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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

November 2002
Vol. III, No. 11

CONTENTS

DFARS Revised on Multiple Award Competitions, Enterprise Software Agreements
FAR Changes on Efficient Devices, Relocation Costs
2002 FAIR Act Inventories Available to Public
SBA Proposes Change to Tour Operators Size Standard
GAO Proposes Revisions to Bid Protest Regulations
SBA Denies Hand Tools Nonmanufacturer Waiver

DFARS Revised on Multiple Award Competitions,
Enterprise Software Agreements, Honduras

The Department of Defense (DOD) has been busy this autumn, issuing new rules as fast as squirrels gather acorns. Probably the most significant, and controversial, is the rule requiring the contracting officer obtain at least three competitive offers for services acquired under multiple award contracts. In addition, DOD issued rules on enterprise software agreements; contracting officer qualifications; performance-based contracting using the procedures in Federal Acquisition Regulation (FAR) Part 12, Acquisition of Commercial Items; and Honduras. Also, DOD proposed rules on foreign acquisition and transportation of commercial items by sea.

Final Rules:

• Competition Requirements for Purchase of Services Under Multiple Award Contracts: DOD amended Defense FAR Supplement (DFARS) Subpart 208.4, Federal Supply Schedules, and DFARS Subpart 216.5, Indefinite-Delivery Contracts, to implement the requirement in Section 803 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107) that each DOD purchase of services over $100,000 made under a multiple award contract be made on a competitive basis unless a contracting officer waives the requirement under certain specific circumstances. To qualify as being made "on a competitive basis," a "fair notice" must be provided to all contractors offering such services under the multiple award contract. However, a notice may be provided to "fewer than all contractors" if notice is provided to "as many contractors as practicable" and "offers [are] received from at least three qualified contractors..."
  
  On April 1, 2002, a proposed rule was published that proposed the addition of two similar DFARS sections to implement this statutory requirement: DFARS 208.404-70, Additional Ordering Procedures for Services, to address the competition requirements for the General Service Administration's (GSA) multiple award schedule (MAS) program (more commonly known as Federal Supply Schedules (FSS)); and DFARS 216.505-70, Orders for Services Under Multiple Award Contracts, to address the competition requirements for multiple award indefinite-quantity contracts other than the MAS (see the May 2002 Federal Contracts Perspective article "New DFARS Rules Address Profit, Berry Amendment, Federal Prisons, NAFTA, Balance of Payments" for more on the proposed rule). In addition, a public meeting was held on April 29, 2002, to discuss the proposed rule and hear the views of interested parties on what they thought are the key issues. Seventy-one respondents submitted written comments on the proposed rule. Because of the comments, the following significant changes were made to the final version of the rule:
  
  
  • To DFARS 216.505-70 is added a statement that the section "does not apply to orders for architect-engineer services, which shall be placed in accordance with the procedures in FAR Subpart 36.6 [Architect-Engineer Services]." This is added because acquisitions of architect-engineer services are governed by the Brooks Act (40 U.S.C. 541-544), which is implemented by FAR Subpart 36.6.
    
    
  • To both DFARS 208.404-70 and DFARS 216.505-70 is added the statement that the procedures "also apply to orders placed by non-DOD agencies on behalf of DOD." This clarifies that the procedures apply to all DOD requirements for services, regardless of which agency acquires the services.
    
    
  • Because GSA recently introduced "e-Buy" to assist FSS customers in providing fair notice to FSS contractors, to DFARS 208.404-70 is added a notice that "posting of a request for quotations on the General Services Administration's electronic quote system, "e-Buy" (http://www.gsaAdvantage.gov), is one medium for providing fair notice to all contractors."
  
  In addition, DOD is sponsoring two training sessions to support implementation of the final rule, training will be conducted on October 31, 2002, and on November 12, 2002, from 1:00 to 3:00 p.m, in Room C-43, Crystal Mall 4, 1941 Jefferson Davis Highway, Arlington, VA 22202. The room is located on the Crystal City Underground/Tunnel level and is accessible from the Metro. For those who are unable to attend the training sessions, briefings, including briefer notes, have been posted to the Defense Procurement Web site at http://www.acq.osd.mil/dp under the special interest drop down box "Section 803."
  
  EDITOR'S NOTE: After DOD had evaluated all the comments and submitted its final rule for approval to the Office of Management and Budget (OMB), OMB inserted a requirement in the final rule that orders against GSA's FSS contracts be fixed-price. The reason for OMB's addition was that MAS contracts are, by definition, for commercial supplies and services (see paragraph (a) of FAR 8.401, General), and FAR 12.207, Contract Type, requires that agencies use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items. FAR 12.207 goes on to state that "use of any other contract type to acquire commercial items is prohibited."
  
  However, GSA permits orders against its FSS contracts for services to be on a time-and-materials or labor-hours basis. This "authorization" is in GSA's ordering procedures for services (http://www.gsa.gov/Portal/content/offerings_content.jsp?contentOID=116992&contentType=1004), and GSA claims it has the authority to override the FAR when it comes to the FSS because FAR 8.402, Applicability, states, "Procedures in this subpart [FAR Subpart 8.4] apply to orders placed against Federal Supply Schedules. Occasionally, GSA may establish special ordering procedures." GSA and OMB have been at odds over this for some time, and apparently OMB thought the time was right to get rid of time-and-material and labor-hours orders.
  
  Many in industry were outraged at the maneuver, since a significant number of orders against FSS contracts for information technology services, and many contracts in private industry for similar services, are time-and-materials or labor-hours because of the difficulty in estimating the amount of work needed to perform the tasks with the degree of certainty needed for fixed-prices. In addition, several members of Congress said either (1) banning time-and-materials and labor-hours orders would be foolhardy, or (2) such a ban should be the subject of a separate rule.
  
  OMB decided to back down -- there is no such ban in this final rule. Nevertheless, the introductory material states, "The Administrator of the Office of Federal Procurement Policy (OFPP) [a part of OMB] has determined that additional clarification is necessary with respect to the structuring of orders under the MAS...The OFPP Administrator intends to work with the other FAR Council members to develop appropriate revisions to current FAR coverage to address the use of time-and-materials and labor-hour contracts for commercial item acquisitions, including safeguards that are needed to effectively protect taxpayer interests when these contractual arrangements are used under FAR Part 12."
  
  
• Enterprise Software Agreements: This final rule added DFARS Subpart 208.74, Enterprise Software Agreements, to address the use of "enterprise software agreements" (ESAs) for the acquisition of commercial software and software maintenance in accordance with the DOD Enterprise Software Initiative (ESI), which promotes the use of ESAs with contractors that allow DOD to obtain favorable terms and pricing for commercial software and related services. The following are the major provisions of DFARS Subpart 208.74:
  
  
  • DFARS 208.7401, Definitions, includes definitions for an ESA ("a blanket purchase agreement or a contract that is used to acquire designated commercial software or related services such as software maintenance"); the ESI ("an initiative led by the DOD Chief Information Officer to develop processes for DOD-wide software asset management"); and other terms.
    
    
  • DFARS 208.7402, General, requires departments and agencies to "fulfill requirements for commercial software and related services, such as software maintenance, in accordance with the DOD Enterprise Software Initiative (ESI) (see Web site at http://www.don-imit.navy.mil/esi). ESI promotes the use of enterprise software agreements (ESA) with contractors that allow DOD to obtain favorable terms and pricing for commercial software and related services. ESI does not dictate the products or services to be acquired."
    
    
  • DFARS 208.7403, Acquisition Procedures, requires "the requiring official [to] review the information at the ESI website to determine if the required commercial software or related services are available from DOD inventory...If the software or services are available, the requiring official shall fulfill the requirement from the DOD inventory...If the required commercial software or related service are not in the DOD inventory, and not on an ESA, the contracting officer or requiring official may fulfill the requirement by other means...If the commercial software or related services are on an ESA, the contracting officer or requiring official shall review the terms and conditions and prices in accordance with otherwise applicable source selection requirements. If an ESA's terms and conditions and prices represent the best value to the government, the contracting officer or requiring official shall fulfill the requirement for software or services through the ESA. If existing ESAs do not represent the best value to the government, the software product manager (SPM) shall be given an opportunity to provide the same or a better value to the government under the ESAs before the contracting officer or requiring official may continue with alternate acquisition methods."
  
  A proposed rule was published on January 29, 2002, and five respondents submitted comments, resulting in several editorial changes. For more on the proposed rule, see the February 2002 Federal Contracts Perspective article "New DFARS Rules on Caribbean, Italy, Switzerland."
  
  
• Contracting Officer Qualifications: DFARS 201.603-2, Selection, was amended to implement Section 824 of Public Law 107-107, the National Defense Authorization Act for Fiscal Year 2002, to exempt the following DOD employees or members of the military from the requirement that contracting officers and others in GS-1102 series (contracting) positions and similar military positions have a bachelor's degree and at least 24 semester hours of business-related studies: (1) those who served as a contracting officer with authority to award or administer contracts in excess of the $100,000 simplified acquisition threshold on or before September 30, 2000; (2) those who served as an employee in the GS-1102 series or as a member of the armed services in a similar occupational specialty on or before September 30, 2000; (3) those in the contingency contracting force (that is, "members of the armed forces whose mission is to deploy in support of contingency operations and other operations of the Department of Defense"); and (4) those appointed by the Secretary of Defense to developmental positions.
  
  EDITOR'S NOTE: For more on the acquisition-related provisions of Public Law 107-107, see the February 2002 Federal Contracts Perspective article "2002 Defense Authorization Act Signed Into Law, Extends FAR Subpart 13.5 until January 1, 2003."
  
  
• Performance-Based Contracting Using FAR Part 12 Procedures: The interim rule that amended DFARS Part 212, Acquisition of Commercial Items, to implement Section 821(b) of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398), is finalized with one significant change and several minor editorial changes. (EDITOR'S NOTE: For more on the interim rule being finalized, see the January 2002 Federal Contracts Perspective article "New DFARS Rules on Various Contracting Methods.")
  
  The interim rule being finalized added DFARS 212.102, Applicability, which permits DOD to treat certain performance-based service contracts and task orders as contracts for the procurement of commercial items under certain conditions: (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.
  
  One commenter on the interim rule pointed out that paragraph (1) of DFARS 226.104, Contract Clause, precludes the use DFARS 252.226-7001, Utilization of Indian Organizations and Indian-Owned Economic Enterprises -- DOD Contracts, in any contract that uses FAR Part 12 procedures, so FAR Part 12 procedures cannot be used to award performance-based service contracts under the Indian Incentive Program. DOD agreed with the comment, so it amended DFARS 226.104 to permit the use of DFARS 252.226-7001 in contracts for services that "qualify to use FAR Part 12 procedures solely through the authority in [DFARS] 212.102."
  
  
• Caribbean Basin Country -- Honduras: DFARS 252.225-7007, Buy American Act -- Trade Agreements -- Balance of Payments Program, and DFARS 252.225-7021, Trade Agreements, are amended to add Honduras to the list of Caribbean Basin countries whose products DOD may acquire under the Trade Agreements Act. This action is taken in accordance with the July 12, 2002, direction of the United States Trade Representative (USTR).

Proposed Rules:

• Foreign Acquisition: Because of the complexity of the Buy American Act and the trade agreements, DOD has decided to propose an extensive revision to DFARS Part 225, Foreign Acquisition, and its corresponding clauses to simplify and clarify the regulations governing the acquisition of supplies and services from foreign sources. The following are some of the more significant changes being proposed to DFARS Part 225 and its clauses:
  
  
  • DFARS Subpart 225.5, Evaluating Foreign Offers -- Supply Contracts, would be revised to provide streamlined procedures for evaluating foreign offers when acquiring supplies, and would add procedures for evaluating foreign offers in acquisitions in which price is not the determining factor (proposed paragraph (b)(iii) of DFARS 225.502, Application).
    
    
  • The definition of "qualifying country end product" would be changed to permit the qualifying country manufacturing the product to use components from any other qualifying country (see proposed DFARS 252.225-7001, Buy American Act and Balance of Payments Program; DFARS 252.225-7021, Trade Agreements; and DFARS 252.225-7036, Buy American Act -- North American Free Trade Agreement Implementation Act -- Balance of Payments Program).
    
    
  • Paragraph (1)(i)(B) of DFARS 225.902, Procedures, would be revised to provide that the government will evaluate duty only if it is to be paid. In addition, paragraph (b) of DFARS 252.225-7013, Duty-Free Entry, would state that, except for qualifying country supplies or eligible end products, the contractor will request duty-free entry only on foreign supplies for which the contractor estimates that duty will exceed $200 per unit (end product or component). DFARS 252.225-7013 would replace the five existing duty-free clauses: DFARS 252.225-7003, Information for Duty-Free Entry Evaluation; DFARS 252.225-7008, Supplies to be Accorded Duty-Free Entry; DFARS 252.225-7009, Duty-Free Entry -- Qualifying Country Supplies (End Products and Components; DFARS 252.225-7010, Duty-Free Entry -- Additional Provisions; and DFARS 252.225-7037, Duty-Free Entry -- Eligible End Products.
    
    
  • Eliminated from DFARS 252.225-7042, Authorization to Perform, would be the requirement for a contractor to represent that it will comply with all laws, decrees, labor standards, and regulations of the foreign country in which the contract will be performed.
  
  Comments must be submitted by December 6, 2002, on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or by e-mail to: dfars@acq.osd.mil. Respondents who cannot submit comments through the web site or by e-mail may submit comments to Defense Acquisition Regulations Council, Attn: Amy Williams, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062, or by fax to 703-602-0350. Cite DFARS Case 2002-D009 when making comments on this proposed rule.
  
  
• Transportation of Commercial Items by Sea: On May 31, 2002, DOD published a final rule amending DFARS 252.247-7023 to require its inclusion in contracts at or below the $100,000 simplified acquisition threshold (see the July 2002 Federal Contracts Perspective article "DFARS Changes on U.S.-Flag Vessels, Indian Organizations"). The final rule added a new Alternate III to DFARS 252.247-7023 for use in contracts at or below the simplified acquisition threshold which minimizes the information required from contractors under these contracts. This proposed rule would add Alternate III of DFARS 252.247-7023 to the list of required clauses in paragraph (b) of DFARS 252.212-7001, Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items, because it was inadvertently omitted from the May 31, 2002, rule.

FAR Changes on Efficient Devices, Relocation Costs

Unlike the DFARS, there was not much action involving the FAR the past month, just one proposed rule and a request for comments:

• Energy-Efficient Standby Power Devices: It is proposed that FAR Part 23, Environment, Energy and Water Efficiency, Renewable Energy Technologies, Occupational Safety, and Drug- Free Workplace, be amended to implement Executive Order (EO) 13221 of July 31, 2001, Energy Efficient Standby Power Devices, and to clarify the requirements for the purchase of Environmental Protection Agency (EPA)-designated products (for more on EO 13221, see the September 2001, Federal Contracts Perspective article "Bush Puts Bite on 'Vampire Appliances'").
  
  The primary proposed changes would be:
  
  
  • The following definition for "energy-efficient standby power devices" would be added to FAR 2.101, Definitions: "Energy-efficient standby power devices means products that (1) include an external or internal power supply; and (2) use no more than one watt of electricity in their standby power consuming mode or meet recommended low standby levels as designated by the Department of Energy Federal Energy Management Program [FEMP]."
    
    
  • Paragraph (a) of FAR 23.203, Energy-Efficient Products, would be revised to add, "For products that consume power in a standby mode and are listed on FEMP's Standby Power Devices product listing, agencies shall (A) purchase items which meet FEMP's standby power wattage recommendation or document the reason for not purchasing such items; or (B) if FEMP has listed a product without a corresponding wattage recommendation, purchase items which use no more than one watt in their standby power consuming mode. When it is impracticable to meet the one watt requirement, agencies shall purchase items with the lowest standby wattage practicable." In addition, a new paragraph (b) would be added: "The requirements in paragraph (a) of this section only apply when the relevant product's utility and performance meet the agency's need" (the curent paragraph (b) would be redesignated as paragraph (c)).
  
  Comments must be submitted by December 16, 2002, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2001-028@gsa.gov.
  
  
• Reimbursement of Relocation Costs on a Lump-Sum Basis: Comments are being sought from industry on whether FAR 31.205-35, Relocation Costs, should be revised to expand the use of lump-sum payments to reimburse contractors for relocation expenses. FAR 31.205-35 requires the government to reimburse a contractor up to an employee's actual expenses with one exception: the miscellaneous costs identified in FAR 31.205-35(a)(5) (such as disconnecting and connecting appliances, automobile registration, forfeited utility fees and deposits) may be reimbursed a flat, or lump-sum, amount up to $5,000.
  
  The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council are considering revising FAR 31.205-35 to permit contractors the option of claiming employee relocation costs based on actual costs, an appropriate lump-sum basis, or a combination of the two approaches.
  
  Comments must be submitted by December 23, 2002, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, or by e-mail to farnotice.relocationcosts@gsa.gov.

2002 FAIR Act Inventories Available to Public

On October 17, the OMB published a notice that the first release of the 2002 "Agency Inventories of Activities that are not Inherently Governmental" required by Section 2 of Public Law 105-270, the Federal Activities Inventory Reform Act of 1998 ("FAIR Act"), is available to the public from the Departments of Health and Human Services, Housing and Urban Development, and Treasury, Energy, State, and Veterans Affairs; National Aeronautics and Space Administration (NASA); and several small agencies and activities. These inventories consist of "activities performed by federal government sources for the executive agency that, in the judgment of the head of the executive agency, are not inherently governmental functions." Interested parties have 30 days from the publication of the (that is, until November 16, 2002) to challenge the omission or inclusion of an activity on and inventory.

Approximately 250,000 jobs are included in this release, and about one-third of those jobs are categorized as eligible to be performed by the private sector.

Also, the Office of Federal Procurement Policy (OFPP) has prepared a summary "FAIR Act User's Guide" and it is available at http://www.whitehouse.gov/OMB/procurement/index.html. This User's Guide will help interested parties review 2002 FAIR Act inventories, and include the website addresses for individual agency inventories.

SBA Proposes Change to Tour Operators Size Standard

The Small Business Administration (SBA) is proposing to modify the way average annual receipts are calculated for firms in North American Industry Classification System (NAICS) 561520, Tour Operators. The proposed method would exclude funds received in trust for unaffiliated third parties from the calculation of a tour operator's receipts. SBA would retain the size standard of $6.0 million.

SBA's regulations in Title 13 of the Code of Federal Regulations, Section 121.104, How does SBA calculate annual receipts?, provides that the receipts of a firm are based on a firm's federal tax returns. Generally, receipts reported to the Internal Revenue Service (IRS) include a firm's gross receipts from the sale of goods and services. However, tour operators believe that receipts collected for payment to the actual transportation and lodging providers that are reimbursed by a tour operator should not be included in the calculation of average annual receipts for purposes of determining the size of a tour operator. They request that SBA exclude monies passed through to suppliers of travel components (that is, meals, transportation, lodging, and sightseeing and entertainment) from the calculation of a tour operator's average annual receipts. These monies typically account for 80% to 95% of a tour operator's receipts.

SBA agrees that certain types of receipts should be excluded from the calculation of size for firms in this industry. Therefore, SBA is proposing a revision to the size standard for the tour operators industry by excluding funds received in trust for unaffiliated third parties while retaining the size standard of $6.0 million in average annual receipts.

Currently, 2,722 out of 3,222 tour operators are considered small. If this change is adopted, 238 additional firms, generating 21% of sales in the industry, will obtain small business status and become eligible for small business assistance programs.

SBA is seeking public comments on this proposed change to the NAICS 561520 size standard. Comments must be received on or before November 1, 2002, by Gary M. Jackson, Assistant Administrator for Size Standards, 409 3rd Street, SW, Mail Code 6530, Washington, DC 20416; or e-mail to SIZESTANDARDS@sba.gov. Comments on alternatives should present the reasons that would make them preferable to the current size standard.

GAO Proposes Revisions to Bid Protest Regulations

The General Accounting Office (GAO) is proposing to revise its bid protest regulations, which has not been revised since 1996, to conform to current practice and to improve their overall efficiency and effectiveness. On February 25, 2002, GAO published an advance notice of proposed rulemaking (ANPR) requesting comments on alternative dispute resolution, electronic filing, review of affirmative responsibility determinations, and suggestions for changes to other areas of the regulations (see the March 2002 Federal Contracts Perspectives article "GAO Protest Procedures Being Reviewed"). Based on the comments and suggestions received, GAO has proposed revisions to its regulations, the two most significant changes being:

• Paragraph (g) of Section 21.0, Definitions, would be revised to clarify that protests and other documents may be filed by facsimile or by electronic means (such as e-mail, subject to restrictions when a protective order is in effect).
  
  
• Paragraph (b)(2) of Section 21.5, Protest Issues Not for Consideration, which addresses protests pertaining to the Small Business Administration's (SBA) Certificate of Competency program, would be revised to add that GAO will review protests "that present allegations that the SBA failed to follow its own published regulations or failed to consider vital information bearing on the firm's responsibility due to the manner in which the information was presented to or withheld from the SBA by the procuring agency."

Comments must be submitted on or before November 12, 2002, to John M. Melody, Assistant General Counsel, General Accounting Office, or by e-mail: BidProtestRegs@gao.gov.

EDITOR'S NOTE: GAO's protest regulations are available at http://www.gao.gov/special.pubs/og96024.htm. FAR 33.104, Protests to the GAO, provides an overview of the protest process and procedures.

SBA Denies Hand Tools Nonmanufacturer Waiver

On July 22, 2002, SBA published a notice that it was considering granting a waiver of the nonmanufacturer rule for hand and edge tool manufacturing under NAICS code 332212 because no small business manufacturers were supplying those products to the federal government (see the August 2002 Federal Contracts Perspective article "SBA Proposes Small Business Size Standard Changes"). Comments received from large and small business manufacturers have made the SBA aware of the existence of small business manufacturers of hand and edge tools, so SBA is denying the waiver of the nonmanufacturing rule for NAICS 332212.

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