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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


JULY 2001
Vol. II, No. 7

CONTENTS

DOD Drops Contractor R&D Cost Sharing
GAO Says Mentor's Experience Doesn't Help Protege
Simplified Procedures Proposed for VA Health-Care
NFS Addresses IG Posters, SBIR Program, DPAS
States Added to FirstGov, GWACs Listed
SBA Installs "HUBZone Gateway" Search Capability
SBA Revises Agricultural Size Standards
Proposed Laws Introduced



DOD Drops Contractor R&D Cost Sharing,
"Financial Health of Defense Industry" Cited

In a memorandum to the service secretaries, Under Secretary of Defense for Acquisition, Technology and Logistics E.C. "Pete" Aldridge, Jr. announced that the Department of Defense (DOD) would no longer require contractors to partially foot the bill for defense research and development (R&D) contracts. The only exception would be "unusual situations where there is a reasonable probability of a potential commercial application related to the research and development effort." Under Secretary Aldridge made this policy announcement during his fourth day on the job. He is the former chief executive officer of The Aerospace Corporation.

This practice has been used with increasing frequency during the past several years, and contractors have complained that this is nothing more than extortion by the government to squeeze money out of their profits for underfunded programs.

"In order to ensure that the companies the Department of Defense does business with are able to provide innovative, technologically excellent weapons and equipment at affordable prices, we must be concerned about the financial health of the defense industry," writes Aldridge in his memo. "Financially sound companies are able to attract the resources and talent necessary to provide best value solutions to warfighters and taxpayers alike."

"One of the ways to ensure these companies remain financially sound is to consider carefully the degree of investment they are making in defense programs. In today's environment of reduced defense spending and fewer new program starts, it is short-sighted to require contractor investment in defense research and development contracts. Instead, we should permit contractors to earn a reasonable return on these contracts in exchange for good performance."

Aldridge specifically cites four practices as unacceptable:

"Contractors should not be encouraged or required to supplement DOD appropriations by bearing a portion of defense contract costs, whether through use of their IR&D funds or profit dollars...I believe this is a particularly important issue, and I expect the full support of the Military Departments and Defense agencies to ensure that contractor investment is curtailed."



GAO Says Mentor's Experience Doesn't Help Protege

The General Accounting Office (GAO) ruled in a recent protest that a joint venture formed by a mentor and its protege must be judged by the experience of the party that would be performing the majority of the work under the contract. In this case, the agency properly downgraded the joint venture because the protege, the party that would perform most of the contract, lacked necessary experience and training (Urban-Meridian Joint Venture, B-287168, May 7, 2001 (published May 30, 2001)).

The General Services Administration (GSA) issued a solicitation for operation, maintenance, and repair services at the United States Court of Appeals in San Francisco. Urban Systems, Inc., and Meridian Management Corporation formed a joint venture to compete for the contract. Meridian Management, a large business, is the mentor of Urban Systems, a small disadvantaged business (SDB), under the Small Business Administration's (SBA) mentor-protege program. Under the joint venture agreement, Meridian would be involved somewhat in performing the contract, but would primarily assist Urban in learning how to compete for federal contracts. Urban would be responsible for performing the majority of the work and would have a significant role in managing the contract.

The Urban-Meridian proposal was given an experience/past performance rating of 5 out of a possible 10 by GSA. GSA assigned this rating because Urban had no directly related experience -- its only experience was performing two parking garage management contracts.

Urban-Meridian argued that GSA's downgrading of its proposal based on Urban's lack of relevant experience improperly nullified Urban's participation in the mentor-protege program, and disregarded Urban's plan to hire the incumbent employees to perform the contract. This would provide Urban with the experience personnel needed to perform the contract. The only other experience Urban would require would be corporate management of the incumbent employees. This corporate management would be provided by Meridian.

GAO did not agree with Urban-Meridian's argument. "Where an agency is evaluating the experience and past performance of a joint venture, there is nothing improper in its considering the specific experience and past performance of the entity that would actually perform the contract," GAO says in its opinion. "The SBA regulations governing the mentor-protege program do not provide otherwise...and we find no other basis for precluding the agency from fully considering the experience and past performance of both firms in such an arrangement. As for Urban-Meridian's intention to hire the incumbent employees, the [joint venture's] proposal did not include any information demonstrating that these employees would accept employment with Urban-Meridian. For example, Urban-Meridian did not submit letters of interest or intent from the employees, and did not provide an explanation of how it planned to recruit them; indeed, Urban did not even indicate that it had contacted the employees. Under these circumstances, GSA's failure to credit Urban with the experience of these potential employees was not unreasonable."



Simplified Procedures Proposed for VA Health-Care

The Department of Veterans Affairs (VA) is proposing to amend the VA Acquisition Regulation (VAAR) to establish simplified procedures for the competitive acquisition of health-care resources. This proposed rule would implement the Veterans' Health Care Eligibility Reform Act of 1996 (Public Law 104-262), which authorized VA to prescribe simplified procedures for the procurement of health-care resources (that is, commercial services or the use of medical equipment or space) by the Veterans Health Administration (VHA) "without regard to any law or regulation that would otherwise require the use of competitive procedures." Therefore, the competitive procedures of any laws and regulations (including the competitive procedures of the Federal Acquisition Regulation (FAR), VAAR, and their underlying laws, such as the Competition in Contracting Act) would be superseded by the simplified procedures.

However, under the provisions of Public Law 104-262, the simplified procedures are required (with some exceptions) to "permit all responsible sources, as appropriate, to submit a bid, proposal, or quotation (as appropriate) for the resources to be procured and provide for the consideration by the Department of bids, proposals, or quotations so submitted." VA interprets this language as allowing it to "limit competition to the extent it determines reasonable for the circumstances of each particular acquisition."

VA had published a proposed implementation on November 9, 1998, but it is withdrawing that proposed rule and publishing this replacement proposed rule because comments (particularly by the SBA) convinced it "that a revised proposed rule is necessary to more fully address the potential impact of the proposed rule on small business."

VA is proposing to establish a new VAAR Part 873, Simplified Acquisition Procedures for Health-Care Resources, which would have the following key provisions:

Comments should be submitted by August 6, 2001, to Director, Office of Regulations Management (02D), Department of Veterans Affairs, 810 Vermont Avenue, NW, Room 1154, Washington, DC 20420; or fax comments to (202) 273-9289; or e-mail comments to: OGCRegulations@mail.va.gov. All comments should indicate that they are submitted in response to "RIN 2900-AI71."

EDITOR'S NOTE: The FAR was intended to provide a governmentwide set of procedures that would produce similar results under similar circumstances throughout the government. However, this core document has been getting chipped away little by little, all in the name of "acquisition streamlining" because certain members of the Clinton Administration decided it was "inflexible and obsolete." First to be exempt from the FAR was the Federal Aviation Administration in 1996, but there has been no discernible improvement in its operations or efficiency. Now, the "procurement ghettoization" continues with the VHA. Of course, someone will say "Congress passed the law -- don't blame VA," but Congress would not have passed the law if VA had not pushed for it!

Does anyone remember what it was like in 1985, before the FAR? Contractors had to comply with the Defense Acquisition Regulation, the Federal Procurement Regulation, and the NASA Procurement Regulation. Frequently one set of regulations contradicted the other two sets, causing complications for contractors and producing added costs for the government. As George Santayana wrote, "Those who cannot remember the past are condemned to repeat it."



NFS Addresses IG Posters, SBIR Program, DPAS

The National Aeronautics and Space Administration (NASA) has been busy tidying up some loose ends -- finalizing a couple of proposals to amend the NASA FAR Supplement (NFS) from a year ago, and an extension of two NFS class deviations. In addition, NASA is finalizing a nine-month old interim rule without change.



States Added to FirstGov, GWACs Listed

More than 18 million state webpages have been added to FirstGov, the federal government's portal to U.S. federal government resources (http://FirstGov.gov). These state webpages are added to the more than 30 million federal webpages, making it the easiest way to access government information at the state and local level. (EDITOR'S NOTE: For more on FirstGov, see the October 2000 Federal Contracts Perspective article "FirstGov.gov Launched September 22, Federal Portal to Information and Services.")

One of the benefits of FirstGov is that its search engine is restricted to .gov and .mil websites, eliminating much of the irrelevant non-governmental documents that frequently clutter commercial search engines like Yahoo! and Google.

In another acquisition-related Internet development, the GovWide Contracts website has been added to the Acquisition Reform Network (http://www.arnet.gov/gwac/govwide.html). GovWide Contracts is a listing of various types of governmentwide contract vehicles, such as governmentwide agency contracts (GWACs), multi-agency contracts (MACs), blanket purchase agreements (BPAs), and schedules.

Links are provided to a description of the contract vehicle, the products and services covered by the contract vehicle, and a point of contact for more information.



SBA Installs "HUBZone Gateway" Search Capability

On June 15, the Small Business Administration (SBA) introduced the "Contracting Officer's HUBZone Gateway" to make it easier for contracting officers to find Historically Underutilized Business Zone (HUBZone) concerns that can perform their contracts (the SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR), Part 126, HUBZone Program, and the Federal Acquisition Regulation (FAR) addresses the HUBZone program in Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program). The HUBZone Gateway is on SBA's HUBZone Internet site at http://www.sba.gov/hubzone.

The HUBZone program provides contract assistance to qualified small business concerns in distressed communities. The Small Business Reauthorization Act of 1997 (Public Law 105-135) established a HUBZone annual contracting goal of 2% of overall prime contracting for Fiscal Year 2001 (approximately $4 billion of the $200 billion federal contract marketplace), 2.5% for FY 2002 (approximately $5 billion), and 3% for FY 2003 and beyond (approximately $6 billion per year). HUBZone concerns can receive contracts through competition limited to qualified HUBZone firms, or on a sole-source basis. Also, HUBZone concerns are given a price preference in bidding during full and open competition over non-HUBZone large firms.

A contractor can find out whether it is located in one of the 7,000 urban census tracts, 900 rural counties, and federally recognized Native American reservations that are designated as HUBZones by going to http://www.sba.gov/hubzone. However, a business must meet other qualifications to become a certified HUBZone concern: (1) it must meet small business size standards; (2) its principal office must be located in a HUBZone; (3) at least 35% of its employees must reside in a HUBZone; and (4) the firm must be owned and controlled by U.S. citizens, a community development company, or an Indian tribe. The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR), Part 126, HUBZone Program.

The HUBZone Gateway searches the SBA's Procurement Marketing and Access Network (Pro-Net) database (http://pro-net.sba.gov) exclusively for the more than 3,000 small businesses certified as HUBZone concerns. Contracting officers can use the HUBZone Gateway search engine to find:

Like Pro-Net, the HUBZone Gateway allows certified HUBZone concerns to use the database to market their capabilities to government agencies and prime contractors.

Earlier this year, SBA placed the revamped HUBZone application on its HUBZone website. It features a streamlined presentation with pop-up menus directing applicants to an online guide and to the actual regulations. Another part of the system allows applicants to check the status of their applications at any time during the review process.

In addition, SBA is hosting a year-long schedule of HUBZone procurement training sessions for federal buyers, who learn about the program's development and tips for incorporating the program into a daily purchase routine. Twelve sessions have been completed so far, with at least seven more scheduled around the country. Also, SBA has conducted a number of one and two hour sessions. This training is supplemented by a procurement presentation available on the HUBZone website.



SBA Revises Agricultural Size Standards

SBA is revising its small business size standards for most of the agriculture industry to implement Section 806 of the Small Business Reauthorization Act of 2000 (Public Law 106-554), which increased the size standard from $500,000 in average annual receipts to $750,000 in average annual receipts. This change revises Title 13 of the Code of Federal Regulations (CFR), Part 121, Small Business Size Regulations; Subpart A, Size Eligibility Provisions and Standards; Section 121.201, What size standards has SBA identified by Standards Industrial Classification codes?, to change the industries under the North American Industry Classification System (NAICS), Sector 11, "Agriculture, Forestry, Fishing and Hunting," Subsector 111, "Crop Production" (NAICS Codes 111110 through 111998), and Subsector 112, "Animal Production" (NAICS Codes 112111 through 112990). The legislation, and this rule, do not affect NAICS code 112112, "Cattle Feedlots" and NAICS code 112310, "Chicken Egg Production" as their size standards are currently above $750,000. Those size standards remain at $1.5 million and $9.0 million, respectively.

This rule is being published as a "direct final rule," which SBA uses for rules it believes are non-controversial. SBA believes this is appropriately a "direct final rule" since it merely implements a provision of Public Law 106-554, and it will go into effect on August 6, 2001, unless an adverse comment is received by July 9, 2001, in which case it will withdraw the direct final rule and decide whether to publish a proposed rule and request comments.

Send adverse comments to Gary M. Jackson, Assistant Administrator for Size Standards, U.S. Small Business Administration, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416; or via e-mail to sizestandards@sba.gov.



Proposed Laws Introduced

Several proposed acquisition-related laws were introduced in Congress in June, among them:



Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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