FedGovContracts.com

Panoptic Enterprises'

FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

June 2007
Vol. VIII, No. 6

CONTENTS

FAR Coverage on Government Property
Simplified, Clarified, Trimmed

On May 15, the long-awaited rewrite of FAR Part 45, Government Property, and associated FAR language and clauses was published as Federal Acquisition Circular (FAC) 2005-17. This final rule simplifies the government property procedures, clarifies language, and eliminates obsolete requirements related to the management and disposition of government property in the possession of contractors. "The new language reflects a life-cycle, performance-based approach to property management, and it permits the adoption of more typically commercial business practices. The rule requires contracting officers, property administrators, and other personnel involved in awarding or administering contracts with government property to be aware of industry-leading practices and standards for managing government property."

The most notable change is FAC 2005-17 is the reduction of nineteen FAR clauses to three:

• FAR 52.245-1, Government Property. This clause consolidates FAR 52.245-1, Property Records; FAR 52.245-2, Government Property (Fixed Price Contracts); FAR 52.245-5, Government Property (Cost-Reimbursement, Time and Material, or Labor Hour Contracts); and FAR 52.245-19, Government Property Furnished "As Is". The new clause is to be included in (1) all cost-reimbursement, time-and-material, and labor-hour type solicitations and contracts; and (2) fixed-price solicitations and contracts when the government will provide government property.
  
  
• FAR 52.245-2, Government Property (Installation Operation Services). This clause is added specifically to address military base-operating contracts and installation-level contracts, particularly those awarded under the Office of Management and Budget (OMB) Circular A-76 process (that is, competing commercial activities).
  
  
• FAR 52.245-9, Use and Charges. This is the only clause that remains largely intact. It is required when FAR 52.245-1 is included in the contract.

In January 2000, a FAR Part 45 rewrite was proposed, but only FAR Subpart 45.6, Reporting, Reutilization, and Disposal, was eventually revised because "the comments concerning the other subparts of FAR Part 45 were conflicting and a satisfactory resolution of those comments was not attained" (see the February 2000 Federal Contracts Perspective article "FAR Changes Would Simplify Government Property, Liquidated Damages, Deferred R&D Costs Language," and the May 2004 Federal Contracts Perspective article "FAC 2001-22 Simplifies Property Disposal Procedures, Revises General Provisions of Cost Principles").

In September 2005, a second proposed rule was published, one that further simplified and clarified the rest of FAR Part 45 (see the October 2005 Federal Contracts Perspective article "Government Property Regs Proposed for Rewrite, Again"). Forty respondents submitted two-hundred-eighty-seven comments addressing thirty-two different issues and topics. Based on those comments, the proposed rule is adopted as final for the most part. There are some differences between the proposed and final versions of the rule:

• The final rule revises the following definitions in FAR 45.101, Definitions, and the clauses for clarity: acquisition cost, contractor's management personnel, demilitarization, discrepancies incident to shipment, equipment, material, non-severable, property administrator, plant clearance officer, provide, sensitive property, special tooling, and voluntary consensus standards. Also added is the definition for "cannibalize," and deleted is the definition for "unique federal property."
  
  
• FAR 45.102, Policy, is revised to provide an exception for property furnished for repair or overhaul from the requirements that must be met by contracting officers to furnish government property.
  
  
• FAR 45.105, Contractors' Property Management System Compliance, is revised to add language describing the conditions and circumstances under which the property administrator may grant relief of responsibility.
  
  
• FAR 45.107, Contract Clauses, is revised to add language regarding the use of FAR 52.245-1 in solicitations and contracts for commercial items conducted under FAR Part 12. In addition, it is revised to clarify that FAR 52.245-1 and FAR 52.245-2 may be used concurrently under a single contract; to require the use of FAR 52.245-9 in all solicitations and contracts that furnish or authorize the acquisition of government property; and to clarify the use of government property clauses in purchase orders for property repair.
  
  
• FAR 45.201, Solicitation, is revised to add a requirement for the contracting officer to include a statement in all solicitations indicating whether the government property will be furnished in "as is" condition, and to provide instructions for physical inspection. Also, guidance has been added on the use of property on more than one contract.
  
  
• FAR 52.245-1(f)(1)(v) is revised to require the contractor to award subcontracts that clearly identify assets to be provided, and to ensure appropriate flow-down of contract terms and conditions (for example, extent of liability for loss, damage, destruction, or theft of government property). Also, deleted from the paragraph is the requirement to flow-down any cost savings achieved as a result of its prime contract relationship with the government.
  
  
• A paragraph (e) is added to FAR 52.245-2 that requires the contracting officer to identify government property provided under the clause.

DOD Seeks, Responds to Public Comments

The Department of Defense (DOD) is gearing up for another round of revisions to the Defense Federal Acquisition Regulation Supplement (DFARS) by asking the public to identify good and bad aspects of its contract profit and fee policies and contract financing policies. In addition, DOD has assessed the comments it received on its contract closeout policies, and has announced what it intends to do in response to those comments.

• Contract Profit/Fee Policies: DOD is reviewing its contract profit/fee policies in Defense FAR Supplement (DFARS) 215.404-4, Profit, and DFARS 215.404-70 through DFARS 215.404-76, which address the weighted guidelines method of profit/fee determination and other apporaches.
  
  One of the key aspects of DOD's profit policy is the weighted guidelines, which focuses on four factors: (1) performance risk, (2) contract type risk, (3) facilities capital employed, and (4) cost efficiency. While there have been some revisions to the weighted guidelines over the past few years, the basis for the existing policy was established in the mid-1980s. Since then, there have been a number of changes to DOD's acquisition environment, including (1) the evolution of DOD's acquisition programs, (2) extensive industry consolidation, and (3) a significant increase in the number of DOD contracts for services. In light of these many changes, DOD is interested in receiving public comments on the existing profit/fee policies, particularly with regard to those that are working effectively and those that should be revised or eliminated. Areas for consideration include, but are not limited to, the following:
  
  
  • The contractor risk factors used in DOD's structured approach for developing profit/fee objectives, particularly with regard to (a) the pertinence of the existing factors; (b) whether the ranges and normal values used for the existing factors are still valid; and (c) whether there are other risk factors that are not reflected in the existing policies.
    
    
  • Any changes needed to:
    
    
    1. The technology incentive at paragraphs (c)(2) and (d)(4) of DFARS 215.404-71-2, Performance Risk (for acquisitions that include development, production, or application of innovative new technologies);
       
       
    2. The contract type risk factor at DFARS 215.404-71-3, Contract Type Risk and Working Capital Adjustment;
       
       
    3. The factor at DFARS 215.404-71-4, Facilities Capital Employed;
       
       
    4. The factor at DFARS 215.404-71-5, Cost Efficiency Factor;
       
       
    5. The modified weighted guidelines at DFARS 215.404-72, Modified Weighted Guidelines Method for Nonprofit Organizations Other Than FFRDCs [Federally Funded Research and Development Centers];
       
       
    6. The policies as they provide for consideration of the amount of investment a contractor has in a contract;
       
       
    7. The policies as they provide for consideration of the extent of contract financing payments;
       
       
    8. The policies as they apply to contracts for services; and
       
       
    9. The policies as they apply to contracts for research, development, test, and evaluation.
    
    
  • Whether any of the existing structured approaches for profit analysis should play a role in establishing the base fee or pool on award-fee contracts.
  
  Comments must be submitted no later than July 23, 2007, by: (a) mail to the Office of the Director, Defense Procurement and Acquisition Policy, ATTN: OUSD (AT&L) DPAP (CPF), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; (2) fax to 703-602-7887; or (3) e-mail to Bill.Sain@osd.mil.
  
  
• Contract Financing: DOD is reviewing its policies in DFARS Part 232, Contract Financing, which covers a variety of contract financing issues, including non-commercial item purchase financing; commercial item purchase financing; loan guarantees for defense production; advance payments for noncommercial items; progress payments based on costs; contract debts; contract funding; assignment of claims; prompt payment; performance-based payments; electronic funds transfer; electronic submission and processing of payment requests; and levies on contract payments. DOD is interested in receiving comments on these policies, particularly with regard to those that are considered to be especially effective or ineffective.
  
  Comments must be submitted no later than July 23, 2007, by: (a) mail to the Office of the Director, Defense Procurement and Acquisition Policy, ATTN: OUSD (AT&L) DPAP (CPF), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062; (2) fax to 703-602-7887; or (3) e-mail to John.McPherson@osd.mil.
  
  
• Systemic Issues in Contract Closeout: DOD has completed an assessment of public comments on systemic contract closeout issues that were identified in a public meeting held on September 21, 2005, and attended by government and industry representatives. Based on that assessment, DOD intends to pursue revisions to the FAR and DFARS to address the following:
  
  
  • Cumulative allowable cost worksheets
    
    
  • Quick closeout
    
    
  • Subcontract closeout
    
    
  • Final indirect cost rate proposals
    
    
  • Periods of performance
    
    
  • Government property
    
    
  • Alternate contract closing methods
    
    
  • Contractor compliance with data submission requirements related to contract closeout
  
  In addition, DOD intends to:
  
  
  • Identify and make available best practices used by the military departments and defense agencies in completing contract closeouts; and
    
    
  • Identify any additional training that should be provided on contract closeout.

Performance-Based Goal Set at 45% by OFPP

Office of Federal Procurement Policy (OFPP) Administrator Paul Denett issued a memorandum to all chief acquisition officers and senior procurement executives that he is increasing the goal for applying performance-based acquisition methods from 40% of eligible service contracts over $25,000 to 45% of eligible service contracts over $25,000 for fiscal years 2007 through 2011. This goal applies to contracts, task orders, modifications, and options, as measured in dollars.

Mr. Denett noted that the Federal Procurement Data System (FPDS) indicates that most agencies met or exceeded the 40% goal in fiscal year 2006.

DFARS Would Restrict Combat Vehicles Leasing

DOD is proposing to amend DFARS 207.470, Statutory Requirements, to permit the award a contract for the lease of a combat vehicle only if the contract will be long-term or will provide for a substantial termination liability, and if the service secretary concerned fulfills certain other requirements. This restriction had previously applied to vessels and aircraft. Section 815 of Public Law 109-163, the National Defense Authorization Act for Fiscal Year 2006, added combat vehicles to the restricted items.

Comments on this proposed rule must be submitted by July 23, 2007, identified as "DFARS Case 2006-D013," 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: Gary Delaney, 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.

Meeting on Program/Project Management Certification

On June 13, the Federal Acquisition Institute (FAI) will hold a meeting to provide information to vendors on the recently announced Federal Acquisition Certification in Program/Project Management (FAC-P/PM). The information will include program details, target timeline, and opportunities for vendors to support the training of federal program and project managers. Also, FAI will present its approach for partnering with vendors on this initiative.

The FAC-P/PM is a new program announced by the Office of Federal Procurement Policy (OFPP) on April 25, 2007 (see the May 2007 Federal Contracts Perspective article "Certification Required for Program Managers of Major Acquisitions").

The purpose of the FAC-P/PM program is to establish the competencies, training, and experience requirements for program and project managers in civilian agencies. The FAC-P/PM focuses on essential competencies needed for program and project managers; the program does not include functional or technical competencies, such as those for information technology, or agency-specific competencies. The certification requirements will be accepted by all civilian agencies as evidence that an employee meets the core competencies, training and experience requirements.

According to the notice, the following should attend the meeting: "training developers, vendors with commercial-off-the-shelf (COTS) training products, vendors with capabilities related to the full Instructional System Design (ISD) methodologies, professional associations, educational institutions and acquisition training experts."

The meeting will be held June 13, 2007, from 2:30 pm to 4:00 pm at the Office of Personnel Management's Auditorium located at 1900 E Street, NW, Washington, DC 20415. Register or obtain additional information by contacting Maria Hernandez at 703-284-6988 or by e-mail at maria_hernandez@sra.com.

FAR to be Clarified on Products with Recovered Materials

FAR Subpart 23.4, Use of Products Containing Recovered Materials, and associated provisions and clauses are proposed to be revised to clarify the requirements of the Resource Conservation and Recovery Act of 1976 (RCRA) and Executive Order 13101 of September 14, 1998, Greening the Government Through Waste Prevention, Recycling, and Federal Acquisition. (NOTE: Though Executive Order 13101 was revoked by Executive Order 13423 of January 24, 2007, Strengthening Federal Environmental, Energy, and Transportation Management, this rule does not remove Executive Order 13101 from FAR Subpart 23.4 because other conforming changes will be required. A future FAR case will make the conforming changes required by Executive Order 13423. For more on Executive Order 13423, see the February 2007 Federal Contracts Perspective article "President Orders Federal Energy Conservation.")

The RCRA was enacted by Congress to establish a system for managing non-hazardous and hazardous solid wastes in an environmentally sound manner -- from the point of origin to the point of final disposal. RCRA also promotes resource recovery and waste minimization. Section 6002 of the RCRA acknowledges the importance of recycling by mandating that government agencies increase their purchases of products containing recovered materials. RCRA specifies that the Environmental Protection Agency (EPA) develop and issue procurement guidelines that designate specific items made with recovered materials. EPA-designated items containing recovered materials are items listed by EPA in the Comprehensive Procurement Guideline (CPG) (http://www.epa.gov/cpg), and for which EPA has provided purchasing recommendations in a related Recovered Materials Advisory Notice (RMAN) (http://www.epa.gov/epaoswer/non-hw/procure/pdf/consolrman.pdf). Any federal agency, any state or local agency that uses appropriated federal funds, or any contractor that procures these items for work under covered contracts, that procures more than $10,000 worth of an item in the CPG in a given year must purchase the item made of the highest percentage of recovered materials practicable, taking into consideration competition, price, availability, and performance.

This proposed rule would revise FAR Subpart 23.4 and associated provisions and clauses to:

• Provide for consistency when referring to products containing recovered materials;
  
  
• Clarify that the requirement for products containing recovered materials applies when agencies require the delivery or specify the use of EPA-designated items, and when agencies award contracts for services or construction unless the service or construction contract will not involve the use of such items (FAR 23.406, Solicitation Provision and Contract Clauses);
  
  
• Prescribe a new clause for use in service and construction contracts when appropriate (FAR 52.223-XX, Affirmative Procurement of EPA-designated Items In Service and Construction Contracts); and
  
  
• Revise FAR 52.223-4, Recovered Material Certification, to reflect the changes proposed by this rule.

Comments on the proposed rule must be submitted no later than July 2, 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 2005-039."

DEAR Clauses Updated

The Department of Energy (DOE) is amending the DOE Acquisition Regulation (DEAR) to remove clauses concerning simplified acquisition procedures and facilities management contracting, and to add a clause addressing work authorization. Also, DOE is amending DEAR Part 970, DOE Management and Operating Contracts, to implement its Cooperative Audit Strategy for its management and operating (M&O) contracts.

• Clauses: In 2005, DOE published a proposal to modify the following clauses: DEAR 909.406, Debarment; DEAR 970.5204-2, Applicable Laws, Regulations, and Directives; and DEAR 970.5223-1, Integration of Environment, Safety, and Health into Work Planning and Execution. Also, DEAR 970.5211-1, Work Authorization, was proposed to be added; and DEAR Subpart 913.4, Fast Payment Procedures, and DEAR Subpart 970.37, Facilities Management Contracting, and the corresponding clause DEAR 970.5237-2, Facilities Management System, were proposed to be deleted.
  
  Based on the comments DOE received on the proposal, DOE has decided to adopt the following changes: (1) DEAR 970.5211-1, Work Authorization, is added; (2) DEAR Subpart 913.4, Fast Payment Procedure, is deleted; and (3) DEAR Subpart 970.37, Facilities management contracting, and DEAR 970.5237-2, Facilities Management System, are deleted.
  
  The proposed changes to DEAR 909.406, Debarment; DEAR 970.5204-2, Laws, Regulations, and DOE Directives, and DEAR 970.5223-1, Integration of Environment, Safety, and Health into Work Planning and Execution, are withdrawn after reviewing the comments and further consideration.
  
  
• Implementation of Cooperative Audit Strategy: DOE contracts for the management and operation of its research, development, special production, or testing facilities through the use of M&O contracts. Historically, DOE spends approximately 73% of its annual appropriations through these M&O contracts. So DOE had to develop approaches which permit oversight of M&O contractor expenditures to ensure that DOE funds are expended on allowable costs.
  
  The Cooperative Audit Strategy was developed by the DOE Inspector General (IG) in conjunction with contractors' internal audit groups, the Chief Financial Officer, and the Office of DOE Procurement and Assistance Management to maximize the overall audit coverage of M&O contractors' operations. The Cooperative Audit Strategy allows the IG to rely on the work of contractors' internal audit organizations. The success of the Cooperative Audit Strategy depends on the IG and internal audit groups working closely with DOE. The IG has adopted the Cooperative Audit Strategy at most major DOE facilities operated by contractors.
  
  In May 2006, DOE proposed to eliminate Alternate II of DEAR 970.5232-3, Accounts, Records, and Inspection, which implemented the Cooperative Audit Strategy by requiring its use in cost-reimbursement M&O contracts exceeding $5,000,000, and revise DEAR 970.5232-3 to require the use of the Cooperative Audit Strategy in all M&O contracts. Also, DEAR 970.5203-1, Management Controls, was proposed to be amended by adding a sentence requiring the contractor to submit audit reports.
  
  Four respondents submitted comments on the proposed rule. Based on the comments, DOE is adopting the proposed rule as final except with regard to conduct of peer reviews of independent audits. The proposed rule would have specified that the peer reviews be conduct by other contractor internal audit organizations. The final rule expands this to permit "other independent third party audit entities approved by the DOE contracting officer" to conduct peer reviews in addition to other contractor internal audit organizations.

NFS Stiffens Security Requirements for Unclassified IT

The National Aeronautics and Space Administration (NASA) is amending NASA FAR Supplement (NFS) 1852.204-76, Security Requirements for Unclassified Information Technology Resources, to reflect the updated requirements of NASA Procedural Requirements (NPR) 2810, Security of Information Technology. The NPR was recently revised to address increasing cyber threats and to ensure consistency with the Federal Information Security Management Act (FISMA), which requires agencies to protect information and information systems in a manner that is commensurate with the sensitivity of the information processed, transmitted, or stored.

In August 2006, NASA proposed to amend NFS 1852.204-76 to:

• Expand requirements for information technology (IT) security plans to include a risk assessment in accordance with National Institute of Standards and Technology (NIST) Special Publication (SP) 800-30, Risk Management Guide for Information Technology Systems, and an assessment in accordance with Federal Information Processing Standards (FIPS) 199, Standards for Security Categorization of Federal Information and Information Systems;
  
  
• Add a requirement for a contingency plan in accordance with NIST SP 800-34, Contingency Planning Guide for Information Technology Systems; and
  
  
• Change of the physical security requirement from "National Agency Check" to "National Agency Check with Inquiries."

Two respondents submitted comments on the proposed rule. Though NASA decided not to adopt any of the suggested changes, it decided to adopt the proposed rule as final with the following changes:

• Paragraph (a) of the clause is restructured into two subparagraphs to improve readability.
  
  
• Paragraph (b)(3) is revised to cite the specific NIST SP 800-61 standard for incident reporting and the U.S. Computer Emergency Readiness Team's Concept of Operations for reporting security incidents.
  
  
• Paragraph (b)(6) is clarified to specify which system administrators are subject to the NASA System Administrator Security Certification Program.
  
  
• Paragraph (b)(7) is clarified to specify that sensitive but unclassified information is required to be encrypted.
  
  
• Paragraph (f)(2) is clarified to specify closeout procedures related to IT resources at the completion or expiration of the contract.

For more on the proposed rule, see the September 2006 Federal Contracts Perspective article "NASA Proposes Information Technology Security Changes."

Return to the Newsletters Library.

Return to the Main Page.