DATE: December 27, 2001

SUBJECT: Federal Acquisition Circular (FAC) 2001-03, Revocation of FAC 97-21, Contractor Responsibility

SOURCE: Federal Register, December 27, 2001, Vol. 66, No. 248, page 66983

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 2001-03 to revoke FAC 97-21, Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings, called by some the "blacklisting regulations."

EDITOR'S NOTE: For more on FAC 97-21, see the December 20, 2000, FEDERAL CONTRACTS DISPATCH ""Federal Acquisition Circular 97-21; Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings."

EFFECTIVE DATE: December 27, 2001.

FOR FURTHER INFORMATION CONTACT: Ralph DeStefano, Procurement Analyst, 202-501-1758. For general information, contact the FAR Secretariat, Room 4035, GS Building, Washington, DC 20405, 202-501-4755.

SUPPLEMENTAL INFORMATION: FAC 2001-03 puts an end to the long, drawn out saga of the "blacklisting regulations," which began on September 21, 1997, when then-Vice President Al Gore promised the AFL-CIO that the Clinton administration would require contracting officers to consider contractor compliance with labor laws when making responsibility determinations.

On July 9, 1999, the FAR Council published a proposed rule amending FAR Part 9, Contractor Qualifications, to clarify coverage and give examples of suitable contractor responsibility considerations, and FAR Part 31, Contract Cost Principles and Procedures, to make unallowable the costs of attempting to influence employee decisions regarding unionization, and legal expenses related to the defense of judicial or administrative proceedings brought by the federal government when a contractor is found to have violated a law or regulation, or the proceeding is settled by consent or compromise.

Of particular note was language proposed to be added to paragraph (d) of FAR 9.104-1, General Standards, to clarify what constitutes "an unsatisfactory record of integrity and business ethics": "persuasive evidence of the prospective contractor's lack of compliance with tax laws, or substantial noncompliance with labor laws, employment laws, environmental laws, antitrust laws or consumer protection laws..."

The FAR Council received more than 1500 comments in response to the proposed rule. The primary concerns were that contracting officers were not qualified to assess compliance with tax, labor, employment, environmental, antitrust, or consumer protection laws, and this language converted contracting officers into law enforcement agents; that the terms "persuasive evidence" and "substantial" were vague and subjective; that contracting officers could become "judge and jury", "convicting" contractors by declaring them "nonresponsible" based on "persuasive evidence"; and that the language seemed to make contracting de facto debarment officials, bypassing the debarment procedure.

After reviewing the public comments, the FAR Council republished the proposed rule on June 30, 2000, with additional guidance on the evaluation of a contractor's responsibility and would provide additional procedural protections to make sure contracting officers would not misuse their discretion (see the June 30, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings").

Over 300 comments were received in response to the June 30, 2000, proposed rule. Based on the comments, the FAR Council made some minor changes and published the final rule as FAC 97-21 on December 20, 2000, to go into effect January 19, 2001, the last day of the Clinton administration (and Al Gore's term as vice president).

On January 26, 2001, the Civilian Agency Acquisition Council (CAAC) authorized all civilian agencies to postpone the effective date of FAC 97-21 for six months, from January 19, 2001, to July 19, 2001 (see the January 26, 2001, FEDERAL CONTRACTS DISPATCH "Civilian Agency Acquisition Council; Class Deviation from Federal Acquisition Circular (FAC) 97-21"). The CAAC cited the lawsuit filed by the Business Roundtable, Chamber of Commerce of the United States, the National Association of Manufacturers, the Associated General Contractors of America, Inc., and the Associated Builders and Contractors, Inc., in the United States District Court for the District of Columbia on December 22, 2000, seeking to overturn the final rule as the reason for the postponement, stating that "the Administrative Procedure Act, 5 U.S.C. 705, gives authority for a stay of the final rule: 'When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review.'"

Then, on April 3, 2001, the FAR Council issued FAC 97-24, suspending the effective date of FAC 97-21 ("staying" the regulation) for 270 days, until December 29, 2001, or until the repeal of FAC 97-21, whichever occurred first (see the April 3, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-24, Delay of FAC 97-21, Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings"). The FAR Council wrote that the reason for the "stay" was to "determine if the benefits of the rule are outweighed by the burdens imposed by the rule. In this regard, it is not clear to the FAR Council that there is a justification for including the added categories of covered laws in the rule and its implementing certification, that the rule provides contracting officers with sufficient guidelines to prevent arbitrary or otherwise abusive implementation, or that the final rule is justified from a cost benefit perspective...the FAR Council has determined that the 30-day effective date did not give contractors, and the government, sufficient time to meet the new obligations and responsibilities imposed by the final rule. Government contracting officers have not had sufficient training. Offerors have not had sufficient time to establish a system to track compliance with applicable laws and keep it current, in order to be able to properly fill out the certification...The FAR Council now recognizes that it will take more time than it anticipated for businesses to put the systems in place." In addition, the FAR Council requested comments on a proposed rule to permanently repeal FAC 97-21. The comments were required to be submitted by June 4, 2001, but the FAR Council decided to extend the comment date to July 6, 2001, and to hold a public meeting on June 18, 2001, to discuss the proposed rule (see the May 7, 2001, FEDERAL CONTRACTS DISPATCH "Extension of Deadline for Comments on Repeal of Federal Acquisition Circular (FAC) 97-21, Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings").

Almost 4700 comments were received on the April 3, 2001, proposal to revoke the blacklisting regulations and, based on those comments, the FAR Council decided to publish FAC 2001-03 revoking FAC 97-21, and restoring the FAR to the text that existed before the January 19, 2001, changes. Also, as a matter of legalistic housecleaning, FAC 2001-03 terminated the stay imposed on April 3, 2001.

In the preamble to FAC 2001-03, the FAR Council wrote, "It is clear that there is a conviction held by people at many levels and many walks of life that the government should conduct its business with corporations that adhere to the law...We support the objective but find the vehicle unworkable and defective.

"The FAR Council finds that the current regulations governing suspension and debarment provide adequate protection to address serious threats of waste, fraud, abuse, poor performance, and noncompliance. Any one of these concerns may authorize suspension or debarment under appropriate conditions and circumstances, subject to judicial review...

"The December final rule [FAC 97-21] requires contracting officers to perform a function, which they lack the experience, procedures, and resources to perform. Contracting officers are not experts in tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws. This lack of expertise would create a problem rather than solving a problem. Contracting officers are not the appropriate individuals to make decisions regarding satisfactory compliance with the law...

"Sufficient enforcement regulations already existed before the December final rule. The government has sufficient regulations to address contractor responsibility. Among other things, debarment rules provide for existing and appropriate remedies with sufficient due process safeguard for addressing conduct adversely reflecting on business honesty and integrity. Also, for example, under statutory schemes, determinations in the area of worker health and safety, failure to pay minimum wages, or violations of other worker protection laws lie within the purview of the Department of Labor. This approach ensures consistency governmentwide."

EDITOR'S NOTE: FAC 97-21 added a certification requirement to FAR 52.209-5, Certification Regarding Debarment, Suspension, Proposed Debarment, and Other Responsibility Matters, and FAR 52.212-3, Offeror Representations and Certifications -- Commercial Items. Each solicitation over the $100,000 simplified acquisition threshold was required by FAC 97-21 to include one of the clauses, and it required each offeror to certify whether, within the past three years, "relative to tax, labor and employment, environmental, antitrust, or consumer protection laws", it had "(1) been convicted of a federal or state felony (or has any federal or state felony indictments currently pending against them); or (2) had a federal court judgment in a civil case brought by the United States rendered against them; or (3) had an adverse decision by a federal administrative law judge, board, or commission indicating a willful violation of law." If the offeror responded affirmatively, it was required to provide additional information if requested by the contracting officer.

The FAR Council estimates that the elimination of the certification requirements from the two clauses, and the required recordkeeping, will eliminate 505,000 hours of burden on contractors and subcontractors each year, from 596,667 hours to 91,667 hours.

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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