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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

MARCH 2002
Vol. III, No. 3

CONTENTS

FAC 2001-04 Redefines "Classified Acquisitions"
Listing of Multi-Agency Contract Instruments Proposed
GAO Protest Procedures Being Reviewed
Trade Agreements Act and NAFTA Thresholds Revised
DOD Extends Suspension of SDB Evaluation Adjustments
SBA Proposes Revising Size Standard for Oil Refineries
NFS Changes on Security, Construction Set-Asides
EPA to Empower Procurement Officials

FAC 2001-04 Redefines "Classified Acquisitions",
Extends FAR Subpart 13.5 for One Year

The Federal Acquisition Regulation (FAR) Council published Federal Acquisition Circular (FAC) 2001-04 on February 8 to conduct a little "housekeeping" -- cleaning up seven little regulatory odds and ends that have been gathering dust in the corner. FAC 2001-04 contains nothing very noteworthy, unless you are directly affected by the change, in which case FAC 2001-04 could be very important.

• Definitions for Classified Acquisitions:" This moves the definitions of "classified acquisition," "classified contract," and "classified information" from FAR 4.401, Definitions, to FAR 2.101, Definitions, because they apply to more than one FAR part. In addition, the definitions have been rewritten for clarity and simplification:
  
  
  • "Classified acquisition" is "an acquisition in which offerors must have access to classified information to properly submit an offer or quotation, to understand the performance requirements, or to perform the contract."
    
    
  • "Classified contract" is "any contract in which the contractor or its employees must have access to classified information during contract performance. A contract may be a classified contract even though the contract document itself is unclassified."
    
    
  • "Classified information" is "any knowledge that can be communicated or any documentary material, regardless of its physical form or characteristics, that (1)(i) is owned by, is produced by or for, or is under the control of the United States Government; or (ii) has been classified by the Department of Energy as privately generated restricted data following the procedures in 10 CFR [Code of Federal Regulations] 1045.21; and (2) must be protected against unauthorized disclosure according to Executive Order 12958, Classified National Security Information, April 17, 1995, or classified in accordance with the Atomic Energy Act of 1954." (EDITOR'S NOTE: The proposed rule did not include Department of Energy privately generated restricted data. This was added in response to a comment on the proposed rule. For more on the proposed rule, see the August 2000 Federal Contracts Perspective article "Cost or Pricing Data Threshold of $550,000 Proposed.")
  
  
  
• Special Simplified Procedures for Purchases of Commercial Items in Excess of the Simplified Acquisition Threshold: This amends paragraph (d) of FAR 13.500, General, to extend the expiration of FAR Subpart 13.5, Test Program for Certain Commercial Items, from January 1, 2002, to January 1, 2003. FAR Subpart 13.5 authorizes the use of simplified procedures for purchases of commercial items greater than the $100,000 simplified acquisition threshold, but not exceeding $5,000,000. This change implements Section 823 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107). (EDITOR'S NOTE: Director of Defense Procurement Deidre Lee issued a FAR class deviation on January 11, 2002, authorizing Department of Defense (DOD) contracting officers to use the procedures authorized in FAR Subpart 13.5 until January 1, 2003. For more on the FAR class deviation, see the February 2002 Federal Contracts Perspective article "2002 Defense Authorization Act Signed Into Law, Extends FAR Subpart 13.5 Until January 1, 2003.")
  
  
• Notification of Noncompliance with Cost Accounting Standards (CAS): This amends Table 15-2, Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data are Required, in FAR 15.408, Solicitation Provisions and Contract Clauses, to exempt contractors from having to notify the contracting officer when there is a CAS noncompliance that has an immaterial cost impact. Paragraph (A) of the General Instructions requires the offeror to include certain information with its pricing proposal, and subparagraph (A)(8) requires the offeror to state "whether you have been notified that you are or may be in noncompliance with your Disclosure Statement or CAS..." To this is added the parenthetical phrase "(other than a noncompliance that the cognizant federal agency official has determined to have an immaterial cost impact)".
  
  
• Executive Order 13204, Revocation of Executive Order on Nondisplacement of Qualified Workers Under Certain Contracts: This rule finalizes without changes the interim rule published in FAC 97-26, which deleted FAR Subpart 22.12, Nondisplacement of Qualified Workers Under Certain Contracts, and FAR clause 52.222-50, Nondisplacement of Qualified Workers. This action was taken in response to Executive Order 13204, which directed the FAR Council and federal agencies to "promptly move to rescind any orders, rules, regulations, guidelines, or policies implementing or enforcing Executive Order 12933..." Executive Order 12933 had directed federal agencies to include in public building maintenance contracts a clause requiring successor contractors to give their predecessors' employees the right of first refusal to employment openings under the new contract. To implement Executive Order 12933, FAC 97-01 added FAR Subpart 22.12 and FAR 52.222-50 on August 22, 1997. Since no comments were received on the interim rule, it is finalized without changes. (EDITOR'S NOTE: For more on Executive Order 13204, see the March 2001 Federal Contracts Perspective article "Bush Issues Three Acquisition-Related Orders Involving Labor Issues in FAR Part 22." For more on FAC 97-26, see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services.")
  
  
• Caribbean Basin Country End Products: This interim rule removes 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 Panamanian products no longer qualify for duty-free treatment because Panama is not making substantial progress toward implementing and following the customs procedures required by the Caribbean Basin Trade Partnership Act.
  
  In addition, this interim rule amends the definition of "Caribbean Basin country end product" in FAR 25.003 and FAR 52.225-5 to implement Section 211 of the United States -- Caribbean Basin Trade Partnership Act (Title II of Public Law 106-200) by clarifying which Caribbean Basin country products are subject to duty-free treatment. In addition, a note has been added to the definition that "access to the HTSUS [Harmonized Tariff Schedule of the United States] to determine duty-free status of articles of these types is available at http://www.customs.ustreas.gov/impoexpo/impoexpo.htm."
  
  Comments on the interim rule must be submitted by April 9, 2002, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.2000-306@gsa.gov.
  
  EDITOR'S NOTE: On January 29, 2002, DOD made similar changes to the DFARS. For more on the DFARS amendment, see the February 2002 Federal Contracts Perspective article "New DFARS Rules on Caribbean, Italy, Switzerland."
  
  
• Final Contract Voucher Submission: This rule revises FAR 42.705, Final Indirect Cost Rates, and FAR 52.216-7, Allowable Cost and Payment, to explicitly state that the contracting officer has the right to unilaterally determine the final contract payment amount when the contractor does not submit the final invoice or voucher within the time specified in the contract, and that this contracting officer decision is final. The contracting officer may make this determination if the contractor fails to submit a completion invoice or voucher within the time specified (normally 120 days after settlement of the final indirect cost rates but may be longer, if approved in writing by the contracting officer).
  
  The July 27, 2000, proposed rule would have stated that the contracting officer's determination is not appealable under FAR 52.233-1, Disputes. However, almost half of the 13 respondents questioned this, so the language has been revised by making the contracting officer's decision final and binding, but the contractor is not precluded from appealing the determination under the Disputes clause. For more on the proposed rule, see the August 2000 Federal Contracts Perspective article "Cost or Pricing Data Threshold of $550,000 Proposed."
  
  
• Technical Amendments: This revises various sections of the FAR to update references and make editorial changes. Probably the two most significant changes are in FAR 31.002, Availability of Accounting Guide, and FAR 42.705-1, Contracting Officer Determination Procedure, where contractors are notified that they may obtain a copy of the Defense Contract Audit Agency Pamphlet No. 7641.90, Information for Contractors, at http://www.dcaa.mil. The Defense Contract Audit Agency mailing address has been removed.

Listing of Multi-Agency Contract Instruments Proposed

The FAR Council is proposing to add FAR Subpart 5.6, Publicizing Multi-Agency Use Contracts, to require contracting activities to post information online for governmentwide acquisition contracts (GWACs), multi-agency contracts, General Services Administration (GSA) Federal Supply Schedule (FSS) contracts, blanket purchase agreements (BPAs) under FSS contracts, and other procurement instruments intended for multiple agency use. This information would be posted at http://www.arnet.gov/gwac/govwide.html.

Comments on the proposed rule must be submitted by April 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.2001-030@gsa.gov.

GAO Protest Procedures Being Reviewed

On February 25, the General Accounting Office (GAO) published an advance notice of proposed rulemaking to alert the public that it is reviewing its bid protest procedures because developments since 1996, when those regulations were last revised, "warrant updating the regulations to reflect current practice." Those regulations, which are in Title 4 of the Code of Federal Regulations (CFR), Part 21, govern offeror protests filed with the GAO against alleged improprieties in the government's conduct of acquisitions. (EDITOR'S NOTE: FAR 33.104, Protests to the GAO, provides an overview of the protest process and procedures. However, if there is a conflict between GAO's regulations at 4 CFR Part 21 and the FAR, GAO's regulations govern.)

Among the regulatory changes being considered are:

• Paragraph (g) of Section 21.0, Definitions, states that a document may be filed by hand delivery, mail, or commercial carrier. It goes on to state that "parties wishing to file by facsimile transmission or other electronic means must ensure that the necessary equipment is operational at GAO's Procurement Law Group." GAO believes this paragraph should clarify that filing by facsimile transmission is permitted (and is, in fact, commonplace), and that electronic filing (that is, e-mailing) of protest documents is permitted under certain circumstances.
  
  
• Alternate dispute resolution (ADR) is utilized regularly by GAO as a means of resolving bid protests in an efficient, expeditious manner, but there is no language in the regulations addressing it. GAO is considering adding language to address ADR.
  
  
• Paragraph (a)(2) of Section 21.2, Time for Filing, states, "with respect to any protest basis which is known or should have been known either before or as a result of the debriefing, the initial protest shall not be filed prior to the debriefing date offered to the protester." This rule has had the unintended result of leading some protesters to delay, until after a debriefing, filing a protest involving a matter that arose during the procurement prior to award (for example, an alleged Procurement Integrity Act violation). "As it has long been GAO's view that it is beneficial to the procurement system to have alleged procurement deficiencies resolved, where possible, at the time the alleged deficiency arises, GAO is considering revising Section 21.2(a)(2) to provide guidance in this area."
  
  
• Paragraph (c) of Section 21.5, Protest Issues Not For Consideration, states that GAO will consider affirmative determinations of responsibility only upon "a showing of bad faith on the part of government officials or that definitive responsibility criteria in the solicitation were not met." In January 2001, in the Court of Appeals for the Federal Circuit decision in Impresa Construzioni Geom. Domenico Garufi v. United States (238 F.3d 1324), the court held that affirmative determinations of responsibility by contracting officers are reviewable by the Court of Federal Claims under the "arbitrary and capricious" standard applicable under the Administrative Procedures Act. In light of the court's decision, GAO is considering whether to revise its regulations in this area.

Comments on these issues and any other suggestions for changes to other areas of the regulations that may enhance the efficiency and overall effectiveness of the bid protest process must be submitted by April 1, 2002, by hand or mail to John M. Melody, Assistant General Counsel, General Accounting Office, 441 G Street, NW, Washington, DC 20548, or by e-mail to BidProtestRegs@gao.gov, or by facsimile to 202-512-9749.

Trade Agreements Act and NAFTA Thresholds Revised

The Trade Agreements Act exempts products of "designated countries" (that is, signatories to World Trade Organization Government Procurement Agreement -- see FAR 25.003, Definitions) from the application of the Buy American Act (see FAR Subparts 25.1 and 25.2) in acquisitions that exceed certain thresholds. The North American Free Trade Agreement (NAFTA) does the same for products of Canada and Mexico (see FAR Subpart 25.4, Trade Agreements, for more on compliance with the Trade Agreements Act and NAFTA).

The USTR is required to adjust the thresholds about every two years to reflect changes in the value of the U.S. dollar against other currencies. Therefore, on February 21, the Office of the USTR announced that is adjusting the Trade Agreements Act and NAFTA thresholds for calendar years 2002 and 2003 as follows:

Trade Agreements Act: Goods and Services -- $169,000 (down from $177,000); Construction -- $6,481,000 (down from $6,806,000).

NAFTA: Goods and Services -- $56,190 (up from $54,372); Construction -- $7,304,733 (up from $7,068,419) (EDITOR'S NOTE: The NAFTA threshold for Canadian goods and services remains $25,000).

For information on the changes made to these thresholds by the USTR in 2000, see the April 2000 Federal Contracts Perspective article "Trade Agreements Thresholds Revised."

DOD Extends Suspension of SDB Evaluation Adjustments

On January 31, 2002, Colonel Carolyn Balven issued a memorandum for Director of Defense Procurement Deidre Lee suspending until February 24, 2003, the use of the 10% price evaluation adjustment for small disadvantaged businesses (SDBs) prescribed in FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns.

This action was taken to comply with Section 801 of the National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261), which prohibits DOD from paying a price that exceeds the fair market cost if the secretary of defense determines that DOD achieved its 5% goal for contract awards to SDBs in the most recent fiscal year.

Title 10 of the U.S. Code, Section 2323, Contract Goal for Small Disadvantaged Businesses and Certain Institutions of Higher Education, sets for the DOD, the National Aeronautics and Space Administration (NASA), and the Coast Guard a 5% goal of contract awards to SDBs, historically Black colleges and universities (HBCUs), and minority institutions (MIs). Subsection 2323(e) authorizes DOD, NASA, and the Coast Guard to take actions to achieve this 5% goal, including the payment of a price that exceeds the fair market cost by no more than 10%.

FAR Subpart 19.11 provides for the application of a price evaluation adjustment to competitive offers of SDBs that exceed the $100,000 simplified acquisition threshold and are not set aside for small businesses in industries determined by the Department of Commerce to have "persistent and significant underutilization of minority firms." The Department of Commerce has determined that a 10% price evaluation adjustment is appropriate for 56 industries.

Since the secretary of defense determined that DOD exceeded the 5% goal during fiscal year 2001, the use of the 10% price evaluation adjustment had to be suspended, as it has been since February 24, 2000.

SBA Proposes Revising Size Standard for Oil Refineries

The Small Business Administration (SBA) is proposing to increase the capacity component of the small business size standard for petroleum refiners from 75,000 barrels per day (bpd) to 155,000 barrels per calendar day (bpcd). The current small business size standard for North American Industry Classification System (NAICS) 324110, Petroleum Refineries, is 1,500 employees, but there is a Footnote 4 to the Table of Small Business Size Standards in 13 CFR 121.201 which states:

"NAICS code 324110 -- For purposes of government procurement, the firm may not have more than 1,500 employees nor more than 75,000 barrels per day capacity of petroleum- based inputs, including crude oil or bona fide feedstocks. Capacity includes owned or leased facilities as well as facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. The total product to be delivered under the contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide feedstocks."

SBA received a request from a small petroleum refiner to delete the bpd part of the size standard for NAICS 324110 for two reasons:

1. The refining industry is dominated by large refiners. The requestor complained that under the current 75,000 bpd size standard, many smaller refiners cannot grow, merge with, or acquire other refiners without losing their small business status.
   
   
2. The small refiners' share of the U.S. total refining capacity has steadily declined during the past 25 years. The requestor states that small refiners' share of the total U.S. capacity has declined from 7.8% in 1975, to 7.1% in 1984, to 6.7% in 1990, and to 4.1% in 1999.

Based on these concerns, SBA is not proposing to delete the bpd part of the size standards as recommended, but rather is proposing to increase the 75,000 bpd component of the size standard to 155,000 bpcd. This would restore the share of small refiners to approximate the same level as in 1992, when the small business size standard was increased to 75,000 bpd.

In addition, SBA proposes to clarify the capacity measure for determining small business size status by replacing the term "barrels per day" with the term "barrels per calendar day" as the U. S. Department of Energy, Energy Information Administration (EIA) has defined it in the glossary to Petroleum Supply Annual 2000, Volume 1. Also, SBA proposes to further clarify the capacity measure by adding to Footnote 4 the phrase "total Operable Atmospheric Crude Oil Distillation Capacity" as used in Petroleum Supply Annual 2000, Volume 1.

Therefore, SBA proposes to revise Footnote 4 to the NAICS 324110 size standard of 1,500 employees to read as follows:

"NAICS code 324110 -- For purposes of federal government procurement, the petroleum refiner must be a concern that has no more than 1,500 employees nor more than 155,000 barrels per calendar day total Operable Atmospheric Crude Oil Distillation capacity. Capacity includes owned or leased facilities as well as facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. The total product to be delivered under the contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide feedstocks."

Comments on the proposed size standard must be sent by March 14, 2002, to Gary M. Jackson, Assistant Administrator for Size Standards, U.S. Small Business Administration, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416; or by e-mail to sizestandards@sba.gov.

NFS Changes on Security, Construction Set-Asides

NASA has been fairly busy recently, revising the NASA FAR Supplement (NFS) by issuing two final rules and instituting small business set-asides for construction and architect-engineering services:

• Major Breach of Safety or Security: This final rule revises paragraph (b) of NFS 1852.223-75, Major Breach of Safety or Security, to (1) more clearly state that a major breach of security is an act or omission by the contractor that results in various outcomes (such as a compromise of classified information; illegal technology transfer, etc.); and (2) clarify that two of the outcomes are equipment or property damage from vandalism greater than $250,000, and theft greater than $250,000 (previously, paragraph (b) stated that a major breach of security may arise from damage or loss greater than $250,000, but it was unclear whether this outcome was a stand-alone provision or had to be combined with other outcomes -- for example, an illegal technology transfer that resulted in damage greater than $250,000).
  
  
• Limitation on Incremental Funding and Deobligations: This final rule amends NFS 1832.702-70, NASA Policy, to revise the criteria for incrementally funding contracts and to establish dollar thresholds for incremental funding and deobligations under contracts. This change is considered necessary because the high number of incremental funding modifications being issued is creating a workload burden for NASA budget and procurement personnel. Previously, NFS 1832.702-70 had merely specified that the incrementally funded contract must be at least $1,000,000 (except there was no threshold for cost-reimbursement research and development), and that the only fixed-price contracts that could be incrementally funded were for research and development. The revisions to NFS 1832.702-70 specify a threshold of $500,000 or more for research and development contracts under which no supplies are deliverable, and a minimum contract period of performance of at least one year; require that initial contract funding must be $100,000 or more; and establish $25,000 as the minimum dollar threshold that all incremental funding and deobligation modifications must meet (except modifications that totally fund or close out a contract).
  
  
• Set-Asides Under the Small Business Competitiveness Demonstration Program: The Small Business Competitiveness Demonstration Program, which is implemented by FAR Subpart 19.10, is intended to assess the ability of small businesses to compete successfully in four "designated industry groups" (DIGs) without the use of small business set-asides. The DIGs are construction, refuse systems and related services, non-nuclear ship repair, and architectural and engineering (A-E) services). Ten federal agencies participate in the program, including NASA.
  
  If a participating agency fails to award 40% of its contracts in a particular DIG to small businesses, or if small business awards under a North American Industry Classification System (NAICS) code within the construction and architectural & engineering services DIGs fall below 35%, the agency must reinstate small business set-asides until its awards to small businesses reach the 40% (or 35%) mark.
  
  For the 12 months ending September 2001, NASA fell below the 35% goal for NAICS Codes 23412, Bridge and Tunnel Construction, and 23521, Painting and Wall Covering, so all NASA Centers must use small business set-asides for acquisitions in these NAICS that exceed $25,000. In addition, NASA fell below the 40% goal for the A-E DIG, so all NASA Centers must use small business set-asides for A-E acquisitions that exceed $50,000.

EPA to Empower Procurement Officials

The Environmental Protection Agency (EPA) has decided to issue a "direct final rule" amending the EPA Acquisition Regulation (EPAAR) to eliminate certain higher level reviews to reduce delays and to "empower" those procurement officials most familiar with a contract action to make decisions relating to that action.

• EPAAR 1515.303, Responsibilities, is revised to designate the following officials as the Source Selection Authority (SSA): (1) for acquisitions of $25,000,000 or more, the Service Center Manager (SCM) (the SSA had been the Chief of the Contracting Office (CCO)); (2) for acquisitions less than $25,000,000 but more than $10,000,000: the SCM, who may redelegate the SSA authority to a person in the GS-1102 contract specialist job series with a contracting officer warrant (the CCO used to determine who was to serve as SSA); and (3) for acquisitions of $10,000,000 or less, the contracting officer (this is unchanged).
  
  
• EPAAR 1515.404-474, Waivers, authorizes the SCM to waive the requirements to use EPA's structured approach for determining profit or fee objectives under unusual circumstances (it had been the CCO).
  
  
• EPAAR 1517.204, Contracts, authorizes the SCM to approve a contract with a base period and options that exceeds five years (it had been the CCO).
  
  
• Paragraph (b) of EPAAR 1536.602-2, Establishment of Evaluation Boards, is amended to permit the SCM to appoint one or two additional voting members to evaluation boards as appropriate for a particular project (it had been the CCO).

In addition, certain technical amendments are being made to the EPAAR to add procedures for class deviations (EPAAR 1501.404, Class Deviations), to revise definitions (EPAAR 1502.100, Definitions), and to make miscellaneous clarifications.

This rule is being published as a "direct final rule," which EPA reserves for rules it believes are noncontroversial. The rule will take effect May 6, 2002, without further action unless EPA receives adverse comments by March 6, 2002, in which case it will withdraw the rule and publish a notice in the Federal Register that the rule will not take effect.

Adverse comments on the direct final rule should be sent to Larry Wyborski, U.S. Environmental Protection Agency, Office of Acquisition Management, Mail Code 3802R, 1200 Pennsylvania Avenue, NW, Ariel Rios Building, Washington, DC 20460.

EDITOR'S NOTE: The EPAAR is available on the Internet at http://www.epa.gov/oamrfp12/ptod/epaar.pdf.

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