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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

AUGUST 2001
Vol. II, No. 8

CONTENTS

FY 2002 Defense Authorization Would Clarify Education Requirements
NASA Lowers Undefinitized Action Approval Threshold
OMB Proposes Competition for Interservice Agreements
New Definition of "U.S." Proposed for FAR
GAO Requires "Level Playing Field" for A-76 Evaluations
Two Commercial Activities Panel Hearings to be Held
GAO Finds DOD Mentor-Protege Benefits "Inconclusive"
GSA Lists Leases, Owned Properties Online
SBA to Provide Loans When Reservists Are Called Up
Prompt Payment Interest Rate Set at 5 7/8%

FY 2002 Defense Authorization Would Clarify
Acquisition Education Requirements, Extend FAR Subpart 13.5

For the last several years, the annual National Defense Authorization Act has been used by Congress to make changes to defense contracting procedures and to contracting procedures that apply throughout the government. This year, Congress appears to be taking it easy on the federal acquisition workforce by minimizing the significant changes in S. 1155, the proposed National Defense Authorization Act for Fiscal Year 2002. Nevertheless, the proposed act contains a couple of provisions in Title VII, Acquisition Policy and Acquisition Management, that, if passed, will affect a large number of defense contracting personnel and contractors -- both defense and civilian:

• Section 705, Acquisition Workforce Qualifications: Section 808 of the National Defense Authorization Act of Fiscal Year 2001 established a new minimum qualification requirement for all new entrants into the GS-1102 occupational series (or similar military occupational specialty) and for contracting officers with authority to award or administer contracts over $100,000: the individual must have completed a baccalaureate degree and at least 24 semester credit hours (or equivalent) of study from an accredited institution of higher education in any of the following disciplines: accounting, business finance, law, contracts, purchasing, economics, industrial management, marketing, quantitative methods, and organization and management. Section 808 went on to state that this new requirement "shall not apply to a person for the purpose of qualifying to serve in a position in which the person is serving on September 30, 2000." This caused much confusion in the Department of Defense (DOD) about whether a person with decades of experience in contracting but not the baccalaureate degree or 24 semester hours of business-related education was eligible for promotions.
  
  On March 21, 2001, DOD issued a memorandum stating that "it is the Department's view that this requirement applies only to new military and civilian entrants as of October 1, 2000" (see the May 2001 Federal Contracts Perspective article "DOD Clarifies Acquisition Education Requirements").
  
  To clarify the confusing language in the FY2001 National Defense Authorization Act, Section 705 of the proposed FY2002 National Defense Authorization Act would state that the requirement for a baccalaureate degree and 24 semester credit hours "shall not apply to an employee or member who (A) served as a contracting officer with authority to award or administer contracts in excess of the simplified acquisition threshold in the Executive agency on or before September 30, 2000; [or] (B) served, on or before September 30, 2000, in a position in an Executive agency either as an employee in the GS-1102 series or as a member of the armed force in similar occupational specialty..." To be eligible for either of these exceptions, a civilian employee must have met one of the following requirements, or been granted a waiver, by September 30, 2000:
  

  "(A) Received a baccalaureate degree from an accredited educational institution...; (B) Completed at least 24 semester credit hours...in any of the following disciplines: accounting, business finance, law, contracts, purchasing, economics, industrial management, marketing, quantitative methods, and organization and management; (C) Passed an examination considered by the Secretary of Defense to demonstrate skills, knowledge, or abilities comparable to that of an individual who has completed at least 24 semester credit hours (or the equivalent) of study in any of the disciplines listed in (B); or (D) On October 1, 1991, had at least 10 years of experience in acquisition positions, in comparable positions in other government agencies or the private sector, or in similar positions in which an individual obtains experience directly relevant to the field of contracting."

  
  Even if an individual does not meet the requirements or any of the exceptions, "the acquisition career program board concerned may waive any or all of the requirements...with respect to an individual if the board certifies that the individual possesses significant potential for advancement to levels of greater responsibility and authority, based on demonstrated job performance and qualifying experience."
  
  
• Section 713, One-Year Extension of Commercial Items Test Program: Federal Acquisition Regulation (FAR) Subpart 13.5, Test Program for Certain Commercial Items, which is scheduled to expire January 1, 2002, would be extended until January 1, 2003. This test program authorizes the use of simplified acquisition procedures to acquire commercial supplies and services up to $5,000,000.

NASA Lowers Undefinitized Action Approval Threshold

On June 29, 2001, NASA issued Procurement Information Circular (PIC) 01-16 which consisted of a NASA FAR Supplement (NFS) class deviation lowering the threshold in NFS 1843.7003, Procedures, for Center Director approval of undefinitized contract actions (UCAs), and the required use of bilateral agreements, from $1,000,000 to $100,000.

This class deviation was executed in response to the June 7 direction from the NASA administrator that NASA reduce the number and value of agency UCAs, and that the Office of Procurement develop additional controls on the UCA process that will ensure that UCAs are used sparingly. The class deviation is intended to be a temporary measure until the Office of Procurement has prepared more comprehensive changes to the NFS implementing additional management controls.

OMB Proposes Competition for Interservice Agreements

The Office of Management and Budget (OMB) has published a proposal to amend the Supplemental Handbook to OMB Circular A-76, Performance of Commercial Activities, to require public-private competitions for all Interservice Support Agreements (ISSAs) on a recurring 3-5 year review cycle, similar to the competitions required for the renewal of service contracts with the private sector. The proposal would also remove the "grandfather clause" which permit agencies to consolidate administrative, logistical, and other commercial support activities through the transfer of work to ISSAs without cost comparison if the consolidation was accomplished prior to October 1, 1997. However, reimbursable ISSAs within a single agency would not be subject to the recurring competition requirement "at this time".

The activities of most federal agencies can be divided into two categories: program activities, which provide goods and services directly to the agency mission recipients (for example, federal transfers of funds, grants, services, and credit to the public); and support activities, which provide administrative, professional, and logistical support to help the agency meet its mission requirements.

The number and amount of support activities are wide-ranging. They include personnel services; safety and health services; security; legal services; financial management services; information technology, automated data processing, and communications services; mail and messenger services; public affairs; publications, reproduction, graphics, and video services; library services; scientific facilities; research and analytical services; office and commissary supplies; office and grounds maintenance; procurement and contracting services; services to acquire, maintain, rent, and operate plant and equipment; and much more.

Many support activities are financed by their own direct appropriations and provided to the programs, without charge, in their own agency. Other support activities are provided to other agencies on a reimbursable basis. These services are provided under agreements between the providing agency and the customer agency called ISSAs.

The OMB Circular A-76 Supplemental Handbook currently does not require providing agencies or their customer agencies to undergo competition for this work on a recurring basis. In effect, while competitions for work that is performed by contract are on a recurring 3- to 5-year review cycle, work performed under an ISSA is not required to undergo recurring competition once the ISSA is awarded to the providing agency. In addition, the Supplemental Handbook does not require recurring competitions for existing reimbursable support activity work that was already performed under an ISSA before October 1, 1997. As a result, a large and increasing amount of commercial work is being performed under ISSAs without the benefits of recurring competition.

OMB is proposing to delete from the Supplemental Handbook the current paragraph 5 in Part 1, Policy Implementation, Chapter 2, Interservice Support Agreements (ISSA), Section A, General, which (1) permits agencies to transfer work to ISSAs without a cost comparison if it was accomplished by October 1, 1997, and (2) exempts existing reimbursable support work and the renewal of related ISSAs from cost comparisons. In its place would be the following paragraph 5:

"Reimbursable support service providers within the federal government are providing a large and an increasing amount of commercial work to federal program activities (customers) under reimbursable service agreements and without the benefits of recurring competitions. These ISSAs are not competing with the private sector or with other public offerors who might be able to provide higher levels of service at less cost. Therefore, not later than October 1, 2001, each customer agency shall establish a recurring schedule for all work performed for it on a reimbursable basis by another agency for competition. ISSAs shall be recompeted every 3-5 years or as otherwise permitted by related procurement regulations for comparable types of commercial work (see Competition-in-Contracting Act (CICA) and the Federal Acquisition Regulations). These competitions shall permit offers from the private sector, the current reimbursable service provider and other public offerors, as appropriate. In addition, all new or expanded work required by a customer agency shall be submitted to competition, as provided in this Chapter."

Agency and public comments on the proposed changes are due to OMB not later than August 16, 2001. Comments are to be sent to the Office of Federal Procurement Policy, NEOB Room 9013, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503, fax: 202-395-5105.

New Definition of "U.S." Proposed for FAR

The FAR Council is proposing to clarify the use of the term "United States" to provide more consistent terminology for the geographic application of FAR policies and procedures. The current FAR 2.101 definition of "United States" is the 50 states and the District of Columbia. However, the definition is different in FAR Subpart 22.8, Equal Employment Opportunity; FAR Subpart 22.10, Service Contract Act of 1965; FAR Part 25, Foreign Acquisition; and FAR Subpart 47.4, Air Transportation by U.S.-Flag Carriers. In addition, there no longer is a "Trust Territory of the Pacific Islands," and the term "possessions" is no longer as encompassing as it once was and should not include the various unincorporated territories and commonwealths. Therefore, to the current FAR 2.101 definition of "United States" would be added the following:

• "Contiguous United States (CONUS)", which would be defined as the 48 contiguous States and the District of Columbia.
  
  
• "Customs territory of the United States", which would be defined as the 50 states, the District of Columbia, and Puerto Rico.
  
  
• "Outlying areas", which would be defined as:
  
  
  1. Commonwealths. (i) Puerto Rico; and (ii) The Northern Mariana Islands;
     
     
  2. Territories. (i) American Samoa; (ii) Guam; and (iii) U.S. Virgin Islands; and
     
     
  3. Minor Outlying Islands. (i) Baker Island; (ii) Howland Island; (iii) Jarvis Island; (iv) Johnston Atoll; (v) Kingman Reef; (vi) Midway Islands; (vii) Navassa Island; (viii) Palmyra Atoll; and (ix) Wake Atoll. The definition of "possessions" would be removed.

The term "United States" would be revised throughout the FAR to reflect the appropriate definition.

Comments must be submitted by September 25 to the General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, or by e-mail to: farcase.1999-400@gsa.gov. Cite FAR case 1999-400 in all correspondence related to this proposed rule.

GAO Requires "Level Playing Field" for A-76 Evaluations

The General Accounting Office (GAO), in ruling against the Air Force in an A-76 cost comparison that was based on "best value," demonstrates that the government must be very careful to make sure that both the government and offerors are playing on the same "level field" (DynCorp Technical Services LLC, B-284833.3; B-284833.4, July 17, 2001).

The Air Force issued a request for proposal (RFP) for the a cost-plus-incentive-fee contract for performance of base operation services at Maxwell Air Force Base and Gunter Annex in Alabama. Offerors were informed that the RFP was issued as part of a government cost comparison to determine whether accomplishing the specified work under contract or by government performance was more economical. If government performance was determined to be more economical, then no award under the RFP would be made and the solicitation would be canceled. The RFP's Performance Requirements Document (PRD) described performance requirements, workload estimates, and historical material consumption, and also identified facilities, property, and material to be furnished by the government. Furthermore, the RFP stated that the Air Force "encourage[d] innovation by potential service providers seeking ways to shorten the scheduled transition time and to minimize problems during the transition..."

The Air Force received eight offers in response to the RFP. Several rounds of discussions were conducted with the offerors, including DynCorp, and oral presentations and best and final offers were received. DynCorp offered an accelerated performance schedule under which DynCorp would be fully staffed the first day of the basic contract period and would incrementally assume responsibility for all the work within 60 days -- 30 days earlier than required by the PRD.

The Air Force made two serious errors when comparing its most efficient organization (MEO) with DynCorp's proposal:

1. Though DynCorp's cost proposal reflected the firm's estimate of all the anticipated material costs for contract performance, unreduced by the value of the government-furnished material (GFM), the MEO deducted the value of the government-furnished material ($1.3 million) as a credit against its total estimated material costs. The Air Force believed it did not need to account for DynCorp's failure to address the GFM in its proposal because that was DynCorp's approach to performing the contract. Also, the MEO did not propose to replenish the inventory, as did DynCorp.
   
   "We do not believe that DynCorp's failure to account for the GFM could be ignored by the agency, where the MEO took a credit for the GFM. The RFP provided for the award of a cost reimbursement contract, which required the Air Force to evaluate offerors' probable costs of performance...The GFM would be provided to either DynCorp or the MEO in order to reduce the overall cost of contract performance. We find that the value of the GFM, which would be provided to either the successful private-sector offeror or the MEO, is a common cost item that should have been deducted from both sides."
   
   
2. DynCorp offered to be fully staffed to perform the contract 30 days earlier than required by the PRD, and such acceleration was encouraged by the RFP. The schedule offered by the MEO matched that in the PRD. However, the Air Force argued that DynCorp and the MEO offered equivalent levels of performance because both DynCorp's and the MEO's were assessed as being "exceptional."
   
   "In an A-76 procurement where the private-sector competition is conducted on a best-value basis and an agency identifies areas in the proposal selected to compete against the in-house cost estimate that exceed the performance work statement requirements, the agency must assess whether or not the same level of performance and performance quality will be achieved by the MEO and ensure that the in-house cost estimate and private-sector offer are 'based upon the same scope of work and performance standards,'" said the GAO. "This 'leveling of the playing field' is necessary because a best-value solicitation invites submission of proposals that exceed the RFP requirements, together with the higher costs or prices that often accompany a technically superior approach. Otherwise, the successful private-sector offeror may be at a disadvantage when compared to the in-house cost estimate, which must only satisfy the minimum performance work statement requirements and thus essentially offers a low cost solution.
   
   "We disagree with the Air Force that this performance difference is accounted for by determining that DynCorp and the MEO received equal adjectival ratings under the pertinent [evaluation] subfactor...Here, DynCorp's and the MEO's proposed performances are based upon differing scopes of work. That is, DynCorp proposed, as encouraged by the RFP, to fully assume performance of all the required work 30 days prior to that required by the RFP and proposed by the MEO. This offer exceeded the performance work statement requirements and will presumably lead to savings for the Air Force, whose staff can be freed up earlier from the work assumed by DynCorp. Thus, the Air Force was required to either reasonably determine that this earlier assumption of work was of no value to the agency (and so advise offerors) or to ensure that the in-house cost estimate was based upon a comparable level of performance."

GAO recommends that the Air Force award the contract to DynCorp, and that DynCorp be reimbursed the reasonable costs of filing and pursuing the protest, including reasonable attorneys' fees.

Two Commercial Activities Panel Hearings to be Held

In more news related to OMB Circular A-76, the GAO is holding the second and third public hearings by its Commercial Activities Panel on August 8 in Indianapolis, and on August 15 in San Antonio, TX.

The focus of the Indianapolis meeting will be on alternatives to the current outsourcing processes, and the San Antonio meeting will address current processes, such as OMB Circular A-76, public-private competitions, and the Federal Activities Inventory Reform (FAIR) Act of 1998 (Public Law 105-270).

Both meetings will begin at 8:30 a.m. The Indianapolis meeting will be in the University Place Conference Center and Hotel on the Indiana University-Purdue University Indianapolis Campus, 850 West Michigan Street. The San Antonio Meeting will be in the Fiesta Ballroom of the Lackland Gateway Club, Building 2490, on Kenly Avenue at Lackland Air Force Base.

Any party who would like to attend either of the August hearings or make a presentation should contact the following e-mail address: A76panel@gao.gov. Presenters must be prepared to limit their oral statements to 3 to 5 minutes.

Additional information, including hearing transcripts of the first public hearing in Washington and copies of statements by all presenters, are available at http://www.gao.gov under "Commercial Activities Panel."

For more on the Commercial Activities Panel, see the April 2001 Federal Contracts Perspective article "GAO to Convene Panel on Contracting Out," the May 2001 Federal Contracts Perspective article "GAO Names Members of Contracting Out Panel," and the June 2001 Federal Contracts Perspective article "GAO Contracting Out Panel to Hold Meeting June 11."

GAO Finds DOD Mentor-Protege Benefits "Inconclusive"

On July 2, the GAO issued the report "Benefits of the DOD Mentor-Protege Program Are Not Conclusive" (GAO-01-767) in which it found it could not assess whether DOD's Mentor-Protege Program enhanced the "business competitiveness, financial independence, and business development of protege firms," or whether program funds were an effective incentive for mentor firms to participate in the program. (EDITOR'S NOTE: The procedures for DOD's Mentor-Protege Program are in the Defense FAR Supplement (DFARS) Appendix I, Policy and Procedures for the DOD Pilot Mentor-Protege Program.")

In 1986, Congress established for DOD a goal of awarding 5% of its total contract dollars to small disadvantaged businesses (SDBs). This 5% goal was not met in the years immediately following its establishment because, according to large DOD prime contractors, there were not enough qualified SDBs available as subcontractors. Therefore, in 1991, Congress directed DOD to establish a mentor-protege program to provide incentives for major DOD contractors (mentors) to furnish assistance to SDBs (proteges) to enhance their capabilities and increase their participation as subcontractors under DOD contracts, other federal contracts, and commercial contracts. The mentor-provided assistance may include infrastructure development (including organizational, financial, and personnel management), proposal writing, contract administration, general business development, technology transfer, and training in such areas as production, quality control, manufacturing, engineering, and computer hardware and software. Mentors are reimbursed for their operational costs and developmental assistance. The intended result of the Mentor-Protege Program is to provide mentors with a strengthened group of subcontractors and DOD with a robust and competitive supplier base.

Mentor-protege agreements are limited to 3 years. DOD is authorized to approve new agreements through September 30, 2002, and program performance is authorized through September 30, 2005.

"DOD lacks data integral to assessing the success of the Mentor-Protege Program," GAO states. "Specifically, DOD does not have sufficient information to explicitly (1) determine the relationship between the program and the goal of awarding 5% of the total dollar amount contracted to SDBs; (2) assess whether the Mentor-Protege Program enhanced the business competitiveness, financial independence, and business development of protege firms; and (3) determine whether program funds are needed to continue to encourage major defense contractors to establish business relationships with SDBs."

Though protege revenue increased by $456 million and the number of protege employees increased by 2,909, they cannot be explicitly linked to the Mentor-Protege Program. GAO also found that about 41% of the semi-annual reports submitted by mentors were incomplete, and that over 22% of the reviews conducted by the Defense Contract Management Agency of the mentor-protege agreements had no indication of whether the mentor-protege agreements were being met.

In conclusion, GAO suggested that Congress consider directing DOD to conduct a more conclusive assessment of the program's impact before extending it any further.

GSA Lists Leases, Owned Properties Online

Starting July 16, the General Services Administration (GSA) is making its more than 7,000 leases in private buildings and with their expiration dates, and the locations of the more than 1,900 GSA-owned buildings available online at http://www.acn.net/gsa. Visitors to the database can view the information by GSA region or by state from congressional districts.

"Making our properties available electronically furthers the goal of the administration and Congress to use leading-edge technology to improve government efficiency," said F. Joseph Moravec, GSA's Commissioner of the Public Buildings Service.

Added Brian K. Polly, GSA's Acting Assistant Commissioner for Portfolio Management, "Listing GSA properties and leases online enables us to provide instant information to GSA's customer agencies, Members of Congress, the general public and real estate professionals."

SBA to Provide Loans When Reservists are Called Up

The Small Business Administration (SBA) is implementing a new program, the Military Reservist Economic Injury Disaster Loan Program, in which SBA will make a low interest, fixed rate loan available to a small business employing a military reservist if the reservist is called up to active military duty during a period of military conflict, and he or she is an essential employee critical to the success of the business' daily operation whose call-up has caused or will cause the business substantial economic injury. The interest rate may not exceed 4% for such loans.

The programs regulations are in Title 13 of the Code of Federal Regulations (CFR); Chapter 1, Small Business Administration; Part 123, Disaster Loan Program; Subpart F, Military Reservist Economic Injury Disaster Loans, which consists of Sections 123.500 through 123.512.

Prompt Payment Interest Rate Set at 5 7/8%

The Department of Treasury has established 5 7/8% (5.875%) as the interest rate for the computation of payments made between July 1 and December 31, 2001, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (January 1, 2001 -- June 30, 2001) was 6 3/8% (6.375%). The interest rate for July 1, 2000, through December 31, 2000, was 7 1/4% (7.25%).

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