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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

March 2008
Vol. IX, No. 3

CONTENTS

FAC 2005-24 Removes Numbered Notes From Synopses,
Mandates Common Security Configurations

Federal Acquisition Circular (FAC) 2005-24 removes all references to FedBizOpps “numbered notes” from the Federal Acquisition Regulation (FAR) because there is no need to save paper in cyberspace. In addition, FAC 2005-24 requires agencies to include common security configurations in new information technology acquisitions, establishes new thresholds for the trade agreements, clarifies the regulations on Cost Accounting Standards administration, and addresses the issues of contractor personnel that are providing support to the mission of the United States government.

• Numbered Notes for Synopses: This finalizes, with changes, the rule that proposed to delete all references to “numbered notes” in the FAR and the Federal Business Opportunities (FedBizOpps) website http://www.fedbizopps.gov.
  
  When the government posted synopses in the paper Commerce Business Daily (CBD), numbered notes were used to simplify the inclusion of repetitive information and save space, thus reducing the cost to publish and distribute the CBD. However, the CBD has been replaced by the electronic FedBizOpps, and the electronic posting of synopses on FedBizOpps allows contracting officers to insert text easily as needed.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.
  
  FAR 5.207, Preparation and Transmittal of Synopses, is where the most significant deletions occur. Paragraph (e), which describes numbered notes, is removed, as are other references to numbered notes in paragraphs (c)(13) and (d). In addition, some other changes were made throughout the FAR to tidy-up some synopsis-related changes that have not been made since the transition from the CBD to FedBizOpps.
  
  Four respondents submitted comments on the proposed rule. In response to those comments, the prohibition against the publication of notices of solicitation cancellation in FAR 5.207(g) has been revised to permit contracting officers to publish such cancellations on FedBizOpps. (The original prohibition was part of the overall attempt to limit the number and length of such announcements in the CBD.) In addition, FAR 5.207(c)(15), which had required synopses to include “a statement that all responsible sources may submit a bid, proposal, or quotation which shall be considered by the agency,” is revised to require this statement except when using the sole source authority in FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements, in which case the statement shall read “insert a statement that all responsible sources may submit a capability statement, proposal, or quotation, which shall be considered by the agency.” (The respondent noted that when the synopsis is published, there is no solicitation available, so a proposal cannot be submitted.) For more on the proposed rule, see the April 2007 Federal Contracts Perspective article “Numbered Synopsis Notes Proposed for Deletion.”
  
  
• Common Security Configurations: This final rule amends FAR 39.101, Policy [for acquisition of information technology] to require agencies to include common security configurations in new information technology acquisitions, as appropriate. New paragraph (d) states, “In acquiring information technology, agencies shall include the appropriate information technology security policies and requirements, including use of common security configurations available from the National Institute of Standards and Technology's Web site at http://checklists.nist.gov. Agency contracting officers should consult with the requiring official to ensure the appropriate standards are incorporated.”
  
  The revision reduces risks associated with security threats and vulnerabilities and will ensure public confidence in the confidentiality, integrity, and availability of government information.
  
  
• Contractor Personnel in a Designated Operational Area or Supporting a Diplomatic or Consular Mission: This finalizes, with changes, the rule that proposed adding FAR Subpart 25.3, Contracts Performed Outside the United States, and FAR 52.225-19, Contractor Personnel in a Designated Operational Area or Supporting a Diplomatic or Consular Mission Outside the United States, to address the issues of contractor personnel who provide support to the mission of the United States government in a designated operational area or supporting a diplomatic or consular mission outside the United States, but are not authorized to accompany the U.S. armed forces. (EDITOR’S NOTE: Those authorized to accompany U.S. armed forces are covered by Defense FAR Supplement (DFARS) 225.7402, Contractor Personnel Authorized to Accompany U.S. Armed Forces Deployed Outside the United States, and the clause at DFARS 252.225-7040, Contractor Personnel Authorized to Accompany U.S. Armed Forces Deployed Outside the United States. For more on the DFARS coverage, see the July 2006 Federal Contracts Perspective article “New DFARS Rule on Contractors Accompanying Troops.”)
  
  FAR Subpart 25.3 and FAR 52.225-19 address such issues as responsibility for logistical and security support, compliance with laws and regulations, preliminary personnel requirements, processing and departure points, personnel data lists, removal of contractor personnel, authorization of weapons and ammunition, vehicle or equipment licenses, wearing of military clothing and protective equipment, evacuation, personnel recovery, notification and return of personal effects, mortuary affairs, changes in place of performance or government-furnished facilities, equipment, material, services, or site, and flowdown of the clause to subcontracts.
  
  Six comments were received on the proposed FAR rule. Because the proposed FAR rule and the interim DFARS rule are so similar, the 10 comments received on the interim DFARS rule were evaluated as well. The most widespread concern of respondents centered on FAR 52.225-19(b)(3), which sets forth the law of war principles regarding use of deadly force by contractors. There was strong objection to the perception that the U.S. government is now hiring contractors as mercenaries. This final FAR rule clarifies that contractor personnel are only authorized to use deadly force in self-defense or in the performance of security functions, when use of such force reasonably appears necessary to execute their security mission. Also, the use of deadly force “against enemy armed forces” is deleted from the paragraph. There are legitimate situations which may require a reasonable exercise of self-defense against other than enemy armed forces, e.g., defense against common criminals, terrorists, etc. When facing an attacker, it will often be impossible for the contractor to tell whether the attacker is technically an “enemy armed force” and probably irrelevant to the decision whether to use deadly force.
  
  For more on the proposed FAR rule, see the August 2006 Federal Contracts Perspective article “FAR Coverage Proposed for Contractors Outside U.S.”
  
  
• New Thresholds for the Trade Agreements: This interim rule amends paragraph (b) of FAR 25.402, General, to reflect the new thresholds established by the U.S. Trade Representative for the various trade agreements. This occurs every two years. The following are the revised thresholds [with the old thresholds in brackets]:
  • World Trade Organization Government Procurement Agreement: supplies and services: $194,000 [$193,000]; construction: $7,443,000 [$7,407,000]) (see the definition of “designated country” in FAR 25.003, Definitions, for participating countries)
    
    
  • Australia Free Trade Agreement: supplies and services: $67,826 [$64,786]; construction: $7,443,000 [$7,407,000]
    
    
  • Bahrain Free Trade Agreement: supplies and services: $194,000 [$193,000]; construction: $8,817,449 [$8,422,165]
    
    
  • Central America Free Trade Agreement (CAFTA): supplies and services: $67,826 [$64,786]; construction: $7,443,000 [$7,407,000] (Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua)
    
    
  • Chile Free Trade Agreement: supplies and services: $67,826 [$64,786]; construction: $7,443,000 [$7,407,000]
    
    
  • Morocco Free Trade Agreement: supplies and services: $194,000 [$193,000]; construction: $7,443,000 [$7,407,000]
    
    
  • North American Free Trade Agreement Implementation Act (NAFTA): Canadian supplies: $25,000 [$25,000]; Canadian services, and Mexican supplies and services: $67,826 [$64,786]; Canadian and Mexican construction: $8,817,449 [$8,422,165]
    
    
  • Singapore Free Trade Agreement supplies and services: $67,826 [$64,786]; construction: $7,443,000 [$7,407,000]
  
  Comments on the interim rule must be submitted by April 28, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. Identify such comments as “FAC 2005-24, FAR case 2007-016.”
  
  For more on the USTR threshold adjustments, see the January 2008 Federal Contracts Perspective article “Trade Agreements Thresholds Adjusted.”
  
  
• New Designated Countries – Dominican Republic, Bulgaria, and Romania: This adopts as final, without changes, the interim rule that amended FAR Part 25 and the corresponding clauses in FAR Part 52 to implement the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) with respect to the Dominican Republic, and added Bulgaria and Romania to the list of World Trade Organization Government Procurement Agreement (WTO GPA) countries.
  
  No comments were received on the interim rule, so it is finalized without changes. For more on the interim rule, see the September 2007 Federal Contracts Perspective article “FAC 2005-19 Addresses Personal Identity Verification Products, Free Trade Agreements.”
  
  
• Cost Accounting Standards (CAS) Administration: This finalizes, with editorial changes, the rule that proposed to clarify FAR Part 30, Cost Accounting Standards Administration. The changes were in response to suggestions by both government and industry representatives in response to earlier changes to FAR Subpart 30.6, CAS Administration (see the April 2005 Federal Contracts Perspective article “FAC 2005-01 Addresses Cost Accounting Standards Administration, Architect-Engineer Services”).
  
  The proposed changes involved minor revisions to several entries in FAR 30.001, Definitions; the addition of paragraph (c) to FAR 30.601, Responsibility, to require that the cognizant federal agency official (CFAO) request and consider the advice of the auditor when administering the CAS; and the addition of paragraph (h)(6) to FAR 30.605, Processing Noncompliances, to specify that the cost impact of a noncompliance that affects both cost estimating and cost accumulation shall be determined by combining the separate cost impacts of both the cost estimating and cost accumulation noncompliances.
  
  Despite receiving comments on the proposed rule, the rule is finalized with minor editorial changes. For more on the proposed rule, see the November 2006 Federal Contracts Perspective article “More FAR Changes Proposed for CAS Administration.”

Limit on Urgent Noncompetitive Contracts Proposed

A proposed change to the FAR would limit the length of contracts awarded noncompetitively under unusual and compelling urgency circumstances, as recommended by Paul Denett, Administrator of the Office of Federal Procurement Policy (OFPP).

In a May 31, 2007, memorandum sent by Mr. Denett to agency chief acquisition officers and senior procurement executives on “Enhancing Competition in Federal Acquisition,” one of his proposals was “limiting the length of contracts awarded noncompetitively under urgent and compelling circumstances to the minimum contract period necessary to meet requirements, and no longer than one year unless approved by the head of the contracting activity.” This rule would implement Mr. Denett’s proposal.

The proposed rule would add the following as paragraph (d) to FAR 6.302-2, Unusual and Compelling Urgency:

Comments on the proposed rule must be submitted by March 31, 2008, by any of the following means mentioned above. Identify such comments as “FAR case 2007-008.”

CAS Board Invites Comments on Home Office Expenses

The Cost Accounting Standards (CAS) Board is inviting comments on a staff discussion paper addressing potential revisions to CAS 403, Allocation of Home Office Expenses to Segments. This paper addresses whether the current thresholds that require use of the three factor formula for allocating residual home office expenses require revision.

Paragraph (c)(2) of CAS 9904.403-40 requires that home office residual expenses be allocated to segments using the three factor formula (arithmetical average of the following three percentages: the segment’s payroll dollars to total payroll dollars; the segment’s operating revenue to the total operating revenue of all segments; and the average net book value of the sum of the segment’s tangible capital assets plus inventories to the total average net book value of such assets of all segments) if the residual expenses exceed:

• 3.35% of the first $100 million of operating revenue;
• 0.95% of the next $200 million of operating revenue;
• 0.30% of the next $2.7 billion of operating revenue; and
• 0.20% of all amounts over $3 billion of operating revenue.

The operating revenue thresholds at CAS 9904.403-40(c)(2) were promulgated in December 1972 and have not been revised in the 35 years since.

Over the past few years, the CAS Board has received two proposals to revise the CAS operating revenue thresholds for determining if a contractor is required to use the three factor formula to allocate residual home office expenses to segments:

• A proposal from the Aerospace Industries Association (AIA) recommends that the operating revenue thresholds be raised by 400% to reflect the changes in the consumer price index (CPI) from 1973 to 2003.
• A proposal from the Department of Defense recommends that the CAS Board obtain actual statistics of various companies and conduct a staff study similar to that performed by the original Board. This proposal recommends that the study update the thresholds to reflect the impact that economic changes, industry changes, and the advent of acquisition reform have had in the years since the thresholds were established.

The CAS Board is requesting public comments on whether the thresholds should be raised, the potential advantages and disadvantages of the two alternatives described above, and any additional recommended alternatives commenters may have. Key questions for consideration include, but are not limited to:

1. Should the operating revenue thresholds be revised? Why or why not?
2. If the threshold should be revised, what should be the basis of that revision (e.g., CPI, staff study, other)?
3. What are the advantages and disadvantages of the two alternatives described above?
4. What type of data is currently available for performance of the staff study?
5. Is the administrative burden of collecting the data associated with the staff study commensurate with risk?
6. To what extent does the proliferation of intermediate home offices impact any potential revision of the operating revenue thresholds?

Comments on the staff discussion paper must be submitted by April 14, 2008, by e-mail to casb2@omb.eop.gov; facsimile to 202-395-5105; or by regular mail to the Office of Federal Procurement Policy, 725 17th Street, NW, Room 9013, Washington, DC 20503, ATTN: Laura Auletta. Identify the comments as “CAS-2008-01S.”

In another CAS-related development, the CAS Board is providing public notification of the decision to discontinue its review of the exemption from CAS requirements for contracts that are executed and performed outside the United States, its territories, and possessions.

On September 15, 2005, the CAS Board issued a staff discussion paper inviting comments regarding whether the exemption at paragraph (b)(14) of 9903.201-1, CAS Applicability, should be revised or eliminated (see the October 2005 Federal Contracts Perspective article “Should CAS Apply to Non-U.S. Contracts?”). The CAS Board received three sets of comments in response to the staff discussion paper. None of the comments supported the revision or elimination of the exemption. In fact, all three of the comments offered arguments for why the CAS Board should retain the exemption. While the CAS Board does not necessarily share each of the views expressed in these comments, the CAS Board agrees with the conclusion not to delete or revise the exemption, especially with the absence of any commenter support for any such revision or elimination. “Based on the public input and Board discussions of this issue, the Board finds that the exemption should be retained without change.”

DOD Suspends SDB Evaluation Adjustment One More Year

To comply with Section 801 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105-261), which prohibits DOD from granting to small disadvantaged businesses (SDBs) a 10% price evaluation adjustment in certain acquisitions for a one-year period when it achieves the 5% goal for contract awards to SDBs, DOD is suspending the 10% SDB price evaluation adjustment from March 10, 2008, to March 9, 2009, because it exceeded the 5% SDB goal in Fiscal Year 2007. For more on the SDB price evaluation adjustment, see FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns.

EDITOR'S NOTE: The SDB 10% evaluation adjustment applies only to DOD, the National Aeronautics and Space Administration (NASA), and the Coast Guard (which is part of the Department of Homeland Security). The authority for civilian agencies (other than NASA and the Coast Guard) expired on December 9, 2004. For more on the expiration of the authority for civilian agencies, see the November 2005 Federal Contracts Perspective article "FAC 2005-06 Addresses IT Security, Cancels SDB Price Evaluation Adjustment for Civilian Agencies."

DOE Proposes Revising DEAR Security Clause

The Department of Energy (DOE) is proposing to revise DOE Acquisition Regulation (DEAR) 952.204-2, Security Requirements, to make all contractor and subcontractor employees possessing access authorizations subject to applicant, random, or for cause testing for use of illegal drugs.

Many DOE contractor and subcontractor employees require access authorizations for access to classified information (Restricted Data, Formerly Restricted Data, or National Security Information) or certain quantities of special nuclear material in order to perform official duties. To clarify contractor responsibilities and requirements regarding employees with access to such information, a new paragraph (h)(2) and (h)(3) would be added. These new paragraphs would require the following:

• Applicants to positions requiring access authorizations must pass a personnel background check (background checks are not required for an applicant for DOE access authorization who possesses a current access authorization from DOE or another federal agency). Such background checks must include, as appropriate: a credit check; verification of high school diploma received within the last five years or degree/diploma granted by an institution of higher learning; contacts with listed personal references; contacts with listed employers for the last five years (excluding employment of less than 60 days’ duration, part-time employments, and craft/union employments); and local law enforcement checks when such checks are not prohibited by state or local law or regulation, and when the individual resides in the jurisdiction where the contractor is located. This background check must be conducted and the uncleared applicant’s or employee’s job qualifications and suitability must be established before a request is made to the DOE to process the access authorization.
  
  
• Each candidate for a DOE access authorization must be tested to demonstrate the absence of any illegal drug. DOE will not process candidates for a DOE access authorization unless their tests confirm the absence of any illegal drug.
  
  
• When hiring new employees for positions requiring access authorizations, the contractor shall perform these background checks prior to submission of the request for DOE access authorization.
  
  
• If adverse information is found in the course of the background checks, the contractor must assess the possible impact of such findings on the uncleared applicant’s or employee’s suitability for a position requiring an access authorization and act accordingly.
  
  
• Contractors must propose personnel to work in positions requiring access authorizations only if they are confident that the individuals will pass the rigorous background review that DOE will conduct.
  
  
• All employees possessing access authorizations are subject to applicant, random or for cause testing for use of illegal drugs.

Comments on the proposed rule must be submitted no later than March 20, 2008, by any of the following means: (1) the Federal Electronic Rulemaking Portal at http://www.regulations.gov; (2) by e-mail to Richard.Langston@hq.doe.gov; or (3) by mail to Richard Langston, Procurement Policy Analyst; MA-61/Forrestal Building; U.S. Department of Energy; 1000 Independence Avenue, SW; Washington, DC 20585.

OFPP Provides Guidance on FY 2008 A-76 Competitions

Paul Denett, OFPP Administrator, issued a memorandum to agency heads providing guidance on compliance with certain government-wide provisions of the Fiscal Year (FY) 2008 Consolidated Appropriations Act related to competitions under Office of Management and Budget (OMB) Circular A-76, Performance of Commercial Activities. This guidance addresses: (1) health and retirement fringe benefit comparability requirements, (2) the use of competitive sourcing for human resources (HR) activities, (3) application of the conversion differential, and (4) the performance of commercial activities by non-profit agencies under the AbilityOne Program.

• Health and Retirement Fringe Benefit Comparability Requirements: For competitions that are publically announced on or after December 26, 2007, agencies are prohibited from converting an activity performed by more than 10 federal employees to a contractor through public-private competition unless the contractor does not receive an advantage for a proposal that would reduce costs to the federal government by not making contributions to health insurance and retirement that are equal to or greater than what the agency contributes for its own employees. To ensure uniform application of the health and retirement comparability requirements, agencies shall make the adjustments described in Attachment B to the memorandum.
  
  
• Use of Competitive Sourcing for Human Resources Activities: A temporary moratorium is imposed on public-private competitions announced on or after December 26, 2007, that involve the migration of human resources (HR) services to a federal shared services center or the private sector under the Human Resources Line of Business (HRLOB) initiative. The HRLOB covers competitions involving an upgrade to the next major release of an agency’s current HR management system or modernization to a different HR management system. Competitions outside the HRLOB initiative should proceed in accordance with agency plans and any applicable legal requirements.
  
  
• Application of the Conversion Differential: Agencies are prohibited from converting work performed by more than 10 federal employees to private sector performance absent a showing, through competition, that performance by a contractor would be less costly to the agency by an amount that equals or exceeds the lesser of $10 million or 10% of the personnel-related costs associated with performance by the agency’s most efficient organization (MEO). An agency is precluded from converting work to private sector performance if this conversion differential is not met, even if the agency can demonstrate that private sector performance would provide a superior solution, when both cost and quality considerations are taken into account.
  
  
• Performance of Commercial Activities Under the AbilityOne Program: The above restrictions on public-private competitions do not apply to work that is awarded to qualified nonprofit agencies under the AbilityOne Program, formerly known as the Javits-Wagner-O’Day (JWOD) Program (see the December 2006 Federal Contracts Perspective article “‘JWOD Program’ Renamed ‘AbilityOne Program’”). The AbilityOne Program is designed to leverage the skills and potential of individuals who are blind or have other severe disabilities by facilitating access to the federal marketplace and the performance of certain commercial activities. Agencies who seek to consider contracting with AbilityOne nonprofit agencies for commercial work currently performed by federal employees may continue to use streamlined or standard public-private competitions under OMB Circular A-76, as appropriate.

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