FEDERAL CONTRACTS PERSPECTIVE
Federal Acquisition Developments, Guidance, and Opinions
Vol. V, No. 3
DFARS Transformation Gets Underway, Comments on 14 Proposed Rules Sought
DOD Enters MOU with Sweden, Suspends SDB Adjustment
Agencies to Designate Real Property Officers
FAC 2001-20 Implements Emergency Purchasing Authority
Revision Proposed for FAR Training Cost Principle
NASA to Hold Meeting on Policies and Initiatives
President Orders High Priority for Manufacturing R&D
DFARS Transformation Gets Underway,
Public Requested to Comment on 14 Proposed Rules
On February 23, the Department of Defense (DOD) commenced its "Defense Federal Acquisition Regulation Supplement (DFARS) Transformation" with the publication of 14 proposed rules intended to "improve the efficiency and effectiveness of the acquisition process and allow our acquisition workforce the flexibility to innovate."
On February 11, 2003, DOD announced the "DFARS Transformation" because the DFARS is nearly 20 years old, and the last major review was conducted in the late 1980s (see the March 2003 Federal Contracts Perspective article "DFARS 'Transformation,' Many Changes Proposed"). This on-going review is intended to determine what value-based improvements and reductions to procurement policies, procedures, and processes can be made to the DFARS. The effort could produce legislative proposals for consideration by Congress.
The following are summaries of the 14 proposed rules that would simplify the DFARS:
- Procedures, Guidance, and Information (PGI): The transformed DFARS will contain only requirements of law, DOD-wide policies, delegations of Federal Acquisition Regulation (FAR) authorities, deviations from FAR requirements, and policies and procedures that have a significant effect beyond the internal operating procedures of DOD or a significant cost or administrative affect on contractors or offerors. All mandatory and non-mandatory internal DOD procedures, non-mandatory guidance, and supplemental information will be contained in the PGI -- a DFARS companion document. Use of the PGI will enable DOD to more rapidly convey internal administrative and procedural information to the acquisition workforce.
This proposed rule would establish the framework for the PGI. The PGI will not be published in the Code of Federal Regulations, but will be available electronically at
http://www.acq.osd.mil/dp/dars/dfars.html. The DFARS at that website will contain hyperlinks to the corresponding PGI sections.
To implement the PGI, this proposed rule would add a definition of PGI to DFARS 202.101, Definitions, and revise DFARS 201.301, Policy, to reflect what the DFARS and PGI will each contain.
- Improper Business Practices and Contractor Qualifications Relating to Debarment, Suspension, and Business Ethics: This rule would consolidate the requirements for reporting violations and suspected violations of certain requirements would be into a new DFARS 203.070, Reporting of Violations and Suspected Violations, which would consist of cross-references to the corresponding Federal Acquisition Regulation (FAR) sections. This would permit the elimination of DFARS 203.103, Independent Pricing; DFARS 203.104-10, Violations or Possible Violations (this addresses procurement integrity violations); DFARS Subpart 203.2, Contractor Gratuities to Government Personnel; DFARS Subpart 203.3, Reports of Suspected Antitrust Violations; DFARS Subpart 203.4, Contingent Fees; DFARS 203.502, Subcontractor Kickbacks; and DFARS 203.570-4, Reporting (this addresses persons convicted of fraud or other defense contract-related felonies).
- Publicizing Contract Actions: This rule would update the text in DFARS Part 205, Publicizing Contract Actions. DFARS 205.470, Contractor Information to be Provided Cooperative Agreement Holders, and DFARS 205.470-1, Statutory Requirement, would be deleted as unnecessary; and the text in paragraph (d)(ii) of DFARS 205.207, Preparation and Transmittal of Synopses, which consists of a notice to be included in acquisitions being considered for historically black college and university and minority institution (HBCU/MI) set-aside, would be removed and relocated to the PGI.
- Competition Requirements: This rule would update or delete text in DFARS Part 206, Competition Requirements.
- DFARS 206.001, Applicability, would be revised to clarify that personal services contracts for health care are exempt from the competition requirements in
FAR Part 6.
- Paragraph (b) of DFARS 206.202, Establishing or Maintaining Alternative Sources, and DFARS 206.302-2, Unusual and Compelling Urgency, would be removed and relocated to the PGI.
- Paragraph (b)(4) of DFARS 206.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements; paragraph (b) of DFARS 206.303-1, Requirements; and DFARS 206.303-2, Content, would be deleted because they are unnecessary.
- Contractor Qualifications Relating to Contract Placement: This rule would delete the following from DFARS Part 209, Contractor Qualifications:
- DFARS 209.103, Policy; DFARS 209.103-70, Contract Clause; and DFARS 252.209-7000, Acquisition from Subcontractors Subject to On-Site Inspection Under the Intermediate Range Nuclear (INF) Treaty, would be deleted because they pertain to obsolete INF inspection requirements.
- DFARS 209.106-1, Conditions for Preaward Surveys; DFARS 209.106-2, Requests for Preaward Surveys; and DFARS 209.202, Policy, which contain internal DOD procedures relating to requests for pre-award surveys and approval for use of product qualification requirements, would be removed and relocated to the PGI.
- DFARS Subpart 209.3, First Article Testing and Approval, would be deleted because it contains unnecessary first article testing and approval requirements.
- Laws Inapplicable to Commercial Subcontracts: This rule would amend DFARS 212.504, Applicability of Certain Laws to Subcontracts for the Acquisition of Commercial Items, to remove the Trade Agreements Act and the Buy American Act from the list of laws that "are not applicable to subcontracts at any tier for the acquisition of commercial items or commercial components." Inclusion of these laws on the list is unnecessary because the government does not apply the restrictions of the Buy American Act or Trade Agreements Act at the subcontract level.
- Sealed Bidding: The following would be deleted from DFARS Part 214, Sealed Bidding, because they are unnecessary: DFARS 214.201-1, Uniform Contract Format; paragraph (h) of DFARS 214.407-3, Other Mistakes Disclosed Before Award, which directs that "a signed copy of the document authorizing correction of the bid [be sent] to the appropriate finance center"; and DFARS Subpart 214.5, Two-Step Sealed Bidding.
- Freedom of Information Act: This rule would delete DFARS 224.102, General, which pertains to the applicability of the Freedom of Information Act, because this issue is adequately addressed in DOD 5400.11-R, Department of Defense Privacy Program, which is referenced in DFARS 224.103, Procedures.
- Insurance: This rule would remove DFARS 228.304, Risk-Pooling Arrangements, and DFARS 228.305, Overseas Workers' Compensation and War-Hazard Insurance, and relocate them to the PGI.
- Cost Principles and Procedures: This rule would amend DFARS Subpart 231.2, Contracts with Commercial Organizations, to delete or update several cost principles:
- DFARS 231.205-10, Cost of Money, would be deleted because it is redundant to DFARS Subpart 230.70, Facilities Capital Employed for Facilities in Use.
- DFARS 231.205-22, Legislative Lobbying Costs, would be revised to specifically state that costs associated with preparing any material, list, or analysis on the actual or projected economic or employment impact in a state or congressional district of an acquisition plan is unallowable.
- DFARS 231.205-70, External Restructuring Costs, would be amended to eliminate from paragraph (a) unnecessary references to fiscal years 1995, 1997, and 1998 legislation; delete paragraphs (c)(1)(iv)(A) and (B) regarding business combinations that occurred on or before November 18, 1997; and remove paragraph (d), which addresses procedures and administrative contracting officer responsibilities, and relocate it to the PGI.
- Major Systems Acquisition: This rule would amend DFARS Part 234, Major Systems Acquisition, and DFARS Subpart 242.11, Production Surveillance and Reporting, be amended to update the text pertaining to major systems acquisition, earned value management systems (EVMS), and cost/schedule status reporting.
- DFARS 234.001, Definitions, would be deleted because the terms it contains, "systems" and "systems acquisition" are not used in DFARS Part 234.
- Coverage on EVMS would be moved from DFARS Part 234 to DFARS Part 242 since EVMS requirements are not limited to major systems acquisition (the EVMS thresholds specified in DOD Instruction (DODI) 5000.2, Operation of the Defense Acquisition System, do not cleanly equate to major or other than major systems). Therefore, DFARS 234.005-70, Earned Value Management Systems, would be deleted and replaced with a cross-reference to DFARS 242.1106, Reporting Requirements (but see below); DFARS 234.005-71, Solicitation Provisions and Contract Clause, would be relocated to paragraph (a) of DFARS 242.1107-70, Solicitation Provision and Contract Clause; DFARS 252.234-7000, Notice of Earned Value Management System, and DFARS 252.234-7001, Earned Value Management System, would be redesignated as DFARS 252.242-7XXX and 7YYY, respectively; and the prescriptions for DFARS 252.242-7005, Cost/Schedule Status Report, and DFARS 252.242.7006, Cost/Schedule Status Report Plans, in DFARS 242.1107-70 would be amended to remove text that limits their use to other than major systems.
- Removal of Obsolete Research and Development Contracting Procedures: This rule would delete DFARS Subpart 235.70, Research and Development Streamlined Contracting Procedures, which contains procedures for acquiring research and development using a standard solicitation and contract format and "the capabilities of the World Wide Web." These procedures have become obsolete due to advances in technology since their creation.
- Research and Development Contracting: This rule would update DFARS Part 235, Reseach and Development Contracting, as follows:
- DFARS 235.007, Solicitation, which states that the contracting officer is permitted to include in the solicitation the government's estimate of the man-year effort required for the research contract, would be deleted because it is unnecessary.
- DFARS 235.010, Scientific and Technical Reports, which addresses the maintenance of scientific and technical reports, would be removed and relocated to the PGI.
- DFARS 252.235-7011, Final Scientific or Technical Report, would be revised to update the administrative information for submitting reports in other than paper copy by adding "or follow the instructions at http://www.dtic.mil" (the Defense Technical Information Center website).
Also, though no change is proposed to DFARS 235.015-70, Special Use Allowance for Research Facilities Acquired by Educational Institutions, DOD is seeking comment on the currency and use of the text.
- Contractor Use of Government Supply Sources: This rule would amend DFARS Subpart 251.1, Contractor Use of Government Supply Sources, to update or delete text:
- Most of DFARS 251.102, Authorization to Use Government Supply Sources, which contain procedures for authorizing a contractor to use government supply sources, would be removed and relocated to the PGI.
- DFARS 251.105, Payment for Shipments, which states that contractor payments for purchases from DOD supply sources are due within 30 days of the date of a proper invoice, would be deleted.
Comments on all these proposed rule must be submitted on or before April 23, 2004, to the website at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; e-mail to firstname.lastname@example.org, or by fax to 703-602-0350.
DOD Enters MOU with Sweden, Suspends SDB Adjustment
Besides the 14 "DFARS Transformation" proposed rules, DOD took two other acquisition-related actions the past month:
- Memorandum of Understanding (MOU) with Sweden: DFARS 225.872, Contracting with Qualifying Country Sources, is amended to reflect a determination by the Deputy Secretary of Defense that it is inconsistent with the public interest to apply the restrictions of the Buy American Act to the acquisition of defense equipment produced or manufactured in Sweden. To implement this determination, DFARS 225.872-1, General, is amended to add Sweden to the list of countries for which DOD has made such public interest determinations (paragraph (a)), and to remove Sweden from the list of countries for which exemption from the Buy American Act is permitted only on a purchase-by-purchase basis (paragraph (b)).
- Suspension of the Price Evaluation Adjustment for Small Disadvantaged Businesses (SDBs): On January 23, 2004, Director of Defense Procurement and Acquisition Policy Deidre Lee issued a memorandum suspending until February 24, 2005, the use of the 10% price evaluation adjustment for SDBs prescribed in FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns. FAR Subpart 19.11 provides for the application of a price evaluation adjustment to competitive offers of SDBs that exceed the $100,000 simplified acquisition threshold and are not set aside for small businesses in industries determined by the Department of Commerce to have "persistent and significant underutilization of minority firms." The Department of Commerce has determined that a 10% price evaluation adjustment is appropriate for 56 industries (the list is on the Internet at http://www.arnet.gov/References/sdbadjustments.htm).
This action was taken to comply with Section 801 of the National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261), which prohibits the Department of Defense (DOD) from paying a price that exceeds the fair market cost if the secretary of defense determines that DOD achieved its 5% goal for contract awards to SDBs in the most recent fiscal year.
Since the secretary of defense determined that DOD exceeded the 5% goal during fiscal year 2003, the use of the 10% price evaluation adjustment had to be suspended, as it has been since February 24, 2000.
Agencies to Designate Real Property Officers
On February 4, 2004, President Bush issued Executive Order (EO) 13327, Federal Real Property Asset Management, directing each agency to designate senior real property officer who will be responsible for developing and implementing "an agency asset management planning process." The senior real property officer's plan is to "(i) identify and categorize all real property owned, leased, or otherwise managed by the agency...; (ii) prioritize actions to be taken to improve the operational and financial management of the agency's real property inventory; (iii) make life-cycle cost estimations associated with the prioritized actions; (iv) identify legislative authorities that are required to address these priorities; (v) identify and pursue goals, with appropriate deadlines, consistent with and supportive of the agency's asset management plan and measure progress against such goals; (vi) incorporate planning and management requirements for historic property...and for environmental management...; and (vii) identify any other information and pursue any other actions necessary to the appropriate development and implementation of the agency asset management plan."
FAC 2001-20 Implements Emergency Purchasing Authority
Federal Acquisition Circular (FAC) 2001-20 consists of a single interim rule that amends the FAR to implement the special emergency procurement authorities of Section 1443 of Public Law 108-136, the National Defense Authorization Act for Fiscal Year 2004 (for more on Section 1443 and other acquisition-related provisions of Public Law 108-136, see the December 2003 Federal Contracts Perspective article "Services Acquisition Reform Act Signed Into Law, Establishes Training Fund, Chief Acquisition Officer").
Section 1443 provides that, for all acquisitions that support a contingency operation or facilitate the defense against or recovery from nuclear, biological, chemical, or radiological attack against the United States:
- The micro-purchase threshold is increased from $2,500 to $15,000;
- The simplified acquisition threshold is increased from $100,000 to $250,000 when the contract is to be awarded and performed inside the United States, and to $500,000 for contracts to be awarded and performed outside the United States;
- Such acquisitions are considered to be for commercial items, regardless of dollar amount; and
- The limitation on the authority in FAR Subpart 13.5, Test Program for Certain Commercial Items, for contracting officers to use FAR Part 13 simplified acquisition procedures when acquiring commercial items is increased from $5,000,000 to $10,000,000. However, acquisitions for supplies or services covered by this section that are in excess of $15,000,000 and are awarded on a sole source basis are not exempt from cost or pricing data requirements (see FAR Subpart 15.4, Contract Pricing), or the Cost Accounting Standards (see Chapter 99 of Title 48 of the Code of Federal Regulations and FAR Part 30, Cost Accounting Standards Administration).
This interim rule implements Section 1443 by revising the definitions of "micro-purchase threshold" and "simplified acquisition threshold" in FAR 2.101, Definitions; and revising various sections in FAR Part 12, Acquisition of Commercial Items, FAR Part 13, Simplified Acquisition Procedures, FAR Part 15, Contracting By Negotiation, FAR Part 19, Small Business Programs, and FAR Part 25, Foreign Acquisition, to reflect these changes. In addition, paragraph (b)(3) of FAR 19.805-1, General, and paragraph (c) of FAR 19.1306, HUBZone Sole Source Awards, are deleted because they address the authority in the Homeland Security Act, which expired November 23, 2003. Section 1443 replaces that authority.
The effective date of this interim rule is February 23, 2004. Comments on the interim rule must be submitted on or before April 23, 2004, to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or by e-mail to
Revision Proposed for FAR Training Cost Principle
On January 29, the FAR Council published a proposed rule that would amend FAR 31.205-44, Training and Education Costs, to improve its clarity. Currently, FAR 31.205-44 is restrictive in that it differentiates between vocational training, part-time college level education, full-time education, and specialized programs with numerous specific limitations on the allowability of costs associated with each of these categories.
On May 15, 2002, a proposed rule was published to make the costs associated with training and education allowable, subject to five public policy exceptions that would be retained from the current cost principle (see the June 2002 Federal Contracts Perspective article "Training and Education Cost Principle Changes Proposed"). The 2002 proposed rule stated that, except for those five expressly unallowable cost exceptions, the reasonableness of specific contractor training and education costs would be determined by FAR 31.201-3, Determining Reasonableness.
Six respondents submitted comments on the May 15, 2002, proposed rule, and additional changes are being proposed in response to those comments. The primary differences between the two proposed rules involve undergraduate- and graduate-level education:
- The current FAR 31.205-44 and the language in the first proposed rule disallow full-time undergraduate level education costs, but implicitly allow part-time undergraduate level education costs. This restriction could induce some employees to slow their education for no useful purpose. Therefore, the disparate treatment of full-time and part-time undergraduate education has been eliminated in this new proposed rule.
- One of the original proposed exceptions lumped together full-time undergraduate and graduate education expenses (including salaries of students attending such training), and salaries of students attending undergraduate and graduate training on a part-time basis. To simplify the cost principle, this one exception has been split into two:
"(c) The cost of salaries for attending undergraduate level classes or part-time graduate level classes during working hours is unallowable, except when unusual circumstances do not permit attendance at such classes outside of regular working hours.
"(d) Costs of tuition, fees, training materials and textbooks, subsistence, and salary and any other costs in connection with full-time graduate level education are unallowable, except where the course or degree pursued is related to the field in which the employee is working or may reasonably be expected to work and is limited to a total period not to exceed 2 school years or the length of the degree program, whichever is less, for each employee so trained."
Comments on the proposed rule must be submitted on or before April 23, 2004, to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or by e-mail to email@example.com.
NASA to Hold Meeting on Policies and Initiative
The National Aeronautics and Space Administration (NASA) will conduct an open meeting on March 18 to solicit questions, views, and opinions concerning NASA's procurement policies, practices, and initiatives. The purpose of the meeting is to have an open discussion among NASA's Associate Administrator for Procurement, Tom Luedtke, industry, and the public. The meeting will be held March 18, 2004, from 9:00 am to 11:30 am at the Marshall Space Flight Center, Morris Auditorium, Building 4200, Huntsville, AL 35812. The auditorium capacity is approximately 90 persons. To ensure adequate seating, a maximum of two representatives per firm is requested. Admittance will be on a first-come, first-served basis.
President Orders High Priority for Manufacturing R&D
On February 24, 2004, President Bush issued EO 13329, Encouraging Innovation in Manufacturing, to give high priority to manufacturing-related research and development (R&D) within the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs.
Because "continued technological innovation is critical to a strong manufacturing sector in the United States economy," and to help "advance innovation, including innovation in manufacturing, through small businesses," the president is directing the agencies participating in the SBIR and STTR programs to "give high priority within such programs to manufacturing-related research and development," and to submit annual reports to the Small Business Administration (SBA) administrator and the Office of Science and Technology Policy director concerning their efforts to implement the order. The SBA administrator is authorized to issue guidelines and directives needed to implement the order after such guidelines and directives are approved by the Office of Science and Technology Policy director and the president.
EDITOR'S NOTE: The purpose of the SBIR program is to strengthen the role of innovative small businesses in federally-funded R&D. The program applies to all agencies with R&D budgets of more than $100 million to set aside at least 2.5% of their R&D budgets for businesses with no more than 500 employees. The ten agencies currently participating in the SBIR program are the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, and Transportation; the Environmental Protection Agency; the National Aeronautics and Space Administration; and the National Science Foundation.
The STTR program is similar to the SBIR program. Its purpose is to stimulate a partnership of ideas and technologies between innovative small businesses and research institutions through federally-funded research or R&D. The STTR program requires all agencies with research/R&D budgets of more than $1 billion to set aside at least 0.3% of their research/R&D budgets for businesses with no more than 500 employees. The five agencies currently participating in the STTR program are the Departments of Defense, Energy, and Health and Human Services; the National Aeronautics and Space Administration; and the National Science Foundation.
In Fiscal Year 2003, there was approximately $1.1 billion awarded through the SBIR program, and $100 million awarded through the STTR program.
For more on the SBIR program, see the October 2002 Federal Contracts Perspective article "SBA Revising SBIR Program Policies." For more information on both these programs, see the SBA website at http://www.sba.gov/sbir/indexsbir-sttr.html.
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