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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

FEBRUARY 2001
Vol. II, No. 2

CONTENTS

FAC 97-22 Cleans House, FAC 97-23 Prohibits Products by Child Labor
HHSAR Rewritten
SBA Implements HUBZone Program Improvements
FAR Changes Proposed on Helium, IT Accessibility
President Bush Freezes New Regulations
DOE Rewrites DEAR Part 970, Mandates Legal Management
DOL Revises Davis-Bacon, Service Contract Act Regs

FAC 97-22 Addresses Definitions and Cleans House,
FAC 97-23 Prohibits Products by Forced Child Labor

During the last few days before George W. Bush took office as president, the Federal Acquisition Regulation (FAR) Council published two Federal Acquisition Circulars (FACs) to clean up the FAR and tie up loose ends. FAC 97-22 addresses FAR definitions, the threshold for cost accounting standards, advance payments for non-commercial items, assignment of claims for commercial items, and commercial items clause flowdown. FAC 97-23 prohibits the acquisition of products produced by forced or indentured child labor.

The following are the key provisions in FAC 97-22:

• Definitions: All the definitions that are used in more than one FAR part are moved to FAR 2.101, Definitions, to make them easier to find. All the terms in FAR 2.101 have the same meaning throughout the FAR unless "the context in which the work or term is used clearly requires a different meaning; or another FAR part, subpart, or section provides a different definition for the particular part or portion of the part." When that occurs, FAR 2.101 now has cross-references to the other FAR parts, subparts, or sections where the terms are defined differently. For example, the term "United States" means "the 50 states and the District of Columbia, except as follows: (1) for use in Subpart 22.8, see the definition at 22.801; for use in Subpart 22.10, see the definition at 22.1001; for use in Part 25, see the definition at 25.003; [and] for use in Subpart 47.4, see the definition at 47.401."
  
  
• Applicability, Thresholds, and Waiver of Cost Accounting Standards (CAS) Coverage: FAC 97-18 included an interim rule that revised paragraph (b)(1) of FAR 30.201-4, Contract Clauses, that increased the threshold for use of FAR 52.230-3, Disclosure and Consistency of Cost Accounting Practices, from $25 million to $50 million, and made other changes (see the July 2000 Federal Contracts Perspective article "FAC 97-18 Revises Trade Agreements Thresholds and CAS Applicability, Addresses Recycled Products"). One respondent submitted comments, but the interim rule is finalized without change.
  
  
• Advance Payments for Non-Commercial Items: FAR Subpart 32.4, Advance Payments for Non-Commercial Items, requires contractors to deposit advance payments in special accounts. FAR 32.411, Agreement for Special Bank Account, required contractors to establish these special accounts at banks that are members of the Federal Reserve System (FRS) or insured by the Federal Deposit Insurance Corporation (FDIC). This requirement excluded credit unions, which are insured through the National Credit Union Administration (NCUA). Therefore, FAR Subpart 32.4 is revised to change the word "bank" to "financial institution", to change the phrase "at a member of the Federal Reserve System or any 'insured' bank within the meaning of the Act creating the Federal Deposit Insurance Corporation" to "at a member bank of the Federal Reserve System, any 'insured' bank within the meaning of the Act creating the Federal Deposit Insurance Corporation...or a credit union insured by the National Credit Union Administration", and to make similar changes to give contractors the option of depositing advance payments in special accounts maintained by credit unions insured by NCUA.
  
  
• FAR Part 12, Acquisition of Commercial Items, and Assignment of Claims: Paragraph (b) of the clause at FAR 52.212-4, Contract Terms and Conditions -- Commercial Items, states that a contractor may assign its rights to receive payments due as a result of performance of the contract, but it does not include the prohibition in paragraph (e) of FAR 52.232-36, Payment by Third Party, against the assignment of claims if payment is made by a third party (for example, when the governmentwide commercial purchase card is used). This prohibition is included in paragraph (b)(25) of FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items, which addresses terms and conditions required to implement statutes or executive orders for commercial items. Therefore, this final rule adds the prohibition to FAR 52.212-4(b).
  
  
• Clause Flowdown -- Commercial Items: This final rule amends paragraph (c)(1) of FAR 52.244-6, Subcontracts for Commercial Items, to add FAR 52.219-8, Utilization of Small Business Concerns, to the list of clauses the contractor must flow down to subcontractors. In addition, paragraph (c)(2) is amended to clarify that contractors "may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations."
  
  
• Technical Amendments: This final rule revises various sections of the FAR to update references and make editorial changes. The most significant change is the addition of a web site address for accessing the Federal Directory of Contract Administration Services Components to paragraph (a) of FAR 19.812, Contract Administration, and FAR 42.203, Contract Administration Services Directory (http://www.dcma.mil/casbook/casbook.htm).

FAC 97-23 implements Executive Order 13126, Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor, which directs agencies to "take appropriate actions to enforce the laws prohibition the manufacture or importation of goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by forced or indentured child labor." New FAR Subpart 22.15, Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor, applies to acquisitions in excess of the $2,500 micro-purchase threshold, except contracts for products mined, produced, or manufactured in (1) a country that is a party to the Agreement on Government Procurement if the contract exceeds the $177,000; (2) Canada if the contract exceeds $25,000; (3) Mexico if the contract exceeds $54,372; or (4) Israel if the contract exceeds $50,000 (see FAR Subpart 25.4, Trade Agreements). But even non-exempt contracts are only subject to FAR Subpart 22.15 if the offered product is on the new "List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor" which has been compiled by the Department of Labor. The List identifies specific products from specific countries which may have been mined, produced, or manufactured by forced or indentured child labor. The products and countries on the List are: bamboo (Burma); beans (including yellow, soya, and green beans) (Burma); hand-made bricks (Burma and Pakistan); chilies (Burma); corn (Burma); pineapples (Burma); rice (Burma); rubber (Burma); shrimp (aquaculture) (Burma); sugarcane (Burma); and teak (Burma). (EDITOR'S NOTE: The List is available at http://www.dol.gov/dol/ilab.)

New FAR 52.222-18, Certification Regarding Knowledge of Child Labor for Listed End Products, is to be included in all solicitations for the acquisition of products on the List (regardless of country of origin). It requires offerors of products on the list to certify either (1) that the product will not be from a country on the list, or (2) the offeror has made a good faith effort to determine whether forced or indentured child labor was used to mine, produce, or manufacture the end product, and on the basis of those efforts, the offeror certifies that it is not aware of any use of child labor. The same certification is included in FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items.

New FAR 52.222-19, Child Labor -- Cooperation with Authorities and Remedies, is to be included in all solicitations and contracts for supplies that are expected to exceed $2,500. It requires the contractor to "cooperate fully with authorized officials of the contracting agency, the Department of the Treasury, or the Department of Justice by providing reasonable access to records, documents, persons, or premises upon reasonable request by the authorized officials" if authorized officials need to conduct an investigation to determine whether forced or indentured child labor was used to mine, produce, or manufacture any product furnished under the contract. If the contractor: (1) submitted a false certification, or (2) refuses to cooperate with an investigation, or (3) uses forced or indentured child labor, or (4) furnishes products that are mined, produced, or manufactured by forced or indentured child labor, then (1) the contracting officer may terminate the contract, or (2) the contractor may be suspended, or (3) the contractor may be debarred.

EDITOR'S NOTE: How much corn does the U.S. government buy from Burma? Or pineapples? Harvested by either children or adults? Not much, if any! But it makes a nice political statement.

HHSAR Rewritten

The Department of Health and Human Services (HHS) has completely revised and republished the HHS Acquisition Regulation (HHSAR). The new HHSAR is streamlined and simplified by the elimination of procedural guidance that is too encumbering for a simplified system, and it empowers the appropriate levels of management and contracting personnel so they can accomplish their mission with the least amount of resistance and oversight. The introductory material to the revised HHSAR says "the amendments being made to the HHSAR concern internal procedural matters which are administrative in nature, and will not have a major effect on the general public, or to contractors or offerors of the Department [of HHS]." It was published in the January 17, 2001, Federal Register, beginning on page 4219.

The HHSAR is Chapter 3 of Title 48 of the Code of Federal Regulations (CFR), and it implements and supplements the FAR.

SBA Implements HUBZone Program Improvements

On October 3, 2000, the Small Business Administration (SBA) published proposed "improvements" to the Historically Underutilized Business Zone (HUBZone) program, which SBA implements in Title 13 of the CFR, Part 126, HUBZone program (see the November 2000 Federal Contracts Perspective article "SBA Proposes Improvements to HUBZone Program"). The proposed rule was intended to clarify the regulations, streamline the operation of the HUBZone program, and ease eligibility requirements that are burdensome to businesses. Based on 22 comments submitted, SBA has decided to finalize the proposed rule with minor revisions.

The HUBZone Program was initiated in 1998 to provide federal contract assistance to qualified small businesses in distressed communities. To participate in the HUBZone program, a small business' principal office must be located in a HUBZone. More than 7,000 urban census tracts and 900 rural counties currently qualify as HUBZones, as well as all federally-recognized Native American reservations. SBA's HUBZone website is at http://www.sba.gov/hubzone.

The following are the major changes made to the HUBZone regulations by this final rule:

• To Section 126.101, Which government departments or agencies are affected directly by the HUBZone program?, is added a statement that the HUBZone program does not apply to state and local governments, but that state and local governments that have similar programs may use SBA's list of qualified HUBZones at http://www.sba.gov/hubzone. (EDITOR'S NOTE: To comply with Section 212 of Public Law 106-113, the proposed rule would have added the Departments of Commerce, Justice, and State to the list of 10 agencies required to participate in the HUBZone program prior to October 1, 2000, (such as Defense, Energy, National Aeronautics and Space Administration (NASA), and other large agencies). However, a commenter pointed out that Public Law 105-135 already requires all other agencies to participate in the HUBZone program starting October 1, 2000, so SBA decided to leave the list of 10 agencies unchanged "because it spells out the program's applicability to HUBZone contracts awarded prior to September 30, 2000.")
  
  
• In Section 126.103, What definitions are important in the HUBZone program?, the definition for "principle office" continues to be defined as "the location where the greatest number of the concern's employees at any one location perform their work." However, the definition is modified for the service and construction industries to "exclude the concern's employees who perform the majority of their work at job-site locations to fulfill specific contract obligations." This change was made because it is difficult for service and construction to comply with the "principle office" definition since most of their employees work off-site.
  
  
• Section 126.204, May a qualified HUBZone SBC [small business concern] have affiliates?, is revised to allow a HUBZone concern to have affiliates "provided that the aggregate size of the concern and all its affiliates is small as defined in Part 121 [Small Business Size Regulations] of this title [Title 13]."
  
  
• Section 126.601, What additional requirements must a qualified HUBZone SBC meet to bid on a contract?, is revised to permit a HUBZone SBC to supply the end item of any manufacturer, including a large business, for HUBZone contracts at or below $25,000. On contracts over $25,000, HUBZone non-manufacturers (such as dealers) must still provide the end items of qualified HUBZone SBC manufacturers.

FAR Changes Proposed on Helium, IT Accessibility

What would life be like without some proposed FAR changes?

• Acquisition of Helium: This proposed rule would amend FAR Subpart 8.5, Acquisition of Helium, and FAR 52.208-8, Helium Requirement Forecast and Required Sources for Helium, be amended to implement the U.S. Department of the Interior's 1998 rule regarding helium contracts. The following are the main changes being proposed:
  
  
  • In FAR 8.501, Definitions, "bureau helium distributor" and "helium requirement forecast" would be removed (helium forecasts are no longer required); a definition of "federal helium supplier" would be added ("a private helium vendor...on the BLM [Bureau of Land Management] Amarillo Field Office's Authorized List of Federal Helium Suppliers available via the Internet at http://www.nm.blm.gov/www/amfo/amfo_home.html"); and the definition for "major helium requirement" would be changed from "a helium requirement during a calendar month of 5,000 or more standard cubic feet...including liquid helium gaseous equivalent" to "an estimated refined helium requirement greater than 200,000 standard cubic feet...of gaseous helium or 7510 liters of liquid helium delivered to a helium use location per year."
    
    
  • FAR 8.502, Policy, would be revised to state "agencies and their contractors and subcontractors must purchase major helium requirements from federal helium suppliers" instead of from the BLM, as currently required.
    
    
  • FAR 8.504, Procedures, would be revised to require contracting officers to provide "the name of any company that supplied a major helium requirement; the amount of helium purchased; the delivery date(s); and the location where the helium was used" to the BLM within 45 days of the close of each fiscal quarter.
    
    
  • FAR 52.208-8 would be revised to reflect the changes made to FAR Subpart 8.5. In addition, it would require the contractor or subcontractor to provide the information in proposed FAR 8.504 to the contracting officer within 10 days after receiving a delivery of helium from a federal helium supplier.
  
  Comments must be submitted by March 12, 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.2000-008@gsa.gov. Cite FAR case 2000-008 in all correspondence related to the proposed rule.
  
  
• Electronic and Information Technology (EIT) Accessibility: On December 21, 2000, the Architectural and Transportation Barriers Compliance Board issued accessibility standards for EIT (see the January 2001 Federal Contracts Perspective article "IT Accessibility Standards Published"). These standards implement Section 508 of the Rehabilitation Act of 1973, as amended by the Rehabilitation Act Amendments of 1998, which required federal agencies to develop, procure, maintain, and use EIT that allows federal employees and members of the public with disabilities to have access to information and data that is comparable to the access that individuals without disabilities have. It also required that the FAR be revised to reflect these standards by June 21, 2001.
  
  On January 22, 2001, it was proposed that a FAR Subpart 39.X, Electronic and Information Technology, be added to implement these standards. Proposed FAR 39.X03, Applicability, would require that acquisitions of requirements of Title 36 of the CFR, Part 1194, Electronic and Information Technology Accessibility Standards, unless an exception applies. Proposed FAR 39.X04, Exceptions, states that an acquisition is excepted if it is: (1) less than or equal to $2,500 until January 1, 2003; (2) for a national security system; (3) acquired by a contractor incidental to a contract; (4) located in spaces frequented only by service personnel for maintenance, repair or occasional monitoring of equipment; or (5) an "undue burden" (that is, it would be significantly difficult or expensive to comply with all or part of the accessibility standards).
  
  In addition, FAR 2.101, Definitions, would define EIT as having "the same meaning as 'information technology' except EIT also includes any equipment or interconnected system or subsystem of equipment that is used in the creation, conversion, or duplication of data or information. The term EIT, includes, but is not limited to, telecommunication products (such as telephones), information kiosks and transaction machines, worldwide web sites, multimedia, and office equipment (such as copiers and fax machines)."
  
  Finally, the proposed rule would require that the EIT standards be considered in acquisition planning (FAR 7.103, Agency-Head Responsibilities), when conducting market research (FAR 10.001, Policy), and when describing agency needs (FAR 11.002, Policy).
  
  Comments must be submitted by March 23, 2001, to the GSA address above, or by e-mail to farcase.1999-607@gsa.gov. Cite FAR case 1999-607 in all correspondence related to the proposed rule.
  
  EDITOR'S NOTE: The exemption for micropurchases ($2,500 or less) recognizes that almost all micro-purchases are made using the governmentwide commercial purchase card for commercial-off-the-shelf items, and many of those using the card are not contracting officers. The introductory material to the proposed rule observes that "use of the purchase card makes it generally impractical to comply with the EIT accessibility standards unless all commercial-off-the-shelf products incorporate the standards. Manufacturers are continuing to develop products that comply with the EIT accessibility standards. It is expected that almost all products will comply with the standards within the next two years. Therefore, we have established a sunset date of January 1, 2003, for the micropurchase exemption. Prior to that date, the government will revisit the state of technology and the pace at which manufacturers have conformed to the required standards."

President Bush Freezes New Regulations

Wary of what President Clinton included in the flurry of regulations issued in the last few days of his administration, one of President Bush's first acts after taking office on January 20 was to order all agencies to "send no proposed or final regulation to the Office of the Federal Register (the 'OFR') unless and until a department or agency head appointed by the President after noon on January 20, 2001, reviews and approves the regulatory action." In addition, President Bush ordered that agencies withdraw all regulations that have been sent to the OFR but not yet published in the Federal Register, and to temporarily postpone for 60 days the effective date of regulations that have been published in the Federal Register but have not yet taken effect (the temporary postponement will affect all of FAC 97-22 except for the finalization of the interim rule changing the cost accounting standards threshold, and FAC 97-23).

The only exceptions are for emergency or other urgent situations relating to health and safety, and any regulations promulgated pursuant to statutory or judicial deadlines.

DOE Rewrites DEAR Part 970, Mandates Legal Management

The Department of Energy (DOE) has made several significant changes to its regulations:

• Rewrite of DOE Acquisition Regulation (DEAR) Part 970, DOE Management and Operating (M&O) Contracts: DEAR Part 970 is completely rewritten to streamline the policies, procedures, provisions and clauses that are applicable to DOE's M&O contracts. The new DEAR Part 970 eliminates coverage that is obsolete or unnecessarily duplicates coverage contained in the FAR; updates and revises the prescriptions and text of certain clauses to provide greater flexibility for DOE contracting personnel to modify the text of these clauses and to eliminate the need for commonly used deviations; and adds six clauses: DEAR 952.204-75, Public Affairs; DEAR 952.242-70, Technical Direction; DEAR 970.5203-2, Performance Improvement and Collaboration; DEAR 970.5235-1, Federally Funded Research and Development Center; DEAR 970.5226-3, Community Commitment; and DEAR 970.5242-1, Penalties for Unallowable Costs.
  
  In addition, DEAR Part 970 is reorganized and renumbered so that the coverage corresponds, to the extent practicable, with the FAR part, subpart, section, and subsection(s) being implemented or supplemented in DEAR Part 970. For example, the coverage in new DEAR Subpart 970.01, Management and Operating Contract Regulatory System, corresponds to that in FAR Part 1, Federal Acquisition Regulations System, and DEAR 970.0103, Publication and Codification, corresponds to FAR 1.303, Publication and Codification.
  
  
• Contractor Legal Management Requirements: DOE is publishing a new Part 719, Contractor Legal Management Requirements, in Chapter 10 of the CFR, Energy, which consists of regulations to monitor and control legal costs, and to provide guidance to aid contractors and DOE personnel in making determinations regarding the reasonableness of all outside legal costs, including the costs of litigation. The new regulations covers legal costs to be reimbursed by DOE to its contractors at government-owned or leased facilities with contracts exceeding $100,000,000 (the October 25, 2000, notice of proposed rulemaking set the threshold at $10,000,000). In addition, the regulations also apply to legal counsel retained by DOE for litigation or other legal services where the legal costs over the life of the matter for which counsel has been retained are expected to exceed $100,000. An appendix, Guidance for Legal Resource Management, provides additional "safe harbor" guidance to contractors.
  
  The regulation requires submission of a legal management plan by covered contractors where costs for legal services are to be reimbursed by DOE. Once approved, the legal management plan and the applicable contract provisions form the basis for approvals by DOE to reimburse litigation and other legal expenses.
  
  In addition, various sections in DEAR Part 970 are revised to describe the applicability of 10 CFR Part 719 to contracts exceeding $100,000,000 involving work performed at facilities owned or leased by DOE and to legal counsel retained directly by DOE.
  
  
• Whistleblower Protection: DOE is publishing a new Part 1044, Security Requirements for Protected Disclosures Under Section 3164 of the National Defense Authorization Act for Fiscal Year 2000 [Public Law 106-398], in Chapter 10 of the CFR. Section 3164 directs the Secretary of Energy to establish a program to make sure that DOE employees or contractor employees engaged in defense activities are not discharged, demoted, or otherwise discriminated against as a reprisal for making "protected disclosures," that is, a disclosure of "classified or unclassified controlled nuclear information that provides direct and specific evidence of a violation of law or federal regulation; gross mismanagement, a gross waste of funds, or an abuse of authority; or a false statement to Congress."

Labor Revises Davis-Bacon, Service Contract Act Regs

Along with everyone else, the Department of Labor (DOL) was busy tying up loose ends involving two laws it administers.

• Davis-Bacon Act: To conform its regulations with three court rulings involving the definition of "site of the work" under the Davis-Bacon Act (Title 29 of the CFR, Part 5, Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction), DOL published a proposed rule on September 21, 2000, to make three changes to Section 5.2, Definitions: (1) revise the "site of the work" definition to include material or supply sources, tool yards, job headquarters, etc., only where they are dedicated to the covered construction project and are adjacent or virtually adjacent to a location where the building or work is being constructed; (2) revise the "construction" definition to provide that the off-site transportation of materials, supplies, tools, etc., is not covered, except where such transportation occurs between the construction work site and a dedicated facility located "adjacent or virtually adjacent" to the construction site; and (3) further revise the "construction" definition to provide that transportation of portion(s) of a building or work between a secondary covered construction site and the site where the completed building or work will remain is subject to the Davis-Bacon Act (see the October 2000 Federal Contracts Perspective article "Labor Proposes Revision to Davis-Bacon Definitions").
  
  Fifty comments were received, but DOL was unconvinced by any of the arguments against the proposed changes, so it has finalized the regulation without change.
  
  
• Service Contract Act: On July 26, 2001, FAC 97-19 removed the exemption of subcontracts for commercial supplies and services from Service Contract Act coverage (see the August 2000 Federal Contracts Perspective article "FAC 97-19 Applies SCA to Commercial Contracts"). However, the Office of Federal Procurement Policy (OFPP) asked DOL to extend the exemption to subcontracts for installation, maintenance, and repair, of automated data processing (ADP), and to exempt both prime contractors and subcontractors for a specified subset of commercial services that meet certain criteria, such as automobile maintenance services and equipment installation and maintenance (29 CFR Part 4, Labor Standards for Federal Service Contracts).
  
  Part of the proposed rule would have expanded the definition of ADP to include telecommunications. However, this part of the proposed rule was dropped from the final regulations because the AFL-CIO forcefully argued that installing and maintaining new telephone lines or a telephone system is not automated data processing. Other than this change, the final rule is essentially the same as proposed.

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