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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


January 2008
Vol. IX, No. 1

CONTENTS


SBA Proposes Set-Aside Program for Women-Owned Small Businesses
Trade Agreements Thresholds Adjusted
95% EPEAT-Registered Electronic Products Mandated
OFPP Proposes Policy Letter on Green Acquisitions
50% Goal Established for Performance-Based Buys
Patent Rights Clause Added to DFARS
Travel Cost Principle Proposed for Change
Nonmanufacturer Rule Waivers Granted, Proposed
Prompt Payment Interest Rate Set at 4 3/4%
Restrictions Proposed on Purchase Card Use



SBA Proposes Set-Aside Program
For Women-Owned Small Businesses

After nearly three decades of lobbying by women’s groups and “encouragement” by Congress and the president, the Small Business Administration (SBA) has proposed a set-aside program for women-owned small businesses (WOSB) and economically disadvantaged WOSBs (EDWOSB). However, the set-asides would be restricted to industries in which WOSBs are determined to be substantially underrepresented in governmentwide federal contracting, and SBA has identified only four such industries.

In 1979, Executive Order 12138 directed federal agencies to provide procurement assistance to women-owned businesses. At that time, WOSBs received only 0.2% of all federal procurements. By 1988, WOSB federal procurements had grown to a mere 1%, so the Women’s Business Ownership Act (Public Law 100-588) was enacted to assist women in starting and managing small businesses. While the program resulting from Public Law 100-588 has provided financing and information to thousands of women seeking to start their own businesses, WOSBs have not been very successful in obtaining federal contracts. Despite the Federal Acquisition Streamlining Act (FASA) (Public Law 103-355) establishing a governmentwide WOSB contract goal of 5%, WOSBs received only 2.3% of fiscal year (FY) 2000 awards; 2.5% of FY 2001 awards; 2.9% of FY 2002 awards; 3% of FY 2003 and 2004 awards; 3.2% of FY 2005 awards; and 3.4% of FY 2006 awards.

The Small Business Reauthorization Act of 2000 (Public Law 106-554) included a provision authorizing contracting officers to restrict competition to WOSBs in industries where they are substantially underrepresented, but the set-aside contracts could not exceed $3,000,000 ($5,000,000 for manufacturing). However, this provision was not implemented quickly because of questions regarding interpretation of the statutory provision and questions about the methodology used to identify the industries. Consequently, SBA contracted with the Kauffman-RAND Institute for Entrepreneurship Public Policy (RAND) to conduct another study of the availability and utilization of WOSBs in prime contracts, and RAND determined that WOSBs are underrepresented in federal procurement in the following four industries: North American Industry Classification System (NAICS) codes 3328, Coating, Engraving, Heat Treating, and Allied Activities; 3371, Household and Institutional Furniture and Kitchen Cabinet Manufacturing; 4412, Other Motor Vehicle Dealers, and 9281, National Security and International Affairs. In addition, SBA published a proposed rule to implement the WOSB set-aside provision. (EDITOR’S NOTE: The RAND report is available at http://www.RAND.org/pubs/technical_reports/TR442. For more on SBA’s proposed rule, see the July 2006 Federal Contracts Perspective article “SBA Proposes Women-Owned Small Business Program.”)

Based on an evaluation of comments on the proposed rule, discussions with the Department of Justice (DOJ) and the Office of Federal Procurement Policy (OFPP), and a further examination of the statutory provision, SBA has decided that the rule requires significant changes and warrants further public comments and consideration.

The revised proposed rule would add a new Part 127, Women-Owned Small Business Federal Contract Assistance Procedures, to Title 13 of the Code of Federal Regulations, Business Credit and Assistance. The following are the key provisions of proposed Part 127:

Comments on this revised proposed rule must be submitted by February 25, 2008, by either of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail, hand-delivery/courier: Robert C. Taylor, Office of Contract Assistance, Office of Government Contracting, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416.



Trade Agreements Thresholds Adjusted

The United States Trade Representative (USTR) has adjusted the thresholds for applicability of the various trade agreements in which the U.S. agrees to waive the provisions of the Buy American Act (see Federal Acquisition Regulation (FAR) Subpart 25.1, Buy American Act – Supplies, and FAR Subpart 25.2, Buy American Act – Construction) in exchange for the reduction or elimination of other countries’ tariffs and preference programs that favor their domestic products and services.

The following are the new thresholds [with the old thresholds in brackets]:

See FAR Subpart 25.4, Trade Agreements, for more information on the trade agreements.



95% EPEAT-Registered Electronic Products Mandated

Federal Acquisition Circular (FAC) 2005-23 consists of the following three rules:



OFPP Proposes Policy Letter on Green Acquisitions

The Office of Federal Procurement Policy (OFPP) is proposing to issue a policy letter on green procurement policies and strategies. The policy letter would address: (1) general responsibilities of agencies for the procurement of green products and services; (2) the relationship of green products and services to other socio-economic programs; (3) automatic substitution policies; (4) listing of green products in federal catalogues and online ordering systems; (5) green requirements for paper and printing; (6) application of green requirements in service contracting; and (7) energy efficiency. The policy letter would implement specific provisions of Executive Order 13423, Strengthening Federal Environmental, Energy, and Transportation Management, and provisions of the Energy Policy Act of 2005 and several other statutes addressing environmental and energy issues. The policy letter would supersede OFPP Policy Letter 92-4, Procurement of Environmentally-Sound and Energy-Efficient Products and Services.

The letter provides guidance on green purchasing policies and strategies. It requires agencies to identify opportunities and give preference to the acquisition of green products and services, including but not limited to: (1) alternative fuels and alternative fuel vehicles and hybrids; (2) biobased products; (3) ENERGY STAR® and Federal Energy Management Program (FEMP)-designated products; (4) environmentally-preferable products and services; (5) electronics registered on the Electronic Product Environmental Assessment Tool (EPEAT); (6) low or no toxic or hazardous chemicals or materials or products; (7) non-ozone depleting substances; (8) recycled-content and/or remanufactured products; (9) renewable energy; and (10) water-efficient products.

Comments on the proposed letter must be received no later than February 26, 2008, by any of the following methods: (1) e-mail: OFPPGreen@omb.eop.gov; (2) fax: 202-395-5105; or (3) mail: Office of Federal Procurement Policy, Office of Management and Budget, Room 9013, 725 17th Street, NW, Washington, DC 20503.

EDITOR’S NOTE: For more on the FAR rule implementing Executive Order 13423 and addressing EPEAT, see the earlier article in this issue, “95% EPEAT-Registered Electronic Products Mandated.” For more on the FAR rule implementing the Energy Policy Act of 2005 and addressing ENERGY STAR® and Federal Energy Management Program (FEMP)-designated products, see the December 2007 Federal Contracts Perspective article “Contractors Required to Develop Codes of Business Ethics and Conduct.”



50% Goal Established for Performance-Based Buys

In a memorandum to chief acquisition officers and senior procurement executives, OFPP Administrator Paul Denett announced that the governmentwide goal for application of performance-based acquisition (PBA) methods to eligible service contracts exceeding $25,000 is increased from 45% in Fiscal Year 2007 to 50% for Fiscal Year 2008. According to the memorandum, this increase is intended “to continue to motivate agencies to use the PBA strategy on eligible service actions...”

According to the memorandum, PBAs are “the government’s preferred approach for acquiring services.” In a PBA, the government describes the work in terms of the required results rather than “how” the work is to be accomplished or the number of hours the contractor is to provide. The PBA must include measurable performance standards (in terms of quality, timeliness, quantity, etc.) and the method of assessing contractor performance against performance standards. The PBA may include performance incentives. PBA is addressed in FAR Subpart 37.6, Performance-Based Acquisition.



Patent Rights Clause Added to DFARS

The Department of Defense (DOD) took a break during December, issuing only one amendment to the Defense FAR Supplement (DFARS), and that merely added a clause that was deleted from the FAR. However, DOD did take time out to propose two changes to the DFARS.



Travel Cost Principle Proposed for Change

Paragraph (b) of FAR 31.205-46, Travel Costs, currently states, “Airfare costs in excess of the lowest customary standard, coach, or equivalent airfare offered during normal business hours are unallowable...” This limitation is being interpreted inconsistently, either as lowest coach fare available to the contractor or lowest coach fare available to the general public, and these inconsistent interpretations can lead to confusion regarding what costs are allowable. Therefore, it is proposed that this language be revised to read “Airfare costs, in excess of the lowest priced coach class, or equivalent, airfare available to the contractor during normal business hours are unallowable...” This standard was selected because “it is not prudent to allow the costs of the lowest coach fares available to the general public when contractors have obtained lower fares as a result of direct negotiation.”

Comments on this proposed rule must submitted no later than February 19, 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: Diedra Wingate, Washington, DC 20405. Identify such comments as “FAR case 2006-024.”



Nonmanufacturer Rule Waivers Granted, Proposed

The Small Business Administration (SBA) is waiving the nonmanufacturer rules for two classes of products: (1) 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 manufacturing; 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; and (2) irradiation apparatus manufacturing (x-ray equipment and supplies) under NAICS code 334517. SBA published notices of intent to waive the nonmanufacturer rules for these two classes, but determined that there are no small business manufacturerers for these classes of products. For more o the notice of intent to waive the nonmanufacturer rule for electromedical and electrotherapeutic apparatus manufacturing, see the December 2007 Federal Contracts Perspective article “Waiver of Another Nonmanufacturer Rule Proposed.” For more on the notice of intent to waive the nonmanufacturer rule for irradiation apparatus manufacturing, see the November 2007 Federal Contracts Perspective article “Nonmanufacture Rule Waiver for Irradiation Apparatus."

Also, SBA is proposing to waive the nonmanufacturer rule for all other miscellaneous electrical equipment and component manufacturing under NAICS code 335999, product numbers 6240 and 6250. SBA is inviting the public to comment on this proposed waiver, or provide information on potential small business sources for these products, by January 14, 2008, to Edith G. Butler, Program Analyst, U.S. Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

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

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



Prompt Payment Interest Rate Set at 4 3/4%

The Treasury Department has established 4 3/4% (4.75%) as the interest rate for the computation of payments made between January 1 and July 31, 2008, 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 (July 1, 2007, through December 31, 2007) was 5 3/4% (5.75%). The interest rate for January 1, 2007, through June 30, 2007, was 5 1/4% (5.25%).

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



Restrictions Proposed on Purchase Card Use

To prevent contractors with debts to the government from getting paid through a governmentwide commercial purchase card, it is proposed to amend the FAR to require contracting officers to determine whether the Central Contractor Registration (CCR) (http://www.ccr.gov) indicates that the contractor has delinquent debt that is subject to collection under the Treasury Offset Program (TOP) and, if a delinquent debt indicator is found, the contracting officer is not authorized to use the governmentwide commercial purchase card as a method of payment. (EDITOR’S NOTE: Information on the TOP program is available at http://fms.treas.gov/debt/index.html.)

The Financial Management Service (FMS) of the Department of the Treasury is charged with implementing the government's delinquent debt collection program. To collect delinquent debts owed to federal agencies and states, FMS uses the Treasury Offset Program (TOP). TOP uses both “offsets” and “continuous levies” to collect delinquent debts. “Offset” is a process in which federal payments are reduced to satisfy a person’s overdue federal debt, child support obligation, or state tax debt. A payee’s name and taxpayer identification number are matched against an FMS database of delinquent debtors for automatic offset of funds. Offset funds are then used to satisfy payment of the delinquent debt to the extent allowed by law.

Under the continuous levy program, delinquent federal tax debts are collected by levying non-tax payments until the debt is satisfied. The continuous levy program includes levy of some vendor payments, federal employee salary payments, the Office of Personnel Management retirement payments, and social security benefit payments. Continuous levy is accomplished through a process almost identical to that of offset: FMS matches delinquent debtor data with payment record data for automated collection of the debt at the time of payment.

FMS is unable to offset or apply a continuous levy to payments made to contractors with delinquent debts when the governmentwide commercial purchase card is used as the method of payment. When the governmentwide commercial purchase card is used as the method of pay-ment, the government does not make a direct payment to the contractor. Instead, the processing bank for the governmentwide commercial purchase card pays the contractor. Approximately $73.5 million of delinquent debts subject to collection under TOP have not been collected because the debtors have been paid using the governmentwide commercial purchase card.

To help increase the collection of delinquent debts owed to the government, this proposed rule would amend FAR 32.1108, Payment by Governmentwide Commercial Purchase Card, “to verify (by looking in CCR) whether the contractor has any delinquent debt subject to collection under the Treasury Offset Program (TOP) program at contract award, order placement, and prior to any option exercise.” If a delinquent debt flag indicator is found, the governmentwide commercial purchase card would not be authorized as a method of payment. “In such cases, the contracting officer shall provide alternative payment instructions to the contractor. Contracting officers shall not use the presence of the delinquent debt indicator to exclude a contractor from receipt of the contract, order, or exercised option.”

Also, the proposed rule would amend FAR 52.232-36, Payment by Third Party, to advise contractors that the governmentwide commercial purchase card is not authorized as a method of payment if a delinquent debt flag indicator is in the CCR for the contractor.

This proposed rule would not apply to individual travel charge cards or centrally billed accounts for travel/transportation services.

Comments on this proposed rule must be submitted no later than February 29, 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: Diedra Wingate, Washington, DC 20405. Identify such comments as “FAR case 2006-026.”



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