DATE: September 20, 2004

SUBJECT: Federal Acquisition Regulation (FAR); Additional Commercial Contract Types

SOURCE: Federal Register, September 20, 2004, Vol. 69, No. 181, page 56315

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

ACTION: Advance Notice of Proposed Rulemaking (ANPR)

SYNOPSIS: This ANPR solicits comments on the implementation of Section 1432 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136), which expressly authorizes the use of time-and-materials (T&M) and labor-hour (LH) contracts for the procurement of commercial services.

EDITOR'S NOTE: For more on other acquisition-related provisions of Public Law 108-136, see the November 25, 2003, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2004."

DATES: Comments on the ANPR should be submitted on or before November 19, 2004.

A public meeting will be held on October 19, 2004, from 10:00 am to 4:30 pm EST, in the GSA Building Auditorium, 1800 F Street, NW, Washington, DC, 20405. Parties are encouraged to provide written comments on issues they would like addressed at the public meeting no later than October 1, 2004. Parties may offer additional questions for discussion at the public meeting.

Parties may register and submit their input electronically at http://www.acq.osd.mil/dpap/dars/coming.htm. Attendees are encouraged but not required to register for the public meeting to ensure adequate room accommodations.

ADDRESSES: Submit comments, identified by "ANPR, FAR Case 2003-027," to: (1) http://www.regulations.gov; (2) http://www.acqnet.gov/far/ProposedRules/proposed.htm; (3) e-mail: ANPR.2003-027@gsa.gov; (4) fax: 202-501-4067; or (5) mail: General Services Administration, Regulatory Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405.

FOR FURTHER INFORMATION CONTACT: Gerald Zaffos, 202-208-6091.

SUPPLEMENTAL INFORMATION: Section 1432 of Public Law 108-136 (which is part of what is referred to as the "Services Acquisition Reform Act" (SARA)), amends Section 8002(d) of the Federal Acquisition Streamlining Act (FASA) to expressly authorize the use of T&M and LH contracts for the procurement of commercial services. Section 1432 places certain conditions on the use of T&M and LH contracts for purchases of commercial services under Federal Acquisition Regulation (FAR) Part 12, Acquisition of Commercial Items: (1) the purchase must be made on a competitive basis; (2) the service must fall within certain categories as prescribed by FASA Section 8002(d); (3) the contracting officer must execute a determination and findings (D&F) that no other contract type is suitable; and (4) the contracting officer must include a ceiling price that the contractor exceeds at its own risk and that may be changed only upon a determination documented in the contract file that the change is in the best interest of the procuring agency. This ANPR is being issued to seek comments on how best to implement the requirements and authorities of FASA Section 8002(d) and SARA Section 1432. (EDITOR'S NOTE: The ANPR states that it "is not intended to affect the special ordering procedures issued by the GSA pursuant to FAR 8.402 [General] for the procurement of services under the Multiple Award Schedules (MAS) Program [that is, Federal Supply Schedules]. MAS policies regarding the placement of orders on a T&M and LH basis will be conformed to the FAR when FAR coverage is finalized.")

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council, along with the Office of Federal Procurement Policy (OFPP), want to make sure that T&M and LH contracts are used only when warranted, and that the terms and conditions incorporated into resulting T&M and LH contracts adequately protect the parties' respective interests based on the risk each party is to bear. Some of the issues and considerations involved are the following:

  1. Suitability of T&M and LH Contracts: Section 8002(d) limits T&M and LH contracts to the following categories of commercial services:
    1. Commercial services procured for support of a commercial item; and
    2. Any other category of commercial services that is designated by the Administrator of OFPP on the basis that --
      1. The commercial services are of a type of commercial services that are commonly sold to the general public through use of T&M or LH contracts; and
      2. (ii) It would be in the best interests of the government to authorize use of T&M or LH contracts for purchases of the commercial services in such category.

    To better understand how T&M and LH contracts are used commercially and when their use is in the best interest of the government, OFPP has developed the following questions:

  2. Terms and Conditions: The current FAR clauses prescribed for the acquisition of commercial items were designed to support firm-fixed price contracts and fixed-price contracts with economic price adjustments. In shaping these clauses, the FAR drafters gave little thought to the risk involved when using flexibly priced contracts. For this reason, the Councils are reviewing these clauses to determine where refinements might be needed to more appropriately reflect the relationship that is created between the Government and a contractor under a T&M or LH contract.

    As part of their review, the Councils are considering the provisions that have been traditionally incorporated into T&M and LH contracts in accordance with FAR Subpart 16.6, Time-and-Materials, Labor-Hour, and Letter Contracts.

    The Councils are inviting the public, especially small businesses, to provide comment on industry practices, including terms and conditions, relating to commercial use of T&M and LH contracts, particularly on the following questions:

  3. FAR Amendments Under Consideration: The Councils are considering amendments to commercial items policies in FAR Part 12 and associated clauses in FAR Part 52. Also, changes are also being considered to FAR Part 2, Definitions; FAR Part 10, Market Research; and FAR Part 16, Types of Contracts. While the specific FAR changes will not be decided until after comments have been submitted and considered, the following are the main changes being considered. Comments are sought on these preliminary changes, which are published as part of the ANPR.

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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