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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


May 2003
Vol. IV, No. 5

CONTENTS

Proposed FAR Change Would Tighten FSS Procedures
Annual Recertification Proposed for FSS Contractors
Per Diem Rates Moved to Website
Central Contractor Registration Requirement Proposed
SBA Changes Tour Operators Annual Receipts Calculation
Three Nonmanufacturer Rule Waivers Proposed
DOD Simplifies and Clarifies DFARS Part 225
CCF Member Qualifications Established
DOD Extends SDB Goals



Proposed FAR Change Would Tighten FSS Procedures,
Address Services "Priced at Hourly Rates"

To significantly improve the application of acquisition basics to Federal Supply Schedule (FSS) purchases for services, and to reinforce the application of sound procurement practices to the FSS generally, the Federal Acquisition Regulation (FAR) Council is proposing numerous amendments to FAR Subpart 8.4, Federal Supply Schedules, including specifying procedures for services described by statements of work, and addressing services that are "priced at hourly rates."

The FSS program is managed by the General Services Administration (GSA), and it provides agencies with a simplified process for obtaining commercial supplies and services at prices associated with volume buying. For most of its history, the FSS program consisted almost exclusively of products ("Federal Supply Schedules"). However, in recent years, the government has increasingly sought to acquire its services from the commercial marketplace rather than retain or develop the skills and capabilities itself. GSA has sought to facilitate broad access to service providers by adding services to the FSS. Now, services account for approximately two-thirds of the total FSS sales.

To assist its customers, GSA developed "special ordering procedures," but those procedures are buried within the FSS, and the regulations and procedures in FAR Subpart 8.4 still reflect the supplies-orientation of the FSS program as it existed years ago. Therefore, agencies have been inconsistent in adhering to certain basic acquisition requirements when buying services off the FSS, such as in their use of statements of work, effective pricing of orders, obtaining competition, and proper documentation of award decisions.

The General Accounting Office (GAO) pointed out these deficiencies in Contract Management: Not Following Procedures Undermines Best Pricing Under GSA's Schedule (GAO-01-125). In the report, GAO recommended that the FAR be revised to incorporate the requirement in the ordering procedures for services to obtain competitive quotes. GAO also recommended that the FAR address whether sole source orders for services may be placed using the FSS. "If sole source orders are allowed, the guidance should provide instructions on what steps contracting officers should take to ensure that prices are fair and reasonable and that orders result in the lowest overall cost alternative meeting the government's needs." (EDITOR'S NOTE: For more on GAO-01-125, see the December 2000 Federal Contracts Perspective article "GAO Finds Many DOD Contracting Officers Fail to Obtain Quotes Before Placing FSS Orders for Services.")

To improve use of the FSS program, the FAR Council is proposing to extensively revise FAR Subpart 8.4. The following are the most significant changes being proposed to FAR Subpart 8.4:

Comments on the proposed rule are due on or before June 17, 2003, and are to be sent to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or by e-mail to farcase.1999-603@gsa.gov.



Annual Recertification Proposed for FSS Contractors

The Small Business Administration (SBA) is also taking on the FSS program by proposing to amend its small business size regulations to require a small business contractor to recertify annually that it continues to be small. Besides applying to GSA's multiple award schedule (MAS) program (which includes FSS contracts), this proposed rule change would apply to other multiple award contracts, including governmentwide acquisition contracts (GWACs) and multi-agency contracts (MACs). In addition, SBA would revise its Section 8(a) Business Development regulations so they are consistent with the size regulations changes.

SBA's regulation at 13 CFR 121.404, When does SBA determine the size status of a business concern?, states that "generally, SBA determines the size status of a concern including its affiliates) as of the date the concern submits a written self-certification that it is small to the procuring agency as part of its initial offer including price." Therefore, if a concern self-certifies for an MAS, FSS, MAC, or GWAC that it is a small business as of the date of its initial offer, agencies may consider orders placed against such contracts as awards to "small business" for the entire duration of the contract. However, such contracts can, with options, be in effect for up to 20 years, can be amended to incorporate supplies and services with varying size standards, and can produce practically unlimited quantities of the supplies and services. Under 13 CFR 121.404, orders to a concern receiving such a contract would be considered awards to a small business even though the firm had grown to be large (either through natural growth or by merger or acquisition), and even though the firm was not (and may never have been) small with respect to the size standard corresponding to the work to be performed under the order!

"SBA has reviewed Federal Procurement Data System (FPDS) statistics as they relate to four business concerns that received contracts as small businesses under the GSA's MAS Program, but which have become other than small since that time," SBA writes in the introduction to the proposed rule. "These four business concerns are continuing to receive orders issued pursuant to a MAS contract in which each certified that they were small at the time of the original MAS contract. In fiscal year 2000, these four business concerns received over $190 million in such orders. Because these concerns were considered small at the time of the original MAS contract, each of these 1,313 contracting actions, valued at over $190 million, could be counted as awards to small businesses. The figures for these same concerns in fiscal year 2001 are equally astounding -- 1,271 contracting actions amounting to over $200 million in awards to other than small businesses."

Even GSA has come to acknowledge the presence of this "loophole" when it implemented a FAR deviation requiring contractors operating under the FSS program, or any other MAC, to recertify that they qualify as small businesses each time their contracts are up for renewal (see the December 2002 Federal Contracts Perspective article "GSA Requires Small Business Certifications for Options").

Consequently, SBA is proposing to revise its regulations to specifically address size as it relates to awards issued under MACs, FSSs, MACs, or GWACs as follows:

Finally, SBA is proposing to amend its regulations governing the 8(a) program to make them consistent with the proposed changes in the small business size regulations. Currently, paragraph (h)(2) of 13 CFR 124.503, How does SBA accept a procurement for award through the 8(a) BD [Business Development] program?, states that "a concern may continue to accept new orders under a Multiple Award or Federal Supply Schedule contract even where a concern's program term expires, the concern otherwise exits the 8(a) BD program, or the concern becomes other than small for the SIC [Standard Industrial Classification, which has been replaced by the North American Industrial Classification System (NAICS)] code assigned under the contract subsequent to award of the contract."

The proposed amendment to paragraph (h)(2) would state, "A concern can continue to receive orders as an 8(a) small business under the General Services Administration's Multiple Award Schedule (MAS) Program, including the Federal Supply Schedule, and other multiple award contracts, including Governmentwide Acquisition Contracts (GWACs) and multi-agency contracts, with respect to any orders issued pursuant to the MAS or other multiple award contract having a NAICS code with the same or higher size standard as the one(s) under which it qualified for a period of one year from the date of its certification or recertification as a small business." Also, the proposed amendment would make clear that a concern can continue to receive orders under MASs, FSSs, MACs, or GWACs even after it is unable to recertify that it is a small business, "but such award will not count as an award to an 8(a) small business."

Comments on the proposed rule must be submitted no later than June 24, 2003, to Linda G. Williams, Associate Administrator, Office of Government Contracting, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416; fax: 202-205-6390; or by e-mail to Linda.Williams@sba.gov, or on http://www.regulations.gov.



Per Diem Rates Moved to Website

GSA is removing the per diem rate tables from Appendix A of Federal Travel Regulation (FTR) Chapter 301, Temporary Duty (TDY) Travel Allowances. The per diem rates will be published on a periodic basis as "FTR Per Diem Bulletins" at http://www.gsa.gov/perdiem. A notice will be published in the Federal Register to alert readers of new FTR Per Diem Bulletins.

The removal of the per diem rates from FTR Part 301, Appendix A, is intended to expedite and simplify the publication of the continental United States (CONUS) per diem rates established by GSA.



Central Contractor Registration Requirement Proposed

A recent proposed rule would amend the FAR to require contractor registration in the Central Contractor Registration (CCR) database prior to award of any contract, basic agreement, basic ordering agreement, or blanket purchase agreement. Also, contracting officers would be required to modify existing contracts to require contractors to register in the CCR database by September 30, 2003. (EDITOR'S NOTE: The CCR is at http://www.ccr.gov.)

Section 31001 of the Debt Collection Improvement Act of 1996 (Public Law 104-134) requires each contractor doing business with the government to furnish its taxpayer identification number (TIN), and requires that payments for all contracts be made by electronic fund transfer (EFT) except under certain circumstances (such as credit cards, classified purchases, etc.). To comply with the Section 31001, the Department of Defense (DOD) developed the CCR database to collect and manage the contractor information, and, in 1998, DOD required contractors to register in the CCR database prior to award of a contract, basic agreement, basic ordering agreement, or blanket purchase agreement. Since then, several agencies have decided to require their contractors to register in the CCR, including NASA and the Departments of the Treasury, Agriculture, and Transportation. Currently, there are more than 220,000 contractors in CCR.

This proposed rule would amend the FAR to add a new FAR Subpart 4.11, Central Contractor Registration, and implementing clauses. FAR Subpart 4.11 is essentially a copy of Defense FAR Supplement (DFARS) Subpart 204.73, Central Contractor Registration. The following are the significant FAR changes in the proposed rule:

Comments on the proposed rule are due on or before June 2, 2003, and are to be sent to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or be e-mail to farcase.2002-018@gsa.gov.



SBA Changes Tour Operators Annual Receipts Calculation

In response to industry requests, and after considering comments, the SBA has decided to modify the way average annual receipts are calculated for firms in North American Industry Classification System (NAICS) 561520, Tour Operators. The method will exclude funds received in trust for unaffiliated third parties from the calculation of a tour operator's receipts. SBA is retaining the current $6.0 million size standard.

SBA's regulations in Title 13 of the Code of Federal Regulations, Section 121.104, How does SBA calculate annual receipts?, provides that the receipts of a firm are based on a firm's federal tax returns. Generally, receipts reported to the Internal Revenue Service (IRS) include a firm's gross receipts from the sale of goods and services. However, tour operators argued that receipts collected for payment to the actual transportation and lodging providers that are reimbursed by a tour operator should not be included in the calculation of average annual receipts for purposes of determining the size of a tour operator. They requested that SBA exclude monies passed through to suppliers of travel components (that is, meals, transportation, lodging, and sightseeing and entertainment) from the calculation of a tour operator's average annual receipts. These monies typically account for 80% to 95% of a tour operator's receipts./P>

SBA published a proposed rule on October 2, 2002, to revise footnote 10 of the small business size standards table in Section 121.201, What size standards has SBA identified by North American Industry Classification System codes?, to read as follows:

"NAICS codes 488510 (part), 531210, 541810, 561510, 561520, and 561920 -- as measured by total revenues, but excluding funds received in trust for an unaffiliated third party, such as bookings or sales subject to commissions. The commissions received are included as revenues."

SBA received six comments to the proposed rule: four comments were from firms in the industry, one comment was from a travel agency, and one was from members of Congress (six U.S. Representatives co-signed a single comment letter). All six commentators supported the revised method of calculating the average annual receipts of a tour operator and retaining the $6 million size standard. Therefore, SBA is adopting the proposed rule as final without change. (EDITOR'S NOTE: For more on the proposed rule, see the November 2002, Federal Contracts Perspective article "SBA Proposes Change to Tour Operators Size Standard.")



Three Nonmanufacturer Rule Waivers Proposed

The SBA is considering waivers of the "nonmanufacturer rule" for (1) small arms manufacturing under North American Industry Classification System (NAICS) code 332994; (2) other ordnance and accessories manufacturing under NAICS code 332995; and (3) overhead fiber optic groundwire and ancillary hardware components under NAICS 335921. The basis for all three of the proposed waivers is that no small business manufacturers are currently supplying these products to the government, and a search of the Procurement Marketing and Access Network (PRO-Net (http://pro-net.sba.gov)) failed to identify any small business manufacturers of these items.

The nonmanufacturer rule requires recipients of federal contracts that are set-aside for small businesses or are awarded through the 8(a) program to provide the product of a small business manufacturer or processor if the recipient is not the actual manufacturer or processor (see paragraph (f) of FAR 19.102, Size Standards). However, SBA may waive this requirement if there are no small business manufacturers or processors.

Comments and sources must be submitted to Edith Butler, Program Analyst, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416; 202- 619-0422.



DOD Simplifies and Clarifies DFARS Part 225

DOD has decided to adopt the October 7, 2002, proposed rewrite of the Defense FAR Supplement (DFARS) Part 225, Foreign Acquisition, with few changes. The DFARS Part 225 rewrite is intended to simplify and clarify the regulations governing the acquisition of supplies and services from foreign sources because of the complexity of the Buy American Act and the various trade agreements. (EDITOR'S NOTE: For more on the proposed rule, see the November 2002 Federal Contracts Perspective article "DFARS Revised on Multiple Award Competitions, Enterprise Software Agreements, Honduras.")

The primary features of the revised DFARS Part 225 are as follows:

Five respondents submitted comments on the proposed rule. Other than minor editorial changes, the proposed rule is adopted as final. The most significant change between the proposed and final rules is the reinstatement of DFARS 225.170, Acquisition From or Through Other Government Agencies, which requires that the DFARS Part 225 evaluation procedures be applied to foreign items on Federal Supply Schedules.



CCF Member Qualifications Established

On April 10, 2003, Under Secretary of Defense E. C. Aldridge, Jr., issued a memorandum establishing the minimum qualification criteria for contingency contracting force (CCF) member development, retention, and accession. This is permitted by Section 824 of Public Law 107-107, the National Defense Authorization Act for Fiscal Year 2002, which authorizes DOD to establish separate qualifications for the CCF ("members of the armed forces whose mission is to deploy in support of contingency operations and other operations of the Department of Defense").

Section 824, Acquisition Workforce Qualifications, exempted certain DOD employees and members of the military from the requirement that contracting officers and others in GS-1102 series (contracting) positions and similar military positions have a bachelor's degree and at least 24 semester hours of business-related studies. Among those exempted were those in the CCF. Section 824 permits DOD to establish other qualification requirements that a new entrant into the contracting field must meet to serve as a contracting officer with authority to award or administer contracts exceeding the simplified acquisition threshold.

To prepare for the CCF, the Aldridge memorandum states that the member must:



DOD Extends SDB Goals

DOD is amending DFARS 219.000, Scope of Part, and DFARS 226.7000, Scope of Subpart, to implement Section 816 of the National Defense Authorization Act for Fiscal Year 2003 (Public Law 107-314), which extends, for three years, the goal for contract awards to small disadvantaged businesses (SDB) and certain institutions of higher education. The goal was scheduled to expire the end of Fiscal Year 2003 -- September 30, 2003. To implement Section 816, DFARS 219.000 and DFARS 226.7000 are amended by replacing "through [Fiscal Year] 2003" to "through 2006".



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