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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

February 2004
Vol. V, No. 2

FAC 2001-19 Delays SF 330 Implementation, Revises Trade Agreements Thresholds
Proposed FAR Rules on Electronic Reps and Certs, COTS
OMB Releases Second Set of 2003 FAIR Act Inventories
DFARS Changes Address Payments, Unique Item IDs
Size Standard Set for IT Vendors, Testing Laboratories
NASA Continues Proposed NFS Reissuance
Prompt Payment Interest Rate Set at 4%
M&O Contracts Competition

FAC 2001-19 Delays SF 330 Implementation,
Revises Thresholds for Free Trade Agreements

On January 7, 2004, Federal Acquisition Circular (FAC) 2001-19 was issued, amending the Federal Acquisition Regulation (FAR) to delay the effective date of the new Standard Form (SF) 330, Architect-Engineer Qualifications, to implement the Chile Free Trade Agreement and the Singapore Free Trade Agreement, and to revise the trade agreements thresholds as determined by the United States Trade Representative (USTR).

Delay in SF 330, Architect-Engineer Qualifications Effective Date: FAC 2001-18 replaced the SF 254, Architect-Engineer and Related Services Questionnaire, and the SF 255, Architect-Engineer and Related Services Questionnaire for Specific Projects, with the SF 330, Architect-Engineer Qualifications (see the January 2004 Federal Contracts Perspective article "FAC 2001-18 Implements New A-E Qualifications Form, Electronic Procurement Data Reporting"). The effective date of the SF 330 and the related FAR changes was to be January 12, 2004. However, the architect-engineer industry has requested that the effective date be changed to allow them more time to prepare before the SF 330 is effective. Therefore, the effective date for use of the SF 330 is changed to June 8, 2004. Agencies are to continue to use the SF 254 and SF 255 until the SF 330 becomes effective.

Chile and Singapore Free Trade Agreements, and Trade Agreements Thresholds: This interim rule amends FAR Part 25, Foreign Acquisitions, and the related clauses in FAR Part 52 to implement the the United States-Chile Free Trade Agreement Implementation Act (USCFTA) (Public Law 108-77) and United States-Singapore Free Trade Agreement Implementation Act (USSFTA) (Public Law 108-78). In addition, this rule implements new dollar thresholds for application of trade agreements as directed by the USTR (see the January 2004 Federal Contracts Perspective article "Trade Agreements Act and NAFTA Thresholds Revised").

To implement the USCFTA and the USSFTA, the term "North American Free Trade Agreement" (NAFTA) is replaced by the term "Free Trade Agreements" (FTA), which encompasses NAFTA, USCFTA, USSFTA, and any future free trade agreements into which the United States may enter (FAR 25.003, Definitions, and FAR 25.400, Scope of Subpart). In addition, "NAFTA country" and "NAFTA country end product" have been replaced in FAR 25.003 with "Free Trade Agreement country" and "Free Trade Agreement country end product."

In addition, the definition of "eligible product" in FAR 25.003 is modified to include services. Although services are not subject to the Buy American Act, the trade agreements "specify procurement procedures designed to ensure fairness" unless the service is excluded by the trade agreement (see paragraph (b) of FAR 25.401, Exceptions). Since the Trade Agreements Act requires that "only U.S.-made end products or U.S. services, or eligible products, including services, may be acquired," paragraph (a) of FAR 25.402, General, now directs the contracting officer to "determine the origin of services by the country in which the firm providing the services is established." This expands the concept that had been in paragraph (c) of FAR 25.405, North American Free Trade Agreement (NAFTA) (FAR 25.405 is renamed "Free Trade Agreements (FTA)" as indicated above).

Finally, to implement the USTR's decision to adjust the U.S. dollar thresholds for the application of the Trade Agreements Act and NAFTA, this interim rule adjusts the thresholds throughout FAR Part 25, and provides the following table of the various thresholds in FAR 25.402(a) "because of the increasing number of trade agreements and thresholds":

Trade Agreement	Supply Contract (equal to or exceeding)	Service Contract (equal to or exceeding)	Construction (equal to or exceeding)
Trade Agreements Act and Caribbean Basin Trade Initiative	$175,000	$175,000	$6,725,000
FTAs
NAFTA -- Canada	$25,000	$25,000	$7,611,532
NAFTA -- Mexico	$58,550	$58,550	$7,611,532
Chile FTA	$58,550	$58,550	$6,725,000
Singapore FTA	$58,550	$58,550	$6,725,000
Israeli Trade Act	$50,000	--	--

EDITOR'S NOTE: The Department of Defense (DOD) amended its Defense FAR Supplement (DFARS) to make corresponding changes. DOD has to do this because Congress has developed an entire body of legislation (primarily provisions in authorization and appropriations acts) that applies only to DOD and not to the rest of the government. Congress created this DOD-particular body of legislation because it gives DOD so much money to spend each year, and Congress wants to make sure that as much of that money is spent domestically. This is why DOD has its own extensive DFARS Part 225 and separate contract clauses, and why DOD has to issue a separate rule that makes the same changes to the DFARS that were made to the FAR -- FAR Part 25 and the FAR clauses do not reflect all the additional requirements and exceptions that apply to DOD.

Proposed FAR Rules on Electronic Reps and Certs, COTS

In addition to FAC 2001-19, there were five proposed FAR changes published recently:

Electronic Representations and Certifications: This proposed rule would amend the FAR to require offerors to submit representations and certifications electronically through the Business Partner Network (BPN) (http://www.bpn.gov) annually unless certain exceptions apply.

Currently, the FAR requires bidders and offerors to complete certain representations and certifications for each bid or offer they submit. One of the Integrated Acquisition Environment (IAE) e-Gov initiative's purposes is to eliminate the administrative burden on offerors who must submit the same information to various contracting offices. BPN is one of the components of the IAE.

This proposed rule would amend the FAR to require that representations and certifications be completed on-line through the Online Representations and Certifications Application (ORCA) portion of the BPN at least annually, and these representations and certifications would be available to contracting officers throughout the government. Offerors would be able to make changes that affect only one solicitation by completing the appropriate section of certain solicitation provisions. As part of this process, ORCA will use certain information that a contractor has already provided in the Central Contractor Registration (CCR) database (http://www.ccr.gov). Therefore, this requirement would apply only to bidders and offerors that are required to register in the CCR database -- since those with classified contracts, foreign vendors performing work outside the U.S., and others are not required to be in CCR, they would be exempt from the annual representations and certifications requirement. (EDITOR'S NOTE: For more on the exceptions to the CCR requirement (and the ORCA requirement), see the November 2003 Federal Contracts Perspective article "CCR Registration, Unique Contract Numbers Required.")

Comments on the proposed rule must be submitted by March 29, 2004, to General Services Administration, FAR Secretariat (MVP), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405.
Commercially Available Off-the-Shelf (COTS) Items: This proposed rule would identify "commercially available off-the-shelf" (COTS) items as a subset of "commercial items," and would identify the provisions of law that are inapplicable to contracts for COTS.

FAR 2.101, Definitions, would be amended to add the following definition of COTS: "COTS (1) is a subset of a commercial item and means any item of supply that is (i) a commercial item (as defined in this section); (ii) sold in substantial quantities in the commercial marketplace; and (iii) offered to the government, without modification, in the same form in which it is sold in the commercial marketplace; [and] (2) does not include bulk cargo...such as agricultural products and petroleum products."

FAR 12.505, Applicability of Certain Laws to Contracts and Subcontracts for the Acquisition of COTS Items, would be added. It would cite the laws that are "not applicable to contracts or subcontracts, at any tier, for the acquisition of COTS items." While most of the cited laws are either included in FAR 12.503, Applicability of Certain Laws to Executive Agency Contracts for the Acquisition of Commercial Items, or FAR 12.504, Applicability of Certain Laws to Subcontracts for the Acquisition of Commercial Items, COTS items would be exempt from eight additional laws, such as the Trade Agreements Act, the Buy American Act, and Affirmative Action for Handicapped Workers.

FAR 52.212-XX, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercially Available Off-the-Shelf (COTS) Items, would be added. It would be similar to FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items, except the contracting officer would not be able to make ten additional clauses applicable to contracts for COTS items, including FAR 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans; FAR 52.225-1, Buy American Act -- Supplies; or FAR 52.225-5, Trade Agreements. Furthermore, only FAR 52.219-8, Utilization of Small Business Concerns (but only in subcontracts that offer further subcontracting opportunities), and FAR 52.222-26, Equal Opportunity, would be required to be flowed-down to subcontractors.

Comments on the proposed rule must be submitted by March 15, 2004, to the above address.
Labor Standards for Contracts Involving Construction: This proposed rule would amend FAR Subpart 22.4, Labor Standards for Contracts Involving Construction, and corresponding clauses in FAR Part 52 to implement the Department of Labor's (DOL) revised definitions of "construction" and "site of the work," to clarify several definitions relating to labor standards for contracts involving construction, and to make requirements for flow-down of labor clauses more precise (for more on the DOL revised definitions, see the February 2001 Federal Contracts Perspective article "Labor Revises Davis-Bacon, Service Contract Act Regs").

FAR 22.401, Definitions, would be revised as follows:
- The definitions of "apprentice" in paragraph (2)(i) of the "laborers or mechanics" definition, and "trainee" in paragraph (2)(ii) of the "laborers or mechanics" definition would become separate definitions.
- The definition of "construction, alteration, or repair" would be revised to: "All types of work done by laborers and mechanics employed by the construction contractor or construction subcontractor on a particular building or work at the site thereof, including without limitations -- (l) altering, remodeling, installation (if appropriate) on the site of the work of items fabricated off-site; (2) painting and decorating; (3) manufacturing or furnishing of materials, articles, supplies, or equipment on the site of the building or work; (4) transportation of materials and supplies between the site of the work...and a facility which is dedicated to the construction of the building or work and is deemed part of the site of the work...; and (5) transportation of portions of the building or work between a secondary site where a significant portion of the building or work is constructed, which is part of the 'site of the work' definition..., and the physical place or places where the building or work will remain..." (emphasis added).
- The definition of "site of the work" would be revised to state that the definition covers "any secondary site where a significant portion of the building or work is constructed, provided that such site is established specifically for the performance of the contract or project."
Also, new FAR 52.222-XX, Davis-Bacon Act -- Secondary Site of the Work, would be added, and it would be required to be included in solicitations in excess of $2,000 for construction within the United States. If the offeror intends to perform work at any secondary site and the wage determination provided by the government for work at the primary place of performance is not applicable to the secondary site(s), it would require the offeror to either (1) obtain a general wage determination for the secondary site from the Internet and provide it to the government for inclusion in any subsequent contract (see the December 2003 Federal Contracts Perspective article "Wage Determination On-Line Program Inaugurated"); or (2) if a general wage determination is not available for the secondary site, request that the contracting officer obtain a project wage determination from DOL. "The offeror should request the project wage determination for the secondary site as soon as possible. The due date for receipt of offers will not be extended as a result of an offeror's request for a project wage determination for a secondary site of the work."

Comments on the rule must be submitted by February 23, 2004, to the above address.
Definitions Clause: FAR 52.202-1, Definitions, is an incomplete list of definitions applicable to the provisions and clauses -- it contains definitions only for "agency head," "commercial component," "commercial item," "component," "contracting officer," "nondevelopmental item," and "subcontracts." In contrast, FAR 2.101, Definitions, contains almost 200 definitions. Therefore, FAR 52.202-1 would be revised to state that, if a solicitation provision or contract clause uses a word or term defined in FAR 2.101, that definition governs unless: (1) the solicitation provides a different definition; (2) the contracting parties agree to a different definition; (3) the part, subpart, or section of the FAR where the provision or clause is prescribed provides a different meaning; or (4) the word or term is defined in FAR Part 31, Contract Cost Principles and Procedures, for use in the cost principles and procedures.

Comments on the proposed rule must be submitted by March 22, 2004, to the above address.
Standard Transportation Industry Practices: This proposed rule would amend the FAR to implement changes resulting from the Federal Management Regulation (FMR) amendments in 2000 and 2001 that retired the Standard Forms 1103 and 1203, Government Bill of Lading, for domestic freight and household goods shipments, and required the use of commercial bills of lading (CBLs) for domestic shipments. To implement these changes, the following changes to the FAR would be made:
- New paragraph (a) would be added to FAR 47.101, Policies, and it would state, "For domestic shipments, the contracting officer shall authorize shipments on commercial bills of lading (CBL's). Government bills of lading (GBL's) may be used for international or noncontiguous domestic trade shipments or when otherwise authorized."
- FAR 47.103, Transportation Payment and Audit Regulation, which currently states that the GBL "shall generally be used for the transportation of property of the United States for which the government pays the transportation charges directly to commercial carriers," would be revised to reference FMR Part 102-118, Transportation Payment and Audit, as the applicable regulation "governing the bill of lading, documentation, payment, and audit of transportation services acquired by the United States government" (proposed FAR 47.103-1, General).
Comments on the proposed rule must be submitted by March 29, 2004, to the above address.

OMB Releases Second Set of 2003 FAIR Act Inventories

On January 23, the Office of Management and Budget (OMB) released the second set of Fiscal Year 2003 Commercial Activities Inventories of non-governmental functions being performed by government agencies. Inventories in this second set are from the Departments of Defense, Energy, Health and Human Services, Homeland Security, Labor, State, and Transportation; the Environmental Protection Agency; General Services Administration; and Small Business Administration.

For more on the first set of FY 2003 inventories, see the December 2003 Federal Contracts Perspective article "OMB Releases First Set of 2003 FAIR Act Inventories."

DFARS Changes Address Payments, Unique Item IDs

The Department of Defense was busy this past month as well, issuing two final rules and one interim rule (in addition to the Chile/Singapore interim rule mentioned above):

Electronic Submission and Processing of Payment Requests: This rule finalizes, with changes, the interim rule that added DFARS Subpart 232.70, Electronic Submission and Processing of Payment Requests, to implement Section 1008 of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398), which requires contractors to submit, and DOD to process, payment requests in electronic form (for more on the interim rule, see the March 2003 Federal Contracts Perspective article "DFARS 'Transformation,' Many Changes Proposed").

The primary difference between the interim and final versions is: (1) paragraph (b) of DFARS 232.7002, Policy, is amended to state, "Scanned documents are acceptable forms for processing supporting documentation"; and (2) the definition of "electronic form" in DFARS 252.232-7003(a)(2) is amended by revising "Facsimile, e-mail, and scanned documents are not acceptable electronic forms" to "Facsimile, e-mail, and scanned documents are not acceptable electronic forms for submission of payment requests. However, scanned documents are acceptable when they are part of a submission of a payment request made using one of the electronic forms provided for in paragraph (b) of this clause" (that is, Wide Area WorkFlow -- Receipt and Acceptance (WAWF-RA), Web Invoicing Systems (WInS), American National Standards Institute (ANSI) X.12 electronic data interchange formats, or another electronic form authorized by the contracting officer). (EDITOR'S NOTE: The introduction to the final rule states, "Training is readily available for contractors and DOD personnel from numerous Internet sources, including the WAWF-RA site at http://www.wawftraining.com; for DCMA at http://www.dcma.mil (click on 'Electronic Invoicing'); for DFAS at http://www.dfas.mil/ecedi; and for DISA at http://www.disa.mil/acq/wawf/index.html and https://wawf-ra.slidell.disa.mil.")
Payment Withholding: This final rule provides the administrative contracting officer (ACO) additional flexibility when determining the need to withhold payments under time-and-materials and labor-hour contracts.

FAR 52.232-7, Payments Under Time-and-Materials and Labor-Hour Contracts, requires the ACO to withhold 5% of the amounts due, up to a maximum of $50,000, unless otherwise specified in the contract schedule. 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 adds DFARS 252.232-7006, Alternate A, which permits the ACO to direct contractors performing time-and-materials or labor-hour contracts 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 (DFARS 252.232-7006 is actually a substitute paragraph (a)(2) for FAR 52.232-7).

In addition, the prescription for DFARS 252.232-7006, in DFARS 232.111, Contract Clauses for Non-Commercial Purchases, states, "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."

For more on the proposed rule being finalized, see the April 2003 Federal Contracts Perspective article "5% Withholding on T&M Contracts Proposed for Removal."
Unique Item Identification and Valuation: This interim rule amends DFARS 211.274, Item Identification and Valuation, and DFARS 252.211-7003, Item Identification and Valuation, because of "difficulties and confusion" caused by the interim rule published October 10, 2003, that required unique item identification and valuation of items with an acquisition cost of $5,000 or more (see the November 2003 Federal Contracts Perspective article "DFARS Changes on Task Orders, Unique Item IDs").

The following are the significant differences between the first and second interim rules:
- The policy in DFARS 204.7104-1, Criteria for Establishing, and DFARS 204.7104-2, Numbering Procedures, on contract line and subline item number structure, is removed.
- DFARS 211.274-1, Item Identification, and DFARS 252.211-7003 are revised to clarify that (1) all items over $5,000 require unique identification, (2) items under $5,000 requiring unique identification must be identified in DFARS 252.211-7003, and (3) embedded items that require unique identification will be identified in a Contract Data Requirements List or other exhibit that is cited in DFARS 252.211-7003.
- The definition of "item" in DFARS 252.211-7003 is revised to "a single hardware article or unit formed by a grouping of subassemblies, components, or constituent parts required to be delivered in accordance with the terms and conditions of this contract." This change is to clarify that software developed under research and development contracting is not considered an "item" (the original definition did not address software).
Comments on the interim rule must be submitted by March 1, 2004, to the website at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; by e-mail to dfars@acq.osd.mil; by fax to 703-602-0350; or Defense Acquisition Regulations Council, Attn: Steven Cohen, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062.

Size Standard Set for IT Vendors, Testing Laboratories

The Small Business Administration (SBA) established two small business size standards and terminated two nonmanufacturing rule waivers:

Information Technology Value Added Resellers (ITVARs): A new industry category is established for ITVARs under North American Industry Classification System (NAICS) code 541519, Other Computer Related Services, with 150 employees as the small business size standard for the industry. The rest of NAICS 541519 retains its $21 million size standard. For more on the reasons for the change, see the August 2002 Federal Contracts Perspective article "SBA Proposes Small Business Size Standard Changes."
Testing Laboratories: The size standard for testing laboratories under NAICS code 541380 is increased from $6,000,000 to $10,000,000 in average annual receipts. For more on the reasons for the change, see the May 2002 Federal Contracts Perspective article "SBA Proposes Increasing Testing Labs' Size Standard."
Termination of Nonmanufacturer Rule Waivers: The "nonmanufacturer rule" waivers for ammunition (except small arms) manufacturing within NAICS code 332993, and small arms manufacturing within NAICS code 332994, are terminated because of the existence of small business manufacturers. These waiver terminations will require recipients of contracts set aside for small or 8(a) businesses to provide the products of small business manufacturers or processors on such contracts.

NASA Continues Proposed NFS Reissuance

The National Aeronautics and Space Administration (NASA) continued its effort to reduce the NASA FAR Supplement (NFS) by proposing to eliminate all internal administrative procedures in NFS Parts 1813 through 1825 and retaining only the information that involves the relationship between NASA and its contractors. NASA is proposing to remove the following subparts: 1813.1, 1814.4, 1816.1, 1816.6, 1817.1, 1817.4, 1817.5, 1817.70, 1817.72, 1819.5, 1819.6,1819.8, 1822.3, 1822.4, 1822.6, 1822.8, 1822.10, 1822.13, 1822.14, 1822.15, 1823.3, 1823.4, 1823.7, 1824.2, 1825.10, and 1825.70. In addition, many NFS sections in NFS Parts 1813 through 1825 would be removed.

Comments on the proposed rule (NFS Parts 1813 through 1817, and NFS Part 1819 through 1825) should be submitted on or before February 20, 2004, to Celeste Dalton, NASA, Office of Procurement, Contract Management Division (Code HK), Washington DC 20546 or by e-mail to: Celeste.M.Dalton@nasa.gov. (For more on the NASA proposal to revise NFS Parts 1801 through 1812, see the December 2003 Federal Contracts Perspective article "NASA FAR Supplement Reissuance Proposed."

Prompt Payment Interest Rate Set at 4%

The Treasury Department has established 4% (4.0%) as the interest rate for the computation of payments made between January 1 and June 30, 2004, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (July 1 through December 31, 2003), was 3 1/8% (3.125%). The interest rate for January 1 through June 30, 2003, was 4 1/4% (4.25%).

FAR Subpart 32.9, Prompt Payment; FAR Subpart 33.2, Disputes and Appeals; FAR 31.205-10, Cost of Money; and Cost Accounting Standard (CAS) 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, are affected by this interest rate.

M&O Contracts Competition

On January 27, Secretary of Energy Spenser Abraham announced his decision to compete the management and operating (M&O) contracts for the following national laboratories when the current contracts expire:

Ames National Laboratory; Iowa (expires December 2004)
Argonne National Laboratory; Illinois (expires September 2004)
Lawrence Berkeley National Laboratory; California (expires January 2004)
Lawrence Livermore National Laboratory; California (expires September 2005)
Los Alamos National Lab; New Mexico (expires September 2005)

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