FedGovContracts.com

Panoptic Enterprises'

FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

December 2007
Vol. VIII, No. 12

CONTENTS

Contractors Required to Develop
Codes of Business Ethics and Conduct

Federal Acquisition Circular (FAC) 2005-22 consists of two new rules that amend the Federal Acquisition Regulation (FAR): (1) the addition of FAR Subpart 3.10, Contractor Code of Business Ethics and Conduct, and corresponding contract clauses to address requirements for a contractor code of business ethics and conduct and the display of federal agency Office of the Inspector General (OIG) Fraud Hotline Posters; and (2) the addition of FAR 52.223-15, Energy Efficiency in Energy-Consuming Products, to require that all acquisitions of energy consuming-products and all contracts that involve the furnishing of energy-consuming products require acquisition of ENERGY STAR® or Federal Energy Management Program (FEMP) designated products.

• Contractor Code of Business Ethics and Conduct: While federal contracting officials have been subject for years to prohibitions against unethical behavior, no such prohibitions have applied to contractors. This rule adds FAR Subpart 3.10, which states that all contractors "should" have a written code of business ethics and conduct, a compliance training program, and an internal control system (FAR 3.1002, Policy). It goes on to require contractors with contracts exceeding $5,000,000 and with a performance period of 120 days or more to have (1) a written code of business ethics and conduct within 30 days after contract award, and (2) to establish an awareness program and internal control system within 90 days after contract award (FAR 52.203-13, Contractor Code of Business Ethics and Conduct). The requirement to establish an awareness program and internal control system does not apply to small businesses.
  
  In addition, FAR 52.203-14, Display of Hotline Poster(s), must be included in contracts that exceed $5,000,000 (or a lesser amount established by the agency), and the contracting agency has a fraud hotline poster or the contract is funded with disaster assistance funds. It requires the contractor to display "any agency fraud hotline poster or Department of Homeland Security (DHS) fraud hotline poster," and "if the contractor maintains a company website as a method of providing information to employees, the contractor shall display an electronic version of the poster(s) at the website."
  
  These two clauses are not required to be included in contracts awarded under the procedures of FAR Part 12, Acquisition of Commercial Items, or contracts that will be performed entirely outside the United States.
  
  There were 27 respondents who submitted comments on the proposed rule (see the March 2007 Federal Contracts Perspective article "Contractor Code of Ethics Proposed, Would Be Required for Awards Over $5 Million"). As a result of those comments, the following changes were made to the final rule:
  
  
  • Small businesses are exempt from the requirement to establish an awareness program and internal control system;
    
    
  • The contracting officer is given the authority to increase the 30 day period for preparation of a code of business ethics and conduct, and the 90 day period for establishment of an ethics awareness and compliance program and internal control system, upon request of the contractor;
    
    
  • FAR 52.203-XX, Contractor Code of Business Ethics and Conduct, which as originally proposed was to have three alternates, is divided into FAR 52.203-13, which addresses the contractor code of business ethics and conduct, and FAR 52.203-14, which addresses the requirements for hotline posters; and
    
    
  • A contractor does not need to display government fraud hotline posters if it has established a mechanism by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports.
  
  In addition, a related proposed rule was published earlier in the month to implement a Department of Justice (DOJ) request to: (1) require contractors to have a code of ethics and business conduct, (2) establish and maintain specific internal controls to detect and prevent improper conduct in connection with the award or performance of government contracts or subcontracts, and (3) to notify contracting officers without delay whenever they become aware of violations of federal criminal law with regard to government contracts or subcontracts. While the FAC 2005-22 final rule covers some of the same areas requested by DOJ, several aspects of the DOJ request go beyond FAC 2005-22.
  
  The most significant changes that would be made by this proposed rule are:
  
  
  • FAR 9.104-1, General Standards [of Responsibility], would be amended to add a cross-reference to FAR Subpart 42.15, Contractor Performance Information, and FAR 42.1501, General, would be amended to add "the contractor's record of integrity and business ethics" as relevant information to be included in past performance information.
    
    
  • FAR 52.203-13(c) would be modified to more closely match the U.S. Sentencing Commission Guidelines Manual, Section 8B2.1 (http://www.ussc.gov/). The U.S. Sentencing Guidelines provide guidance on what the U.S. Sentencing Commission expects in the way of an effective compliance and ethics program from organizations convicted of a felony or Class A misdemeanor.
    
    
  • FAR 9.406-2, Causes for Debarment, and FAR 9.407-2, Causes for Suspension, would be amended to include as a new cause for debarment or suspension a knowing failure to timely disclose an overpayment on a government contract or violation of federal criminal law in connection with the award or performance of any government contract performed by the contractor or any subcontract thereunder.
  
  Comments on the proposed rule must be submitted no later than January 14, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. Identify such comments as "FAR Case 2007-006."
  
  
• Implementation of Section 104 of the Energy Policy Act of 2005: Section 104 of the Energy Policy Act of 2005 requires that all acquisitions of energy consuming-products and all contracts that involve the furnishing of energy-consuming products require acquisition of ENERGY STAR® or Federal Energy Management Program (FEMP) designated products. FAR 23.203, Energy-Efficient Products, required the purchase of ENERGY STAR® or other energy-efficient items on the FEMP Product Energy Efficiency Recommendations list "if life-cycle cost-effective and available." However, this requirement was frequently overlooked in services and construction contracts because there was no implementing clause. Therefore, FAR 52.223-15, Energy Efficiency in Energy-Consuming Products, is added, and it is required to be included in solicitations and contracts when energy-consuming products listed in the ENERGY STAR® program or FEMP will be (1) delivered by the contractor; (2) furnished by the contractor in the performance of services at a federally-controlled facility; or (3) specified in the design, construction, renovation, or maintenance of a facility (see new FAR 23.206, Contract Clause). Nevertheless, the contracting officer can exempt contracts from this requirement when (1) no ENERGY STAR® or FEMP-designated product is reasonably available that meets the functional requirements of the agency; or (2) no ENERGY STAR® or FEMP-designated product is cost effective over the life of the product taking energy cost savings into account.
  
  Seven respondents submitted comments on the proposed rule (see the January 2007 Federal Contracts Perspective article "Proposed FAR Rules Stress Conservation"). As a result of these comments, the clause was modified to: (1) clarify that the energy-consuming products must be ENERGY STAR® or FEMP-designated at the time of contract award, not throughout the lifetime of the product (FAR 52.223-15(b)); (2) the editorial comment that contracting officer exemptions "should be rare as such products are normally life-cycle cost effective" is deleted; and (3) the FEMP website address has been updated.
  
  EDITOR'S NOTE: The ENERGY STAR® program is intended to protect the environment through energy efficient products and practices. The original focus of the ENERGY STAR® program was office equipment, but it has been expanded to include many other consumer products as well as business products. The ENERGY STAR® program allows manufacturers of products with superior energy efficiency that meet or exceed specified criteria to use the ENERGY STAR® logo on their products to assist consumers in selecting the energy efficient products. Its website is http://www.energystar.gov.
  
  FEMP was designed to reduce energy consumption in federal buildings. FEMP publishes Energy Efficient Purchasing specifications that identify the energy efficiency requirements. Energy efficiency in the FEMP program is targeted to those products in the top 25% of energy efficiency in their class as well as products with low standby power. Its website is http://www1.eere.energy.gov/femp/procurement/eep_requirements.html.

Waiver of Another Nonmanufacturer Rule Proposed

The Small Business Administration (SBA) is proposing to waive the nonmanufacturer rule for electromedical and electrotherapeutic apparatus manufacturing, diagnostic equipment, MRI (magnetic resonance imaging) manufacturing; MRI medical diagnostic equipment manufacturing; medical ultrasound equipment manufacturing; MRI medical diagnostic equipment manu-facturing; patient monitoring equipment (e.g., intensive care coronary care unit) manufacturing; and PET (positron emission equipment tomography) scanners manufacturing under North American Industry Classification System (NAICS) code 334510 because SBA is unaware of any small business manufacturers supplying these products to the federal government.

SBA is inviting the public to comment on this proposed waiver, or provide information on potential small business sources for these products, by November 30, 2007, to Edith G. Butler, Program Analyst, U.S. Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

FAC 2005-21 Rewrites FAR Part 27 in Plain English

FAC 2005-21 contains a number of significant FAR changes, the largest and possibly most significant being the rewrite of FAR Part 27, Patents, Data, and Copyrights. Other rules in FAC 2005-21 address implementation of the SAFETY Act; the biobased products preference program; removal of references to the Federal Computer Network (FACNET); the exemption of certain service contracts from the Service Contract Act (SCA); and further implementation of the Local Community Recovery Act of 2006.

• Plain Language Rewrite of FAR Part 27: This final rule clarifies, streamlines, and updates FAR Part 27 and the associated clauses on patents, data, and copyrights. This effort focused on rewriting the current FAR language into "plain language" so the policies and procedures would be more understandable to the reader and to make clearer the distinction between the rights and obligations of the contractor and the government. The introduction to the rule states, "This rewrite was not intended to include substantive changes to Part 27 policies or procedures, except where necessary to comply with current statutory or regulatory requirements, or to resolve internal inconsistencies within FAR Part 27 and its associated clauses."
  
  The following is a summary of the rewrite:
  
  
  • FAR Subpart 27.1, General, is rewritten to make it more succinct and to eliminate extraneous text.
    
    
  • FAR Subpart 27.2, Patents and Copyrights, is rewritten to better explain the purpose behind the use of the authorization and consent clause and its alternatives, the notification and assistance clause, the patent indemnity clause and its alternatives, and the patent royalty clause.
    
    
  • FAR Subpart 27.3, Patent Rights Under Government Contracts, primarily implements the Bayh-Dole Act (Title 35 U.S.C. Chapter 18), which has a long and involved history, thus creating many legal nuances. The main concept behind the Bayh-Dole Act is to allow small businesses and nonprofit organizations to commercialize subject inventions. This was changed when President Reagan issued a presidential memorandum and then an executive order that made the act applicable to all entities regardless of size. However, Congress later amended the act to make only several of its sections applicable to large for-profit businesses. Accordingly, there is an inherent statutory distinction between small business/nonprofits and large for-profits. Many of the sections are retitled and alternate words are used to help clarify some of the misinterpretations of this subpart that have occurred in the past.
    
    
  • FAR Subpart 27.4, Rights in Data and Copyrights, is changed to provide clarity and updated information. For example, the coverage of copyrighted works previous to this rule was premised on law that has long been changed.
    
    
  • FAR Subpart 27.5, Foreign License and Technical Assistance Agreements (formerly FAR Subpart 27.6), is reduced to a single sentence: "Agencies shall provide necessary policy and procedures regarding foreign technical assistance agreements and license agreements involving intellectual property, including avoiding unnecessary royalty charges." The remainder of the coverage of the old FAR Subpart 27.6 is now addressed in the other subparts.
  
  Comments in response to the proposed rule produced many changes, most of them editorial in nature. For more on the proposed rule, see the June 2003 Federal Contracts Perspective article "FAR Rewrite Proposed for Patents and Copyrights."
  
  
• Implementation of Department of Homeland Security (DHS) Regulations on the SAFETY Act: This interim rule adds FAR Subpart 50.2, Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 [SAFETY Act], to furnish liability protections for providers of certain anti-terrorism technologies. The SAFETY Act provides incentives for the development and deployment of anti-terrorism technologies by creating a system of "risk management" and a system of "litigation management." The purpose of the SAFETY Act is to ensure that the threat of liability does not deter potential manufacturers or sellers of anti-terrorism technologies from developing, deploying, and commercializing technologies that could save lives.
  
  DHS published a rule in 2006 in which DHS conferred liability limitations by issuing the seller either a "SAFETY Act designation" or "SAFETY Act certification" that its technology is a Qualified Anti-Terrorism Technology (QATT). Sellers must submit an application to be considered by DHS for either of these. (EDITOR'S NOTE: DHS has identified the following as QATTs: (1) vulnerability assessment and countermeasure and counter-terrorism planning tools; (2) first responder interoperability solution; (3) marine traffic management system; (4) security services, guidelines, systems, and standards; (5) vehicle and cargo inspection system; (6) X-ray inspection system; (7) trace explosives detection systems and associated support services; (8) maintenance and repair of screening equipment; (9) risk assessment platform; (10) explosive and weapon detection equipment and services; (11) biological detection and filtration systems; (12) passenger screening services; (13) baggage screening services; (14) chemical, biological, or radiological agent release detectors; (15) vehicle barriers; (16) first responder equipment; and (17) architectural and engineering "hardening" products and services.)
  
  The DHS SAFETY Act certification of a technology as an "approved product" (proven to be safe and effective) confers a critical additional benefit over SAFETY Act designation. It confers a rebuttable presumption that sellers are entitled to the "government contractor defense," in other words, a seller of an "approved product" cannot be held liable for design defects.
  
  The SAFETY Act applies to a broad range of technologies, including products, services, and software as long as DHS determines that a technology merits SAFETY Act designation. DHS may designate a system containing many component technologies (including products and services) or may designate specific component technologies individually. Further, as the statutory criteria suggest, a QATT need not be newly developed -- it may have already been employed (for example, "prior United States government use") or may be a new application of an existing technology.
  
  DHS established a streamlined review procedure for providing SAFETY Act coverage for qualified sellers of certain categories of technologies. Those designations or certifications are known as "block designations" or "block certifications." Also, DHS established another streamlined procedure where a contracting agency can seek a preliminary determination of SAFETY Act applicability, a "pre-qualification designation notice," with respect to a technology to be procured by the government. (EDITOR'S NOTE: Additional information about the SAFETY Act may be found at http://www.SAFETYAct.gov.)
  
  New FAR Subpart 50.2 contains the regulations for implementing DHS' regulations on the SAFETY Act. One of the most significant sections is FAR 50.204, Policy, in that it provides the overarching policy for implementing the SAFETY Act in government acquisitions. FAR 50.204 provides that agencies should: (1) determine whether the technology to be procured is appropriate for SAFETY Act protections; (2) encourage offerors to seek SAFETY Act protections for their offered technologies, even in advance of the issuance of a solicitation; and (3) not mandate SAFETY Act protections for acquisitions because applying for SAFETY Act protections for a particular technology is the choice of the offeror.
  
  FAR 52.250-2, SAFETY Act Coverage Not Applicable, is to be include in the solicitation if, after consultation with DHS, the agency determines that SAFETY Act protection is not applicable for the acquisition, or DHS denies approval of a pre-qualification designation notice. When DHS has issued a block designation/certification or a pre-qualification designation notice for the solicited technologies, either FAR 52.250-3, SAFETY Act Block Designation/Certification, or FAR 52.250-4, SAFETY Act Pre-Qualification Designation Notice, is to be included in the solicitation. FAR 52.250-5, SAFETY Act -- Equitable Adjustment, may be included in contract if DHS does not issue a SAFETY Act designation or SAFETY Act certification to the successful offeror by the time of contract award. This clause allows for an equitable adjustment if DHS denies the contractor's SAFETY Act application.
  
  Comments on the interim rule must be submitted no later than January 7, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. Identify such comments as "FAC 2005-21, FAR Case 2006-023."
  
  
• Biobased Products Preference Program: This final rule implements Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA) (Public Law 107-171), which requires that federal agencies consider maximum practicable use of biobased products when acquiring products and services, by revising FAR Subpart 23.4, Use of Products Containing Recovered Materials and Biobased Products (formerly titled "Use of Recovered Materials") to incorporate the biobased procurement preference for items designated by the Secretary of Agriculture. The biobased procurement preference program applies to acquisitions by federal agencies using federal funds for procurement, as well as government contractors that use U.S. Department of Agriculture (USDA)-designated items in performance of a government contract. (EDITOR'S NOTE: Section 9002 requires the USDA to: (1) designate items which are or can be produced with biobased products, (2) establish recommended practices with respect to the procurement of products within the designated items, and (3) provide information as to the availability, relative price, performance, and environmental and public health benefits of such items. For a list of designated items and more on the biobased products preference program, go to http://www.usda.gov/biopreferred.)
  
  Among the significant changes to FAR Subpart 23.4 are those made to FAR 23.400, Scope of Subpart, which is revised to state that agencies are required to comply with the subpart for both the biobased program and the Environmental Protection Agency's (EPA) recovered materials program (which had been the sole subject of FAR Subpart 23.4) if: (1) the price of the designated item exceeds $10,000, or (2) the aggregate amount paid for designated items, or for functionally equivalent designated items, in the preceding fiscal year was $10,000 or more. However, FAR 23.404, Agency Affirmative Procurement Programs, and FAR 23.405, Procedures, exempt agencies from the requirement to acquire designated items if it is determined that they cannot be acquired: (1) competitively within a reasonable time frame; (2) meeting reasonable performance standards; or (3) at a reasonable price.
  
  In addition, this rule adds the provision FAR 52.223-1, Biobased Product Certification, in solicitations that require the delivery or specify the use of USDA-designated items or include the clause FAR 52.223-2, Affirmative Procurement of Biobased Products Under Service and Construction Contracts. FAR 52.223-2 is to be included in service or construction solicitations and contracts unless the contract will not involve the use of USDA-designated items at http://www.usda.gov/biopreferred.
  
  Six respondents submitted comments on the proposed rule. As a result, the certification in FAR 52.223-1 is included in the Online Representations and Certifications Application (ORCA), and included in the list of clauses at FAR 4.1202, Solicitation Provision and Contract Clause, that are not to be used in contracts when FAR 52.204-7, Central Contractor Registration [CCR], is included in the solicitation. For more on the proposed rule, see the January 2007 Federal Contracts Perspective article "Proposed FAR Rules Stress Conservation."
  
  
• Exemption of Certain Service Contracts from the Service Contract Act (SCA): This interim rule amends FAR 22.1003-4, Administrative Limitations, Variations, Tolerances, and Exemptions, revises one clause, and adds three clauses to implement the U.S. Department of Labor's (DOL) rule issued January 18, 2001, which exempted certain contracts for services that meet specific criteria from coverage under the Service Contract Act. This interim rule imposes the DOL criteria on the FAR. (EDITOR'S NOTE: For more on the DOL rule, see the February 2001 Federal Contracts Perspective article "Labor Revises Davis-Bacon, Service Contract Act Regs.")
  
  Prior to this rule, FAR 22.1003-4 exempted contracts (or subcontracts) principally for the maintenance, calibration, or repair of certain equipment if: (1) the items of equipment are used regularly for other than government purposes and are sold or traded by the contractor in substantial quantities to the general public in the course of normal business operations; (2) the contract services are furnished at prices which are, or are based on, established catalog or market prices; (3) the contractor utilizes the same compensation (wage and fringe benefits) plan for all service employees performing work under the contract as the contractor uses for equivalent employees servicing the same equipment of commercial customers; and (4) the contractor certifies in the contract that it meets these criteria.
  
  This interim rule exempts contracts for the following additional services:
  
  
  • Automobile or other vehicle (e.g., aircraft) maintenance services (other than contracts or subcontracts to operate a government motor pool or similar facility)
    
    
  • Financial services involving the issuance and servicing of cards (including credit cards, debit cards, purchase cards, smart cards, and similar card services)
    
    
  • Hotel/motel services for conferences, including lodging and/or meals, that are part of the contract or subcontract for the conference (which must not include ongoing contracts for lodging on an as needed or continuing basis)
    
    
  • Maintenance, calibration, repair, and/or installation (where the installation is not subject to the Davis-Bacon Act) services for all types of equipment where the services are obtained from the manufacturer or supplier of the equipment under a contract awarded on a sole source basis
    
    
  • Transportation by common carrier of persons by air, motor vehicle, rail, or marine vessel on regularly scheduled routes or via standard commercial services (not including charter services)
    
    
  • Real estate services, including real property appraisal services, related to housing federal agencies or disposing of real property owned by the government
    
    
  • Relocation services, including services of real estate brokers and appraisers to assist federal employees or military personnel in buying and selling homes (which shall not include actual moving or storage of household goods and related services)
  
  To reflect this addition, FAR 52.222-48, Exemption from Application of the Service Contract Act to Contracts for Maintenance, Calibration, or Repair of Certain Equipment -- Certification, is amended, and the following clauses are added:
  
  
  • FAR 52.222-51, Exemption from Application of the Service Contract Act to Contracts for Maintenance, Calibration, or Repair of Certain Equipment -- Requirements, in solicitations that include FAR 52.222-48, and resulting contracts in which the contracting officer has determined that the Service Contract Act does not apply.
    
    
  • FAR 52.222-52, Exemption from Application of the Service Contract Act to Contracts for Certain Services -- Certification, in solicitations that include FAR 52.222-41, Service Contract Act of 1965, as Amended, but the contract may be exempt from the Service Contract Act.
    
    
  • FAR 52.222-53, Exemption from Application of the Service Contract Act to Contracts for Certain Services -- Requirements, in solicitations that include FAR 52.222-52, and resulting contracts in which the contracting officer determines that the Service Contract Act does not apply.
  
  Comments on the interim rule must be submitted no later than January 7, 2008, by any of the means mentioned above, except that the comments are to be identified as "FAC 2005-21, FAR Case 2001-004."
  
  
• Local Community Recovery Act of 2006: This second interim rule implements amendments made to the Stafford Act subsequent to the initial interim rule, which amended the FAR coverage on the Stafford Act to implement the Local Community Recovery Act of 2006 (Public Law 109-218), by addressing set-asides for major disaster or emergency assistance acquisitions to businesses that reside or primarily do business in the geographic area affected by the disaster or emergency. (EDITOR'S NOTE: For more on the first interim rule, see the September 2006 Federal Contracts Perspective article "New Set-Aside Authorized for Major Disaster or Emergency Assistance Acquisitions.")
  
  After the first interim rule was published, Congress further amended the Stafford Act in the Department of Homeland Security Appropriations Act of 2007 (Public Law 109-295). The amended statute contains requirements for transitioning work to local firms in the geographic area affected by the disaster or emergency and for justifications for expenditures to entities outside the major disaster or emergency area. This second interim rule encompasses these changes. Also, this second interim rule addresses the comments submitted by four respondents on the first rule.
  
  The recent amendment to the Stafford Act provided (1) that any expenditure of funds on contracts not awarded to local area organizations, firms or individuals must be justified in writing in the contract file; and (2) that work performed under contracts already in effect be transitioned to local area organizations, firms or individuals, unless the head of the agency determines it is not feasible or practicable. New FAR 26.203, Transition of Work, implements this mandate. It emphasizes the wisdom of awarding contracts in advance of an emergency, but stresses that contracting officers should not award contracts with unnecessarily broad scopes of work or that are so lengthy they make transition to a local firm awkward.
  
  In making the transition, FAR 26.203(d) states that agencies are not required to terminate or renegotiate existing contracts. However, agencies should transition the work at the earliest practical opportunity after consideration of the following: (1) the potential duration of the disaster or emergency; (2) the severity of the disaster or emergency; (3) the scope and structure of the existing contract, including its period of performance and the milestone(s) at which a transition is reasonable (e.g., before exercising an option); (4) the potential impact of a transition, including safety, national defense, and mobilization; and (5) the expected availability of qualified local offerors who can provide the products or services at a reasonable price.
  
  In implementing the comments on the first interim rule, FAR Subpart 6.6, Stafford Act Preference for Local Area Contractor, is deleted as unnecessary. The only portion of FAR Subpart 6.6 that is retained is the statement in FAR 6.602, Set-Asides for Local Firms During a Major Disaster or Emergency, that no separate justification or determination and findings are required for a local area set-aside. This statement has been moved to new FAR 6.207, Set-Asides for Local Firms During a Major Disaster or Emergency.
  
  In addition, a comment pointed out that the first interim rule does not address whether the phrase "offerors residing or doing business primarily in the area affected" excludes branch offices of corporations headquartered elsewhere. The comment described a scenario where a branch office could meet all the qualifications in FAR 52.226-3, Disaster or Emergency Area Representation ("during the last twelve months, (1) the offeror had its main operating office in the area; and (2) that office generated at least half of the offeror's gross revenues and employed at least half of the offerors permanent employees") and still not have the corporate business meet the adjective test of "primarily" doing business within the affected region. While it is believed that the intent of Congress was to favor firms in the local area who hire local people, and a local branch office hires local people, the contract would not be restricted to the branch office because the branch office is not the contracting entity. Comments are invited on this issue.
  
  Comments on the second interim rule must be submitted no later than January 7, 2008, by any of the means mentioned above, except that the comments are to be identified as "FAC 2005-21, FAR Case 2006-014."
  
  
• Federal Computer Network (FACNET) Architecture: This final rule removes references to FACNET from the FAR, particularly FAR Part 5, Publicizing Contract Actions, and FAR Part 13, Simplified Acquisition Procedures. This is in recognition that the use of the FACNET automated procurement system was mandated in 1994, when the Internet was in its infancy, but that the explosive development and evolution of the Internet since then has made dedicated electronic commerce systems such as FACNET obsolete.
  
  No comments were submitted in response to the proposed rule, so the proposed rule is adopted as final without changes. For more on the proposed rule, see the March 2007 Federal Contracts Perspective article "References to FACNET to be Deleted."
  
  
• Labor Standards for Contracts Containing Construction Requirements -- Contract Pricing Method References: This final rule amends paragraph (c)(2) of FAR 22.404-12, Labor Standards for Contracts Containing Construction Requirements and Option Provisions that Extend the Term of the Contract, to remove the reference to "R.S. Means Cost Estimating System" as a commercial source for pricing data. The reason for this change is to not show favor to any commercial product. The revised language deletes the specified product and allows the contracting officer to choose any commercial product, thus providing contracting officers greater flexibility for when selecting sources of pricing data.

DOD Waives Specialty Metals Restriction for COTS

The Department of Defense (DOD) is amending the Defense FAR Supplement (DFARS) to waive the application of 10 U.S.C. 2533b for acquisitions of commercially available off-the-shelf (COTS) items. 10 U.S.C. 2533b was established by Section 842 of the National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364), and it places restrictions on the acquisition of specialty metals not melted or produced in the United States.

Section 842, Protection of Strategic Materials Critical to National Security, prohibits the procurement of aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition, or components, that contain a specialty metal not melted or produced in the United States. Also, this prohibition applies to the direct purchase of specialty metals or purchases by a prime contractor.

Paragraph (a) of 41 U.S.C. 431, Commercially Available Off-the-Shelf Item Acquisitions: Lists of Inapplicable Laws in Federal Acquisition Regulation, requires that the FAR list the provisions of law that are inapplicable to contracts and subcontracts for COTS items. This list is in FAR 12.503, Applicability of Certain Laws to Executive Agency Contracts for the Acquisition of Commercial Services. Inapplicable provisions of law must be included on that list unless the Administrator of the Office of Federal Procurement Policy (OFPP) makes a written determination that it would not be in the best interest of the United States to exempt contracts for COTS items from the applicability of that provision of law. DOD consulted with the OFPP Administrator, and he did not make a written determination that it is not to be in the best interest of the United States to exempt COTS contracts from the applicability of 10 U.S.C. 2533b. Therefore, DOD is adding DFARS 212.570, Applicability of Certain Laws to Contracts and Subcontracts for the Acquisition of Commercially Available Off-the-Shelf Items, which lists 10 U.S.C. 2533b as inapplicable to contracts and subcontracts for the acquisition of COTS items; and (2) adds paragraph (q) to DFARS 225.7002-2, Exceptions, which identifies acquisitions of COTS items containing specialty metals as an exception to the Berry Amendment (which is 10 U.S.C. 2533a).

There were 41 respondents who submitted comments on the proposed rule. The final rule differs from the proposed rule in that both DFARS 212.570 and DFARS 225.7002-2(q) have been modified to clarify that the inapplicability of 10 U.S.C. 2533b to COTS items does not include specialty metals acquired directly by the government or prime contractor for delivery to the government as an end item. For more on the proposed rule, see the August 2007 Federal Contracts Perspective article "Specialty Metals Waiver Proposed for COTS."

Clause Addressing HSPD-12 Proposed for DOSAR

The Department of State (DOS) is proposing to amend the DOS Acquisition Regulation (DOSAR) to add the clause DOSAR 652.204-70, Department of State Personal Identification Card Issuance Procedures, to implement the requirements of Homeland Security Presidential Directive 12 (HSPD-12), Policy for a Common Identification Standard for Federal Employees and Contractors; Federal Information Processing Standards Publication (FIPS PUB) Number 201, Personal Identity Verification (PIV) of Federal Employees and Contractors; and associated OMB guidance M-05-24. HSPD-12, FIPS PUB 201, and OMB Memo M-05-24 apply to solicitations and contracts that require the contractor to have routine physical access to a federally-controlled facility and/or routine access to a federally-controlled information system. (EDITOR'S NOTE: OMB guidance M-05-24 is available at http://www.whitehouse.gov/omb/memoranda/fy2005/m05-24.pdf (HSPD-12 is Attachment B to the guidance); and FIPS PUB 201 is available at http://csrc.nist.gov/publications/fips/fips201-1/FIPS-201-1-chng1.pdf.)

FAC 2005-07 included an interim rule that implemented HSPD-12, FIPS PUB 201, and OMB guidance M-05-24 by adding FAR Subpart 4.13, Personal Identity Verification of Contractor Personnel, and the corresponding clause at FAR 52.204-9. However, federal agencies need to customize these policies and procedures to meet their mission needs, so the FAR interim rule did not provide specific procedural language for inclusion in affected contracts, but merely required that contractors "comply with agency personal identity verification procedures identified in the contract." (EDITOR'S NOTE: For more on the FAR implementation of HSPD-12 and FIPS PUB 201, see the February 2006 Federal Contracts Perspective article "Performance-Based Acquisition Procedures Revised.")

This proposed rule would add a new contract clause DOSAR 652.204-70 to implement DOS' requirements regarding personal identity verification of contractor personnel. DOSAR 652.204-70 will apply to contracts that require contractor employees to perform on-site at a DOS location and/or that require contractor employees to have access to DOS information systems.

DOS 652.204-70 directs contractors to the Internet website http://www.state.gov/m/ds/rls/rpt/c21664.htm, which outlines the personal identity verification procedures for various types of contractors (cleared and uncleared), location of performance (domestic facilities; domestic -- Washington, DC metro area facilities; and overseas facilities), and the access requirements (physical; logical; or both).

Also, DOSAR 652.237-71, Identification/Building Pass, would be removed because the process it prescribes for issuing building passes to contractors working on-site at DOS facilities is not sufficiently stringent to meet the requirements of HSPD-12 and FIPS PUB 201.

Comments on the proposed rule must be submitted no later than January 18, 2008, by any of the following means: (1) e-mail: ginesgg@state.gov; (2) mail (paper, disk, or CD-ROM submissions): Gladys Gines, Procurement Analyst, Department of State, Office of the Procurement Executive, 2201 C Street, NW, Suite 603, State Annex Number 6, Washington, DC 20522-0602; or (3) fax: 703-875-6155.

OFPP Requires COTR Certification

Office of Federal Procurement Policy (OFPP) Administrator Paul Denett has continued his efforts to professionalize all aspects of the federal acquisition workforce, this time by issuing a memorandum to all chief acquisition officers announcing the establishment of "a structured training program for Contracting Officer Technical Representatives (COTRs) and other individuals performing these functions...that standardizes competencies and training across civilian agencies..."

This Federal Acquisition Certification for COTRs (FAC-COTR) is similar to the Federal Acquisition Certification in Contracting (FAC-C) program and the Federal Acquisition Certification for Program and Project Managers (FAC-P/PM) in that it requires all COTRs to have a minimum of 40 hours of training in a variety of competencies, and earn 40 continuous learning points (CLPs) of skills currency training every two years. All COTRs appointed to a contract after the date of the memorandum (November 26, 2007) have six months from the date of their appointment to become certified. COTRs who currently hold delegation letters on active contracts have 12 months from the date of the memorandum to become certified.

For more on the FAC-C program, see the February 2006 Federal Contracts Perspective article "OMB Establishes Civilian Contracting Certification." For more on the FAC-P/PM program, see the May 2007 Federal Contracts Perspective article "Certification Required for Program Managers of Major Acquisitions."

Proposed FAR Change Addresses Post-Retirement Benefits

The FAR Council has published a proposed rule to amend paragraph (o) of FAR 31.205-6, Compensation for Personal Services, to permit the contractor to measure accrued post-retirement benefits (PRB) costs using either the criteria in Internal Revenue Code (IRC) 419 or the criteria in Financial Accounting Standard (FAS) 106.

Currently, FAR 31.205-6(o) allows contractors to choose among three different accounting methods for PRB costs: cash basis ("pay-as-you-go"), terminal funding, and accrual basis. When the accrual basis is used, FAR 31.205-6(o)(iii)(A) requires that costs must be measured based on the requirements of FAS 106. However, the tax-deductible amount that is contributed to the retiree benefit trust is determined using IRC 419, which has different measurement criteria than FAS 106. As a result, the FAS 106 amount can often exceed the IRC 419 measured costs, and contractors that choose to accrue PRB costs for government reimbursement face a dilemma: whether to fund the entire FAS 106 amount to obtain government reimbursement of the costs, regardless of tax implications, or fund only the tax deductible amount and not be reimbursed for the entire FAS 106 amount under their government contracts.

This proposed rule would alleviate this dilemma by amending FAR 31.205-6(o) to give the contractor an option of measuring accrued PRB costs using criteria based on IRC 419 rather than FAS 106, which would permit the contractor to fund the entire tax deductible amount without having a portion disallowed because it did not meet the FAR's current measurement criteria. Under this change, the total measured PRB costs over the life of the PRB plan would be the same whether the contractor chose to apply the criteria in FAS 106 or IRC 419.

The proposed rule may result in the government paying higher PRB costs because, under the current FAR language, some contractors may have chosen to fund the IRC amount rather than the full FAS amount in current and future accounting periods. If the FAR language is unchanged, the resulting difference will be an unallowable cost. However, there may be a cost impact if the rule remains unchanged. For example, instead of funding the lower IRC amount, contractors might decide to fund the full FAS amount (and forego the tax benefit), change from accrual to pay-as-you go accounting, or terminate their PRB plans rather than fund amounts that are not tax deductible.

Comments on the proposed rule must be submitted no later than January 14, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. Identify such comments as "FAR Case 2006-021."

Return to the Newsletters Library.

Return to the Main Page.