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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


April 2003
Vol. IV, No. 4

CONTENTS

FAC 2001-13 Addresses Fixed-Price Contract Incentives, Progress Payments Under IDIQ Contracts
5% Witholding on T&M Contracts Proposed for Removal
NFS Changes on TAA, IAAs, and Tech Reports
OMB Unveils Website to Safeguard Sensitive Information
Refineries, Job Corps Centers Size Standards Revised
GSA Proposes Reducing Industrial Funding Fee to 0.75%
OMB Releases Final Set of FAIR Act Inventories



FAC 2001-13 Addresses Fixed-Price Contract Incentives,
Progress Payments Under IDIQ Contracts

Federal Acquisition Circular (FAC) 2001-13 takes on a couple of controversial issues: how incentives based on factors other than cost may be used in firm-fixed-price (FFP) contracts and fixed-price contracts with economic price adjustment (FP/EPA) without changing the FFP or FP/EPA nature of the contract; and requiring contractors, under indefinite-delivery indefinite-quantity (IDIQ) contracts, to account for and submit progress payment requests under individual orders as if each order constitutes a separate contract. In addition, FAC 2001-13 contains final rules on the preference for U.S.-flag vessels under subcontracts for commercial items; and federal, state, and local taxes.



5% Witholding on T&M Contracts Proposed for Removal

DOD is proposing to amend the DFARS to remove the requirement that a contracting officer withhold 5% of the payments due under a time-and-materials or labor-hour contract unless otherwise prescribed in the contract. FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, requires the contracting officer to withhold 5% of the amounts due, up to a maximum of $50,000, unless otherwise specified in the contract. The government retains the withheld amount until the contractor executes and delivers, at the time of final payment, a release discharging the government from all liabilities, obligations, and claims arising under the contract.

This rule proposes to add DFARS 252.232-7XXX, Alternate A, which would provide a substitute paragraph (a)(2) for FAR 52.232-7(a)(2). Alternate A would permit the administrative contracting officer (ACO) to withhold 5% of the amount due until a reserve is set aside in an amount the ACO considers to be necessary, but not to exceed $50,000, to protect the government's interests. The reserve would be retained until the contractor executes and delivers the release discharging the government from all liabilities, obligations, and claims under the contract.

Also, the prescription for DFARS 252.232-7XXX would be added as DFARS 232.111, Contract Clauses for Non-Commercial Purchases. In addition to describing when to use DFARS 252.232-7XXX, DFARS 232.111 would state, "Normally, there should be no need to withhold payment for a contractor with a record of timely submittal of the release discharging the government from all liabilities, obligations, and claims."

Comments must be submitted by April 29, 2003, directly on the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or, as an alternative, by e-mail to: dfars@acq.osd.mil.



NFS Changes on TAA, IAAs, and Tech Reports

The National Aeronautics and Space Administration (NASA) has been relatively busy fine-tuning its NASA FAR Supplement (NFS):



OMB Unveils Website to Safeguard Sensitive Information

On March 3, 2003, the Office of Management and Budget announced that it is implementing the Federal Technical Data Solution (http://www.fedteds.gov), a web application designed to safeguard acquisition-related information. FedTeDS.gov will enable an agency to integrate the secure distribution and dissemination of Sensitive But Unclassified (SBU) acquisition material into its business process.

The need for a secure online dissemination tool arose from the requirement that all federal agencies must provide online material to commercial vendors as outlined in the Freedom of Information Act. This material includes information related to operations, systems, structures, individuals, and services essential to the security and management of a facility, including telecommunications, electrical power, building facility structural layout, water supply, emergency services, continuity of operations, schedules, work hours, and security clearance requirements. Much of this information could pose a possible threat to national security if made public.

FedTeDS.gov improves the efficiency, credibility, and effectiveness of the acquisition and logistics support process by streamlining the procurement process. It allows vendor access to SBU acquisition material, establishes a physical firewall between the federal government and its public customers, and uses existing DOD databases to validate a user's access to export controlled data. FedTeDS.gov is fully integrated with FedBizOpps (http://www.fedbizopps.gov) and the Central Contractor Registration (CCR) (http://www.ccr.gov).

All wishing access to FedTeDS.gov must be registered. Federal engineers and buyers must be granted approval by their local administrator, and vendors must have their CCR Marketing Partner Identification Number (MPIN) and Contractor and Government Entity (CAGE) code or DUNS number.



Refineries, Job Corps Centers Size Standards Revised

During March, the Small Business Administration (SBA) adjusted the small business size standards for two industries:



GSA Proposes Reducing Industrial Funding Fee to 0.75%

GSA is proposing to give itself the right to change the percentage rate of the Industrial Funding Fee (IFF) in Federal Supply Schedule (FSS) contracts, and is providing notice that it intends to reduce the IFF rate from 1.0% to 0.75%, effective January 1, 2004.

Contractors include the IFF in the FSS prices charged to ordering activities, and remit the collected fees to GSA based on quarterly contract sales. This is how GSA recoups its costs for operating and maintaining the FSS program. The GSAR does not specify the percentage rate of the IFF -- the original 1% rate was established in 1995 by an acquisition letter.

In July 2002, the General Accounting Office (GAO) issued report GAO-02-934, "Interagency Contract Program Fees Need More Oversight." In the report, GAO wrote that its review of the FSS program found "from fiscal year 1999 to 2001, the revenue generated by (IFF) fees exceeded (FSS) program costs by 53.8%, or $151.3 million. Program customers are, in effect, being overcharged for the contract services they are buying. Nevertheless, program officials have not adjusted the fee." Members of Congress expressed their intention to conduct hearings on the FSS and the 1% IFF, and GSA suddenly announced its intention to reduce the IFF from 1% to 0.75%. This proposed rule is a direct result of GAO's report and GSA's reaction/announcement.

The proposed rule could combine current GSAR 552.238-74, Industrial Funding Fee, and GSAR 552.238-76, Contractor's Report of Sales, both of which are included in each FSS contract, into a new GSAR 552.238-74, Industrial Funding Fee and Sales Reporting. The new clause would permit GSA to make changes at any time but not more than once per year.

Also, the introduction to the proposed rule states that GSA will compensate the FSS contractors for the cost of making this change by allowing them to continue to include the 1% IFF in their contract prices until December 31, 2003, but to forward to FSS an IFF of 0.75% for reported sales for the period of October 1, 2003, through December 31, 2003.



OMB Releases Final Set of FAIR Act Inventories

On March 19, the Office of Management and Budget (OMB) released the fourth, and final, set of Fiscal Year 2002 Commercial Activities Inventories of non-governmental functions being performed by government agencies. This last set of inventories covers approximately 224,000 positions -- the first set covered approximately 250,000, the second set covered almost 54,000 positions, and the third set covered approximately 540,000. Inventories in this fourth set are from the Departments of Transportation and Veterans Affairs, and a few others. The agencies' lists are available at http://www.whitehouse.gov/omb/procurement/index.html.

Interested parties have until May 1, 2003, to challenge the omission or inclusion of an activity on an agency's list.



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