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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

November 2003
Vol. IV, No. 11

CONTENTS

Contract Bundling Restrictions Increased in FAR and SBA Regulations
CCR Registration, Unique Contract Numbers Required
Share-in-Savings Contract Coverage Proposed for FAR
DFARS Changes on Task Orders, Unique Item IDs
SBA Increases Facilities Support Services Size Standard

Contract Bundling Restrictions Increased
in FAR and SBA Regulations

In response to Congressional concern about the effect of contract bundling on small businesses and the recommendations of Office of Federal Procurement Policy (OFPP), the Federal Acquisition Regulation (FAR) and the Small Business Administration's (SBA) regulations have been revised to increase oversight of potentially bundled acquisitions (especially by the agency's Office of Small Disadvantaged Business Utilization (OSDBU)), and to require additional acquisition planning so contract bundling is avoided whenever possible.

"Bundling" is defined in FAR 2.101, Definitions, as "consolidating two or more requirements for supplies or services, previously provided or performed under separate smaller contracts, into a solicitation for a single contract that is likely to be unsuitable for award to a small business concern due to (1) the diversity, size, or specialized nature of the elements of the performance specified; (2) the aggregate dollar value of the anticipated award; (3) the geographical dispersion of the contract performance sites; or (4) any combination of the factors..."

On October 29, 2002, OFPP submitted to the president the report "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business." The report recommended that agencies increase reviews of potentially bundled acquisitions to determine whether alternate strategies exist, that the agencies' OSDBUs conduct periodic reviews of their acquisition procedures, and that the documentation needed to justify a bundled acquisition be increased. (EDITOR'S NOTE: For more on the OFPP report, see the December 2002 Federal Contracts Perspective article "OFPP Issues Proposals for 'Unbundling' Contracts.")

To implement these recommendations, proposed rules to amend the FAR and SBA regulations were published on January 31, 2003 (for more on the proposed rules, see the March 2003 Federal Contracts Perspective article ""FAR Changes Proposed for Contract Bundling, Cost Principles, Debriefings, Commercial Items"). Forty-three sets of comments were submitted in response to the FAR proposed bundling rule and 26 comments were submitted in response to the SBA regulations proposed bundling rule. As a result of the comments, both the FAR and SBA proposed rules are adopted as final with minor changes.

The following are the significant changes being made to the FAR by Federal Acquisition Circular (FAC) 2001-17:

• The definition of "bundling" in FAR 2.101, Definitions, is revised to define a "single contract" as including: "(i) an indefinite quantity contract awarded to two or more sources under a single solicitation for the same or similar supplies and services (see FAR 16.504(c) [Indefinite-Quantity Contracts]); and (ii) an order placed against an indefinite quantity contract under a (A) Federal Supply Schedule contract; or (B) task-order contract or delivery-order contract awarded by another agency (i.e., governmentwide acquisition contract or multi-agency contract)."
  
  
• New paragraph (d)(2)(i) is added to FAR 7.104, General Procedures, and it requires that the acquisition strategy be coordinated with the small business specialist (SBS) if the estimated value of any contract or order is $7 million or more for the Department of Defense (DOD); $5 million or more for the National Aeronautics and Space Administration (NASA), the General Services Administration (GSA), and the Department of Energy (DOE); and $2 million or more for all other agencies.
  
  
• Paragraph (e) of FAR 7.107, Additional Requirements for Acquisitions Involving Bundling, is amended to revise the "substantial bundling" definition to "any bundling that results in a contract or order that meets the dollar amounts specified in [FAR] 7.104(d)(2)." Previously, the "substantial bundling" definition had been "any bundling that results in a contract or order with an average annual value of $10 million or more."
  
  
• New FAR 7.107(e)(6) requires the acquisition strategy to "identify alternative strategies that would reduce or minimize the scope of the bundling, and the rationale for not choosing those alternatives."
  
  
• Paragraph (a)(7) of FAR 16.505, Ordering, is revised to state that orders placed under a task-order or delivery-order contract awarded by another agency must comply with all FAR requirements for a bundled contract when the order meets the definition of "bundled contract" in FAR 2.101.
  
  
• To FAR 19.202, Specific Policies, is added a requirement that agencies establish procedures, including dollar thresholds, for review of acquisitions by the OSDBU as to whether a particular acquisition should be awarded under FAR Subpart 19.5, Small Business Programs (that is, small business set-asides), FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program), or FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program.

The revisions to the SBA regulations (Title 13 of the Code of Federal Regulations (CFR), Part 125, Government Contracting Programs, Subpart 125.2, Prime Contracting Assistance) parallel those made to the FAR for the most part. The primary differences between the changes to the FAR and the SBA regulations involve the assignment of increased responsibilities for SBA's procurement center representatives (PCRs).

Finally, several of those responding to SBA's proposed rule identified the need for more guidance on evaluating large prime contractor performance and efforts to achieve the goals specified in their subcontracting plans, including examples of what types of conduct constitute "good-faith" efforts to comply with subcontracting plans.

Therefore, SBA is proposing to amend its regulations governing small business subcontracting to provide a list of factors to consider in evaluating a prime contractor's performance and good-faith efforts to achieve the requirements in its subcontracting plan. Also, the proposed rule authorizes the use of goals in subcontracting plans (and the contractor's past performance in meeting such goals) as a factor in source selection when placing orders against Federal Supply Schedules (FSS), government-wide acquisition contracts, and multi-agency contracts.

Comments on the proposed rule must be received on or before December 19, 2003, by Dean Koppel, Assistant Administrator, Office of Policy and Research, 409 Third Street, SW, Mail Code: 6500, Washington, DC 20416; by e-mail to dean.koppel@sba.gov; or to http://www.regulations.gov; or by facsimile to 202-205-6390.

CCR Registration, Unique Contract Numbers Required

FAC 2001-16 addresses several "e-Gov" issues in the FAR and tidies-up some loose ends:

• Central Contractor Registration: A new FAR Subpart 4.11, Central Contractor Registration, and implementing clauses are added to require contractors to be registered in the Central Contractor Registration (CCR) database by to be eligible for award of any contract, basic agreement, basic ordering agreement, or blanket purchase agreement on or after October 1, 2003. In addition, the rule requires contracting officers to modify existing contracts in which the period of performance extends beyond December 31, 2003, to require contractors to register in the CCR database by December 31, 2003. (EDITOR'S NOTE: The CCR is at http://www.ccr.gov.)
  
  A proposed rule was published on April 3, 2003, and, besides adding FAR Subpart 4.11 and requiring contractor registration by October 1, 2003, it would have required contracting officers to modify existing contracts by September 30, 2003 (see the May 2003 Federal Contracts Perspective article "Central Contractor Registration Requirement Proposed"). However, because of comments received on the proposed rule, the deadline for modifying existing contracts is extended to December 31, 2003. In addition, three of the five exceptions to the registration requirement are clarified, one additional exception is authorized ("micro-purchases that do not use the electronic funds transfer (EFT) method for payment and are not required to be reported"), and various editorial changes are made.
  
  
• Electronic Commerce in Federal Procurement: This rule finalizes the May 16, 2001, interim rule that adopted FedBizOpps (http://www.fedbizopps.gov) as the "governmentwide point of entry" (GPE) -- the universal electronic public access to governmentwide procurement opportunities (for more on the interim rule, see the June 2001 Federal Contracts Perspective article "FedBizOpps.gov to Replace CBD, Performance-Based Contracts Preferred for Services"). The most significant difference between the interim and final versions of this rule is in paragraph (g) of FAR 5.203, Publicizing and Response Time, in that the interim rule failed to modify the timeframes for presumption of publication ("6 days if electronically transmitted through the GPE or other means") even though FedBizOpps will provide a near-instantaneous display of notices. Therefore, FAR 5.203(g) has been amended to shorten the time for presumption of publication from six days to one day.
  
  
• Unique Contract and Order Identifier Numbers: This interim rule amends FAR 4.602, Federal Procurement Data System, to add a paragraph (e) which requires each agency to assign a unique procurement instrument identifier (PIID) for every contract, purchase order, basic ordering agreement (BOA), basic agreement, and blanket purchase agreement (BPA) reported to the Federal Procurement Data System -- Next Generation (FPDS-NG); and to have in place, no later than October 1, 2003 (the date FPDS-NG becames operational), a process that will ensure that each PIID reported to FPDS is unique, governmentwide, and will remain so for at least 20 years from the date of contract award.
  
  
• Procurements for Defense Against or Recovery From Terrorism or Nuclear, Biological, Chemical or Radiological Attack, and Temporary Emergency Procurement Authority: This rule finalizes the January 27, 2003, interim rule that implemented Sections 852 through 856 and Section 858 of the Homeland Security Act (Public Law 107-296) by revising the definition of "micro-purchase threshold" in FAR 2.101, Definitions, to increase the threshold to $7,500, and the definition of "simplified acquisition threshold" from $100,000 to $200,000 ($300,000 for contracts awarded and performed outside the United States) for "acquisitions of supplies or services that, as determined by the head of the agency, are to be used to facilitate defense against or recovery from terrorism or nuclear, biological, chemical, or radiological attack" (for more on the interim rule being finalized, see the February 2003 Federal Contracts Perspective article "FAC 2001-11 Extends FAR Subpart 13.5 to 2004, FAC 2001-12 Simplifies Buys Against Terrorism").
  
  In addition, the interim rule further implemented Public Law 107-296 by:
  
  
  • Authorizing agencies to treat such acquisitions as commercial items (paragraph (f) of FAR 12.102, Applicability), and removed the $5,000,000 limitation in FAR Subpart 13.5, Test Program for Certain Commercial Items (paragraph (e) of FAR 13.500, General).
    
    
  • Requiring heads of agencies to use streamlined acquisition procedures (such as combined synopsis and solicitation), and waiving the dollar limitations on sole source 8(a) acquisitions and HUBZone sole source awards ($5,000,000 for manufacturing, $3,000,000 for all others) (paragraph (b) of FAR 13.105, Synopsizing and Posting Requirements; paragraph (b)(3) of FAR 19.805-1, General; and paragraph (c) of FAR 19.1306, HUBZone Sole Source Awards, respectively).
    
    
  • Requiring market research on an ongoing basis to identify the capabilities of small businesses and new entrants into federal contracting that are available to meet agency requirements (paragraph (a)(2)(v) of FAR 10.001, Policy).
  
  Also finalized without change is the August 30, 2002, interim rule that implemented Section 836 of the Fiscal Year 2002 National Defense Authorization Act (Public Law 107-107) by increasing, for any procurement that facilitates the defense of the United States against terrorism or biological or chemical attack until September 30, 2003, the micro-purchase threshold from $2,500 to $15,000 when made by or for DOD; increasing the simplified acquisition threshold from $100,000 to $250,000 when the purchase is made by or for DOD inside the U.S. in support of a contingency operation; and increasing the simplified acquisition threshold from $200,000 to $500,000 for purchases made by or for DOD outside the U.S. in support of a contingency operation (for more on the interim rule, see the October 2002 Federal Contracts Perspective article "FAC 2001-09 Clamps Down on Task & Delivery Orders, Provides Temporary Emergency Authority"). No comments were received on the interim rule, so it is finalized without changes. However, since the September 30, 2003, expiration of Section 836 has passed, and Congress has not passed an authorization act for Fiscal Year 2004 that extends Section 836, this final rule is moot, at least for now.
  
  
• Caribbean Basin Country -- Dominican Republic: This final rule adds the Dominican Republic to the definition of "Caribbean Basin country," thus making its products eligible under acquisitions subject to the Trade Agreements Act. This change, made at the direction of the U.S. Trade Representative (USTR), is to FAR 25.003, Definitions, and FAR 52.225-5, Trade Agreements. In addition, the statement in paragraph (a)(2) of FAR 25.400, Scope of Subpart, that Dominican Republic products are not to be granted duty-free entry is deleted. (EDITOR'S NOTE: The Trade Agreements Act applies to acquisitions for supplies or services if the estimated value of the acquisition is $169,000, and to construction if the estimated value of the acquisition is $6,481,000. For more on the Trade Agreements Act, see FAR Subpart 25.4, Trade Agreements.)
  
  
• Notification of Contract Financing Overpayments: This rule adopts as final, with editorial changes, the August 29, 2002, proposed rule to revise FAR 52.232-25, Prompt Payment; FAR 52.232-26, Prompt Payment for Fixed-Price Architect-Engineer Contracts; and FAR 52.232-27, Prompt Payment for Construction Contracts, to require a contractor to promptly notify the contracting officer if the contractor becomes aware of an invoice overpayment. In addition, the contracting officer is required to provide instructions to the contractor, in coordination with the cognizant payment office, regarding timely disposition of the overpayment (new FAR 12.215, Notification of Overpayment, and to FAR 32.008, Notification of Overpayment). (EDITOR'S NOTE: For more on the proposed rule being finalized, see the September 2002 Federal Contracts Perspective article "FAR Changes Proposed to Cost Principles, to Address Overpayments, Environmental Management.")
  
  
• Prohibited Sources: This rule finalizes, with minor changes, the March 20, 2002, proposed rule to revise FAR 25.701, Restrictions, and FAR 52.225-13, Restrictions on Certain Foreign Purchases, to remove Serbia, the Taliban-controlled regions of Afghanistan, and Iraq from the list of prohibited sources; to point the contracting officer to lists of entities and individuals subject to economic sanctions (http://www.epls.gov/TerList1.html); and to refer contracting officers to the Office of Foreign Assets Control (OFAC) website at http://www.treas.gov/ofac for more information about the restrictions as well as updates to restrictions.
  
  This change implements 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.
  
  EDITOR'S NOTE: In June 2003, DOD issued a FAR deviation making these changes and others directly related to provisions in the Homeland Security Act and the Fiscal Year 2002 National Defense Authorization Act regarding the temporary increases in the micro-purchase threshold and simplified acquisition threshold (see "Procurements for Defense Against..." above). For more on DOD's FAR deviation, see the July 2003 Federal Contracts Perspective article "Lots of Different Kinds of DFARS Changes."
  
  
• Economic Planning, Employee Morale, and Travel Cost Principles: This rule adopts as final, with minor changes, the August 2002 proposed rule to amend FAR 31.205-12, Economic Planning Costs; FAR 31.205-13, Employee Morale, Health, Welfare, Food Service, and Dormitory Costs and Credits; and FAR 31.205-46, Travel Costs, to increase clarity and readability. The final version of this rule provides additional clarification to the cost principles. The rule does not change the allowability of the costs. (EDITOR'S NOTE: For more on the proposed rule being finalized, see the September 2002 Federal Contracts Perspective article "FAR Changes Proposed to Cost Principles, to Address Overpayments, Environmental Management.")

Share-in-Savings Contract Coverage Proposed for FAR

Comments are being solicited on a proposed FAR Subpart 39.3, Share-in-Savings Contracting, which would implement Section 210 of the E-Government Act of 2002 (Public Law 107-347). Section 210 authorizes the use of share-in-savings (SIS) contracts for information technology (IT). In SIS contracts, the contractor finances the work and then shares the savings generated from contract performance with the agency. The Section 210 authority to award SIS contracts expires September 30, 2005.

The following are the significant provisions of the proposed FAR Subpart 39.3:

• FAR 39.301, Definitions, would define SIS contracts as: "a contract under which (1) a contractor provides solutions for improving the agency's mission-related or administrative processes or for accelerating the achievement of agency missions; and (2) the government pays the contractor an amount equal to a portion of the quantifiable savings derived by the agency from (i) any improvements in mission-related or administrative processes that result from implementation of the solution; or (ii) acceleration of achievement of agency missions."
  
  
• FAR 39.303, Applicability, would state that use of SIS contracts "should be considered only for projects involving significant innovation or process transformation." It would encourage agencies to complete the "Share-in-Savings Project Screening Template" at http://www.gsa.gov/shareinsavings to help GSA "assist agencies in determining the potential effectiveness of using the authority of this subpart."
  
  
• FAR 39.304, Limitations on Share-in-Savings Contract Period of Performance, would limit the duration of SIS contracts to five years, except that an SIS contract may be for up to 10 years if approved by the head of the agency.
  
  
• FAR 39.305, Use of Performance-Based Contracts, would require that SIS contracts be performance-based. "Objective outcomes and performance standards shall be used to measure achievements and milestones that must be met before payment is made (see [FAR] Subpart 37.6 [Performance-Based Contracting])."
  
  
• FAR 39.306, Share-in-Savings Baseline, would require that each SIS contract "include a clause containing a quantifiable baseline that is to be the basis upon which a saving share ratio is established to govern the amount of payment a contractor is to receive under a contract..."
  
  
• FAR 39.307, Managing Retained Savings, would permit an agency to "retain savings in excess of the total amount of savings paid to the contractor under the contract, but [the agency] may not retain any portion of such savings that is attributable to a decrease in the number of civilian employees of the federal government performing the function."
  
  
• FAR 39.309, Solicitation Requirements, would require that solicitations for SIS contracts "use competitive procedures to the maximum extent practicable. Each solicitation shall include provisions and evaluation criteria ensuring that (1) the contractor's share of savings reflects the risks involved and market conditions; and (2) the government will realize best value from the contract."

Comments on the proposal should be submitted by October 31, 2003, to GSA, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or by e-mail to: ANPR.2003-008@gsa.gov.

DFARS Changes on Task Orders, Unique Item IDs

There were three interim rules amending the Defense FAR Supplement (DFARS) that were issued during October:

• Approval of Service Contracts and Task Orders: DFARS 237.170, Approval of Contracts and Task Orders for Services, is added to implement Section 801(b) of the Fiscal Year 2002 National Defense Authorization Act (Public Law 107-107), which requires DOD to establish and implement a management structure for the procurement of services (for more on the acquisition-related provisions of Public Law 107-107, see the February 2002 Federal Contracts Perspective article "2002 Defense Authorization Act Signed Into Law, Extends FAR Subpart 13.5 Until January 1, 2003"). DFARS 237.170 prohibits the acquisition of services "through use of a contract or task order that (a) is not performance based; or (b) is awarded by an agency other than DOD," unless approval is obtained from an official designated by the department or agency if the contract or task order is at or below $50,000,000, and from the senior procurement executive if the contract or task order exceeds $50,000.000.
  
  Comments on the interim rule must be submitted on or before December 1, 2003, on http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; e-mail: dfars@acq.osd.mil; by mail to Defense Acquisition Regulations Council, Attn: Steven Cohen, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; or by fax to 703-602-0350.
  
  
• Unique Item Identification and Valuation: This interim rule amends the DFARS to require contractors to uniquely identify, through the use of item identification marking, all items to be delivered to the government, and to identify the government's acquisition cost of items that are built or acquired by a contractor during contract performance and subsequently delivered to the government. The primary change is the addition of DFARS 211.274, Item Identification and Valuation, which requires that all contracts "require that all items delivered to the government (1) be delivered under a contract line item; and (2) contain unique item identification, or a DOD recognized unique identification equivalent (if one is not already marked), if (i) the government's acquisition cost of the item is $5,000 or more; or (ii) the requiring activity determines that unique identification is necessary for the item..."
  
  In addition, DFARS 252.211-7003, Item Identification and Valuation, is added. It provides definitions for various terms: automatic identification device, commonly accepted commercial marks, data qualifier, DOD recognized unique identification equivalent, enterprise, enterprise identifier, government's acquisition cost, issuing agency code, item, machine-readable, original part number, registration (or controlling) authority, serial number within the enterprise identifier or unique serial number, serial number within the part number or serial number, serialization within the enterprise identifier, serialization within the part number, unique item identification, and unique item identifier. It goes on to describe the establishment of unique item identification, requirements for data elements, data syntax and semantics, requirements for marking items, maintaining item records, and requirements for reporting the government's acquisition cost fo items. Finally, it requires that its provisions be included all subcontracts that will result in delivery of items under the contract.
  
  Also, DOD is sponsoring a public meeting on November 6, 2003, from 9:00 a.m. to 4:00 p.m., to discuss the interim rule. The meeting will be held at the University of Phoenix, Northern Virginia Campus, 11730 Plaza America Drive, Suite 2000, Reston, VA 20190.
  
  The interim rule is effective January 1, 2004. Comments on the interim rule must be submitted no later than November 10, 2003, to the address above.
  
  
• Indian Incentive Program: DFARS Subpart 226.1, Indian Incentive Program, and DFARS 252.226-7001, Utilization of Indian Organizations, Indian-Owned Economic Enterprises, and Native Hawaiian Small Business Concerns, are amended to implement Section 8021 of the Fiscal Year 2003 DOD Appropriations Act (Public Law 107-248), which revises the criteria for application of the Indian Incentive Program by (1) establishing a $500,000 threshold for contracts and subcontracts under which incentives may be paid; (2) by authorizing incentive payments for subcontracts awarded to Native Hawaiian small business concerns; and (3) by adding contracts and subcontracts for commercial items to the program.
  
  In addition, on November 22, 2002, DOD published a proposed rule to amend DFARS 252.226-7001 to clarify that the clause may be used in all contract types. Paragraph (e) had addressed incentive payments under cost-type, cost-plus-incentive-fee, fixed-price incentive, and firm-fixed-price contracts, but the Indian Incentive program applies to all contract types, so the rule proposed to eliminate the references to those contract types to avoid any misconceptions regarding contract types that are not listed. Four comments were received and, as a result of those comments, the proposed rule is adopted as part of the interim rule along with the elimination of the 50-day waiting period for payments that was specified in paragraph (d).
  
  Comments on the interim rule must be submitted no later than December 1, 2003, to the address above.

SBA Increases Facilities Support Services Size Standard

The Small Business Administration (SBA) is increasing the size standard for the facilities support services industry (North American Industry Classification System (NAICS) 561210) from $6 million in average annual receipts to $30 million, and the size standard for the sub-category of base maintenance from $23 million to $30 million.

SBA had received requests from firms in the industry to review its size standards for this industry. The firms argued that a size standard increase is warranted to reflect the size of federal contracts in this industry, which typically include a broad spectrum of services involving administrative support, custodial services, facilities repair and maintenance, and technical services, which often are $10 million per year or more in value.

SBA agrees that an increase is warranted, so it has decided to increase the size standard for facilities support services to $30 million, and eliminate the base maintenance sub-category because "the activities comprising this industry and the characteristics of firms in the industry no longer require separate size standards for base maintenance and for all other facilities support activities."

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