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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:

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:

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.

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:



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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