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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions

April 2008
Vol. IX, No. 4

CONTENTS

Personal and Organizational Conflicts of Interest
For Contractors Under Consideration

In response to the increase in the use of contractor employees to perform functions previously performed by government employees and the increased consolidation in many sectors of the contractor community, the Civilian Acquisition Agency Council (CAAC) and the Defense Acquisition Regulations Council (DARC) are seeking to determine if the Federal Acquisition Regulation (FAR) guidance on personal conflicts of interest (PCI) and organizational conflicts of interest (OCI) adequately address the current needs of the acquisition community or whether providing standard provisions and clauses might be beneficial.

The federal government is increasingly turning to private contractors to perform a wide array of its work. As a result, contractor employees are increasingly working side-by-side with federal employees. The nature of the “blended workforce” could potentially distort previously clear distinctions between government employees and private-sector employees, and may add complexity to the business ethics landscape for which the acquisition community needs updated guidance. For instance, private-sector employees are not subject to the same ethical safeguards that have been put in place for federal employees to ensure the integrity of government operations. Issues such as financial conflicts of interest, impartiality concerns, misuse of information, misuse of apparent or actual authority, and misuse of property are all areas of potential personal conflicts of interest for contractor employees that could result in harm to the government’s finances and loss of public confidence in government.

FAR Subpart 9.5, Organizational and Consultant Conflicts of Interest, explains OCIs and provides nine examples to help contracting officers identify potential OCIs, but the subpart does not treat the subject in detail, and no solicitation provisions or contract clauses are provided -- contracting officers are to draft such provisions and clauses themselves.

Recently, Federal Acquisition Circular (FAC) 2005-22 expanded general business ethics coverage by adding FAR Subpart 3.10, Contractor Code of Business Ethics and Conduct. FAR Subpart 3.10 requires employers to post Inspector General (IG) hotline posters in their places of business, to have a written code of business ethics, and, with the exception of small businesses, to have a formal business ethics training program and internal control system.

In addition, a recent proposed FAR change would impose additional mandatory requirements for the business ethics programs. For example, contractors would be required to notify contracting officers without delay whenever they become aware of violations of federal criminal law with regard to government contracts or subcontracts. Those that do not report violations in a timely manner would be subject to suspension or debarment. (For more on FAC 2005-22 and the proposed rule, see the December 2007 Federal Contracts Perspective article “Contractors Required to Develop Codes of Ethics and Conduct.”)

The CAAC and the DARC are seeking comments and recommendations regarding whether additional regulatory coverage is needed, the suitability of applying other agencies’ approaches governmentwide, or other alternatives. The Councils are also interested in industry initiatives in this area, particularly standardized or model non-disclosure agreements.

Comments must be submitted no later than May 27, 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 comments on PCI as “FAR case 2007-017,” and comments on OCI as “FAR case 2007-018.”

Executive Compensation Benchmark Raised to $612,196

Paul Denett, the Office of Federal Procurement Policy (OFPP) administrator, has decided to increase the “benchmark compensation amount” for senior executives by $14,284, from $597,912 to $612,196 -- a 2.4% increase. This figure is “the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year...” It was determined based on commercially available surveys and after consultation with the director of the Defense Contract Audit Agency.

The $612,196 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for “the five most highly compensated employees in management positions at each home office and each segment of the contractor.” However, the benchmark compensation amount is not a limit on the compensation an executive may receive -- $612,196 is the maximum allowable amount the government will reimburse contractors for their senior executives’ compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2008, for contractor fiscal year 2008 and subsequent contractor fiscal years unless and until revised by the Office of Management and Budget (OMB), which is required to set the benchmark compensation amount annually. (OFPP is part of OMB.)

Questions concerning this may be addressed to Laura Auletta, OFPP, at 202-395-3256.

FAR Rule Would Clarify Socioeconomic Program Parity

To clarify for contracting officers that the Small Business Administration (SBA) has not established an order of precedence among the HUBZone, service-disabled veteran-owned small business (SDVOSB), and the 8(a) Business Development Program programs, FAR Part 19, Small Business Programs, would be amended.

The most significant FAR change in this proposed rule would be the addition of FAR 19.203, Relationship Among Small Business Programs, which would consist of the following:

• Paragraph (a), which applies to acquisitions between the micro-purchase threshold ($3,000) and the simplified acquisition threshold ($100,000), would state, “The requirement to exclusively reserve acquisitions for small business at [FAR] 19.502-2(a) does not preclude the contracting officer from awarding a contract under the (1) 8(a) Program (Subpart 19.8); (2) HUBZone Program (Subpart 19.13); or (3) Service-Disabled Veteran-Owned Small Business Procurement program (SDVOSB) (Subpart 19.14).”
  
  
• Paragraph (b), which applies to acquisitions that exceed the simplified acquisition threshold, would state, “The contracting officer must consider the 8(a), HUBZone, and SDVOSB programs before using a small business set-aside. There is no order of precedence among the 8(a), HUBZone, and SDVOSB programs. However, if a requirement has been accepted by SBA under the 8(a) Program, it must remain in the 8(a) Program unless SBA agrees to its release...The contracting officer must set aside an acquisition for HUBZone small business concerns if the conditions at [FAR] 19.1305 [HUBZone Set-Aside Procedures] are met, before considering a small business set-aside.” (NOTE: The FAR 19.1305 conditions are that the contracting officer must have a reasonable expectation that (1) offers will be received from two or more HUBZone small business concerns; and (2) award will be made at a fair market price.)

In addition, cross-references to FAR 19.203 would be added to FAR Subpart 19.5, Set-Asides for Small Businesses; FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program); FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program; and FAR Subpart 19.14, Service-Disabled Veteran-Owned Small Business Procurement Program.

To further clarify the intent of the rule, the rule’s introduction states, “SBA believes that progress in fulfilling the various small business goals, as well as other factors such as the results of market research and the acquisition history, should be considered in making a decision as to which program to use for the acquisition.”

As for the effect the rule will have on the small business community, the proposed rule states, “Viewed as a whole, there is no impact on the small business community, as this rule does not increase or decrease the number of contracts awarded to small businesses. However, there will be a negative impact on contractors with a particular preference who lose a contract set-aside to another socioeconomic category of contractors with a different preference who gain the contract set-aside, who thereby will receive a positive impact.”

Comments on the proposed rule must be submitted by May 9, 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 “FAR case 2006-034.”

DOD Issues Rules on WAWF, Contractor Personnel

The Department of Defense (DOD) amended the Defense Federal Acquisition Regulation Supplement (DFARS) to finalize one proposed rule and two interim rules:

• Mandatory Use of Wide Area WorkFlow (WAWF): This finalizes, with changes, the rule that proposed to amend DFARS Subpart 232.70, Electronic Submission and Processing of Payment Requests and Receiving Reports, to require use of the WAWF electronic system for submitting and processing payment requests and receiving reports under Department of Defense (DOD) contracts. WAWF, when fully implemented, will eliminate paper documents, eliminate redundant data entry, improve data accuracy, reduce the number of lost or misplaced documents, and result in more timely payments to contractors. (NOTE: Information regarding WAWF is available at https://wawf.eb.mil/.)
  
  DFARS Subpart 232.70 and the corresponding clause at DFARS 252.232-7003, Electronic Submission of Payment Requests and Receiving Reports, identified three accepted electronic forms of transmitting payment requests under DOD contracts: (1) American National Standards Institute (ANSI) X.12 Electronic Data Interchange (EDI); (2) Web Invoicing System (WInS); and (3) WAWF. This final rule amends DFARS Subpart 232.70 and DFARS 252.232-7003 to require use of the WAWF in one of the following electronic formats that WAWF accepts: Electronic Data Interchange, Secure File Transfer Protocol, or World Wide Web input, unless the contracting officer authorizes use of another electronic form or a non-electronic format. In addition, the rule allows contractors to submit ANSI X.12 EDI transactions through WAWF.
  
  Sixteen respondents submitted comments on the proposed rule. As a result, the rule has been amended to: (1) permit the use of a DOD-approved electronic third party payment system or other exempt vendor payment/invoicing system (such as PowerTrack, Transportation Financial Management System, and Cargo and Billing System) for payment of commercial transportation services (paragraph (c) of DFARS 232.7003, Procedures); and (2) clarify that the electronic submission of payment requests also includes the electronic submission of receiving report documentation necessary to support payment (changed titles of DFARS Subpart 232.70 and DFARS 252.232-7003 from “Electronic Submission and Processing of Payment Requests,” and comparable changes throughout the rule).
  
  For more on the proposed rule, see the September 2007 Federal Contracts Perspective article “Defense Issues Seven DFARS Rules During August.”
  
  
• Contractor Personnel Authorized To Accompany U.S. Armed Forces: This finalizes, with changes, the interim rule that amended DFARS Subpart 225.74, Defense Contractors Outside the United States, and DFARS 252.225-7040, Contractor Personnel Authorized to Accompany U.S. Armed Forces Deployed Outside the United States, to implement the policy in DoD Instruction 3020.41, Contractor Personnel Authorized to Accompany the U.S. Armed Forces (available at http://www.dtic.mil/whs/directives/corres/html/302041.htm). The interim rule addressed the status of contractor personnel as civilians accompanying the U.S. Armed Forces and the responsibilities of the combatant commander regarding the protection of contractor personnel.
  
  In addition, FAC 2005-24 amended FAR Subpart 25.3, Contracts Performed 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. Since the FAR and the DFARS rules are similar in many respects, relevant issues raised with regard to the FAR rule were considered with comments received on the DFARS rule.
  
  The following are the most significant changes between the interim and final versions of the rule:
  
  
  • The term “theater of operations” has been replaced with “designated operational area” in paragraph (a) of DFARS 225.7402-3, Government Support, and throughout DFARS 252.225-7040, because “designated operational area” is consistent with DOD Joint Publication 3-0, Joint Operations, and is more appropriate because it includes the theater of operations as well as theater of war, joint operations area, amphibious objective area, joint special operations area, and area of operations.
    
    
  • DFARS 252.225-7040(b)(3)(i) is revised from “Except as provided in paragraph (b)(3)(ii) of this clause, contractor personnel are not authorized to use deadly force against enemy armed forces other than in self-defense” to “Except as provided in paragraph (b)(3)(ii) of this clause, contractor personnel are only authorized to use deadly force in self-defense.” This change acknowledges that there are legitimate situations that may also require a reasonable exercise of self-defense against other than enemy armed forces (for example, common criminals or terrorists). The introduction to the rule explains, “When facing an attacker, it will often not be possible for the contractor to ascertain whether the attacker is technically an ‘enemy armed force.’”
    
    
  • DFARS 252.225-7040(b)(3)(ii) is revised from “Private security contractor personnel are authorized to use deadly force only when necessary to execute their security mission to protect assets/persons, consistent with the mission statement contained in their contract,” to “Contractor personnel performing security functions are also authorized to use deadly force when such force reasonably appears necessary to execute their security mission to protect assets/persons, consistent with the terms and conditions contained in their contract or with their job description and terms of employment.” This revision: (1) adopts the “reasonably appears necessary” standard in DOD Directive 5210.56, Use of Deadly Force and the Carrying of Firearms by DoD Personnel Engaged in Law Enforcement and Security Duties; (2) changes “mission statement” to “terms and conditions” because not all contracts contain a mission statement; (3) changes “private security contractor personnel” to “contractor personnel performing security functions” to recognize that, in some circumstances, a contractor whose primary function is not security may directly hire a few personnel to provide security, rather than subcontracting to a private security contractor; and (4) since some contractor personnel performing security functions are employees rather than hired by contract, language has been added that addresses execution of the security mission by such personnel consistent with their job description and terms of employment.
    
    
  • DFARS 252.225-7040(b)(3)(iii) is revised from “Civilians who accompany the U.S. Armed Forces lose their law of war protection from direct attack if and for such time as they take a direct part in hostilities” to “Unless immune from host nation jurisdiction by virtue of an international agreement or international law, inappropriate use of force by contractor personnel authorized to accompany the U.S. Armed Forces can subject such personnel to United States or host nation prosecution and civil liability.” This revision: (1) emphasizes the consequences for the inappropriate use of force; and (2) deletes the “law of war protection” language because, though technically correct, it is potentially confusing.
    
    
  • In DFARS 252.225-7040(c)(2)(i), which states, “Generally, all contractor personnel authorized to accompany the U.S. Armed Forces in the theater of operations may be provided resuscitative care, stabilization, hospitalization...and assistance,” the phrase “may be provided” is changed to “are authorized.” This removes the implication that such care is discretionary.

  In addition, DFARS Subpart 225.3, Contracts Performed Outside the United States, is added to supplement FAR Subpart 25.3, which was added by FAC 2005-24. The significant provisions of DFARS Subpart 225.3 are:

  • DFARS 225.301-1, Scope, which (1) clarifies the meaning of the term “performance in a designated operational area” (“performance of a service or construction, as required by the contract. For supply contracts, the term includes services associated with the acquisition of supplies (e.g., installation or maintenance), but does not include production of the supplies or associated overhead functions)”; and (2) specifies that FAR 25.301, Contractor Personnel in a Designated Operational Area or Supporting a Diplomatic or Consular Mission Outside the United States, applies to DOD personal services contracts (because DOD does not have the same authorities as the civilian agencies with regard to personal services contractors).
    
    
  • DFARS 225.301-4, Contract Clause, which (1) provides that FAR 52.225-19, Contractor Personnel in a Designated Operational Area or Supporting a Diplomatic or Consular Mission Outside the United States, will not be used in solicitations and contracts when all contractor personnel performing outside the United States will be covered by DFARS 252.225-7040; and (2) specifies that the Synchronized Predeployment and Operational Tracker (SPOT) automated system is to be used in maintaining DOD contractor personnel data under FAR 52.225-19. (NOTE: Information on the SPOT system is available at http://www.dod.mil/bta/products/spot.html.)
  
  For more on the interim rule, see the July 2006 Federal Contracts Perspective article “New DFARS Rule on Contractors Accompanying Troops.” Also, for more on the predecessor to the interim rule, see the June 2005 Federal Contracts Perspective article “DFARS Addresses Task Orders Against Non-DOD Contracts.” Finally, for more on FAC 2005-24, see the March 2008 Federal Contracts Perspective article “FAC 2005-24 Removes Numbered Notes from Synopses, Mandates Common Security Configurations.”
  
  
• Codification and Modification of the Berry Amendment: This finalizes, with changes, the interim rule that amended DFARS 225.7002, Restrictions on Food, Clothing, Fabrics, Specialty Metals, and Hand or Measuring Tools, to implement Section 832 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107), which codified and made minor modifications to the provision of law known as the “Berry Amendment.” The Berry Amendment (and DFARS 225.7002) requires that procurements of covered items in excess of the $100,000 simplified acquisition threshold must be of products grown, reprocessed, reuse, or produced in the U.S. or its possessions unless the service secretary determines that satisfactory quality and sufficient quantity cannot be procured when needed at U.S. market prices.
  
  The most significant difference between the interim and final versions of the rule is in paragraph (j) of DFARS 225.7002-2, Exceptions. The interim rule specified that “acquisitions of end products incidentally incorporating cotton, other natural fibers, or wool” were exempt from the Berry Amendment restrictions. A respondent on the interim rule stated that the exception should apply only to the incidental amount of cotton, other natural fibers, or wool, not to the end item itself, if the end item is otherwise subject to the Berry Amendment. For example, a jacket of synthetic fibers with cotton lining in the pockets would still be subject to the Berry Amendment with regard to origin of the jacket as a whole. Only the cotton lining of the pockets would be exempt. Therefore, the final rule exempts “acquisitions of incidental amounts of cotton, other natural fibers, or wool incorporated in an end product...”
  
  For more on the interim rule, see the May 2002 Federal Contracts Perspective article “New DFARS Rules Address Profit, Berry Amendment, Federal Prisons, NAFTA, Balance of Payments.”
  
  EDITOR’S NOTE: The introduction to the final rule states, “DOD recognizes the need for more information and training on the Berry Amendment. A Continuous Learning Module on the Berry Amendment (CLC 125) is now available at https://learn.dau.mil. In addition, answers to frequently asked questions are available at http://www.acq.osd.mil/dpap/cpic/ic/berry_amendment_faq.html.”

New CAS Clause for Contracts with Foreign Concerns

The Cost Accounting Standards (CAS) Board has adopted, without changes, the rule that proposed to add a new clause CAS 9903.201-4(f), Disclosure and Consistency of Cost Accounting Practices -- Foreign Concerns.

Paragraph (b)(4) of CAS 9903.201-1, CAS Applicability, requires foreign concerns subject to CAS to comply only with CAS 401 and 402. Until November 4, 1993, contracts subject to modified CAS coverage (that is, those under $50 million), also had to comply only with CAS 401 and 402. Therefore, both contracts to foreign concerns and contracts subject to modified CAS coverage used the same clause, CAS 9903.201-4(c).

On November 4, 1993, the CASB revised the definition of modified coverage to include CAS 405 and CAS 406, and revised CAS 9903.201-4(c) accordingly. However, the CASB did not change the requirement that foreign concerns comply with only CAS 401 and 402, so CAS 9903.201-4(c) had to be modified whenever used in contracts with foreign concerns. To remedy this situation, the CAS Board developed CAS 9903.201-4(f) for use in contracts with foreign concerns. The new clause is identical to CAS 9903.201-4(c) except that it specifies that only CAS 401 and 402 apply to contracts with foreign concerns.

No comments were submitted on the proposed rule, so it is adopted as final without changes. For more on the proposed rule, see the July 2007 Federal Contracts Perspective article “Application of CAS to Foreign Concerns Addressed.”

Auto Reimbursement Increased to 50.5¢/Mile

The General Services Administration (GSA) is amending the Federal Travel Regulation (FTR) to increase the mileage reimbursement rate for use of a privately owned automobile on official travel from 48.5¢ per mile to 50.5¢ per mile. This increase reflects the current costs of operation as determined in GSA’s cost studies.

By law, the automobile reimbursement rate cannot exceed the single standard mileage rate established by the Internal Revenue Service (IRS). The IRS announced a new single standard mileage rate for automobiles of 50.5¢ per mile effective January 1, 2008.

Nonmanufacturer Rule Waived for Electrical Fixtures

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for all other miscellaneous electrical equipment and component manufacturing (indoor and outdoor electrical lighting fixtures) under North American Industry Classification System (NAICS) code 335999, product number 6210. SBA published a notice of intent to waive the nonmanufacturer rule for these products, but no comments were received in response to the notice, so SBA is granting the waiver.

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 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.

EPA Proposes Revision to Technical Direction Clause

The Environmental Protection Agency (EPA) is proposing to revise EPA Acquisition Regulation (EPAAR) 1552.237-71, Technical Direction, to incorporate several class deviations and to update terminology and procedures related to issuing technical direction.

First of all, the prescription for EPAAR 1552.237-71 would be revised. Paragraph (b) of EPAAR 1537.110, Solicitation Provisions and Contract Clauses, currently states the clause is to be used in cost-reimbursement type solicitations and contracts. The revised prescription would allow contracting officers to use the clause, or a clause substantially the same, in solicitations and contracts where the contracting officer will delegate authority to issue technical direction to the contracting officer technical representative.

EPAAR 1552.237-71 would be revised as follows:

• Definitions of “contracting officer technical representative” and “task order” would be added so the EPA standardizes terms with those in the FAR.
  
  
• Paragraph (b) would provide detail in describing technical direction as authorized instruction to the contractor which “approves approaches, solutions, designs, or refinements; fills in details; completes the general description of work; [or] shifts emphasis among work areas or tasks...”
  
  
• Paragraph (g) reminds the contractor that that following any direction given by any person other than the contracting officer or the contracting officer technical representative shall be at the contractor's risk.

Comments on the proposed rule must be submitted by April 3, 2008, by any of the following means: (1) http://www.regulations.gov; (2) e-mail: docket.oei@epa.gov; (3) fax: 202-566-0224; (4) mail: OEI Docket, Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania Avenue, NW, Washington, DC 20460; or (5) hand delivery: EPA Docket Center-Attention OEI Docket, EPA West, Room B102, 1301 Constitution Avenue, NW, Washington, DC 20004. Identify such comments as “EPA-HQ-OARM-2007-1115.”

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