FedGovContracts.com

Panoptic Enterprises'

FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

JANUARY 2001
Vol. II, No. 1

CONTENTS

FAC 97-21 Implements Widely Opposed "Blacklisting" Regulations
Proposed FAR Changes on High Tech Employees
MMAS, Profit Incentives Revised in DFARS
OMB Issues Late Payment Penalties on Cost-Type Services
Prompt Payment Interest Rate Set at 6 3/8%
DOD Establishes "Share A-76!" Web Site
IT Accessibility Standards Published

FAC 97-21 Implements "Blacklisting" Regulations,
Widely Opposed by Industry and Agencies

On December 20, 2000, the Federal Acquisition Regulation (FAR) Council published Federal Acquisition Circular (FAC) 97-21 implementing new contractor responsibility rules requiring contracting officers to consider an offeror's compliance with tax, labor, employment, environmental, antitrust, and consumer protection laws when determining if the offeror is responsible enough for the contract award. The new rules, commonly referred to as "the blacklisting regulations," were opposed by industry groups such as the Chamber of Commerce and the National Association of Manufacturers, government agencies such as the Department of Defense (DOD) and the General Services Administration (GSA), and a host of congressmen and senators. The new rules were drafted in response to a pledge made in 1997 by Vice President Gore to the AFL-CIO, and they go into effect January 19, 2001, the last day of the Clinton administration.

A proposed rule was published July 9, 1999, and over 1,500 comments were submitted, many saying the proposed rule was vague and subjective. As a result, some additional guidance was provided in another proposed rule published June 30, 2000 (see the August 2000 Federal Contracts Perspective article "Cost or Pricing Data Threshold of $550,000 Proposed"). This proposed rule produced 300 comments. However, the final rule is little changed from the June 30, 2000, version.

The crux of the new rule is in the changes to FAR Part 9, Contractor Qualifications, specifically FAR 9.104, Standards. Paragraph (d) of FAR 9.104-1, General Standards, had required contractors to have "a satisfactory record of integrity and business ethics." To the end of that requirement is now added "including satisfactory compliance with the law including tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws." (EDITOR'S NOTE: In the introductory material to FAC 97-21, the FAR Council states that it removed the word "federal" from "satisfactory compliance with federal laws" in order to allow the contracting officer to consider the offeror's compliance with state, local, and foreign laws!)

A new paragraph (c), Integrity and Ethics, is added to FAR 9.104-3, Application of Standards (paragraphs (c) and (d) are redesignated as paragraphs (d) and (e)). It requires contracting officers to "consider all relevant credible information," and recommends that contracting officers give "the greatest weight to violations of laws that have been adjudicated within the last three years preceding the offer. Normally, a single violation of law will not give rise to a determination of nonresponsibility, but evidence of repeated, pervasive, or significant violations of the law may indicate an unsatisfactory record of integrity and business ethics."

Paragraph (c) continues with a hierarchy of information to be considered:

• Convictions of and civil judgments rendered against the prospective contractor for --
  
  
  • Commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public (federal, state or local) contract or subcontract;
    
    
  • Violation of federal or state antitrust statutes relating to the submission of offers;
    
    
  • Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statement, tax evasion, or receiving stolen property.
  
  
• Indictments for the offenses listed above.
  
  
• Relative to tax, labor and employment, environmental, antitrust, or consumer protection laws:
  
  
• Federal or state felony convictions.
  
  
• Adverse federal court judgments in civil cases brought by the United States.
  
  
• Adverse decisions by a federal administrative law judge, board, or commission indicating violations of law.
  
  
• Federal or state felony indictments.

"Also, contracting officers may consider other relevant information such as civil or administrative complaints or similar actions filed by or on behalf of a federal agency, board or commission, if such action reflects an adjudicated determination by the agency."

In addition, a new certification is added to FAR 52.209-5, Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters, and FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items, which require an offeror to certify whether, in the previous three years, it has been convicted of any of the above felonies, had any adverse federal court judgments in civil cases, or been found by an administrative body to have violated any of the laws listed above. If the offeror responds affirmatively, it must provide additional information if requested by the contracting officer.

Finally, FAC 97-21 contains two other changes related to these:

• Paragraph (b) is added to FAR 31.205-21, Labor Relations Costs. It states, "Costs incurred for activities that assist, promote, or deter unionization are unallowable."
  
  
• Paragraph (b)(2) of FAR 31.205-47, Costs Related to Legal and Other Proceedings, which disallows costs related to a civil or administrative proceeding where the contractor is found liable due to fraud or similar misconduct or where a monetary penalty is imposed, is revised to disallow costs "in a civil or administrative proceeding, a finding that the contractor violated, or failed to comply with, a law or regulation."

EDITOR'S NOTE: Look for President-elect George W. Bush to review this FAC when he takes office.

Proposed FAR Changes on High Tech Employees

Despite the holidays and the impending departure of the Clinton administration (because of the impending departure?), there were several fairly significant proposed FAR changes:

• Signing and Retention of High-Technology Workers: Because of the difficulty companies have in hiring and retaining high-technology employees, many are forced to provide recruitment and retention bonuses. While this practice is common in high-technology industries, the government has been inconsistent on the allowance of such expenses. Therefore, to settle the issue, the proposed rule would revise FAR 31.205-34, Recruitment Costs, to explicitly allow "signing bonuses needed to recruit employees with critical skills (such as scientists and engineers in fields like software and systems integration), if comparable to the signing bonuses being offered by firms engaged in predominantly non-government work to attract similar job skills; [and] periodic retention bonuses needed to retain employees with critical skills (such as scientists and engineers in fields like software and systems integration), if comparable to the periodic retention bonuses being paid by firms engaged in predominantly non-government work to retain similar job skills."
  
  Comments must be submitted by February 26, 2001, to General Services Administration, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405; or by e-mail to farcase.2000-014@gsa.gov. Cite FAR case 2000-014 in all correspondence related to the proposed rule.
  
  
• Federal Supply Schedule Order Disputes and Incidental Items: The General Accounting Office (GAO) protest decision Pyxis Corporation, B-282469, B-282469.2 (July 15, 1999) ruled that agencies "may no longer rely on the 'incidentals' test to justify the purchase of non-FSS [Federal Supply Schedule] items in connection with an FSS buy; where an agency buys non-FSS items , it must follow applicable acquisition regulations." Therefore, this proposed rule would add a paragraph (d) to FAR 8.401, General, to permit ordering office contracting officers to add "open market (noncontract) items to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order" as an administrative convenience only if "(1) all applicable acquisition regulations have been followed (e.g., publicizing ([FAR] Part 5), competition requirements ([FAR] Part 6), acquisition of commercial items ([FAR] Part 12), and contracting methods ([FAR] Parts 13, 14, and 15)); (2) the ordering office contracting officer has determined the price for the open market items is reasonable; and (3) the items are clearly labeled as open market (noncontract) items on the order."
  
  In addition, FAR 8.405-7, Disputes, would be revised to permit the ordering office contracting officer to "issue final decisions on disputes arising from performance of the order...[but] the ordering office contracting officer must refer all disputes that relate to the contract terms and conditions to the schedule contracting officer for resolution under the Disputes clause of the contract and notify the schedule contractor of the referral." Currently, all disputes under FSS orders must be referred to the schedule contracting office.
  
  Finally, because agencies are no longer required to notify the General Services Administration (GSA) when an FSS contractor refuses to fulfill an order from an authorized contractor, paragraph (b) of FAR 51.103, Ordering from Government Supply Sources, would be deleted.
  
  Comments must be submitted by February 20, 2001, to the GSA address above, or by e-mail to farcase.1999-614@gsa.gov. Cite FAR case 1999-614 in all correspondence related to the proposed rule.
  
  
• Contract Types for Commercial Item Acquisitions: Currently, FAR 12.207, Contract Type, states that "agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items." However, Section 8002 of the Federal Acquisition Streamlining Act (FASA) (Public Law 103-355), which addresses "regulations for acquisition of commercial items," states that the FAR "shall include for acquisitions of commercial items, a requirement that firm, fixed price contracts or fixed price with economic price adjustment contracts be used to the maximum extent practicable..." Since the current FAR 12.207 does not reflect the somewhat more flexible language of the FASA, this proposed rule would retain the title of FAR 12.207 but would delete the text. In its place would be two subsections:
  
  
  • FAR 12.207-1, Authorized Contract Types, would require the use of firm-fixed-price or fixed-price with economic price adjustments "to the maximum extent practicable." In addition, it would authorize the use of these contract types "in conjunction with an award fee incentive and performance or delivery incentives when the award fee or incentive is based solely on factors other than cost (see [FAR] 16.202-1 and 16.203-1)" (see below).
    
    In addition, it would permit agencies to use indefinite-delivery contracts when the task or delivery orders are issued "under one of the authorized contract types."
    
    Also, it would reiterate the FASA prohibition against the use of "cost-type contracts or contracts with incentives based on cost."
    
    
  • FAR 12.207-2, Commercial Services Available on a Time-and-Material or Labor-Hour Basis, would permit contracting officers to acquire commercial services on a time-and material or labor-hour basis "by using the following pricing strategies when cost-effective and consistent with commercial practice: (a) an indefinite-delivery contract with established fixed hourly rates that permit negotiating orders (including any required material) under one of the authorized contract types in [FAR] 12.207-1; (b) sequential contract actions that acquire the requirement in modular components using the authorized contract types in [FAR] 12.207-1 (e.g., a preliminary firm-fixed-price "diagnostic" effort allowing the contractor to understand the scope of work sufficiently to propose the large requirement on a firm-fixed-price basis)."

  Finally, FAR 16.202-1, Description (which addresses firm-fixed-price contracts), and FAR 16.203-1, Description (which addresses fixed-price with economic price adjustment contracts), would have the following two sentences added: "The contracting officer may use a fixed-price contract [or 'fixed-price contract with economic price adjustment'] in conjunction with an award-fee incentive (see [FAR] 16.404 [Fixed-Price Contracts with Award Fees]) and performance or delivery incentives (see [FAR] 16.402-2 [Performance Incentives] and [FAR] 16.402-3 [Delivery Incentives]) when the award fee or incentive is based solely on factors other that cost. The contract type remains firm-fixed-price [or 'fixed-price with economic price adjustment'] when used with these incentives."

  Comments must be submitted by February 27, 2001, to the GSA address above, or by e-mail to farcase.2000-013@gsa.gov. Cite FAR case 2000-013 in all correspondence related to the proposed rule.

MMAS, Profit Incentives Revised in DFARS

DOD was busy making last-minute changes to the DFARS before the new administration takes office, issuing five final rules and one interim rule:

• Material Management and Accounting Systems (MMAS): DFARS Subpart 242.72, Contractor Material Management and Accounting System, is amended to revise the criteria for determining when review of a contractor's MMAS is needed. There had been some confusion because DFARS 242.7206, Contract Clause, required the inclusion of DFARS 252.242-7004, Material Management and Accounting System, in all solicitations and contracts exceeding $100,000 (with a few exceptions), but DFARS 252.242-7004 stated that its provisions only applied to large businesses. To clarify the situation, new DFARS 242.7200, Scope of Subpart, states that the subpart applies when the contractor has contracts that exceed $100,000 that are not for commercial items, and are either cost-reimbursement or fixed price with progress payments based on cost. It also states that the subpart does not apply to small businesses, educational institutions, or nonprofit organizations.
  
  In addition, the previous rules stated that contractors with annual DOD awards of more than $70 million were subject to MMAS requirements, but that the administrative contracting officer (ACO) could require contractors with annual DOD awards between $30 million and $70 million to comply with MMAS requirements if in the best interests of the government, and that the ACO was required to conduct an MMAS review every three years. The revised DFARS 242.7203, Review Procedures (redesignated from DFARS 242.7205), raises the minimum threshold from $30 million to $40 million (the "mandatory $70 million threshold is eliminated), and the three year review period is eliminated.
  
  
• Profit Incentives to Produce Innovative New Technologies: DFARS 215.404-71-2, Performance Risk, is amended to implement Section 813 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65), which requires DOD to review its profit guidelines to determine whether "appropriate modifications, such as placing increased emphasis on technical risk as a factor for determining appropriate profit margins, would provide an increased profit incentive for contractors to develop and produce complex and innovative new technologies."
  
  
• On May 22, 2000, DOD published a proposed rule that would amend the weighted guidelines method of profit computation in DFARS 215.404-71-2 to combine the management and cost control elements of the performance risk factor; to establish a new "technology incentive" range for technical risk; and to modify slightly some of the cost control standards (see the June 2000 Federal Contracts Perspective article "DOD Proposes Profit Incentives for New Technologies"). Five sources submitted comments, and DOD is adopting the proposed rule as final except for two changes in paragraph (c)(3) of DFARS 215.404-71-2: (1) a statement is added that the technology incentive range may be used for acquisitions that include application of innovative new technologies (in addition to the development and production of innovative new technologies); and (2) language is added to specify that the technology incentive range "does not apply to efforts restricted to studies, analyses, or demonstrations that have a technical report as their primary deliverable."
  
  
• Domestic Source Restrictions on Ball and Roller Bearings and Vessel Propellers: This interim rule addresses two different items:
  
  
  • DFARS 225.7019, Restrictions on Ball and Roller Bearings, restricts the purchase of ball and roller bearings to those manufactured in the U.S., Canada, or the United Kingdom. This rule implements Section 805 of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398) by extending the applicability through Fiscal Year 2005 (DFARS 225.7019-1, Restrictions, had stated "Fiscal Year 2000"). Also, to implement Section 8064 of the DOD Appropriations Act for Fiscal Year 2001 (Public Law 106-259), DFARS 225.7019-2, Exceptions, is revised to state that restriction "does not apply to contracts or subcontracts for acquisition of commercial items, except for commercial ball and roller bearings acquired as end items."
    
    
  • To implement another provision of Section 8064 of Public Law 106-259, DFARS 225.7020, Restriction on Vessel Propellers, is added. It prohibits the use of Fiscal Year 2000 or 2001 funds to acquire vessel propellers that are not "manufactured in the United States or Canada, and for which all component castings were poured and finished in the United States or Canada" (DFARS 225.7020-1, Restriction). However, DFARS 225.7020-2, Exceptions, states "this restriction does not apply to contracts or subcontracts for acquisition of commercial items"; and DFARS 225.7020-3, Waiver, permits the department secretary to waive the restriction when "adequate domestic supplies are not available to meet DOD requirements on a timely basis, and the acquisition must be made in order to acquire capability for national security purposes."
  
  Comments are to be furnished no later than February 12, 2001. E-mail comments to dfars@acq.osd.mil are preferred. Those who cannot submit comments by e-mail may submit their comments to the Defense Acquisition Regulations Council, Attn: Ms. Amy Williams, OUSD(AT&L) DP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301- 3062; fax: 703-602-0350. Cite DFARS Case 2000-D301 when referring to this interim rule.
  
  
• Polyacrylonitrile (PAN) Carbon Fiber: DOD has decided to phase out the restrictions on the acquisition of PAN carbon fiber from foreign sources by May 31, 2005, to gradually introduce competition into the PAN carbon fiber market. Therefore, DFARS 225.7103-3, Contract Clause, is revised to require the inclusion of DFARS 252.225-7002, Restrictions on Acquisition of Polyacrylonitrile (PAN) Carbon Fiber, "in solicitations and contracts issued on or before May 31, 2003, if the system is not yet in production...or the clause was used in prior program contracts. In solicitations and contracts issued during the period beginning June 1, 2003, and ending May 31, 2005, if the system is not yet in engineering and manufacturing development..."
  
  
• Indemnification Against Unusually Hazardous or Nuclear Risks: To DFARS 250.201, Delegation of Authority, is added a paragraph (d) which clarifies that "in accordance with the acquisition authority of the Under Secretary of Defense (Acquisition, Technology, and Logistics (USD (AT&L)) under 10 U.S.C. 133, in addition to the Secretary of Defense and the Secretaries of the military departments, the USD (AT&L) may exercise authority to indemnify against unusually hazardous or nuclear risks."
  
  
• North American Industry Classification System: On August 17, 2000, DOD published an interim rule amending the DFARS (particularly DFARS Part 219, Small Business Programs) to convert from the Standard Industrial Classification (SIC) system to the North American Industry Classification System (NAICS) (see the September 2000 Federal Contracts Perspective article "DOD Requires Purchase Card for Buys Up To $2,500"). One comment was received, but DOD has decided to finalize the interim rule without change.

OMB Imposes Late Payment Penalties on Cost-Type Services

In 1982, Congress enacted the Prompt Payment Act (PPA) to require federal agencies to pay their bills in a timely manner, to pay interest penalties when payments are made late, and to take discounts only when payments are made by the discount date. The Office of Management and Budget (OMB) has codified the provisions of the PPA in Title 5 of the Code of Federal Regulations (CFR), Part 1315, Prompt Payment.

Interim payments under cost-reimbursement service contracts had not been subject to PPA interest penalties. However, Section 1010 of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398) provides that "the head of an agency acquiring services from a business concern under a cost-reimbursement contract requiring interim payments who does not pay the concern a required interim payment by the date that is 30 days after the date of the receipt of a proper invoice shall pay an interest penalty to the concern on the amount of the payment due." To comply with Section 1010, OMB is amending its PPA regulations by adding Section 1315.20, Application of Section 1010 of the National Defense Authorization Act for Fiscal Year 2001, to require agencies to pay an interest penalty whenever they make an interim payment under a cost-reimbursement contract for services more than 30 days after the agency receives a proper invoice for payment from the contractor.

Because Section 1010 goes into effect December 15, 2000, the provisions of Section 1315.20 apply to interim payment requests received under cost-reimbursement service contracts awarded on or after December 15, 2000. Agencies may apply Section 1315.20 provisions to interim payment requests received under cost-reimbursement service contracts awarded before December 15, 2000, but may not pay interest for any interest for any delay in payment that occurred before December 15, 2000.

EDITOR'S NOTE: Copies of Section 1315 and other information pertaining to the PPA are available from the Prompt Payment web site at http://www.fms.treas.gov/prompt/index.html. Copies are also available from the Financial Management Service, Cash Management Policy and Planning Division, 401 14th Street, SW, Washington, DC 20227.

Prompt Payment Interest Rate Set at 6 3/8%

The Department of Treasury has established 6 3/8% (6.375%) as the interest rate for the computation of payments made between January 1 and June 30, 2001, under the PPA and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (July 1, 2000 -- December 31, 2000) was 7 1/4%. The interest rate for January 1, 2000, through June 30, 2000, was 6 3/4% (6.75%).

DOD Establishes "Share A-76!" Web Site

On December 1, 2000, DOD established a web site "SHARE A-76!" to provide information on competitions conducted under OMB Circular A-76, Performance of Commercial Activities. The web site is at http://emissary.acq.osd.mil/inst/share.nsf, and it is intended to be "a tool to deliver on-demand information that users may need to do their jobs or are interested in from an educational standpoint." The web site provides public laws, official policy, OMB and DOD updates, handbooks and other reference materials, best practices, lessons learned, and other resources related to A-76 cost comparisons. Keyword searches can be conducted of more than 35 A-76 sites, including the FAR and the General Accounting Office (GAO).

IT Accessibility Standards Published

On December 21, 2000, the Architectural and Transportation Barriers Compliance Board issued final accessibility standards for electronic and information technology covered by Section 508 of the Rehabilitation Act of 1973, as amended by the Rehabilitation Act Amendments of 1998. Section 508 requires federal agencies to develop, procure, maintain, and use electronic and information technology that allows federal employees and members of the public with disabilities to have access to information and data that is comparable to the access to information and data by those who are not individuals with disabilities, unless it would be an undue burden on the agency. The standards, which are in Title 36 of the Code of Federal Regulations (CFR), Part 1194, Electronic and Information Technology Accessibility Standards, go into effect six months from their publication -- June 21, 2001. After that date, individuals with disabilities will have the right to file complaints against agencies that procured noncompliant electronic and information technology. In addition, the FAR must be revised by that date to reflect the standards, and each agency must revise its policies and directives accordingly.

The standards cover various products, including computers, software, and electronic office equipment in the federal sector. Specific criteria covered controls, keyboards, and keypads; software applications and operating systems (non-embedded); web-based information or applications; telecommunications functions; video or multi-media products; and information kiosks and transaction machines.

Agencies are required to acquire compliant products "when such products are available in the commercial marketplace or when such products are developed in response to a government solicitation. Agencies cannot claim a product as a whole is not commercially available because no product in the marketplace meets all the standards. If products are commercially available that meet some but not all of the standards, the agency must procure the product that best meets the standards." Also, the standards apply to "electronic and information technology developed, procured, maintained, or used by agencies directly or used by a contractor under a contract with an agency which requires the use of such product, or requires the use, to a significant extent, of such product in the performance of a service or the furnishing of a product."

Exempt from coverage is "any electronic and information technology operated by agencies, the function, operation, or use of which involves intelligence activities, cryptologic activities related to national security, command and control of military forces, equipment that is an integral part of a weapon or weapons system, or systems which are critical to the direct fulfillment of military or intelligence missions." Also exempt is "electronic and information technology that is acquired by a contractor incidental to a contract."

Return to the Newsletters Library.

Return to the Main Page.