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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

July 2004
Vol. V, No. 7

CONTENTS

FAC 2001-24 Amends Federal Supply Schedule Rules
To Add Procedures for Acquiring Services

Finally coming to the realization that the Federal Supply Schedules should really be called the "Federal Service Schedules," Federal Acquisition Circular (FAC) 2001-24 amends Federal Acquisition Regulation (FAR) Subpart 8.4, Federal Supply Schedules, to incorporate policies for services and to strengthen the procedures for establishing blanket purchase agreements (BPAs) under the Schedules. In addition, FAC 2001-24 exempts 10 new European Union countries from the provisions of the Buy American Act; adds five commodities as "nonavailable articles" that may be acquired without regard to the restrictions of the Buy American Act; and makes several other miscellaneous changes to the FAR.

• Federal Supply Schedules Services: On April 18, 2003, a proposed rule was published that would reorganize and incorporate the "special ordering procedures" developed by the General Services Administration (GSA) for the Federal Supply Schedules (FSS) (see the May 2003, Federal Contracts Perspective article "Proposed FAR Change Would Tighten FSS Procedures, Address Services 'Priced at Hourly Rates'"). Thirty-four respondents submitted comments, and the proposed rule is adopted as final with changes. The following are the significant changes being made to FAR Subpart 8.4 (differences between the proposed and final rules are indicated):
  
  
  • FAR 8.402, General, provides an overview of the FSS program ("also known as the GSA Schedules Program or the Multiple Award Schedule Program"). It alerts ordering offices that "GSA offers an on-line shopping service called 'GSA Advantage!' through which ordering activities may place orders against Schedules [http://www.gsaadvantage.gov]...e-Buy, GSA's electronic Request for Quotation (RFQ) system...allows ordering activities to post requirements, obtain quotes, and issue orders electronically. Ordering activities may access e-Buy at http://www.ebuy.gsa.gov."
    
    
  • Paragraph (a) of FAR 8.404, Use of Federal Supply Schedules, states, "when establishing a BPA [blanket purchase agreement]...or placing orders under Federal Supply Schedule contracts using the procedures of [FAR] 8.405 [Ordering Procedures for Federal Supply Schedules], ordering activities shall not seek competition outside of the Federal Supply Schedules or synopsize the requirement" (the proposed rule stated, "...ordering offices need not seek further competition, synopsize the requirement, or consider small business programs").
    
    Paragraph (b) states that the ordering contracting officer "is responsible for applying the regulatory and statutory requirements applicable to the agency for which the order is placed or the BPA is established."
    
    Paragraph (d) reminds agencies that "although GSA has already negotiated fair and reasonable pricing, ordering activities may seek additional discounts before placing an order" (this is added as part of the final rule).
    
    
  • FAR 8.405-1, Ordering Procedures for Supplies, and Services Not Requiring a Statement of Work, applies to "ordering supplies and services that are listed in the schedule contracts as a fixed price for the performance of a specific task (e.g., installation, maintenance and repair)."
    
    
  • FAR 8.405-2, Ordering Procedures for Services Requiring a Statement of Work, addresses ordering procedures for services "priced at hourly rates." For such services, ordering offices are required to:
    
    
    • Develop a statement of work that includes the work to be performed, the location of the work, the period of performance, the deliverable schedule, applicable standards, and any special requirements, such as security clearances, travel, or special knowledge. "To the maximum extent practicable, agency requirements shall be performance-based statements (see [FAR] Subpart 37.6 [Performance-Based Contracting])."
      
      
    • Provide the Request for Quotation (RFQ) to schedule contractors that offer services that will meet the agency's needs. The RFQ must include the statement of work and evaluation criteria (for example, experience and past performance). The RFQ may be posted on e-Buy.
      
      
    • For orders under the micro-purchase threshold, the ordering office is permitted to place orders with any FSS contractor that can meet the agency's needs.
      
      
    • For orders exceeding the micro-purchase threshold but not exceeding the maximum order threshold, the ordering office is required to provide the RFQ (including the statement of work and evaluation criteria) to at least three schedule contractors that offer services that will meet the agency's needs. "The ordering activity should request that contractors submit firm-fixed prices to perform the services identified in the statement of work."
      
      
    • For orders exceeding the maximum order threshold or when establishing a BPA, the ordering office is required to provide the RFQ "to additional schedule contractors that offer services that will meet the needs of the ordering activity" (the proposed rule said, "to an appropriate number of additional schedule contractors...") Also, ordering offices are to "seek price reductions." (EDITOR'S NOTE: The proposed rule had only two categories of orders: under the micro-purchase threshold and over the micro-purchase threshold.)
      
      
    • The ordering office must provide the statement of work and selection criteria to any schedule contractor upon request.
      
      
    • "The ordering office shall evaluate responses received against the selection criteria provided to the schedule contractors. The ordering office is responsible for considering the level of effort and mix of labor proposed to perform a specific task being ordered and for making a determination that the total price is reasonable. Place the order or establish the BPA with the schedule contractor that represents the best value..."
    
    
  • FAR 8.405-3, Blanket Purchase Agreements (BPAs), states, "Ordering activities may establish BPAs under any schedule contract to fill repetitive needs for supplies or services. BPAs may be established with one or more schedule contractors. The number of BPAs to be established is within the discretion of the ordering activity establishing the BPAs and should be based on a strategy that is expected to maximize the effectiveness of the BPA(s). In determining how many BPAs to award, consider (i) the scope and complexity of the requirement(s); (ii) the technical qualifications of the schedule contractor(s); (iii) the administrative costs of BPAs; and (iv) the need to periodically compare multiple technical approaches or prices."
    
    
  • FAR 8.405-5, Small Business, states, "Although the mandatory preference programs of [FAR] Part 19 [Small Business Programs] do not apply, orders placed against schedule contracts may be credited toward the ordering activity's small business goals...Ordering activities may consider socio-economic status when identifying contractor(s) for consideration or competition for award of an order or BPA." (EDITOR'S NOTE: This language was added to the final rule.)
    
    
  • FAR 8.405-6, Sole Source Justification and Approval, is added to the final rule. It permits ordering activities to procure sole source requirements but "only if the need to do so is justified in writing and approved at the levels specified in paragraph (b) of this section..." The levels for approval of the sole source justifications (prepared in accordance with FAR 6.303-2, Content), are:
    
    
    • For orders exceeding the micro-purchase threshold but not exceeding $500,000 -- the contracting officer (a contracting officer "determination" is required for orders less than the simplified acquisition threshold, but the contracting officer must "certify" orders exceeding the simplified acquisition threshold).
      
      
    • For orders exceeding $500,000 but not exceeding $10 million -- the competition advocate.
      
      
    • For orders exceeding $10 million but not exceeding $50 million -- the head of the procuring activity.
      
      
    • For orders exceeding $50 million -- the senior procurement executive.
    
    
  • FAR 8.405-7, Documentation, requires ordering offices to document the circumstances and rationale for restricting consideration of schedule contractors to fewer than three FSS contractors if the order exceeds the micro-purchase threshold.
    
    For orders requiring a statement of work, the ordering office must document, as a minimum:
    
    
    • The evaluation methodology used in selecting the contractor for award;
      
      
    • The rationale for any tradeoffs in making the award decision;
      
      
    • A price reasonableness determination; and
      
      
    • The rationale for using other than a firm-fixed price order or a performance-based order.
  
  
  
• Incentives for Use of Performance-Based Contracting for Services: This interim rule amends FAR Part 12, Acquisition of Commercial Items, and FAR Subpart 37.6, Performance-Based Contracting, to permit non-commercial performance-based contracts or task orders for services to be treated as contracts for commercial items if the value of the contract or order does not exceed $25,000,000, the contract or task order specifies each task to be performed, and each task has a firm-fixed-price.
  
  Comments on the interim rule must be submitted by August 17, 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 farcase.2004-002@gsa.gov.
  
  
• Definitions: This final rule amends FAR 52.202-1, Definitions, to replace the definitions of its seven terms and to state that the 200 definitions in FAR 2.101, Definitions, apply unless "(1) the solicitation, or amended 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" (for more on the proposed rule, see the February 2004 Federal Contracts Perspective article "Proposed FAR Rules on Electronic Reps & Certs, COTS").
  
  
• Designated Countries -- New European Communities Member States: On May 1, 2004, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia joined the European Communities (EC). The U.S. Trade Representative (USTR) has determined, under the Trade Agreements Act, that suppliers from these countries are eligible to participate in U.S. government procurement under the terms and conditions of the World Trade Organization Government Procurement Agreement. Therefore, these countries are added to the list of designated countries in FAR 25.003, Definitions; FAR 52.225-5, Trade Agreements (making them eligible to participate in acquisitions for supplies or services exceeding $175,000 without regard to Buy American Act (BAA) restrictions); and FAR 52.225-11, Buy American Act -- Construction Materials Under Trade Agreements (making them eligible to participate in construction contracts exceeding $6,725,000 without regard to BAA restrictions).
  
  
• Buy American Act -- Nonavailable Articles: This final rule adds bamboo shoots; goat hair canvas; grapefruit sections, canned; modacrylic fur ruff; and water chestnuts to the list of articles not available from domestic sources in sufficient and reasonably available commercial quantities of a satisfactory quality in paragraph (a) of FAR 25.104, Nonavailable Articles. Paragraph (b) of FAR 25.103, Exceptions, permits the acquisition of foreign end products listed in FAR 25.104 without regard to the restrictions of the Buy American Act. (EDITOR'S NOTE: For more on the proposed rule, see the October 2003 Federal Contracts Perspective article "SF 1417 Proposed for Deletion from FAR." Also, the FAR Council is seeking comments on proposed clarifications of the intent of the nonavailable items list, and whether some items currently listed are now mined, produced, or manufactured in the U.S. in sufficient and reasonably-available commercial quantities -- see the June 2004 Federal Contracts Perspective article "Comments Sought on BAA Nonavailable Items.")
  
  
• Application of Cost Principles and Procedures: This final rule amends FAR 31.204, Application of Principles and Procedures, to improve its clarity and structure by splitting paragraph (b) into two subparagraphs. Subparagraph (b)(1) states that "costs incurred as reimbursements or payments to a subcontractor are allowable to the extent the reimbursements or payments are for costs incurred by the subcontractor that are consistent with [FAR Part 31]" for the following subcontract types: cost-reimbursement, fixed-price incentive, and price redeterminable (that is, fixed-price contracts with prospective price redetermination and fixed-ceiling-price contracts with retroactive price redetermination). New paragraph (b)(2) states that subcontract allowability requirements in paragraph (b)(1) "apply to any tier above the first firm-fixed-price subcontract or fixed-price subcontract with economic price adjustment provisions." (EDITOR'S NOTE: For more on the proposed rule, see the June 2003 Federal Contracts Perspective article "Two FAR Cost Principle Policies Proposed For Revision." The other cost principle addressed in the article, FAR 31.201-6, Accounting for Unallowable Costs, produced significant comments, so a second proposed rule on FAR 31.201-6 will be published.)
  
  
• Maintenance and Repair Costs, and Material Costs: This final rule removes the cost principle at FAR 31.205-24, Maintenance and Repair Costs, and revises the cost principle at FAR 31.205-26, Material Costs, to improve its clarity and structure, and to remove unnecessary and duplicative language.
  
  The changes to FAR 31.205-26 are those in the proposed rule (see the August 2003 Federal Contracts Perspective article "Proposed FAR Changes on CAS, Cost Principles"), except that the proposed rule would have deleted paragraph (c), which states, "Reasonable adjustments arising from differences between periodic physical inventories and book inventories may be included in arriving at costs; provided, such adjustments relate to the period of contract performance." Instead, the cost principle would have relied on generally-accepted accounting practices (GAAP) instead. However, "based on the public input, it appears there are significant concerns that reliance solely upon GAAP could result in potential disputes...this provision provides protection to both the contractor and the government by specifically permitting reasonable adjustments for inventory differences while also requiring that such adjustments relate to the period of contract performance." Therefore, paragraph (c) is retained. (EDITOR'S NOTE: The proposed rule also addressed changes to FAR 31.205-16, Gains and Losses on Disposition or Impairment of Depreciable Property or Other Capital Assets. However, because of the significance of the comments produced by this portion of the proposed rule, a second proposed rule was prepared and published on May 21, 2004.)
  
  
• Procurement Lists: This final rule amends FAR 8.002, Priorities for Use of Government Supply Sources, to clarify the point that the Javits-Wagner-O'Day (JWOD) program for blind or severely disabled people becomes a mandatory source of supplies and services.
  
  The JWOD program is administered by the Committee of Purchase from People Who Are Blind or Severely Disabled. The Committee has established workshops ("participating agencies") that employ blind or severely disabled people in the production of supplies or rendering of services. The Committee maintains a Procurement List of all supplies and services that are required to be purchased from these JWOD participating agencies. However, not all JWOD supplies and services are on the Committee's Procurement List. So the language in FAR 8.002, which stated that "products [and services] available from the Committee" were to be acquired before products or services from the FSS or commercial sources, caused much confusion. Therefore, this language is revised to require "supplies [and services] which are on the Procurement List maintained by the Committee" be acquired before products or services from the FSS or commercial sources. (EDITOR'S NOTE: For more on the proposed rule, see the January 2004 Federal Contracts Perspective article "Proposed FAR Changes on Debarred List, JWOD.")

A Plethora of Changes Made to the DFARS

June was an extremely busy month for the Department of Defense (DOD), publishing eight final and interim changes to the Defense FAR Supplement (DFARS) and two class deviations.

• Follow-On Production Contracts to Awardees of "Other Transactions": This amends DFARS 206.001, Applicability, to provide an exception from competition to participants in an "other transaction" (OT) agreement for a prototype project if the OT agreement was entered into through competitive procedures and it provided for at least one-third non-federal cost share. (EDITOR'S NOTE: The purpose of OTs is to overcome the reluctance of many firms with significant technological advances and innovations to share their innovations with the government because of the significant statutory and regulatory requirements involved in government contracts and grants. When using OTs, DOD contracting officials are not required to include standard contract provisions that typically address such issues as financial management or intellectual property rights, but may structure the agreements as they consider appropriate. For more on the proposed rule, see the July 2003 Federal Contracts Perspective article "Lots of Different Kinds of DFARS Changes.")
  
  
• Fish, Shellfish, and Seafood Products: DFARS 225.7002-2, Exceptions, and DFARS 252.225-7012, Preference for Certain Domestic Commodities, are amended to clarify and finalize the interim rule published on February 14, 2003, that requires the acquisition of domestic fish, shellfish, and seafood, including fish, shellfish, and seafood manufactured or processed, or contained in foods manufactured or processed, in the United States. The final rule clarifies what "manufactured or processed in the United States" means. (EDITOR'S NOTE: For more on the original interim rule, see the March 2003 Federal Contracts Perspective article "DFARS 'Transformation,' Many Changes Proposed." For more on the proposed rule to clarify the interim rule and which is being finalized by this rule, see the October 2003 Federal Contracts Perspective article "DFARS Rules Proposed on Shellfish, Inspection Elimination.")
  
  
• Production Surveillance and Reporting: DFARS 242.1104, Surveillance Requirements, is amended to eliminate requirements for contract administration offices to perform production surveillance on contractors that have only Criticality Designator C (low-urgency) contracts. (EDITOR'S NOTE: The "criticality designators" assigned to most contracts are described in FAR 42.1105, Assignment of Criticality Designator.) For more on the proposed rule, see the September 2003 Federal Contracts Perspective article "DOD Busy Making Assorted DFARS Changes."
  
  
• Contracting for Architect-Engineer Services: This interim rule amends DFARS 219.502-1, Requirements for Setting Aside Acquisitions, DFARS 219.502-2, Total Set-Asides, and DFARS 219.1005, Applicability, to increase, from $85,000 to $300,000, the threshold below which acquisitions for architect-engineer services for military construction or family housing projects are exempt from the Small Business Competitiveness Demonstration Program (see FAR Subpart 19.10 and DFARS Subpart 219.10), and are required to be set aside for small business concerns. This interim rule implements Section 1427 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136). (EDITOR'S NOTE: For more on the acquisition-related portions of Public Law 108-136, see the December 2003 Federal Contracts Perspectives article "Services Acquisition Reform Act Signed Into Law, Establishes Training Fund, Chief Acquisition Officer.")
  
  Comments on the interim rule must be submitted on or before August 9, 2004, to: (1) http://www.regulations.gov; (2) http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; (3) e-mail: dfars@osd.mil; (4) fax: 703-602-0350; (5) mail: Defense Acquisition Regulations Council, OUSD (AT&L) DPAP (DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; (6) hand-delivery/courier: Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.
  
  
• Written Assurance of Technical Data Conformity: This interim rule removes DFARS 252.227-7036, Declaration of Technical Data Conformity, and pertinent portions of DFARS 227.7103-6, Contract Clauses, DFARS 227.7103-14, Conformity, Acceptance, and Warranty of Technical Data, and DFARS 227.7104, Contracts Under the Small Business Innovation Research (SBIR) Program, to eliminate the requirement for contractors to furnish written assurance that technical data delivered to the government is complete and accurate and satisfies the requirements of the contract. This interim rule implements Section 844 of Public Law 108-136.
  
  Comments on the interim rule must be submitted on or before August 9, 2004, to the addresses above.
  
  
• Use of FAR Part 12 Commercial Procedures for Performance-Based Service Contracts: DFARS Subpart 212.1, Acquisition of Commercial Items -- General, and DFARS Subpart 237.6, Performance-Based Contracting, are removed because the statutory authority upon which the text was based expired on October 30, 2003. However, FAC 2001-24 implemented the superseding authority, which is applicable governmentwide (see the preceding article).
  
  
• Designated Countries -- New European Communities Member States: DFARS 252.225-7021, Trade Agreements, and DFARS 252.225-7045, Balance of Payments Program -- Construction Material Under Trade Agreements, are amended to add to the definition of "designated countries" the names of the 10 new EC members. This action appears to duplicate the similar action in FAC 2001-24 (see the preceding article), but Congress has developed an entire body of foreign acquisition-related legislation that applies only to DOD. This is why DOD has its own extensive DFARS Part 225, Foreign Acquisition, and why DOD has to issue a separate rule.
  
  
• Information Assurance: DFARS Subpart 239.71, Security and Privacy for Computer Systems, is amended to address requirements for information assurance in the acquisition of information technology. The rule implements policy issued by the National Security Telecommunications and Information Systems Security Committee in 2000, which is that information assurance shall be considered as a requirement for all systems used to enter, process, store, display, or transmit national security information.
  
  
• Firefighting Services Contracts: This interim rule amends DFARS 237.102-70, Prohibition on Contracting for Firefighting or Security-Guard Functions, to authorize contractor performance of firefighting functions at military installations or facilities for periods of one year or less if the functions would have to be performed by members of the armed forces who are not readily available by reason of a deployment. This rule implements Section 331 of Public Law 108-136.
  
  Comments on the interim rule must be submitted on or before August 9, 2004, to the addresses above.
  
  
• Exemption from Limitations on Procurement of Foreign Information Technology That is a Commercial Item: To implement Section 535 of the Consolidated Appropriations Act for Fiscal Year 2004 (Public Law 108-199), Director of Defense Procurement and Acquisition Policy Deidre Lee issued a class deviation exempting acquisitions of foreign information technology using FY 2004 funds from the provisions of the Buy American Act. The deviation is effective from May 18, 2004, through April 20, 2009, or until its provisions are incorporated into the DFARS, or the deviation is rescinded.

Nonmanufacturer Rule Waived for Aluminum

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for aluminum sheet, plate, and foil manufacturing under North American Industry Classification System (NAICS) code 331315 because no small business manufacturers are currently supplying this class of products to the federal government. This waiver will allow otherwise qualified nonmanufacturers to supply the products of any domestic manufacturer on a federal contract set aside for small business or awarded through the SBA's 8(a) program (for more on the proposed waiver, see the June 2004 Federal Contracts Perspective article "Nonmanufacturer Rule Waiver Proposed for Aluminum").

In addition, SBA is proposing to waive the nonmanufacturer rule for ice making machinery manufacturing under NAICS code 333415. Comments and sources must be submitted on or before July 12, 2004, to Edith Butler, Program Analyst, by telephone at 202-619-0422; by fax at 202-205-7280; or by e-mail at edith.butler@sba.gov.

Finally, SBA is considering terminating the nonmanufacturer rule waiver for general aviation turboprop aircraft under NAICS code 441229 that it granted in March 2004 (see the April 2004 Federal Contracts Perspective article "Nonmanufacturer Rule Waived for Turboprops"). SBA recently realized that the class of products was incorrectly classified as NAICS 441229 when the correct NAICS code for aircraft manufacturing is NAICS 336411. Comment must be submitted on or before July 2, 2004, to Edith Butler at the above address.

NASA Reissues NFS Parts 1827 Through 1841

The National Aeronautics and Space Administration (NASA) is adopting, without change, the proposed revisions of NASA FAR Supplement (NFS) Parts 1827 through 1841 (see the April 2004 Federal Contracts Perspective article "Proposed NFS Reissuance Continues With Parts 1827-1833," and the May 2004 Federal Contracts Perspective article "NASA Reissues NFS Parts 1801 Through 1825").

The revisions remove from the Code of Federal Regulations (CFR) version of the NFS those portions of NFS Parts 1827 through 1841 that contain information consisting of internal administrative procedures and guidance that does not control the relationship between NASA and contractors or prospective contractors. All that remains in the CFR version of NFS Parts 1827 through 1841 is information requiring codification and subject to public comment. The Internet version of the NFS (http://www.hq.nasa.gov/office/procurement/regs/nfstoc.htm) continues to provide the regulations and internal agency guidance and procedures.

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