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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


October 2003
Vol. IV, No. 10

CONTENTS

Religious Entities Exempted from Affirmative Action
Angela Styles Resigns as OFPP Administrator
Proposed Post-Retirement Benefit Plan CAS Withdrawn
DFARS Rules Proposed on Shellfish, Inspection Elimination
SF 1417 Proposed for Deletion from FAR
GSAR Requires Identification of Environmental Products



Religious Entities Exempted from Affirmative Action
and Nondiscrimination Obligations

The Office of Federal Contract Compliance Programs (OFCCP) is amending the regulations that implement Executive Order (EO) 11246 of September 24, 1965, Equal Employment Opportunity, to incorporate the exemption for religious entities prescribed by EO 13279, Equal Protection of the Laws for Faith-Based and Community Organizations. EO 13279 amends EO 11246 to exempt religious corporations, associations, educational institutions, and societies from certain nondiscrimination and equal opportunity requirements.

EO 11246 prohibits employment discrimination and establishes affirmative action requirements for nonexempt government contractors and subcontractors, and federally assisted construction contractors and subcontractors. Section 202 of EO 11246 requires that every nonexempt contract and subcontract include an equal opportunity clause (see Federal Acquisition Regulation (FAR) 52.222-26, Equal Opportunity) which specifies the nondiscrimination and affirmative action obligations each contractor or subcontractor assumes as a condition of its government contract or subcontract. Each nonexempt contractor and subcontractor agrees, as a condition of its government contract, not to discriminate on the basis of race, color, religion, sex, or national origin and to take affirmative action to insure that applicants for employment, and employees are treated during employment, without regard to their race, color, religion, sex, or national origin.

On December 12, 2002, President Bush issued EO 13279 (for more on EO 13279, see the January 2003 Federal Contracts Perspective article "EO Guides Faith-Based Initiatives Implementation"). Section 4 of EO 13279 amends Section 204 of EO 11246 by adding an exemption for religious corporations, associations, educational institutions, and societies. The amendment to Section 204 of EO 11246 reads:

"(c) Section 202 of this Order [11246] shall not apply to a government contractor or subcontractor that is a religious corporation, association, educational institution, or society, with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities. Such contractors and subcontractors are not exempted or excused from complying with the other requirements contained in this Order."

This final rule amends paragraph (a) of Title 41 of the Code of Federal Regulations (CFR), Chapter 60, Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor; Part 60-1, Obligations of Contractors and Subcontractors; Section 60-1.5, Exemptions (41 CFR 60-1.5), by adding a new paragraph (5) that consists of the EO 13279 Section 4(c) text, thus exempting contractors and subcontractors that religious corporations, associations, educational institutions, and societies from the provisions of EO 11246.

In conjunction with this change, several federal departments issued and proposed regulations to implement EO 13279 in their grants programs: Education, Health and Human Services, Housing and Urban Development, Justice, Labor, and Veterans Affairs.

EDITOR'S NOTE: Expect to see in the near future a proposed revision to FAR Subpart 22.8, Equal Employment Opportunity, the contract-related implementation of EO 11246.



Angela Styles Resigns as OFPP Administrator

Angela Styles, the controversial administrator of the Office of Federal Procurement Policy (OFPP), announced her resignation effective September 15. She spent most of her two years at OFPP leading the major revision of the Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities, which was issued May 29, 2003 (see the July 2003 Federal Contracts Perspective article "Revised OMB Circular A-76 Released, Establishes 12 Month Period for Competitions").

The Bush Administration established as one of its goals the competition of 50% of the "not inherently governmental" positions within the federal government. OMB Circular A-76 is the vehicle for these competition between the public and private sectors, but it was a very cumbersome and time-consuming process, usually taking years to complete, which is not something that an administration guaranteed only four years wants to hear. Since the Federal Activities Inventory Reform (FAIR) Act of 1998 (Public Law 105-270) requires federal agencies to submit "a list of activities performed by federal government sources for the executive agency that...are not inherently governmental functions," the Bush Administration decided to marry the FAIR Act and OMB Circular A-76 to facilitate the achievement of its 50% goal. One of the reasons the Bush Administration selected Styles to head OFPP was that she helped draft the FAIR Act. Once confirmed by the Senate, she was given the task of streamlining the A-76 process.

Styles did not have an easy time. She was opposed by federal workers, federal agencies, and members of Congress. After two years of work, Styles released the final revised A-76, only to have Congress consider legislation denying various agencies the funds to conduct A-76 competitions, and OMB bowing to pressure and deciding to drop the 50% competition goal (see the September 2003 Federal Contracts Perspective article "OMB Decides to Drop A-76 Competition Sourcing Goals, Goals Will Be Negotiated With Each Agency"). One month later, Styles announced her resignation, saying it was time for someone else to take the lead on implementing the A-76 changes -- someone with more energy than she has.

Ms. Styles is returning to the law firm Miller & Chevalier, her previous employer, as a partner. She will practice contract law.

Robert Burton, OFPP associate administrator, will fill in until a replacement is named.



Proposed Post-Retirement Benefit Plan CAS Withdrawn

The Cost Accounting Standards Board (CASB) has decided to discontinue the development of a Cost Accounting Standard (CAS) 419, Cost Accounting Standard for Measurement, Assignment, Allocation, and Adjustment of Post-Retirement Benefit Cost, which would have addressed the recognition of costs of post-retirement benefit plans under government cost-based contracts and subcontracts.

Post-retirement benefits are specified benefits, such as health care, tuition assistance, or legal services, that are provided to retirees as the need arises (such as certain health care benefits), or they may be defined in terms of monetary amounts that become payable on the occurrence of a specified event (such as life insurance benefits not provided through a pension plan). They have existed for many years, sometimes as an adjunct to a company's pension plan, but received little attention until the Financial Accounting Standards Board (FASB) examined the potential liabilities and costs of these plans and issued Statement No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" (SFAS 106) in December 1990.

The CASB received numerous recommendations that it establish a case concerning the measurement, assignment, and allocation of the costs of post-retirement benefit plans. The CASB began work in 1995, and in 1996 it published a Staff Discussion Paper identifying the cost accounting issues related to post-retirement benefit plans, and requested comments on whether an Interpretation should be published, or a current CAS be amended, or a new CAS be developed. In 1999, the CASB sent a letter to all those submitting comments on the Staff Discussion Paper asking them to elaborate on their opinions and positions, and on October 5, 2000, the CASB announced that it was accepting comments on a proposed CAS 419 (see the November 2000 Federal Contracts Perspective article "Comments Sought on Post-Retirement Benefits CAS").

The proposed CAS 419 would have addressed: (a) the recognition and identification of post-retirement benefit costs; (b) the measurement and period assignment of post-retirement benefit costs; (c) the allocation of post-retirement benefit costs to segments; (d) the allocation of post-retirement benefit costs from segments to the intermediate and final cost objectives of a segment; (e) the adjustment of the contractor's records when there is a curtailment, settlement, or granting of special termination benefits; and (f) the adjustment of contract pricing when a segment is closed. Essentially, the proposed CAS 419 would have required accrual accounting for post-retirement benefits that are documented in writing, communicated to employees, nonforfeitable once earned, and legally enforceable. The cost of any post-retirement benefits that fail to meet these criteria would have to be accounted using the pay-as-you-go method.

The CASB received comments from 23 respondents on the proposed CAS 419. Most believed accrual accounting following the provisions of SFAS 106 was the most appropriate basis for measuring and assigning the costs of a post-retirement benefit plan that created a firm liability. However, many believed the imposition of any nonforfeitability criteria, as proposed, could lock a contractor into providing explicit benefits with no ability to control the employer-paid portion of the cost or to switch to alternative benefit delivery arrangements. In addition, with the continuing high level of medical inflation coupled with various economic factors, and global competition, the question was raised whether any contractor could risk the adverse effects of providing any level of nonforfeitable benefits. These respondents argued that the only prudent way of providing some assurance that some level of benefit will be available in the future is for a contractor to currently fund the accrued cost as permitted by existing procurement regulations. Many of these respondents believe the CASB should not proceed with this project.

Despite a sustained strong economy through the early 2000s and several years of relatively low rates of increase in health insurance premiums, the decline in the availability of employer-sponsored retiree health benefits continues, and there may be further erosion in these benefits. In some cases, employers provide retiree health benefits to current retirees or long-term employees, but newly hired employees are not eligible. Also, some employers that continue to offer retiree health benefits have reduced the terms of these benefits by increasing the share of premiums that retirees pay for health benefits, increasing co-payments and deductibles, or capping the employers' expenditures for coverage. Only 34% of U.S. companies with 200 or more employees offered health care coverage to Medicare-eligible retirees in 2001, down from 37% in 2000 and 41% in 1999. In addition, Medicare-age retirees, on average, pay 26% of the total cost of their health care premiums, compared with 13% paid by active workers in the same firms.

Several current and developing market, legal, and demographic factors may contribute to a further decline in employer-sponsored retiree health benefits. These factors include:

Because contractors need the flexibility to modify, reduce, or even eliminate post-retirement benefits in the future in response to the pressures of medical inflation, an aging population, and global competition, the CASB finds that the liability for post-retirement benefits cannot be made sufficiently firm to be recognized for government cost accounting purposes without undue financial risk to both the contractor and the government. Therefore, the CASB has decided to discontinue further development of CAS 419.

EDITOR'S NOTE: The CAS are 19 standards which apply to large contractors performing large contracts. They are in Chapter 99 of Title 48 of the CFR, and are included as an appendix to the paper-version of the FAR for information purposes. The CAS are available on the Internet at http://www.arnet.gov/far/97/html/appendix.html.



DFARS Rules Proposed on Shellfish, Inspection Elimination

September was a quiet month for the keepers of the Defense FAR Supplement (DFARS) -- only two proposed rules were published, and no final or interim rules:

Comments on either of the proposed rules must be submitted by November 14, 2003, directly on the website at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or by e-mail to: dfars@acq.osd.mil, or by mail 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-D034 " when commenting on the shellfish proposed rule, and "DFARS Case 2002-D032 " when commenting on the source inspection proposed rule.



SF 1417 Proposed for Deletion from FAR

September was a quiet month in FAR-land, too -- the keepers of the FAR could only manage to publish two proposed rules during the month:



GSAR Requires Identification of Environmental Products

The General Services Administration (GSA) is revising GSA Acquisition Regulation (GSAR) 552.238-72, Identification of Products That Have Environmental Attributes (formerly "Identification of Energy-Efficient Office Equipment and Supplies Containing Recovered Materials or Other Environmental Attributes"), which is required to be included in Federal Supply Schedule solicitations and contracts, to be consistent with the Federal Acquisition Regulation (FAR); Executive Order (EO) 13101, Greening the Government Through Waste Prevention, Recycling, and Federal Acquisition; and EO 13123, Greening the Government Through Efficient Energy Management. (EDITOR'S NOTE: For more on the FAR implementation of EO 13101, see the July 2000 Federal Contracts Perspective article "FAC 97-18 Revises Trade Agreements Thresholds and CAS Applicability, Addresses Recycled Products." For more on the FAR implementation of EO 13123, see the January 2002 Federal Contracts Perspective article "FAC 2001-02 Addresses Energy Efficiency, Prompt Payment.")

This rule revises GSAR 552.238-72 to update the definition of energy-efficient products and to be consistent with EO 13123 and FAR Subpart 23.2, Energy and Water Efficiency and Renewable Energy. The primary change is the replacement of "energy-efficient office equipment" with the following definition for "energy-efficient product": "A product that: (1) meets Department of Energy and Environmental Protection Agency criteria for use of the ENERGY STAR(R) trademark label; or (2) is in the upper 25 percent of efficiency for all similar products as designated by the Department of Energy's Federal Energy Management Program."

Also, the clause is revised to clarify the implementation of EO 13101, which is intended to improve the federal government's use of recycled products and environmentally preferable products and services. The final version of GSAR 552.238-72 separates the following products from the umbrella category of products containing recovered materials: post-consumer material; remanufactured; renewable energy; and renewable energy technology.

Finally, the revised clause includes a new paragraph (c)(1) which requires offerors to identify products that:

      "(i) Are compliant with the recovered and post-consumer material content levels recommended in the Recovered Materials Advisory Notices (RMANs)...;
      "(ii) Contain recovered materials that either do not meet the recommended levels in the RMANs or are not EPA-designated products...;
      "(iii) Are energy-efficient...;
      "(iv) Are water-efficient;
      "(v) Use renewable energy technology;
      "(vi) Are remanufactured; and
      "(vii) Have other environmental attributes."

EDITOR'S NOTE: The GSAR is the shaded part of the GSA Acquisition Manual, which is available on the Internet at http://www.acqnet.gov/GSAM/gsam.html.



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