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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


August 2002
Vol. III, No. 8

CONTENTS

DOD Proposes Exempting "Substantially Transformed" U.S.-Made End Products from BAA
Lots of DFARS Rules Finalized
OGE to Review Conflict of Interest Statutes
SBA Proposes Small Business Size Standards Changes
NFS Addresses Performance Evaluations, IT Security
VAAR Construction/A-E Clause Prescriptions Revised
Prompt Payment Interest Rate Set at 5 1/4%



DOD Proposes Exempting "Substantially Transformed"
U.S.-Made End Products from the Buy American Act

In a move that would greatly simplify the evaluation of offers involving U.S. products containing foreign components, the Department of Defense (DOD) is proposing to amend Defense Federal Acquisition Regulation Supplement (DFARS) Part 225, Foreign Acquisition, and the corresponding provisions and clauses in DFARS Part 252, to exempt U.S.-made end products that are "substantially transformed in the United States" from the application of the Buy American Act (BAA) in acquisitions subject to the Trade Agreements Act (TAA). This would eliminate a conflict between the definition of "domestic end product" under the BAA and the definition of "U.S.-made end product" under the TAA.

The BAA, which applies to supplies that exceed the $2,500 micro-purchase threshold, is very simple: the government must purchase "domestic end products," which are defined as "articles manufactured in the U.S in which the cost of domestic components exceeds 50% of the cost of all components."

Under the TAA, which applies to supplies that exceed $169,000, the government must, for the most part, purchase either a "U.S.-made end product" or a "designated country end product" -- a product of a country that has signed the Agreement on Government Procurement, which resulted in enactment of the TAA (there are lots and lots of exceptions and exceptions to the exceptions). A "U.S.-made end product" is one that either wholly produced in the U.S. or "consists in whole or in part of materials from another country...[that] has been substantially transformed in the U.S. into a new and different article of commerce..." The criteria for a "designated country end product" is the same as for a "U.S.-made end product" except that "designated country" is substituted for "U.S."

The problem is in paragraph (d) of DFARS 252.225-7007, Buy American Act -- Trade Agreements -- Balance of Payments Program, which states, "Generally, each offer of a U.S. made end product that does not meet the definition of 'domestic end product' is adjusted for the purpose of evaluation by adding 50% of the offered price, inclusive of duty." (EDITOR'S NOTE: For more on "domestic end products," "U.S.-made end products," and other key terms applicable to the BAA and TAA, see Federal Acquisition Regulation (FAR) 25.003, Definitions, and DFARS 225.003.)

An example: Japan is a "designated country" -- it has signed the Agreement on Government Procurement. Therefore, a Japanese firm can manufacture a computer with 60% of its components coming from Taiwan (a "non-designated country" under the TAA -- it has not signed the Agreement on Government Procurement) and still offer it under the TAA because those Taiwanese components have been "substantially transformed" in Japan into a "designated country end product." However, an American firm manufacturing the same computer with 60% of its components coming from Taiwan would be disqualified under the TAA: though the computer would be considered a "U.S.-made end product" since the Taiwanese components have been "substantially transformed" in the U.S., the computer would not be considered a "domestic end product" because it would flunk the 50% domestic component test under the BAA. The government would not be permitted to purchase the U.S.-made computer, but would be able to buy the exact same computer made by the Japanese.

On May 16, 1997, the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) determined that it would not be in the public interest to apply the BAA to U.S.-made information technology products in Federal Supply Group (FSG) 70 and FSG 74. On March 14, 2002, the USD(AT&L) expanded this by determining that it would not be in the public interest to apply the BAA to U.S.-made end products that are substantially transformed in the U.S. in any procurements subject to the TAA. The March 14, 2002, determination is consistent with paragraph (b)(2) of FAR 25.502, Application, which permits agencies to "give the same consideration given eligible offers to offers of U.S.-made end products that are not domestic end products...Otherwise, evaluate in accordance with agency procedures..."

Because the March 14, 2002, determination makes it unnecessary for DOD contracting officers to determine if a U.S.-made end product is also a domestic end product, this proposed rule would simplify the evaluation of offers in acquisitions subject to the TAA. In addition, DFARS 252.225-7006, Buy American Act -- Trade Agreements -- Balance of Payments Program Certificate, and DFARS 252.225-7007, Buy American Act -- Trade Agreements -- Balance of Payments Program, would no longer be necessary because DFARS 252.225-7020, Trade Agreements Certificate, and DFARS 252.225-7021, Trade Agreements, would be appropriate for all acquisitions subject to the TAA.

The proposed rule would make the following changes to DFARS Part 225 and DFARS Part 252:

Comments on the proposed rule must be submitted no later than September 30, 2002, on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm. As an alternative, respondents may e-mail comments to dfars@acq.osd.mil. Also, 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.



Lots of DFARS Rules Finalized

In addition to proposing the new rule described above, the folks at DOD finalized several interim and proposed rules:



OGE to Review Conflict of Interest Statutes

The Office of Government Ethics (OGE) has announced it is conducting a review of the criminal conflict of interest (COI) statutes in Title 18 of the U.S. Code, Crimes and Criminal Procedure, Sections 202 through 209 (18 U.S.C. 202-209). The COI statutes at 18 U.S.C. 202-209 have existed, for the most part, in their current form for nearly 40 years, and the last comprehensive examination of the conflict of interest statutes occurred in 1989. Since then, a number of developments have occurred which bring into question whether the statutes are adequately tailored to their legislative purposes, in light of the realities of modern government, among them: the sustained government efforts toward privatization of certain functions (such as the Federal Activities Inventory Report (FAIR) Act and Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities); a growing emphasis on commercialization of government-developed products; and the ever-increasing reliance on personnel with scientific and technological expertise.

OGE will examine whether 18 U.S.C. 202-209 could be simplified or improved without sacrificing the necessary protection they provide for a fair and impartial government process. As part of its review, OGE is inviting the public and the federal government to express their views concerning the need for change to the COI statutes. Send comments to the Office of Government Ethics, Suite 500, 1201 New York Avenue, NW, Washington, DC 20005-3917, Attention: Stuart D. Rick, or by e-mail to: usoge@oge.gov.

SBA Proposes Small Business Size Standards Changes

The Small Business Administration (SBA) continues to propose adjustments to its small business size standards, and proposes a waiver of the nonmanufacturer rule for hand and edge tools:



NFS Addresses Performance Evaluations, IT Security

The National Aeronautics and Space Administration (NASA) has been busy revising the NASA FAR Supplement (NFS) to address contractor performance evaluations and to clarify the information technology (IT) security requirements for sensitive information contained in unclassified automated information resources.



VAAR Construction/A-E Clause Prescriptions Revised

The Department of Veterans Affairs (VA) is revising VA Acquisition Regulation (VAAR) 852.236-70, Clauses and Provisions for Fixed-Price Construction Contracts, to replace the general prescription directing the use of all VAAR clauses relating to construction contracts with specific prescriptions for each clause. It required that all clauses prescribed by VAAR Part 836, Construction and Architect-Engineering Contracts, be included in all construction contracts regardless of dollar value. This final rule adds prescriptions in VAAR Part 836 that require the use of the following VAAR clauses only if the solicitation or contract is expected to exceed the micro-purchase threshold (currently $2,000 for construction) because the FAR does not require the use of any clauses in contracts below the micro-purchase threshold:

      852.236-76Correspondence
      852.236-77Reference to "Standards"
      852.236-78Government Supervision
      852.236-80Subcontracts and Work Coordination
      852.236-84Schedule of Work Progress
      852.236-85Supplementary Labor Standard Provisions
      852.236-86Worker's Compensation
      852.236-88Contract Changes -- Supplement
      852.236-91Special Notes

Also, the following VAAR clauses are required only if the solicitation or contract includes the FAR clauses that these clauses supplement:

      852.236-71Specifications and Drawings for Construction
      852.236-72Performance of Work by the Contractor
      852.236-74Inspection of Construction
      852.236-82Payment Under Fixed-Price Construction Contracts (Without NAS [Network Analysis System])
      852.236-83Payment Under Fixed-Price Construction Contracts (Including NAS)


Prompt Payment Interest Rate Set at 5 1/4%

The Department of Treasury has established 5 1/4% (5.25%) as the interest rate for the computation of payments made between July 1 and December 31, 2002, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (January 1, 2002 -- June 30, 2002) was 5 1/2% (5.5%). The interest rate for July 1, 2001, through December 31, 2001, was 5 7/8% (5.875%).



Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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