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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

November 2005
Vol. VI, No. 11

CONTENTS

FAC 2005-06 Addresses IT Security, Cancels SDB Price Evaluation
Adjustment for Civilian Agencies

On the last day of Fiscal Year 2005, Federal Acquisition Circular (FAC) 2005-06 was issued to make 11 miscellaneous changes to the Federal Acquisition Regulation (FAR). Among the most significant of the rule changes are the addition of guidance on the importance of information technology (IT) system and data security, and the cancellation of the authority for civilian agencies (other than the National Aeronautics and Space Administration (NASA) and the U.S. Coast Guard) to apply a price evaluation adjustment to certain small disadvantaged businesses in competitive acquisitions.

• Information Technology Security: This interim rule implements the IT security provisions of the Federal Information Security Management Act of 2002 (FISMA) (Title III of the E-Government Act of 2002), which requires that contractors be held accountable to the same security standards as government employees when collecting or maintaining information or using or operating information systems on behalf of an agency. The intent of this rule is to provide clear, consistent guidance to acquisition officials and program managers; and to encourage and strengthen communication with IT security officials, chief information officers, and other affected parties.
  
  The rule makes the following changes to the FAR:
  
  
  • To FAR 2.101, Definitions, is added the following definition of "information security": "protecting information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction in order to provide (1) integrity... (2) confidentiality... and (3) availability..."
    
    
  • To FAR 7.103, Agency-Head Responsibility, is added paragraph (u), which requires that the agency head ensure that agency planners on information technology acquisitions comply with the information technology security requirements.
    
    
  • Paragraph (b)(17) of FAR 7.105, Contents of Written Acquisition Plans, requires that acquisition plans for IT discuss how agency information security requirements will be met.
    
    
  • To FAR 11.201, Identification and Availability of Specifications, is added paragraph (d)(3), which provides the Internet address for obtaining Federal Information Processing Standards (FIPS) publications (http://www.itl.nist.gov/fipspubs/).
    
    
  • Add paragraph (d) to FAR 39.101, Policy, "In acquiring information technology, agencies shall include the appropriate information technology security policies and requirements."
  
  Comments on this interim rule must be submitted by November 29, 2005, to: (a) http://www.regulations.gov; (b) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (c) e-mail: farcase.2004-018@gsa.gov; (d) fax: 202-501-4067; or (e) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405.
  
  
• Expiration of the Price Evaluation Adjustment for Small Disadvantaged Businesses (SDB): This interim rule cancels the SDB price evaluation adjustment which was originally authorized under the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355) and implemented in FAR Subpart 19.11. This authority permitted civilian agencies to apply a price evaluation adjustment to competitive offers of SDBs that exceed the simplified acquisition threshold and are not set aside for small businesses in industries determined by the Department of Commerce (DOC) to have "persistent and significant underutilization of minority firms." DOC has determined that a 10% price evaluation adjustment is appropriate for 56 industries.
  
  When the authority in Public Law 103-355 expired, the program was continued under the Small Business Administration's (SBA) temporary authorizations. However, the authority for the program was omitted from the Small Business Reauthorization and Manufacturing Assistance Act of 2004 (Public Law 108-447), so the authority for civilian agencies to apply the SDB price evaluation adjustment expired as of December 9, 2004 (see the February 2005 Federal Contracts Perspective article "SDB Evaluation Adjustments Expire for Civilian Agencies").
  
  The SDB price evaluation adjustment for the Department of Defense (DOD), NASA, and the Coast Guard is governed by a different statutory authority, and that authority is not affected by the lapse of authority for civilian agencies. To reflect the lapse of authority for all civilian agencies except NASA and the Coast Guard, this interim rule amends FAR 19.1102, Applicability, to add the following: "This subpart applies to the Department of Defense, National Aeronautics and Space Administration, and the U.S. Coast Guard. Civilian agencies do not have the statutory authority (originally authorized in the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355, Sec. 7102)) for use of the Small Disadvantaged Business (SDB) price evaluation adjustment." (EDITOR'S NOTE: The National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261) contains a provision that prohibits DOD from paying a price that exceeds the fair market cost if the secretary of defense determines that DOD achieved the 5% goal in the most recent fiscal year. On January 24, 2005, the director of defense procurement and acquisition policy determined that DOD exceeded the 5% goal for contract awards to SDBs in fiscal year 2004, so the SDB price evaluation adjustment is suspended for DOD from February 24, 2005, through February 23, 2006.)
  
  Comments on the interim rule must be submitted by November 29, 2005, by any of the methods above except that e-mail comments are to be directed to farcase.2005-002@gsa.gov.
  
  
• Increased Justification and Approval Threshold for DOD, NASA, and Coast Guard: This finalizes, with a minor editorial change, the interim rule that implemented Section 815 of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) by amending FAR 6.304, Approval of the Justification, to increased the threshold for obtaining approval of a justification for other than full and open competition by the senior procurement executive from $50,000,000 to $75,000,000 for DOD, NASA, and the Coast Guard. (EDITOR'S NOTE: For more on the interim rule, see the April 2005 Federal Contracts Perspective article "FAC 2005-01 Addresses Cost Accounting Standards, Architect-Engineer Services.")
  
  
• Addition of Landscaping and Pest Control Services to the Small Business Competitiveness Demonstration Program: This finalizes, without changes, the interim rule that added landscaping (North American Industry Classification System (NAICS) code 561730) and pest control services (NAICS code 561710) to the Small Business Competitiveness Demonstration Program (which is implemented in FAR Subpart 19.10) as required by the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375). As a result, agencies are precluded from considering acquisitions for landscaping and pest control services over the emerging small business reserve, currently $25,000, for small business set-asides unless the set-asides are needed to meet their goals. (EDITOR'S NOTE: For more on the interim rule, see the April 2005 Federal Contracts Perspective article "FAC 2005-01 Addresses Cost Accounting Standards, Architect-Engineer Services.")
  
  
• Improvements in Contracting for Architect-Engineer Services: This finalizes, without changes, the interim rule that implemented Section 1427 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which prohibits the acquisition of architectural and engineering services under Federal Supply Schedule contracts or governmentwide task and delivery-order contracts unless such services are performed under the direct supervision of a licensed architect or engineer and awarded using the quality-based procedures of the Brooks Architect-Engineer Act specified in FAR Subpart 36.6, Architect-Engineer Services. (EDITOR'S NOTE: For more on the interim rule, see the April 2005 Federal Contracts Perspective article "FAC 2005-01 Addresses Cost Accounting Standards, Architect-Engineer Services.")
  
  
• Title 40 of United States Code (USC) Reference Corrections: Congress recently codified Title 40 of the USC, Public Buildings, Property, and Works, and, in doing so, renumbered all sections of Title 40. This rule revises all the references to Title 40 in the FAR to reflect the new section numbers.
  
  
• Implementation of the Anti-Lobbying Statute: This finalizes the January 30, 1990, interim rule that added FAR Subpart 3.8, Limitation on the Payment of Funds to Influence Federal Transactions, to implement Section 319 of the Department of the Interior and Related Agencies Appropriations Act (Public Law 101-121), which generally prohibits recipients of federal contracts, grants, and loans from using appropriated funds for lobbying the federal government in connection with a specific contract, grant, or loan.
  
  Ninety-four respondents submitted comments on the interim rule. Based on the comments, several minor changes are made to the rule, the most significant being the revision of paragraph (b)(1) of FAR 52.203-11, Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions, to indicate that the certification requirement applies only to the award of "this contract," and not "any federal contract, the making of any federal grant, the making of any federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment or modification of any federal contract, grant, loan, or cooperative agreement."
  
  
• Powers of Attorney for Bid Bonds: This finalizes, with changes, the proposed rule that would add FAR 28.101-3, Authority of an Attorney-in-Fact for a Bid Bond, to provide that a copy of an original power of attorney, when submitted in support of a bid bond, is sufficient evidence of the authority to bind the surety ("an original or photocopy, or facsimile of an original power of attorney is sufficient evidence of such authority"). In view of conflicting decisions on whether copies of powers of attorney are acceptable, this proposed rule was intended to establish clear and uniform standards for powers of attorney accompanying bid bonds that are not unduly onerous to either industry or the government.
  
  Forty-six comments were received on the proposed rule, and the following changes are made to the final version of this rule:
  
  
  • In paragraph (b), the phrase "an original or photocopy, or facsimile of an original power of attorney is sufficient evidence of such authority" is revised to read "an original, or photocopy or facsimile of an original power of attorney, is sufficient evidence of such authority." The revised comma placement clarifies that original powers of attorney, as well as photocopies of originals and facsimiles of originals, are all acceptable as evidence of authority to bind the surety. It also clarifies that a photocopy of a non-original is not acceptable.
    
    
  • Paragraph (c) is added, which specifies that "electronic, mechanically-applied and printed signatures, seals and dates on the power of attorney shall be considered original signatures, seals and dates..." (proposed paragraph (c) is redesignated as paragraph (d)).
    
    
  • Paragraph (e) is added, which clarifies that the bidder is not permitted to substitute a replacement power of attorney or a replacement surety if the surety rejects a power of attorney as invalid.
    
    
  • Paragraph (f) is added, which clarifies that a non-responsibility determinations "based on the unacceptability of a power of attorney are not subject to the Certificate of Competency process of [FAR] Subpart 19.6 [Certificates of Competency and Determinations of Responsibility] if the surety has disavowed the validity of the power of attorney."
  
  EDITOR'S NOTE: For more on the proposed rule, see the September 2004 Federal Contracts Perspective article "FAR Change on Bid Bonds Powers of Attorney Proposed."
  
  
• Accounting for Unallowable Costs: This finalizes, with changes, the proposed rule that would revise language regarding accounting for unallowable costs by providing specific criteria on the use of statistical sampling as a method to identify unallowable costs, by adding statistical sampling methods as an example for which advance agreements between the contracting officers and contractors may be appropriate.
  
  On May 22, 2003, a proposed rule was published to amend FAR 31.204, Application of Principles and Procedures, and FAR 31.201-6, Accounting for Unallowable Costs (see the June 2003 Federal Contracts Perspective article "Two FAR Cost Principle Policies Proposed for Revision"). No comments were received on the proposed changes to FAR 31.204, so it was adopted as final without changes (see the July 2004 Federal Contracts Perspective article "FAC 2001-24 Amends Federal Supply Schedule Rules to Add Procedures for Acquiring Services"). However, because of the significance of the comments received pertaining to the proposed changes to FAR 31.201-6, it was decided that a second proposed rule would be published, which was done on September 28, 2004 (see the October 2004 Federal Contracts Perspective article "FAR Rules on Evaluation, Unallowable Costs Proposed").
  
  The second proposed rule would have made the following additions to FAR 31.201-6: (1) add to paragraph (c)(2), "All large dollar value and high risk transactions are separately reviewed for unallowable costs and excluded from the sampling process"; (2) add paragraph (c)(3), which would address assessment of penalties against a contractor if it includes expressly unallowable costs in its claims to the government (see FAR 42.709, Scope, and its subsections); and (3) add paragraph (c)(4), which would specify that "use of statistical sampling methods for identifying and segregating unallowable costs should be the subject of an advance agreement under the provisions of FAR 31.109 [Advance Agreements]. The advance agreement should specify the basic characteristics of the sampling process."
  
  Five respondents submitted comments on the second proposed rule. In response to these comments, the final rule (1) clarifies paragraph (c)(2) by stating that "statistical sampling is an acceptable practice for contractors to follow in accounting for and presenting unallowable costs provided the following criteria are met" (the addition of the words "for contractors" makes it clear that statistical sampling does not apply to the government); and (2) simplify paragraph (c)(3) to read, "For any indirect cost in the selected sample that is subject to the penalty provisions at FAR 42.709, the amount projected to the sampling universe from that sampled cost is also subject to the same penalty provisions." In addition, "statistical sampling methods" is added to FAR 31.109(a) and (h)(17) as an example of the type of item for which an advance agreement may be appropriate.
  
  
• Reimbursement of Relocation Costs on a Lump-Sum Basis: This finalizes, with changes, the proposed rule that would amend FAR 31.205-35, Relocation Costs, to expand the use of lump-sum reimbursement to certain types of employee relocation costs.
  
  FAR 31.205-35 required the government to reimburse a contractor up to an employee's actual expenses with one exception: the miscellaneous costs identified in FAR 31.205-35(a)(5) (such as disconnecting and connecting appliances, automobile registration, forfeited utility fees and deposits) could be reimbursed a flat, or lump-sum, amount up to $5,000 (there was no ceiling for miscellaneous expenses when reimbursement was based on actual expenses).
  
  Recognizing it is common commercial practice to reimburse relocating employees on a lump-sum basis for their house-hunting, final move, and temporary lodging expenses, a proposed rule was published on December 11, 2003, to amend paragraph (b) of FAR 31.205-35 to authorize the use of lump-sum reimbursement for three types of employee relocation costs: (1) costs of finding a new home, (2) costs of travel to the new location, and (3) costs of temporary lodging. These three types of costs were to be in addition to the miscellaneous relocation costs up to $5,000 (for more on the proposed rule, see the January 2004 Federal Contracts Perspective article "Proposed FAR Changes on Debarred List, JWOD").
  
  Seven respondent submitted comments on the proposed rule. In response to the comments, the following changes are made: (1) paragraph (b)(6) is added to state that lump-sum payments to relocating employees are allowable only "when adequately supported by data on the individual elements (e.g., transportation, lodging, and meals) comprising the build-up of the lump-sum amount to be paid based on the circumstances of the particular employee's relocation..."; and (2) to prohibit contractors from making additional after-the-fact payments to employees whose actual costs exceeded the lump-sum amount, paragraph (b)(5) includes the following: "when reimbursement on a lump-sum basis is used, any adjustments to reflect actual costs are unallowable."
  
  
• Training and Education Cost Principle: This finalizes, with changes, the proposed rule that would amend FAR 31.205-44, Training and Education Costs, to streamline the cost principle, eliminate restrictive and confusing language, and restructure the cost principle to list only six specifically unallowable costs. FAR 31.205-44 had differentiated between vocational training, part-time college level education, full-time education, and specialized programs, and specified numerous limitations on the allowability of costs associated with each of these categories (for more on the proposed rule, see the March 2004 Federal Contracts Perspective article "Revision Proposed for FAR Training Cost Principle").
  
  Nine respondents submitted comments on the proposed rule. In response to the comments, the following changes are made:
  
  
  • Proposed paragraph (a) stated, "The costs of education and training for the sole purpose of providing an employee an opportunity to obtain an academic degree or to qualify for appointment to a particular position for which the academic degree is a basic requirement are unallowable." The proposed paragraph (a) is removed, and the following introductory text is substituted: "Costs of training and education that are related to the field in which the employee is working or may reasonably be expected to work are allowable, except as follows..." The six specifically unallowable costs are listed in the paragraphs (a) through (f) that follow.
    
    
  • The exception pertaining to full-time graduate level education is amended to clarify that only the costs in excess of two school years or the length of the degree program is unallowable, not the entire cost of the graduate program if it exceeded two years or the length of the degree program.
    
    
  • The proposed exception "costs of university and college plans for employee dependents are unallowable" is revised to "contractor contributions to college savings plans for employee dependents are unallowable."

CCR Registrant's Taxpayer ID to be Validated

A proposed rule has been published to amend the FAR to include the process of validating a Central Contractor Registration (CCR) registrant's taxpayer identification number (TIN) with the Internal Revenue Service (IRS). Vendor registration in the CCR has been a pre-requisite for being awarded a contract by the Department of Defense since 1998, and by civilian agencies since 2003 (see the November 2003 Federal Contracts Perspective article "CCR Registration, Unique Contract Numbers Required"). Since CCR's inception, it was anticipated that the validation of registrants' TINs with the IRS would eventually be conducted to improve data accuracy throughout the federal procurement system.

To implement the TIN validation requirement, the proposed rule would: (1) amend the definition of "registered in the CCR database" in FAR 2.101, Definitions, to add that the validation requirement includes TIN matching; and (2) amend FAR 52.204-7, Central Contractor Registration, to identify validation of the TIN as part of the "registered in the CCR database" definition, and to indicate that consent is part of that process.

In addition, FAR Subpart 4.11, Central Contractor Registration, contains language that was included when this subpart was implemented in the FAR in 2003. This outdated language required modifications of contracts by December 31, 2003, to add CCR registration requirements. Because this date is past, the following would be amended to remove the language requiring action by December 31, 2003: paragraphs (a)(3)(i) and (a)(3)(ii) of FAR 4.1103, Procedures; the last sentence of FAR 4.1104, Solicitation Provision and Contract Clauses; and Alternate I to FAR 52.204-7, Central Contractor Registration.

Comments on these proposed rule must be submitted by December 19, 2005, to: (a) http://www.regulations.gov; (b) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (c) fax: 202-501-4067; (d) e-mail: farcase.2005-007@gsa.gov; or (e) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405.

Procedures for Billing and Payment Improved in DFARS

The Department of Defense (DOD) never sleeps -- during October, it issued a final rule that amended the Defense FAR Supplement (DFARS) to improve payment and billing instructions in DOD contracts, five other final rules, an interim rule, and extended a FAR deviation.

• Billing and Payment Instructions: To simplify and clarify the billing and payment procedures in DFARS Part 204, Administrative Matters, the following changes are made:
  
  
  • The definition of "accounting classification reference number" in DFARS 204.7101, Definitions, is clarified ("any combination of a two position alpha/numeric code" instead of "a two position alpha or alpha/numeric control code").
    
    
  • To DFARS 204.7103-1, Criteria for Establishing [Contract Line Items], is added a requirement that "all subline items and exhibit line items under one contract line item shall be the same contract type as the contract line item." Also, it requires that the contract's Section B, Supplies or Services and Prices/Costs, identify the contract type for each contract line item to facilitate appropriate payment.
    
    
  • To DFARS 204.7106, Contract Modifications, is added language clarifying that contract modifications decreasing the amount obligated are not to be issued unless sufficient unliquidated obligation exists or the purpose is to recover monies owed to the government.
    
    
  • Addition of DFARS 252.204-7006, Billing Instructions, to address contract line item information needed in contractor payment requests.
    
    
  • In DFARS Appendix F, Material Inspection and Receiving Report, DFARS F-306, Invoice Instructions, is amended to address electronic submissions.
  
  In addition, the text in DFARS 204.201, Procedures; DFARS 204.202, Agency Distribution Requirements; DFARS 204.7103-2, Numbering Procedures; DFARS 204.7104-2, Numbering Procedures; DFARS 204.7107, Contract Accounting Classification Reference Number (ACRN); and DFARS 204.7108, Payment Instructions, are deleted and relocated to the Procedures, Guidance, and Information (PGI) (for more on the PGI, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added").
  
  
• Extension of the 8(a) Program Partnership Agreement: This final rule amends DFARS 219.800, General, to extend, from September 30, 2005, to September 30, 2006, the expiration date of the partnership agreement between DOD and the Small Business Administration (SBA) which permits DOD to award contracts to 8(a) program participants on behalf of SBA.
  
  
• Defense Logistics Agency Waiver Authority: This final rule amends DFARS 225.7009-3, Waiver, to authorize the Defense Logistics Agency Component Acquisition Executive to waive domestic source restrictions on the acquisition of ball and roller bearings when adequate domestic supplies are not available to meet DOD requirements on a timely basis.
  
  
• Central Contractor Registration: This rule finalizes, with one minor change, the interim rule that removed DFARS Subpart 204.73, Central Contractor Registration, because it duplicated policy added to the FAR by FAC 2001-16 (for more on the interim rule, see the December 2003 Federal Contracts Perspective article "DFARS Agency Activity Numbers, CCR Coverage Removed").
  
  Three respondents submitted comments on the interim rule. In response to the comments, paragraph (e) of DFARS 204.1103, Procedures, is amended to clarify that contracting officers must include the contractor's Commercial and Government Entity (CAGE) code on contractual documents transmitted to the payment office, instead of the contractor's Data Universal Numbering System (DUNS) number.
  
  
• Quality Control of Aviation Critical Safety Items and Related Services: This finalizes, with changes, the interim rule that added DFARS 209.270, Aviation Critical Safety Items, to implement Section 802 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which requires DOD to establish a quality control policy for the procurement of aviation critical safety items and the modification, repair, and overhaul of those items (for more on the interim rule, see the October 2004 Federal Contracts Perspective article "DOD Removes Iraq from List of Terrorist Countries").
  
  Six respondents submitted comments on the interim rule. In response to the comments, the following changes are made:
  
  
  • To clarify any confusion there might be regarding who enters into contracts for the procurement, modification, repair, or overhaul of aviation critical safety items (the head of the contracting activity for the procuring activity of an aviation critical safety item or the head of the contracting activity for the design control activity), paragraph (a) of DFARS 209.270-3, Policy, clarifies that the head of the contracting activity responsible for procuring an aviation critical safety item enters into such contract with a source approved by the head of the design control activity.
    
    
  • Paragraph (a) of DFARS 209.270-4, Procedures, is amended to clarify that the head of the design control activity is responsible for identifying items that meet the criteria for designation as aviation critical safety items.
    
    
  • Paragraph (S-70) of DFARS 246.407, Nonconforming Supplies or Services, is amended to state that acceptance of minor nonconformances in aviation critical safety items may be delegated as determined appropriate by the design control activity.
  
  
• Advisory and Assistance Services: This finalizes, without change, the proposed rule that would revise DFARS Subpart 237.2, Advisory and Assistance Services, to delete obsolete text and material that is adequately addressed in other documents. This rule deletes DFARS 237.201, Definitions; DFARS 237.203, Policy; DFARS 237.271, Management Controls; and DFARS 237.272, Requesting Activity Responsibilities. Also, paragraphs (a)(2), (a)(3), and (a)(4) of DFARS 237.270, Acquisition of Audit Services, is deleted and relocated to the PGI. (EDITOR'S NOTE: For more on the proposed rule, see the March 2005 Federal Contracts Perspective article "DFARS Transformation Continues by Addressing Taxes, Services, Utilities, Extraordinary Relief.")
  
  
• Prohibition of Foreign Taxation on U.S. Assistance Programs: This interim rule amends DFARS Part 229, Taxes, to implement Section 579 of the Consolidated Appropriations Act for 2003 (Public Law 108-7), Section 506 of the Consolidated Appropriations Act for 2004 (Public Law 108-199), and Section 506 of the Consolidated Appropriations Act for 2005 (Public Law 108-447), which require that a bilateral agreement that provides U.S. assistance to a foreign country must specify that the U.S. assistance is exempt from taxation by the foreign government, and the foreign government is prohibited from imposing taxes on commodities acquired under contracts funded by such U.S. assistance.
  
  The interim rule adds DFARS 229.170, Reporting of Foreign Taxation on U.S. Assistance Programs, and DFARS 252.229-7011, Reporting of Foreign Taxes -- U.S. Assistance Programs, to address the responsibilities of the contractor and the contracting officer regarding this prohibition. The most significant portion of this rule is in DFARS 229.170-2, Policy, which requires the foreign government to reimburse the U.S. government for any taxes it imposes on contracts or subcontracts for commodities (not services). DFARS 229.170-3, Reports, requires the contracting officer to report to the designated Security Assistance Office when a foreign government or entity imposes tax or customs duties on commodities acquired under contracts or subcontracts funded by U.S. assistance appropriations. DFARS 252.229-7011 requires the contractor to promptly notify the contracting officer when the foreign government or entity imposes taxes on commodities funded by U.S. assistance appropriations.
  
  Comments on the interim rule must be submitted by November 29, 2005, to: (a) http://www.regulations.gov; (b) http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; (c) e-mail: dfars@acq.osd.mil; (d) fax: 703-602-0350; (e) mail: Defense Acquisition Regulations Council, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; or (f) by courier/hand to Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.
  
  
• Extension of Class Deviation Regarding Paragraph (c) of FAR 31.203, Indirect Costs: On September 26, 2005, Domenic Cipicchio, Acting Director, Defense Procurement and Acquisition Policy, issued a memorandum to the services' deputy assistant secretaries for acquisition, the directors of defense agencies and DOD field activities, and the Defense Logistics Agency's executive director for logistic policy and acquisition policy, extending through September 30, 2008, the DOD FAR class deviation that directs all DOD contracting activities to deviate from paragraph (c) of FAR 31.203, Indirect Costs, when costs disallowed under FAR 31.205-52, Asset Valuations Resulting from Business Combinations, are required to be included in the indirect cost base.
  
  FAR 31.205-52 reflects the Cost Accounting Standards (CAS) Board rule that prohibits an asset from being depreciated twice: first by the original owner of the asset, and then by a second owner that acquires the asset through a merger or other business combination. This is called the "no step-up, no step-down" rule, and it reflects the policy that the government should not be placed in a worse position because of a change in business ownership than it would have been had the change not taken place.
  
  However, CAS 405, Accounting for Unallowable Costs, requires that indirect expenses be allocated to the entire fair market value, including any step-up amounts (see 48 CFR 9904.405-40(e)). This requirement is reflected in FAR 31.203(c), which states, "once an appropriate base for distributing indirect costs has been accepted, it shall not be fragmented by removing individual elements. All items properly included in an indirect cost base should bear a pro rata share of indirect costs irrespective of their acceptance as government contract costs." This means the step-up amounts and the proportional amount of the indirect costs associated with those step-up amounts are unallowable.
  
  In a memorandum dated September 29, 1999, then Director of Defense Procurement Eleanor Spector wrote, "in this situation, contractors should not be penalized by having their indirect cost recovery reduced. Therefore, I am authorizing a deviation from FAR 31.203(c). The deviation relates only to the application of FAR 31.203(c) to costs disallowed under FAR 31.205-52. Thus, when costs disallowed under FAR 31.205-52 are required to be included in the indirect cost base, the indirect expenses proportionate to those disallowed costs will not be disallowed on the basis of FAR 31.203(c)."

Former OFPP Chief Indicted for Obstruction, False Statements

On October 5, a federal grand jury indicted David Safavian, former Office of Federal Procurement Policy (OFPP) administrator and chief of staff for the General Services Administration (GSA), on charges of obstructing a GSA proceeding, obstructing a U.S. Senate proceeding, and making false statements.

Safavian resigned as OFPP administrator on September 16, and was arrested September 19 (see the October 2005 Federal Contracts Perspective article "OFPP Chief Arrested for Making False Statements").

The five-count indictment alleges that, between May 2002 and January 2004, Safavian made false statements and obstructed investigations into his relationship with Jack Abramoff, a lobbyist and former partner of Safavian. The investigations focused on whether Safavian aided Abramoff in his attempts to acquire GSA-controlled property. In August 2002, Abramoff allegedly took Safavian and others on a golf trip to Scotland. Safavian is charged with making false statements to a GSA ethics officer regarding the trip and his relationship with Abramoff, and with making the same statements to a GSA Office of Inspector General special agent.

In addition, the indictment charges Safavian with obstruction of a Senate proceeding and making false statements in connection with a Senate investigation conducted by the Committee on Indian Affairs. In February 2005, Safavian was contacted by the committee, which was investigating allegations of misconduct made by several Native American tribes against Abramoff and others. The committee requested that Safavian provide information about the August 2002 Scotland trip. The indictment alleges that Safavian attempted to mislead the committee by once again falsely claiming that, at the time of the Scotland trip, Abramoff has no business before GSA.

If convicted, Safavian faces maximum penalties on each of the five counts of five years in prison, a $250,000 fine, and three years of supervised release.

SBA Waives Four Nonmanufacturer Rules

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for the following industries:

• Commercial laundry equipment, including commercial laundry manufacturing, dry cleaning equipment manufacturing, and pressing machine manufacturing under North American Industry Classification System (NAICS) code 333312
  
  
• Household laundry equipment, including laundry equipment (washers and dryers) and household type manufacturing under NAICS code 335224
  
  
• Household cooking equipment under NAICS code 335221
  
  
• Household refrigerator equipment under NAICS code 335222

In addition, SBA is terminating the nonmanufacturer rule waiver for sporting and athletic goods manufacturing under NAICS code 339920. The nonmanufacturer rule was originally waived because SBA was unaware of any small businesses supplying that class of products to the federal government. However, SBA recently discovered the existence of a small business sporting and athletic goods manufacturer, so SBA is terminating the waiver.

EDITOR'S NOTE: For more on the proposed waivers and proposed waiver termination, see the September 2005 Federal Contracts Perspective article "SBA Proposes Waiving Five Nonmanufacturing Rules." A complete list of products for which the nonmanufacturer rule has been waived is available at http://www.sba.gov/GC/approved.html.

Katrina's $250,000 Micro-Purchase Authority Restricted

On October 3, the Office of Management and Budget (OMB) significantly restricted the authority of federal agencies to use the $250,000 micro-purchase threshold for Hurricane Katrina-related relief and recovery efforts that was recently enacted by Congress in Public Law 109-62, the Second Emergency Supplemental Appropriations Act.

Most purchases under the micro-purchase threshold are made by non-acquisition professionals with government purchase cards. Responding to a severe case of "buyer's remorse" on the part of many representatives and senators, who suddenly realized they had released an army of card-wielding bureaucrats authorized to make quarter-million dollar purchases with little oversight, OMB Deputy Director for Management Clay Johnson III issued a memorandum to agency heads requesting that agencies not utilize the increased authority "unless there are exceptional circumstances. If an agency believes that such exceptional circumstances exist, please contact me directly at 202-456-7070."

This memorandum effectively returned the purchase limit for government purchase card purchases to pre-hurricane levels -- $2,500 for normal purchases and $15,000 for contingency operations (except for the "exceptional circumstances" cited by Mr. Johnson).

"In the first days after the hurricane, several regulations were streamlined to remove barriers to the quick delivery of needed, lifesaving aid," Johnson said. "As the recovery has advanced, we do not envision that agencies will need to utilize the higher thresholds."

While OMB was restricting purchase card use, other agencies took Katrina-related actions:

• The Department of Commerce opened the Hurricane Contracting Information Center (HCIC) to help businesses, especially small businesses, participate in the Gulf Coast rebuilding efforts. The HCIC has a website ( http://rebuildingthegulfcoast.gov) and a call center (888-4USADOC (888-487-2362)) with representatives from various agencies to provide information on rebuilding opportunities and how to navigate the state and federal contracting processes.
  
  
• SBA and GSA are providing a toll-free number -- 800-FED-INFO (800-333-4636) -- to help small businesses learn about hurrican relief efforts, contracting, and rebuilding opportunities. The calls will be answered by a GSA customer service representative, who will direct callers to the appropriate SBA district office representative.
  
  
• SBA announced that it would relax some of its disaster loan filing requirements to expedite the processing of these loans (up to $1,500,000 to repair damage to real estate, machinery, equipment, and inventory). For example, SBA will waive the usual requirement for the submission of tax returns from the last three years. In addition, SBA is making available Economic Injury Disaster Loans (EIDLs) of up to $1,500,000 for small businesses unable to pay bills or meet operating expenses.
  
  
• GSA announced the temporary waiver of certain provisions of the Federal Travel Regulation (FTR) governing the authorization of actual subsistence expenses for official travel because it is expected that finding lodging facilities and adequate meals may be difficult, and distances involved may be great, resulting in increased costs for per diem expenses.
  
  
• GSA announced it was granting a deviation from the prohibition in Federal Management Regulation (FMR) 102-34.335, What type of fuel do I use in motor vehicles?, against the use of premium grade gasoline. This deviation will allow agencies to purchase premium gasoline for government owned and leased vehicles when lower grade gasoline is not available in the areas affected by Hurricanes Katrina and Rita.

OFCCP Establishes Internet Application Data Rules

To address the increasing use of the Internet as a job search mechanism, and the effect this has on federal contractors' required collection of gender, race, and ethnicity data of job applicants, the Office of Federal Contract Compliance Programs (OFCCP) is modifing its applicant recordkeeping requirements to balance contractors' data collection and recordkeeping requirements with the OFCCP's need for the data for equal opportunity compliance monitoring and enforcement.

OFCCP defines an "Internet applicant" as any individual who meets the following four criteria:

      "(i) The individual submits an expression of interest in employment through the Internet or related electronic data technologies;
      "(ii) The contractor considers the individual for employment in a particular position;
      "(iii) The individual's expression of interest indicates the individual possesses the basic qualifications for the position; and,
      "(iv) The individual at no point in the contractor's selection process prior to receiving an offer of employment from the contractor, removes himself or herself from further consideration or otherwise indicates that he or she is no longer interested in the position." (41 CFR 60-1.3, Definitions)

Besides retaining the usual applications and resumes of traditional applicants, contractors are now required to keep "any and all expressions of interest through the Internet or related electronic data technologies as to which the contractor considered the individual for a particular position, such as on-line resumes or internal resume databases..." (41 CFR 60-1.12, Record Retention). Whenever a contractor maintains one of these electronic records, the contractor must be able to identify "where possible, the gender, race, and ethnicity of each...Internet Applicant..."

Because contractors will have to make significant changes in technology and personnel practices to implement the new recordkeeping requirements, OFCCP has established February 6, 2006, as the effective date for these changes.

EDITOR'S NOTE: OFCCP's regulations are in Title 41 of the Code of Federal Regulations (CFR), Public Contracts and Property Administration; Chapter 60, Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor. The regulations being amended are in 41 CFR Part 60-1, Obligations of Contractors and Subcontractors.

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