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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
OFPP Releases Revised FAIR Act Inventory Guidance
OMB Releases Final Set of FY 2004 FAIR Act Inventories
DFARS Addresses Task Orders Against Non-DOD Contracts
Interior Finalizes Woody Biomass Utilization Rule
SBIR Program to Implement Executive Order 13329
Executive Compensation Benchmark Raised to $473,318
SBA Creates Service-Disabled Veterans Office



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:

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:

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.



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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