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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

April 2006
Vol. VII, No. 4

CONTENTS

DFARS Rules Finalized on Contract Consolidations,
Component Breakout, Task Order Competitions

The Department of Defense (DOD) conducted a little spring cleaning in March of the Defense Federal Acquisition Regulation Supplement (DFARS) by finalizing four interim rules and three proposed rules. Also, DOD published two new proposed rules on electronic submission of payment requests and government property reporting.

• Consolidation of Contract Requirements: This finalizes, with changes, the interim rule that added DFARS 207.170, Consolidation of Contract Requirements, to prohibit combining two or more requirements of a DOD department, agency, or activity with a total value exceeding $5,000,000 into a single solicitation and contract "unless the acquisition strategy includes (1) the results of market research; (2) identification of any alternative contracting approaches that would involve a lesser degree of consolidation; and (3) a determination by the senior procurement executive that the consolidation is necessary and justified."
  
  Twenty-two respondents submitted comments in response to the interim rule. In response to those comments, the final rule clarifies that the rule applies to orders placed under Federal Supply Schedules (DFARS 207.170-2, Definitions, paragraph (a) under the "multiple award contract" definition); and adds DFARS 210.001, Policy [on market research], which addresses market research requirements for consolidation; and makes several editorial changes and clarifications. (EDITOR'S NOTE: For more on the interim rule, see the October 2004 Federal Contracts Perspective article "DOD Removes Iraq from List of Terrorist Countries.")
  
  
• Component Breakout: This rule removes DFARS Appendix D, Component Breakout, which contains DOD policy and procedures for breakout of components of end items for future acquisitions. The portions of Appendix D containing internal DOD procedures for component breakout have been relocated to the Procedures, Guidance, and Information (PGI), which is available at http://www.acq.osd.mil/dpap/dars/pgi. However, because of comments from the single respondent on the proposed rule, the portions of Appendix D containing DOD policy on component breakout have been retained in the DFARS and relocated to new DFARS 207.171, Component Breakout. (EDITOR'S NOTE: For more on the proposed rule, see the April 2005 Federal Contracts Perspective article "Acquisition Functions Addressed in DFARS Changes." For more on the PGI, 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 finalizes, with one change, the interim rule that placed limitations on the award of contracts for the performance of acquisition functions closely associated with inherently governmental functions. These limitations were included in a new DFARS Subpart 207.5, Inherently Governmental Functions.
  
  DFARS 207.503, Policy, which was added by the interim rule, provided 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 Federal Acquisition Regulation (FAR) 7.503(d) [Policy] 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])." Three respondents submitted comments on the interim rule, and subparagraph (d)(1)(B) is revised from "appropriate military or civilian DOD personnel...will supervise contractor performance of the contract" to "...will oversee contractor performance of the contract..." This change avoids implying that the DOD personnel will involved in a prohibited personal services contract. (EDITOR'S NOTE: For more on the interim rule, see the April 2005 Federal Contracts Perspective article "Acquisition Functions Addressed in DFARS Changes.")
  
  
• Competition Requirements for Federal Supply Schedules and Multiple Award Contracts: This finalizes, with one change, the proposed rule that would amend DFARS Subpart 208.4, Federal Supply Schedules, to apply the same ordering procedures to both supplies and services, and 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 (DFARS 208.405-70, Additional Ordering Procedures). Also, the proposed rule would retitle DFARS 216.505-70, Orders for Services, as "Orders Under Multiple Award Contracts," and revise it to require that orders under multiple award contracts follow the same ordering procedures as under Federal Supply Schedules.
  
  Four respondents submitted comments on the proposed rule. The single difference between the proposed and final rules is that the last sentence of DFARS 208.405-70, Additional Ordering Procedures, is removed and located in the PGI. It stated, "Posting of a request for quotations on the General Service Administration's electronic quote system, 'e-Buy' (http://www.gsaAdvantage.gov), is one medium for providing fair notice to all contractors..." Because it is information and not regulatory, DOD agreed with the respondent that the sentence was more appropriate for the PGI. (EDITOR'S NOTE: For more on the proposed rule, see the July 2005 Federal Contracts Perspective article "DFARS Standardizes Definition of 'United States'.")
  
  
• Approval of Service Contracts and Task and Delivery Orders: This finalizes, with changes, the interim rule that added DFARS Subpart 217.78, Contracts or Delivery Orders Issued by a Non-DOD Agency, to require certain review and approval requirements before using a non-DOD contract to procure supplies or services exceeding the simplified acquisition threshold.
  
  One respondent submitted comments on the interim rule, and minor editorial changes are made to the final rule. Also, PGI 217.7802, Policy, is established to address the data collection elements required by paragraph (e) of DFARS 217.7802, Policy. (EDITOR'S NOTE: For more on the interim rule, see the June 2005 Federal Contracts Perspective article "DFARS Addresses Task Orders Against Non-DOD Contracts.")
  
  
• Incentive Program for Purchase of Capital Assets Manufactured in the United States: This finalizes, which changes, the interim rule that established an incentive program for contractors to purchase capital assets manufactured in the United States, and provided consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.
  
  Six respondents commented on the interim rule. As a result, the phrase "when it is pertinent to the best value determination" is deleted from paragraph (c)(iii) of DFARS 215.304, Evaluation Factors and Significant Subfactors: "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." The reason for the deletion is that the phrase "is too vague and leaves too much discretion to the contractor or the DOD evaluator in deciding whether there is an advantage to purchasing U.S. machine tools." (EDITOR'S NOTE: For more on the interim rule, see the June 2005 Federal Contracts Perspective article "DFARS Addresses Task Orders Against Non-DOD Contracts.")
  
  
• Acquisition of Ball and Roller Bearings: This finalizes, with clarifying changes, the proposed rule that would establish a consistent exception for commercial bearings to restrictions on the acquisition of foreign ball and roller bearings. This rule amends DFARS 225.7009, Restrictions on Ball and Roller Bearings, and the associated clause at DFARS 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings, to update requirements pertaining to the acquisition of ball and roller bearings from domestic sources. Essentially, this rule deletes all the waivers to the basic rule, which is "Do not acquire ball and roller bearings or bearing components unless the bearings and bearing components are manufactured in the United States or Canada" (DFARS 225.7009-2, Restrictions). The sole remaining exception applies to "contracts or subcontracts for the acquisition of commercial items, except for commercial ball and roller bearings acquired as end items" (DFARS 225.7009-3, Exception).
  
  Eight respondents submitted comments on the proposed rule. In response to the comments, a definition of "component" is added to DFARS 252.225-7016(a), and the exceptions are more explicitly stated in DFARS 252.225-7016(c). (EDITOR'S NOTE: For more on the proposed rule, see the March 2005 Federal Contracts Perspective article "DFARS Transformation Continues by Addressing Taxes, Services, Utilities, Extraordinary Relief.")
  
  
• Technical Amendments: These technical amendments add the following cross-references to the PGI: (1) in DFARS 203.670, Prohibition on Persons Convicted of Fraud or Other Defense-Contract-Related Felonies, to PGI 203.570-1, Scope; (2) in DFARS 207.105, Contents of Written Acquisition Plans, to PGI 207.105(b)(19)(F) for consideration of antiterrorism measures in acquisition planning; (3) adding DFARS 209.105-1, Obtaining Information, to reference PGI 209.105-1, Obtaining Information, for guidance on using the Excluded Parties List System (http://www.epls.gov); and (4) in DFARS 229.101, Resolving Tax Problems, to PGI 229.101 for information on the designated legal counsels and on fuel excise taxes. In addition, the reference to DFARS 225.7401, General, in paragraph (d) of DFARS 252.225-7043, Antiterrorism/Force Protection for Defense Contractors Outside the United States, is replaced with a cross-reference to PGI 225.7403-1, General.
  
  
• Electronic Submission and Processing of Payment Requests: This proposed rule clarifies the situations under which DOD will grant exceptions to requirements for electronic submission of payment requests by contractors.
  
  DFARS Subpart 232.70, Electronic Submission and Processing of Payment Requests, and the corresponding clause DFARS 252.232-7003, Electronic Submission and Payment Requests, contain requirements for electronic submission and processing of contract payment requests. DFARS 232.7002, Policy, and DFARS 252.232-7003 provide exceptions to these requirements, including one that applies if "the contractor is unable to submit, or DOD is unable to receive, a payment request in electronic form." When this exception applies, "the contractor shall submit the payment request using a method mutually agreed to by the contractor, the contracting officer, the contract administration office, and the payment office." The text has caused differing interpretations as to what constitutes a contractor's inability to submit an electronic payment request, and whether the contracting officer, the contract administration office, and the payment office all must agree that the contractor is unable to submit an electronic payment request or if this decision is the sole authority of the contracting officer. To clarify the requirements, this proposed rule would:
  
  
  • Amend DFARS 232.7002(a) to replace the text with an exception that applies when the administrative contracting officer determines, in writing, that electronic submission would be unduly burdensome to the contractor.
    
    
  • Add a new paragraph DFARS 232.7002(c) to require the contracting officer to specify, in Section G of the contract, the payment request method to be used when electronic submission is not required.
    
    
  • Amend DFARS 252.232-7003 for consistency with the changes to DFARS 232.7002, and to add a reference to a DOD website (http://www.dod.mil/dfar/ecedi/) that will contain a listing of the DOD activities and payment systems that are unable to receive payment requests in electronic form.
  
  Comments on the proposed rule must be submitted no later than May 22, 2006, identified as "DFARS Case 2005-D009," by any of the following methods: (1) eRulemaking Portal: http://www.regulations.gov; (2) e-mail: dfars@osd.mil; (3) fax: 703-602-0350; (4) mail to: Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; or (5) hand-delivery or courier to: Defense Acquisition Regulations System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402.
  
  
• Reports of Government Property: This proposed rule would amend DFARS 252.245-7001, Reports of Government Property, to replace existing reporting requirements in DD Form 1662, DOD Property in the Custody of Contractors, with requirements for contractors to electronically submit, to the Item Unique Identification (IUID) Registry (http://www.acq.osd.mil/dpap/UID/) the IUID data applicable to the government property in the contractor's possession. Also, DFARS 252.245-7001 would require contractors to provide real property data to the owning military department's real property inventory system.
  
  Comments on the proposed rule must be submitted no later than April 20, 2006, identified as "DFARS Case 2005-D015," by any of the methods mentioned above.

USDA Designates Six Biobased Products for Procurement

The U.S. Department of Agriculture (USDA) is designating the first six "biobased items" (actually, generic groupings of biobased products) that must be given preference in government purchases: mobile equipment hydraulic fluids; roof coatings; water tank coatings; diesel fuel additives; penetrating lubricants; and bedding, bed linens, and towels. Also, the USDA is establishing minimum biobased content for each of these items.

Once USDA designates an item for preferred procurement under the Federal Biobased Products Preferred Procurement Program (FB4P), contracting activities are required to purchase those biobased products if the purchase price of the item exceeds $10,000 or the quantity of such items or of functionally equivalent items purchased during the preceding fiscal year equaled $10,000 or more. However, agencies may decide not to procure such items if they are not reasonably priced or readily available, or do not meet specified or reasonable performance standards.

Manufacturers of all products within a "biobased item" that meet the qualification requirements for preferred procurement can claim that status for their products, and they will be invited to post information on the product, contacts, and performance testing on its FB4P Web site, http://www.biobased.oce.usda.gov. However, two of these items (water tank coatings and bedding, bed linens, and towels) have only a single supplier of biobased products, so USDA is deferring the effective date for those items until at least two suppliers are making these items. The effective date for the other four items is March 16, 2007.

These are the first in a series of designated biobased items. USDA has identified about 150 items that could become biobased items, and it is collecting test data needed to make that determination.

Among the six biobased items are three that may overlap with Environmental Protection Agency (EPA)-designated recovered content products: mobile equipment hydraulic fluids, roof coatings, and penetrating lubricants. Products under these three items may overlap with lubricating oils containing re-refined oil and recovered content roofing materials, depending on how these products are to be used.

Where a biobased item is used for the same purposes and to meet the same requirements as an EPA-designated recovered content product, the agency must purchase the recovered content product. For example, if a biobased hydraulic fluid is to be used as a fluid in hydraulic systems and because "lubricating oils containing re-refined oil" has already been designated by EPA for that purpose, then the agency must purchase the EPA-designated recovered content product. However, if that biobased hydraulic fluid is to be used to address certain environmental or health requirements that the EPA-designated recovered content product would not meet, then the biobased product should be given preference, subject to cost, availability, and performance. (EDITOR'S NOTE: For more on the EPA-designated recovered content products, see the "Comprehensive Procurement Guidelines" website at http://www.epa.gov/cpg/index.htm.)

The process USDA uses to designate biobased items is in Title 7 of the Code of Federal Regulations (CFR), Part 2902, Guidelines for Designating Biobased Products for Federal Procurement. For more on the regulations, see the February 2005 Federal Contracts Perspective article "USDA Publishes Biobased Products Guidelines."

Each of these six items is addressed in a new section in 7 CFR Part 2902: sections 2902.10 through 2902.15. Each section contains a definition of the item, the minimum biobased content that the product must contain to qualify as biobased, the preference effective date, and exceptions.

For more on the proposal to designate these six biobased items, see the August 2005 Federal Contracts Perspective article "Agriculture Proposes Six Biobased Items."

FAR to Address Termination of Purchase Orders

A proposal has been published to amend Federal Acquisition Regulation (FAR) 13.302-4, Termination or Cancellation of Purchase Orders, to correct the inadvertent omission of language addressing the termination for cause of commercial purchase orders.

Currently, FAR 13.302-4(a) states, "If a purchase order that has been accepted in writing by the contractor is to be terminated, the contracting officer shall process the termination in accordance with -- (1) [FAR] 12.403(d) [Termination] and [FAR] 52.212-4(l) [Contract Terms and Conditions -- Commercial Items] for commercial items..." Both FAR 12.403(d) and FAR 52.212-4(l) address termination for convenience. Before the 1998 rewrite of FAR Part 13, Simplified Acquisition Procedures, FAR Part 13 identified both termination for cause ("in the event of any default by the contractor, or if the contractor fails to comply with any contract terms and conditions, or fails to provide the government, upon request, with adequate assurances of future performance") as well as termination for convenience as the methods available to contracting officers. Furthermore, FAR 12.403 permits the government to terminate a contract for commercial items either for convenience or for cause regardless of dollar value or the method used to procure the commercial item. Therefore, this proposed rule would amend FAR 13.302-4(a) by deleting the reference to paragraph (d) of FAR 12.403 and adding a reference to FAR 52.212-4(m), which addresses terminations for cause. The revised FAR 13.302-4(a)(1) would state, "[FAR] 12.403 and [FAR] 52.212-4(l) or (m) for commercial items..."

In addition, FAR 13.302-4(b)(2), which currently states, "If the contractor does not accept the cancellation or claims that costs were incurred as a result of beginning performance under the purchase order, the contracting officer shall process the termination action as prescribed in paragraph (a) of this subsection" would be revised to read "...the contracting officer shall process the action as a termination prescribed in paragraph (a) of this subsection." It is believed that this language is clearer than the current language.

Comments on the proposed change must be submitted by May 22, 2006, identified by "FAR case 2005-029" by any of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov; (2) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (3) e-mail: farcase.2005-029@gsa.gov; (4) fax: 202-501-4067; or (5) mail to: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405.

OMB Releases First Set of FY 2005 FAIR Act Inventories

On March 14, the Office of Management and Budget (OMB) released the first set of Fiscal Year 2005 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 first set are from the Departments of Defense, Education, Energy, Health and Human Services, Housing and Urban Development, Interior, Justice, Labor, State, Transportation, and Treasury; the Environmental Protection Agency, the National Aeronautics and Space Administration; the Small Business Administration; the Social Security Administration; the U.S. Agency for International Development; and several small agencies and commissions.

Interested parties have 30 working days from March 14 (that is, until April 25) to challenge the omission or inclusion of an activity on an agency's Commercial Activities Inventories list.

The Office of Federal Procurement Policy has made available a FAIR Act User's Guide at http://www.whitehouse.gov/OMB/procurement/fair-index.html to help interested parties review FY 2005 FAIR Act inventories.

More Nonmanufacturer Waivers Considered, One Denied

The Small Business Administration (SBA) is considering waiving the nonmanufacturer rule for the following industries because no small business manufacturers are supplying these classes of products to the federal government:

• Chemical and allied products (ammonia (except fertilizer material) merchant wholesalers; chemical gases merchant wholesalers; chemicals (except agriculture); compressed gases (except LP gas) merchant wholesalers; dry ice merchant wholesalers; gases, compressed and liquefied (except liquefied petroleum gas), merchant wholesaler; ice, dry, merchant wholesalers; industrial chemicals merchant wholesalers; liquefied gases (except LP) merchant wholesalers; organic chemicals merchant wholesalers; and welding gases merchant wholesalers) under North American Industry Classification System (NAICS) code 424690
  
  
• Ophthalmic lenses manufacturing under NAICS code 339115

Comments on the proposed waivers, or the identification of small businesses that provide these classes of products, must be submitted no later than March 24, 2006, for chemical and allied products, and March 29, 2006, for ophthalmic lenses manufacturing, to Edith Butler, Program Analyst, by telephone at 202-619-0422; by fax at 202-481-1788; or by e-mail to edith.butler@sba.gov.

Also, SBA is terminating the proposed nonmanufacturer rule waiver for water treatment chemicals under NAICS codes 325188 and 325199. SBA was unaware of any small businesses supplying that class of products to the federal government, so it proposed issuing a nonmanufacturer rule waiver (see the February 2006 Federal Contracts Perspective article "Nonmanufacturer Waiver Proposed for Water Chemicals"). However, SBA recently discovered the existence of several small business manufacturers that have provided those products to the government, so SBA is terminating the proposed waiver.

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

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

EPA Proposes Financing for Simplified Acquisitions

The Environmental Protection Agency (EPA) is proposing to amend the EPA Acquisition Regulation (EPAAR) to implement a procedure for financing purchases or commercial items made under simplified acquisition procedures. This proposed EPAAR revision will add a prescription and clause for contracting officers to use when approving advance or interim payments that are appropriate or customary in the commercial marketplace.

EPAAR 1532.003, Simplified Acquisition Procedures Financing, would be added. It would (1) permit contracting officers to authorize use of advance and interim payments at or below the micro-purchase threshold; (2) require approval at one level above the contracting officer, on a case-by-case basis, for advance and interim payments on orders for commercial items exceeding the micropurchase threshold and not exceeding the simplified acquisition threshold; (3) require the contracting officer to document the file with supporting rationale demonstrating that the purchase meets the conditions of paragraphs (b)(1), (b)(3), and (b)(4) of FAR 32.202-1, Policy [on Commercial Item Purchase Financing]: (b)(1) the item being financed is a commercial supply or service; (b)(3) the contracting officer determines it is appropriate or customary in the commercial marketplace to make financing payments for the item; and (b)(4) the financing is in the best interest of the government; and (4) require that EPAAR 1552.232-74, Payments -- Simplified Acquisition Procedures Financing, be included in solicitations and orders that will provide such financing. EPAAR 1552.232-74 would require the contracting officer to identify the type of financing being authorized (advance (prior to performance) and/or interim (according to payment schedule)), and to specify the payment schedule.

Comments on the proposed rule must be submitted no later than May 12, 2006, identified as "Docket ID No. OARM-2006-0126," by any of the following methods: (1) eRulemaking Portal: http://www.regulations.gov; (2) http://www.epa.gov/edocket (the preferred method); (3) e-mail: oei.docket@epa.gov; or (4) mail to: EPA Docket Center, Environmental Protection Agency, Mailcode: 28221T, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

For further information, contact Tiffany Schermerhorn, 202-564-9902; e-mail: schermerhorn.tiffany@epa.gov.

EDITOR'S NOTE: Though EPA insists "the EPAAR changes are consistent with the Federal Acquisition Regulation," it is interesting to note that one condition for use of financing, specified in FAR 32.202-1(b)(2) is: "The contract price exceeds the simplified acquisition threshold." EPA purposely left this out of the contracting officer's required supporting rationale. Why does EPA feel it needs to finance such small buys of commercial items when the rest of the government is prohibited from doing so?

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