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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

JANUARY 2002
Vol. III, No. 1

CONTENTS

"Blacklisting Regulations" Permanently Revoked by FAC 2001-03
FAC 2001-02 Addresses Energy Efficiency, Prompt Payment
SBA Initiates BusinessLaw.gov
Changes Proposed for NFS Safety and Health Clauses
New DFARS Rules on Various Contracting Methods
CBD Goes Out of Business January 4, 2002
Prompt Payment Interest Rate Set at 5 1/2%

"Blacklisting Regulations" Permanently Revoked,
Called "Unworkable and Defective" by FAR Courcil

The long, drawn out saga of the "Contractor Responsibility" regulations, which began on September 21, 1997, when then-Vice President Al Gore promised the AFL-CIO that the Clinton administration would require contracting officers to consider contractor compliance with labor laws when making responsibility determinations, came to an anti-climatic end on December 28 when the Federal Acquisition Regulation (FAR) Council published Federal Acquisition Circular (FAC) 2001-03 revoking FAC 97-21. FAC 97-21, which revised the FAR to implement the so-called "blacklisting regulations," went into effect on January 19, 2001, the last full day of the Clinton administration.

On July 9, 1999, the FAR Council published a proposed rule amending FAR Part 9, Contractor Qualifications, to clarify coverage and give examples of suitable contractor responsibility considerations, and FAR Part 31, Contract Cost Principles and Procedures, to make unallowable the costs of attempting to influence employee decisions regarding unionization, and legal expenses related to the defense of judicial or administrative proceedings brought by the federal government when a contractor is found to have violated a law or regulation, or the proceeding is settled by consent or compromise.

The FAR Council received more than 1500 comments in response to the proposed rule. After reviewing the public comments, the FAR Council republished the proposed rule with certain changes on June 30, 2000. Over 300 comments were received on the June 30, 2000, proposed rule. On December 20, 2000, the FAR Council published FAC 97-21, with an effective date of January 19, 2001.

On January 26, 2001, the Civilian Agency Acquisition Council (CAAC) authorized all civilian agencies to postpone the effective date of FAC 97-21 for six months, from January 19, 2001, to July 19, 2001. The CAAC cited the lawsuit filed by the Business Roundtable, Chamber of Commerce of the United States, the National Association of Manufacturers, the Associated General Contractors of America, Inc., and the Associated Builders and Contractors, Inc., in the United States District Court for the District of Columbia on December 22, 2000, seeking to overturn the final rule as the reason for the postponement, stating that "the Administrative Procedure Act, 5 U.S.C. 705, gives 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 April 3, 2001, the FAR Council issued FAC 97-24, suspending the effectivity of FAC 97-21 for 270 days, until December 29, 2001, or until the repeal of FAC 97-21, whichever occurred first. Almost 4700 comments were received on the proposal to revoke the blacklisting regulations and, based on those comments, the FAR Council decided to publish FAC 2001-03 revoking FAC 97-21, and restoring the FAR to the text that existed before the January 19, 2001, changes.

In the preamble to FAC 2001-03, the FAR Council wrote, "It is clear that there is a conviction held by people at many levels and many walks of life that the government should conduct its business with corporations that adhere to the law...We support the objective but find the vehicle unworkable and defective.

"The FAR Council finds that the current regulations governing suspension and debarment provide adequate protection to address serious threats of waste, fraud, abuse, poor performance, and noncompliance. Any one of these concerns may authorize suspension or debarment under appropriate conditions and circumstances, subject to judicial review...

"The December final rule [FAC 97-21] requires contracting officers to perform a function, which they lack the experience, procedures, and resources to perform. Contracting officers are not experts in tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws. This lack of expertise would create a problem rather than solving a problem. Contracting officers are not the appropriate individuals to make decisions regarding satisfactory compliance with the law...

"Sufficient enforcement regulations already existed before the December final rule. The government has sufficient regulations to address contractor responsibility. Among other things, debarment rules provide for existing and appropriate remedies with sufficient due process safeguard for addressing conduct adversely reflecting on business honesty and integrity. Also, for example, under statutory schemes, determinations in the area of worker health and safety, failure to pay minimum wages, or violations of other worker protection laws lie within the purview of the Department of Labor. This approach ensures consistency governmentwide."

The FAR Council estimates that the elimination of the certification requirements that were added by FAC 97-21 to FAR 52.209-5, Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters, and FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items, and the required recordkeeping will eliminate 505,000 hours of burden on contractors and subcontractors each year.

For more on the various actions pertaining to the "blacklisting rule" during the past two years, see the following Federal Contracts Perspective articles:

May 2001, "Blacklisting Rule" Suspended, FAR 97-21 Proposed for Permanent Repeal

March 2001, Bush Issues Three Acquisition-Related Orders Involving Labor Issues in FAR Part 22

January 2001, FAC 97-21 Implements "Blacklisting" Regulations, Widely Opposed by Industry and Agencies

August 2000, Cost or Pricing Data Threshold of $550,000 Proposed

FAC 2001-02 Addresses Energy Efficiency, Prompt Payment

Ten days before the repeal of the "blacklisting rules" (see previous article), the FAR Council issued FAC 2001-02 to take care of several loose ends. FAC 2001-02 addresses nine items, probably the most significant being a requirement for contracting officers to acquire energy-efficient products if life-cycle cost-effective and available, and a rewritten FAR Subpart 32.9, Prompt Payment. All the rules in FAC 2001-02 are effective February 19, 2002, except for the North American Industrial Classification System final rule, which went into effect December 18, 2001.

• Definitions of "Component" and "End Product": FAC 97-15, which was published on December 27, 1999, contained a rewrite of FAR Part 25, Foreign Acquisition. The rewritten FAR Part 25 removed the unique definitions of "component" and "end product" from FAR 25.003, Definitions, instead relying on the standard definitions of those terms contained in FAR 2.101, Definitions. However, several comments were received which addressed potential unintended substantive changes to the FAR that might result from these amendments, so the deleted definitions are being reinstated to FAR 25.003, with minor editorial corrections. In addition, the definitions of these terms in FAR 52.225-1, Buy American Act -- Balance of Payments Program -- Supplies; FAR 52.225-3, Buy American Act -- North American Free Trade Agreement -- Israeli Trade Act -- Balance of Payments Program; and FAR 52.225-5, Trade Agreements, are revised accordingly.
  
  In addition, the definition of "components" in FAR 52.225-9, Buy American Act -- Balance of Payments Program -- Construction Materials, and FAR 52.225-11, Buy American Act -- Balance of Payments Program -- Construction Materials under Trade Agreements, is revised to a definition of the singular term "component," and the definition of "cost of components" is revised to address components of construction material, rather than components of an end product.
  
  
• Energy-Efficiency of Supplies and Services: This adopts the proposed rule published May 10, 2000, as a final rule with minor changes. The rule implements Executive Order 13123 of June 3, 1999, Greening the Government through Efficient Energy Management, by making the following changes:
  
  
  • Adding to FAR 2.101 the terms "energy-efficient product," "energy-savings performance contract" (ESPC); "renewable energy," and "renewable energy technology."
    
    
  • Revising FAR Subpart 23.7, retitled "Contracting for Environmentally Preferable Products and Services," to focus on environmentally preferable products and services only.
    
    
  • Revising the material on energy-efficient products and services removed from FAR Subpart 23.7 and moving to FAR Subpart 23.2, retitled "Energy and Water Efficiency and Renewable Energy" to reflect its expanded subject area.
    
    
  • Directing contracting officers to sources for more detailed guidance and information on ENERGY STAR(R) products (http://www.energystar.gov/) and other energy-efficient products designated by the Department of Energy's Federal Energy Management Program (FEMP) (http://www.eren.doe.gov/femp/procurement) (see revised FAR 23.204, Energy-Savings Performance Contracts).
  
  For more on the proposed rule, see the June 2000 Federal Contracts Perspective article "FAR to Implement Energy Efficiency Executive Order."
  
  
• Prompt Payment and Recovery of Overpayment: This rule finalizes the proposed rule published August 28, 2000, to (1) simplify and clarify the FAR's prompt payment coverage (particularly FAR Subpart 32.9, Prompt Payment); (2) to conform the FAR to reflect the 1999 rescission of Office of Management and Budget (OMB) Circular A-125, Prompt Payment, and the codification of the OMB A-125 rules and guidance in Title 5 of the Code of Federal Regulations, Part 1315, Prompt Payment (the regulations are available at http://www.fms.treas.gov/prompt); and (3) revise FAR 52.232-25, Prompt Payment, FAR 52.232-26, Prompt Payment for Fixed-Price Architect-Engineer Contracts, and FAR 52.232-27, Prompt Payment for Construction Contracts, to a requirement that contractors notify the contracting officer of any overpayments it receives and request disposition instructions (for more on the proposed rule, see the September 2000 Federal Contracts Perspective article "FAR Prompt Payment Coverage to be Simplified").
  
  This finalizes the proposed rule with minor editorial changes, the most significant being the clarification in paragraph (b)(4) of new FAR 32.906, Making Payments, that "when it is determined that the designated billing office erroneously rejected a proper invoice and upon resubmission of the invoice, [the designated payment office] will enter in the payment system the original date the invoice was received by the designated billing office for the purpose of calculating the correct payment due date and any interest penalties that may be due."
  
  
• Javits-Wagner-O'Day Act Subcontract Preference Under Service Contracts: Government agencies are required to satisfy their requirements for supplies or services from nonprofit workshops designated by the Committee for Purchase From People Who Are Blind or Severely Disabled under the Javits-Wagner-O'Day Act (JWOD) if available, and the requirement had been extended to government contractors for supplies only. However, on May 4, 1998, changes were made to Title 41 of the Code of Federal Regulations (CFR), paragraph (e) of Section 51-5.2, Mandatory Source Requirement, to state "contracting activities procuring services which have included within them services on the Procurement List shall require their contractors for the larger service requirement to procure the included Procurement List services from nonprofit agencies designated by the Committee." (EDITOR'S NOTE: The "Procurement List" is a list of supplies and services that the Committee has determined are suitable for purchase by the government and are required to be purchased from one of the 600 JWOD nonprofit agencies associated with the National Industries for the Blind (NIB) or with NISH (formerly the "National Industries for the Severely Handicapped," a national nonprofit agency that serves persons with a wide range of disabilities).)
  
  To implement the changes to 41 CFR 51-5.2(e), this final rule revises paragraph (c) of FAR 8.001, Priorities for Use of Government Supply Sources, FAR 8.003, Contract Clause, and FAR 52.208-9, Contractor Use of Mandatory Sources of Supply and Services ("and Services" is added to the title), to state that contractors are "the statutory obligation for government agencies to satisfy their requirements for supplies or services available from the Committee for Purchase From People Who Are Blind or Severely Disabled also applies when contractors purchase the supplies or services for government use." Also, paragraph (a)(4) of FAR 44.202-2, Consideration, is revised to require contracting officers to consider whether the contractor has complied with JWOD requirements when reviewing a subcontract that is subject to FAR Subpart 44.2, Consent to Subcontracts.
  
  For more on the proposed rule, see the August 2000 Federal Contracts Dispatch article "Cost or Pricing Data Threshold of $550,000 Proposed."
  
  
• Discussion Requirements: Paragraph (d)(3) of FAR 15.306, Exchanges with Offerors After Receipt of Proposals, requires that contracting officers must discuss with offerors deficiencies and significant weaknesses in their proposals, and adverse past performance information to which the offeror has not had an opportunity to respond. To clarify that the contracting officer is not required to discuss every area where the proposal could be improved, the following is added to FAR 15.306(d)(3): "The contracting officer also is encouraged to discuss other aspects of the offeror's proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal's potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting officer judgment."
  
  For more on the proposed rule, see the May 2000 Federal Contracts Perspective article "FAR Changes on CAS Administration, Discussions Proposed."
  
  
• Definition of Subcontract in FAR Subpart 15.4, Contract Pricing: This final rule amends the definition of "subcontract" in FAR 15.401, Definitions, to exclude FAR 15.407-2, Make-or-Buy Programs, from its application. FAR 15.401 states that a subcontract "also includes a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or a subcontractor." However, application of the definition creates a conflict with the definitions of "buy item" and "make item" in FAR 15.407-2. The term "buy item" is defined as "an item or work effort to be produced or performed by a subcontractor," and "make item" is defined as "an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions." In this context, a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor is not considered to be a "subcontract." Therefore, the parenthetical phrase "(except as used in 15.407-2)" is added immediately following the word "subcontract" in the FAR 15.401 definition.
  
  
• North American Industry Classification System (NAICS): On May 15, 2000, the Small Business Administration (SBA) published a rule basing small business size standards on NAICS codes rather than Standard Industrial Classification (SIC) codes (see the June 2000 Federal Contracts Perspective article "SBA Publishes NAICS-Based Size Standards, to Replace SIC-Based Standards on October 1, 2000"). An interim rule was published in FAC 97-19, effective October 1, 2000, to conform the FAR, particularly FAR Part 19, Small Business Programs, to the changes issued by SBA to the size standards and convert other programs in the FAR currently based on SIC codes to NAICS (see the August 2000 Federal Contracts Perspective article "FAC 97-19 Applies SCA to Commercial Subcontracts, Revises Construction Payment Rules"). This finalizes the FAC 97-19 interim rule with two technical amendments, the more significant of which is the revision of paragraph (h) of FAR 19.102, Size Standards, to update the Internet address for the industry size standards published by SBA (http://www.sba.gov/size).
  
  
• Iceland -- Newly Designated Country Under the Trade Agreements Act: Iceland joined the World Trade Organization Government Procurement Agreement in April 2001, so the U.S. Trade Representative has ordered that Iceland be added as a designated country under the Trade Agreements Act. To implement this order, Iceland is added to the lists of designated countries in FAR 25.003, FAR 52.225-5, Trade Agreements, and FAR 52.225-11, Buy American Act -- Balance of Payments Program -- Construction Materials under Trade Agreements.
  
  Also, Executive Order 13126 of June 12, 1999, Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor, does not apply to contracts for the acquisition of products from foreign countries that are party to the Agreement on Government Procurement (see the February 2001 Federal Contracts Perspective article "FAC 97-22 Addresses Definitions and Cleans House, FAR 97-23 Prohibits Products by Forced Child Labor"). Therefore, Iceland is added to the list of excepted countries in paragraph (b)(4) of FAR 22.1503, Procedures for Acquiring End Products on the List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor, and FAR 52.222-19, Child Labor -- Cooperation with Authorities and Remedies.
  
  
• Contractor Personnel in the Procurement of Information Technology Services: This finalizes, without changes, the interim rule in FAC 97-25 which added FAR 39.104, Information Technology Services, to implement Section 813 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398). FAR 39.104 states, "When acquiring information technology services, solicitations must not describe any minimum experience or educational requirement for proposed contractor personnel unless the contracting officer determines that the needs of the agency (a) cannot be met without that requirement; or (b) require the use of other than a performance-based contract (see Subpart 37.6)."
  
  For more on the interim rule, see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services".

SBA Initiates BusinessLaw.gov

To help reduce the burden on small businesses of complying with laws and regulations on many different topics, and to provide small businesses access to legal and regulatory business information, the SBA has developed BusinessLaw.gov (http://www.businesslaw.gov).

BusinessLaw.gov provides interagency and intergovernmental information arranged by subject. It consolidates and indexes links to credible sources of information on 39 topics of interest, ranging from licenses and permits to such specialized topics as e-commerce and exporting. Also, the site offers information specific to each state and territory, including sections on "Hiring Employees," "Paying Taxes," and "Selecting a Location." In addition, BusinessLaw.gov features interactive tools, searchable frequently asked questions (FAQs) and their answers, downloadable forms and publications, and electronic compliance guides.

Changes Proposed for NFS Safety and Health Clauses

The National Aeronautics and Space Administration (NASA) currently requires the inclusion of NASA FAR Supplement (NFS) 1852.223-70, NASA Safety and Health, and NFS 1852.223-73, Safety and Health Plan, in contracts that are greater than $1 million, involve construction, or have hazardous deliverable end items or operations. This proposed rule would remove from NFS 1823.7001, NASA Solicitation Provisions and Contract Clauses, the $1 million dollar threshold from the NFS 1852.223-70 prescription because NASA feels that safety and health requirements should be determined by the risks rather than cost of the contract requirements (since NFS 1852.223-73 is required to be included in contracts that contain NFS 1852.223-70, the removal of the $1 million threshold would apply to it also). In addition, NFS 1852.223-73 would be revised to require the contractor's safety and health plan to address subcontractors' employees' safety and occupational health.

Also, NFS 1836.513, Accident Prevention, would be revised to require the use of NFS 1852.223-70 instead of FAR 52.236-13, Accident Prevention, and its Alternate I.

Comments on the proposed rule be submitted by February 11, 2002, to Jeff Cullen, NASA Headquarters Office of Procurement, Contract Management Division (Code HK), Washington, DC 20546; or by e-mail to jcullen@hq.nasa.gov.

New DFARS Rules on Various Contracting Methods

December was a quiet month in which DOD revised the Defense FAR Supplement (DFARS) to address multiyear, performance-based, and proposed to amend the DFARS to address research and development contracting methods.

• Multiyear Contracting: To implement provisions of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398), DFARS Subpart 217.1, Multiyear Contracting, is amended to clarify that the authority to enter into multiyear contracts up to five years in length also applies to services and related supplies; to add reporting requirements pertaining to multiyear contracts for property.
  
  Added to DFARS 217.170, General, is a requirement that DOD receive authorization from, or provide notification to, Congress before entering into a multiyear contract that include a cancellation ceiling in excess of $100 million.
  
  Paragraph (a)(2) of DFARS 217.171, Multiyear Contracts for Services, is revised to provide "guiding principles" for agency heads to follow when entering into multiyear contracts for services. In addition, a new paragraph (a)(4) requires the agency head to provide written notice to the congressional defense committees at least 30 days before award of a multiyear contract for services that has an unfunded contingent liability in excess of $20 million or a cancellation ceiling in excess of $100 million. Finally, new paragraph (a)(5) prohibits the initiation of any multiyear contract for services exceeding $500 million unless a law specifically provides authority.
  
  
• Performance-Based Contracting Using Procedures in FAR Part 12, Acquisition of Commercial Items: To implement another provision of the FY 2001 Defense Authorization Act, DFARS Subpart 212.1, Acquisition of Commercial Items -- General, is added to provide an incentive for DOD to use performance-based service contracts by permitting certain performance-based service contracts and task orders to be treated as contracts for the procurement of commercial items. This interim rule places several conditions on this authority: (1) the contract or task order must be firm-fixed-price, have a value of $5 million or less, set forth specifically each task to be performed; define each task in measurable, mission-related terms; and identify the specific end products or output to be achieved for each task; (2) the contractor must provide similar services at the same time to the general public under terms and conditions similar to those in the contract or task order; and (3) the procedures in FAR Subpart 13.5, Test Program for Certain Commercial Items, must not be used.
  
  Comments on this interim rule must be submitted no later than February 4, 2002, (1) directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; by e-mail to dfars@acq.osd.mil; by mail to Defense Acquisition Regulations Council, Attn: Sandra Haberlin, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; or by fax to 703-602-0350.
  
  
• Research and Development Streamlined Contracting Procedures: This proposed rule would amend DFARS 235.7003-2, RDSS [Research and Development Streamlined Solicitation] Procedures, to eliminate the requirement for posting of solicitations at the research and development streamlined solicitation website (http://www.rdss.osd.mil). However, contracting activities would still continue to make synopses and solicitations available through the FedBizOpps (http://www.fedbizopps.gov), the "governmentwide point of entry" (GPE).
  
  Comments on this proposed rule must be submitted no later than February 4, 2002, to the same website/address/e-mail/fax as above.
  
  For more on FedBizOpps, see the following article.

CBD Goes Out of Business January 4, 2002

Effective January 4, 2002, the Department of Commerce will cease publication of the Commerce Business Daily (CBD) and posting synopses on the CBDNet (http://cbdnet.access.gpo.gov/). Instead, all federal agencies will be required to post their synopses of upcoming procurements on FedBizOpps (Federal Business Opportunities, http://www.fedbizopps.gov). The move from the CBD to FedBizOpps was mandated by the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) when it designated FedBizOpps as the single governmentwide point of entry (GPE) to procurement opportunities over $25,000 and made the CBD optional after January 1, 2002. To ease the transition, agencies were required to submit their synopses to both the CBD and FedBizOpps between October 1, 2001, and January 1, 2002. The Department of Commerce realized that CBD would not last very long as an optional source of synopses, so Commerce wisely pulled the plug.

FAC 97-26 implemented the designation of FedBizOpps as the GPE (see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services").

The last paper edition of the CBD will be published January 4, and CBDNet will post the January 4th edition. However, CBDNet will maintain its site for an additional 15 days to comply with the requirement that a synopsis be published at least 15 days before issuance of the solicitation (see FAR 5.203, Publicizing and Response Time). After that time, all the data will be transferred to an archive database and the active database will be shut down. The archive database will continue to be available on CBDNet as part of the Federal Depository Library Electronic Collection.

FedBizOpps provides the same information that is currently in the CBD printed version. Though FedBizOpps is an electronic means of providing synopses and other information, the Department of Commerce will maintain a list of service providers who provide printed versions of FedBizOpps and will make it available in the near future.

Prompt Payment Interest Rate Set at 5 1/2%

The Department of Treasury has established 5 1/2% (5.5%) as the interest rate for the computation of payments made between January 1 and June 30, 2002, 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 (July 1, 2001 -- December 31, 2001) was 5 7/8% (5.875%). The interest rate for January 1, 2001, through June 30, 2001, was 6 3/8% (6.375%).

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