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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 18, 2001

SUBJECT: Federal Acquisition Circular (FAC) 2001-02, Miscellaneous Amendments

SOURCE: Federal Register, December 18, 2001, Vol. 66, No. 243, page 65349

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Final Rules

SYNOPSIS: The Federal Acquisition Regulatory Council is issuing FAC 2001-02 to amend the Federal Acquisition Regulation (FAR) in the following areas: (1) definitions of "component" and "end product"; (2) energy efficiency of supplies and services; (3) prompt payment and recovery of overpayment; (4) Javits-Wagner-O'Day Act subcontract preference under service contracts; (5) discussion requirements; (6) definition of "subcontract" in FAR Subpart 15.4; (7) North American Industry Classification System; (8) Iceland -- newly designated country under the Trade Agreements Act; and (9) contractor personnel in the procurement of information technology services.

EFFECTIVE DATES: All items are effective February 19, 2002, except for Item 7 which is effective December 18, 2001.

FOR FURTHER INFORMATION CONTACT: The following analysts:

     Items (1) and (8), Cecelia L. Davis at 202-219-0202.

     Item (2), Laura Smith at 202-208-7279.

     Items (3) and (6), Jeremy Olson at 202-501-3221.

     Item (4) and (9), Linda Nelson at 202-501-1900.

     Item (5), Ralph DeStefano at 202-501-1758.

     Item (7), Rhonda Cundiff at 202-501-0044.

For general information, contact the FAR Secretariat, Room 4035, GS Building, Washington, DC 20405, 202-501-4755.

SUPPLEMENTAL INFORMATION: (1) Definitions of "Component" and "End Product": FAC 97-15, which was published on December 27, 1999, contained a rewrite of FAR Part 25, Foreign Acquisition. The rewritten FAR Part 25 removed the unique definitions of "component" and "end product" from FAR 25.003, Definitions, and instead relied on the standard definitions of those terms contained in FAR 2.101, Definitions. Though no substantive change to the FAR was intended by this change, several comments were received pointing out potential unintended substantive changes that might result from these amendments. Therefore, the deleted definitions are being reinstated to FAR 25.003, with minor editorial corrections, and the definitions of these terms in FAR 52.225-1, Buy American Act -- Balance of Payments Program -- Supplies; FAR 52.225-3, Buy American Act -- North American Free Trade Agreement -- Israeli Trade Act -- Balance of Payments Program; and FAR 52.225-5, Trade Agreements, are revised accordingly.

In addition, the definition of "components" in FAR 52.225-9, Buy American Act -- Balance of Payments Program -- Construction Materials, and FAR 52.225-11, Buy American Act -- Balance of Payments Program -- Construction Materials under Trade Agreements, is revised to a definition of the singular term "component," and the definition of "cost of components" is revised to address components of construction material, rather than components of an end product.


(2) Energy Efficiency of Supplies and Services: This adopts the proposed rule published May 10, 2000 (see the May 10, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Energy Efficiency of Supplies and Services"), as a final rule with minor changes. The rule implements Executive Order 13123 of June 3, 1999, Greening the Government through Efficient Energy Management, by making the following changes:


(3) Prompt Payment and the Recovery of Overpayment: This rule finalizes the proposed rule published August 28, 2000 (see the August 28, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Prompt Payment and the Recovery of Overpayment"), to (1) simplify and clarify the FAR's prompt payment coverage (particularly FAR Subpart 32.9, Prompt Payment); (2) to conform the FAR to reflect the 1999 rescission of Office of Management and Budget (OMB) Circular A-125, Prompt Payment, and the codification of the OMB A-125 rules and guidance in Title 5 of the CFR, Part 1315, Prompt Payment (the regulations are available at http://www.fms.treas.gov/prompt); and (3) revise FAR 52.232-25, Prompt Payment, FAR 52.232-26, Prompt Payment for Fixed-Price Architect-Engineer Contracts, and FAR 52.232-27, Prompt Payment for Construction Contracts, to require the contractor to immediately notify the contracting officer of any overpayments it receives and to request disposition instructions (this was in response to a General Accounting Office (GAO) report published in July 1999 (GAO/NSIAD-99-131, Greater Attention Needed to Identify and Recover Overpayments) which pointed out that "under current law, there is no requirement for contractors who have been overpaid to notify the government of overpayments or to return overpayments prior to the government issuing a demand letter").

Eleven comments were submitted, and the final rule differs from the proposed rule by making several editorial changes and revising paragraph (b)(4) of new FAR 32.906, Making Payments, to clarify that "when it is determined that the designated billing office erroneously rejected a proper invoice and upon resubmission of the invoice, [the designated payment office] will enter in the payment system the original date the invoice was received by the designated billing office for the purpose of calculating the correct payment due date and any interest penalties that may be due." In addition, one comment suggested that this language be added to the financing payment clauses: FAR 52.216-7, Allowable Cost and Payment; FAR 52.216-13, Allowable Cost and Payment-Facilities; FAR 52.232-7, Payments under Time-and-Material and Labor-Hour Contracts; and FAR 52.232-16, Progress Payments. The FAR Council agrees with this suggestion and will be preparing a proposed rule to add the language to these clauses.

Other changes made by this final rule are:


(4) Javits-Wagner-O'Day Act Subcontract Preference Under Service Contracts: Government agencies are required to satisfy their requirements for supplies or services from nonprofit workshops designated by the Committee for Purchase From People Who Are Blind or Severely Disabled under the Javits-Wagner-O'Day (JWOD) Act if available, and the requirement had been extended to government contractors for supplies only. However, on May 4, 1998, changes were made to the Committee's regulations in Title 41 of the CFR, paragraph (e) of Section 51-5.2, Mandatory Source Requirement, to state "contracting activities procuring services which have included within them services on the Procurement List shall require their contractors for the larger service requirement to procure the included Procurement List services from nonprofit agencies designated by the Committee." (EDITOR'S NOTE: The "Procurement List" is a list of supplies and services that the Committee has determined are suitable for purchase by the government and are required to be purchased from one of the 600 JWOD nonprofit agencies associated with the National Industries for the Blind (NIB) or with NISH (formerly the "National Industries for the Severely Handicapped," a national nonprofit agency that serves persons with a wide range of disabilities).)

A proposed rule was published on July 3, 2000, to revise the FAR to implement the changes made to 41 CFR 51-5.2(e) (see the July 3, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Javits-Wagner-O'Day (JWOD) Subcontract Preference Under Service Contracts"). Three comments were received, and the proposed rule is being finalized with minor editorial changes.

This final rule revises paragraph (c) of FAR 8.001, Priorities for Use of Government Supply Sources, FAR 8.003, Contract Clause, and FAR 52.208-9, Contractor Use of Mandatory Sources of Supply and Services ("and Services" is added to the title), to add "or services" to the statement "the statutory obligation for government agencies to satisfy their requirements for supplies or services available from the Committee for Purchase From People Who Are Blind or Severely Disabled also applies when contractors purchase the supplies or services for government use." Also, paragraph (a)(4) of FAR 44.202-2, Consideration, is revised to require contracting officers to consider whether the contractor has complied with JWOD requirements when reviewing a subcontract that is subject to FAR Subpart 44.2, Consent to Subcontracts.


(5) Discussion Requirements: To clarify the scope of discussions in competitive negotiated acquisitions, a proposed rule was published on April 3, 2000, to revise paragraph (d)(3) of FAR 15.306, Exchanges with Offerors After Receipt of Proposals, to state that the contracting officer is not required to discuss every area where the proposal could be improved, and that discussions of offerors' proposals beyond deficiencies and significant weaknesses are a matter of contracting officer judgment (see the April 3, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Discussion Requirements"). Five comments were submitted, and the proposed rule is finalized with minor editorial changes.

FAR 15.306(d)(3) requires contracting officers to discuss with offerors deficiencies and significant weaknesses in their proposals, and adverse past performance information to which the offeror has not had an opportunity to respond. The final rule adds the following to FAR 15.306(d)(3): "The contracting officer also is encouraged to discuss other aspects of the offeror's proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal's potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting officer judgment."


(6) Definition of "Subcontract" in FAR Subpart 15.4, Contract Pricing: This final rule amends the definition of "subcontract" in FAR 15.401, Definitions, to exclude FAR 15.407-2, Make-or-Buy Programs, from its application. FAR 15.401 states that a subcontract "also includes a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or a subcontractor." However, application of the definition creates a conflict with the definitions of "buy item" and "make item" in FAR 15.407-2. The term "buy item" is defined as "an item or work effort to be produced or performed by a subcontractor," and the term "make item" is defined as "an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions." In this context, a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor is not considered to be a "subcontract." Therefore, the parenthetical phrase "(except as used in 15.407-2)" is added immediately following the word "subcontract" in the FAR 15.401 definition.


(7) North American Industry Classification System (NAICS): On May 15, 2000, the Small Business Administration (SBA) published a rule basing small business size standards on NAICS codes rather than Standard Industrial Classification (SIC) codes (see the May 15, 2000, FEDERAL CONTRACTS DISPATCH "Small Business Administration -- North American Industry Classification System (NAICS) Small Business Size Standards"). An interim rule was published in FAC 97-19, effective October 1, 2000, to conform the FAR, particularly FAR Part 19, Small Business Programs, to the changes issued by SBA to the size standards and convert other programs in the FAR that were based on SIC codes to NAICS (see the July 26, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-19, Miscellaneous Amendments"). Two comments were received, and the FAC 97-19 interim rule is finalized with two technical amendments, the more significant of which is the revision of paragraph (h) of FAR 19.102, Size Standards, to update the Internet address for the industry size standards published by SBA (http://www.sba.gov/size).


(8) Iceland -- Newly Designated Country under Trade Agreements Act: Iceland joined the World Trade Organization Government Procurement Agreement in April 2001, so the U.S. Trade Representative has ordered that Iceland be added as a designated country under the Trade Agreements Act. To implement this order, Iceland is added to the lists of designated countries in FAR 25.003, FAR 52.225-5, Trade Agreements, and FAR 52.225-11, Buy American Act -- Balance of Payments Program -- Construction Materials under Trade Agreements.

Also, Executive Order 13126 of June 12, 1999, Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor, does not apply to contracts for the acquisition of products from foreign countries that are party to the Agreement on Government Procurement (see the January 18, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-23, Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor"). Therefore, Iceland is added to the list of excepted countries in paragraph (b)(4) of FAR 22.1503, Procedures for Acquiring End Products on the List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor, and FAR 52.222-19, Child Labor -- Cooperation with Authorities and Remedies.


(9) Contractor Personnel in the Procurement of Information Technology Services: This finalizes, without changes, the interim rule in FAC 97-25 which added FAR 39.104, Information Technology Services, to implement Section 813 of the Fiscal Year 2001 National Defense Authorization Act (Public Law 106-398) (see the May 2, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-25, Performance-Based Contracting and Information Technology Contractor Personnel"). Two comments were received but were not adopted.

FAR 39.104 states, "When acquiring information technology services, solicitations must not describe any minimum experience or educational requirement for proposed contractor personnel unless the contracting officer determines that the needs of the agency (a) cannot be met without that requirement; or (b) require the use of other than a performance-based contract (see Subpart 37.6 [Performance-Based Contracting])."


FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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