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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

June 2003
Vol. IV, No. 6

CONTENTS

FAC 2001-14 Addresses Electronic Signatures, Federal Prison Industries
SBA Purges PRO-NET of Large Businesses
DOD 5000 Acquisition Policy Documents Issued
DODBusOpps to Cease Operations September 30
DFARS Changes Proposed on FPI Competition
State, Local Governments Permitted to Use FSS to Buy IT
FAR Rewrite Proposed for Patents and Copyrights
Two FAR Cost Principle Policies Proposed for Revision
Executive Compensation Benchmark Raised to $405,273
OFPP Rolls-Out Inter-Agency "Contract Directory"

FAC 2001-14 Addresses Electronic Signatures,
Federal Prison Industries, Cost Principles

Federal Acquisition Circular (FAC) 2001-14 revises the Federal Acquisition Regulation (FAR) to permit acceptance of electronic signatures; to address a couple of issues pertaining to the Federal Prisons Industries, Inc. (FPI); to revise three cost principles and delete another; to define the term "United States"; and to update the clauses required to implement statute or executive orders that apply to commercial items. In addition, FAC 2001-14 finalizes an interim rule on prompt payment under cost-reimbursement service contracts.

• Electronic Signatures: To further government participation in electronic commerce when conducting government procurements, the FAR Council published on November 1, 2000, a proposed rule to revise the definitions in FAR 2.101, Definitions, of "electronic commerce," "in writing" or "written", and "signature" or "signed" to permit electronic techniques, symbols, or signs. In addition, the following paragraph (d) was proposed for addition to FAR 4.502, Policy: "As required by the Government Paperwork Elimination Act (GPEA) (Title XVII of Division C of Public Law 105-277), by October 21, 2003, agencies must allow individuals or entities the option to submit information or transact with the agency electronically when practicable. The GPEA requirement includes execution of contracts and associated records using electronic signatures of the offeror or contractor and the agency" (for more on the proposed rule, see the December 2000 Federal Contracts Perspective article "Propose FAR Changes on Electronic Signatures, Cargo").
  
  Twenty-five respondents submitted comments on the proposed rule. As a result of these comments, the FAR Council decided to make no changes to any of the definitions, and to reduce FAR 4.502(d) to the following sentence: "Agencies may accept electronic signatures and records in connection with government contracts."
  
  
• Increased FPI Waiver Threshold: This interim rule revises FAR 8.606, Exceptions, to increase FPI's clearance exception threshold from $25 to $2,500, and to eliminate the requirement that delivery be within 10 days. (EDITOR'S NOTE: FPI operates under the trade name "UNICOR.")
  
  FPI is a mandatory acquisition program, and a clearance from FPI is required by FAR 8.605, Clearances, before supplies on FPI's schedule may be acquired from other sources. However, FAR 8.606 provides five exceptions to the clearance requirement, including the one in paragraph (e): "[when] orders are for listed items totaling $25 or less that require delivery within 10 days."
  
  The FPI board of directors recently adopted a resolution increasing the blanket waiver threshold from $25 to $2,500, and eliminated the 10 day requirement. To implement the FPI resolution, this interim rule revises paragraph (e) to state "Orders are for listed items totaling $2,500 or less." Agencies may continue to consider and purchase products from FPI that are at or below $2,500, and agencies are still required to purchase products on FPI's schedule from FPI above the $2,500 threshold unless a clearance is obtained as required by FAR 8.605.
  
  Comments on this interim rule must be submitted by June 23, 2003, 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.2003-001@gsa.gov. Cite "FAC 2001-14, FAR case 2003-001" in correspondence pertaining to the interim rule.
  
  
• Past Performance Evaluation of FPI: This final rule removes the prohibition on evaluating FPI contract performance from FAR 42.1502, Policy ("agencies shall not evaluate performance for contracts awarded under Subpart 8.6 [Acquisitions from Federal Prison Industries, Inc.]"), thus permitting federal customers to rate FPI performance, compare FPI to private sector providers, and give FPI important feedback on previously awarded contracts.
  
  A proposed rule was published August 29, 2002 (see the September 2002 Federal Contracts Perspective article "FAR Changes Proposed to Cost Principles, to Address Overpayments, Environmental Management"). Ten respondents submitted public comments, and it was decided to finalize the proposed rule with minor changes to more clearly articulate for contracting officers that the clearance requirement in FAR 8.605 still applies, and that a negative performance evaluation can be used to support clearance requests.
  
  
• Miscellaneous Cost Principles: This final rule clarifies and simplifies the following cost principles in FAR 31.205, Selected Costs: FAR 31.205-10, Cost of Money; FAR 31.205-28, Other Business Expenses; and FAR 31.205-48, Research and Development Costs. In addition, cost principle at FAR 31.205-45, Transportation Costs, is deleted because an affirmative statement of allowability is not necessary, and the allocation statement is already addressed in FAR 31.201-4, Determining Allocability; FAR 31.202, Direct Costs; and FAR 31.203, Indirect Costs.
  
  On March 20, 2002, the FAR Council published a proposed rule to revise these cost principles (see the April 2002 Federal Contracts Perspective article "FAC 2001-05 Suspends 'Project Labor Agreements' Ban, FAC 2001-6 Includes Procurement Integrity Rewrite"). Two comments were submitted regarding the proposed rule, and the proposed rule is finalized with minor editorial changes.
  
  
• The Term "United States": This final rule amends the FAR to clarify the use of the term "United States" when used in a geographic sense. While the current FAR 2.101 definition of "United States" is unchanged, the following definitions are added to FAR 2.101 for use when appropriate: "contiguous United States (CONUS)", which is defined as the 48 contiguous States and the District of Columbia; "customs territory of the United States", which is defined as the 50 states, the District of Columbia, and Puerto Rico; and "outlying areas", which is be defined as: (1) Commonwealths: (i) Puerto Rico; and (ii) the Northern Mariana Islands; (2) Territories: (i) American Samoa; (ii) Guam; and (iii) U.S. Virgin Islands; and (3) Minor Outlying Islands: (i) Baker Island; (ii) Howland Island; (iii) Jarvis Island; (iv) Johnston Atoll; (v) Kingman Reef; (vi) Midway Islands; (vii) Navassa Island; (viii) Palmyra Atoll; and (ix) Wake Atoll.
  
  In addition, the definition of "possessions" is removed from FAR 2.101, and the definition of "state and local taxes" is revised to read as follows: "taxes levied by the States, the District of Columbia, outlying areas of the United States, or their political subdivisions."
  
  
• Contract Terms and Conditions Required to Implement Statute or Executive Orders -- Commercial Items: This final rule amends FAR 52.212-5, Contract Terms and Conditions Required to Implement Statute or Executive Orders -- Commercial Items, to update the clauses required to implement statute or executive orders that apply to commercial items.
  
  On March 20, 2002, the FAR Council published a proposed rule to revise FAR 52.212-5 (see the April 2002 Federal Contracts Perspective article "FAC 2001-05 Suspends 'Project Labor Agreements' Ban, FAC 2001-6 Includes Procurement Integrity Rewrite"). Two respondents submitted comments, and the proposed rule is finalized with the addition of language clarifying that the contractor is not required to flow down any FAR clause, other than the six in paragraph (e) of the clause, to subcontracts for commercial items.
  
  
• Prompt Payment Under Cost-Reimbursement Contracts for Services: This adopts as final the October 21, 2001, interim rule that amended FAR 32.905, Invoice Payments, to require an agency to pay an interest penalty whenever it makes an interim payment under a cost-reimbursement contract for services more than 30 days after receiving a proper invoice from the contractor (see the November 2001 Federal Contracts Perspective article "2001 FAR Published; FAC 2001-01 Addresses Veterans, Davis-Bacon, Commercial Items, Very Small Businesses").
  
  The interim rule stated that "the policy and clause apply to all covered contracts awarded on or after December 15, 2000...Agencies may apply the FAR changes made by this rule to contracts awarded prior to December 15, 2000, at their discretion..." Subsequently, the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107) removed that discretion by stating that this policy applies to cost-reimbursement contracts for services awarded before, on, or after December 15, 2000. Therefore, the applicability date of this final rule is revised to read as follows: "This final rule applies to cost-reimbursement contracts for services, irrespective of award date, if interim payments requests under such contracts are due on or after December 15, 2000. In no event may agencies pay late payment penalty interest for any delay in payment that occurred prior to December 15, 2000." (EDITOR'S NOTE: 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.")

SBA Purges PRO-NET of Large Businesses

On May 9, the Small Business Administration (SBA) announced that it has removed approximately 600 businesses from its Procurement Marketing and Access Network (PRO-Net) database of potential small business sources (http://pro-net.sba.gov) "because they exceed the small business size standards for the industries in which they operate." PRO-Net is a registry of more than 195,000 small businesses interested in obtaining federal contracts, a marketing tool for those small businesses, and a link to procurement opportunities and important information.

Besides these 600 businesses, SBA has removed an additional 90,000 businesses that have not updated their PRO-Net profiles within the past 18 months. SBA says it "is continuing to monitor the information submitted by new registrants and by those updating their profiles."

DOD 5000 Acquisition Policy Documents Issued

On May 12, 2003, Department of Defense (DOD) Deputy Secretary Paul Wolfowitz issued the promised revised DOD 5000 series of documents governing the defense acquisition process. The new documents establishes "a simplified and flexible management framework for translating mission needs and technology opportunities."

The documents being issued are DOD Directive (DODD) 5000.1, The Defense Acquisition System, which provides overall management principles and mandatory policies and procedures for managing all acquisition programs, and DOD Instruction (DODI) 5000.2, which provides detailed procedures for complying with the policies in DODD 5000.1. DOD 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs (MDAPs) and Major Automated Information Systems (MAIS) Acquisition Programs, which was canceled along with the other 5000 documents, is retained as the "Interim Defense Acquisition Guidebook," but it is not mandatory. The documents are available at http://dod5000.dau.mil.

The significant differences between the old and new 5000 documents are:

• The old process consisted of four phases with six potential decision points; the new process consists of five phases with six potential decision points.
  
  
• Old DODD 5000.1 consisted of 12 pages with three enclosures; new DODD 5000.1 consists of eight pages with one enclosure.
  
  
• Old DODI 5000.2 consisted of 46 pages; the new DODI consists of 36 pages.
  
  
• The new process stresses "spiral development," in which the desired capability is identified, but the end requirements are not known at Program Initiation. Requirements for future increments are dependent on technology maturation and user feedback from initial increments.

EDITOR'S NOTE: For more on the cancellation of the old DOD 5000 documents, see the December 2002 Federal Contracts Perspective article "DOD 5000 Acquisition Policy Documents Cancelled".

DODBusOpps to Cease Operations September 30

DOD is preparing to shut down its DOD Business Opportunities website (http://DODBusOpps.com) on September 30, 2003, because it is duplicative of FedBizOpps (http://www.FedBizOpps.gov).

President Bush's Management Agenda for E-Government calls for the integration of information technology investments, and for agencies to move and consolidate the management of systems, data, and business processes during 2003 and 2004. During the past months, DOD has been migrating DODBusOpps site into the FedBizOpps site -- FedBizOpps is the government's point of entry for solicitations throughout the federal government. As a result, DODBusOpps will be retired effective September 30, 2003. It will be taken off-line on July 1, 2003, but DODBusOpps will continue to process data feeds to FedBizOpps through the end of September. All solicitation information that requires notice formerly found on DODBusOpps can be found on FedBizOpps effective July 1, 2003.

DFARS Changes Proposed on FPI Competition

Besides issuing the DOD 5000 series of documents and shutting down DODBusOpps, DOD is proposing to revise Defense FAR Supplement (DFARS) Subpart 208.6, Acquisition from Federal Prison Industries, Inc., to implement Section 811 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 101-107) and Section 819 of the National Defense Authorization Act for Fiscal Year 2003 (Public Law 107-314). Section 811 of Public Law 107-107 requires that contracting officers conduct market research before purchasing a product listed in the Federal Prison Industries (FPI) catalog, and DOD issued an interim rule revising the DFARS to implement Section 811. Section 819 of Public Law 107-314 clarifies Section 811. (EDITOR'S NOTE: For more on the interim rule that originally implemented Section 811 of Public Law 107-107, see the May 2002 Federal Contracts Perspective article "New DFARS Rules Address Profit, Berry Amendment, Federal Prisons, NAFTA, Balance of Payments." For more on Section 819 and the acquisition-related provisions of Public Law 107-314, see the January 2003 Federal Contracts Perspective article "2003 Defense Authorization Act Limits Task Orders, Extends FAR Subpart 13.5 Until January 1, 2004.")

The following are the most significant changes being proposed:

• DFARS 208.602, Policy, would be revised to exempt the contracting officer from having to obtain a clearance in accordance with FAR 8.605, Clearances, if he or she determines FPI's product is not comparable to products available from the private sector and decides to acquire the supplies from another source. Instead, the contracting officer would be required to "prepare a written determination that includes supporting rationale explaining the assessment of price, quality, and time of delivery, based on the results of market research comparing FPI products to those available from the private sector."
  
  If the contracting officer determines the FPI product is not comparable, the contracting officer would be permitted to acquire the product through "the fair opportunity procedures in FAR 16.505 [Ordering], if placing an order under a multiple award task or delivery order contract." Also, the contracting officer would be required to include FPI in the solicitation process and evaluated as any other offeror. This requirement would apply to small business set-asides as well.
  
  In addition, when using a multiple award schedule issued under the procedures of FAR Subpart 8.4, Federal Supply Schedules, the contracting officer would be required to "establish and communicate to FPI the requirements and evaluation factors that will be used as the basis for selecting a source, so that an offer from FPI can be evaluated on the same basis as the schedule holder; and consider a timely offer from FPI."
  
  
• Proposed DFARS 208.670, Performance as a Subcontractor, would prohibit requiring a contractor, or subcontractor at any tier, to use FPI as a subcontractor for performance of a contract.
  
  
• Proposed DFARS 208.671, Protection of Classified and Sensitive Information, would prohibit entering into any contract with FPI that allows an inmate access to any "(a) classified data; (b) geographic data regarding the location of (1) surface and subsurface infrastructure providing communications or water or electrical power distribution; (2) pipelines for the distribution of natural gas, bulk petroleum products, or other commodities; or (3) other utilities; or (c) personal or financial information about any individual private citizen, including information relating to such person's real property however described, without the prior consent of the individual."

Comments on the proposed rule must be submitted on or before July 14, 2003, to the web site at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm, or be e-mail to: dfars@acq.osd.mil.

State, Local Governments Permitted to Use FSS to Buy IT

The General Services Administration (GSA) is adding GSA Acquisition Regulation (GSAR) Subpart 538.70, Cooperative Purchasing, and making other related changes to the GSAR to implement Section 211 of the E-Government Act of 2002 (Public Law 107-347), which authorizes GSA to permit state and local governments to use its Federal Supply Schedules (FSS) for "automated data processing equipment (including firmware), software, supplies, support equipment, and services (as contained in Federal Supply Classification Code Group 70)." (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.)

On January 23, 2003, GSA published a proposed rule to establish GSAR Subpart 538.70 and associated clauses to address cooperative purchasing from FSS by eligible non-federal organizations (for more on the proposed rule, see the February 2003 Federal Contracts Perspective article "State, Local Governments Use of IT Schedules Proposed"). GSA received 24 comments on the proposed rule, and GSA concluded that the proposed rule should be converted to an interim rule with substantive changes. The interim rule modifies the proposed rule to:

• Incorporate Schedule 70 information technology (IT) special item numbers (SINs) that are included in IT "corporate" schedule contracts;
  
  
• Permit authorized state and local governments to add terms and conditions as part of the statement of work (SOW) or statement of objectives (SOO) required by the state or local government statutes, ordinances, regulations or orders to the extent that they do not conflict with the schedule contract terms and conditions (paragraph (a)(3) of GSAR 552.238-79, Use of Federal Supply Schedule Contracts by Certain Entities -- Cooperative Purchasing; and
  
  
• Revise the disputes language in proposed GSAR 552.238-79 to encourage the use of Alternative Dispute Resolution (ADR).

The introduction to the interim rule lists the IT products and services from Schedule 70 and the Corporate Schedule contracts that state and local governments are authorized to procure. GSAR 538.7002, General, states that the listing of Special Item Numbers (SINs) is also available in GSA's Schedules e-Library at http://fss.gsa.gov/elibrary -- a "COMM PURCH" logo will identify all the participating contractors and SINs available for purchase by eligible non-federal ordering activities.

GSAR 538.7001, Definitions, defines "state and local government entities," as "the states of the United States, counties, municipalities, cities, towns, townships, tribal governments, public authorities (including public or Indian housing agencies under the United States Housing Act of 1937), school districts, colleges and other institutions of higher education, council of governments (incorporated or not), regional or interstate government entities, or any agency or instrumentality of the preceding entities (including any local educational agency or institution of higher education), and including legislative and judicial departments. The term does not include contractors of, or grantees of, state or local governments." The interim rule's introduction states that the 50 states, 3139 counties, 19,365 incorporated municipalities, 30,386 minor subdivisions, 3,200 public housing authorities, 14,178 school districts, 1,625 public educational institutions of higher learning, and 550 Indian tribal governments are eligible under this definition.

The effective date for this interim rule is May 7, 2003. Comments on the interim rule are to be submitted by July 7, 2003, to General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405, or by e-mail to: gsarcase.2002-505@gsa.gov.

FAR Rewrite Proposed for Patents and Copyrights

The FAR Council is proposing that FAR Part 27, Patents, Data, and Copyrights, be rewritten to clarify, streamline, and update its guidance and the clauses required by it, to present this "complex material" more logically.

This proposed rewrite of FAR Part 27 and its associated clauses was undertaken to make the various policies and procedures in FAR Part 27 more succinct and understandable. In addition to numerous editorial and structural changes, some existing policies and procedures have been clarified to eliminate potential confusion among responsible parties and make clearer the distinction between the rights and obligations of the contractor and the government. In addition, some substantive revisions have been made to reflect changes to the various laws covering the subject matter in FAR Part 27, particularly the Bayh-Dole Act (Title 35 U.S.C. Chapter 18).

The main concept behind the Bayh-Dole Act is to allow small businesses and nonprofits to commercialize subject inventions. The Bayh-Dole Act makes the Department of Commerce responsible for issuing regulations concerning its implementation. Therefore, any changes to the FAR must conform to the Department of Commerce's regulations in Title 37 of the Code of Federal Regulations, Part 401 (37 CFR Part 401). Most of the changes pertaining to the Bayh-Dole Act and 37 CFR Part 401 are in FAR Subpart 27.3, Patent Rights Under Government Contracts.

Comments on the proposed rule are due on or before July 28, 2003, 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.1999-402@gsa.gov.

Two FAR Cost Principle Policies Proposed for Revision

The FAR Council didn't stop with the FAR Part 27 rewrite; it is also proposing to amend FAR 31.201-6, Accounting for Unallowable Costs, and FAR 31.204, Application of Principles and Procedures, to provide additional guidance on sampling criteria, and to clarify language.

The significant changes being proposed are:

• A new paragraph (c)(2) would be added to FAR 31.201-6(c)(2) which would state that "statistical sampling is an acceptable practice for accounting and presenting unallowable costs provided: (i) the statistical sampling results in an unbiased sample that accurately represents the sampling universe; and (ii) the statistical sampling permits audit verification."
  
  
• Paragraph (b) of FAR 31.204 would be revised to state that costs incurred as reimbursements or payments under the following subcontract types are allowable to the extent the reimbursements or payments are for costs incurred by the subcontractor consistent with FAR Part 31, Contract Cost Principles and Procedures: cost-reimbursement, fixed-price incentive, or price redeterminable (that is, fixed-price contracts with prospective price redetermination and fixed-ceiling-price contracts with retroactive price redetermination). Also, paragraph (b) would state that subcontract allowability requirements "apply to any tier above the first firm-fixed-price subcontract or fixed-price subcontract with economic price adjustment provisions."

Comments on the proposed rule are due on or before June 21, 2003, 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.2002-006@gsa.gov.

Executive Compensation Benchmark Raised to $405,273

Office of Federal Procurement Policy (OFPP) Administrator Angela Styles has decided to increase the "benchmark compensation amount" for senior executives by $17,490, from $387,783 to $405,273. This figure is "the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year..." Ms. Styles settled on that figure based on commercially available surveys and after consultation with the director of the Defense Contract Audit Agency.

The $405,273 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for "the five most highly compensated employees in management positions at each home office and each segment of the contractor." However, the benchmark compensation amount is not a limit on the compensation an executive may receive -- $405,273 is the maximum allowable amount the government will reimburse contractors for their senior executives' compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2003, for contractor fiscal year 2003 and subsequent contractor fiscal years unless and until revised by OMB, which is required to set the benchmark compensation amount annually.

OFPP Rolls-Out Interagency "Contract Directory"

On May 6, 2003, OFPP Administrator Angela Styles announced the roll-out of the on-line interagency Contract Directory at http://www.contractdirectory.gov, and asked agencies that manage interagency contracts to populate the database.

The Contract Directory is a single online database information about agencies' govern-mentwide acquisition contracts (GWACs), multi-agency contracts, Federal Supply Schedule (FSS) contracts, blanket purchase agreements (BPAs) under FSS contracts, and other procurement instruments intended for use by other agencies.

The Contract Directory will provide the acquisition community with a single website for general information on all interagency contracts, standardized information to facilitate market research, and a foundation for future market research across catalogs.

EDITOR'S NOTE: A proposed rule was published February 15, 2002, to add a new FAR Subpart 5.6, Publicizing Multi-Agency Use Contracts. For more on this proposed rule, see the March 2002 Federal Contracts Perspective article "Listing of Multi-Agency Contract Instruments Proposed."

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