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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 19, 2003

SUBJECT: Department of Agriculture; Guidelines for Designating Biobased Products for Federal Procurement

SOURCE: Federal Register, December 19, 2003, Vol. 68, No. 244, page 70730

AGENCIES: Office of Energy Policy and New Uses, U.S. Department of Agriculture (USDA)

ACTION: Notice of Proposed Rulemaking (NPRM)

SYNOPSIS: USDA is proposing to establish guidelines for designating items made from biobased products that would be given procurement preference as required under Section 9002 of Public Law 107-171, the Farm Security and Rural Investment Act of 2002 (FSRIA).

DATES: Comments must be submitted on or before February 17, 2004.

ADDRESSES: Mail comments to Marvin Duncan, USDA, Office of the Chief Economist, Office of Energy Policy and New Uses, Room 361, 300 Seventh Street SW, Washington, DC 20024; or e-mail to: fb4p@oce.usda.gov (include name and address in the message and "Proposed Guidelines" in the subject line).

FOR FURTHER INFORMATION CONTACT: Marvin Duncan by e-mail at mduncan@oce.usda.gov, or by phone at 202-401-0532.

SUPPLEMENTAL INFORMATION: On September 14, 1998, Executive Order 13101, Greening the Government Through Waste Prevention, Recycling, and Federal Acquisition, was issued to encourage the procurement of biobased products by federal agencies. (EDITOR'S NOTE: Executive Order 13101 is implemented in Federal Acquisition Regulation (FAR) Subpart 23.7, Contracting for Environmentally Preferable and Energy-Efficient Products and Services. For more on the implementation, see the June 6, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 97-18, Miscellaneous Amendments," particularly Item 3.)

In 2002, the FSRIA was enacted. Section 9002 of FSRIA requires federal agencies to purchase biobased products for all items costing over $10,000, or when the quantities of functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless the items are not reasonably available, fail to meet applicable performance standards, or are available only at an unreasonable price.

Section 9002 differs from Executive Order 13101 in that (1) they use slightly different definitions of the term "biobased product;" (2) Executive Order 13101 was optional, but Section establishes a mandatory procurement preference for designated biobased items (with limited exceptions); and (3) Executive Order 13101 envisioned a list of specific products that are considered to be biobased, but Section 9002 requires guidelines designating "items which are or can be produced with biobased products" and recommended procurement practices for both biobased products and items containing biobased products.

The legislative history of Title IX of FSRIA suggests that Congress had in mind three primary objectives when enacting Section 9002:

1. Improve demand for biobased products. This would increase domestic demand for many agricultural commodities that can serve as feedstocks for production of biobased products, and encourage substitution of products with a more benign or beneficial environmental impact, as compared to the use of fossil energy-based products.
   
   
2. Spur the development of value-added agricultural processing and manufacturing in rural communities. Since biobased feedstocks are largely produced in rural settings and, because of their bulk, require pre-processing or manufacturing close to where they are grown, increased dependence on biobased products appears likely to increase the amount of pre-processing and manufacturing of biobased products in rural regions. This trend would help to create new investment, job formation, and income generation in these rural regions.
   
   
3. Enhance the nation's energy security by substituting domestically produced biobased products for fossil energy-based products derived from imported oil and natural gas.

To implement Section 9002, USDA would publish proposed guidelines in Title 7 of the Code of Federal Regulations (CFR) as a new Part 2902, Guidelines for Designating Biobased Products for Federal Procurement, which would consist of the following:

• 2902.1: Purpose and Scope: This section would explain that the guidelines are to assist agencies in complying with Section 9002 of FSRIA, and would note that items designated in the guidelines are those that are or can be produced with biobased products and whose procurement by federal agencies will carry out the objectives of Section 9002.
  
  
• 2902.2: Applicability to Federal Agencies and Exceptions to Procurement of Biobased Items: This would state that the guidelines apply to all procurement actions of USDA designated items in excess of $10,000, or where the quantity of such items purchased during the preceding fiscal year cost a total of $10,000 or more -- "the $10,000 threshold applies to procuring agencies as a whole rather than to agency subgroups such as regional offices or subagencies of a larger department or agency."
  
  The proposed guidelines would not apply to any procurement by any agency that is subject to the regulations issued by the Environmental Procurement Agency (EPA) under Section 6002 of the Solid Waste Disposal Act (40 CFR Part 247) to the extent that the requirements of the guidelines are inconsistent with those regulations. Also, the guidelines would not apply to the procurement of motor vehicle fuels or electricity.
  
  Finally, Section 2902.2 would require agencies to "procure designated items composed of the highest percentage of biobased products practicable, consistent with maintaining a satisfactory level of competition, considering such guidelines. Federal agencies may decide not to procure such items if they are not reasonably priced or readily available or do not meet specified or reasonable performance standards."
  
  
• 2902.3: USDA Guidance on Item Availability and Procurement: This would provide the Internet address for the USDA informational website on Section 9002 implementation (http://www.biobased.oce.usda.gov). It would go on to state, "USDA will maintain a voluntary web-based information site for manufacturers and vendors of designated items produced with biobased products and federal agencies. Through this website, USDA intends to provide information as to the availability, relative price, performance and environmental and public health benefits of the designated items. USDA encourages manufacturers and vendors to provide product, business contacts, and product information for designated items. USDA also encourages federal agencies to utilize this website to obtain current information on designated items, contact information on manufacturers and vendors, and access to information on product characteristics relevant to procurement decisions."
  
  USDA is specifically seeking comments on the kinds of contact and product information that should be made available on its web-based information system, as well as comments on the appropriate components of a model procurement program for biobased items.
  
  
• 2902.4: Definitions: This would define 24 key terms used in the proposed guidelines, including "biobased," "BEES" (Building for Environmental and Economic Sustainability), "dilutent," "filler," and "small and emerging private business enterprise" ("any private business that employs 50 or fewer employees and has less than $1 million in projected annual gross revenues").
  
  
• 2902.5: Preferred Procurement Program: This would specify the procurement requirements that would apply to federal agencies. Paragraph (a) would require that "within one year after the publication date of each designated item, federal agencies that have the responsibility for drafting or reviewing specifications for items procured by federal agencies shall ensure that their specifications require the use of designated items composed of biobased products, consistent with the guidelines in this part."
  
  Paragraph (b) would require agencies to develop affirmative procurement programs within one year after the publication of the guidelines. "Each procurement program shall contain: (1) a preference program for purchasing designated items, (2) a promotion program to promote the preference program; and (3) provisions for the annual review and monitoring of the effectiveness of the procurement program."
  
  Paragraph (c) would address the preference program component of the affirmative procurement program by requiring the adoption of one of the following options: "(1) A policy of awarding contracts to the vendor offering a designated item composed of the highest percentage of biobased product practicable except when such items: (i) are not available within a reasonable time; (ii) fail to meet performance standards set forth in the applicable specifications, or the reasonable performance standards of the federal agency; or (iii) are available only at an unreasonable price; [or] (2) a policy of setting minimum biobased products content specifications in such a way as to assure that the biobased products content required is consistent with Section 9002 of FSRIA and the requirements of the guidelines in this part except when such items: (i) are not available within a reasonable time; (ii) fail to meet performance standards for the use to which they will be put, or the reasonable performance standards of the federal agency; or (iii) are available only at an unreasonable price."
  
  
• 2902.6: Funding for Testing: This would state, "USDA will use funds to support testing for biobased content and conduct of the BEES analysis for products within items USDA has selected to designate for preferred procurement through early regulatory action" (Congress has provided USDA $1,000,000 a year through fiscal year 2007 to test biobased products). "USDA initially will focus on gathering the necessary test information on a sufficient number of products within an item (generic grouping of products) to support regulations to be promulgated to designate an item or items for preferred procurement under this program. USDA may accept cost sharing for such testing to the extent consistent with USDA product testing decisions. During this period USDA will not consider cost sharing in deciding what products to test. When USDA has concluded that a critical mass of items have been designated, USDA will exercise its discretion...to allocate a portion of the available USDA testing funds to give priority to testing of products for which private sector firms provide cost sharing for the testing." (EDITOR'S NOTE: The introduction to the NPRM states that USDA expects that the critical mass will be achieved within three years.)
  
  Once there is a critical mass of designated items, "USDA will announce annually the solicitation of proposals for cost-sharing for the testing of biobased products to carry out this program. Information regarding the submission of proposals for cost sharing also will be posted on the USDA informational website, http://www.biobased.oce.usda.gov."
  
  Cost sharing will be considered first for products of "small and emerging private business enterprises." If funds remain to support further testing, proposals from all other applicants will be evaluated and assigned a priority rating. "Priority ratings will be based on the following criteria: (i) a maximum of 25 points will be awarded a proposal based on the market readiness; (ii) a maximum of 20 points will be awarded a proposal based on the potential size of the market for that product in federal agencies; (iii) a maximum of 25 points will be awarded based on the financial need, for testing assistance, of the manufacturer or vendor; (iv) a maximum of 20 points will be awarded a proposal based on the product's prospective competitiveness in the market place; [and] (v) a maximum of 10 points will be awarded a proposal based on its likely benefit to the environment...Proposals will be selected in order of declining priority ratings (from highest to lowest) until available funds for the fiscal year are committed."
  
  For products selected for BEES Analysis testing, "USDA could provide up to 50 percent of the cost of determining the life cycle costs and environmental and health effects using the NIST's [National Institute of Standards and Technology] BEES Analysis, up to a maximum of $5,000 of assistance per product. For products selected for performance testing under this paragraph, USDA could provide up to 50 percent of cost for performance testing, up to $100,000 of assistance per product for up to two performance tests (measures of performance) per product...Proposals submitted in one fiscal year, but not selected for cost-sharing of testing in that year, may be resubmitted to be considered for cost-sharing in the following year."
  
  USDA is seeking comments "on possible methods of providing financial assistance for manufacturers and vendors for testing of individual commercial products with biobased content that are intended to qualify for preferred procurement by federal agencies under this program."

• 2902.10: Communicating Information on Qualifying Biobased Products: This would provide general information applicable to the exchange of information regarding biobased products.
  
  Paragraph (a) would state that manufacturers and vendors of designated items are responsible for informing federal procurement officials of items that comply with the guidelines, including the biobased content of the product. Also, it would recommend that federal agencies "affirmatively seek this information."
  
  Paragraph (b) would require manufacturers and vendors to use the BEES analytical tool to provide information on life cycle costs and environmental and health benefits to federal agencies when asked.
  
  Paragraph (c) would require federal agencies to "rely on results of performance tests using applicable ASTM International, International Organization for Standardization (ISO), federal or military specifications, or other similarly authoritative industry test standards. Such testing must be conducted by a third party ASTM/ISO compliant laboratory."
  
  Paragraph (d) would remind manufacturers and vendors that "their advertising, labeling, and other marketing claims, including claims regarding health and environmental benefits of the product, must conform to the Federal Trade Commission Guides for the Use of Environmental Marketing Claims, 16 CFR Part 260." (EDITOR'S NOTE: The Guides can be obtained through the Federal Trade Commission's website at http://www.ftc.gov/ftc/legal.htm. The introduction to the NPRM provides the following caution: "As explained in 16 CFR 260.5, any party making a claim concerning a product's environmental attribute 'must, at the time the claim is made, possess and rely upon a reasonable basis substantiating the claim.'")
  
  
• 2902.11: Characteristics Required for Obtaining Designated Item Status: To guard against designating items for preferred procurement which contain only token amounts of biobased materials, this section would require that all qualifying items have "at least 5% of its total manufactured value (measured after manufacture at the location of manufacture) made up of biobased product(s)." While the 5% requirement applies to the entire product, the minimum biobased content requirements in Section 2902.12, Items and Minimum Biobased Content (see below) refer to the biobased portion of the product, and not the entire item. These requirements are in addition to the 5 percent total manufactured value requirement." The introduction to the NPRM provides the following to illustrate the distinction: "In a carpet using a biobased material as a carpet backing, the minimum biobased content indicated for the carpet refers only to the biobased backing. It is understood that the completed carpet, made up of several different materials, would have a lower biobased content than is specified in these guidelines for the biobased product (the carpet backing) itself. Minimum percentages used for various products in these guidelines refer to the biobased content of the product (such as carpet backing) itself, not to a finished product (the carpet) that might be fabricated using both a biobased product and other inputs, unless that is otherwise specified."
  
  Paragraph (c) would require that manufacturers and vendors use "the ASTM International Radioisotope Standard Method to determine and certify the biobased content of their products offered for preferred procurement. Federal agencies and USDA may request verification of biobased content from manufacturers and vendors for products certified to qualify for preferred procurement."
  
  Paragraph (d) would specify that the biobased content be "based on the weight of the biobased material (exclusive of water and other non-active ingredients, fillers, and diluents) divided by the total weight of the product and expressed as a percentage by weight." However, in the case of products that are essentially the same formulation but marketed under a variety of brand names, the manufacturers and vendors can simply refer to the underlying biobased content test data as the basis to demonstrate the biobased content, rather than conducting a biobased content test on each branded item.
  
  Finally, paragraph (e) would exclude from the program "products having mature markets." A product would be considered as having a "mature market" if the product falls within any of the following groups: "(1) silk, cotton and wool garments, household items, and industrial or commercial products unless made with a substantial amount of biobased plastic product; (2) wood products made from traditionally-harvested forest materials; [or] (3) products having significant national market penetration prior to 1972."
  
  To explain the exclusions, the introduction to the NPRM states, "The legislative history of Section 9002 suggests that Congress intended to use this program to speed the development of new markets for biobased products, rather than to support mature markets for products...USDA proposes to use a number of filters or tests to exclude products in what it defines as mature markets. If a product falls within an excluded group of products in any one filter, it is excluded from consideration under the program to implement Section 9002. To be eligible for preferred procurement under Section 9002, a product must be found eligible under each of these filters or tests. In the first test, silk, cotton and wool garments, household items, and industrial or commercial products are excluded, unless made with a substantial amount of a biobased plastic product. Also excluded are wood products made from traditionally-harvested forest materials...Finally, products developed, or that have made significant market penetration, more recently than 1972 also are not considered to be in mature markets for purposes of this program. The first of several oil supply and price shocks, which occurred in the United States beginning at about 1972, was an important impetus for beginning sustained serious new development of biobased alternatives for fossil based energy and other products in the United States. Hence, USDA has chosen to use 1972 as a dividing point between mature and emerging markets for this program."
  
  
• 2902.12: Items and Minimum Biobased Content: This section would state that USDA will designate items which meet the criteria as eligible for the procurement preference. "In designating items, USDA will group items by category and will identify the minimum biobased content for each listed item. As items are designated for procurement preference, they will be added to this section."
  
  While Section 2902.12 does not contain any categories or items since none have yet been designated for procurement preference, the introduction to the NPRM lists the following proposed categories and minimum content levels for those categories. USDA is seeking comments on these categories, items (subcategories), minimum content levels based on manufactured value, and the minimum biobased content levels:

  Adhesives
  Construction Materials and Composites
  Fibers, Paper, and Packaging
  Fuel Additives
  Landscaping Materials, Compost, and Fertilizer
  Lubricants and Functional Fluids
  Plastics
  Paints and Coatings
  Solvents and Cleaners
  Sorbents
  Plant and Vegetable Inks

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

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