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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

July 2005
Vol. VI, No. 7

CONTENTS

FAC 2005-04 Requires Cost or Pricing Data for
Noncommercial Modifications of Commercial Items

Federal Acquisition Circular (FAC) 2005-04 amends the Federal Acquisition Regulation to require that cost or pricing data be submitted for noncommercial modifications of a commercial item that are expected to cost more than $500,000 or 5% of the total price of the contract, whichever is greater. Also, FAC 2005-04 finalizes a couple of interim rules and implements various statutory provisions.

• Submission of Cost or Pricing Data on Noncommercial Modifications of Commercial Items: This interim rule amends paragraph (c)(3) of FAR 15.403-1, Prohibition on Obtaining Cost or Pricing Data (10 U.S.C. 2306a and 41 U.S.C. 254b), to implement Section 818, Submission of Cost or Pricing Data on Noncommercial Modifications of Commercial Items, of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law 108-375). Section 818 amends 10 U.S.C. 2306a, which provides exceptions to the requirement for submission of cost or pricing data, including an exception for commercial items, to state that the commercial item exception does not apply to "noncommercial modifications" of a commercial item that are expected to cost, in the aggregate, more than $500,000 or 5% of the total price of the contract, whichever is greater. According to FAR 2.101, Definitions, noncommercial modifications are "minor modifications of a type not customarily available in the commercial marketplace made to meet federal government requirements."
  
  This requirement only applies to contracts or task or delivery orders funded by the Department of Defense (DOD), the National Aeronautics and Space Administration (NASA), and the Coast Guard, which are governed by 10 U.S.C. 2306a. The requirement does apply to contracts or task or delivery orders placed by other agencies on behalf of DOD, NASA, or the Coast Guard.
  
  Comments on the interim rule must be submitted by August 8, 2005, to (a) http://www.regulations.gov; (b) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (c) e-mail: farcase.2004-035@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.
  
  EDITOR'S NOTE: For more on the 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."
  
  
• Notification of Employee Rights Concerning Payment of Union Dues or Fees: This rule finalizes, without changes, the FAC 2001-26 interim rule that added FAR Subpart 22.16, Notification of Employee Rights Concerning Payment of Union Dues or Fees, and FAR 52.222-39, Notification of Employee Rights Concerning Payment of Union Dues or Fees, to implement Executive Order (EO) 13201, Notification of Employee Rights Concerning Payment of Union Dues or Fees (for more on the interim rule, see the January 2005 Federal Contracts Perspective article "FAC 2001-26 Mandates Use of 'Online Representations and Certifications Application'"). EO 13201 requires non-exempt federal contractors and subcontractors with contracts or subcontracts that exceed the simplified acquisition threshold to post notices alerting nonunion employees that they cannot be forced to pay fees to unions to support activities not related to collective bargaining, contract administration, and grievance adjustment.
  
  
• Telecommuting for Federal Contractors: This rule finalizes, without changes, the FAC 2001-25 interim rule that added FAR 7.108, Additional Requirements for Telecommuting, which prohibits agencies from including a requirement in a solicitation that precludes an offeror from permitting its employees to telecommute or, when telecommuting is not precluded, from unfavorably evaluating an offeror's proposal that includes telecommuting unless it would adversely affect agency requirements, such as security (for more on the interim rule, see the November 2004 Federal Contracts Perspective article "FAC 2001-25 Authorizes Telecommuting for Contractors").
  
  
• Incentives for Use of Performance-Based Contracting for Services: This rule finalizes, with changes, the FAC 2001-24 interim rule that amended FAR Part 12, Acquisition of Commercial Items, and FAR Subpart 37.6, Performance-Based Contracting, to permit non-commercial performance-based contracts or task orders for services to be treated as contracts for commercial items if (1) the value of the contract or order does not exceed $25,000,000, (2) the contract or task order specifies each task to be performed, and (3) each task has a firm-fixed-price (for more on the interim rule, see the July 2004 Federal Contracts Perspective article "FAC 2001-24 Amends Federal Supply Schedule Rule to Add Procedures for Acquiring Services").
  
  Three respondents submitted comments on the interim rule. In response to the comments, paragraph (g)(2) of FAR 12.102, Applicability, is amended to state "the contracting officer may tailor paragraph (a) of this clause at FAR 52.212-4 [Contract Terms and Conditions -- Commercial Items] as may be necessary to ensure the contract's remedies adequately protect the government's interests" instead of "the contracting officer should tailor paragraph (a)..." FAR 52.212-4(a) addresses inspection and acceptance procedures.
  
  
• Applicability of Small Disadvantaged Business (SDB) and HUBZone Price Evaluation Factors: This rule finalizes, without changes, the proposed rule that would amend paragraph (a) of FAR 19.1103, Procedures, and paragraph (b) of FAR 19.1307, Price Evaluation Preference for HUBZone Small Business Concerns, to require the contracting officer to apply the SDB and HUBZone price evaluation adjustments to offers of eligible products in acquisitions subject to the Trade Agreements Act (see FAR Subpart 25.4, Trade Agreements). The contracting officer had been prohibited from applying the SDB and HUBZone evaluation adjustments to such offers.
  
  One respondent supported the proposed rule, so the rule is finalized without changes (for more on the proposed rule, see the October 2004 Federal Contracts Perspective article "FAR Rules on Evaluation, Unallowable Costs Proposed").
  
  
• Labor Standards for Contracts Involving Construction: This rule finalizes, with changes, the proposed rule that would amend FAR Subpart 22.4, Labor Standards for Contracts Involving Construction, and corresponding clauses in FAR Part 52 to implement the Department of Labor's (DOL) revised definitions of "construction" and "site of the work," to clarify several definitions relating to labor standards for contracts involving construction, and to make requirements for flow-down of labor clauses more precise (for more on the DOL revised definitions, see the February 2001 Federal Contracts Perspective article "Labor Revises Davis-Bacon, Service Contract Act Regs"; for more on the proposed rule, see the February 2004 Federal Contracts Perspective article "Proposed FAR Rules on Electronic Reps & Certs, COTS").
  
  Over 160 respondents submitted comments on the proposed rule. Based on the comments, various aspects of the proposed rule are clarified. The following are the significant changes being made by this rule:
  
  
  • FAR 22.401, Definitions, is revised as follows:
    
    
    • The definition of "construction, alteration, or repair" is revised to: "All types of work done by laborers and mechanics employed by the construction contractor or construction subcontractor on a particular building or work at the site thereof, including without limitations -- (l) altering, remodeling, installation (if appropriate) on the site of the work of items fabricated off-site; (2) painting and decorating; (3) manufacturing or furnishing of materials, articles, supplies, or equipment on the site of the building or work; (4) transportation of materials and supplies between the site of the work...and a facility which is dedicated to the construction of the building or work and is deemed part of the site of the work...; and (5) transportation of portions of the building or work between a secondary site where a significant portion of the building or work is constructed, which is part of the 'site of the work' definition..., and the physical place or places where the building or work will remain..." (emphasis is added to proposed language that was adopted in the final rule).
      
      
    • The definition of "site of the work" is revised to state that the definition covers "any other site where a significant portion of the building or work is constructed, provided that such site located in the United States, and is established specifically for the performance of the contract or project." The requirement that the secondary site of the work be "located in the United States" is added in the final rule because the Davis-Bacon Act does not apply outside the United States.
    
    
  • FAR 52.222-5, Davis-Bacon Act -- Secondary Site of the Work, is added, and it is required to be included in solicitations in excess of $2,000 for construction within the United States. If the offeror intends to perform work at any secondary site and the wage determination provided by the government for work at the primary place of performance is not applicable to the secondary site, it requires the offeror to request a wage determination from the contracting officer. "The due date for receipt of offers will not be extended as a result of an offeror's request for a project wage determination for a secondary site of the work."
  
  The proposed rule permitted the offeror to "obtain a general wage determination for the secondary site from the Internet and provide it to the government for inclusion in any subsequent contract." This was deleted in the final rule. Also, the final rule now requires "if the offeror is unsure if a planned work site satisfies the criteria for a secondary site of the work, the offeror shall request a determination from the contracting officer."
  
  
• Deferred Compensation and Postretirement Benefits Other Than Pensions: This rule finalizes, with changes, the proposed rule that would revise FAR 31.205-6, Compensation for Personal Services, specifically paragraph (k), which covers deferred compensation other than pensions, and paragraph (o), which covers postretirement benefits other than pensions.
  
  Paragraph (k) is revised to: (1) delete the first two sentences of paragraph (k)(l) because they duplicate the definition of deferred compensation at FAR 31.001, Definitions; (2) delete the third sentence of paragraph (k)(l) because it merely duplicates requirements at FAR 31.205-6(a); (3) delete paragraph (k)(3) because it is refers to awards made before Cost Accounting Standard 415, Accounting for the Cost of Deferred Compensation, went into effect, but Cost Accounting Standard 415 went into effect April 17, 1992; and (4) change the phrase "measured, allocated, and accounted for" to "measured, assigned, and allocated" to be consistent with the language used in the cost accounting standards.
  
  Paragraph (o) is revised by moving and revising the language in paragraphs (o)(3) through (o)(5) to paragraph (o)(2)(iii), Accrual Basis, because these requirements only apply to accrual costing other than terminal funding; and adding language to current paragraph (o)(6) (new paragraph (o)(3)) specifying how the contractor must handle refunds and credits.
  
  Four respondents submitted comments on the proposed rule, and several clarifications are made to the final rule in response to those comments. For more on the proposed rule, see the July 2003 Federal Contracts Perspective article "Proposed FAR Changes on Compensation, Unsolicited Proposals."
  
  
• Gains and Losses: This final rule amends three cost principles in FAR 31.205, Selected Costs, to address the timing of the gain or loss recognition of sale and leaseback arrangements of contractor depreciable property or other capital assets.
  
  FAR 31.205-16, Gains and Losses on Disposition or Impairment of Depreciable Property or Other Capital Assets, is amended to add language (as paragraph (b)) that "gain or loss is the difference between the net amount realized and the undepreciated balance of the asset on the date the contractor becomes a lessee." It goes on to explain procedures when this results in a loss.
  
  Paragraph (i)(1) of FAR 31.205-11, Depreciation, and paragraph (b)(2) of FAR 31.205-36, Gains and Losses on Disposition or Impairment of Depreciable Property or Other Capital Assets, are amended to state that the lease or rental costs are allowable "under a sale and leaseback arrangement only up to the amount the contractor would be allowed if the contractor retained title, computed based on the net book value of the asset on the date the contractor becomes a lessee of the property adjusted for any gain or loss recognized in accordance with [FAR] 31.205-16(b)."

DFARS Standardizes Definition of "United States"

The Department of Defense (DOD) has amended the DOD FAR Supplement (DFARS) to standardize the use of the term "United States" and associated geographic terms, in accordance with definitions found in the FAR. FAC 2001-14 amended the FAR to clarify the use of the term "United States" when used in a geographic sense. Definitions of "contiguous United States (CONUS)," "customs territory of the United States," and "outlying areas" were added to FAR 2.101, Definitions, and all other definitions of "United States" in the FAR were revised to conform to the FAR 2.101 definitions. (For more on FAC 2001-14, see the June 2003 Federal Contracts Perspective article "FAC 2001-14 Addresses Electronic Signatures, Federal Prison Industries, Cost Principles.")

DOD published a proposed rule to amend the DFARS to conform to the FAR definitions (see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added"). No comments were submitted on the proposed rule, so the proposed rule is adopted as final with changes to other DFARS sections that have been revised by other rule changes since publication of the proposed rule.

In addition to the "United States" changes, DOD proposes to amend the DFARS as follows:

• Competition Requirements for Federal Supply Schedules and Multiple Award Contracts: This proposed rule would amend DFARS Subpart 208.4, Federal Supply Schedules, to revise approval requirements for placement of noncompetitive orders exceeding $100,000 under Federal Supply Schedules for consistency with those in FAR 8.405-6, Sole Source Justification and Approval, and to apply the same ordering procedures to both supplies and services. Also, DFARS 216.505-70, Orders for Services, would be retitled "Orders Under Multiple Award Contracts, and would be revised to require that orders under multiple award contracts follow the same ordering procedures as under Federal Supply Schedules.
  
  Comments on this proposed rule must be submitted by August 1, 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.
  
  
• Describing Agency Needs: This proposed rule would amend DFARS Part 211, Describing Agency Needs, to update text on the use of specifications, standards, and data item descriptions in solicitations and contracts. In addition, several portions of DFARS Part 211 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 August 22, 2005, by any of the methods specified above.
  
  
• Combating Trafficking in Persons: This proposed rule would amend DFARS Subpart 225.74, Defense Contractors Outside the United States, to add implementing policy prohibiting activities on the part of DOD contractor employees that support or promote trafficking in persons, and to add the corresponding contract clause DFARS 252.225-70XX, Combating Trafficking in Persons.
  
  A new DFARS 225.7404, Combating Trafficking in Persons, which would mandate that DFARS 252.225-70XX be included in solicitations and contracts that require performance outside the United States.
  
  DFARS 252.225-70XX would require contractors to ensure that its employees and subcontractors do not engage in or support trafficking in persons, which is defined as "the recruitment, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, debt bondage, or slavery; and sex trafficking, including pimping, pandering, or maintaining brothels." Failure to take appropriate action against those who traffic in persons, or failure to report such trafficking on the part of its employees or subcontractors to the contracting officer, may result in the suspension of contract payments, loss of award fee, termination of the contract for default, or suspension or debarment.
  
  Comments on the proposed rule must be submitted on or before August 22, 2005, by any of the methods specified above.
  
  
• Construction Contracting: This proposed rule would amend DFARS Subpart 236.2, Special Aspects of Contracting for Construction, to relocate to the PGI text on distribution and use of contractor performance reports (paragraph (c) of DFARS 236.201, Evaluation of Contractor Performance), handling of government estimates of construction costs (DFARS 236.203, Government Estimate of Construction Costs), use of bid schedules with additive or deductive items (DFARS 236.213-70, Additive or Deductive Items), and technical working agreements with foreign governments (DFARS 236.274, Construction in Foreign Countries).
  
  Comments on the proposed rule must be submitted on or before August 22, 2005, by any of the methods specified above.
  
  
• Contractor Insurance/Pension Reviews: This proposed rule would amend DFARS Subpart 242.73, Contractor Insurance/Pension Review, to:
  
  
  • Update and clarify requirements and responsibilities for government review of a contractor's insurance programs, pension plans, and other deferred compensation plans (DFARS 242.7301, General -- the administrative contracting officer is responsible "for determining the need for a Contractor/Insurance Pension Review (CIPR)," and Defense Contract Audit Agency (DCAA) auditors are to "conduct CIPRS when needed"); and
    
    
  • Relocate the text of DFARS 242.7302, Requirements, and DFARS 242.7303, Responsibilities, to the PGI.
  
  Comments on the proposed rule must be submitted on or before August 22, 2005, by any of the methods specified above.

Finally, the Undersecretary of Defense (Acquisition, Technology, and Logistics) has extended for another year (until July 13, 2006) the waiver of the limitation on procurement of the following products from the United Kingdom (UK): air circuit breakers; welded shipboard anchor and mooring chain with a diameter of four inches or less; gyrocompasses; electronic navigation chart systems; steering controls; pumps; propulsion and machinery control systems; totally enclosed lifeboats; and ball and roller bearings.

The Under Secretary of Defense granted this waiver because the UK does not discriminate against defense items produced in the United States to a greater degree than the United States discriminates against defense items produced in the UK.

FAR to Address Alaskan, Indian Subcontracting Credit

A proposed rule has been published that would amend FAR Subpart 19.7, The Small Business Subcontracting Program, and FAR 52.219-9, Small Business Subcontracting Plan, to permit subcontracts awarded to certain Alaskan Native Corporations (ANCs) and Indian tribes to be counted towards a contractor's goals for subcontracting with small businesses, regardless of the size of the ANC or Indian tribe. Also, subcontracts awarded to ANCs would be counted towards a contractor's goals for small disadvantaged businesses (SDB) as well.

In addition, this proposed rule would require that, where one or more subcontractors are in the subcontract tier between the prime contractor and the ANC or Indian tribe, the ANC or Indian tribe designate the appropriate contractor to count the subcontract towards its small business and/or small disadvantaged subcontracting goals. In most cases, the appropriate contractor will be the contractor that awarded the subcontract to the ANC or Indian tribe. Industry is invited to comment on the feasibility of this approach and any alternatives.

The introduction to the proposed rule states that the law mandating this change "does not provide for such an ANC and any of its direct and indirect subsidiary corporations, joint ventures, and partnerships to be eligible for SDB or 8(a) certification unless the entity otherwise meets the requirements for certification under 15 U.S.C. 637. Similarly, the law does not provide for contractors to count subcontracts awarded to such an entity toward the evaluation of the extent of the participation of SDB concerns in the performance of certain North American Industry Classification System (NAICS) Industry codes unless the entity is certified as an SDB by SBA (FAR Subpart 19.12 [Small Disadvantaged Business Participation Program])."

Finally, contractors required to submit a small business subcontracting plan would be required to include separate percentage goals for subcontracts to ANC and Indian tribes.

Comments on the proposed rule must be submitted by August 2, 2005, to (a) http://www.regulations.gov; (b) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (c) e-mail: farcase.2004-017@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.

In another proposed rule, the FAR would be amended to ensure that a prime contractor's past performance would be considered as part of the overall assessment of performance on orders over $100,000. The contractor's subcontract management efforts would be used in past performance evaluations during source selection.

Currently, FAR Subpart 42.15, Contractor Performance Information, requires that contracting officers evaluate a contractor's past performance on all contracts exceeding $100,000. This proposed rule would amend FAR Subpart 42.15 to require contracting officers to evaluate a contractor's past performance, including an assessment of the contractor;s performance against, and efforts to achieve, the goals identified in the small business subcontracting plan for "each order excess of $100,000 placed against a Federal Supply Schedule contract or a task-order contract or delivery-order contract awarded by another agency (i.e., governmentwide acquisition contract or multi-agency contract)..." For single agency task order and delivery order contracts, performance evaluations for orders in excess of $100,000 would be at the discretion of the contracting officer "when such evaluations would produce more useful past performance information for source selection officials than that contained in the overall contract evaluation (e.g., when the scope of the basic contract is very broad and the nature of individual orders could be significantly different)."

Comments on this proposed rule must be submitted by August 22, 2005, by any of the methods mentioned above, except e-mail should be addressed to farcase.2004-012@gsa.gov.

NASA Amends Supplement on Access to Sensitive Info

The National Aeronautics and Space Administration (NASA) has amended the NASA FAR Supplement (NFS) to prescribe policy, procedures, and clauses to address how it acquire services to support management activities and administrative functions when performing those services requires the service provider to have access to sensitive information submitted by other contractors. This rule was necessitated by NASA's increased use of contractors to support management activities and administrative functions which, when coupled with implementing agency-wide electronic information systems, requires the establishment of consistent procedures for protecting sensitive information from unauthorized use or disclosure.

NFS 1809.505-4, Obtaining Access to Proprietary Information, is added. It states that the Assistant Administrator for Procurement has waived the FAR 9.505-4 requirement that, before gaining access to other companies' proprietary or sensitive information, contractors must enter specific agreements with each of those other companies to protect their information from unauthorized use or disclosure. As an alternative to numerous, separate third party agreements, new NFS 1837.203-70, Providing Contractors Access to Sensitive Information, prescribes detailed policy and procedures to protect contractors from unauthorized use or disclosure of their sensitive information.

To implement the procedures specified in NFS 1837.203-70, two clauses are added:

• NFS 1852.237-72, Access to Sensitive Information, which is required to be included in all solicitations and contracts for services that may require access to sensitive information belonging to other companies or generated by the government. NFS 1852.237-72 delineates the service provider's responsibilities to limit its use of sensitive information, to safeguard the information from unauthorized outside disclosure, and to train employees and obtain their written affirmation that he or she has received and will comply with training on the authorized uses and mandatory protections of sensitive information needed in performing the contract.
  
  
• NFS 1852.237-73, Release of Sensitive Information, which is required to be included in all solicitations, contracts, and basic ordering agreements. NFS 1852.237-73 requires the contractor to agree "that NASA may release to its service providers, their subcontractors, and their individual employees, sensitive information submitted during the course of this procurement, subject to the enumerated protections mandated by the clause at [NFS] 1852.237-72..."
  
  In addition, the clause requires contractors to identify information they claim to be "sensitive" that is submitted as part of the proposal or in the course of performing the contract.

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