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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


August 2007
Vol. VIII, No. 8

CONTENTS


FAC 2005-18 Requires Contractors to Rerepresent Small Business Size Status
SBA Proposes Change in Calculating Number of Employees
Commercial T&M Contracts Exempt from CAS Coverage
Harmonization of CAS with Pension Protection Act Sought
Specialty Metals Waiver Proposed for COTS
CBCA Issues Rules of Procedure
DHS Proposes One-Step Turnkey Design-Build Contracts
GSA Requests Comments on Emergency Travel Guide
OMB Releases Two Sets of FY 2006 FAIR Act Inventories
Prompt Payment Interest Rate Set at 5 3/4%



FAC 2005-18 Requires Contractors to
Rerepresent Small Business Size Status

Federal Acquisition Circular (FAC) 2005-18 consists of one amendment to the Federal Acquisition Regulation (FAR) -- it requires a concern that represented it was a small business prior to award of a contract to "rerepresent" its size status again for that existing contract under certain circumstances. FAC 2005-18 conforms the FAR to reflect the changes made by the Small Business Administration (SBA) to its regulations (see the December 2006 Federal Contracts Perspective article "Businesses Required to Recertify Size Status on Contracts Longer Than Five Years, After Mergers").

This interim rule adds FAR 52.219-28, Post-Award Small Business Program Rerepresentation, which requires that a concern rerepresent its size status:

            "(1) Within 30 days after execution of a novation agreement or within 30 days after modification of the contract to include this clause, if the novation agreement was executed prior to inclusion of this clause in the contract.
            "(2) Within 30 days after a merger or acquisition that does not require a novation or within 30 days after modification of the contract to include this clause, if the merger or acquisition occurred prior to inclusion of this clause in the contract.
            "(3) For long-term contracts [defined by paragraph (a) as 'a contract of more than five years in duration, including options'] --
                  "(i) Within 60 to 120 days prior to the end of the fifth year of the contract; and
                  "(ii) Within 60 to 120 days prior to the exercise date specified in the contract for any option thereafter" [paragraph (b)].

The contractor must validate or update all its representations in the Online Representations and Certifications Application (ORCA) (https://orca.bpn.gov/) and its data in the Central Contractor Registration (CCR) (http://www.ccr.gov/) to ensure they reflect the contractor's current small business size status. The contractor must notify the contracting office by e-mail, or otherwise in writing, that the data have been validated or updated, and provide the date of the validation or update [paragraph (e)]. Paragraph (c) of FAR 4.1201, Policy [on Representations and Certifications], requires the contracting officer, when a contractor has completed its representations and certifications electronically via ORCA, to reference the date of ORCA verification in the contract file or include a paper copy of the electronically-submitted representations and certifications in the file. Either of these actions satisfies contract file documentation requirements. Though this documentation requirement was not addressed in SBA's rule change, SBA requested that it be included in the FAR implementation to provide greater assurance that the contracting officer documents the ORCA certifications and representations of small business offerors.

In addition, FAC 2005-18 adds FAR 19.301-2, Rerepresentation by a Contractor That Represented Itself as a Small Business, and FAR 19.301-3, Rerepresentation by a Contractor That Represented Itself as Other Than a Small Business:

The purpose of SBA's rule and this FAR implementation is to enable the government to report more accurate small business prime contracting statistics. Improving the accuracy of the statistics will benefit small businesses -- if agencies can no longer take credit toward their small business goals for funds obligated to contracts where, over the course of the contract, the contractor has become other than small, agencies will need to make up the shortfall in meeting their goals by seeking new procurement opportunities with the present universe of small businesses. The governmentwide small business goals are: 23% of prime contract dollars for small businesses; 5% of prime and subcontract dollars for small disadvantaged businesses; 5% of prime and subcontract dollars for women-owned small businesses; 3% of prime and subcontract dollars for Historically Underutilized Business Zone (HUBZone) small businesses; and 3% of prime and subcontract dollars for service-disabled veteran-owned small businesses.

In the preamble to its rule, SBA estimated that potentially 2,300 concerns could be initially affected by the requirement to rerepresent on long-term contracts, and 250 concerns may be affected annually thereafter. In addition, it is estimated that 300 concerns may be affected annually by the requirement to rerepresent size status as a result of novations, acquisitions, or mergers.



SBA Proposes Change in Calculating Number of Employees

SBA is proposing to change the way it calculates a concern's number of employees in determining its small business size status for most manufacturing industries. SBA proposes to alter the period used for calculating average number of employees from the current method, which uses a rolling average over the preceding 12 months, to an average over the last three completed calendar years. This proposal would simplify the calculation of the average number of employees, reduce the burden on small businesses, and better define the size of a small business where number of employees is the measure for the size standard.

The revised calculation method would be described in revised Title 13 of the Code of Federal Regulations, Section 121.106 (13 CFR 121.106), How does SBA calculate annual number of employees? Calculation of size would be based on, and coincide with, a contractor's calendar year submission of Form W-3, "Transmittal of Wage and Tax Statement," to the Internal Revenue Service (IRS) (http://www.irs.gov/pub/irs-pdf/fw3.pdf). This change would coincide with the requirement for a concern to update its size status on an annually basis in the Central Contractor Registration (CCR) and On-line Certifications and Representations (ORCA) databases (see previous article). Also, using the IRS W-3 Form would give SBA a government-validated document to use in verifying employment size instead of reviewing a contractor's payroll records to determine size where the size standard is based on the number of employees (for receipts-based size standards, SBA requires concerns to submit their IRS tax returns).

If a contractor has not been in business for three calendar years, the average annual number of employees will be calculated based on an annualized figure for the time the contractor has been in operation. For example, a concern that has been in business for one year and three months will divide its total number of employees by 1.25 (1 year + 3 months/12 months). For this calculation, the time period includes all completed pay periods as of the date of self-certification.

SBA is proposing to revise its method of calculating the number of employees of a business concern because it considers the current method to be burdensome to small businesses. With the current system of calculating employees, a contractor's size can fluctuate from pay period to pay period, necessitating a new calculation after each pay period. This is extremely burdensome on small businesses, especially if a concern has different pay periods for different types of employees (for example, bi-weekly for hourly employees and monthly for salaried employees). SBA's proposal would require a contractor to calculate its employment size only once a year and it would apply until the beginning of the next calendar year.

The proposed method of calculation would also be less burdensome and costly to small businesses and the federal government. Currently, if a concern's small business size status is protested, the concern must provide to SBA its own, and all of its affiliates, extensive payroll records for the 12 months preceding the date of self-certification. By going to an average number of employees over a calendar year basis, a concern could supply SBA with copies of its own and its affiliates' IRS Form W-3, along with other requested documents as needed, that would show the concern's total number of employees for each of the three preceding calendar years.

SBA is seeking public comments on its proposal to adopt a three calendar year average to calculate a concern's number of employees and the use of IRS Form W-3. Comments on alternatives, including retaining the current method of calculating employment size, should explain why the alternative would be preferable to the proposed method of calculation.

Comments on the proposed rule must be received by SBA on or before September 25, 2007. Comments must be identified as "RIN 3245-AF60" and submitted by one of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail/hand delivery/courier: Gary M. Jackson, Division Chief for Size Standards, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416.



Commercial T&M Contracts Exempt from CAS Coverage

The Cost Accounting Standards Board (CASB) is exempting time-and-materials (T&M) and labor-hour (LH) contracts for the acquisition of commercial items from Cost Accounting Standards (CAS) coverage. This rule is consistent with FAC 2005-15, which amended the FAR to implement Section 1432 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which authorizes the use of T&M and LH contracts for the acquisition of commercial services that are commonly sold to the general public through such contracts and are procured on a competitive basis. (NOTE: Section 1432 is in the portion of the law referred to as the Services Acquisition Reform Act (SARA). For more on the provisions of SARA, see the December 2003 Federal Contracts Perspective article "Services Acquisition Reform Act Signed Into Law, Establishes Training Fund, Chief Acquisition Officer." For more on FAC 2005-15, see the January 2007 Federal Contracts Perspective article "Time-and-Materials and Labor-Hour Contracts Authorized for Commercial Services.")

This rule revises paragraph (b)(6) of Section 9903.201-1, CAS Applicability, which had exempted from CAS coverage "firm fixed-priced and fixed-price with economic price adjustment (provided that price adjustment is not based on actual costs incurred) contracts and subcontracts for the acquisition of commercial items" to "firm fixed-priced, fixed-priced with economic price adjustment (provided that price adjustment is not based on actual costs incurred), time-and- materials, and labor-hour contracts and subcontracts for the acquisition of commercial items."

This rule finalizes, without changes, the January 4, 2006, proposed rule (see the February 2006 Federal Contracts Perspective article "CAS Exemption for T&M, Labor-Hour Contracts Proposed"). Six respondents commented on the proposed rule -- three supported the rule, and the other three did not convince the CASB that any changes should be made to the proposed rule.



Harmonization of CAS with Pension Protection Act Sought

The CASB has issued a staff discussion paper on the harmonization of CAS 412, Cost Accounting Standard for Composition and Measurement of Pension Cost, and CAS 413, Adjustment and Allocation of Pension Cost, with the Pension Protection Act of 2006 (Public Law 109-280). The Pension Protection Act (PPA) amended the minimum funding requirements and tax-deductibility of pension plans under the Employee Retirement Income Security Act of 1974 (ERISA). The PPA requires the CASB to revise CAS 412 and CAS 413 to harmonize with the amended ERISA minimum required contribution not later than January 1, 2010.

Basic conceptual differences exist between the CAS and the PPA. The PPA utilizes a settlement or liquidation approach to value pension plan assets and liabilities, including the use of accrued benefit obligations and interest rates based on current corporate bond rates. CAS 412 and CAS 413 utilize the going concern approach to plan asset and liability valuation -- they assume the company (or, in this case, the pension plan) will continue in business, and follow accrual accounting principles that incorporate assumptions about future years of employees' service and salary increases that are absent from the settlement approach.

The staff discussion paper solicits the public's views with respect to the CASB's statutory requirement to "harmonize" CAS 412 and CAS 413 with the PPA. Differences between CAS 412 and CAS 413 and the PPA, and issues associated with pension harmonization have been identified by the staff. Respondents are asked to identify and comment on any issues related to pension harmonization that they feel are important. Comments on the staff discussion paper must be submitted by September 4, 2007, identified as "CAS-2007-02S," by e-mail to casb2@omb.eop.gov; by facsimile to 202-395-5105; or by mail to Office of Federal Procurement Policy, 725 17th Street, NW, Room 9013, Washington, DC 20503, ATTN: Laura Auletta.



Specialty Metals Waiver Proposed for COTS

The Department of Defense (DOD) is proposing 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. "Exercise of this statutory COTS waiver is critical to DOD's access to the commercial marketplace," according to the proposed rule. (NOTE: For more on the provisions of Public Law 109-364, see the November 2006 Federal Contracts Perspective article "2007 Defense Authorization Addresses Training, Award Fees, Specialty Metals, Small Claims.")

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. (NOTE: Specialty metals are defined as "(1) steel (A) with a maximum alloy content exceeding one or more of the following limits: manganese, 1.65 percent; silicon, 0.60 percent; or copper, 0.60 percent; or (B) containing more than 0.25 percent of any of the following elements: aluminum, chromium, cobalt, columbium, molybdenum, nickel, titanium, tungsten, or vanadium"; "(2) metal alloys consisting of nickel, iron-nickel, and cobalt base alloys containing a total of other alloying metals (except iron) in excess of 10 percent"; "(3) titanium and titanium alloys"; and (4) zirconium and zirconium base alloys.")

While a separate proposed rule is being developed to comprehensively implement 10 U.S.C. 2533b in the DFARS, this proposed rule is being published separately to expedite the exercise of a statutory exception to the requirements of 10 U.S.C. 2533b for COTS items.

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. However, the OFPP administrator is not permitted to exempt (1) a provision of law that provides for criminal or civil penalties; or (2) a provision of law that specifically refers to 41 U.S.C. 431, and states that the law is nevertheless applicable to COTS items.

10 U.S.C. 2533b does not provide for criminal or civil penalties, nor does it refer to 41 U.S.C. 431 and state that the law is nevertheless applicable to COTS items. Therefore, this proposed rule would (1) add DFARS 212.570, Applicability of Certain Laws to Contracts and Subcontracts for the Acquisition of Commercially Available Off-the-Shelf Items, which would list 10 U.S.C. 2533b as inapplicable to contracts and subcontracts for the acquisition of COTS items; and (2) add paragraph (q) to DFARS 225.7002-2, Exceptions, which would identify acquisitions of COTS items containing specialty metals as an exception to the Berry Amendment.

Comments must be submitted no later than August 1, 2007, identified as "DFARS Case 2007-D013," by: (1) eRulemaking Portal: http://www.regulations.gov; (2) e-mail: dfars@osd.mil; (3) fax: 703-602-7887; (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.



CBCA Issues Rules of Procedure

The Civilian Board of Contract Appeals (CBCA) has issued its rules of procedure for hearing and deciding contract disputes between contractors and government agencies (except for DOD, the National Aeronautics and Space Administration, the United States Postal Service, the Postal Rate Commission, and the Tennessee Valley Authority) under the Contract Disputes Act of 1978. The procedures are available at http://www.cbca.gsa.gov/CBCA Rules/rules of procedure.htm.

The CBCA was established within the General Services Administration (GSA) by Section 847 of the National Defense Authorization Act for Fiscal Year 2006 (Public Law 109-163) (for more on the acquisition-related provisions of Public Law 109-163, see the February 2006 Federal Contracts Perspective article "2006 Defense Authorization Addresses A-76, Consolidates Civilian Boards of Contract Appeals").

On January 6, 2007, the boards of contract appeals that existed at GSA and the Departments of Agriculture, Energy, Housing and Urban Development, Interior, Labor, Transportation, and Veterans Affairs were terminated, and their cases and personnel were transferred to the new CBCA (see the December 2006 Federal Contracts Perspective article "January Set for New Civilian Board of Contract Appeals").

These rules of procedure are based on, and are not substantially different from, the rules of procedure of the predecessor civilian agency boards of contract appeals. The rules of the predecessor civilian agency boards all had the same general intent and coverage, though there were differences among the rules in terms of both structure and wording, and no two civilian agency boards had identical sets of rules. Therefore, the CBCA procedures blend those rules and maintains most of the rules the former boards had in place.

In addition, the CBCA will conduct other proceedings, such as:

Questions have been raised about the CBCA's subpoena authority over federal agencies. The Department of Justice has concluded that the statute that granted subpoena authority to the separate agency boards of contract appeals, and that provides such authority to the CBCA, does not provide the legal authority for the CBCA to enforce a subpoena against a federal agency. Therefore, the CBCA does not interpret the term "person" in Rule 16 (Section 6101.16, Subpoena) as including the United States or federal agencies.

Comments on the interim rule should be submitted no later than September 28, 2007, identified as "CBCA Amendment 2006-01, BCA Case 2006-61-1," by: (1) eRulemaking Portal: http://www.regulations.gov; (2) fax: 202-606-0019; or (3) mail to: General Services Administration, Civilian Board of Contract Appeals, ATTN: Margaret Pfunder, 1800 F Street, NW, Washington, DC 20405.



DHS Proposes One-Step Turnkey Design-Build Contracts

The Department of Homeland Security (DHS) is proposing to amend the Department of Homeland Security Acquisition Regulation (HSAR) to allow for one-step turnkey design-build contracting for United States Coast Guard (USCG) facilities. This change would implement Section 205 of the Coast Guard and Maritime Transportation Act of 2006 (Public Law 109-241).

FAR Subpart 36.3, Two-Phase Design-Build Selection Procedures, contains policies and procedures for use when the government determines it is appropriate to combine design and construction in a single contract with one contractor. However, because FAR Subpart 36.3 does not allow for consideration of cost or price related factors until the second phase, the Two-Phase procedures require proposal evaluation at two separate points -- evaluation of the technical approachs and technical qualifications in phase one to determine which offerors will be permitted to submit proposals for phase two, and evaluation of design concepts or proposed solutions and price in phase two. These procedures take a considerable amount of time to produce a contract.

The proposed rule amends the HSAR to allow for one-step turnkey design-build contracting for USCG facilities. The one-step turnkey selection procedures consist of a single price and technical evaluation for a single, firm-fixed-price contract with one contractor for both design and construction services. This approach works well for less complex facilities' construction projects requiring little design, and provides for shortened procurement and execution stages when compared to the existing two-phase selection procedures. In addition, it is expected that this less complex turnkey selection process would encourage small businesses to participate in such competitions.

This proposed rule would add HSAR 3036.104-90, Authority for One-Step Turn-Key Design-Build Contracting for the United States Coast Guard (USCG), which would consist of the following:

      "The Head of the Contracting Activity (HCA) of the U.S. Coast Guard may use one-step turnkey selection procedures to enter into fixed-price design-build contracts in accordance with 14 U.S.C. 677."

Comments on the proposed rule must be submitted by August 13, 2007, identified as "Docket Number DHS-2007-0024," by: (1) eRulemaking Portal: http://www.regulations.gov; (2) e-mail: Kathy.Strouss@dhs.gov; or (3) mail to: Department of Homeland Security, Office of the Chief Procurement Officer, Acquisition Policy and Legislation, ATTN: Kathy Strouss, 245 Murray Drive, Bldg. 410 (RDS), Washington, DC 20528.



GSA Requests Comments on Emergency Travel Guide

GSA is proposing to create a Federal Emergency Travel Guide in the event of evacuation, catastrophic event, or natural disaster. The Guide is intended to prepare the government to continue official travel operations in an emergency situation while safeguarding federal employees officially away from their official or temporary duty stations. The Guide, which will be non-regulatory in nature, will serve as a supplement to the Federal Travel Regulation (FTR). It is available at http://www.gsa.gov/travelpolicy (click on "Library").

Submit comments by September 18, 2007, identified as "Federal Emergency Travel Guide Comments," by e-mail to perdiem@gsa.gov, or by mail to Jane Groat, Travel Policy Management (MTT), Office of Governmentwide Policy, General Services Administration, 1800 F Street, NW, Washington, DC 20405.



OMB Releases Two Sets of FY 2006 FAIR Act Inventories

The Office of Management and Budget (OMB) has released the first two sets of Fiscal Year 2006 Commercial Activities Inventories of non-governmental functions being performed by government agencies. These inventories are required to be compiled and made available to the public by the Federal Activities Inventory Reform (FAIR) Act of 1998.

Inventories in the first set are from the Departments of Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban Development, Interior, Justice, Labor, Transportation, and Treasury; the Environmental Protection Agency; the National Aeronautics and Space Administration; the Small Business Administration; the Social Security Administration; the U.S. Agency for International Development; and several small agencies and commissions.

Inventories in the second set are from the Departments of Agriculture, Homeland Security, State, and Veterans Affairs; General Services Administration; Nuclear Regulatory Commission; and several small agencies and commissions.

Interested parties who disagree with an agency's initial judgment have 30 working days from July 13 (that is, until August 24) to challenge the omission or inclusion of an activity on an agency's Commercial Activities Inventories list.

The Office of Federal Procurement Policy has made available a FAIR Act User's Guide at http://www.whitehouse.gov/OMB/procurement/fair-index.html to help interested parties review FY 2006 FAIR Act inventories.



Prompt Payment Interest Rate Set at 5 3/4%

The Treasury Department has established 5 3/4% (5.75%) as the interest rate for the computation of payments made between July 1 and December 31, 2007, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (January 1, 2007, through June 30, 2007) was 5 1/4% (5.25%). The interest rate for July 1, 2006, through December 31, 2006, was 5 3/4% (5.75%).

All prompt payment interest rates since 1980 (in six-month increments) are available at http://www.treasurydirect.gov/govt/rates/tcir/tcir_opdprmt2.htm.

FAR Subpart 32.9, Prompt Payment; FAR Subpart 33.2, Disputes and Appeals; FAR 31.205-10, Cost of Money; and Cost Accounting Standard (CAS) 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, are affected by this interest rate.



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