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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


August 2008
Vol. IX, No. 8

CONTENTS


SBA Increases Monetary-Based Small Business Size Standards by 8.7%
Prompt Payment Interest Rate Set at 5 1/8%
Auto, Motorcycle Reimbursement increased to 58.5¢/Mile
GSAR Rewrite Continues
OMB Releases Last Set of FY 2007 FAIR Act Inventories
President Orders Security Clearance Reform
Nonmanufacturer Rule Waivers Retracted, Reclassified
Nonmanufacturer Rule Waiver Granted for Televisions
DFARS Addresses Export-Controlled Items
Restrictions on Specialty Metals Proposed



SBA Increases Monetary-Based
Small Business Size Standards by 8.7%

The Small Business Administration (SBA) has increased monetary-based small business size standards (predominantly services) by 8.7% to adjust for inflation since December 2005, the last time the monetary-based size standards were adjusted. The primary reason for increasing the size standards so soon after the last adjustment was to compensate for inflation produced by crude oil prices. Interestingly, this is the exact same adjustment that was made in December 2005 to adjust for inflation since February 2002 (see the January 2006 Federal Contracts Perspective article “SBA Increases Small Business Size Standards for Service Industries by 8.7% to Adjust for Inflation”). This means that the monetary-based size standards have been increased by 18.2% since 2002 (1.087 x 1.087 = 1.182).

For example, computer systems design services covered by North American Industrial Classification System (NAICS) code 541512, which was increased in 2005 from $21 million in average annual receipts to $23 million, is increased once again to $25 million (rounded to the nearest $500,000).

The most common monetary-based size standard, which was increased from $6 million to $6.5 million in December 2005, has been increased to $7 million (this is referred to as the “anchor size standard”).

Not all size standards were increased by 8.7%. Size standards that were $4 million in 2002 were increased to $4.5 million in 2005. However, the 2002 size standard of $4 million x 1.182 (inflation since 2002) = $4,728,000. This sum rounds to $4.5 million, so no changes were made to size standards of $4.5 million or less.

SBA is concerned that these across-the-board adjustments do not adequately compensate industries that experience different rates of inflation. Also, SBA believes that many of its size standards no longer accurately define small businesses because of industry consolidations, technological advances, emerging new industries, shifting societal preferences, and other significant industrial changes. Therefore, SBA has undertaken a two-year comprehensive review of all its small business size standards -- not just monetary-based size standards but employee-based size standards as well (predominately manufacturing). See the June 2008 Federal Contracts Perspective article “SBA to Hold Meetings on Size Standards Review” for more on this effort.

As if to illustrate its concerns about the existing size standards, four days later SBA revised the small business size standard for the heating oil dealers industry (NAICS code 454311) from $11.5 million in average annual receipts to 50 employees, and the small business size standard for the liquefied petroleum gas (bottled gas) dealers industry (NAICS code 454312) from $6.5 million in average annual receipts to 50 employees. SBA decided to convert these industries from monetary-based size standards to employee-based size standards because many small heating oil and liquefied petroleum gas dealers found they had become “large” merely because of large and unpredictable increases in crude oil costs, even though they continued to deliver the same quantity of fuel products. For more on the reasons for the changes, see the November 2007 Federal Contracts Perspective article “SBA Proposes Changing Size Standard for Fuel Oil Dealers.”



Prompt Payment Interest Rate Set at 5 1/8%

The Treasury Department has established 5 1/8% (5.125%) as the interest rate for the computation of payments made between July 1 and December 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 (January 1, 2008, through June 30, 2008) was 4 3/4% (4.75%). The interest rate for July 1, 2007, through December 31, 2007, 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.



Auto, Motorcycle Reimbursement increased to 58.5¢/Mile

In an unusual mid-year adjustment caused by rocketing fuel prices, 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 50.5¢ per mile to 58.5¢ per mile, and the rate for use of a motorcycle on official travel from 30.5¢ per mile to 58.5¢ per mile, the same as for an automobile. Also, GSA is increasing the reimbursement rate for use of a privately owned aircraft from $1.07 per mile to $1.26 per mile. These revised rates are effective for travel performed on or after August 1, 2008. Travel performed before August 1, 2008, will be reimbursed at the earlier rates.

By law, the automobile reimbursement rate cannot exceed the single standard mileage rate established by the Internal Revenue Service (IRS). On June 23, 2008, the IRS announced a new single standard mileage rate for automobiles of 58.5¢ per mile effective July 1, 2008, to December 31, 2008, so GSA took action to increase the automobile reimbursement rate as of August 1.



GSAR Rewrite Continues

The General Services Administration (GSA) is continuing its rewrite of the GSA Acquisition Regulation (GSAR) by proposing changes to the following two GSAR parts:



OMB Releases Last Set of FY 2007 FAIR Act Inventories

The Office of Management and Budget (OMB) has released the second, and last, set of Fiscal Year 2007 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 are from the Departments of Defense, Energy, Labor, Interior, Transportation, and Veterans Affairs; Nuclear Regulatory Commission; Office of Management and Budget; U.S. Agency for International Development; and several smaller agencies and commissions. Links to these inventories are available at http://edocket.access.gpo.gov/2008/E8-15737.htm.

Interested parties who disagree with an agency's initial judgment have 30 working days from July 10 (that is, until August 21) 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 2007 FAIR Act inventories.



President Orders Security Clearance Reform

President Bush has issued Executive Order 13467 “to ensure an efficient, practical, reciprocal, and aligned system for investigating and determining suitability for government employment, contractor employee fitness, and eligibility for access to classified information.”

The executive order directs that policies and procedures “relating to suitability, contractor employee fitness, eligibility to hold a sensitive position, access to federally controlled facilities and information systems, and eligibility for access to classified information shall be aligned using consistent standards to the extent possible, provide for reciprocal recognition, and shall ensure cost-effective, timely, and efficient protection of the national interest, while providing fair treatment to those upon whom the federal government relies to conduct our nation's business and protect national security.”

The aligned system “shall employ updated and consistent standards and methods, enable innovations with enterprise information technology capabilities and end-to-end automation to the extent practicable, and ensure that relevant information maintained by agencies can be accessed and shared rapidly across the executive branch, while protecting national security, protecting privacy-related information, ensuring resulting decisions are in the national interest, and providing the federal government with an effective workforce.”

This is to be accomplished by the newly established Suitability and Security Clearance Performance Accountability Council, which will be chaired by the Deputy Director for Management of the Office of Management and Budget. The Council will include a Suitability Executive Agent, who will be the Director of the Office of Personnel Management (OPM), and a Security Executive Agent, who will be the Director of National Intelligence.



Nonmanufacturer Rule Waivers Retracted, Reclassified

The Small Business Administration (SBA) is proposing to retract or reclassify nonmanufacturer rule waivers erroneously extended or granted to industry classifications that are not manufacturing industry classifications under the North American Industry Classification System (NAICS). The following changes would be made:

Comments on the proposed retraction or reclassification of products under these NAICS codes must be submitted no later than August 15, 2008, to U.S. Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

EDITOR’S NOTE: A list of current nonmanufacturer rule waivers is available at http://www.sba.gov/idc/groups/public/documents/sba_program_office/gc_approved.htm.



Nonmanufacturer Rule Waiver Granted for Televisions

The SBA is waiving the nonmanufacturer rule for televisions under NAICS code 334220, product number 5820. SBA invited the public to comment on this proposed waiver or to provide information on potential small business sources for these products. No comments were submitted in response to the proposed waiver, so the waiver is granted. For more on the proposed waiver, see the July 2008 Federal Contracts Perspective article “SBA Grants One Nonmanufacturer Waiver, Proposes One.”

The SBA regulation on the nonmanufacturer rule is in Title 13 of the Code of Federal Regulations (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?



DFARS Addresses Export-Controlled Items

The Department of Defense (DOD) has amended the Defense FAR Supplement (DFARS) to add Subpart 204.73, Export-Controlled Items, which addresses requirements for complying with export control laws and regulations when performing DOD contracts.

This interim rule started with an initial proposed rule published in July 2005 which was in response to a DOD Inspector General report which found that some contractors granted foreign nationals access to unclassified export-controlled technology without proper authorization (see the August 2005 Federal Contracts Perspective article “DOD Addresses Berry Amendment, Hawaiian Organizations”). In response to the comments from 145 individuals and organizations, a second proposed rule was published in August 2006 which simplified the policy framework in recognition of existing policy found in the Department of State’s International Traffic in Arms Regulations (ITAR) (at http://pmddtc.state.gov/consolidated_itar.htm) and the Department of Commerce’s Export Administration Regulations (EAR) (at http://www.access.gpo.gov/bis/ear/ear_data.html) (see the September 2006 Federal Contracts Perspective article “Administrative Changes to the DFARS”). This second proposed rule drew comments from 167 individual organizations.

While the comments to the second proposed rule were being evaluated, the National Defense Authorization Act for Fiscal Year 2008 (Public Law 110-181) was enacted. Paragraph (a) of Section 890, Prevention of Export Control Violations, requires DOD to prescribe regulations, not later than 180 days after enactment (that is, July 26, 2008), to address requirements for DOD contractors to comply with laws and regulations applicable to goods or technology subject to export controls. With this statutory requirement, and in consideration of the public comments on the second proposed rule, DOD has developed this interim rule to address export controls.

The interim rule requires the requiring activity, prior to the issuance of a solicitation, to notify the contracting officer if: (1) export-controlled items are expected to be involved; (2) for research and development, the work is fundamental research only, and export-controlled items are not expected to be involved; or (3) for supplies or services, the requiring activity is unable to determine that export-controlled items will not be involved.

If the contracting officer is notified that export-controlled items are expected to be involved or the work is fundamental research only, DFARS 252.204-7008, Requirements for Contracts Involving Export-Controlled Items, is to be included in the solicitation and contract. This clause requires the contractor to comply with the ITAR and the EAR.

If the contracting officer is notified that the requiring activity is unable to determine that export-controlled items will not be involved, DFARS 252.204-7009, Requirements Regarding Potential Access to Export-Controlled Items, is to be included in the solicitation and contract. This clause requires the contractor to notify the contracting officer if an export-controlled item will be generated or needed. The contracting officer will then either (1) modify the contract to include DFARS 252.204-7008; (2) negotiate a contract modification eliminating the work involving export-controlled items; or (3) terminate the contract for the convenience of the government.

The proposed clause DFARS 252.204-70YY, Requirements Regarding Access to Export-Controlled Information or Technology -- Fundamental Research, is not adopted.

Comments on the interim rule must be submitted no later than September 19, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov; (2) e-mail: dfars@osd.mil; (3) fax: 703-602-7887; (4) mail: Defense Acquisition Regulations System, Attn: Ms.Felisha Hitt, OUSD (AT&L) DPAP (DARS), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062. Identify comments as “DFARS Case 2004-D010.”



Restrictions on Specialty Metals Proposed

DOD is proposing to implement statutory restrictions on the acquisition of specialty metals not melted or produced in the United States. The statutory restrictions are in Section 842 of the National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) and Sections 804 and 884 of Public Law 110-181.

Section 842 of Public Law 109-364 added new provisions as Title 10 of the U.S. Code, Section 2533b (10 U.S.C. 2533b) to address requirements for the purchase of specialty metals from domestic sources. Section 804 of Public Law 110-181 made amendments to 10 U.S.C. 2533b with regard to its applicability to commercial items, electronic components, items containing minimal amounts of specialty metals, items necessary in the interest of national security, and items not available domestically in the required form. In addition, Section 884 of Public Law 110-181 added a requirement for DOD to publish a notice on the Federal Business Opportunities (FedBizOpps) website (http://www.fbo.gov) before making a domestic nonavailability determination that would apply to more than one contract.

This proposed rule would implement 10 U.S.C. 2533b and Section 884 of Public Law 110-181 by (1) removing the current specialty metals policy from DFARS 225.7002, Restrictions on Food, Clothing, Fabrics, Specialty Metals, and Hand or Measuring Tools (retitled “Restrictions on Food, Clothing, Fabrics, and Hand or Measuring Tools”); (2) adding the new specialty metals policy as DFARS 225.7003, Restrictions on Acquisition of Specialty Metals; and (3) relocating the current DFARS 225.7003, Waiver of Restrictions of 10 U.S.C. 2534, to DFARS 225.7008 with no substantive change in content.

While much of 10 U.S.C. 2533b reflects requirements already in the DFARS (particularly in the current DFARS 225.7002), proposed DFARS 225.7003 would specify the following additional requirements and restrictions:

In addition, DFARS 252.225-7014, Preference for Domestic Specialty Metals, would be deleted and replaced by the following three clauses and one provision:

Comments on the proposed rule must be submitted no later than September 19, 2008, by any of the means mentioned previously, except identify comments as “DFARS Case 2008-D003.”



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