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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

June 2005
Vol. VI, No. 6

CONTENTS

OMB Directs Strategic Sourcing Implementation
Beginning October 1, 2005

Clay Johnson III, Deputy Director of the Office of Management and Budget (OMB), has issued a memorandum to Chief Acquisition Officers (CAOs), Chief Financial Officers (CFOs), and Chief Information Officers (CIOs) directing them to develop and implement strategic sourcing efforts for their agencies to "optimize performance, minimize price, increase achievement of socio-economic acquisition goals, evaluate total life cycle management costs, improve vendor access to business opportunities, and otherwise increase the value of each dollar spent." Agencies are to identify to OMB, by October 1, 2005, three commodities they buy that may be suitable for strategic sourcing. The CAO is to lead the agency's development team.

According to Clay Johnson, "Strategic sourcing is the collaborative and structured process of critically analyzing an organization's spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently." Therefore, by October 1, 2005, "the CAO shall identify no fewer than three commodities that could be purchased more effectively and efficiently through the application of strategic sourcing, excluding software that could be purchased under the SmartBuy program" (for more on the SmartBuy program, see the July 2003 Federal Contracts Perspective article "OMB Addresses Emergency Procurements, Software").

The CAO, with the CFO, CIO, the agency's Office of Small and Disadvantaged Business Utilization, and others as appropriate, is to develop a strategic sourcing plan, which should include the following elements:

• A charter
  
  
• Goals and objectives. "In addition to cost and performance goals, any strategic sourcing plan must be balanced with socio-economic goals for small businesses, small disadvantaged businesses, women-owned small businesses, veteran-owned businesses, service-disabled veteran-owned businesses, HUBZone and preference programs (e.g., Javits-Wagner-O'Day), and others, as appropriate."
  
  
• Performance measures
  
  
• A communications strategy "that clearly conveys senior management's commitment to the effort, describes the scope of the effort, and identified any organizational changes. The communications strategy should also include steps to make agency employees aware of awarded strategic sourcing contracts and how they are to be used."
  
  
• A training strategy

OMB goes on to direct agencies that, beginning in January 2006, "the CAO shall report annually to the Office of Federal Procurement Policy (OFPP) regarding, at a minimum, reductions in the prices of goods and services, reductions in the cost of doing business, improvements in performance, and changes in achievement of socio-economic acquisition goals at the prime contract and, if possible, the subcontract level. Agencies shall develop methodologies for establishing baseline data and subsequent changes to this baseline and shall consistently apply this methodology throughout the strategic sourcing process."

Based on information from the agency reports and other data, "OFPP may identify several commodities that could be strategically sourced government-wide, and will establish an interagency structure for managing the acquisition of these commodities."

Agencies are to appoint a strategic sourcing point of contact by July 1, 2005.

OFPP Releases Revised FAIR Act Inventory Guidance

OFPP Administrator David Safavian has issued revised Federal Acquisition Inventory Reform (FAIR) Act guidance for the fiscal year 2005 workforce inventory submissions process. The guidance clarifies the workforce inventory process by explaining how agencies can best apply classifications, such as "inherently governmental," "commercial," or "suitable for competition," to functions performed by its workforce. These inventories become the foundation for the competitive sourcing processes described in OMB Circular A-76, Performance of Commercial Activities.

Highlights of the revised guidance include:

• Supplemental guidance on how best to classify certain functions as unsuitable for competition.
  
  
• A statement noting that agencies have discretion when classifying commercial functions performed by disabled individuals. The guidance specifically notes that agencies may categorize these functions as suitable for competition.
  
  
• A new requirement that commercial, but unsuitable for competition ("commercial A") justifications be provided to OMB with inventory submissions. Previously, OMB Circular A-76 provided that justifications were only available upon request.

The following are available on OMB's website http://www.whitehouse.gov/omb/procurement/fair-index.html: (1) a copy of Safavian's memorandum; (2) commercial code A guidance; (3) the list of FY 2005 OMB approved function codes; (4) Department of Defense function code definitions; and (5) spreadsheet guidance. An inventory best practices guide and summary of an inventory exercise conducted by a Chief Acquisition Officer Council working group will be posted on the website in the coming weeks.

OMB Releases Final Set of FY 2004 FAIR Act Inventories

On May 3, OMB released the fourth and final 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 fourth set are from the Departments of Agriculture, Homeland Security, Veterans Affairs, the OMB, and several smaller agencies.

DFARS Addresses Task Orders Against Non-DOD Contracts

The Department of Defense (DOD) is amending the Defense Federal Acquisition Regulation Supplement (DFARS) to require that certain review and approval requirements be fulfilled before issuing task or delivery orders against non-DOD contracts to procure supplies or services in amounts exceeding the simplified acquisition threshold. In addition, DOD published four other DFARS amendments and three proposed changes during May.

• Task and Delivery Orders: This interim rule adds DFARS Subpart 217.78, Contracts or Delivery Orders Issued by a Non-DOD Agency, which implements Section 854 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375) by requiring DOD agencies to establish and maintain procedures for reviewing and approving orders for supplies and services under non-DOD contracts when the amount of the order exceeds the simplified acquisition threshold (generally, $100,000). These procedures are to include: "(a) evaluating whether using a non-DOD contract for the acquisition is in the best interest of DOD...; (b) determining that the tasks to be accomplished or supplies to be provided are within the scope of the contract to be used; (c) reviewing funding to ensure that it is used in accordance with appropriation limitations; (d) providing unique terms, conditions, and requirements to the assisting agency for incorporation into the order or contract as appropriate to comply with all applicable DOD-unique statutes, regulations, directives, and other requirements; and (e) collecting data on the use of assisted acquisition for analysis" (DFARS 217.7802, Policy).
  
  Comments on this interim rule must be submitted by July 25, 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.
  
  EDITOR'S NOTE: 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."
  
  
• Mentor-Protege Program: This interim rule amends DFARS Subpart 219.71, Pilot Mentor-Protege Program, and DFARS Appendix I, Policy and Procedures for the DOD Mentor-Protege Program, to extend the program for five additional years, and to permit service-disabled veteran-owned small businesses (SDVOSBs) and HUBZone small businesses to participate in the program as protege firms.
  
  Section 841 of Public Law 108-375 (1) extends, from September 30, 2005, to September 30, 2010, the period during which companies may enter into agreements under the DOD Pilot Mentor-Protege Program, and (2) extends, from September 30, 2008, to September 30, 2013, the period during which mentor firms may incur costs that are eligible for reimbursement or credit under the program. Section 842 of Public Law 108-375 expands the program to permit SDVOSBs and HUBZone small businesses to participate in the program as protege firms.
  
  Comments on this interim rule must be submitted by July 25, 2005, by any of the methods specified above.
  
  
• Incentive for Purchase of Capital Assets Manufactured in the United States: This interim rule implements Section 822 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which requires DOD to establish an incentive program for contractors to purchase capital assets manufactured in the United States, and to provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs:
  
  
  • To DFARS 215.304, Evaluation Factors and Significant Subfactors, is added the following as paragraph (c)(iii): "In accordance with 10 U.S.C. 2436, consider the purchase and use of capital assets (including machine tools) manufactured in the United States, in source selections for all major defense acquisition programs, as defined in 10 U.S.C. 2430, when it is pertinent to the best value determination."
    
    
  • Paragraph (a) of DFARS 216.470, Other Applications of Award Fees, is amended to add that the government wishes to motivate and reward a contractor for "purchase and use of capital assets (including machine tools) manufactured in the United States, on major defense acquisition programs..."
  
  Comments on this interim rule must be submitted by July 25, 2005, by any of the methods specified above.
  
  EDITOR'S NOTE: For more on other 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."
  
  
• Multiyear Contracting: This interim rule amends DFARS Subpart 217.1, Multiyear Contracting, to implement Section 8008 of the Defense Appropriations Act for Fiscal Year 2005 (Public Law 108-287) and Section 814 of the National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375).
  
  Section 8008 of Public Law 108-287 provides that DOD may not use fiscal year 2005 funds to award a multiyear contract unless: (1) the Secretary of Defense has submitted to Congress a budget request for full funding of units to be procured through the contract; (2) cancellation provisions in the contract do not include consideration of recurring manufacturing costs of the contractor associated with the production of unfunded units to be delivered under the contract; (3) the contract provides that payments to the contractor under the contract shall not be made in advance of incurred costs on funded units; and (4) the contract does not provide for a price adjustment based on a failure to award a follow-on contract. This interim rule implements the requirements of Section 8008 by the addition of paragraphs (g) and (h) to DFARS 217.172, Multiyear Contracts for Supplies.
  
  Section 814 of Public Law 108-375 requires that, for any multiyear contract with a cancellation ceiling exceeding $100 million that is not fully funded, the agency head must give written notification to the congressional defense committees of (1) the cancellation ceiling amounts planned for each program year in the proposed multiyear contract, together with the reasons for the amounts planned; (2) the extent to which costs of contract cancellation are not included in the budget for the contract; and (3) a financial risk assessment of not including budgeting for costs of contract cancellation. The interim rule implements the requirements of Section 814 by adding paragraph (a)(5) to DFARS 217.171, Multiyear Contracts for Services, and paragraph (e)(2)(ii) to DFARS 217.172.
  
  
• Contractor Personnel Supporting a Force Deployed Outside the United States: This final rule amends DFARS Subpart 225.74, retitled "Defense Contractors Outside the United States," and adds DFARS 252.225-7040, Contractor Personnel Supporting a Force Deployed Outside the United States, to add policy on the uniform treatment of contractors that accompany a deployed force, and enables combatant commanders to rapidly adjust contract requirements in response to changing conditions on the battlefield.
  
  On March 23, 2004, DOD published a proposed rule (see the April 2004 Federal Contracts Perspective article "DFARS Limits Task/Delivery Order Contracts to Five Years"), and 26 respondents submitted comments. As a result of those comments, DOD adopted the proposed rule as final with changes. The following are some of the key provisions of DFARS 252.225-7040 (the most significant portion of the rule), with the differences between the proposed and final versions of the rule noted:
  
  
  • Paragraph (c) specifies that "the combatant commander will develop a security plan to provide protection, through military means, of contractor personnel engaged in the theater of operations unless the terms of the contract place the responsibility with another party." It goes on to specify the medical treatment that contractor personnel are authorized ("resuscitative care, stabilization, hospitalization at level III military treatment facilities, and assistance with patient movement in emergencies where loss of life, limb, or eyesight could occur. Hospitalization will be limited to stabilization and short-term medical treatment with an emphasis on return to duty or placement in the patient movement system"), and states that the contractor is responsible for all other support not specified in the contract (the proposed paragraph (c) stated that "the contractor is responsible for all support required for contractor personnel engaged in this contract").
    
    
  • Paragraph (e) requires the contractor to ensure that all security and background checks are completed; minimum medical screening requirements are met and all required immunizations have been received ("the government will provide, at no cost to the contractor, any theater-specific immunizations and/or medications not available to the general public" is added to the final rule); deploying personnel have all necessary passports, visas, and other documents required for contractor personnel to enter and exit an area of operations; and country and theater clearance is obtained for personnel (paragraph (g) in the proposed rule).
    
    
  • Paragraph (h) authorizes the contracting officer to direct the contractor to remove and replace any contractor personnel who jeopardize or interfere with mission accomplishment. Also, it requires the contractor to have a plan showing how the contractor would replace employees who are unavailable for deployment or who need to be replaced during deployment (paragraph (e) in the proposed rule).
    
    
  • Paragraph (i) specifies that contractor personnel are prohibited from wearing military clothing unless specifically authorized by the Combatant Commander, but they may wear specific items required for safety and security such as ballistic or nuclear, biological, or chemical protective clothing (paragraph (h) in the proposed rule). (The sentence "If authorized to wear military clothing, contractor personnel must wear distinctive patches, arm bands, nametags, or headgear, in order to be distinguishable from military personnel, consistent with force protection measures and the Geneva Conventions" is added to the final rule).
    
    
  • Paragraph (j) authorizes the contractor to request, through the contracting officer to the combatant commander, that its personnel be authorized to carry weapons. The combatant commander decides whether to authorize the carrying of weapons and what weapons will be allowed. The contractor is responsible for ensuring that its personnel who are authorized to carry weapons are trained, are not barred from possession of a firearm, and adhere to all guidance and orders issued by the combatant commander. (Proposed paragraph (i) would have prohibited contractor personnel from possessing privately-owned firearms, but would have authorized the combatant commander to authorize the issuance of weapons and ammunition to the contractor for specific employees.)
    
    
  • Paragraph (m) specifies that if the combatant commander orders a mandatory evacuation, the government will provide assistance to the extent available, to United States and third country national contractor personnel. In the event of a non-mandatory evacuation order, the contractor is required to maintain personnel on location sufficient to meet contractual obligations (paragraph (l) of the proposed rule).
    
    
  • Paragraph (p) authorizes the contracting officer to make changes authorized by the "Changes" clause in the contract, and to government-furnished facilities, equipment, material, services, or site. (The proposed rule would have required the contractor to comply with instructions of the combatant commander, and if there was a conflict between the combatant commander's instructions and the contract, the instructions would have taken precedence. However, this proposed language could have forced the contractor to comply with out-of-scope changes, been construed as a personal services contract, could violate the Competition in Contracting Act by leading to unauthorized commitments, and could cause violations of the Anti-Deficiency Act where the emergency exception may not apply. So the proposed language was deleted.)
    
    
  • Paragraph (q), which would have authorized the ranking military commander to direct to contractor or contractor employee to take any action except engagement in armed conflict with an enemy force, was deleted from the final rule.
  
  
• Authorization for Continued Contracts: This proposed rule would amend DFARS Subpart 204.70, Uniform Procurement Instrument Identification Numbers, specifically DFARS 204.7001, Policy, to permit DOD contracting activities to assign an additional identification number to an existing contract by issuing a separate "continued" contract when continued performance under the existing contract number is not practical for administrative reasons. The continued contract would incorporate all prices, terms, and conditions of the predecessor contract. The introduction of the proposed rule states, "Use of this procedure is expected to be limited, but will help to simplify administration, payment, and closeout of lengthy, complex contracts; and will help in situations where a contracting activity has exhausted its assigned series of identification numbers for orders placed against another activity's contract."
  
  Comments on the proposed rule must be submitted on or before July 5, 2005, by any of the methods specified above.
  
  
• Contract Financing: This proposed rule would amend DFARS Part 232, Contract Financing, to update its text and to delete unnecessary or redundant language. In addition, several portions of DFARS Part 232 would be removed and transferred to the DFARS companion document, the "Procedures, Guidance, and Information" (PGI), which consists of all mandatory and non-mandatory internal DOD procedures, non-mandatory guidance, and supplemental information (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 must be submitted on or before July 5, 2005, by any of the methods specified above.
  
  
• Quality Assurance: This proposed rule would amend DFARS Part 246, Quality Assurance, to update its text and to delete unnecessary or redundant language. In addition, several portions of DFARS Part 246 would be removed and transferred to the PGI.
  
  Comments on the proposed rule must be submitted on or before July 25, 2005, by any of the methods specified above.

Interior Finalizes Woody Biomass Utilization Rule

The Department of the Interior (DOI) is finalizing, with changes, the interim final rule that added DOI Acquisition Regulation (DIAR) Part 1437, Utilization of Woody Biomass, to provide contractors the option of removing woody biomass by-products from DOI land management activities wherever ecologically appropriate and in accordance with the law (see the September 2004 Federal Contracts Perspective article "Interior Adds Rules on Woody Biomass Utilization"). DOI received comments from two respondents on the interim final rule, and as a result of comments has moved the language from DIAR Subpart 1437.1, Service Contracts, to DIAR Subpart 1437.72, Utilization of Woody Biomass; moved the contract clause that was in DIAR 1437.103, Format of Woody Biomass Utilization Clause, to DIAR 1452.237-71, Utilization of Woody Biomass; and made some minor clarifications. (EDITOR'S NOTE: The DIAR is available at http://www.doi.gov/pam/aindex.html.)

SBIR Program to Implement Executive Order 13329

The Small Business Administration (SBA) is proposing to amend the Small Business Innovation Research (SBIR) Program policy directive to reflect the requirements that Executive Order (EO) 13329, Encouraging Innovation in Manufacturing, imposes on the SBA and the federal agencies that participate in the SBIR program: the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, and Transportation; the Environmental Protection Agency; the National Aeronautics and Space Administration; and the National Science Foundation.

The proposed changes to the SBIR policy directive would require agencies to give consideration in the proposal evaluation process to manufacturing-related research; and give priority in the SBIR program to manufacturing-related research and development, including the following: "(1) unit process level technologies that create or improve manufacturing processes... (2) machine level technologies that create or improve manufacturing equipment... (3) systems level technologies for innovation in the manufacturing enterprise...[and] (4) environmental or societal level technologies that improve workforce abilities, productivity, and manufacturing competitiveness..."

Comments on the proposed amendments to the SBIR policy directive must be submitted by June 20, 2005, to http://www.regulations.gov; by e-mail to: technology@sba.gov; or by mail to Edsel M. Brown, Jr., Assistant Administrator for Technology, Office of Technology, Office of Policy, Planning, and Liaison; Office of Government Contracting and Business Development, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416.

For more on EO 13229, see the March 2004 Federal Contracts Perspective article "President Orders High Priority for Manufacturing R&D." For more on the SBIR Program, see the October 2002 Federal Contracts Perspective article "SBA Revising SBIR Program Policies."

Executive Compensation Benchmark Raised to $473,318

OFPP Director David Safavian has decided to increase the "benchmark compensation amount" for senior executives by $40,467, from $432,851 to $473,318. This figure is "the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year..." Mr. Safavian settled on that figure based on commercially available surveys and after consultation with the director of the Defense Contract Audit Agency.

The $473,318 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for "the five most highly compensated employees in management positions at each home office and each segment of the contractor." However, the benchmark compensation amount is not a limit on the compensation an executive may receive -- $473,318 is the maximum allowable amount the government will reimburse contractors for their senior executives' compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2005, for contractor fiscal year 2005 and subsequent contractor fiscal years unless and until revised by OMB, which is required to set the benchmark compensation amount annually.

SBA Creates Service-Disabled Veterans Office

The Small Business Administration (SBA) has established the Office of Federal Contract Assistance for Veteran Business Owners to help service-disabled veteran-owned small businesses navigate the federal contracting marketplace and better gain access to federal contracting opportunities (its Internet address is http://www.sba.gov/gc/indexprograms-vets.html). This action is taken by SBA to implement EO 13360, Providing Opportunities for Service-Disabled Veteran Businesses To Increase Their Federal Contracting and Subcontracting (for more on EO 13360, see the November 2004 Federal Contracts Perspective article "Agencies Directed to Increase Service-Disabled Contracts").

The office will provide service-disabled veteran business owners with a single point of contract to address their questions and concerns on procurement opportunities designated for them. In addition, it will offer guidance on sole-source and set-aside procurement opportunities, and protest and appeal procedures; help agencies meet their 3% prime and subcontracting goals; and provide guidance to contracting officers on the criteria used to verify service-disabled veteran status, and determine business ownership and control requirements.

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