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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

April 2005
Vol. VI, No. 4

CONTENTS

FAC 2005-01 Addresses Cost Accounting Standards
Administration, Architect-Engineer Services

Immediately upon issuance of the 2005 version of the Federal Acquisition Regulation (FAR) (which is available in HTML and PDF formats at http://www.acqnet.gov/far), it was amended by Federal Acquisition Circular (FAC) 2005-01, which addresses Cost Accounting Standards administration, architect-engineering services, the addition of landscaping and pest control services to the Small Business Competitiveness Demonstration Program, and other provisions of the Fiscal Year (FY) 2003 and FY 2004 defense authorization acts.

• Cost Accounting Standards (CAS) Administration: This final rule amends FAR Part 30, Cost Accounting Standards Administration, to delineate the process for determining and resolving the cost impact on contracts and subcontracts when a contractor makes a compliant change to a cost accounting practice or follows a noncompliant practice. The primary changes involve a complete revision of FAR Subpart 30.6, CAS Administration, and revision of the related FAR 52.230-6, Administration of Cost Accounting Standards to reflect the changes. Also, FAR 52.230-7, Proposal Disclosure -- Cost Accounting Practice Changes, is added, which addresses how a contractor is to prepare its proposal when a contract award will result in a change in accounting practice. These changes are made because the government does not uniformly implement the administrative process for making contract price and cost adjustments resulting from contractor changes in a cost accounting practice, and the procedures and processes are not widely understood or adequately documented. (EDITOR'S NOTE: The CAS are available at http://www.arnet.gov/far/current/pdf/Appendix_all.pdf.
  
  The following is a summary of the significant changes being made to FAR Part 30:
  
  
  • The term "Administrative Contracting Officer" (ACO) is changed to "Cognizant Federal Agency Official" (CFAO) throughout FAR Part 30 to be consistent with the terminology used in the CAS.
    
    
  • FAR Subpart 30.6, CAS Administration, is revised to consist of the following sections:
    
          FAR 30.601, Responsibility
          FAR 30.602, Materiality
          FAR 30.603, Changes to Disclosed or Established Cost Accounting Practices
          FAR 30.603-1, Required Changes
          FAR 30.603-2, Unilateral and Desirable Changes
          FAR 30.604, Processing Changes to Disclosed or Established Cost Accounting Practices
          FAR 30.605, Processing Noncompliances
          FAR 30.606, Resolving Cost Impacts
          FAR 30.607, Subcontract Administration
    
    
  • FAR 30.603-1, Required Changes, requires the CFAO to process the contractor's early implementation of a required change as a unilateral change unless the change is determined to be desirable.
    
    
  • FAR 30.603-2, Unilateral and Desirable Changes, states that a change will be treated as unilateral unless the CFAO determines the change is desirable; provides specific factors the CFAO is to consider when determining whether a change is desirable; provides a section on retroactive changes, and permits the CFAO to make a change retroactive to the beginning of the fiscal year in which the change was made; and includes the current CAS exemption from contract price adjustments for changes related to external restructuring activities.
    
    
  • FAR 30.604, Processing Changes to Disclosed or Established Cost Accounting Practices, and FAR 30.605, Processing Noncompliances, are related in that they specify the processes for evaluating changes and noncompliances.
    
    
  • FAR 30.606, Resolving Cost Impacts, requires the CFAO to coordinate with all procuring contracting officers whose contracts will be affected by $100,000 or more (previously had been $10,000 or more).
  
  This final rule is the product of two proposed rules. The first one attempted to clearly delineate the entire cost-impact process the government and the contractor must follow when a contractor makes a compliant change to a cost accounting practice or fails to comply with a CAS (see the May 2000 Federal Contracts Perspective article "FAR Changes on CAS Administration, Discussions Proposed"). Based on comments submitted in response to the first proposed rule, a second proposed rule was drafted and published (see the August 2003 Federal Contracts Perspective article "Proposed FAR Changes on CAS, Cost Principles"). Nine respondents submitted comments in response to the second proposed rule, and the second proposed rule was converted to a final rule, with changes.
  
  
• Improvements in Contracting for Architect-Engineer Services: This interim rule implements 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 (for more on the acquisition-related provisions of Public Law 108-136, see the December 2003 Federal Contracts Perspective article "Services Acquisition Reform Act Signed Into Law, Establishes Training Fund, Chief Acquisition Officer"). To implement Section 1427, the following changes are being made:
  
  
  • Paragraph (c) is added to FAR 8.403, Applicability, to specify that agencies with "requirements that substantially or to a dominant extent specify performance of architect-engineer services (as defined in [FAR] 2.101 [Definitions])...(1) shall use the procedures at [FAR] Subpart 36.6 [Architect-Engineer Services]; and (2) shall not place orders for such requirements under a Federal Supply Schedule."
    
    
  • A new paragraph (a)(8) is added to FAR 16.505, Ordering, to specify that "orders placed under multi-agency contracts for services that substantially or to a dominant extent specify performance of architect-engineer services, as defined in [FAR] 2.101, shall (i) be awarded using the procedures at [FAR] Subpart 36.6; and (ii) require the direct supervision of a professional architect or engineer licensed, registered or certified in the state, federal district, or outlying area, in which the services are to be performed."
  
  Comments on the interim rule must be submitted by May 9, 2005, to: (a) http://www.regulations.gov; (b) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (c) e-mail: farcase.2004-001@gsa.gov; (d) fax: 202-501-4067; or (e) mail: General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405.
  
  
• Extension of Authority to Use Simplified Acquisition Procedures for Commercial Items: FAR 13.500, General, is amended to extend the deadline for use of the simplified procedures in FAR Subpart 13.5, Test Program for Certain Commercial Items, for the acquisition of commercial items of $5,000,000 or less, from January 1, 2006, to January 1, 2008. This change implements Section 817 of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) (for more on other acquisition-related provisions of Public Law 108-375, see the November 2004 Federal Contracts Perspective article "FY 2005 Defense Authorization Act Directs Review of GSA Procedures, Permits A-76 Protests by Feds").
  
  
• Addition of Landscaping and Pest Control Services to the Small Business Competitiveness Demonstration Program: This interim rule amends FAR Subpart 19.10, Small Business Competitiveness Demonstration Program, to add landscaping (under North American Industrial Classification System (NAICS) code 561730, Landscaping Services) and pest control services (under NAICS code 561710, Exterminating and Pest Control Services) to the program as required by Section 821 of Public Law 108-375. Paragraph (a) of FAR 19.1005, Applicability, is amended to add these two NAICS codes to the list of "designated industry groups." Also, the definition of "emerging small business reserve amount" is amended to establish $25,000 as the emerging small business reserve amount for landscaping and pest control services, the same as that for construction, refuse systems and related services, and nonnuclear ship repair. The amount for architect and engineering services is $50,000.
  
  Comments on the interim rule must be submitted by May 9, 2005, by any of the methods mentioned above, except e-mail should be addressed to farcase.2004-036@gsa.gov.
  
  
• Increased Justification and Approval Threshold for the Department of Defense (DOD), National Aeronautics and Space Administration (NASA), and the Coast Guard: This interim rule amends FAR 6.304, Approval of the Justification, to implement Section 815 of Public Law 108-375, which 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.
  
  Comments on the interim rule must be submitted by May 9, 2005, by any of the methods mentioned above, except e-mail should be addressed to farcase.2004-037@gsa.gov.
  
  
• Nonavailable Articles: This final rule amends paragraph (b) of FAR 25.103, Exceptions, to clarify that being on the list of items determined to be nonavailable for purposes of the Buy American Act (in paragraph (a) of FAR 25.104, Nonavailable Articles) does not mean that an item is completely nonavailable from U.S. sources, but that the item is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. In addition, FAR 25.103(b)(1)(ii) is amended to emphasize the need to conduct market research, appropriate to the circumstances, for potential domestic sources, when acquiring an article on the list. Finally, FAR 25.104(b) is amended to state that "this list will be published in the Federal Register for public comment no less frequently than once every five years", and that "recommendations for deletions from this list may be submitted at any time and should provide sufficient data and rationale to permit evaluation..."
  
  A proposed rule was published May 24, 2004 (see the June 2004 Federal Contracts Perspective article "Comments Sought on BAA Nonavailable Items"). No comments were received on the proposed rule, so it is adopted as final without changes.
  
  
• Elimination of Certain Subcontract Notification Requirements: This interim rule revises FAR 44.201-2, Advance Notification Requirements, and Alternate I of FAR 52.244-2, Subcontracts, to implement Section 842 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which removed the requirement for contractors with approved purchasing systems under cost-reimbursement contracts with DOD, NASA, and the Coast Guard to notify the agency before the award of any cost-plus-fixed-fee subcontract or any fixed-price subcontract that exceeds the simplified acquisition threshold or 5% of the total estimated cost of the contract, whichever is greater.
  
  Comments on the interim rule must be submitted by May 9, 2005, by any of the methods mentioned above, except e-mail should be addressed to farcase.2003-024@gsa.gov.
  
  
• Use of FAR 52.244-6, Subcontracts for Commercial Items: This final rule amends FAR 44.403, Contract Clause, to require the use of FAR 52.244-6 in solicitations and contracts other than those for commercial items. The FAR 44.403 prescription had required use of FAR 52.244-6 "in solicitations and contracts for supplies or services other than commercial items." It was not clear whether this prescription included solicitations and contracts for construction, so a proposed rule was published to revise the FAR 44.403 prescription to state that FAR 52.244-6 is to be required "in solicitations and contracts other than those for commercial items" (see the December 2003 Federal Contracts Perspective article "FAR Would Address Commercial Items in Construction"). Also, the proposed rule would have amended the definition of "commercial item" in paragraph (a) of FAR 52.244-6, which read "'Commercial item' has the meaning contained in the clause at 52.202-1, Definitions," to read "'Commercial item' has the meaning contained in the clause at 52.202-1, Definitions, and includes commercial construction materials but does not include construction itself."
  
  One comment that was supportive of the proposed changes was received. While the change to the FAR 52.244-6 prescription at FAR 44.403 was adopted as proposed, the proposed change/A> to the definition of "commercial item" in FAR 52.244-6 was not adopted because the change in FAR 44.403 was thought to provide sufficient clarity.

Rejected DPAS Orders Can Be E-Mailed

Defense Priorities and Allocations System (DPAS) regulations in 15 CFR 700.13, Acceptance and Rejection of Rated Orders, have been amended to allow a person who has rejected a rated order to give his or her reasons for the rejection through electronic means rather than requiring the person to submit the rationale in writing. For more on the proposed rule, which was adopted without changes, see the December 2004 Federal Contracts Perspective article "Rejected DPAS Orders Could Be Transmitted Electronically."

Acquisition Functions Addressed in DFARS Changes

This past month, the Department of Defense (DOD) amended the Defense FAR Supplement (DFARS) to implement provisions of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) and to continue the "DFARS transformation." In addition, DOD has proposed four additional DFARS transformation changes, and one change based on a reinterpretation of statutory language. (EDITOR'S NOTE: For more on the acquisition-related provisions of Public Law 108-375, see the see the November 2004 Federal Contracts Perspective article "FY 2005 Defense Authorization Act Directs Review of GSA Procedures, Permits A-76 Protests by Feds." For more on the DFARS transformation, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added.")

• Contractor Performance of Acquisition Functions Closely Associated with Inherently Governmental Functions: This interim rule adds DFARS Subpart 207.5, Inherently Governmental Functions, to implement Section 804 of Public Law 108-375, which places limitations on the award of contracts for the performance of acquisition functions closely associated with inherently governmental functions that are listed in paragraph (d) of FAR 7.503, Policy (that is, all the functions between subparagraph (d)(5), "Services that involve or relate to the evaluation of another contractor's performance," and subparagraph (d)(19), "Contractors providing special non-law enforcement, security activities that do not directly involve criminal investigations, such as prisoner detention or transport and non-military national security details").
  
  The important section is DFARS 207.503, Policy, which provides that "the head of an agency may enter into a contract for performance of the acquisition functions closely associated with inherently governmental functions that are listed at FAR 7.503(d) only if (i) the contracting officer determines that appropriate military or civilian DOD personnel (A) cannot reasonably be made available to perform the functions; (B) will supervise contractor performance of the contract; and (C) will perform all inherently governmental functions associated with the functions to be performed under the contract; and (ii) the contracting officer ensures that the agency addresses any potential organizational conflict of interest of the contractor in the performance of the functions under the contract (see FAR Subpart 9.5 [Organizational and Consultant Conflicts of Interest])."
  
  Comments on the interim rule must be submitted by May 23, 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 by courier/hand to Defense Acquisition Regulations Council, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402. Cite "DFARS Case 2004-D021" when commenting on this interim rule.
  
  
• Extension of Test Program for Negotiation of Comprehensive Small Business Subcontracting Plans: DFARS 219.702, Statutory Requirements, is amended to implement Section 843 of Public Law 108-375, which extends the termination date of the DOD test program for negotiation of comprehensive small business subcontracting plans from September 30, 2005, to September 30, 2010. The test program permits participating DOD contractors to negotiate comprehensive small business subcontracting plans on a plant, division, or company-wide basis rather than for each contract or subcontract exceeding $500,000.
  
  
• Contractor Performance of Security-Guard Functions: DFARS 237.102-70, Prohibition on Contracting for Firefighting or Security-Guard Functions, is amended to implement Section 324 of Public Law 108-375, which conditionally extends the expiration date of DOD's authority to enter into contracts for the performance of security-guard functions at military installations or facilities to meet the increased need for such functions since September 11, 2001, from December 1, 2005, to September 30, 2006.
  
  
• Major Systems Acquisition: As part of the DFARS transformation, DFARS Part 234, Major Systems Acquisition, and DFARS Subpart 242.11, Production Surveillance and Reporting, are amended to update the text pertaining to major systems acquisition, earned value management systems (EVMS), and cost/schedule status reporting.
  
  Coverage on EVMS is moved from DFARS Part 234 to DFARS Part 242, Contract Administration and Audit Services, since EVMS requirements are not limited to major systems acquisition. In addition, references to DOD Directive 5000.1, Defense Acquisition, are replaced by references to DOD Directive 5000.1, The Defense Acquisition System; references to DOD 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs (MDAPs) and Major Automated Information Systems (MAIS) Acquisition Programs, are replaced by references to DOD Instruction 5000.2, Operation of the Defense Acquisition System; and references to Office of Management and Budget (OMB) Circular A-109, Major Systems Acquisition, are replaced by references to OMB Circular A-109 and OMB Circular A-11, Preparation, Submission and Execution of the Budget.
  
  DOD published a proposed rule in February 2004 to make these changes. No comments were received, so DOD is adopting the proposed rule as a final rule without change. For more on the proposed rule, see the March 2004 Federal Contracts Perspective article "DFARS Transformation Gets Underway, Public Requested to Comment on 14 Proposed Rules."
  
  
• Component Breakout: As part of the DFARS transformation, this proposed rule would delete DFARS Appendix D, Component Breakout, and relocate the text to Procedures, Guidance, and Information (PGI) 207.105, Contents of Written Acquisition Plans (for more on the PGI, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added").
  
  Comments on the proposed rule should be submitted on or before May 23, 2005, by any of the methods mentioned above. Comments should cite "DFARS Case 2003-D071."
  
  
• Contracting by Negotiation: This proposed rule would continue the DFARS transformation by updating the text of DFARS Part 215, Contracting by Negotiation, by removing DFARS 215.000, Scope of Part; DFARS Subpart 215.2, Solicitation and Receipt of Proposals and Information; paragraph (c)(ii) of DFARS 215.304, Evaluation Factors and Significant Subfactors ("cost or savings related to contract administration and audit may be considered..."); and paragraph (b) of DFARS 215.305, Proposal Evaluation (rejection of proposals for violations of procurement integrity provisions), because they are considered unnecessary.
  
  Comments on the proposed rule should be submitted on or before May 23, 2005, by any of the methods mentioned above. Comments should cite "DFARS Case 2003-D077."
  
  
• Contract Modifications: Another DFARS transformation proposed rule would delete the following from DFARS Part 243, Contract Modifications because they are considered unnecessary or obsolete: DFARS 243.102, Policy; DFARS 243.105, Availability of Funds; DFARS 243.107, Contract Clause; and DFARS 243.204-71, Engineering Change Proposals. Also, the following DFARS sections would be removed and relocated to the corresponding section of the PGI: DFARS 243.170, Identification of Foreign Military Sale (FMS) Requirements; DFARS 243.171, Obligation or Deobligation of Funds; and DFARS 243.204, Administration.
  
  Comments on the proposed rule should be submitted on or before May 23, 2005, by any of the methods mentioned above. Comments should cite "DFARS Case 2003-D024."
  
  
• Foreign Acquisition: This DFARS transformation proposed rule would delete the following from DFARS Part 225, Foreign Acquisition, because they are considered unnecessary or redundant: DFARS 225.000, Scope of Part; DFARS 225.171, Solicitation; paragraph (b) of DFARS 225.871-1, Scope; paragraphs (a)(1) through (a)(3) of DFARS 225.7301, General; and DFARS 225.7306, Exercise of Options of FMS [Foreign Military Sales]. In addition, the following would be removed and relocated to the corresponding section of the PGI: DFARS 225.001, General; DFARS 225.504, Evaluation Examples; DFARS 225.802, Procedures; paragraphs (d) and (e) of DFARS 225.870-1, General; DFARS 225.870-5, Contract Adminstration; DFARS 225.870-7, Acceptance of Canadian Supplies; paragraph (c) of DFARS 225.871-5, Directed Subcontracting; paragraph (b) of DFARS 225.872-4, Individual Determinations; paragraphs (b) and (c) of DFARS 225.872-5, Contract Administration; paragraph (c) of DFARS 225.872-6, Audit; DFARS 225.873-2, Procedures; DFARS 225.902, Procedures; paragraph (b)(i) and certificate format in paragraph (b)(ii) of DFARS 225.903, Exempted Supplies; paragraph (c) of DFARS 225.7301, General; and DFARS 225.7302, Procedures.
  
  Comments on the proposed rule should be submitted on or before May 23, 2005, by any of the methods mentioned above. Comments should cite "DFARS Case 2003-D008."
  
  
• Restrictions on Totally Enclosed Lifeboat Survival Systems: This proposed rule would remove DFARS 225.7008, Restrictions on Totally Enclosed Lifeboat Survival Systems, and the corresponding contract clause DFARS 252.225-7039, Restrictions on Totally Enclosed Lifeboat Survival Systems, because they are no longer considered applicable. These implement provisions of the Fiscal Year 1994 DOD Appropriations Act (Public Law 103-139), and the Fiscal Year 1995 DOD Appropriations Act (Public Law 103-335). Both appropriations acts state that none of the funds appropriated in "this or any other Act" could be used for the purchase of a totally enclosed lifeboat and associated davits and winches if less than 50% of the entire system's components are manufactured in the U.S., and if less than 50% of the labor in the manufacture and assembly of the entire system is performed in the U.S.
  
  It is presumed that any provision in an annual appropriations act is effective only for that fiscal year, unless permanency is clearly indicated by words of futurity, or the provision is of a general nature and has no relation to the object of the appropriations. At the time of implementation of the restrictions on totally enclosed lifeboat systems in the DFARS, DOD interpreted the phrase "this or any other Act" to indicate futurity to the restrictions. However, DOD has reevaluated this interpretation and determined that the 1994 and 1995 appropriations act provisions were not permanent legislation. This position is supported by case law, including a U.S. Comptroller General decision of September 16, 1987, B-228838, which held that language such as "this or any other Act" does not indicate futurity. Therefore, implementation of this restriction is considered unnecessary.
  
  Comments on the proposed rule should be submitted on or before May 23, 2005, by any of the methods mentioned above. Comments should cite "DFARS Case 2004-D034."

OMB Releases Third Set of FY 2004 FAIR Act Inventories

On March 10, the Office of Management and Budget (OMB) released the third set of Fiscal Year 2004 Commercial Activities Inventories of non-governmental functions being performed by government agencies. These inventories are required to be compiled and made available to the public by the Federal Activities Inventory Reform (FAIR) Act of 1998. Inventories in this third set are from the Departments of Commerce, Interior, Justice, Labor, the U.S. Agency for International Development; and several smaller agencies.

FAC 2005-02 Finalizes Service-Disabled Veterans Rule

FAC 2001-23, which consisted of an interim rule that implemented the Service-Disabled Veteran-Owned Small Business (SDVOSB) program, is finalized by FAC 2005-02 with minor changes. FAC 2001-23 implemented the SDVOSB program by adding FAR Subpart 19.14, Service-Disabled Veteran-Owned Small Business, which was patterned after the Historically Underutilized Business Zone (HUBZone) program implemented in FAR Subpart 19.13. Also, SBA finalized its interim rule implementing the SDVOSB program (issued along with FAC 2001-23) with changes to the protest procedures (see the June 2004 Federal Contracts Perspective article "FAC 2001-23, SBA Institute Service-Disabled Veteran-Owned Small Business Program").

Thirty-five comments on FAC 2001-23 were received from 17 respondents, and 45 comments were received in response to SBA's interim rule. As a result of those comments, the final rules differ from the interim rules in these significant ways:

• FAR 19.1404, Exclusions, is revised to delete commissary or exchange resale items from a list of actions excluded from the SDVOSB program.
  
  
• FAR 19.307, Protesting a Firm's Status as a Service-Disabled Veteran-Owned Small Business Concern, was essentially the same as FAR 19.306, Protesting a Firm's Status as a HUBZone Small Business Concern. However, the Small Business Administration (SBA) has finalized its SDVOSB regulations with changes to the protest procedures, and on February 24, 2005, SBA published an interim final rule detailing the appeal procedures it drafted as a result of comments it received on its original interim rule. Therefore, to avoid potential conflict between the FAR and SBA's final rules, FAR 19.307 is revised by removing the detailed discussion on protest procedures and substitute a cross-reference to SBA's appeals regulations at 13 CFR Part 134, Rules of Procedure Governing Cases Before the Office of Hearings and Appeals.
  
  
• SDVOSB small business concerns are added to the lists of socioeconomic programs in FAR 4.502, Policy; FAR 5.503, Procedures; FAR 13.002, Purpose; FAR 15.404-4, Profit; FAR 15.407-2, Make or Buy Programs; FAR 42.302, Contract Administration Functions; FAR 42.501, General; FAR 42.502, Selecting Contracts for Postaward Orientation; and FAR 44.303, Extent of Review.
  
  
• Optional Form 347, Order for Supplies and Services; Standard Form 1447, Solicitation/Contract; and Standard Form 1449, Solicitation/Contract/Order for Commercial Items, are amended to add SDVOSB set-asides as a permissible type of set-aside.

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