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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

August 2004
Vol. V, No. 8

CONTENTS

SBA Withdraws Proposed Size Standards Revision,
"Needs a Little More Work"

Upon receiving over 3,700 comments on its proposed rule to restructure the small business size standards, the Small Business Administration (SBA) decided to withdraw the rule because the small business community told the SBA "good intention, good idea, but needs a little more work."

The proposed rule would have simplified the size standards by establishing "number of employees" as the basis for determining size, and deleting "average annual receipts" as the basis for determining size, primarily in service industries. In making this change, SBA would have reduced the number of individual size standard levels from 37 to 10, ranging between 50 employees and 1,500 employees depending on the industry or SBA program. The new size standards would have affected 514 industries (out of 1,151 total). (EDITOR'S NOTE: For more on the proposed rule that was withdrawn, see the April 2004 Federal Contracts Perspective article "SBA Proposes to Restructure Size Standards, Would Reduce Number of Categories from 37 to 10.")

While many of the 3,700 comments supported aspects of the proposal, many others raised concerns about SBA's methodology for developing the proposed size standards, the effect the proposed size standards would have on existing small businesses, the determination of the employee size of a business, and SBA's proposed overall approach to simplifying the size standards.

Out of approximately 4.4 million businesses in the industries that would have had revised size standards, 35,200 businesses would have gained small business eligibility and 34,100 businesses would have lost small business eligibility, for a net increase of 1,110 small businesses. However, many of the 34,100 small businesses that would have lost their small business eligibility were among those that submitted comments.

"We are here to serve those small business owners, and we take their concerns very seriously," said SBA Associate Deputy Administrator for Government Contracting Allegra McCullough. "That is why we are going to step back and study this rule further. There is no doubt that our current system of size standards is in need of simplification, but we want to make absolutely sure that we do it in the right way. This issue is important to our mission, and it's important to America's small business owners."

SBA believes that "further review of these issues may result in substantive changes from the proposal." Once SBA completes its review of the comments, SBA intends to issue an Advance Notice of Proposed Rulemaking (ANPRM) to collect additional information on the issues raised by the comments on the proposed rule, then decide what, if any, further actions are necessary. If SBA decides to take further actions, it will issue another proposed rule.

GSA, DOD Announce "Get It Right" Program

On July 13, the General Services Administration (GSA) unveiled "Get It Right," a comprehensive program designed to ensure improved contracting operations and proper use of GSA's contracting vehicles, such as the Federal Supply Schedules. The "Get It Right" program was announced at a meeting with personnel from GSA and the Department of Defense (DOD), GSA's largest customer. GSA Administrator Stephen Perry and DOD Director of Procurement and Acquisition Policy Deidre Lee shared the stage.

The program is the result of recent improper use of GSA's contracts and noncompliance with various acquisition regulations. Recently, the GSA Inspector General found that GSA's Federal Technology Service had used contracts intended for information technology to fund construction projects, and DOD used a GSA technology schedule contract to acquire interrogation services for the Iraqi prison Abu Ghraib.

"This is a strong action on the part of the Bush Administration, the GSA management team and its acquistiion officials and a change in direction for the entire federal acquisition workforce," stated Perry. "We are implementing the 'Get It Right' plan because acquisition is the core of what we do as an agency and because we take seriously the trust placed in GSA by our federal agency customers, the Congress, the Office of Management and Budget, and most importantly, the taxpayers. I am confident that as the federal acquisition community works to implement this fully integrated approach and we gather feedback, that we will identify and close any gaps that exist and take specific actions to achieve improvements, ultimately resulting in a reinvigoration of commitment to excellence in acquisition."

The "Get It Right" program will provide an integrated approach to assessing compliance to the acquisition regulations, policies, and procedures. The major objectives of the program are to:

• Ensure compliance with federal contracting regulations.
  
  
• Make contracting policies and procedures clear and explicit.
  
  
• Ensure the integrity of GSA's contract vehicles and services.
  
  
• Improve competition in the marketplace when GSA's contract vehicles and services are used.
  
  
• Improve transparency relating to how GSA's contract vehicles and services are used.
  
  
• Ensure that taxpayers get the best value for their tax dollar whenever GSA's contract vehicles or services are used.

Hundreds of contracting and program personnel attended the meeting at GSA. The meeting was also broadcast by webcast to GSA personnel nationwide.

FAR Rules on Commercial-Type Contracts Proposed

The Federal Acquisition Regulation (FAR) Council published two proposed rules during July that would address and clarify the use of commercial-type contracts by federal agencies: performance-based service acquisition and share-in-savings contracts. In addition, the FAR Council published a proposed rule that would clarify the basis for determining the rental charges for the use of government property, and address the issue of title to special tooling.

• Performance-Based Service Acquisition: This proposed rule would amend FAR Subpart 37.6, Performance-Based Contracting, to broaden the scope of "performance-based acquisition" (PBA) and give agencies more flexibility in applying "performance-based service acquisition" (PBSA) methods to contracts and orders of varying complexity, thus reducing the tendency to force PBA on contracts and orders when it is not appropriate.
  
  Under a performance-based contract, an agency describes its needs in terms of what is to be achieved, not how it is to be done. Agencies have made moderate progress in implementing performance-based contracting methods on service contracts but have experienced difficulties in applying them effectively. Therefore, to establish a broader understanding of the requirements of performance-based service contracting, and identify ways to increase its use, the proposed rule would make the following major changes to FAR Subpart 37.6:
  
  
  • FAR 37.601, General, would be revised to remove the current four characteristics of performance-based contracts ("(a) describe the requirements in terms of results required...(b) use measurable performance standards...and quality assurance surveillance plans...(c) specify procedures for reductions of fee or for reductions to the price of a fixed-price contract when services are not performed or do not meet contract requirements; and (d) include performance incentives where appropriate"), and replacethem with two required characteristics for PBSA contracts: "A PWS [performance work statement -- "a statement that identifies the agency's requirements in clear, specific and objective terms that describe technical, functional and performance characteristics"]...and measurable performance standards." Also, it would retain performance incentives as an optional characteristic, but would make fee and price reductions optional as well (instead of requiring them as is currently the case) by defining them as performance incentives as well. Finally, it would allow PBSA solicitations to use either a PWS or a statement of objectives (SOO) -- "a statement that identifies the agency's high-level requirements by summarizing key agency objectives, desired outcomes, or both" (but remember that one of the two required characteristics of a PBSA contract is that it have a PWS, not a SOO).
    
    
  • The title of FAR 37.602-1, Statements of Work, would be changed to "Performance Work Statements (PWSs) and Statements of Objectives (SOOs)." In addition, the following information would be required, as a minimum, in a SOO when it is used instead of a PWS in a solicitation: (1) purpose; (2) scope or mission; (3) period and place of performance; (4) background; (5) performance objectives and/or desired outcomes; and (6) any operating constraints.
    
    
  • FAR 37.602-2, Quality Assurance, would be amended to permit agencies to rely on a contractor's commercial quality assurance system instead of developing a quality assurance surveillance plan. Also, it would state, "The level of surveillance described in the plan should be commensurate with the dollar value, risk, and complexity of the acquisition and should utilize commercial practices to the maximum extent practicable. For example, in some simplified acquisitions the government may decide that the inspection clauses in the contract or order provide adequate means of surveillance, without requiring a detailed quality assurance surveillance plan."
  
  Comments on the proposed rule must be submitted on or before September 20, 2004, to: (1) http://www.regulations.gov; (2) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (3) e-mail: farcase.2003-018@gsa.gov; (4) fax: 202-501-4067; or (5) mail: General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405.
  
  
• Share-in-Savings Contracts: This proposed rule would add FAR Subpart 39.3, Share-in-Savings Contracting, to implement Section 210 of the E-Government Act of 2002 (Public Law 107-347). Section 210 authorizes the use of share-in-savings (SIS) contracts for information technology (IT). In SIS contracts, the contractor finances the work and then shares the savings generated from contract performance with the agency. The Section 210 authority to award SIS contracts expires September 30, 2005.
  
  SIS is a performance-based concept intended to help an agency leverage its limited resources to improve or accelerate mission-related or administrative processes and lower costs for the taxpayer. Under an SIS contract, the contractor finances the work, and agencies are obligated to pay the contractor for services performed only if savings are realized and, in such cases, a portion of the savings. The agency may retain its share of the savings (that is, not return the savings to the Department of the Treasury), with certain exceptions.
  
  In addition, agencies are permitted to enter into SIS contracts not to exceed five years (10 years with the agency head's approval).
  
  On October 1, 2003, an advanced notice of proposed rulemaking (ANPR) was published, and it solicited comments on draft revisions to the FAR, particularly in nine areas: proposal preparation; share ratios; baselines; cancellation and termination costs; ownership rights; applicability of requirements; contract structure; use of FAR Subpart 37.6, Performance-Based Contracting; and potential projects (for more on the ANPR, see the November 2003 Federal Contracts Perspective article "Share-in-Savings Contract Coverage Proposed for FAR"). Based on comments received, the proposed rule differs from the draft revisions to the FAR in the ANPR in that the proposed rule:
  
  
  • Emphasizes the need for an open and collaborative environment, both among government participants (such program, budget, finance, and legal offices) and between government and industry to facilitate due diligence and mitigate risk.
    
    
  • Provides additional guidance to help agencies develop business cases to justify the use of SIS, including definitions of "benefit pool," "current baseline," and "projected baseline."
    
    
  • Specifies options for seeking competition.
    
    
  • Describes considerations that may establish best value in the context of SIS contracting.
    
    
  • Assists contracting officers in determining which clauses need to be included in SIS contracts.
  
  The major provisions of proposed FAR Subpart 39.3 are in the following sections:
  
  
  • FAR 39.304, General, which states that use of SIS contracts should be considered "(1) for projects involving significant innovation or process transformation; (2) when there is senior level management support within the agency; and (3) when there is acknowledgment that the contractor(s) will bear an unusual risk and an open and collaborative environment during the entire acquisition cycle is required to help mitigate that risk." It goes on to state that the SIS contract technique "does not exempt agencies from the requirements for acquisition planning (see [FAR] Subpart 7.1 [Acquisition Plans]), and an information technology acquisition strategy (see [FAR] 39.101(b) [Policy])." Finally, states that major IT SIS contracts are subject to the requirements of Office of Management and Budget (OMB) Circular A-11, Preparation and Submission of Budget Estimates, Part 7, Planning, Budgeting, Acquisitions and Management of Capital Assets.
    
    
  • FAR 39.306, Procedures, which consists of the following six subsections:
    
    
    • FAR 39.306-1, Formation of an Integrated Project Team (IPT), which states that "agencies are strongly encouraged to form an IPT comprised of program, acquisition, budget, finance, information technology, and legal representatives."
      
      
    • FAR 39.306-2, Development of the Business Case, which requires the development of a business case before use of SIS contracting techniques. "Agencies are strongly encouraged to complete the 'Share-in Savings Business Case Decision Tool' at http://www.gsa.gov/shareinsavings." It continues by stating, "The business case should minimally include a preliminary baseline analysis...The baseline must be quantifiable since it will be the basis upon which a benefit pool is established to govern the share ratio and the amount of payment a contractor is to receive under a contract. The basic elements of the current and projected baselines are: (1) the estimated value of all contracts the government would have awarded for procurement, management, maintenance, administration, and operation of the program; and (2) the costs associated with the government personnel assigned to the project. There must be a net difference between the current and projected baselines to result in a benefit pool large enough to ensure reasonable savings to the government and to cover contractor costs and incentives commensurate with risk."
      
      
    • FAR 39.306-3, Use of Performance-Based Contracts, which requires that SIS contracts be performance-based in accordance with FAR Subpart 37.6.
      
      
    • FAR 39.306-4, Solicitation of Proposals, which requires that SIS contracts "adhere to the competition requirements of [FAR] Part 6 [Competition Requirements]. Contracting officers may use any appropriate competitive procedures authorized by the FAR, including [FAR] 8.404, Using [Federal Supply] Schedules, and [FAR] 15.202, Advisory Multi-Step Process." It goes on to require the contracting officer to include in each SIS solicitation provisions and evaluation criteria that criteria ensure "(1) the contractor's share of savings reflects the risks involved and market conditions; and (2) the government will realize best value from the contract including reasonable savings." Finally, it recommends that agencies use the "Contractor Proposal Evaluation Model" at http://www.gsa.gov/shareinsavings when developing evaluation criteria.
      
      
    • FAR 39.306-5, Award, which requires that SIS contracts be awarded "on a best value basis upon consideration of technical factors, price related factors such as highest life cycle return on investment to the government, as well as other factors such as highest overall net present value return to both the government and the contractor."
      
      
    • FAR 39.306-6, Managing Retained Savings, which provides that "agencies may retain savings in excess of the total amount of savings paid to the contractor under the contract, but may not retain any portion of such savings that is attributable to a decrease in the number of civilian employees of the federal government performing the function." It goes on to provide that such funds "remain available until expended; and [shall] be applied first to fund any cancellation or termination liabilities associated with share-in-savings procurements that are not fully funded."
  
  Comments on the proposed rule must be submitted on or before August 31, 2004, by any of the methods mentioned above.
  
  EDITOR'S NOTE: For more on the ANPR that led to this proposed rule, see the November 2003 Federal Contracts Perspective article "Share-in-Savings Contract Coverage Proposed for FAR."
  
  
• Government Property Rental and Special Tooling: This proposed rule would amend FAR Part 45, Government Property, and corresponding clauses to clarify the basis for determining the rental charges for the use of government property, and address the issue of title to special tooling.
  
  The following are the main changes being proposed by this rule:
  
  
  • FAR 45.106, Government Property Clauses, would be amended to add paragraph (h), which would state: "Insert the clause at [FAR] 52.245-9, Use and Charges (i) in fixed-price or labor-hour solicitations and contracts under which the government will furnish property for performance of the contract; (ii) in all cost-reimbursement and time-and-materials solicitations and contracts; and (iii) when a consolidated facilities contract or a facilities use contract is contemplated. The contracting officer may modify the clause if an alternative rental methodology is used in accordance with [FAR] 45.403 [Rental -- Use and Charges Clause]."
    
    
  • FAR 45.306-5, Contract Clause, which contains the prescription for use of FAR 52.245-17, would be amended to remove the requirement that the clause be used when the contract will include special tooling provided by the government.
    
    
  • FAR 45.403, Rental -- Use and Charges Clause, would be revised to remove language pertaining to "rent for classes of production and research property other than plant equipment" and replace it with "If the agency head determines it to be in the government's interest, an alternative method for computing rent may be used."
    
    
  • FAR 52.245-9, Uses and Charges, would be completely revised. The revised clause would:
    
    
    • Make the time that property is actually used for commercial purposes the basis for calculating rental (definition of "rental time" in paragraph (a)).
      
      
    • It would permit contractors to obtain property appraisals from independent appraisers (paragraph (e)).
      
      
    • It would permit appraisal-based rentals for all property (paragraph (e)(2)).
      
      
    • It would allow contracting officers to consider alternate bases for determining rentals (paragraph (e)(3)).
  • FAR 52.245-17, Special Tooling, would be completely revised. The most significant change would be the addition of the statement that "the government has the right to take title to all special tooling...until such time as that right to take title is relinquished by the Contracting Officer..."
  
  Comments on the proposed rule must be submitted on or before September 15, 2004, by any of the methods mentioned above.

EPA Issues Four "Green" Purchasing Guides

The Environmental Protection Agency (EPA) has announced that its Environmentally Preferable Purchasing (EPP) program has posted four draft EPP guides for public review and comments: (1) "Greening Your Purchase of Carpet: A Guide For Federal Purchasers"; (2) "Greening Your Purchase of Cleaning Products: A Guide For Federal Purchasers"; (3) "Greening Your Purchase of Copiers: A Guide For Federal Purchasers"; and (4) "Greening Your Meetings and Conferences: A Guide For Federal Purchasers." The guides "can provide information to federal procurement officials in making EPP decisions that can help protect human health and the environment" (see FAR Subpart 23.7, Contracting for Environmentally Preferable and Energy-Efficient Products and Services").

The EPP program does not endorse products nor does it recommend for or against the purchase of specific products. The EPP program provides information on products with the overall best value, taking into account price competitiveness, regulatory requirements, performance standards, and environmental impact. Because purchasers typically have readily available sources of information on procurement and safety regulations and well-established methods for evaluating price and performance, EPA's EPP program has developed these purchasing guides to help government purchasers consider the environmental factors in the purchasing process.

EPA is inviting the public to provide comments on the various options that are proposed, new approaches that have not considered, the potential effects of the various options (including possible unintended consequences), and any other data or information that EPA should consider during the development of the final documents. In particular, EPA is seeking comments that address the following questions:

1. Is the discussion on the potential environmental impacts of the product categories useful for federal purchasers?
   
   
2. Is there any more recent information that is germane to or would enhance the discussion of these product categories?
   
   
3. Can federal purchasers act easily upon the stated recommendations in the product guides?
   
   
4. Is this an approach the commenter would like EPA to take in addressing EPP?

Commenters are requested to provide copies of any technical information and/or data that support their views.

Comments must be submitted by August 30, 2004. EPA's preferred method for receiving comments is its electronic public docket at http://www.epa.gov/edocket, and follow the online instructions. Also, comments may be sent by e-mail to oppt.ncic@epa.gov; by mail, computer disk, or CD-ROM to Document Control Office (7407M), Office of Pollution Prevention and Toxics (OPPT), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001 (disk or CD-ROM submissions must be in WordPerfect or ASCII file format); or by hand-delivery or courier to OPPT Document Control Office (DCO), EPA East Building, Rm. 6428, 1201 Constitution Avenue, NW., Washington, DC. ATTN: Docket ID number OPPT-2002-0039, between 8:00 a.m. to 4:00 p.m., Monday through Friday.

NASA Reissues NFS Parts 1842 Through 1851

The National Aeronautics and Space Administration (NASA) is adopting, without change, the proposed revisions of NASA FAR Supplement (NFS) Parts 1842 through 1851 (see the May 2004 Federal Contracts Perspective article "NASA Reissues NFS Parts 1801 Through 1825" for more on the proposed revisions).

The revisions remove from the Code of Federal Regulations (CFR) version of the NFS those portions of NFS Parts 1842 through 1851 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 1842 through 1851 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.

Prompt Payment Interest Rate Set at 4 1/2%

The Treasury Department has established 4 1/2% (4.5%) as the interest rate for the computation of payments made between July 1 and December 31, 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 (January 1 through June 30, 2004), was 4% (4.0%). The interest rate for July 1, 2003, through December 31, 2003, was 3 1/8% (3.125%).

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.

GAO Changes Name

The GAO, formerly known as the "General Accounting Office," has changed its name to the "Government Accountability Office." This change implements a provision of the GAO Human Capital Reform Act, the main purpose of which was to authorize GAO to establish an employee pay system that is separate from the civil service regulations.

The name change to "Government Accountability Office" is intended to more accurately reflect the current duties and responsibilities of GAO. GAO, which started in 1921 with six auditors, now is predominantly involved in deciding bid protests and conducting investigations for Congress.

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