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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

APRIL 2002
Vol. III, No. 4

CONTENTS

FACs 2001-05, 2001-06 Issued
Enron, Arthur Andersen Suspended from Federal Work
DOD Conducts Some "Spring Cleaning," Too
Revamped FirstGov Website, E-Gov Strategy Unveiled
SBA Proposes Increasing Travel Agencies' Size Standard
Unnecessary Requirements Removed from EPAAR

FAC 2001-05 Suspends "Project Labor Agreements" Ban,
FAC 2001-06 Includes Procurement Integrity Rewrite

The Federal Acquisition Regulation (FAR) Council was busy this month, issuing Federal Acquisition Circular (FAC) 2001-05 to suspend some of its earlier work on "project labor agreements" pending the resolution of litigation; issuing FAC 2001-06 to perform still more "spring cleaning" -- implementing another eight relatively minor regulatory changes; and publishing three proposed rules for everyone's enjoyment!

FAC 2001-05:

On February 17, 2001, President Bush signed Executive Order (EO) 13202, Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects, which prohibited any construction contract or subcontract from including provisions requiring the contractor to enter into an affiliation with a labor organization (commonly called "project labor agreements") (see the March 2001 Federal Contracts Perspective article "Bush Issues Three Acquisition-Related Orders involving Labor Issues in FAR Part 22").

On May 16, 2001, the FAR Council published an interim rule in FAC 97-26 which added paragraph (d) to FAR 36.202, Specifications, explaining this prohibition (see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services").

EO 13202 is currently being appealed in the United States Court of Appeals for the District of Columbia Circuit (Building and Construction Trades Department, AFL-CIO v. Allbaugh). Based on guidance received from the Office of Federal Procurement Policy (OFPP), FAC 2001-05 is suspending FAR 36.202(d) until the appeal is resolved.

FAC 2001-06:

• Standard Form (SF) 1449, Solicitation/Contract/Order for Commercial Items: Standard Form 1449 is used for the acquisition of commercial items. This final rule makes several minor revisions to the form, such as adding a block to indicate that the acquisition is a Historically Underutilzed Business Zone (HUBZone) set-aside (in Block 10, This Acquisition Is); substituting North American Industry Classification System (NAICS) codes for Standard Industrial Classification (SIC) codes (also in Block 10); adding to Block 29, Award of Contract, a place for the contracting officer to specify which items in the offer are being ordered; and the addition of blocks in the area of the form used as a receiving report by the government (new Block 32d, printed name and title of authorized government representative; Block 32e, mailing address of the representative; Block 32f, telephone number of the representative; and Block 32g, e-mail of the representative). All of the changes involve blocks that are completed by the government.
  
  
• Definitions for "Contract Action" and "Contracting Action": This final rule changes the term "contracting action" to "contract action" throughout the FAR because both terms had been used interchangeably but "contract action" was used more frequently.
  
  
• Definitions for Sealed Bid and Negotiated Procurements: This final rule amends the FAR to provide consistent definitions for sealed bids and negotiated procurements. For example, definitions of "bid sample" and "descriptive literature" are revised in accordance with "plain language" guidelines and moved from paragraph (a) of FAR 14.202-4, Bid Samples, and paragraph (a) of FAR 14.202-5, Descriptive Literature, to FAR 2.101, Definitions, because the definitions apply to more than one FAR part (for example, both FAR Parts 14 and 15). In addition, the following are some of the other changes being made to the FAR:
  • The definition of "offer" in FAR 2.101 is rewritten in "plain language."
    
    
  • A new definition for "solicitation" is added to FAR 2.101.
    
    
  • Definitions for "bid" and "bidder" are added to FAR 28.001, Definition, because in FAR Part 28, Bonds and Insurance, the terms address both sealed bid and negotiated acquisitions.
    
    
  • The term "potential offeror" is substituted for "prospective offeror" in paragraph (f) of FAR 15.201, Exchanges with Industry Before Receipt of Proposals, paragraph (e) of FAR 15.609, Limited Use of Data, and paragraph (g) of FAR 35.007, Solicitations. The FAR uses "prospective offeror" to mean an entity that is actively seeking a contract. However, since these paragraphs describe processes that are intended to insure fair and open competition, they cover all interested parties, not just those activity seeking a contract, so the more general "potential offeror" is used.
  
  
• Procurement Integrity Rewrite: This final rule rewrites FAR 3.104, Procurement Integrity, in "plain language." FAR 3.104 implements prohibitions, restrictions, and other requirements of the Procurement Integrity Act that are placed on certain officials who participate in federal procurements. However, other statutes and regulations, particularly those of the Office of Government Ethics, also govern the conduct of government employees. It is very important for agency employees to be aware of the prohibitions and restrictions in the Procurement Integrity Act and those contained in the other statutes and regulations, because an employee can be subject to criminal and administrative penalties for violations. This reorganization and simplification of FAR 3.104 is intended to improve employees' understanding of the procurement integrity requirements and prohibitions. The revised FAR 3.104 does not change the requirements of the Procurement Integrity Act or any other applicable statute or regulation. (EDITOR'S NOTE: For more on the proposed rule, see the April 2000 Federal Contracts Perspective article "FAR Procurement Integrity Section Up for Rewrite.")
  
  
• Acquisition of Helium: This final rule revises FAR Subpart 8.5, Acquisition of Helium, and FAR 52.208-8, Helium Requirement Forecast and Required Sources for Helium, be amended to implement the Helium Privatization Act of 1996 (Public Law 104-273) and the U.S. Department of the Interior's 1998 rule regarding helium contracts.
  
  In FAR 8.501, Definitions, the definitions of "bureau helium distributor" and "helium requirement forecast" are removed (helium forecasts are no longer required); a definition for "federal helium supplier" is added; and the definition of "major helium requirement" is revised.
  
  In FAR 52.208-8(b)(2) is added a requirement that contractors and subcontractors under contracts with a major helium requirement must report purchases of helium from federal helium suppliers (this replaces the requirement for submitting helium forecasts).
  
  A proposed rule was published January 11, 2001, and Interior made the only comment -- it suggested an editorial change which was adopted. For more on the proposed rule, see the February 2001 Federal Contracts Perspective article "FAR Changes Proposed on Helium, IT Accessibility."
  
  
• HUBZone Program Applicability: The HUBZone Act of 1997 expanded the applicability of the HUBZone program from ten agencies to all agencies effective October 1, 2000, but several portions of the FAR still refer to "agencies subject to the requirements of the HUBZone Act." Therefore, this final rule amends FAR 19.1302, Applicability, to remove the names of the ten agencies, leaving the sentence "The procedures in this subpart apply to all federal agencies that employ one or more contracting officers." In addition, it removes Alternate III of FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items, and Alternate I of FAR 52.219-1, Small Business Program Representations, both of which only applied to the ten agencies, and moves the language in these alternate representations to the body of the provisions.
  
  
• Application of Labor Clauses: This final rule revises FAR 52.213-4, Terms and Conditions -- Simplified Acquisitions (Other Than Commercial Items), to clarify the application of labor clauses below the $100,000 simplified acquisition threshold.
  
  Paragraph (a) of FAR 52.213-4 lists all the FAR clauses with which the contractor is required to comply, and paragraph (b) lists all the FAR clauses with which the contractor is required to comply "unless the circumstances do not apply". This rule moves FAR 52.222-21, Prohibition of Segregated Facilities, and FAR 52.222-26, Equal Opportunity, from paragraph (b) to paragraph (a).
  
  In addition, paragraphs (b)(1)(i), (b)(1)(iv), and (b)(1)(vi) of FAR 52.213-4 are revised, and a new paragraph (a) is added to FAR 52.222-26, to clarify the geographic applicability of FAR 52.222-20, Walsh-Healey Public Contracts Act ("United States, Puerto Rico, or the U.S. Virgin Islands"); FAR 52.222-36, Affirmative Action for Workers with Disabilities (29 U.S.C. 793) ("the 50 States, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and Wake Island"); FAR 52.222-41, Service Contract Act of 1965, As Amended (41 U.S.C. 351, et seq.) ("United States, District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, Johnston Island, Wake Island, or the outer continental shelf lands"); and FAR 52.222-26, Equal Opportunity ("the 50 States, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and Wake Island").
  
  
• Technical Amendments: This makes various changes to the FAR to update references and make editorial changes. For example, in paragraph (c) of FAR 1.404, Class Deviations, and FAR 31.101, Objectives, the National Aeronautics and Space Administration's "Associate Administrator for Procurement" is changed to "Assistant Administrator for Procurement"; and in paragraph (b)(2) of FAR 6.302-5, Authorized or Required by Statute, the word "Handicapped" is changed to "Disabled."

• Miscellaneous Cost Principles: The following changes are proposed to various cost principles:
  
  
  • FAR 31.205-10, Cost of Money: Portions of paragraphs (a)(1)(i) and (a)(1)(ii) that duplicate Cost Accounting Standard 414, Cost of Money as an Element of the Cost of Facilities Capital, would be deleted; and paragraphs (a)(2)(ii), (a)(3), and (b)(3) would be deleted because these paragraphs duplicate the recordkeeping requirements of paragraph (d) of FAR 31.201-2, Determining Allowability.
    
    
  • FAR 31.205-28, Other Business Expenses: The term "when allocated on an equitable basis" would be deleted because it is already addressed at FAR 31.201-4, Determining Allocability; FAR 31.202, Direct Costs; and FAR 31.203, Indirect Costs.
    
    
  • FAR 31.205-45, Transportation Costs: This would be deleted because an affirmative statement of allowability is not necessary, and the allocation statement is already addressed in FAR 31.201-4, FAR 31.202, and FAR 31.203.
    
    
  • FAR 31.205-48, Deferred Research and Development Costs: "Deferred" would be deleted from the title, because costs that are unallowable under this cost principle are unallowable regardless of whether they are charged in the current accounting period or deferred to a future accounting period.
  
  
• Contract Terms and Conditions Required To Implement Statute or Executive Orders -- Commercial Items: FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items, would be revised to update the clauses required to implement statute or executive orders that apply to commercial items. Any clauses implementing statutes enacted after the Federal Acquisition Streamlining Act of 1994 (FASA -- which authorized special procedures for the acquisition of commercial items and is the reason FAR 52.212-5 was developed) that contain civil or criminal penalties or specifically cite their applicability to commercial items would be included on the list, and any post-FASA statutes that do not meet this criteria would be deleted from the clause. In addition, the pre-FASA clauses and alternates that were inadvertently left off the list would be added. Also, the date of each clause would be added to the list to identify what revision of the listed clause applies when this clause is added to a contract.
  
  
• Prohibited Sources: FAR 25.701, Restrictions, and FAR 52.225-13, Restrictions on Certain Foreign Purchases, would be revised to implement Executive Order 13192, Lifting and Modifying Measures With Respect to the Federal Republic of Yugoslavia (Serbia and Montenegro), and other regulations of the Department of the Treasury that enforce economic sanctions imposed by the president. FAR 25.701 and FAR 52.225-13 would be revised to: (1) remove Serbia from the list of prohibited sources; (2) modify the restrictions relating to acquisition of supplies or services from Cuba, Iran, Iraq, Libya, Sudan, and the territory of Afghanistan controlled by the Taliban ("most transactions...are prohibited"), and North Korea ("most imports into the United States [are prohibited]"); and (3) require authorization by the Department of the Treasury for any exceptions to these prohibitions, even when purchased overseas for use overseas. In addition, the Department of Treasury website for access to the list of Specially Designated Nationals and Blocked Persons would be provided (http://www.treas.gov/ofac).

Comments on these proposed rules must be submitted no later than May 20, 2002, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW., Room 4035, ATTN: Laurie Duarte, Washington, DC 20405.

Enron, Arthur Andersen Suspended from Federal Work

In a highly unusual move, on March 15, the General Services Administration (GSA) suspended Enron Corporation and Arthur Andersen, LLP, from conducting new business with the federal government. Both firms have been placed on the List of Parties Excluded from Federal Procurement and Non-Procurement Programs, which means that contracting officers may not contract with either of them. The suspension of Enron is for 12 months, and the suspension of Andersen is for the duration of its indictment, which was released March 14. (EDITOR'S NOTE: For more on what it means for a contractor to be "suspended," see FAR Subpart 9.4, Debarment, Suspension, and Ineligibility. The List of Parties is available on the Internet at http://epls.arnet.gov/.)

Despite the suspension, FAR 9.405-1, Continuation of Current Contracts, permits agencies to continue contracts already in existence unless the agency head directs otherwise. In addition, ordering activities may continue to place orders against existing contracts, including indefinite delivery contracts. However, agencies may not renew or extend the duration of current contracts unless the agency head states, in writing, the compelling reasons for renewal or extension.

In January, the Office of Management and Budget asked GSA to determine whether the business performance of Enron and Andersen met the standards required to do business with the government and to consider whether it would be appropriate to initiate suspension or debarment proceedings (suspension is for a temporary period pending the completion of an investigation and any ensuing legal proceedings, and debarment is for up to three years for conviction of, or civil judgment for, a criminal offense). All agencies with Enron and Andersen contracts were directed to provide GSA with the status of those contracts and if there were any problems in contract performance.

Though no agency reported any problems or improprieties with the performance of any Enron or Andersen contracts, the government GSA found that Enron "had engaged in misconduct and committed internal control irregularities that seriously affect their suitability to receive government contracts", and that Andersen had been indicted on March 14 for "knowingly, intentionally, and corruptly destroy(ing) documents and other information relating to Andersen's work for Enron, and that these actions were taken to impair official proceedings."

While the government suspends and debars hundreds of individuals and small firms each year to protect itself from those that do not have a satisfactory record of business ethics and integrity, it is rare that a large firm is suspended or debarred. According to an article in the March 16 Washington Post, the Department of Defense suspended the General Electric Co.'s aircraft-engine division for less than a week in the early 1990s (for diverting funds intended for Israel), and the Toshiba Corp. was suspended in the late 1980s for selling equipment that helped the Soviets design and manufacture quiet submarine propellers.

DOD Conducts Some "Spring Cleaning," Too

During March, the Department of Defense (DOD) swept some cobwebs out of the corners, issuing five changes to the Defense FAR Supplement (DFARS) and proposing another.

• Pilot Mentor-Protege Program: The September 11, 2001, interim rule which amended DFARS Subpart 219.71, Pilot Mentor-Protege Program, and DFARS Appendix I, Policy and Procedures for the DOD Pilot Mentor-Protege Program, to add women-owned small businesses to the concerns that may participate as protege, was finalized without changes (for more on the interim rule, see the October 2001 Federal Contracts Perspective article "Deluge of DFARS Changes Made and Proposed, Involve Foreign Acquisitions, Small Business, Profit").
  
  
• Preference for Local 8(a) Contractors -- Base Closure or Realignment: The September 11, 2001, proposed rule to amend DFARS 226.7103, Procedure, to clarify that both competitive and noncompetitive acquisitions under the 8(a) program are permitted if an 8(a) contractor is located in the vicinity of the base to be closed or realigned, is finalized without changes (for more on the proposed rule, see the October 2001 Federal Contracts Perspective article "Deluge of DFARS Changes Made and Proposed").
  
  
• Restriction on Acquisition of Vessel Propellers: DFARS 225.7020-4, Contract Clause, is amended to clarify that the requirement in DFARS 252.225-7023, Restriction on Acquisition of Vessel Propellers, that vessel propellers be acquired only from domestic sources, applies only to contracts that use fiscal year 2000 or 2001 funds. This is necessary because the restriction on vessel propellers was not included in the DOD Appropriations Act for Fiscal Year 2002 (Public Law 107-117).
  
  
• Partnership Agreement Between DOD and the Small Business Administration (SBA): This interim rule amends DFARS Subpart 219.8, Contracting with the Small Business Administration (The 8(a) Program), to implement a partnership agreement (PA) between DOD and the Small Business Administration (SBA) to streamline procedures for contract awards under SBA's 8(a) Program. The PA permits DOD to award 8(a) contracts directly to 8(a) concerns on behalf of SBA. The PA replaces a memorandum of understanding (MOU) which also permitted DOD to award 8(a) contracts on behalf of SBA (the MOU was extended from its scheduled expiration date of May 5, 2001, to December 31, 2001 -- see the November 2001 Federal Contracts Perspective article "DFARS Changes on Progress Payments, 8(a) Programs"). The PA expires September 30, 2004.
  
  
• Performance of Security Functions: To implement Section 1010 of the USA Patriot Act (Public Law 107-56), DOD is issuing an interim rule amending DFARS 237.102-70, Prohibition on Contracting for Firefighting or Security-Guard Functions, to permit award of contracts for security functions to proximately located local and state governments during the period of time that United States armed forces are engaged in Operation Enduring Freedom and 180 days thereafter.
  
  
• Restriction on Contingent Fees for Foreign Military Sales -- Commercial Items: DOD is proposing to amend DFARS 252.212-7001, Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items, to remove DFARS 252.225-7027, Restriction on Contingent Fees for Foreign Military Sales, from the list of clauses included in contracts for commercial items because it implements DOD policy, not law.

Revamped FirstGov Website, E-Gov Strategy Unveiled

On February 27, Vice President Dick Cheney clicked on a mouse and launched the new, improved government web portal FirstGov (http://www.FirstGov.gov). The purpose of FirstGov is to provide government information to the public quickly and accurately. "This is an attempt to remedy one of government's oldest problems: the slow, confusing, and often ineffective ways in which it responds to the public," the vice president said.

Also unveiled on February 27 was the Bush administration's E-Government Strategy, which describes the implementation plans for 24 high-payoff, high-priority government initiatives intended to integrate government operations and information technology investments. The Strategy is available at http://www.whitehouse.gov/omb/inforeg/egovstrategy.pdf.

The redesigned FirstGov site focuses on three customer gateways:

• Citizens: Contains links enabling citizens to change an address, e-file taxes, find a government job, apply for student loans, apply for passports, obtain recreation information, and find information on Social Security benefits.
  
  
• Business: Contains links to business laws and regulations, federal auctions and sales, tax and wage reporting, subcontracting opportunities, patents and trademarks, and small business procurement registry.
  
  
• Governments: Contains links to grants, employee locator, per diem rates, government jobs, buying supplies and services, auctions and sales, and state and local governments news.

In addition, FirstGov allows searching of state websites for more localized information. Searches using key words can still be conducted, as with the old FirstGov.

The E-Government Strategy is intended to be the next step beyond FirstGov in that it will connect and consolidates various related information systems. Among the 24 initiatives are: Recreation One Stop (will provide a one-stop, searchable database of recreation areas nationwide and accept reservations); Eligibility Assistance Online (will allow citizens to identify government benefit programs from which they may be eligible to receive assistance); Online Access for Loans (will allow citizens and businesses to find loan programs that meet their needs); Federal Asset Sales (will permit prospective customers to find assets, and bid electronically; International Trade Process Streamlining (where new or existing exporters could be assisted through the entire export process); e-Grants (for grants recipients and grant-making agencies); Disaster Assistance and Crisis Response (will be a one-stop portal containing information from public and private organizations involved in disaster preparedness); and E-Vital (would expand the existing vital records online data exchange efforts between federal agencies and state governments).

Probably of most interest to Federal Contracts Perspective is the Integrated Acquisition Environment. It will involve the sharing of common data elements to enable agencies to make more informed procurement, logistical, payment, and performance assessment decisions. The Integrated Acquisition Environment is expected to integrate various systems, such as DOD's Central Contractor Registration (CCR) (http://www.ccr2000.com/), SBA's Pro-Net database of small businesses (http://pro-net.sba.gov), the Federal Procurement Data System, the Acquisition Reform Network (ARNet) (http://www.arnet.gov), FedBizOpps (http://www.fedbizopps.gov/), and development of an e-Catalog (a directory of governmentwide acquisition contracts and multiple award contracts -- see the March 2002 Federal Contracts Perspective article "Listing of Multi-Agency Contract Instruments Proposed").

SBA Proposes Increasing Travel Agencies' Size Standard

SBA is proposing to increase the small business size standard for travel agencies from $1 million to $3 million, and is increasing the size standard for travel agencies to $3 million for purposes of eligibility for economic injury disaster loan (EIDL) assistance related to the September 11, 2001, terrorist attacks on the World Trade Center and the Pentagon. The increased size standard is retroactive to September 11, 2001.

SBA is proposing to increase the size standard for North American Industry Classification System (NAICS) code 561510, Travel Agencies, because of recent changes in the travel agencies industry. Some of those changes are the requirement for specialized equipment and systems on federal and corporate travel services contracts, and the adoption of a consolidated and regional approach by federal agencies and large commercial clients.

After evaluating five factors, SBA has decided that a small business size standard of $3 million is supportable because four out of the five factors support an increase between $2 and $3 million.

In addition, SBA is offering EIDL assistance to travel agencies with less than $3 million in gross receipts because the industry was one of the hardest hit by the September 11 terrorist attacks -- the public cancelled and rescheduled existing travel arrangements and many postponed travel altogether. Consequently, airlines rescinded travel agencies' commissions, and many small travel agencies have seen business declines of 20% to 50% since September 11.

Unnecessary Requirements Removed from EPAAR

The Environmental Protection Agency (EPA) is revising the EPA Acquisition Regulation (EPAAR) to:

• Remove EPAAR 1515.308-71, Documentation of Source Selection, because it requires documentation over and above that required by FAR 15.308, Source Selection Decision, and EPA had decided that these additional requirements are unnecessary.
  
  
• Remove EPAAR 1533.212, Contracting Officer's Duties Upon Appeal, because it essentially duplicates the procedures in Title 43 of the Code of Federal Regulations (CFR), Part 4, which are the regulations for the Department of the Interior Board of Contract Appeals (IBCA), which is the forum for claims involving EPA contracts.
  
  
• EPAAR 1552.219-71, Procedures for Participation in the Mentor- Protege Program, is revised from restricting proteges to small disadvantaged businesses (SDBs) to "concerns owned and/or controlled by socially and economically disadvantaged individuals."

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