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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


DECEMBER 2001
Vol. II, No. 12

CONTENTS

Contracting Rules for HHS, Military Construction Waived
Proposed FAR Change Addresses IDIQ Progress Payments
DOD Authorizes Overseas Purchase Card Use Up to $200K
Adarand Dismissed on Third Trip to Supreme Court
What is the Defense Priorities and Allocations System?
NASA Proposes Amending NFS on Scientific Reports
Second FAIR Act Inventories Released



Contracting Rules for HHS, Military Construction
Waived in Response to September 11 and Anthrax

In response to the terrorist attacks of September 11, 2001, and the subsequent anthrax attacks that commenced in October, President Bush has issued two executive orders authorizing certain contracts to be made "without regard to the provisions of law relating to the making, performance, amendment, or modification of contracts."



Proposed FAR Change Addresses IDIQ Progress Payments

On November 14, a proposal was published to amend the Federal Acquisition Regulation (FAR) to require the contractor, under indefinite-delivery, indefinite quantity (IDIQ) contracts, to submit progress payment requests under individual orders as if each order constitutes a separate contract.

Paragraph (c) of FAR 32.503-5, Administration of Progress Payments, states "under indefinite-delivery contracts, the contracting officer should administer progress payments made under each individual order as if the order constituted a separate contract, unless agency procedures provide otherwise." This language recognizes that funds on IDIQ contracts are normally obligated on each individual order; that deliveries and contract performance, which factor into progress payment calculations, are monitored at the order level, as opposed to the basic contract level; and that progress payments normally are administered at the order level. However, there is no related language in FAR 52.232-16, Progress Payments.

The proposed rule would add a paragraph (l) to FAR 52.232-16 addressing progress payments under IDIQ contracts. The new paragraph (l) would state that "the contractor shall account for and submit progress payment requests under individual orders as if the order constituted a separate contract, unless otherwise specified in this contract."

In addition, FAR 32.503-5(c) would be amended to require, when the IDIQ contract will be administered by an agency other than the awarding agency, that the contracting officer coordinate with the contract administration office if the administration of progress payments will be on a basis other than order-by-order.

Comments on the proposed rule must be submitted on or before January 14, 2002, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405; or by e-mail to farcase.2001-006@gsa.gov.



DOD Authorizes Overseas Purchase Card Use Up to $200K

In light of the war in Afghanistan against the al Qaeda terrorist organization, the Department of Defense (DOD) finally decided to get off the dime and finalize the proposed rule published more than a year ago to authorize contracting officers supporting a contingency, humanitarian, or peacekeeping operation to use governmentwide commercial purchase cards for purchases up to $200,000 (see the October 2000 Federal Contracts Perspective article "DFARS Changes on Pollution Control, Purchase Cards").

DFARS 213.301, Governmentwide Commercial Purchase Card, authorized individuals to use the governmentwide commercial purchase card to make purchases over the $2,500 micro-purchase threshold but less than $25,000 if the purchase was made outside the United States for use outside the United States, was for a commercial item, and if several other conditions applied. This final rule adds a paragraph (c) to DFARS 213.301 increasing the limit to the simplified acquisition threshold if, in addition to the previous conditions placed on purchase cards, the supplies or services being purchased are immediately available, one delivery will be made, and one payment will be made. In accordance with FAR 2.101, Definitions, the simplified acquisition threshold for contingency, humanitarian, or peacekeeping operations is $200,000.

This $200,000 limitation goes into effect immediately because, on October 9, 2001, Under Secretary of Defense Aldridge determined that "Operation 'Enduring Freedom' meets the statutory definition of 'contingency operation,' thereby permitting the use of all 'contingency operations' contracting provisions in the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement [DFARS] for procurement in support of 'Enduring Freedom'" (see the November 2001 Federal Contracts Perspective article "Actions Related to September 11 and Anthrax Attacks").

In addition, DOD issued two other final rules and a proposed rule:



Adarand Dismissed on Third Trip to Supreme Court

Proving that the third time is not necessarily the charm, the Supreme Court dismissed Adarand Constructors, Inc. v. Norman Y. Mineta, Secretary of Transportation (No. 00-730) on November 27, 2001, thus postponing until another day (and probably another case) the question of whether federal affirmative action plans are constitutional. This was the third case Adarand had brought to the Supreme Court against various aspects of the Department of Transportation's (DOT) Disadvantaged Business Enterprise (DBE) program. The series of cases started with a 1989 DOT contract for a highway project in which the winning contractor awarded a subcontract to a DBE to receive a 1.5% bonus for exceeding its DBE subcontracting goal, even though Adarand submitted a lower bid on the subcontract. Adarand won the first two cases, including the 1995 Adarand Constructors, Inc. v. Pena case that drastically changed the way the government applies affirmative action programs to its procurements (see the April 2001 Federal Contracts Perspective article "Adarand Back to Supreme Court for Third Time"). As a direct result of that decision, federal affirmative action programs are now subject to "strict scrutiny" -- the efforts must achieve a compelling government interest, and the efforts must be narrowly tailored to accomplish the remedial purpose. The automatic granting of preferences to disadvantaged businesses has been replaced by the procedures in FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns, and FAR Subpart 19.12, Small Disadvantaged Business Participation Program.

The Supreme Court decided in a unanimous ruling that its decision to entertain the appeal from an adverse 2000 Court of Appeals decision was "improvidently granted." In agreeing to hear the appeal, the Supreme Court anticipated that it would review the same "relevant program" that was addressed by the Court of Appeals. It appeared that Adarand was challenging the constitutionality of DOT's DBE program as it pertains to procurement of highway projects let by states and localities. Instead, Adarand "claims to be challenging only the statutes and regulations that pertain to direct procurement of DOT funds for highway construction on federal lands. But the statutes and regulations relating to direct procurement are quite different than the statutes and regulations reviewed by the Court of Appeals...This shift in posture requires dismissal."



What is the Defense Priorities and Allocations System?

Now that the United States has declared war on terrorism, it is time for a little review of the responsibilities and obligations of contracts under the Defense Priorities and Allocations System (DPAS), which is being used with increasing frequency to make sure it received the resources it needs to successfully conduct the war. If you have a defense contract or subcontract, you probably are subject to the provisions of the DPAS. Even if you do not have any federal contracts, you might still be subject to the DPAS!

Under the Defense Production Act of 1950, the president is authorized to require preferential performance of contracts or orders supporting certain approved national defense and energy programs, and to allocate materials, services, and facilities to promote these approved programs. The president has delegated this authority to the Department of Commerce (DOC), which has developed and administers the DPAS. DOC estimates that at least 18,000 business entities must respond to 700,000 DPAS "rated orders" each year, and any willful violation of the DPAS is a crime punishable by a fine up to $10,000, a year in prison, or both (and some violations are subject to a fine up to $50,000, three years in prison, or both)!

Where does one go to find out more about the DPAS? FAR Subpart 11.6, Priorities and Allocations, is a good place to start, but it is merely a summary of the DPAS, and an obsolete one at that (it has not been updated to reflect DPAS regulation changes made in 1998). However, throughout FAR Subpart 11.6 are references to "15 CFR Part 700". That is where the real DPAS regulations are -- Part 700 of Title 15 of the Code of Federal Regulations (CFR). The DPAS regulations are available at http://www.doc-bxa.bmpcoe.org/dpas.html.

The DPAS regulations authorize "delegate agencies" to place contracts and orders in support of certain approved programs, and requires contractors, subcontractors, and vendors to give precedence to the performance of those contracts and orders over all other contracts and orders, even commercial contracts and orders. Such contracts, subcontracts, and purchase orders are called "rated orders," and they can have one of two ratings: DO or DX. All DO-rated orders support programs that are designated by the secretary of defense as being "of the highest defense interest," and have equal priority with each other and take precedence over unrated orders. All DX-rated orders support programs that are designated by the president as being "of the highest national priority," and have equal priority with each other and take precedence over all DO-rated orders and all unrated orders.

Currently, there are 34 "approved programs" under DPAS. Schedule 1 to Part 700 lists the approved programs, their "program identification symbols," and the delegate agencies authorized to use DPAS to support those approved programs. For example, "A1" is the program identification symbol for "aircraft," and the Department of Defense is the "delegate agency" authorized to issue rated orders to support its aircraft programs. Some of the other program identification symbols are: "A3" for "ships" (Defense is the delegate agency); "B1" for "military building supplies" (Defense is the delegate agency); "C2" for "Department of Defense construction"; "D1" for "Canadian military programs" (the Department of Commerce is the delegate agency); "E1" for "construction" (in support of atomic energy programs -- the Department of Energy is the delegate agency); and "K1" for "Federal supply items" (the General Services Administration is the delegate agency).

A priority rating consists of the DO or DX rating and the program identification symbol. For example, a priority rating of "DO-A6" indicates that the contract or order supports a Department of Defense ammunition program: "A6" is the program identification symbol for "ammunition," and Defense is the delegate agency for ammunition. Whether the contract or order should be "DO-A6" or "DX-A6" depends on whether it is for or supports a particular type of ammunition that is designated as "highest defense interest" or "highest national priority".

A priority rating of "DO-N1" indicates that the contract or order supports a Federal Emergency Management Agency emergency preparedness activity ("N1" is the program identification symbol for "emergency preparedness activities," and the Federal Emergency Management Agency is the delegate agency for emergency preparedness activities).

The program identification symbol in a priority rating has no effect on the priority of the contract or order. A DX-A1 rated order has the same priority as a DX-A2, DX-A3, DX-A4, or any other DX-rated order; a DO-A1 rated order has the same priority as a DO-A2, DO-H7, DO-N1, or any other DO-rated order.

A rated order must include the following:

  1. The priority rating;

  2. A required delivery date (or dates) (the words "immediately" or "as soon as possible" are not delivery dates);

  3. The signature of someone authorized to sign rated orders (typically the person who signed the contract or purchase order); and

  4. The statement, "This is a rated order certified for national defense use, and you are required to follow all the provisions of the Defense Priorities and Allocations System regulation (15 CFR 700)."

A properly executed rated order looks like this:

     Priority Rating DO-C9     
     Required delivery dates: 6 units by April 15, 2002; 5 units by May 1, 2002.     
     (signed) T. Smith, Contracting Officer     
     This is a rated order certified for national defense use, and you are required to follow all the provisions of the Defense Priorities and Allocations System regulation (15 CFR 700).     

A contractor that receives a rated order does not have to drop everything and start working on the rated order. Normally, a rated order has adequate lead time to permit the contractor to perform the order without disrupting its other work. For example, if a contractor receives a DX-A1 rated order with a delivery of July 15, and the contractor has an unrated order with a delivery of June 1, and the contractor can make both deliveries on time, there is no need for the contractor to alter production schedules or give any additional preference to the DX rated order. However, if the contractor cannot make both deliveries on time, the contractor must delay the unrated order and give preference to the DX rated order, even if that means diverting items being processed or ready for delivery against the unrated order! But a contractor that delays delivery of an unrated order to fill a rated order or comply with any provision of DPAS is protected against damage claims from the customer of the unrated order.

How do you know whether you have a rated order? The presence of FAR provision 52.211-14, Notice of Priority Rating for National Defense Use, and FAR clause 52.211-15, Defense Priority and Allocation Requirements, is a sure tip-off. Also, many solicitation and contract forms, such as the Standard Form 26 (Award/Contract), Standard Form 33 (Solicitation, Offer and Award), Standard Form 1447 (Solicitation/Contract), and Standard Form 1449 (Solicitation/Contract/Order for Commercial Items) include the statement "This contract is a rated order under 15 CFR 700" followed by the priority rating and program symbol.

As mentioned earlier, FAR Subpart 11.6 is a summary of DPAS. Paragraph (d) of FAR 11.603, Procedures, states that:

The DPAS has the following three basic elements which are essential to the operation of the system:
     (1) Mandatory acceptance of rated orders. A rated order shall be accepted by a contractor or supplier unless rejected for the reasons provide for mandatory rejection in 15 CFR 700.13(b), or for optional rejection in 15 CFR 700.13(c). [EDITOR'S NOTE: Contractors and suppliers must accept and fill all rated orders, even if they have had no previous business relationship with the customer or do not want to do business with the customer. There are only a few permissible reasons for rejecting a rated order, for example: (1) the contractor or supplier cannot produce the item by the required date, (2) acceptance of the order would interfere with delivery of a previously accepted rated order of the same or higher priority, (3) the contractor or supplier does not produce the item or perform the service, and (4) the person placing the order is unwilling or unable to meet the contractor s or supplier s regularly established terms of sale or payment. If a contractor or supplier wants to reject a rated order for any of these or other permissible reasons, it must do so within 10 days for a DX-rated order and within 15 days for a DO-rated order.]
     (2) Mandatory extension of priority ratings throughout the acquisition chain. Contractors and suppliers receiving rated orders shall extend priority ratings to subcontractors or vendors when acquiring items to fill the rated orders (see 15 CFR 700.15). [This means a contractor with a DO-A3 rated order must use a DO-A3 rated order to obtain items needed to fill the original DO-A3 rated order. This includes production or construction materials, component parts, services, containers or other packaging materials needed to make delivery, or maintenance repair and operating supplies needed to produce the finished products. However, 15 CFR 700.17, Use of Rated Orders, states that the use of a priority rating is optional for orders less than $50,000 (one-half the simplified acquisition threshold), provided that delivery of the needed items can be obtained in a timely fashion without the use of a priority rating.]
     (3) Priority scheduling of production and delivery. Contractors and suppliers receiving rated orders shall give the rated orders priority over other contracts as needed to meet delivery requirements (see 15 CFR 700.14).

If a contractor is unable or unwilling to perform a rated order, DOC can provide "special priorities assistance." Some examples of assistance are: helping a contractor locate a supplier for an item needed to fill a rated order; resolving production conflicts between various rated orders; making sure that rated orders receive preferential treatment by suppliers; and determining the validity of rated orders. Usually, a telephone call or a letter from DOC is all that is needed to get things straightened out or to impress upon a contractor its responsibilities under the DPAS. However, when all else fails, FAR 11.603(b) states that DOC has the authority to "issue a Directive to compel a contractor or supplier to accept a rated order, to rearrange production or delivery schedule, or to improve shipments against particular rated orders. Directives issued by the Department of Commerce take precedence over all rated and unrated orders as stated in the Directive." An example of how DOC can use a Directive occurred in September 1998 when a contractor that was going out of business was ordered to reopen and resume production!

This is a very brief summary of DPAS. For more details on the DPAS and what it means to you, The Defense Priorities and Allocations System monograph is available in the Federal Government Contracts Bookstore at http://www.FedGovContracts.com/bookstor.htm. It was revised in 2000, and is only $19.95. When you receive a Directive from DOC is not the time to be checking the DPAS regulations to figure out what to do next!



NASA Proposes Amending NFS on Scientific Reports

The National Aeronautics and Space Administration's (NASA) Center for AeroSpace Information (CASI) is a repository of NASA scientific and technical information (STI). Copies of the monthly, quarterly, and final reports under R&D contracts were required to be submitted to CASI. However, NASA decided there was no need for CASI to receive monthly and quarterly progress reports, but only the final report. So, on July 21, 2000, NASA amended the NASA FAR Supplement (NFS) to make this change. Part of the amendment added a paragraph (e) to NFS 1852.235-70, Center for Aerospace Information -- Final Scientific and Technical Reports, which states that "the contractor shall not release the final report, outside of NASA, until the DAA [Document Availability Authorization] review has been completed by NASA and availability of the report has been determined." The DAA review is intended to insure that NASA disseminates its STI consistent with U.S. laws and regulations, federal information policy, intellectual property rights, technology transfer protection requirements, and budgetary and technological limitations.

This final report review requirement has been incorrectly interpreted by some university contractors as restricting their right to publish any of the data produced under the contract which may be included in the final report until NASA has completed its DAA review. Therefore, it is proposed that: (1) the reference to the submission of a final report be deleted from NFS 1852.235-70; (2) a new clause, NFS 1852.235-73, Final Scientific and Technical Reports, be added that would require submission of a final report; state that the contractor may publish, or otherwise disseminate, data produced during the performance of the contract, including data contained in the final report, without prior review by NASA; and retain restriction on release of the final report as delivered under the contract until NASA has completed its DAA review; and (3) a new clause, NFS 1852.235-74, Additional Reports of Work -- Research and Development, be added for use in contracts in which monthly, quarterly and other reports in addition to the final report may be considered necessary for monitoring contract performance.

Comments on the proposed changes must be submitted by January 14, 2002, to Celeste Dalton, NASA Headquarters, Office of Procurement, Contract Management Division (Code HK), Washington, DC 20546.



Second FAIR Act Inventories Released

On November 14, the Office of Management and Budget (OMB) released the second set of non-governmental functions being performed by government agencies as required by the Federal Activities Inventory Reform (FAIR) Act. Links to the agencies' lists are available at http://www.whitehouse.gov/OMB/procurement/fair-notice2.pdf.



Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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