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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

April 2007
Vol. VIII, No. 4

CONTENTS

GSA Administrator Points Finger at IG
As Primary Source of Controversy and Woes

In a statement prepared for her testimony before the House Committee on Oversight and Government Reform on March 28, 2007, General Services Adminstrator Lurita Doan placed the blame for most of her recent tribulations squarely on the General Services Administration (GSA) Office of Inspector General (OIG), characterizing her relationship with the OIG as one that was allowed to "fester."

Doan claimed that the OIG was retaliating against her for examining the OIG's fiscal controls and financial management. "The OIG was not comfortable with this first serious review of their internal spending decisions and budget review...the IG fiercely resisted this effort, and many of the visits, information, and reports that have been provided to you and other members of Congress over the past several months stem from this disagreement."

The GSA administrator characterized her attempt to award a $20,000 contract without competition to a firm run by a "professional friend" as an "error" and a "procedural mistake" -- one that was excusable because GSA's Chief of Staff and General Counsel saw that the contract was terminated and "not a penny of taxpayer dollars was spent."Doan addresses several other issues involving the OIG:

• Intervention in Negotiations with Sun Microsystems: The OIG alleged that Doan personally intervened in negotiations to extend a contract with Sun Microsystems, reversing the judgment of three contracting officers and producing a "sweetheart deal that will cost taxpayers tens of millions of dollars." According to Doan, "My concerns do not involve the IG's involvement in the Sun Microsystems contract extension per se. Rather, my concerns relate to the IG's referral of Sun Microsystems to the Justice Department for alleged defective pricing practices without advising me, as the Administrator, of any aspect of this significant matter."
  
  
• Role in Suspension and Debarment Decisions: Regarding the IG's allegation that she improperly intervened in suspension and debarment proceedings involving the nation's leading accounting firms, Doan said, "I believe I have a statutory responsibility to the President, and the nation, to provide this kind of oversight. While I did seek additional information on this important subject, it is a distortion to equiate a desire to be informed promptly, when such important decisions are pending, with interference in this process."
  
  
• Characterizing the OIG as "Terrorists": "I did not compare IG employees to terrorists in an August 18th meeting, or any other meeting with the IG. In my discussions with the IG, I had expressed our mutual responsibility to ensure that employees within GSA were not 'terrorized'. That statement, I believe, was taken out of context." However, IG Brian Miller said, in his statement to the committee, "At our August 18, 2006, monthly meeting, the Administrator stated, 'There are two kinds of terrorism in the US: the external kind; and, internally, the IGs have terrorized the Regional Administrators.' She claims not to have called the IG/OIG employees 'terrorists,' even though the statement was witnessed by GSA and OIG senior staff. I was there and heard it myself."

For more on the allegations that precipitated this hearing, see the February 2007 Federal Contracts Perspective article "House Government Reform Committee to Investigate GSA Administrator's Alleged Contract-Steering."

Executive Compensation Benchmark Raised to $597,912

Paul Denett, the Office of Federal Procurement Policy (OFPP) administrator, has decided to increase the "benchmark compensation amount" for senior executives by $51,223, from $546,689 to $597,912 -- a 9.4% increase. This figure is "the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year..." It was determined based on commercially available surveys and after consultation with the director of the Defense Contract Audit Agency.

The $597,912 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for "the five most highly compensated employees in management positions at each home office and each segment of the contractor." However, the benchmark compensation amount is not a limit on the compensation an executive may receive -- $597,912 is the maximum allowable amount the government will reimburse contractors for their senior executives' compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2007, for contractor fiscal year 2007 and subsequent contractor fiscal years unless and until revised by OMB, which is required to set the benchmark compensation amount annually.

The FEMAAR is Abolished

The Federal Emergency Management Administration (FEMA) is abolishing the FEMA Acquisition Regulation (FEMAAR) because FEMA was transferred to the Department of Homeland Security (DHS) on March 1, 2003, and is now subject to the Homeland Security Acquisition Regulation (HSAR) (http://www.dhs.gov/xlibrary/assets/opnbiz/cpo_hsar_finalrule.pdf).

FEMA believes it is important to make this action effective as soon as possible not only to remove inapplicable regulatory text, but to be consistent with DHS uniform department-wide acquisition regulations.

FAC 2005-16 Tidies Up Some Loose Ends

Federal Acquisition Circular (FAC) 2005-16 consists of several housekeeping rules, none of which makes any signifcant changes to the Federal Acquisition Regulation (FAR).

• Implementation of Wage Determinations OnLine (WDOL): This finalizes, without changes, the interim rule that implemented the Department of Labor (DOL) WDOL website (at http://www.wdol.gov) as the source for Service Contract Act and Davis-Bacon Act wage determinations (for service contracts over $2,500 and construction contracts over $2,000, respectively).
  
  One comment on the interim rule was submitted, but it was considered to be outside the scope of the rule, so the interim rule is adopted as final without changes. For more on the interim rule, see the July 2006 Federal Contracts Perspective article "FAC 2005-10 Mandates Electronic Wage Determinations."
  
  
• Termination or Cancellation of Purchase Orders: This finalizes the proposed rule to correct the inadvertent omission of a reference pertaining to the termination for cause procedures for purchase orders that have been accepted in writing.
  
  Before the 1998 rewrite of FAR Part 13, Simplified Acquisition Procedures, FAR Part 13 recognized both termination for cause and termination for convenience as available termination methods. However, the 1998 rewrite included paragraph (a) of FAR 13.302-4, Termination or Cancellation of Purchase Orders, which stated, "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..." However, both FAR 12.403(d) and FAR 52.212-4(l) address termination for convenience -- neither addresses termination for cause. FAR 52.212-4(m) does address terminations for cause, so this rule amends FAR 13.302-4(a)(1) to state "[FAR] 12.403(d) and [FAR] 52.212-4(l) or (m) for commercial items..."
  
  One comment on the proposed rule was submitted -- to delete "in writing by the contractor" in FAR 13.302-4(a). The respondent asserted that the beginning of performance under a purchase order should be recognized as contractor acceptance of the purchase order, which usually begins on the date of award. While the comment is outside the scope of the rule -- to correct an omission -- it is recognized that this issue requires additional review, so a separate proposed rule will be developed.
  
  For more on the proposed rule, see the April 2006 Federal Contracts Perspective article "FAR to Address Termination of Purchase Orders."
  
  
• Contracts with Religious Entities: This interim rule implements Executive Order 13279, Equal Protection of the Laws for Faith-Based and Community Organizations, by exempting religious corporations, associations, educational institutions, and societies from the prohibition against discrimination on the basis of religion in FAR 52.222-26, Equal Opportunity. This exemption is in new FAR 52.222-26(b)(2), and is explained in new paragraph (b)(7) of FAR 22.807, Exemptions [from Equal Opportunity].
  
  For more on E.O. 13279, see the October 2003 Federal Contracts Perspective article "Religious Entities Exempted from Affirmative Action and Nondiscrimination Obligations."
  
  
• Commercial Items Contract Terms and Conditions Required to Implement Statute: This final rule adds FAR 52.219-16, Liquidated Damages -- Subcontracting Plan, to FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders -- Commercial Items, as a clause a contracting officer may select to implement a provision of law when acquiring commercial items. Though FAR 52.219-16 implements 15 U.S.C. 637(d)(4)(F)(i), it was not included in FAR 52.212-5. So this final rule adds FAR 52.219-16 to FAR 52.212-5.

Numbered Synopsis Notes Proposed for Deletion

Several FAR changes were proposed last month that would delete synopses notes, address title evidence, require subcontractor reporting, and require a new certification on tax delinquency.

• Deletion of Numbered Notes for Synopses: This proposed rule would remove all references to numbered notes that have been used in synopses to simplify the inclusion of repetitive information. Originally, numbered notes were used to reduce the size of the Commerce Business Daily and, consequently, the cost to publish and distribute this hardcopy periodical. However, the Commerce Business Daily has been replaced by the electronic Federal Business Opportunities (FedBizOpps) website (http://www.fbo.gov). Electronic posting of synopses on FedBizOpps allows contracting officers to insert text easily as needed. Also, the numbered notes have not been maintained and many of the numbered notes do not accurately reflect current FAR requirements or have been made obsolete by the functionality of FedBizOpps. For example, Note 1, "The proposed contract is 100 percent set-aside for small business concerns," is redundant because contracting officers identify set-asides through a drop-down box in FedBizOpps. As another example, Note 3, "The proposed contract is a labor surplus area set-aside," is obsolete because the note was deleted in 1999. So this proposed rule would delete all references to "Numbered Notes" wherever they appear in the FAR.
  
  Comments on the proposed rule must be submitted no later than May 11, 2007, 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 2006-016."
  
  
• Acceptance of a Bond with a Security Interest in Real Property: This proposed rule would amend FAR 28.203-3, Acceptance of Real Property, and FAR 52.228-11, Pledges of Assets, to revise the types of acceptable title evidence and the qualification requirements for preparers of title evidence.
  
  FAR Subpart 28.2, Sureties and Other Security for Bonds, contains policies which require agencies to obtain adequate security for bonds when bonds are used with a contract. A corporate or individual surety is an acceptable form of security for a bond. Whenever a surety secures a bond with interest in real property, FAR 28.203-3(a)(1) requires that the surety provide evidence of title in the form of a certificate of title prepared by a title insurance company that has been approved by the Department of Justice (DOJ) and placed on the "List of Approved Attorneys, Abstracters, and Title Companies." However, DOJ no longer maintains that list. Instead, it prepared a guide for the preparation of evidence of title -- Title Standards 2001 (available at http://www.fws.gov/realty/doj_2001.pdf). The Standards address the various types of acceptable title evidence considering local practice, reliability, security, economy and other factors. Also, the Standards address the qualification requirements for preparers of title evidence.
  
  This proposed rule would amend FAR 28.203-3(a)(1) and FAR 52.228-11(b)(2)(i) to cite Section 2 of the Standards as establishing the types of acceptable title evidence and the required qualifications of preparers of title evidence.
  
  In addition, FAR 28.203-3(d) requires sureties to execute a lien if a surety pledges real estate on Standard Form 28, Affidavit of Individual Surety. The lien must be recorded in the local recorder's office. When multiple parties jointly own the real estate, the lien must be signed by each owner of the property to be valid. The FAR does not clearly specify that all owners of the property must sign the lien, so FAR 28.203-3(d) would be amended to clarify that all property owners are required to sign the lien when a surety pledges real estate as collateral.
  
  Comments on the proposed rule must be submitted no later than May 15, 2007, by any of the means mentioned above. Identify such comments as "FAR case 2006-013."
  
  
• Reporting Subcontractor Award Data: This proposed rule would add FAR Subpart 4.14, Reporting Subcontract Awards, and FAR 52.204-10, Reporting Subcontract Awards, to require that contractors report specific subcontract awards to a public database as mandated by the Federal Funding Accountability and Transparency Act of 2006 (FFATA) (Public Law 109-282).
  
  The FFATA requires that a searchable website be established, one that provides public access to information about federal expenditures -- contracts, subcontracts, purchase orders, task orders, delivery orders, grants, subgrants, loans, cooperative agreements, and other forms of financial assistance that exceed $25,000. Section 2(d) of the FFATA requires that a pilot program be established to test the collection and accession of subcontract award data. The pilot program is required to begin no later than July 1, 2007, and it will terminate no later than January 1, 2009.
  
  This proposed rule would apply to contracts with values equal to or greater than $500,000,000 awarded and performed in the United States (except for classified contracts and contracts issued under FAR Part 12, Acquisition of Commercial Items), and it would require the contractors to report to the FFATA database at http://www.federalspending.gov the following information on all first tier subcontract awards exceeding $1,000,000 within 30 days after the end of March, June, September, and December through 2008:
  
  
  • Name of the subcontractor
    
    
  • Amount of the award
    
    
  • Date of award
    
    
  • The applicable North American Industry Classification System (NAICS) code
    
    
  • Funding agency or agencies
    
    
  • Award title descriptive of the purpose of the action
    
    
  • Contract number
    
    
  • Subcontractor location including address
    
    
  • Subcontract primary performance location including address
    
    
  • Unique identifier for the subcontractor
  
  The thresholds were selected because they should ensure that a sufficient number of subcontract award reports will be entered in the database to permit assessment of its effectiveness without imposing a significant burden on contractors during the pilot program. It is anticipated that the final reporting requirement will apply to contracts with values equal to or greater than the simplified acquisition threshold ($100,000) and will require the reporting of subcontracts with values greater than $25,000, regardless of the award or performance locations of the prime contract or subcontracts.
  
  Comments on the proposed rule must be submitted no later than May 21, 2007, by any of the means mentioned above. Identify such comments as "FAR case 2006-029." Comments are invited specifically on the following:
  
  
  • The burden imposed by the pilot program;
    
    
  • Whether making this information publicly available will affect the contractor's competitiveness;
    
    
  • Whether availability of this information on a public website raises industrial, national, or other security concerns;
    
    
  • Whether the final reporting requirements (after the pilot program) should apply to contracts and subcontracts (i) awarded or performed outside the United States; (ii) with values greater than $25,000; and (iii) awards below the first tier;
    
    
  • Whether the reporting period should be 30 days after award of a subcontract as expressed in the statute or a longer period; and
    
    
  • Whether the unique subcontractor identifier should be the DUNS number, the Taxpayer Identification Number (TIN), some other number, or a non-numerical unique identifier.
  
  NOTE: The introduction to the rule contains this warning: "The government does not guarantee the reliability of the data reported. The government has no mechanism to verify the data submitted."
  
  For more on the FFATA and the database it mandates, see the October 2006 Federal Contracts Perspective article "Federal Awards Website Approved."
  
  
• Tax Delinquency Certification: This proposed rule would amend FAR 52.209-5, Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters, and FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items, to require an offeror to certify whether it has or has not "within a three-year period preceding this offer, been notified of any delinquent taxes for which the liability remains unsatisfied," and has or has not "received notice of a tax lien filed against them for which the liability remains unsatisfied or the lien has not been released."
  
  FAR 52.209-5 and FAR 52.212-3 require offerors to certify whether or not, within a three-year period preceding an offer, they have been convicted of or had a civil judgment rendered against them for tax evasion or are presently indicted for, or otherwise criminally or civilly charged with, the commission of tax evasion. The certifications that would be added by this proposed rule would identify prospective offerors that may have outstanding tax obligations that may be delinquent so the government can make an informed responsibility determination. If an offeror certifies that any of these conditions exist, the contracting officer may ask the offeror for additional information related to the obligation to evaluate the offeror's ability to perform under the contract.
  
  Comments on the proposed rule must be submitted no later than May 29, 2007, by any of the means mentioned above. Identify such comments as "FAR case 2006-011."

DOD Undertakes a Little More Spring Cleaning

Spring is in the air, so the Department of Defense decided to continue its spring cleaning by addressing several "loose ends."

• Free Trade Agreements -- Guatemala and Bahrain: This finalizes, without changes, the interim rule that implemented the Central America-United States Free Trade Agreement with respect to Guatemala, and the United States-Bahrain Free Trade Agreement, by amending appropriate DFARS provisions and clauses to reflect the addition of Guatemala and Bahrain as Free Trade Agreement countries.
  
  No comments were submitted on the interim rule, so it is adopted as final without changes. For more on the interim rule, see the November 2006 Federal Contracts Perspective article "DFARS Amended to Address Foreign Acquisitions." For more on the FAR amendment adding Guatemala and Bahrain, see the December 2006 Federal Contracts Perspective article "FAC 2005-14 Addresses Trade Agreements, Contractor IDs."
  
  
• Trade Agreements -- Dominican Republic, Bulgaria, and Romania: This interim rule adds the Dominican Republic to the definition of "designated country" and "Free Trade Agreement country" in DFARS 252.225-7021, Trade Agreements, DFARS 252.225-7036, Buy American Act -- Free Trade Agreements -- Balance of Payments Program, and DFARS 252.225-7045, Balance of Payments Program -- Construction Material Under Trade Agreements, to implement the Central America-United States Free Trade Agreement with respect to the Dominican Republic. Also, the Dominican Republic is removed from the definition of "Caribbean Basin country" in these clauses because when a country becomes a "Free Trade Agreement country" it ceases to be a "Caribbean Basin country."
  
  In addition, Bulgaria and Romania are added to the definition of "World Trade Organization Government Procurement Agreement countries" in DFARS 252.225-7021 and DFARS 252.225-7045 because of direction from the United States Trade Representative.
  
  Comments on this interim rule must be submitted by May 29, 2007, identified as "DFARS Case 2006-D062," 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, Attn: Amy Williams, 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.
  
  
• Prohibition on Acquisition from Communist Chinese Military Companies: This finalizes, without changes, the interim rule that added DFARS 225.770, Prohibition on Acquisition of United States Munitions List Items from Communist Chinese Military Companies, and the corresponding clause at DFARS 252.225-7007 which prohibit DOD from acquiring goods or services from a Communist Chinese military company if the goods or services being acquired are on the United States Munitions List (USML).
  
  For more on the interim rule, see the October 2006 Federal Contracts Perspective article "DOD Restricts Use of 'Tiered Evaluations'."
  
  
• Electronic Submission and Processing of Payment Requests: This finalizes, with changes, the proposed rule that would amend DFARS Subpart 232.70, Electronic Submission and Processing of Payment Requests, and the corresponding clause DFARS 252.232-7003, Electronic Submission of Payment Requests, to clarify the situations under which DOD will grant exceptions to requirements for electronic submission of payment requests.
  
  DFARS 232.7002, Policy, and DFARS 252.232-7003 included an exception to these requirements if "the contractor is unable to submit, or DOD is unable to receive, a payment request in electronic form." When this exception applied, "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 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. Therefore, to clarify the requirements, this final rule:
  
  
  • Replaces the exception in DFARS 232.7002 with exceptions for "cases in which DOD is unable to receive requests in electronic form, or cases in which the contracting officer administering the contract for payment has determined, in writing, that electronic submission would be unduly burdensome to the contractor" (the proposed rule had specified that the "administrative contracting officer" was to make this determination, but a respondent to the proposed rule noted that there might be several contracting officer providing administrative support, so this clarifies which administrative contracting officer is responsible).
    
    
  • Adds a new paragraph DFARS 232.7002(c) to state that non-electronic payment requests must be submitted by facsimile or conventional mail, and that the contracting officer must specify, in Section G of the contract, the payment request method to be used (the proposed rule did not place any limits on the method of submitting non-electronic payment requests).
    
    
  • Amends DFARS 252.232-7003 for consistency with the changes to DFARS 232.7002, (the proposed rule included a reference to a DOD website that would contain a listing of the DOD activities and payment systems that are unable to receive payment requests in electronic form, but this was deleted).
  
  For more on the proposed rule, see the April 2006 Federal Contracts Perspective article "DFARS Rules Finalized on Contract Modifications, Component Breakout, Task Order Competitions."
  
  
• Closeout of Contract Files: This proposed rule would remove DFARS 204.804, Closeout of Contract Files (including DFARS 204.804-1, Closeout by the Office Administering the Contract, and DFARS 204.804-2, Closeout of the Contracting Office Files If Another Office Administers the Contract), and relocate the text to the Procedures, Guidance, and Information (PGI) (http://www.acq.osd.mil/dpap/dars/pgi/) (for more on the PGI, see the December 2004 Federal Contracts Perspective article "DFARS Transformation in Full Gear, 'Procedures, Guidance, and Information' Added"). All that would remain would be a cross-reference to PGI 204.804.

  Comments on this proposed rule must be submitted by May 29, 2007, identified as "DFARS Case 2006-D045," by any of the methods mentioned above, except that mail should be addressed to Deborah Tronic.

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