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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: June 18, 2004

SUBJECT: Federal Acquisition Circular (FAC) 2001-24, Miscellaneous Amendments

SOURCE: Federal Register, June 18, 2004, Vol. 69, No. 117, page 34223

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

ACTION: Final Rules

SYNOPSIS: The Federal Acquisition Secretariat is issuing FAC 2001-24 to amend the Federal Acquisition Regulation (FAR) in the following areas: (1) incentives for use of performance-based contracting for services; (2) definitions clause; (3) procurement lists; (4) determining official for employment provision compliance -- Immigration and Nationality Act (INA); (5) Federal Supply Schedules services and blanket purchase agreements (BPAs); (6) designated countries -- new European Communities member states; (7) Buy American Act -- nonavailable articles; (8) application of cost principles and procedures; (9) maintenance and repair costs, and material costs; and (10) technical amendments.

DATES: The effective date of these rules is July 19, 2004, except for items (1), (4), (6), and (10) which are effective June 18, 2004. Comments on item (1) must be submitted on or before August 17, 2004.

ADDRESSES: Comments on item (1) must be submitted to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405; or by e-mail to farcase.2004-002@gsa.gov. Cite "FAC 2001-24, FAR Case 2004-004" in correspondence related to the interim rule.

FOR FURTHER INFORMATION CONTACT: The following analysts:

      Item (1), Julia Wise, 202-208-1168.

      Item (2), Jeritta Parnell, 202-501-4082.

      Items (3) and (5), Linda Nelson, 202-501-1900.

      Item (4), Craig Goral, 202-501-3856.

      Items (6) and (7), Cecelia Davis, 202- 219-0202.

      Items (8) and (9), Edward Loeb, 202-501-0650.

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

SUPPLEMENTAL INFORMATION: (1) Incentives for Use of Performance-Based Contracting for Services: This interim rule amends FAR Part 12, Acquisition of Commercial Items, and FAR Subpart 37.6, Performance-Based Contracting, to implement Sections 1431 and 1433 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136). Section 1431 permit non-commercial performance-based contracts or task orders for services to be treated as contracts for commercial items if the value of the contract or order does not exceed $25,000,000, the contract or task order specifies each task to be performed, and each task has a firm-fixed-price. Section 1433 amends the definition of "commercial item" to add specific performance-based terminology and to conform to the language added by Section 1431. (EDITOR'S NOTE: For more on the acquisition-related provisions of Public Law 108-136, see the November 25, 2003, FEDERAL CONTRACT DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2004.")

To implement Sections 1431 and 1433, the following changes are made to the FAR:


(2) Definitions Clause: This final rule amends FAR 52.202-1, Definitions, to clarify which FAR definitions apply to FAR solicitation provisions and contract clauses.

FAR 52.202-1 was an incomplete list of definitions applicable to the provisions and clauses -- it contained definitions only for "agency head," "commercial component," "commercial item," "component," "contracting officer," "nondevelopmental item," and "subcontracts." In contrast, FAR 2.101, Definitions, contains almost 200 definitions. Therefore, on January 21, 2004, a proposed rule was published to amend FAR 52.202-1 to state, "(a) When a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101 in effect at the time the solicitation was issued, unless (1) the solicitation, or amended solicitation, provides a different definition; (2) the contracting parties agree to a different definition; (3) the part, subpart, or section of the FAR where the provision or clause is prescribed provides a different meaning; or (4) the word or term is defined in Subpart 31 for use in the cost principles and procedures" (see the January 21, 2004, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Definitions Clause").

One respondent submitted comments, and the proposed rule is being finalized with several minor editorial changes (such as changing "Subpart 31" to FAR Part 31" in (a)(4)). Also, the web address where the FAR Index can be located, which is cited in proposed paragraph (b), is corrected to "http://www.acqnet.gov". Finally, FAR 2.201, Contract Clause, is amended to retain the first sentence ("Insert the clause at 52.202-1, Definitions, in solicitations and contracts that exceed the simplified acquisition threshold"), and delete the last two sentences ("If the contract is for personal services, construction, architect-engineer services, or dismantling, demolition, or removal of improvements, use the clause with its Alternate I. The contracting officer may include additional definitions, provided they are consistent with the clause and the FAR.")


(3) Procurement Lists: This final rule amends FAR Part 8, Required Sources of Supplies and Services, to clarify the point that the Javits-Wagner O'Day (JWOD) program for blind or severely disabled people becomes a mandatory source of supplies and services.

The JWOD program is administered by the Committee for Purchase from People Who Are Blind or Severely Disabled. The Committee has established workshops ("participating agencies") that employ blind or severely disabled people in the production of supplies or rendering of services. The Committee maintains a Procurement List of all supplies and services that are required to be purchased from these JWOD participating agencies.

Not all JWOD supplies and services are on the Committee's Procurement List. However, FAR 8.002, Priorities for Use of Government Supply Sources, stated that "products available from the Committee..." and "services available from the Committee..." were to be acquired before products or services from Federal Supply Schedules or commercial sources. This caused confusion in that some were under the misconception that all products and services available from the Committee have a higher priority. Therefore, on December 11, 2003, a proposed rule was published to revise FAR 8.002 to state "supplies which are on the Procurement List maintained by the Committee..." and "services which are on the Procurement List maintained by the Committee..." In addition, FAR 8.004, Contract Clause, which required that FAR 52.208-9, Contractor Use of Mandatory Sources of Supply and Services, be included in contracts that require a contractor to provide supplies or services "that are available from the Committee..." was proposed to be revised to "that are on the Procurement List maintained by the Committee..." Finally, FAR 8.703, Procurement List, would have been revised to add "The Procurement List may be accessed at: http://www.jwod.gov/procurementlist" (see the December 11, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Javits-Wagner O'Day (JWOD) Program Procurement List").

One respondent submitted comments, and the proposed rule is finalized with an editorial change at FAR 8.714, Communications with the Central Nonprofit Agencies and the Committee, to update the Committee's address information and to revise FAR 52.208-9 to clarify that the Procurement List contains supplies and services.


(4) Determining Official for Employment Provision Compliance -- Immigration and Nationality Act (INA): This final rule revises paragraph (b)(2) of FAR 9.406-2, Causes for Debarment, and paragraph (b) of FAR 9.406-4, Period of Debarment, to include the Secretary of Homeland Security as an authority for determining when a contractor is not in compliance with the INA. Previously, the Attorney General had been the sole authority for making this determination, but Executive Order 13286, published March 5, 2003, gave the Secretary of Homeland Security this authority. This final rule implements Executive Order 13286.


(5) Federal Supply Schedules Services and Blanket Purchase Agreements (BPAs): This final rule amends FAR Subpart 8.4, Federal Supply Schedules, to incorporate policies for services and to strengthen the procedures for establishing blanket purchase agreements (BPAs) under the Federal Supply Schedules (FSS).

On April 18, 2003, a proposed rule was published that would reorganize and incorporate the "special ordering procedures" developed by GSA for the FSS (see the April 18, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Federal Supply Schedules Services and Blanket Purchase Agreements"). Thirty-four respondents submitted comments, and the proposed rule is adopted as final with substantial changes. The following are the changes being made to FAR Subpart 8.4 (differences between the proposed and final rules are indicated):


(6) Designated Countries -- New European Communities Member States: On May 1, 2004, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia joined the European Communities (EC). The U.S. Trade Representative (USTR) has determined, under the Trade Agreements Act, that suppliers from these countries are eligible to participate in U.S. government procurement under the terms and conditions of the World Trade Organization Government Procurement Agreement (WTO GPA). Therefore, these countries are added to the list of designated countries in FAR 25.003, Definitions, FAR 52.225-5, Trade Agreements, and FAR 52.225-11, Buy American Act -- Construction Materials Under Trade Agreements. Also, these countries are added to the list of countries subject to the WTO GPA in 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.


(7) Buy American Act -- Nonavailable Articles: This final rule adds bamboo shoots; goat hair canvas; grapefruit sections, canned; modacrylic fur ruff; and water chestnuts to the list of articles not available from domestic sources in sufficient and reasonably available commercial quantities of a satisfactory quality in paragraph (a) of FAR 25.104, Nonavailable Articles. Paragraph (b) of FAR 25.103, Exceptions, permits the acquisition of foreign end products listed in FAR 25.104 without regard to the restrictions of the Buy American Act.

On September 16, 2003, a proposed rule was published to amend FAR 25.103(a) to add these articles (see the September 16, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Buy American Act -- Nonavailable Articles"). Two respondents submitted comments, but it was decided to finalize the proposed rule without changes. (EDITOR'S NOTE: On May 18, 2004, a request for comments was published seeking information to that will assist in determining whether some articles listed in FAR 25.104 are now mined, produced, or manufactured in the United States in sufficient and reasonably-available commercial quantities and are of a satisfactory quality -- see the May 18, 2004, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); List of Nonavailable Articles Under the Buy American Act." Also, on May 24, 2004, a proposed rule was published that would amend FAR 25.103, Exceptions, to clarify the intent of the list of items determined to be nonavailable for purposes of the Buy American Act -- see the May 24, 2004, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Policy on Nonavailable Articles Under the Buy American Act.")


(8) Application of Cost Principles and Procedures: This final rule amends FAR 31.204, Application of Principles and Procedures, to improve its clarity and structure.

On May 22, 2003, a proposed rule was published that would amend FAR 31.204 and FAR 31.201-6, Accounting for Unallowable Costs (see the May 22, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Application of Cost Principles and Procedures, and Accounting for Unallowable Costs." Nine respondents submitted comments on FAR 31.201-6, and because of the significance of the comments, a second proposed rule on FAR 31.201-6 will be published.

No comments were received on the proposed changes to FAR 31.204, so it is adopted as final without changes. The following are the revisions being made to FAR 31.204:


(9) Maintenance and Repair Costs, and Material Costs: This final rule removes the cost principle at FAR 31.205-24, Maintenance and Repair Costs, and revises the cost principle at FAR 31.205-26, Material Costs, to improve its clarity and structure, and to remove unnecessary and duplicative language.

On July 7, 2003, a proposed rule was published to revise FAR 31.205-16, Gains and Losses on Disposition or Impairment of Depreciable Property or Other Capital Assets, FAR 31.205-24, and FAR 31.205-24 (see the July 7, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Gains and Losses, Maintenance and Repair Costs, and Material Costs"). Three respondents submitted comments on FAR 31.205-16, and because of the significance of the comments, a second proposed rule on FAR 31.205-16 was published on May 21, 2004 (see the May 21, 2004, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Gains and Losses").

The same three respondents submitted comments on FAR 31.205-24 and FAR 31.205-26, but the proposed changes are being finalized with minor changes. Therefore, FAR 31.205-24 is deleted, and the following changes are made to FAR 31.205-26:

The proposed rule would have deleted paragraph (c), which states, "Reasonable adjustments arising from differences between periodic physical inventories and book inventories may be included in arriving at costs; provided, such adjustments relate to the period of contract performance", and relied on generally-accepted accounting practices (GAAP) instead. However, "based on the public input, it appears there are significant concerns that reliance solely upon GAAP could result in potential disputes...this provision provides protection to both the contractor and the Government by specifically permitting reasonable adjustments for inventory differences while also requiring that such adjustments relate to the period of contract performance." Therefore, paragraph (c) is retained.


(10) Technical Amendments: The following technical amendments are made:


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

Copyright 2004 by Panoptic Enterprises. All Rights Reserved.

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