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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

MARCH 2001
Vol. II, No. 3

CONTENTS

Bush Issues Three Acquisition-Related Orders Involving Labor
DOE Fee Tied to Security, Environment, Safety, Health
Proposed Nonmanufacturer Rule Waiver for Bearings
GAO Issues Three Reports on Small Business Contracting
OMB Announces Availability of FAIR Act Inventories
DOE Delays Implementation of Two Regulations

Bush Issues Three Acquisition-Related Orders
Involving Labor Issues in FAR Part 22

On February 17, President George W. Bush issued three executive orders (EOs) revoking two executive orders issued by President Bill Clinton which expanded labor involvement issues. In addition, the Civilian Agency Acquisition Council (CAAC) issued a Federal Acquisition Regulation (FAR) deviation authorizing civilian agencies to delay implementation of Federal Acquisition Circular (FAC) 97-21 for six months, until July 19, 2001. FAC 97-21 implemented the so-called "blacklisting" regulations that were supported by labor and opposed by industry and many federal agencies.

Ironically, one of the Clinton EOs, which was issued on February 10, 1993, 10 days after he took office, revoked two EOs issued by President Bush's father, President George H. W. Bush, during the last months of his administration. In effect, George W. Bush is reinstating the two George H. W. Bush EOs.

The following are the provisions of the EOs and the stories behind them:

• EO 13201, Notification of Employee Rights Concerning Payment of Union Dues or Fees: In 1988, the Supreme Court ruled that nonunion members cannot be forced to pay fees to unions to support activities not related to collective bargaining, such as contributions to support political candidates (Communications Workers of America v. Beck). On April 13, 1992, President George H. W. Bush issued EO 12800 requiring contractors and subcontractors to post notices alerting nonunion employees of their rights under the Beck decision. FAC 90-11 implemented EO 12800 by adding FAR Subpart 22.15, Notification of Employee Rights Concerning Payment of Union Dues or Fees, and a clause at FAR 52.222-18.
  
  President Clinton issued EO 12836 revoking EO 12800, and FAC 90-17 deleted FAR Subpart 22.15 and FAR 52.222-18 because he found EO 12800 to be "distinctly anti-union" since the required notice did not notify workers of their rights under the National Labor Relations Act to organize and bargain collectively.
  
  EO 13201 revokes the part of EO 12836 that revoked EO 12800. EO 13201 requires every contractor with a contract over the $100,000 simplified acquisition threshold, and all subcontractors and vendors under covered contracts, to post notices in conspicuous places explaining the rights of nonunion employees. The notice is practically identical to the notice in the revoked FAR 52.222-18. Contractors that fail to comply may have their contracts cancelled, terminated, or suspended.
  
  The EO becomes effective 60 days after the order (April 18, 2001), and its provisions "apply to contracts resulting from solicitations issued on or after the effective date of this order." Also, the EO directs the FAR Council to "take whatever action is required" to amend the FAR "to require each solicitation of offers for a contract to include a provision that implements...this order."
  
  
• EO 13202, Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects: On October 23, 1992, President George H. W. Bush issued EO 12818 prohibiting the government from using any contract provisions that required bidders to enter into agreements with labor unions that required employees to join a union or pay union dues. FAC 90-15 implemented EO 12818 by adding FAR Subpart 22.5, Open Bidding on Federal Construction Contracts, and a clause at FAR 52.222-5.
  
  President Clinton's EO 12836 also revoked EO 12818, and FAC 90-17 also deleted FAR Subpart 22.5 and FAR 52.222-5 because he thought such "project labor agreements" benefited the government and contractors.
  
  EO 13202 revokes the part of EO 12836 that revoked EO 12818, and it revokes the June 5, 1997, memorandum issued by President Clinton which encouraged federal agencies to consider using project labor agreements on construction projects greater than $5,000,000. EO 13202 states the government may not "require or prohibit bidders, offerors, contractors, or subcontractors to enter into or adhere to agreements with one or more labor organizations, on the same or other related construction project(s); or otherwise discriminate against bidders, offerors, contractors, or subcontractors for becoming or refusing to become or remain signatories or otherwise to adhere to agreements with one or more labor organizations, on the same or other related construction project(s)." (EDITOR'S NOTE: The original EO 12818 prohibited the government from requiring compliance with project labor agreements. EO 13202 prohibits the government from requiring or prohibiting compliance. In fact, the EO states, "Nothing in this [EO] shall prohibit contractors or subcontractors from voluntarily entering into [such] agreements.")
  
  The EO gives the FAR Council 60 days (to April 18, 2001) to "take whatever action is required to amend the Federal Acquisition Regulation in order to implement the provisions of this order." The EO applies to contracts awarded after its date of issuance (that is, February 17, 2001), and it also applies to "construction contracts awarded after the date of this order by recipients of grants or financial assistance or by parties to cooperative agreements..."
  
  
• EO 13204, Revocation of Executive Order on Nondisplacement of Qualified Workers Under Certain Contracts: On October 20, 1994, President Clinton issued EO 12933 directing federal agencies to include in public building maintenance contracts a clause that requires successor contractors to give their predecessors' employees the right of first refusal to employment openings under the new contract. FAC 97-01 implemented EO 12933 by adding FAR Subpart 22.12, Nondisplacement of Qualified Workers Under Certain Contracts, and a clause at FAR 52.222-50.
  
  EO 13204 directs the FAR Council and federal agencies to "promptly move to rescind any orders rules, regulations, guidelines, or policies implementing or enforcing Executive Order 12933..." Also, it directs the Secretary of Labor to immediately terminate any investigations or other compliance actions based on EO 12933.

In another labor-related development, the Civilian Agency Acquisition Council (CAAC) authorized all civilian agencies (other than the National Aeronautics and Space Administration (NASA), which is covered by the Defense Acquisition Regulations (DAR) Council) to execute a class deviation postponing the effective date of FAC 97-21, Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings, from January 19, 2001, to July 19, 2001 (for more on FAC 97-21, see the January 2001 Federal Contracts Perspective article "FAC 97-21 Implements 'Blacklisting' Regulations, Widely Opposed by Industry and Agencies"). (EDITOR'S NOTE: The FAR is administered by two councils: the DAR Council consisting of the military services, the Defense Logistics Agency, and NASA, and the CAAC consisting of all the other civilian agencies.)

FAC 97-21 amended the FAR to require that contracting officers take into account a contractor's compliance with tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws, when determining the contractor's responsibility. The rule took effect the last full day of the Clinton Administration, so it was unaffected by President Bush's moratorium on new regulations promulgated by the Clinton Administration but not yet in effect (see the February 2001 Federal Contracts Perspective article "President Bush Freezes New Regulations").

The CAAC memorandum cites the Administrative Procedure Act as providing the authority for a stay of the final rule: "When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review." On December 22, 2000, a lawsuit was filed in the United States District Court for the District of Columbia by the Business Roundtable, the Chamber of Commerce, the National Association of Manufacturers, the Associated General Contractors of America, Inc., and the Associated Builders and Contractors, Inc., seeking to overturn the final rule. The CAAC cites this lawsuit as justification for agencies to issue a FAR deviation in accordance with FAR 1.404, Class Deviations. The CAAC went on to provide a recommended format for the FAR deviation, in which the agency's senior procurement executive would state, "In the interest of justice, the (agency name) believes implementation of the final rule should be voluntarily stayed...Based on these concerns and other concerns expressed within the Federal Government, I have determined that the 30-day effective date did not give Federal contractors and the Federal Government sufficient time to meet the new obligations and responsibilities imposed by the December 20, 2000, final rule."

General Services Administration (GSA) was the first to issue a FAR deviation in the recommended format, quickly followed by other agencies such as the Departments of Agriculture, Housing and Urban Development, Interior, and Transportation. Even NASA issued a FAR deviation despite it being a member of the DAR Council. However, the Department of Defense (DOD) has not issued a FAR deviation -- it has decided to wait for a governmentwide FAR change. So for now, DOD contracting officers and contractors must comply with the FAR as revised by FAC 97-21.

The AFL-CIO, which hosted the meeting where then-Vice President Al Gore pledged that the Clinton Administration would promulgate rules requiring contracting officers to consider contractor compliance with labor laws when making responsibility determinations, characterized the CAAC action as a "secret and outrageous" attack by the Bush administration.

An electronic version of the FAR as it existed before FAC 97-21 is posted at http://www.arnet.gov/far/ under "FAR (Archived) HTML" as FAC 97-20.

DOE Fee Tied to Security, Environment, Safety, Health

On February 1, the Department of Energy (DOE) published a proposed rule that would amend two DEAR clauses to reduce a contractor's fee for security violations and for performance failures relating to environment, safety, and health (ES&H).

The proposed rule would implement Section 3147 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65) which requires that DOE contracts include a clause that provides "an appropriate reduction in the fees or amounts paid to the contractor under the contract in the event of a violation by the contractor or contractor employee of any rule, regulation, or order relating to the safeguarding or security of Restricted Data or other classified or sensitive information. The provisions shall specify various degrees of violations and the amount of the reduction attributable to each degree of violation."

In addition, on May 19, 2000, then-Secretary of Energy Bill Richardson announced an initiative to require greater responsibility and accountability from DOE's management & operating (M&O) contractors. Because of the serious consequences which can result from performance failures relating to the DOE's ES&H and security programs, a major provision of the secretary's initiative was to better define objective standards and procedures for considering and applying fee reductions for contractor performance failures relating to ES&H and the safeguarding of Restricted Data and classified information.

DOE proposes to implement both these related requirements together. It would add DEAR 952.204-XX, Conditional Payment of Fee or Profit -- Safeguarding Restricted Data and Other Classified, for use in all contracts involving classified information except for M&O contractors and other contracts designated by the Procurement Executive; and amend DEAR 970.5215-3, Conditional Payment of Fee, Profit, or Incentives -- Facility Management Contracts, for use in M&O contracts and other contracts designated by the Procurement Executive.

Both clauses would reduce the contractor's fee or profit for security violations as follows:

• For a first degree performance failure (generally involving Top Secret information), the contractor's fee or profit would be reduced not less than 51% nor greater than 100% of the total fee or profit earned during the 6 or 12 month evaluation period. A first degree performance failure "results in, or that can reasonably be expected to result in, exceptionally grave damage to the national security."
  
  
• For a second degree performance failure (generally involving Secret information), the contractor's fee or profit would be reduced not less than 26% nor greater than 51% of the total fee or profit earned during the period. A second degree performance failure "results in, or that can reasonably be expected to result in, serious damage to the national security."
  
  
• For a third degree performance failure (generally involving other classified information), the contractor's fee or profit would be reduced up to 25% of the total fee or profit earned during the period. A third degree performance failure "results in, or that can reasonably be expected to result in, undue damage to the national security."

The revised DEAR 970.5215-3 would also reduce the M&O contractor's fee or profit for failure to obtain approval of the Integrated Safety Management System (ISMS), or for otherwise failing to achieve the minimum performance requirements of the contract relating to ES&H. The fee or profit reductions would parallel those for security violations.

• A first degree performance failure would be one that is "considered catastrophic or could threaten the successful completion of a program or project", such as a fatality or failure to develop and maintain a DOE-approved ISMS.
  
  
• A second degree performance failure would be one that is "significantly adverse to safety or could result in significant additional cost to the federal government." An example of a second degree performance failure would be a failure to meet key program milestones designed to substantially reduce risk to workers, the public, and the environment.
  
  
• A third degree performance failure "results from lack of management and/or worker attention to safety." An example of a third degree performance failure would be a "failure to implement corrective actions resulting from oversight evaluations, assessments, and inspections."

However, the contracting officer (for security violations) or the DOE Operations Office/Field Manager (for ES&H violations) may consider mitigating factors that may warrant a lesser reduction, including a decision that no reduction should be made.

In addition, the amount of reduction under these clauses, "in combination with any reduction made under any other clause in the contract, shall not exceed the amount of fee, fixed fee, profit, or the contractor's share of cost savings that is otherwise earned during the evaluation period." That means the fee or profit cannot be reduced below zero.

Comments (three copies) on the proposed rule should be sent to Michael L. Righi, U.S. Department of Energy, Office of Procurement and Assistance Management, MA-51, 1000 Independence Avenue, SW, Washington, DC 20585.

Proposed Nonmanufacturer Rule Waiver for Bearings

The Small Business Administration (SBA) is proposing to waive the "nonmanufacturer rule" for aerospace ball and roller bearings (annular ball bearings, ball bearings, cylindrical ball bearings, linear ball bearings, linear roller bearings, needle roller bearings races, roller bearings, tapered roller bearings and thrust roller bearings) (Standard Industrial Classification (SIC) 3562; North American Industrial Classification System (NAICS) 332991).

Public Law 100-656, enacted November 15, 1988, requires recipients of federal contracts that are set-aside for small businesses or are awarded through the SBA's 8(a) program to provide the product of a small business manufacturer or processor if the recipient is not the actual manufacturer or processor. This is called the "nonmanufacturer rule" (see paragraph (f) of FAR 19.102, Size Standards). However, the law permits the SBA to waive the "nonmanufacturer rule" if it determines there are no small business sources for a particular "class of products" and permit small businesses to provide products from any source.

In an effort to identify potential small business manufacturers, the SBA has searched its PRO-Net database (http://pro-net.sba.gov) but has not identified any small manufacturers for these items. SBA will publish a notice in the Commerce Business Daily to solicit information on small business manufacturers of aerospace ball and roller bearings, and it invites the public to comment or provide source information on potential small business sources by March 5, 2001, to Edith Butler, Program Analyst, U.S. Small Business Administration, 409 3rd Street SW, Washington, DC 20416, 202-619-0422.

EDITOR'S NOTE: A complete list of current nonmanufacturer rule waivers is at http://www.sba.gov/GC/approved.html.

GAO Issues Three Reports on Small Business Contracting

The General Accounting Office (GAO) issued three reports to Congress on various aspects of small business contracting:

• GAO-01-119, Trends in Federal Procurement in the 1990s: Despite all the warning about small businesses suffering from the acquisition reforms and streamlining in the 1990s, the small business community seems to be holding its own. Among the developments that were expected to hurt small businesses were multiple award contracts (MACs), governmentwide agency contracts (GWACs), bundled contracts, the removal of purchases under the $2,500 micro-purchase threshold from the requirement that they be obtained from small businesses and the increased use of purchase cards by non-contracting personnel to make purchases under $2,500. Among the developments that were expected to help small businesses were the increase of the small business reservation threshold from $25,000 to $100,000, and the increase in the small business federal contract goal from 20% to 23%. All these various influences seems to have cancelled each other out, although it may be too early to tell.
  
  From Fiscal Years (FYs) 1993 through 1999, the government met its legislative goal. Between FYs 1993 and 1997, when the goal was 20%, small businesses received between 24% and 25% of total federal contract expenditures. In FYs 1998 and 1999, when the goal was increased to 23%, small businesses received 23% of total federal contract expenditures.
  
  In addition, despite the overall decline in total federal contract expenditures in the 1990s (adjusted for inflation), small businesses received a higher share of federal contract expenditures in FY 1999 than in FY 1993, including automatic data processing services as well as research and development.
  
  Because government agencies only report individual awards greater than $25,000, GAO was unable to assess the affect that the use of purchase cards has on awards under $2,500 to small businesses. GAO notes that purchase cards now make about 5% of all federal purchases (about $10 billion), so this should be investigated.
  
  Also, the SBA pointed out to GAO that preliminary data for FY 2000 shows that agencies are finding it more difficult to meet the 23% legislative goal.
  
  
• GAO-01-273, Status of Small Disadvantaged Business Certifications: SBA records show that 9,034 small businesses were certified as small disadvantaged businesses (SDBs) on August 24, 2000, and 6,405 of these SDBs were automatically certified due to their 8(a) certification. SBA reported that it had certified 2,629 SDBs as of August 24, 2000, about half of the 5,456 small businesses that submitted SDB applications.
  
  The number of SDBs certified by SBA is significantly lower than the 30,000 projected by SBA based on the number of firms that had self-certified as SDBs prior to the institution in 1998 of the SDB certification process. A variety of factors are identified as possible contributors to this phenomenon:
  
  
  • Criticisms and lack of support from outside groups on SBA's implementation of the program and SBA's changes to the program's implementation dates may have created confusion for some firms, while some others may have adopted a "wait-and-see" attitude.
    
    
  • Many business viewed the application process as an administrative and financial burden compared to the prior self-certification process.
    
    
  • Many businesses do not see sufficient benefits of certification to justify the effort. For example, no set-asides are used, and the Department of Defense is barred from granting 10% evaluation preferences to SDBs until February 23, 2002, because it exceeded the 5% SDB goal for FY 2000.
    
    
  • Some firms believe they are unlikely to receive any federal contracts regardless of their SDB status, while other firms expressed confidence that they can win contracts through open competition without SDB status.
    
    
  • Some of the firms that had self-certified that they were SDBs might not be applying for certification because they no longer or had never qualified for SDB status.
  
  
• GAO-01-346, Trends and Challenges in Contracting with Women-Owned Small Businesses: Since FY 1996, when the 5% governmentwide contracting goal for women-owned small businesses (WOSBs) went into effect, federal contracting with WOSBs has increased more than four times as fast as federal contracting with all businesses. However, the government has never come close to meeting the 5% goal -- in FY 1999, WOSBs received 2.5% of federal expenditures. Agencies have had a greater success meeting their WOSB subcontracting goals than their prime contracting goals.
  
  GAO observes that the performance of DOD is central to the success or failure of efforts to meet the governmentwide goal because it accounted for 64% of federal contract expenditures in FY 1999. Because DOD achieved less than half its 5% goal in FY 1999, the governmentwide goal for WOSBs could not have been met even if every other federal agency had attained its WOSB contracting goal. Only by substantially exceeding their cumulative WOSB goals could other federal agencies have compensated for DOD's shortfall.
  
  Government contracting officials cited two major obstacles to increasing WOSB contracting: (1) the numerous and complex contracting programs for small businesses reduce the number of contracts available for WOSBs and the time available for contracting officers to "reach out" to WOSBs; and (2) the absence of a targeted government program for contracting with WOSBs places them at a disadvantage when competing with other small business groups that have such programs. Other obstacles cited are contract bundling, a lack of commitment or accountability of agencies' managers and contracting officers for increasing WOSB contracts, limited WOSB access to working capital, not enough qualified WOSBs in some fields, and resource constraints that affect the ability of agencies to monitor prime contractors' subcontracting plans that include WOSBs.
  
  The general consensus is that the most effective way to increase contracting with WOSBs would be to create a program targeting WOSBs, such as a WOSB set-aside program. However, many contracting officials believe that creating another small business contracting program that targets WOSBs could exacerbate the existing burden on contracting officers and might adversely affect their ability to meet the other existing small business goals. Other suggestions are to encourage agencies to: (1) improve agency outreach efforts to identify and encourage qualified WOSBs to participate in federal procurements; (2) promote contracting WOSBs through incentive and recognition programs for their contracting employees; (3) implement mentor-protege programs that include WOSBs; (4) inform WOSBs of the possible use of teaming arrangements to enhance their competitiveness; and (5) expand access to contract finance financing such as through higher progress payment rates.

OMB Announces Availability of FAIR Act Inventories

On February 9, the Office of Management and Budget (OMB) announced the availability of the third group of Year 2000 "commercial activities inventories" compiled and submitted by government agencies in compliance with the Federal Activities Inventory Reform (FAIR) Act of 1998 (Public Law 105-270). The FAIR Act requires that agencies submit an "annual list of government activities not inherently governmental in nature," and these commercial activities inventories are subject to challenge by interested parties within 30 working days of their announced availability -- that is, by March 11.

The first set of FAIR Act inventories was released on October 3, 2000, and the second set of inventories was released on December 14, 2000.

Among the inventories are those from several major departments and agencies: Agriculture, Defense, Energy, Housing and Urban Development, Interior, Justice, State, Transportation, Treasury, Central Intelligence Agency (CIA), NASA, SBA, and Social Security Administration. The total number positions in this set of inventories is about 1.3 million, and more than 550,000 are designated as commercial activities.

The inventories are due from the departments and agencies on June 30 of each year. However, there is no statutory deadline for OMB to review the inventories and announce the availability of the inventories to the public. Last year, three sets of the 1999 inventories were released, the last one on December 30, 1999. This year, the 2000 inventories were released later -- this last set was released about five weeks later than the last 1999 set.

The Office of Federal Procurement Policy (OFPP), which is part of OMB, has prepared a summary FAIR Act User's Guide and is making it available on its Internet site at http://www.whitehouse.gov/OMB/procurement/index.html. The Guide is intended to help interested parties review the Year 2000 FAIR Act inventories, and it includes the web site addresses to access agency inventories.

DOE Delays Implementation of Two Regulations

In compliance with President Bush's direction to delay implementation of any regulations issued by the Clinton Administration but had not yet gone into effect (see the February 2001 Federal Contracts Perspective article "President Bush Freezes New Regulations"), DOE has delayed the implementation of two acquisition-related regulations by 60 days, from February 20, 2001, to April 23, 2001. The two regulations involve whistleblower protection and contractor legal management requirements (see the February 2001 Federal Contracts Perspective article "DOE Rewrites DEAR Part 970, Mandates Legal Management").

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