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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

December 2002
Vol. III, No. 12

CONTENTS

FAC 2001-10 Addresses Financing Policies, Records, Project Labor Agreements
DOD 5000 Acquisition Policy Documents Cancelled
Proposed FAR Changes on SF 129, GPO Printing, Debarment
GSA Requires Small Business Certifications for Options
DFARS Changes on FMS, Award Fee Payments
Proposed A-76 Revision to Rely on FAR Part 15 Procedures
OFPP Issues Proposals for "Unbundling" Contracts

FAC 2001-10 Addresses Financing Policies, Records,
Project Labor Agreements, Caribbean Products

Federal Acquisition Circular (FAC) 2001-10 ties up several loose ends by finalizing interim rules on project labor agreements and Caribbean Basin country end products, rescinding a rule on pay administration records, and adopting as final a proposed rule that authorizes performance-based payments on fixed-price contracts prior to definitization.

1. General Records Schedule: This final rule amends the Federal Acquisition Regulation (FAR) to reflect the language of FAR 4.705-2 exactly as it was written prior to the revision made by FAC 97-18 (see the July 2000 Federal Contracts Perspective article "FAC 97-18 Revises Trade Agreements Thresholds and CAS Applicability, Addresses Recycled Products"). FAC 97-18 changed the name of FAR 4.705-2 from "Pay Administration Records" to "Construction Contracts Pay Administration Records", and revised paragraph (a) to change the retention period for payroll sheets, registers, etc., from four years after generation of the records to "3 years after completion of contract, unless contract performance is the subject of enforcement action."
   
   It was brought to the attention of the FAR Council that the FAC 97-18 change inadvertently resulted in longer record retention periods for contractors and subcontractors. Therefore, this final rule changes records retention period back to four years after generation of the records, and changes the title of FAR 4.705-2 back to "Pay Administration Records" to clarify that the records retention period applies to all contracts, not just construction contracts.
   
   The rule's introduction states, "for the period from June 6, 2000, through the effective date of this final rule [December 23, 2002], compliance with either the record retention requirements contained in this rule or the prior requirements published in FAC 97-18 is acceptable."
   
   
2. Executive Order 13202, Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects: On May 16, 2001, FAC 97-26 was published, and it included an interim rule implementing Executive Order (EO) 13202, which prohibits the government and federally-funded construction projects from including requirements for or against affiliation with a labor organization as a condition for award of any contract or subcontract for construction or construction management services. In other words, the EO prohibits the use of so-called "project labor agreements" on these construction projects. FAC 97-26 implemented the executive order by adding paragraph (d) to FAR 36.202, Specifications (see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services").
   
   On March 7, 2002, enforcement of the interim rule was suspended pending resolution of litigation in the United States Court of Appeals for the District of Columbia Circuit (Building and Construction Trades Department, AFL-CIO v. Allbaugh). This "stay" was published in FAC 2001-05 (see the April 2002 Federal Contracts Perspective article "FAC 2001-05 Suspends 'Project Labor Agreements' Ban, FAC 2001-06 Includes Procurement Integrity Rewrite"). However, on July 12, 2002, the United States Court of Appeals decided in the government's favor, so this final rule terminates the stay and adopts the May 16, 2001, interim rule as final without change.
   
   
3. Caribbean Basin Country End Products: This rule finalizes, with changes, the interim rule in FAC 2001-04 which removed Panama from the definition of "Caribbean Basin country" in FAR 25.003, Definitions, and FAR 52.225-5, Trade Agreements, to implement the December 14, 2001, determination by the United States Trade Representative (USTR) that Panama is not making substantial progress toward implementing and following the customs procedures required by the Caribbean Basin Trade Partnership Act, so its products no longer qualify for duty-free treatment (see the March 2002 Federal Contracts Perspective article "FAC 2001-04 Redefines 'Classified Acquisitions', Extends FAR Subpart 13.5 for One Year"). While no comments were received on the interim rule, the USTR published on July 12, 2002, a notice to reinstate Honduras as a "Caribbean Basin country" eligible for duty-free treatment. Therefore, FAR 25.003 and FAR 52.225-5 are further revised to add Honduras (for a similar action taken by DOD regarding its acquisitions under the Trade Agreements Act, see the November 2002 Federal Contracts Perspective article "DFARS Revised on Multiple Award Competitions, Enterprise Software Agreements, Honduras").
   
   
4. Financing Policies: This finalizes, with changes, the September 18, 2000, proposal to amend the FAR to permit the use of the performance-based payments type of financing on fixed-price contracts prior to definitization, and to establish a standard time period of 30 days that contractors have to pay their vendors after the contractors have billed the government for incurred vendor costs (see the October 2000 Federal Contracts Perspective article "Proposed FAR Changes on Child Labor, Financing"). The proposal was that the FAR be amended as follow:
   
   
   • Revise paragraph (b) of FAR 32.1003, Criteria For Use, by deleting the word "definitized" from "the contract is a definitized fixed-price type contract". This would permit the use of performance-based payments type of financing on fixed-price contracts prior to definitization.
     
     
   • Delete the "paid cost rule" restriction from FAR 52.216-26, Payments of Allowable Costs Before Definitization, and FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts (the "paid cost rule" required large contractors to pay their subcontractors before including the payment in its progress payment billings, not merely to incur the costs (this restriction did not apply to small businesses)). FAC 97-16 was intended to remove the paid cost rule from all the payments clauses if contractors met certain conditions, but this restriction was not removed in its entirety from FAR 52.216-26(d)(2) and FAR 52.232-7(b)(3) (see the April 2000 Federal Contracts Perspective article "FAC 97-16 Revises Contract Financing Rules, Small Business Competitiveness Demo Program").
     
     
   • To establish a standard time period that contractors have to pay their vendors after the contractors have billed the government for incurred vendor costs, change the phrase "ordinarily prior to the submission of the contractor's next payment request to the government" to "not later than 30 days after the submission of the contractor's payment request to the government" in paragraph (b)(2) of FAR 32.504, Subcontracts Under Prime Contracts Providing Progress Payments; paragraph (b)(1) of FAR 52.216-7, Allowable Cost and Payment; FAR 52.216-26(d)(2); FAR 52.232-7(b)(3) and (b)(4); and paragraph (a)(2) of FAR 52.232-16, Progress Payments.
   
   Four respondents submitted public comments to the proposed rule, and the proposed rule is finalized with "ordinarily within 30 days of the submission of the contractor's progress payment request to the government" being substituted for "not later than 30 days after the submission of the contractor's payment request to the government" in FAR 32.504(b)(2), FAR 52.216-7(b)(1) and (d)(2), FAR 52.232-7(b)(3) and (b)(4), and FAR 52.232-16(a)(2).

DOD 5000 Acquisition Policy Documents Cancelled

On October 30, 2002, Deputy Secretary Wolfowitz issued a memorandum regarding the DOD 5000 series of defense acquisition documents to the secretaries of the military departments, Joint Chiefs of Staff, and others, in which he wrote:

      "I have determined that the current DOD Directive 5000.1, 'The Defense Acquisition System,' DOD Instruction 5000.2, 'The Operation of the Defense Acquisition System,' and DOD 5000.2-R, 'Mandatory Procedures for Major Defense Acquisition Programs (MDAPs) and Major Automated Information Systems (MAIS) Acquisition Programs,' require revision to create an acquisition policy environment that fosters efficiency, flexibility, creativity, and innovation. Therefore...I have cancelled those documents effective immediately.
      "I am issuing the attached interim guidance in place of the cancelled documents. The intent of the guidance is to rapidly deliver affordable, sustainable capability to the warfighter that meets the warfighter's needs. Additional, supporting discretionary, best practices, lessons learned, and expectations have been posted to the DOD 5000 Resource Center at http://dod5000.dau.mil."

The interim guidance documents are "The Defense Acquisition System" (Attachment 1 to the memorandum), "Operation of the Defense Acquisition System" (Attachment 2), and "Interim Defense Acquisition Guidebook" (Attachment 3, formerly DOD 5000.2-R).

DOD Directive 5000.1 and DOD Instruction 5000.2 are expected to be reissued in January 2003. DOD 5000.2-R will not be reissued, but it serves as the "Interim Defense Acquisition Guidebook," but it is not mandatory.

The documents are streamlined. The Defense Acquisition System is six pages, versus the 12 pages of the DOD Directive 5000.1; Operation of the Defense Acquisition System is 34 pages versus the 46 of the DOD Instruction 5000.2. Also, they emphasize evolutionary acquisition and cost realism.

Proposed FAR Changes on SF 129, GPO Printing, Debarment

Several FAR changes were proposed during November:

• Elimination of Standard Form 129, Solicitation Mailing List Application: This proposed rule would amend the FAR to remove the requirement for contracting offices to establish and maintain manual solicitation mailing lists and the need to use the Standard Form (SF) 129, Solicitation Mailing List Application. The SF 129 was created to enable contracting activities to obtain information from sources to develop a solicitation mailing list. At the time the form was developed, manual processes were the only means available to assure access to adequate sources of supplies and services. Today, agencies have access to many tools that can provide the functionality of the SF 129 but in a more efficient and effective manner, such as: the Central Contractor Registration (CCR) system, a centrally located, searchable database that enables prospective contractors to update their information in one place (http://www.ccr.gov); through PRO-Net (the Procurement Marketing and Access Network (http://pro-net.sba.gov)), a gateway to procurement information for and about small businesses operated by the Small Business Administration; and FedBizOpps (http://www.fedbizopps.gov), the designated single governmentwide point of entry for public access to notices of procurement actions over $25,000 (FedBizOpps is capable of generating a list of vendors that are interested in a specific solicitation).
  
  Submit comments by January 6, 2003, 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.2001-032@gsa.gov.
  
  
• Procurement of Printing and Duplicating Through the Government Printing Office (GPO): This proposed rule would completely rewrite FAR Subpart 8.8, Acquisition of Printing and Related Supplies, to implement the Office of Management and Budget (OMB) policy eliminating the requirement that agencies use the GPO for printing services. The most obvious change would be the removal of the requirement that agencies use GPO exclusively for printing and related supplies. The main provision of the rewritten FAR Subpart 8.8 would be FAR 8.801, Policy, which would include these significant changes:
  
  
  • Agencies would be granted authority to address printing needs by either contracting with a private source or by using the GPO when GPO offers the best value.
    
    
  • Agencies would be required to synopsize printing services in excess of $2,500 at least 15 days before issuance of the solicitation.
    
    
  • The length of indefinite-quantity contracts (other than Federal Supply Schedule (FSS) contracts) and requirements contracts for printing would be limited to one year. Also, before an order for printing could be placed under either kind of contract, a notice would have to be posted on FedBizOpps, but the notice would be identified as being for informational purposes only.
    
    
  • There would be a transition period lasting until January 1, 2004, during which agencies may use the services of GPO without requiring competition to select GPO. This period is intended to give agencies and printing contractors an opportunity to adjust to the new acquisition procedures.
  
  Submit comments by December 12, 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.2002-011@gsa.gov.
  
  
• Debarment and Suspension -- Order Placement and Option Exercise: Currently, the FAR does not require contracts with debarred or suspended contractors that are already in existence to be terminated, and paragraph (b) of FAR 9.405-1, Continuation of Current Contracts, states that an ordering activity "may continue to place orders against existing contracts, including indefinite-delivery contracts, in the absence of a termination." This proposed rule would amend FAR 9.405-1 to prohibit agencies from contracting with contractors that have been debarred, suspended, or proposed for debarment by placing orders exceeding the guaranteed minimum under indefinite-quantity contracts; placing orders against optional use FSS contracts; or adding new work, exercise options, or otherwise extend the duration of current contracts or orders.
  
  This proposed rule is a direct result of the March 15, 2002, suspension of Enron and Arthur Andersen (see the April 2002 Federal Contracts Perspective article "Enron, Arthur Andersen Suspended from Federal Work"). In response to the suspension, Office of Federal Procurement Policy (OFPP) Administrator Angela Styles sent a memorandum to the heads of departments and agencies reminding them that the authority in FAR 9.405-1(b) to continue to award orders against existing contracts is discretionary.
  
  Submit comments by January 3, 2003, 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.2002-010@gsa.gov.

GSA Requires Small Business Certifications for Options

On November 15, 2002, the General Services Administration (GSA) issued a press release announcing that GSA's Senior Procurement Executive issued a FAR class deviation requiring its contractors, particularly those participating in its FSS program, to recertify that they qualify as a small business each time their contract is open for renewal or an option to extend the term of the contract is about to be exercised. "This new policy is intended to address a loophole in federal contracting that has allowed businesses to retain their status as 'small' even after they no longer meet the requirements for being classified as small," the press release said.

Previously, GSA and the Small Business Administration (SBA) have interpreted the FAR to allow contractors to keep their small business status for the length of the contract, including option periods. FSS schedule contracts are for five years, and they have three options to extend the contract for an additional five years each. This means a FSS contractor could initially certify that it is small and then, for the next 20 years, retain its small business size status even though it grew into a large business. "This is not how the small business programs were intended to function and results in lost opportunities for those businesses intended to be helped by these programs," said Boyd Rutherford, GSA Associate Administrator for Enterprise Development.

Actually, the General Accounting Office (GAO) surfaced this "loophole" in the recent protest decision CMS Information Services, Inc., B-290541, August 7, 2002. The Missile Defense Agency, intending to restrict the award of a FSS order to a small business, asked FSS contractors to recertify their small business size status. GSA objected, arguing that "the appropriate time to determine whether a small business set-aside is warranted is prior to issuance of the solicitation for the multiple FSS contracts, not at the time an ordering agency issues a specific task or delivery order." However, GAO found nothing wrong with the recertification requirement, stating, "The purpose of the Small Business Act as it relates to government acquisitions is to ensure that a fair proportion of all government contracts be placed with small business concerns. Implicit in this is the notion that the work under the contract will actually be performed by a small business."

DFARS Changes on FMS, Award Fee Payments

DOD was moderately busy during November, publishing one final and two proposed rules:

• Foreign Military Sales (FMS) Customer Involvement: This rule finalizes the proposal to amend DFARS 225.7304, FMS Customer Involvement, to add policy encouraging FMS customers to "participate with U.S. government acquisition personnel in discussions with industry to develop technical specifications; establish delivery schedules; identify any special warranty provisions or other requirements unique to the FMS customer; and review prices on varying alternatives, quantities, and options needed to make price-performance tradeoffs" (proposed DFARS 225.7304(b)). In addition, "the degree of FMS customer participation in contract negotiations (would be) left to the discretion of the contracting officer" (paragraph (d)). Seven respondents submitted comments on the proposed rule, and the final rule is different from the proposed rule with the addition of language in paragraph (d) that "the degree of FMS customer participation in contract negotiations is left to the discretion of the contracting officer after consultation with the contractor. The contracting officer shall provide an explanation to the FMS customer if its participation in negotiations will be limited." (EDITOR'S NOTE: For more on the proposed rule, see the May 2002 Federal Contracts Perspective article "New DFARS Rules Address Profit, Berry Amendment, Federal Prisons, NAFTA, Balance of Payments.")
  
  
• Provisional Award Fee Payments: Cost-reimbursement contracts containing award fees typically provide for an award fee payment no more frequently than every six months, which may place a financial burden on an otherwise successfully performing contractor. Therefore, the proposed rule would revise DFARS 216.405-2, Cost-Plus-Award-Fee Contracts, to add paragraph (b)(3), which would permit the contracting officer to include provisional award-fee payments in a CPAF contract on a case-by-case basis if the payments:
  
  
  • Are not made more frequently than once a month;
    
    
  • For the initial award fee evaluation period, are limited to no more than 50% of the award fee available for that period; and for subsequent award fee evaluation periods, 80% of the evaluation score for the prior evaluation period times the award fee available for the current period (for example, if the contractor received 90% of the award fee available for the prior evaluation period, provisional payments for the current period could not exceed 72% (90% x 80%) of the award fee available for the current period);
    
    
  • Are superceded by an interim or final award fee evaluation for the applicable evaluation period; and
    
    
  • May be discontinued, or reduced as deemed appropriate by the contracting officer, when he or she determines that the contractor will not achieve a level of performance commensurate with the provisional payment.
  
  Comments must be submitted by January 21, 2003, directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or, as an alternative, by e-mail to dfars@acq.osd.mil.
  
  
• Indian Incentive Clause -- Contract Types: DFARS 252.226-7001, Utilization of Indian Organizations and Indian-Owned Economic Enterprises -- DOD Contracts, provides for 5% incentive payments to contractors, and subcontractors at any tier, that use Indian organizations and Indian-owned economic enterprises as subcontractors. Paragraph (e) addresses incentive payments under cost-type, cost-plus-incentive-fee, fixed-price incentive, and firm-fixed-price contracts. Application of the Indian Incentive program is not limited to these contract types, so this proposed rule would eliminate the references to contract types to avoid any misconceptions regarding contract types that are not listed.
  
  Comments must be submitted by January 21, 2003, directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or, as an alternative, by e-mail to dfars@acq.osd.mil.

Proposed A-76 Revision to Rely on FAR Part 15 Procedures

On November 19, the Office of Management and Budget (OMB) published a proposed revision to OMB Circular No. A-76, Performance of Commercial Activities, to expand the use of public-private competitions to all activities performed in-house and through commercial inter-service support agreements (ISSAs), and to incorporate the principles of FAR Part 15, Contracting by Negotiation, into the competitive sourcing process. The changes being proposed to OMB Circular No. A-76 are very similar to those proposed by the Commercial Activities Panel in its final report, "Improving the Sourcing Decisions of the Government" (see the June 2002 Federal Contracts Perspective article "GAO Commercial Activities Panel Issues Report").

OMB is modifying the organization of A-76 to improve clarity and ease of use. The main body of A-76 (which would be a two-page document) lays out the basic policies and responsibilities that agencies must undertake. Guidance for carrying out these responsibilities, and a detailed glossary of acronyms and definition of key terms, are in six attachments:

      Attachment A -- Inventory Process
      Attachment B -- Public-Private Competition
      Attachment C -- Direct Conversion Process
      Attachment D -- Inter-Service Support Agreements
      Attachment E -- Calculating Public-Private Competition Costs
      Attachment F -- Glossary of Acronyms and Definitions of Terms

Among the most significant changes being proposed are:

• Agencies will be required to presume that all activities are commercial in nature unless an activity is justified as inherently governmental (see 4.b. of the Circular and D.1 of Attachment A).
  
  
• Customer agencies will be required to periodically test the marketplace by recompeting requirements performed under ISSAs, just as they would with private sector contractors. Generally, this will be every five years (see C.2.a.(5), C.5.a.(4), and b.(2) of Attachment B).
  
  
• The procedures for conducting competitions will be based on the "best value" evaluations in FAR Part 15. For example, agencies will be able to make cost-technical tradeoffs in certain circumstances, and will be able to eliminate an agency's offer from the competitive range.
  
  
• A standard competition is to be completed within one year of the public announcement that a competition will be conducted (see C.1.b.(3) of Attachment B).

Comments should be submitted by December 19, 2002, by by fax to 202-395-5105, or by e-mail to: A-76comments@omb.eop.gov.

OFPP Issues Proposals for "Unbundling" Contracts

On October 29, 2002, the Office of Federal Procurement Policy (OFPP) provided to President Bush its report "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business." This report was prepared in response to one of the items in President Bush's small business agenda: "Avoid unnecessary contract bundling. Small businesses bring innovation and lower costs to the government. When contracts are bundled together, small businesses are at a disadvantaged if they are not capable of supplying all the contracts. Accordingly, the president has instructed the Director of the OMB to prepare a federal government strategy for unbundling contracts whenever practicable." (EDITOR'S NOTE: OFPP is part of OMB. Also, for more on OFPP's efforts, see the June 2002 Federal Contracts Perspective article "OMB to Hold Meeting on Competition, Contract Bundling.")

According to the report, the reason the contract bundling issue is so important to small businesses is that "there has been a sharp overall decline in new contract awards...from a high of 86,243 in fiscal year 1991 to a low of 34,261 in fiscal year 2001. We also found that significantly fewer small businesses are receiving federal government contracts...from a high of 26,506 in fiscal year 1991 to a low of 11,651 in fiscal year 2000. The significant reductions in new contract awards and the number of small business contractors receiving contract awards signals an increase in contract bundling and a decline in small business opportunities."

The contract unbundling "strategy" will consist of nine separate actions:

1. Ensure accountability of senior agency management for improving contracting opportunities for small business.
   
   
2. Ensure timely and accurate reporting of contract bundling information through the President's Management Council.
   
   
3. Require contract bundling reviews for task and delivery orders under multiple award contract vehicles.
   
   
4. Require agency review of proposed acquisitions above specified thresholds for unnecessary and unjustified contract bundling.
   
   
5. Require identification of alternative acquisition strategies for the proposed bundling of contracts above specified thresholds and written justification when alternatives involving less bundling are not used.
   
   
6. Mitigate the effects of contract bundling by strengthening compliance with small business subcontracting plans.
   
   
7. Mitigate the effects of contract bundling by facilitating the development of small business teams and joint ventures.
   
   
8. Identify best practices for maximizing small business opportunities.
   
   
9. Dedicate agency Offices of Small and Disadvantaged Business Utilization (OSDBU) to the president's small business agenda.

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