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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

NOVEMBER 2001
Vol. II, No. 11

CONTENTS

2001 FAR Published, FAC 2001-01 Issued
DFARS Changes on Progress Payments, 8(a) Program
Proposed FAR Changes on Construction, A-E Forms
Evaluation Factors Needed for "Simplified Buys"
Actions Related to September 11 and Anthrax Attacks

2001 FAR Published; FAC 2001-01 Addresses Veterans,
Davis-Bacon, Commercial Items, Very Small Businesses

In late September, the Government Printing Office (GPO) published a new 2001 edition of the Federal Acquisition Regulation (FAR), countering a decision made a year ago by the General Services Administration (GSA) to cease publication of a paper FAR version (see the October 2000 Federal Contracts Perspective article "GSA to Discontinue Paper Copy of FAR"). Then, less than a month later, the FAR Council published Federal Acquisition Circular (FAC) 2001-01, practically making it mandatory that federal contract practitioners either buy a new copy or download one from the Internet.

The 1997 version of the FAR had been amended by 27 FACs: several had different effective dates for different items, others contained major errors that had to be corrected, others were delayed or never went into effect. The result is that most people's versions of the 1997 FAR were a mess -- it was very easy to overlook that some of the items in FAC 97-17 had an effective date of April 25, 2000, but that other items in FAC 97-17 had an effective date of June 26, 2000, or that some of the items in FAC 97-18 were effective June 6, 2000, before some of the items in FAC 97-17! And it was very easy to overlook that the items in FAC 97-18 had three different effective dates, and that those effective dates overlapped the four effective dates of FAC 97-19 items. It was time for a nice clean copy of the FAR, without the skipped pages ("the next page is 15-21" and the squeezed-in pages (such as 15-20.1).

The 2001 FAR (with FACs for an indeterminate period) is available from the GPO for $220, Stock Number 922-006-00000-8 (toll-free telephone: 866-512-1800; DC Metro: 202-123-4567). It can be downloaded from the Acquisition Reform Network website at http://www.arnet.gov/far in the .pdf format. It is approximately 2000 pages, so it will take some time to download it and considerably longer to print (have four reams of paper ready). Of course, the 2001 FAR is available electronically at http://www.arnet.gov/far.

Note that the publication of the 2001 FAR did not change any of the regulations; the new edition is merely a nice, neat loose-leaf paper copy ready for the next round of FACs, starting with FAC 2001-01. Because the pages in the 2001 FAR are sequential and numerical, the replacement pages in FAC 2001-01 are formatted and numbered for the 2001 FAR. The FAC 2001-01 replacement pages will not fit in the 1997 version as modified by the 27 FACs. So, anyone who wants to continue using a paper version of the FAR needs to get the 2001 version from GPO or from http://www.arnet.gov/far.

FAC 2001-01, which was published on October 22, 2001, with all the revised regulations effective December 21, 2001 (except the prompt payment and veterans entrepreneurship interim rules, which are effective October 22, 2001), addresses the following subjects:

• Application of the Davis-Bacon Act to Construction Contracts With Options To Extend the Term of the Contract: Unlike the Service Contract Act, the Davis-Bacon Act and its implementing regulations do not include any provisions to require incorporation of new or revised wage determinations at the exercise of each contract option period. The primary changes in this final rule are to FAR 22.404, Davis-Bacon Wage Determinations, in which references to requesting Davis-Bacon wage determinations before the issuance of a solicitation are changed to "before the issuance of a solicitation or exercising an option", and references to Davis-Bacon wage determinations remaining effective for the life of the contract are clarified by adding "unless the contracting officer exercises an option to extend the term of the contract".
  
  Of particular note is new FAR 22.404-12, Labor Standards for Contracts Containing Construction Requirements and Option Provisions That Extend the Term of the Contract, which allows the contracting officer to choose from four alternative methods of adjusting the contract price when exercising an option to extend the contract term:
  
  
  1. No adjustment in contract price (because the option prices may include an amount to cover estimated increases);
     
     
  2. Price adjustment based on a separately specified pricing method, such as application of a coefficient to an annually published unit pricing book incorporated at option exercise (such as the R.S. Means Cost Estimating System or the U.S. Army Computer-Aided Cost Estimating System);
     
     
  3. A percentage price adjustment, based on a published economic indicator, to the portion of the contract price designated in the contract as labor costs subject to the provisions of the Davis-Bacon Act; and
     
     
  4. A price adjustment based on a specific calculation to reflect the annual increase or decrease in wages and fringe benefits as a result of incorporation of the new wage determination (this method is similar to the Service Contract Act calculations of price adjustments).
  
  
• Acquisition of Commercial Items: The Fiscal Year (FY) 1999 and FY 2000 Defense Authorization Acts directed that the definition of "commercial items" be revised. To implement these changes, paragraphs (a) and (e) of the "commercial items" definition in FAR 2.101, Definitions, and the corresponding definitions in FAR 12.102, Applicability, and FAR 52.202-1, Definitions, are changed as follows:
  
  
  • In paragraph (a), "any item, other than real property, that is of a type customarily used for nongovernmental purposes..." is replaced with "any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes..."
    
    
  • In paragraph (e), the definition would state that services ancillary to a commercial item, such as installation, maintenance, repair, training, and other support services, are considered to be commercial regardless of whether the service is provided by the same vendor or at the same time as the item, if the service is provided contemporaneously to the general public under similar terms and conditions.
  
  Also, definitions of "catalog price" and "market price" are added to paragraph (f) to provide guidance for identifying services that may be acquired under FAR Part 12, Acquisition of Commercial Items.
  
  
• Prompt Payment Under Cost-Reimbursement Contracts for Services: This interim rule implements changes in the Office of Management and Budget's (OMB) Prompt Payment Act regulations that implemented Section 1010 of the National Defense Authorization Act for Fiscal Year 2001, which requires agencies to pay an interest penalty whenever an interim payment under a cost-reimbursement service contract is paid more than 30 days after the agency receives a proper invoice from a contractor (see the January 2001 Federal Contracts Perspective article "OMB Imposes Late Payment Penalties on Cost-Type Services").
  
  The interim rule makes the following changes:
  
  
  • The definition of "contract financing payments" in FAR 32.902, Definitions, is revised to add "interim payments on cost-type contracts other than contracts for services."
    
    
  • FAR 32.905, Invoice Payments, adds a paragraph (e) that establishes the due date for making interim payments on cost-reimbursement contracts for services as 30 days after the date of receipt of a proper invoice.
    
    
  • An Alternate I is added to FAR 52.232-25, Prompt Payment, for use in cost-reimbursement service contracts. It contains the applicable portions of the revised FAR 32.905, and requires the contractor to submit interim invoices in accordance with paragraph (a) of FAR 52.216-7, Allowable Cost and Payment.
  
  Comments on the interim rule must be submitted by December 21, 2001, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2000-308@gsa.gov.
  
  
• Veterans' Employment: This final rule amends FAR Subpart 22.13, Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, and the related clauses in FAR 52.222 to implement provisions of the Veterans' Employment Opportunities Act of 1998 (Public Law 105-339) and other recent regulatory changes relating to veterans' employment opportunities and reporting. The following are the most significant changes:
  
  
  • FAR 22.1302, Policy, expands the applicability of FAR Subpart 22.13 beyond "special disabled veterans and veterans of the Vietnam era" to include "other eligible veterans" ("any other veteran who served on active duty during a war or in a campaign or expedition for which a campaign badge has been authorized"). It also specifically prohibits contracting officers from obligating or expending appropriated funds to enter into covered contracts with a contractor that has not submitted a required annual Form VETS-100, Federal Contractor Veterans' Employment Report (VETS-100 Report). However, this prohibition does not apply to acquisitions not greater than the $100,000 simplified acquisition threshold or to commercial items.
    
    
  • FAR 22.1303, Applicability, increases the threshold for covered contracts and subcontracts from $10,000 to $25,000.
    
    
  • FAR 22.1304, Procedures, directs the contracting officer to verify that a contractor is current with its submission of the VETS-100 by querying the Department of Labor VETS-100 database at http://www.vets100.cudenver.edu/vets100search.htm.
    
    
  • FAR 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, is revised to reflect the changes to FAR Subpart 22.13.
    
    
  • FAR 52.222-37, Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, is amended to require reporting of the maximum number and the minimum number of employees during the period covered by the report.
    
    
  • New FAR 52.222-38, Compliance with Veterans' Employment Reporting Requirements, is a representation that the offeror has submitted the most recent VETS-100 Report if it has a contract containing FAR 52.222-37.
  
  
• Veterans Entrepreneurship and Small Business Development Act of 1999: FAC 97-20 contained an interim rule implementing the Veterans Entrepreneurship and Small Business Act of 1999 (Public Law 106-50), which expanded the eligibility of small business assistance programs to include veteran-owned small businesses and service-disabled veteran-owned small businesses. It also established a requirement to include a goal for veteran-owned small businesses in subcontracting plans submitted under FAR 52.219-9, Small Business Subcontracting Plan, but not for service-disabled veteran-owned small businesses because those were not addressed in the legislation (see the November 2000 Federal Contracts Perspective article "FAC 97-20 Implements Veterans Entrepreneurship Act, Raises Cost or Pricing Threshold to $550,000").
  
  Twenty-nine respondents submitted comments but the FAR Council decided to make no changes. However, Section 803 of the Small Business Reauthorization Act of 2000 (Public Law 106-554) was enacted on December 21, 2000, and it added an additional subcontracting plan goal requirement for service-disabled veteran-owned small businesses. Therefore, FAR 52.219-9 is amended to add a new subcontracting plan goal requirement for service-disabled veteran-owned small businesses.
  
  Since comments on the first interim rule have already been addressed, only comments on the service-disabled veteran-owned small business subcontracting goal will be considered. Send comments by December 21, 2001, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2000-302@gsa.gov.
  
  
• Very Small Business Pilot Program: FAR Subpart 19.9, Very Small Business Pilot Program, implements Section 304 of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103-403), by setting aside acquisitions between $2,500 and $50,000 in ten SBA districts for firms with no more than 15 employees and with average annual receipts of less than $1,000,000. The program expired September 30, 2000, but Section 503 of the Small Business Reauthorization Act of 2000 extended the pilot program through September 30, 2003. Therefore, this final rule replaces "2000" with "2003" in paragraph (c) of FAR 19.901, General.

DFARS Changes on Progress Payments, 8(a) Program

The Department of Defense got off to a fast start in October by issuing seven final rules amending the Defense FAR Supplement (DFARS) on the 1st:

• Customary Progress Payment Rate for Large Business Concerns: DFARS 232.501-1, Customary Progress Payment Rates, and DFARS 252.232-7004, DOD Progress Payment Rates, are amended to increase the customary uniform progress payment rate for large business concerns from 75% to 80%, the customary progress payment rate for other agencies (the DOD progress payment rates of 90% for small businesses and 95% for small disadvantaged businesses is unchanged; other agencies have an 85% rate for small businesses). The progress payment rate change is applicable only to contract awards made on or after October 1, 2001. Contracts awarded before October 1, 2001, will not be modified to include the 80% rate. (EDITOR'S NOTE: For more on the proposed rule, see the September 2001 Federal Contracts Perspective article "DOD Seeks Comments on Buy American Act Exemption").
  
  
• Memorandum of Understanding on the Section 8(a) Program: A memorandum of understanding dated May 6, 1998, between DOD and the Small Business Administration (SBA) permits DOD to award contracts directly to eligible 8(a) program participants instead of through the SBA as provided for in FAR Subpart 19.8, Contracting with the Small Business Administration (the 8(a) Program). The expiration date of the memorandum of understanding had been May 5, 2001, but DOD and SBA decided to extend it to December 31, 2001. Therefore, DFARS 219.800, General, is amended to reflect this extension.
  
  
• Domestic Source Restrictions on Ball and Roller Bearings and Vessel Propellers: DOD is adopting as final, without change, an interim rule that amended DFARS 225.7019, Restrictions on Ball and Roller Bearings, and added DFARS 225.7020, Restriction on Vessel Propellers, to implement Section 8064 of the DOD Appropriations Act for Fiscal Year 2001 (Public Law 106-259) and Section 805 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398). These laws place restrictions on the acquisition of vessel propellers and ball and roller bearings from foreign sources. See the January 2001 Federal Contracts Perspective article "MMAS, Profit Incentives Revised in DFARS" for more on the interim rule.
  
  
• Cost or Pricing Data Threshold: DFARS 215.404-4, Profit, and DFARS 253.215-70, DD Form 1547, Record of Weighted Guidelines Application, are amended to reflect the increase in the cost or pricing data threshold from $500,000 to $550,000 (see the November 2000 Federal Contracts Perspective article "FAC 97-20 Implements Veterans Entrepreneurship Act, Raises Cost or Pricing Threshold to $550,000"). However, instead of replacing "$500,000" with "$550,000", DOD decided to substitute "cost or pricing data threshold" so the DFARS would not have to be amended the next time the cost or pricing data threshold is adjusted.
  
  
• Use of Recovered Materials: DFARS Subpart 223.4, Use of Recovered Materials, is amended to remove approval requirements pertaining to the acquisition of items that do not meet Environmental Protection Agency (EPA) minimum recovered material standards. The DFARS requirements are no longer necessary because Federal Acquisition Circular (FAC) 97-18, which rewrote and reorganized FAR Subpart 23.4, Use of Recovered Materials, removed the written determination requirement, making the corresponding levels of approval in DFARS 223.404, Procedures, unnecessary. For more on FAC 97-18, see the July 2000 Federal Contracts Perspective article "FAC 97-18 Revises Trade Agreements Thresholds and CAS Applicability, Addresses Recycled Products."
  
  
• Cancellation of MIL-STD-973, Configuration Management: DFARS 252.243-7000, Engineering Change Proposals, and DFARS 252.248-7000, Preparation of Value Engineering Change Proposals, are removed because they require submission of engineering change proposals in the format prescribed by MIL-STD-973, Configuration Management, which was cancelled without replacement on September 20, 2000. In addition, DFARS Part 248, Value Engineering, which consisted of DFARS 248.270, Supplemental Clause, is removed. DFARS 248.270 stated that DFARS 252.248-7000 was to be used when the contracting officer wanted value engineering change proposals submitted in the format prescribed by MIL-STD-973.
  
  
• Technical Amendments: The DFARS is amended to delete obsolete text and update activity names and addresses, titles, telephone numbers, reference numbers, and paragraph designations. Possibly the most significant change is to the last sentence of paragraph (b) of DFARS 252.211-7005, Substitutions for Military or Federal Specifications and Standards, in which the web sites for single process initiatives (SPI) processes in PDF and Excel formats are replaced with a single web site where the SPI processes are available in Excel format: http://www.dcma.mil/onebook/0.0/0.2/reports/modified/xls.

Proposed Changes on Construction Payments, A-E Forms

Two proposed FAR changes were published in October:

• Payments Under Fixed-Price Construction Contracts: This proposed rule would correct an ambiguity in the certification language of paragraph (c) of FAR 52.232-5, Payments under Fixed-Price Construction Contracts, that was pointed out on April 2, 1999, by the United States Court of Appeals for the Sixth Circuit in United States vs. Gatewood (173 F.3d 983). Paragraph (c) of the certification that must accompany each progress payment request states that the contractor has made payments to subcontractors and suppliers, but the court concluded that the paragraph (c) certification language is not the same as certifying that the prime contractor has made all payments due to subcontractors and suppliers, which is what the Prompt Payment Act Amendments of 1988 requires. Therefore, paragraph (c) of the certification would be amended to reflect the "all payments due" requirement.
  
  Comments must be made by December 17, 2001, to the General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW., Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, or by e-mail to: farcase.2001-012@gsa.gov.
  
  
• New Form for Selection of Architect-Engineer (A-E) Contractors: Under this proposed rule, the Standard Form (SF) 254, Architect-Engineer and Related Services Questionnaire, and SF 255, Architect-Engineer and Related Services Questionnaire for Specific Projects, would be replaced by the SF 330, Architect-Engineer Qualifications. The SF 330, developed by an interagency ad hoc committee based on Federal Facilities Council Technical Report No. 130, "[Joint Federal-industry] Survey on the Use of SFs 254 and 255 for Architect-Engineer Qualifications," (1996), reflects current architect-engineer practices in a streamlined and updated form, organized in data blocks that readily support automation.
  
  Comments must be made by December 18, 2001, to the above address, or by e-mail to: farcase.2000-608@gsa.gov.

Evaluation Factors Needed for "Simplified Acquisitions"

In an important decision that could have far-reaching ramifications, the General Accounting Office (GAO) has ruled that, under certain circumstances, "basic fairness" requires that solicitations conducted under simplified acquisition procedures must disclose the relative weights of the evaluations factors that will be used to determine the winner (B-288280, Finlen Complex, Inc., October 10, 2001).

The Department of the Army issued a request for proposals (RFP) for meals, lodging, and transportation for applicants arriving for processing at the Military Entrance Processing Station in Butte, MT. The RFP cover sheet characterized the procurement as a "commercial acquisition, using simplified acquisition procedures." The RFP advised that offers would be "evaluated on facility quality, food and transporation proposal, facility location, quality control, past performance and price factors", and that "technical/quality factors [would be] more important than cost or price." The RFP was silent on the relative weights of the non-price evaluation factors.

Six proposals were received, and the decision came down to two offerors: Finlen, the incumbent contractor, and Best Western. Finlen's price was significantly lower than Best Western's, but Best Western received a higher evaluation score. The contracting officer awarded the contract to Best Western based on "best value." Finlen protested the award because the RFP did not disclose the relative weights of the evaluation factors.

The Army pointed out that paragraph (a) of FAR 12.602, Streamlined Evaluation of Offers [for commercial items], which permits the use of the procedures in FAR 13.106, Soliciting Competition, Evaluation of Quotations or Offers, Award and Documentation, if the acquisition is being made using simplified acquisition procedures, states that "contracting officers are not required to describe the relative importance of evaluation factors." Paragraph (a)(2) of FAR 13.106-1, Soliciting Competition, states that "solicitations are not required to state the relative importance assigned to each evaluation factor and subfactor..." Therefore, since the solicitation was identified as a commercial procurement using simplified procedures, the withholding of the relative weights of evaluation factors was authorized and no further analysis was needed, the Army argued.

GAO disagreed. "We look to the substance of an agency's actions, rather than form," GAO wrote. "In our view, the labeling of a procurement as 'simplified' does not absolve the agency from its obligation to treat vendors fairly...There is little about the procedures used in this procurement that can reasonably be called simplified. For example, the agency elected to use a request for proposal format that requires the commercial offerors...to prepare proposals addressing five non-price evaluation factors...Despite the 'simplified' label, this procurement is very similar to any other negotiated acquisition conducted under the rules set forth in FAR Part 15 [Contracting by Negotiation]. Those rules require that when offerors are asked to prepare detailed proposals, those offerors must be advised of the weight of all factors and signification subfactors that will affect the contract award."

GAO goes on to observe that when it asked the Army "to address why it would want to withhold this basic informatin from offerors preparing proposals, the agency answered 'that revealing the relative importance of factors may result in offerors skewing their proposals to the more important factors.' In addition, the Army argued that revealing the relative wieght of factors in the solicitation would hinder the agency's ability to change the weight of those factors during the course of its evaluation. In our view, neither of these considerations is appropriate under the circumstances of this, or any other, procurement, nor are they advisable for the integrity of the public procurement process."

Actions Related to September 11 and Anthrax Attacks

Many contract-related actions are being taken by the government in response to the September 11 and anthrax attacks:

• The Defense Priorities and Allocations System (DPAS) is being used to expedite deliveries of munitions, hazardous materials handling equipment, and many other items related to the national defense effort. (EDITOR'S NOTE: FAR Subpart 11.6, Priorities and Allocations, implements the DPAS regulations in Title 15 of the Code of Federal Regulations (CFR), Part 700, which are at http://www.doc-bxa.bmpcoe.org/dpas.html. The Federal Contracts Bookstore (http://www.FedGovContracts.com/bookstor.htm) has The Defense Priorities and Allocations System monograph, which explains what DPAS is, how it operates, and what are contractors' obligations under it. It was revised in 2000, and is $19.95. Contractors with a "DO" or "DX" rating on their contracts or orders are subject to DPAS and probably don't even know it!)
  
  
• On October 19, GAO stopped receiving deliveries from the Postal Service, and on October 23, GAO temporarily stopped accepting delivery from couriers and delivery companies, and it closed its filing window. GAO recommends that protests and related documents be sent by fax as much as possible (202-512-9749).
  
  
• DOD and the National Aeronautics and Space Administration (NASA) issued memoranda stating that costs incurred by companies continuing certain fringe benefits (such as health insurance) for employees who have been called to active military duty, and paying the difference between these employees' civilian and military salaries, will be considered allowable costs under FAR 31.205-6, Compensation for Personal Services.
  
  
• DOD has determined that Operation Enduring Freedom is a "contingency operation" permitting the use of all applicable FAR and DFARS provisions (for example, the simplified acquisition threshold is $200,000 for contingency operations, not the normal $100,000).
  
  
• DOD has issued a broad agency announcement at http://www.bids.tswg.gov (02-Q-4655) seeking ideas and technologies to combat terrorism. A one-page summary of a 12 month effort must be submitted by December 23. Those making the cut will be asked for a 12 page white paper, and those receiving favorable evaluations will be asked to submit 50 page proposals. Contracts will be awarded based on the proposals.
  
  
• SBA has widened access to Economic Injury Disaster Loans to small businesses across the country, not just to those in the New York and Washington, DC areas.
  
  
  Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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