, GAO dismissed Latvian Connection’s protest because GAO lacks jurisdiction to consider protests against task orders valued below $10,000,000 (see paragraph (a)(10)(i) of FAR 16.505, Ordering [on Federal Supply Schedules]). In addition, GAO ruled that Latvian Connection is not an interested party to pursue the protest because it is not one of the awardees of the indefinite-delivery/indefinite-quantity (IDIQ) contract.

Then GAO goes on to the more interesting reason for dismissing Latvian Connection’s protest:

“Our records show that, thus far this fiscal year, Latvian Connection has filed 150 protests with our office. Of the 131 protests closed to date this fiscal year, one was denied on the merits. The remaining protests were dismissed, the most common reason being that Latvian Connection was not an interested partY...Latvian Connection’s protest filings typically are a collection of excerpts cut and pasted from a wide range of documents having varying degrees of relevance to the procurements at issue, interspersed with remarks from the protester. The tone of the filings is derogatory and abusive towards both agency officials and GAO attorneys. The most common allegations raised in Latvian Connection’s protests are that the acquiring agency improperly has failed to set aside an acquisition for SDVOSBs or small businesses, and/or that the agency has failed to publicize the procurement through the required government point of entry, www.fbo.gov.

“In recent months, Latvian Connection has claimed that agency and GAO officials are white collar criminals; that the actions of agency procurement officials have violated the Racketeer Influenced and Corrupt Organizations Act, 18 USC 1961-1968; that various federal agency officials have engaged in treason; that GAO has violated the Equal Access to Justice Act, 5 USC 504; and that agency and GAO officials have engaged in activities that amount either to engaging in, or covering up, human trafficking and slavery.

“It has become evident to our office, and to procuring activities across the government, that Latvian Connection’s protests are not filed for the purpose of allowing the firm to compete on a relatively equal basis for a requirement that it is capable of, and interested in, performing. Moreover, the effect of Latvian Connection’s protests is to hector the acquiring activities – and our forum – with a stream of protests that divert our collective time and resources…Because of these abusive litigation practices, and to protect the integrity of our bid protest forum and provide for the orderly and expedited resolution of protests, we are suspending Latvian Connection from protesting to our office for a period of one year as of the date of this decision. We are taking this action to conserve limited government resources that would otherwise be expended to respond to meritless protests filed by an entity with no direct economic interest in the outcome (as required by our statute and regulations). We are also taking this action because we have seen no evidence that Latvian Connection is prepared to engage constructively on the issues raised by the protests it files.”



IRS Issues Regulations on 2% Foreign Procurement Tax

The Internal Revenue Service (IRS) has issued regulations under Section 5000C of the IRS Code (Title 26 of the U.S. Code [26 USC]) relating to the 2% tax on payments made by the U.S. government to foreign persons for “(1) the provision of goods, if such goods are manufactured or produced in any country which is not a party to an international procurement agreement with the United States, or (2) the provision of services, if such services are provided in any country which is not a party to an international procurement agreement with the United States” (Section 301 of the James Zadroga 9/11 Health and Compensation Act of 2010 [Public Law 111-347], which added Section 5000C to the Internal Revenue Code [26 USC 5000C]).

A rule in FAC 2005-65 revised FAR 31.205-41, Taxes, to add a paragraph (b)(8) that “any tax imposed under 26 USC 5000C” is not an allowable cost. In addition, the rule added “Taxes imposed under 26 USC 5000C may not be (i) included in the contract price; nor (ii) reimbursed” to FAR 52.229-3, Federal, State, and Local Taxes; FAR 52.229-4, Federal, State, and Local Taxes (State and Local Adjustments); FAR 52.229-6, Taxes – Foreign Fixed-Price Contracts; and FAR 52.229-7, Taxes – Fixed-Price Contract With Foreign Governments (see the February 2013 Federal Contracts Perspective article “FAC 2005-65 Extends Task Order Protest Authority”). However, there were no instructions on how one was to determine whether 26 USC 5000C applies to a payment to a foreign person.

With this final rule, the IRS has issued regulations in Title 26 of the Code of Federal Regulations (CFR), Part 1, Section 5000C (26 CFR 1-5000C), Tax on Certain Foreign Procurement, on how to impose this 2% tax and report it. The key sections are 26 CFR 1.5000C-1, Tax on Specified Federal Procurement Payments (particularly paragraph (d), Exemptions), and 26 CFR 1.5000C-2, Withholding on Specified Federal Procurement Payments (particularly paragraph (b), Steps in Determining the Obligation to Withhold Under Section 5000C). The following are the 10 steps specified in 26 CFR 1.5000C-2(b), supplemented by information in 26 CFR 1.5000C-1(d):

  1. Determine whether the payment is made under a contract for goods or services. If the acquiring agency is making a payment for any other purpose, it does not have an obligation to withhold under Section 5000C on the payment.

  2. Determine whether the payment is made under a contract with a U.S. person. If the other contracting party is a U.S. person, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  3. Determine whether the payment is for purchases under FAR part 13, Simplified Acquisition Procedures. The acquiring agency determines whether the payment is for purchases under simplified acquisitions procedures that do not exceed the simplified acquisition threshold as described in FAR 2.101, Definitions [currently $150,000]. If it is, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  4. Determine whether the payment is for emergency acquisitions awarded under the authority of FAR 6.302-2, Unusual and Compelling Urgency, or entered into under the acquisition flexibilities in FAR part 18, Emergency Acquisitions. If it is, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  5. Determine whether the payment is for personal services under the simplified acquisition threshold [$150,000]. The acquiring agency determines whether payments for services under contracts with a single individual do not exceed the simplified acquisition threshold as described in FAR 2.101 on an annual basis for all years of the contract. If that is the case, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  6. Determine whether the payment is with a foreign contracting party to obtain goods or services for the purpose of providing foreign humanitarian assistance as described in 26 CFR 1.5000C-1(d)(4). If it is, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  7. Determine whether the foreign contracting party is entitled to relief because of an international agreement. If the foreign contracting party submits a Section 5000C Certificate or a Form W-14, Certificate of Foreign Contracting Party Receiving Federal Procurement Payments, representing that the foreign contracting party is entitled to relief from the tax imposed under Section 5000C because of an international agreement with the U.S. (such as the nondiscrimination provision of a qualified income tax treaty), the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  8. Determine whether the contract is for goods manufactured or produced or services provided in the United States or in a foreign country that is a party to an international procurement agreement (“the World Trade Organization Government Procurement Agreement within the meaning of [FAR] 25.400(a)(1) [Scope of Subpart on Trade Agreements] and any free trade agreement to which the United States is a party that includes government procurement obligations that provide appropriate competitive government procurement opportunities to U.S. goods, services, and suppliers” – 26 CFR 1.5000C-1(c)(8)). If the foreign contracting party submits a Section 5000C Certificate or Form W-14 that represents the contract is for goods manufactured or produced or services provided in the United States, or in a foreign country that is a party to an international procurement agreement, the acquiring agency does not have an obligation to withhold under Section 5000C on the payment.

  9. Compute amounts to withhold. If, after evaluating each of these steps, the acquiring agency determines it has an obligation to withhold, the acquiring agency computes the amount of withholding by multiplying the amount of the payment by 2%.

  10. Deposit and report amounts withheld.

EDITOR'S NOTE: As one can see, the 2% tax won't have to be withheld very often!



OMB Issues 2017 Version of the NAICS

The Office of Management and Budget (OMB) has announced its final decisions for adoption of North American Industry Classification System (NAICS) revisions for 2017. These decisions update the industry classification system to clarify existing industry definitions and content, recognize new and emerging industries, and correct errors and omissions in the 2012 version of the NAICS.

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

In August 2015, OMB solicited comments on proposed revisions to NAICS (NAICS 2017). The recommendations involved 28 industries, primarily those involved petroleum and natural gas extraction, mining, major household appliance manufacturing, electronic shopping and mail-order houses, and research and development in nanotechnology (see the September 2015 Federal Contracts Perspective article “Updates for 2017 Version of NAICS Proposed”).

After considering the comments that were submitted, and after consultation with Mexico and Canada, the proposed NAICS 2017 is adopted as final with one minor exception: the title of NAICS 33522 is changed from “Major Appliance Manufacturing” to “Major Household Appliance Manufacturing” so that it aligns with NAICS 335220, Major Household Appliance Manufacturing.



Federal Source Code Policy Established

OMB’s Anne Rung, Administrator of the Office of Federal Procurement Policy (OFPP), and Tony Scott, U.S. Chief Information Officer, have issued “Federal Source Code Policy” to support improved access to custom software code. “Each year, the federal government spends more than $6 billion on software through more than 42,000 transactions," they wrote in the introduction to the policy. "A significant proportion of software used by the government is comprised of either preexisting federal solutions or commercial solutions. These solutions include proprietary, open source, and mixed source code and often do not require additional custom code development.”

When a federal agency is unable to identify an existing federal or commercial software solution that satisfies its needs, it may decide to develop a custom software solution on its own or pay for its development. Unfortunately, when agencies procure custom-developed source code, they do not necessarily make the new code broadly available for federal reuse. Even when agencies are able to make their source code available to the rest of the government, they do not do so in a consistent manner. The result is duplicative acquisitions for substantially similar code, wasting taxpayer dollars.

To improve government software development and make the government more open, transparent, and accessible to the public, OMB has issued the following policy:

Also, OMB is instituting a pilot program in which agencies will be required to release at least 20% of its new custom-developed code as OSS for three years, and “are strongly encouraged to release as much custom-developed code as possible to further the federal government’s commitment to transparency, participation, and collaboration…This collaborative atmosphere can make it easier to conduct software peer review and security testing, to reuse existing solutions, and to share technical knowledge. Furthermore, vendors participating in or competing for future maintenance or enhancement can do so with full knowledge of the underlying source code.” (EDITOR’S NOTE: Appendix A of the policy defines “open source software” as “software that can be accessed, used, modified, and shared by anyone. OSS is often distributed under licenses that comply with the definition of ‘open source’ provided by the Open Source Initiative [https://opensource.org/osd] and/or that meet the definition of ‘free software’ provided by the Free Software Foundation [https://www.gnu.org/philosophy/free-sw.html].”

In an OMBlog entry, Tony Scott wrote, “By making source code available for sharing and re-use across federal agencies, we can avoid duplicative custom software purchases and promote innovation and collaboration across federal agencies. By opening more of our code to the brightest minds inside and outside of government, we can enable them to work together to ensure that the code is reliable and effective in furthering our national objectives. And we can do all of this while remaining consistent with the federal government’s long-standing policy of technology neutrality, through which we seek to ensure that federal investments in IT [information technology] are merit-based, improve the performance of our government, and create value for the American people.”



NASA Clarifies Award Fee Evaluations and Payments

The National Aeronautics and Space Administration (NASA) is finalizing, without changes, the rule that proposed to: (1) amend NASA FAR Supplement (NFS) subpart 1816.4, Incentive Contracts, and NFS 1852.216-77, Award Fee for End Item Contracts, to clarify NASA’s award fee process by incorporating terms used in award fee contracting (adding NFS 1816.001, Definitions, which would include definitions for “earned award fee” and “unearned award fee”); and (2) provide guidance relative to final award fee evaluations (paragraph (b) of NFS 1816.405-273, Award Fee Evaluations), the release of source selection information (NFS 1816.405-273(c)), and the calculation of the provisional award fee payment percentage in NASA end-item award fee contracts (paragraph (b) of NFS 1816.405-276, Award Fee Payments and Limitations, and paragraph (c)(3) of NFS 1852.216-77, Award Fee for End Item Contracts).

Also, since Federal Acquisition Circular (FAC) 2005-17 rewrote FAR part 45, Government Property, and removed FAR 52.216-13, Allowable Cost and Payment – Facilities, references to FAR 52.216-13 are removed from NFS 1816.307, Contract Clauses, NFS 1816.307-70, NASA Contract Clauses, and NFS 1852.216-89, Assignment and Release Forms.

One respondent submitted a comment on the proposed rule, but no changes were made in response to the comment, so the rule is finalized without changes. For more on the proposed rule, see the May 2016 Federal Contracts Perspective article “NASA Proposes to Clarify Award Fee Process.” For more on FAC 2005-17, see the June 2007 Federal Contracts Perspective article “FAR Coverage on Government Property Simplified, Clarified, Trimmed.”





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