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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

December 2005
Vol. VI, No. 12

CONTENTS

President Reinstates Davis-Bacon Act for
Areas Affected by Hurricane Katrina

On November 3, President George W. Bush issued a proclamation reinstating the Davis-Bacon Act for construction in the areas of Alabama, Florida, Louisiana, and Mississippi affected by Hurricane Katrina. The reinstatement was effective November 8. The president had suspended the provisions of the Davis-Bacon Act on September 8 (see the October 2005 Federal Contracts Perspective article "Hurricane Katrina Devastates Gulf Coast, Unleashes Billions of Dollars in Emergency Relief"), citing Section 6 of the act, which authorizes the president to suspend the provisions of the act in a national emergency.

The Davis-Bacon Act, which applies to contracts over $2,000 for construction, alteration, or repair of public buildings, requires that "no laborer or mechanic employed directly upon the site of the work shall receive less than the prevailing wage rates..." However, the "prevailing wage rates" usually correspond to union wages and fringe benefits, and the administrative effort required to comply with the Davis-Bacon Act can be quite extensive -- the provisions of the Davis-Bacon Act negates any competitive advantage companies employing non-union workers might enjoy.

The provisions of the Davis-Bacon act had been suspended on three previous occasions: by President Franklin Roosevelt in 1934 in response to the administration of the New Deal; by President Nixon in 1971 to reduce inflationary pressures; and by President George H. W. Bush in 1992 after Hurricane Andrew struck Florida.

President Bush suspended Davis-Bacon because "the wage rates...increase the cost to the federal government of providing federal assistance to these areas. Suspension...will result in greater assistance to these devastated communities and will permit the employment of thousands of additional individuals." However, labor leaders and Democratic senators and representatives decried the suspension as "anti-worker, anti-union," but some confused "prevailing wages" with the $5.15 minimum wage. In fact, under the Davis-Bacon Act, construction contractors in New Orleans are required to pay roofers $12.28 an hour; painters $14.88 an hour plus $4.32 in fringe benefits; and electricians $22.09 an hour plus $6.00 in fringe benefits. Even common laborers must be paid $9.55 an hour plus $1.05 in fringe benefits.

EDITOR'S NOTE: What is ironic about the Depression-era Davis-Bacon Act of 1931 is that it was originally intended to exclude unskilled and non-union black labor from federal construction projects in favor of unionized white labor. If a contractor had to pay union wages, why not hire union workers (overwhelmingly white at the time) instead of black labor migrating from the South? Now, the president has bowed to the demands of the unions and has reimposed requirements that, once again, limit unskilled, predominately-black laborers from helping the government -- in this case, cleaning up and rebuilding the Gulf Coast.

DFARS Amended to Address Telecommunications Services

The folks in the Department of Defense (DOD) were busy in November amending the Defense Federal Acquisition Regulation Supplement (DFARS) to address telecommunication services, information technology, contract administration, and several other subjects.

• Acquisition of Telecommunication Services: This final rule: (1) amends DFARS 239.7401, Definitions, to replace the word "security" with "securing" to be consistent with the terminology in DFARS 252.239-7016, Telecommunications Security Equipment, Devices, Techniques, and Services; and (2) retitles DFARS 239.7405, Multiyear Contracting Authority for Telecommunications Resources, as "Delegated Authority for Telecommunications Resources," deletes obsolete text regarding the General Services Administration's (GSA) former multiyear contracting authority, and adds language stating that DOD contracting officers have the authority to "enter into telecommunications service contracts on a month-to-month basis or for any longer period or series of periods, not to exceed a total of 10 years."
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the March 2005 Federal Contracts Perspective article "DFARS Transformation Continues by Addressing Taxes, Services, Utilities, Extraordinary Relief."
  
  
• Update of Clauses for Telecommunications Services: This final rule: (1) deletes DFARS 252.239-7003, Facilities and Services to be Furnished -- Common Carriers, which is obsolete; and (2) expands the applicability of DFARS 252.239-7004, Orders for Facilities and Services; DFARS 252.239-7005, Rates, Charges, and Services; and DFARS 252.239-7007, Cancellation or Termination of Orders, to all carriers of telecommunications services. These clauses previously applied only to common carriers (those subject to the Federal Communications Commission or other governmental regulation). Expansion of these clauses to all carriers reflects the current business environment, where the differences between common and non-common carriers have become less distinct.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added."
  
  
• Screening of Government Information Technology Equipment Inventory: This final rule deletes DFARS Subpart 239.73, Acquisition of Automatic Data Processing Equipment by DOD Contractors, which contained obsolete procedures for screening of government inventory before authorizing a contractor to purchase information technology equipment. DOD now manages information technology equipment in the same manner as other government property, in accordance with FAR Part 45, Government Property, and DFARS Part 245.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added."
  
  
• Contract Administration: This final rule:
  
  
  • Deletes the following because they are considered unnecessary or duplicative of FAR policy: DFARS 242.402, Visits to Contractors' Facilities; DFARS 242.503-3, Postaward Conference Report; DFARS 242.704, Billing Rates; DFARS 242.705-3, Educational Institutions [final indirect cost rates]; DFARS 242.801, Notice of Intent to Disallow Costs; DFARS 242.1202, Responsibility for Executing Agreements [novation and change-of-name agreements]; DFARS 242.1503, Procedures [contractor performance information]; paragraphs (a) and (c) of DFARS 242.7400, General [technical representation at contractor facilities]; and DFARS 252.242-7000, Postaward Conference.
    
    
  • Removes and relocates the following to the "Procedures, Guidance, and Information"(PGI) (http://www.acq.osd.mil/dpap/dars/pgi) (see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added"): paragraph (S-70)(iii)(A) through (G) of DFARS 242.002, Interagency Agreements [addresses providing contract administration services to foreign governments and international organizations]; the last sentence of paragraph (a)(1) of DFARS 242.705-1, Contracting Officer Determination Procedure [coordination between corporate and individual administrative contracting officers]; DFARS 242.1203, Processing Agreements [processing of contractor novation and change-of-name agreements]; DFARS Subpart 242.71, Voluntary Refunds; and DFARS 242.7401, Procedures [for providing technical representatives at contractor facilities].
    
    
  • Revises DFARS 252.242-7004, Material Management and Accounting Systems, to bring it into conformity with the policy articulated in paragraph (d)(5) of DFARS 242.7203, Review Procedures, regarding corrective action the administrative contracting officers may take to address a contractor's failure to make adequate progress in correcting system deficiencies.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the May 2005 Federal Contracts Perspective article "DFARS Transformation Momentum Builds."
  
  
• Contract Administration Functions: This proposed rule would update paragraph (a) of DFARS 242.302, Contract Administration Functions, as follows:
  
  
  • Language specifying that the administrative contracting officer is responsible for payment administration would be added as subparagraph (a)(12).
    
    
  • Procedures for designation of contract payment offices would be removed from subparagraph (a)(13)(B) and relocated to the PGI.
    
    
  • Obsolete text on industrial readiness and mobilization production planning field surveys would be deleted (subparagraph (a)(33)).
    
    
  • Text specifying that the Defense Contract Management Agency (DCMA) is responsible for verification of contractor compliance with earned value management system requirements would be added as subparagraph (a)(S-70) ("the contracting officer shall not retain this function").
  
  Comments on the proposed rule must be submitted by January 9, 2006, to: (a) http://www.regulations.gov; (b) http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm; (c) e-mail: dfars@acq.osd.mil (include "DFARS Case 2003-D051" in the subject line of the message); (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 by courier/hand to Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.
  
  
• Contract Modifications: This final rule:
  
  
  • Deletes DFARS 243.102, Policy [for limitations on issuing undefinitized contract actions]; DFARS 243.105, Availability of Funds; DFARS 243.107, Contract Clause; and DFARS 243.204-71, Engineering Change Proposals, because they are either obsolete or unnecessary.
    
    
  • Updates DFARS 243.107-70, Notification of Substantial Impact on Employment, for consistency with the requirements of the clause at DFARS 252.249-7002, Notification of Anticipated Contract Termination or Reduction -- it now requires the contractor to notify "its employees, its subcontractors, and state and local officials" instead of "the contracting officer."
    
    
  • Removes and relocates to the PGI the following: DFARS 243.170, Identification of Foreign Military Sale (FMS) Requirements; DFARS 243.171, Obligation or Deobligation of Funds; and DFARS 243.204, Administration [of change orders].
    
    
  • Clarifies the procedures in paragraph (b) of DFARS 243.204-70, Certification of Requests for Equitable Adjustment, for determining if a request for equitable contract adjustment meets the dollar threshold for requiring contractor certification ("add together the absolute value of each cost increase and each cost decrease").
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the April 2005 Federal Contracts Perspective article "Acquisition Functions Addressed in DFARS Changes."
  
  
• Subcontracting Policies and Procedures: This final rule: (1) revises DFARS 244.301, Objective [of contractors' purchasing systems reviews], to clarify government responsibilities for conducting reviews of contractor purchasing systems ("the administrative contracting officer (ACO) is solely responsible for initiating reviews of the contractor's purchasing systems, but other organizations may request that the ACO initiate such reviews"); and (2) removes and relocates to the PGI the portion of paragraph (b) of DFARS 244.304, Surveillance, that consists of examples of weaknesses in a contractor's purchasing system that may indicate the need for a review.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the May 2005 Federal Contracts Perspective article "DFARS Transformation Momentum Builds."
  
  
• Extraordinary Contractual Actions: This final rule:
  
  
  • Redesignates DFARS 250.303, Contractor Requests, as DFARS 250.303-1 to correspond to the numbering of the Federal Acquisition Regulation (FAR), and updates the requirements for processing requests for extraordinary contract adjustments ("Requests should be filed with the procuring contracting officer (PCO). However, if filing with the PCO is impractical, requests may be filed with an authorized representative, an administrative contracting officer, or the Office of General Counsel of the applicable department or agency, for forwarding to the cognizant PCO,").
    
    
  • Removes and relocates to the PGI DFARS 250.105, Records; DFARS 250.305-71, Processing Cases to Contract Adjustment Boards; and DFARS 250.306, Disposition.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is finalized without changes. For more on the proposed rule, see the March 2005 Federal Contracts Perspective article "DFARS Transformation Continues by Addressing Taxes, Services, Utilities, Extraordinary Relief."
  
  
• Single Process Initiative (SPI): This technical amendment revises paragraph (b) of DFARS 252.211-7005, Substitutions for Military or Federal Specifications and Standards, to update the Internet address for obtaining a list of processes accepted under DOD's SPI ("http://guidebook.dcma.mil/20/guidebook_process.htm (paragraph 4.2)").

Size Standards Amended for Hurricane-Relief Programs

The Small Business Administration (SBA) is amending the size eligibility criteria for its Surety Bond Guarantee (SBG) program and the "Gulf Opportunity Pilot Loan Program" (GO Loan Pilot) to help small businesses in disaster areas produced by Hurricanes Katrina, Rita, and Wilma.

• SBA is amending the SBG program size standard program for some concerns by requiring them to meet either the size standard for the primary industry in which it, together with its affiliates, is engaged, or the current $6,000,000 standard for the SBG Program, whichever is higher. The amended size standard applies only to construction and service concerns seeking SBA-guaranteed surety bonds for contracts or subcontracts, public or private, that are performed in the presidentially-declared disaster areas resulting from the Hurricanes Katrina, Rita, or Wilma (for a list of such areas, go to http://www.sba.gov/disaster_recov/katrinafactsheets.html).
  
  
• SBA has established the GO Loan Pilot program as a one-year pilot (expiring September 30, 2006) under the 7(a) Business Loan Program to expedite delivery of small business financing in the form of 7(a) loans up to $150,000 to small businesses located in, locating to, or relocating in presidentially-declared disaster areas resulting from Hurricanes Katrina and Rita and any contiguous parishes or counties. For the GO Loan Pilot program, SBA has decided that a business will be eligible if it is already considered "small" for one of SBA's major financial assistance programs or if it (including its affiliates) has a tangible net worth of $7,000,000 or less, and an average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years of $2,500,000 or less.

SBA Taking More Actions on Nonmanufacturer Rules

The SBA is waiving the nonmanufacturer rule for the following industries:

• Household refrigerator equipment merchant wholesalers under North American Industry Classification System (NAICS) code 423620
  
  
• Commercial refrigerator equipment under NAICS code 423740
  
  
• Photographic film, paper, plate, and chemical manufacturing under NAICS code 325992

In addition, SBA is proposing to waive the nonmanufacturer rule for the following industries because no small business manufacturers are supplying these classes of products to the federal government:

• Office supplies, paper and toner under NAICS codes, 322231, 325132, 325992, 339940, 424120, and 453210
  
  
• Forklifts manufacturing under NAICS code 333924

Comments on the proposed waivers, or the identification of small businesses that provide these classes of products, must be submitted no later than November 14, 2005, to Edith Butler, Program Analyst, by telephone at 202-619-0422; by fax at 202- 481-1788; or by e-mail at edith.butler@sba.gov.

Finally, SBA is considering terminating the proposed nonmanufacturer rule waiver for commercial cooking equipment under NAICS code 333319. SBA was unaware of any small businesses supplying that class of products to the federal government, so it proposed issuing a nonmanufacturer rule waiver. However, SBA recently discovered the existence of a small business that provides commercial cooking equipment, so SBA is considering terminating the proposed waiver.

Comments on the proposed termination of the proposed waiver must be submitted by December 12, 2005, to Edith Butler by any of the methods mentioned above. For more on the proposed waiver, see the September 2005 Federal Contracts Perspective article "SBA Proposes Waiving Five Nonmanufacturing Rules."

EDITOR'S NOTE: Public Law 100-656, enacted November 15, 1988, requires those with federal contracts that are set-aside for small businesses or awarded through the 8(a) program to provide the product of a small business manufacturer or processor if the recipient is not the actual manufacturer or processor (see paragraph (f) of FAR 19.102, Size Standards). This is called the "nonmanufacturer rule." However, SBA may waive this requirement if there are no small business manufacturers or processors.

The SBA regulation on the nonmanufacturer rule is in Title 13 of the Code of Federal Regulations (CFR), Business and Credit Administration, Part 121, Small Business Size Standards, under paragraph (b) of 121.406, How Does a Small Business Concern Qualify to Provide Manufactured Products Under Small Business Set-Aside or MED [Minority Enterprise Development] Procurements? The SBA regulation on the waiver of the nonmanufacturer rule is 13 CFR 121.1202, When Will a Waiver of the Nonmanufacturer Rule Be Granted for a Class of Products? A complete list of products for which the nonmanufacturer rule has been waived is available at http://www.sba.gov/GC/approved.html.

eSRS Becomes Operational, Mandatory for Civilians

On November 3, the Office of Management and Budget (OMB) announced that the Electronic Subcontracting Reporting System (eSRS) is now operational, and large contractors with contracts from civilian agencies that require small business subcontract reporting are required to enter their reports into the eSRS (http://www.esrs.gov) -- Subcontracting Reports for Individual Contracts (formerly the Standard Form 294), and the Summary Subcontract Reports (formerly the Standard Form 295).

Implementation of the eSRS for DOD is targeted for the second quarter of fiscal year 2006 (that is, January 1 -- March 31, 2006). Until then, all DOD contractors will continue to submit paper SF 294s and SF 295s. A formal notice will be provided when eSRS becomes available for use by DOD contractors.

Previously, OMB had authorized agencies to grant a 60-day extension for contractors to file their reports fo the periods ending September 30, 2004, and April 30, 2005. OMB is now extending that authorization to cover the reports for the period ending September 30, 2005, which were due October 30, 2005. The new due date is December 31, 2005.

Because there is confusion regarding the due dates and submission of reports for fiscal years 2004 and 2005, OMB has coordinated with the SBA on the following guidance:

• All contractors with subcontract reporting requirements related to contracts with civilian agencies must submit their Summary Subcontract Reports for fiscal year 2004 into the eSRS. Contractors of the General Services Administration (GSA) holding contracts with the Federal Supply Schedule (FSS) and contractors of the National Aeronautics and Space Administration (NASA) that have entered their fiscal year 2004 reports into the GSA and NASA electronic reporting systems, respectively, will be exempt from this requirement.
  
  
• No contractors of any agency will be required to submit the semi-annual Subcontracting Reports for Individual Contracts into the eSRS for fiscal year 2004 (that is, for the periods ending March 31 and September 30, 2004).
  
  
• No contractors of any agency will be required to submit mid-year reports for fiscal year 2005 (normally due April 30 for the period ending March 31) into the eSRS. This exemption applies to both the Subcontracting Reports for Individual Contracts and the Summary Subcontract Reports.
  
  
• All contractors for civilian agencies, including contractors of GSA and NASA, must use the eSRS to submit both the Summary Subcontract Reports and Subcontracting Reports for Individual Contracts for fiscal year 2005.
  
  
• Paragraph (j)(1) of FAR 52.219-9, Small Business Subcontracting Plan, requires a final Subcontracting Report for Individual Contracts at contract completion. Contractors for civilian agencies that have not yet submitted a final report for any contracts closed during FY 2004 or FY 2005 should do so using the eSRS.
  
  
• DOD contractors should continue to submit paper reports (the SF 294 and SF 295) until they receive official notification to begin using the eSRS.

Contracting officers, prime contractors, and large subcontractors should register in the system and begin processing through, and reviewing, subcontracting reports through eSRS.

Proposed Increase in Size Standard for Security Guards

The SBA is proposing to increase the size standard for the Security Guards and Patrol Services Industry under NAICS code 561612 from $10,500,000 in average annual receipts to $15,500,000. The $10,500,000 size standard was last revised in 2002, and many in the security guards industry believe an increase in the size standard is warranted because (1) the increased costs of complying with federal requirements for security guards; (2) the increased number of large security firms competing for federal contracts; and (3) the relative success by large firms in winning federal contracts. Small security guard firms also argue that these industry trends would shrink the pool of eligible small businesses, causing federal agencies to scale back their use of small business preferences in procurement.

Comments on this proposed increase (identified by "RIN 3245-AF28") must be received no later than December 12, 2005, either through the Federal eRulemaking Portal at http://www.regulations.gov; by fax 202-205-6390; or by mail or hand delivery/courier to Gary M. Jackson, Assistant Administrator for Size Standards, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416.

Real Property Policies Updated in FMR

GSA is reissuing Subchapter C of the Federal Management Regulation (FMR), Real Property, because of extensive revisions which (1) update the legal citations to conform to Public Law 107-217 (enacted August 21, 2002), which revised, restated, and recodified, without substantive change, certain laws related to public buildings, property, and works in Title 40 of the United States Code (USC); (2) incorporate additional policy guidance, including new accessibility standards for federal facilities (FMR 102-76.65, What standards must facilities subject to the Architectural Barriers Act meet?); and (3) provides additional real property policy coverage on the integrated workplace, sustainable development, outleasing, telework, siting antennas on federal property, seismic safety, screening of excess real property, and the National Environmental Policy Act of 1969 (NEPA).

The FMR is Chapter 102 of Title 41 of the Code of Federal Regulations (CFR). Subchapter C consists of Parts 102-71 through 102-84 of 41 CFR Chapter 102. The FMR and corresponding documents (such as FMR amendments, bulletins, deviations, notices, proposed rules, public comments, and archives) may be accessed at http://www.gsa.gov/fmr.

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