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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


June 2008
Vol. IX, No. 6

CONTENTS


USDA Adds 27 Items to Biobased Products List, Exempts DOD and NASA from Requirements
FY 2006 Federal Spending Tops $400 Billion
Proposed Contractor Ethics Rule Being Revised
SBA to Hold Meetings on Size Standards Review
Three Nonmanufacturer Rules Waived, One Proposed
New Regs Address Veterans' Employment, Ownership
DHS Authorizes One-Step Turnkey Design-Build Contracts
CAS Address Costs for Contractors' ESOPs
CBCA Revises Rules of Procedure
DFARS Addresses Excessive Pass-Through Charges Again



USDA Adds 27 Items to Biobased Products List,
Exempts DOD and NASA from Requirements

The United States Department of Agriculture (USDA) is adding 27 sections to Title 7 of the Code of Federal Regulations (CFR) Part 2902, Guidelines for Designating Biobased Products for Federal Procurement, to identify 27 more biobased products to be given preference in federal procurements as provided under Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA), and minimum biobased content for each of these items. These join the six biobased products that were designated by USDA in March 2006 (see the April 2006 Federal Contracts Perspective article “USDA Designates Six Biobased Products for Procurement”).

When USDA designates an item under the “BioPreferred Program,” manufacturers of all products under that item that meet the requirements to qualify for preferred procurement can claim that status for their products. To qualify for preferred procurement, a product must contain at least the minimum biobased content established for the designated item. USDA will invite the manufacturers of these qualifying products to post information on the product, contacts, and performance testing on its BioPreferred website, http://www.biopreferred.gov. Procuring agencies will be able to utilize the website as a tool to determine the availability of qualifying biobased products under a designated item.

As a general rule, procuring agencies must purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless products within a designated item: (1) are not reasonably available within a reasonable period of time; (2) fail to meet the reasonable performance standards of the procuring agencies; or (3) are available only at an unreasonable price. The $10,000 threshold applies to federal agencies as a whole and not to agency subgroups such as regional offices or subagencies of the larger federal department or agency.

The following are the new designated items, and their Title 7 section numbers:

      Section 2902.16, Adhesive and Mastic Removers
      Section 2902.17, Plastic Insulating Foam for Residential and Commercial Construction
      Section 2902.18, Hand Cleaners and Sanitizers
      Section 2902.19, Composite Panels
      Section 2902.20, Fluid-Filled Transformers
      Section 2902.21, Disposable Containers
      Section 2902.22, Fertilizers
      Section 2902.23, Sorbents
      Section 2902.24, Graffiti and Grease Removers
      Section 2902.25, 2-Cycle Engine Oils
      Section 2902.26, Lip Care Products
      Section 2902.27, Films
      Section 2902.28, Stationary Equipment Hydraulic Fluids
      Section 2902.29, Disposable Cutlery
      Section 2902.30, Glass Cleaners
      Section 2902.31, Greases
      Section 2902.32, Dust Suppressants
      Section 2902.33, Carpets
      Section 2902.34, Carpet and Upholstery Cleaners
      Section 2902.35, Bathroom and Spa Cleaners
      Section 2902.36, Concrete and Asphalt Release Fluids
      Section 2902.37, General Purpose De-Icers
      Section 2902.38, Firearm Lubricants
      Section 2902.39, Floor Strippers
      Section 2902.40, Laundry Products
      Section 2902.41, Metalworking Fluids
      Section 2902.42, Wood and Concrete Sealers

Based on the comments submitted by 71 respondents regarding the three proposed rules to add 30 designated items, the following changes have been made to the final rule:

In addition, USDA is amending the guidelines to exempt the Department of Defense and the National Aeronautic and Space Administration from the preferred procurement requirements.

For more on the BioPreferred Program, the first six biobased items designated by USDA, and the proposed biobased products, see the February 2005 Federal Contracts Perspective article “USDA Publishes Biobased Products Guidelines,” the April 2006 Federal Contracts Perspective article “USDA Designates Six Biobased Products for Procurement,” the September 2006 Federal Contracts Perspective article “USDA Proposes 20 More Biobased Products,” and the November 2006 Federal Contracts Perspective article “10 More Biobased Items Proposed.”



FY 2006 Federal Spending Tops $400 Billion

Under the category of “better late than never,” the Federal Procurement Data System has finally published final statistics for Fiscal Year (FY) 2006, showing that the federal government spent $415.0 billion that year, a whopping 13.4% increase over the $366.0 billion spent in FY 2005, mostly to fund the wars in Iraq and Afghanistan, homeland security and the war on terrorism, and recovery from Hurricane Katrina.

The following are the largest agencies’ FY 2006 spending totals (in billions) and the percentage change from FY 2005:

Defense$295.6+10.1%
Energy$22.70.0%
Homeland Security$15.4+55.6%
National Aeronautics and Space Administration$13.1+4.6%
General Services Administration$12.2+5.2%
Health and Human Services$11.9+33.7%
Veterans Affairs$10.3+119.1%
State$4.9-9.3%
Interior$4.6-2.1%
Justice$4.4+4.6%
Agriculture$3.9+8.8%
Treasury$3.9+11.4%
Commerce$2.0+15.0%
Labor$1.7+6.3%
Transportation$1.5+10.7%
Environmental Protection Agency$1.6+25.1%
Education$1.4+27.3%
Housing and Urban Development$1.1+5.6%
Social Security Administration$0.8+22.7%
National Science Foundation$0.4+53.7%
Office of Personnel Management$0.4+58.3%
Miscellaneous Agencies$1.2+33.3%

The following states received the most federal contract money in FY 2006 (in billions). Their FY 2006 rank and dollar amount change are in parentheses, and the percentage change from FY 2005 is in the last column:

1. California (1)$42.7 (+$1.7)+4.1%
2. Virginia (2)$40.7 (+$3.4)+9.1%
3. Texas (3)$35.0 (+$7.6)+27.7%
4. Maryland (4)$21.0 (+$0.4)+2.0%
5. District of Columbia (5)$14.4 (+$2.0)+18.0%
6. Florida (6)$13.6 (+$0.6)+4.6%
7. Missouri (12)$10.7 (+$2.4)+28.9%
8. New York (13)$10.7 (+$2.4)+29.6%
9. Arizona (7)$10.4 (+$0.1)+0.9%
10. Massachusetts (8)$10.3 (+$0.6)+6.2%


Proposed Contractor Ethics Rule Being Revised

In response to Congressional charges that the Bush Administration was trying to exempt favored contractors performing in Iraq and Afghanistan (such as Halliburton) from proposed ethics rules, the proposed rule that would have required contractors performing contracts within the United States to have a code of ethics and business conduct is being revised to remove the exemptions for (1) contracts performed entirely outside the United States, and (2) contracts for commercial items. In addition, the revision would add, at the Department of Justice (DOJ) request, a requirement for contractors to report violations of the civil False Claims Act, and would add the knowing failure to timely report such violations as an additional cause for debarment or suspension.

The original proposed rule would have exempted contracts performed entirely outside the U.S and contracts for commercial items from including FAR 52.203-13, Contractor Code of Business Ethics and Conduct. Therefore, these exemptions are removed from the proposed clause prescription at FAR 3.1004, Contract Clauses.

Also, FAR 9.406-2, Causes for Debarment, and FAR 9.406-3, Causes for Suspension, would be revised to add as a cause “violation of the civil False Claims Act (31 U.S.C 3729-3733) in connection with the award or performance of any government contract or subcontract...”

Finally, FAR 52.203-13 would be amended to reflect these changes.

Comments on the revised proposed rule must be submitted by July 15, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4041, Washington, DC 20405. Identify such comments as “FAR Case 2007-006.”

EDITOR’S NOTE: Contracts performed outside the U.S. are exempt from many FAR provisions because of the difficulty in enforcing, for example, equal opportunity requirements in foreign countries, particularly when the culture and statutes are counter to the FAR clauses. Also, contracts for commercial items are likewise exempt because commercial contractors are reluctant to accept additional governmental terms and conditions, especially when they are doing well without government business. So these exemptions were not the product of a big conspiracy, merely a continuation of standard FAR construction and practice.

For more on the original proposed rule, see the December 2007 Federal Contracts Perspective article “Contractors Required to Develop Codes of Business Ethics and Conduct.”



SBA to Hold Meetings on Size Standards Review

The SBA will hold two public meetings to inform the public about its two-year comprehensive review of all of its small business size standards. The meetings will be held on June 3, 2008, at 10:00 a.m. Eastern Time and 2:00 p.m. Eastern Time at SBA headquarters, Eisenhower Conference Room, 409 Third Street, SW, Washington, DC 20416. Attendees must pre-register by May 30, 2008, by e-mailing to sizestandards@sba.gov or calling 202-205-6618 (provide name, title, organization affiliation, address, telephone number, e-mail address, and fax number). Because SBA only has space for 150 attendees per meeting, each organization should register only one or two representatives.

The 10:00 a.m. meeting will address industries with receipts-based size standards (generally, the construction, information, retail trade, and services industries), and the 2:00 p.m. meeting will address industries with employee-based size standards (generally, the manufacturing, mining, and wholesale trade industries). (NOTE: SBA’s size standards may be found at http://www.sba.gov/size.)

SBA has undertaken a few broad reviews of size standards in the past, the last being in 1984. Since then, SBA has reviewed the size standards of specific industries that it believed warranted modification either in response to requests from the public or a federal agency or through its own independent analysis. In addition, SBA has periodically increased the receipts-based size standards to keep them in line with inflation between individual adjustments. The last increase for inflation was on December 6, 2005 (see the January 2006 Federal Contracts Perspective article “SBA Increases Small Business Size Standards for Services by 8.7% to Adjust for Inflation”).

SBA is concerned that since the last comprehensive size standards review, not all of its size standards may now adequately define small businesses in the U.S. economy, which has seen industry consolidations, technological advances, emerging new industries, shifting societal preferences, and other significant industrial changes. Accordingly, SBA has initiated an across-the-board review of all size standards, and will proceed over the next two years with this examination to ensure that the established levels reflect today’s small business segment of the various industries.

Beginning later this year, SBA will start publishing a series of proposed rules to update specific size standards. In two years, this review will culminate in the complete evaluation of all size standards. SBA will organize this review by examining a group of industries within the sectors of the North American Industry Classification System (NAICS) (such as retail trade, manufacturing, construction, etc.). Upon completion of an analysis of the industries within a NAICS sector, SBA will publish a proposed rule for those industries where its assessment supports changing the current size standards.



Three Nonmanufacturer Rules Waived, One Proposed

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for the following industries: (1) safety zone rubber gloves manufacturing under North American Industry Classification System (NAICS) code 339113, product number 9999; (2) trash bags manufacturing under NAICS code 326111, product number 8105; and (3) paper products manufacturing under NAICS code 322121, product number 8540. SBA invited the public to comment on these proposed waivers or to provide information on potential small business sources for these products, but no comments were received, so the three nonmanufacturer rule waivers are granted. For more on the proposed waivers, see the May 2008 Federal Contracts Perspective article “Three Nonmanufacturer Rule Waivers Proposed.”

Also, SBA is proposing to waive the nonmanufacturer rule for other aircraft parts and auxiliary equipment manufacturing (drones, miscellaneous aircraft accessories, and components; aircraft launching equipment) under NAICS code 336413, Product Service Codes 1550, 1680 and 1720. SBA is inviting the public to comment on this proposed waiver or to provide information on potential small business sources for these products by June 2, 2008, to Pamela M. McClam, Program Analyst, Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

EDITOR’S NOTE: 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.



New Regs Address Veterans' Employment, Ownership

Two different departments have issued regulations concerning veterans’ issues:



DHS Authorizes One-Step Turnkey Design-Build Contracts

The Department of Homeland Security (DHS) is amending the DHS Acquisition Regulation (HSAR) to allow for one-step turnkey design-build contracting for United States Coast Guard (USCG) facilities as permitted by 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, the two-phase procedures require proposal evaluation at two separate points -- evaluation of the technical approaches 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 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.

This rule adds HSAR 3036.104-90, Authority for One-Step Turn-Key Design-Build Contracting for the United States Coast Guard (USCG), which states, “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.”

Six respondents submitted comments on the proposed rule, but DHS decided to adopt the rule as final without changes. For more on the proposed rule, see the August 2007 Federal Contracts Perspective article “DHS Proposes One-Step Turnkey Design-Build Contracts.”



CAS Address Costs for Contractors' ESOPs

The Cost Accounting Standards Board (CASB) (part of the Office of Federal Procurement Policy (OFPP)), is adopting as final, with minor changes, the Notice of Proposed Rulemaking (NPRM) which proposed to direct that costs of all employee stock ownership plans (ESOPs), regardless of type, be accounted for in accordance with Cost Accounting Standard (CAS) 415, Accounting for the Cost of Deferred Compensation, and proposed to provide criteria in CAS 415 for measuring the costs of ESOPs and their assignment to cost accounting periods under government cost-based contracts and subcontracts.

The CAS and FAR have dealt with issues associated with ESOPs since ESOPs became popular in the late 1970s as a vehicle for providing incentive compensation to employees, as well as a means for corporations to finance their capital requirements. The popularity of ESOPs was greatly enhanced by their inclusion in the Employee Retirement Income Security Act of 1974 (ERISA) and by several beneficial changes to the Federal Income Tax Code in that same time period.

Three respondents submitted comments on the NPRM. As a result of those comments, CAS 412, Cost Accounting Standard for Composition and Measurement of Pension Cost, Section 9904.412-20 is amended to clarify that all ESOPs, including those considered to be pension ESOPs, are subject to CAS 415.

For more on the NPRM, see the August 2005 Federal Contracts Perspective article “Comments Sought on Contractors’ ESOPs.”



CBCA Revises Rules of Procedure

The Civilian Board of Contract Appeals (CBCA) has finalized, with changes, its interim procedures which were published last year (see the August 2007 Federal Contracts Perspective article “CBCA Publishes Rules of Procedure”). Six respondents submitted comments on the interim procedures, and the following are the significant changes between the interim and final procedures that were produced by those comments:



DFARS Addresses Excessive Pass-Through Charges Again

Section 852 of the National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) requires the Department of Defense (DOD) to prescribe regulations that ensure pass-through charges on contracts or subcontracts (or task or delivery orders) that are entered into for or on behalf of DOD are not excessive in relation to the cost of work performed by the relevant contractor or subcontractor. In April 2007, an interim rule added Defense FAR Supplement (DFARS) 252.215-7003, Excessive Pass-Through Charges -- Identification of Subcontract Effort, and DFARS 252.215-7004, Excessive Pass-Through Charges, to comply with Section 852, and requested comments (see the May 2007 Federal Contracts Perspective article “DOD Restricts Excessive ‘Pass-Through’ Charges” for more on the interim rule).

DFARS 252.215-7003 and DFARS 252.215-7004 required offerors and contractors to identify the percentage of work that will be subcontracted and, when subcontract costs will exceed 70% of the total cost of work to be performed, to provide information on indirect costs and profit and value added with regard to the subcontract work. However, “public comments received on the...interim rule indicate that there is an immediate need to amend DFARS policy on this subject to eliminate significant misunderstandings that could cause serious contracting problems.” Therefore, DOD is issuing another interim rule to clarify key points.

The following are the significant changes made by this interim rule:

Comments on the new interim rule must be submitted on or before July 14, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov; (2) e-mail: dfars@osd.mil; (3) fax: 202-501-4067; (4) mail: Defense Acquisition Regulations System, Attn: Ms. Sandra Morris, OUSD (AT&L) DPAP (CPF), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062; or (5) hand delivery/courier: Defense Acquisition Regulations System, Crystal Square 4, Suite 200A, 241 18th Street, Arlington, VA 22202-3402. Identify such comments as “DFARS Case 2006-D057.”



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