Barry McVay's


Federal Acquisition Developments, Guidance, and Opinions

APRIL 2000
Vol. I, No. 4


FAC 97-16 Revises Contract Financing Rules
FAR Procurement Integrity Section Up For Rewrite
Boeing, Lockheed Martin to Create Aerospace E-Market
IT Accessibility Standards Proposed
DODIG, GAO Reports Point Out Acquisition Deficiencies
Mandatory Use of Travel Card Delayed
DOD Cargo Preference For Commercial Items Clarified
Trade Agreements Thresholds Revised
OFPP Rescinds 22 Policy Letters
President Urges JWOD Purchases

FAC 97-16 Revises Contract Financing Rules, Small Business Competitiveness Demo Program

On March 27, Federal Acquisition Circular (FAC) 97-16 was published. It does two things: (1) it revises FAR Subpart 19.10, Small Business Competitiveness Demonstration Program, to comply with the Small Business Reauthorization Act of 1997 (Public Law 105-135) and the May 25, 1999, implementing joint policy directive issued by Office of Federal Procurement Policy (OFPP) and Small Business Administration (SBA); and (2) it addresses contract financing by eliminating the progress payment "paid cost" rule, and stresses that performance-based payments are "the preferred government financing method".

The following are the most significant changes made to the FAR by FAC 97-16:

Small Business Competitiveness Demonstration Program: The program prohibits 10 federal agencies from using small business set-asides in four "designated industry groups": construction, refuse systems and related services, nonnuclear ship repair, and architectural and engineering (A&E) services (the agencies are the departments of Agriculture, Defense (except for the National Imagery and Mapping Agency), Energy, Health and Human Services, Interior, Transportation, and Veterans Affairs; Environmental Protection Agency (EPA); General Services Administration (GSA); and National Aeronautics and Space Administration (NASA)). However, the program requires that purchases in these four industry groups that are less than $25,000 (or $50,000 for A&E) be set-aside for "emerging small businesses" (which is defined as those that are no larger than 50% of the applicable size standard).

This interim rule:

     (1) adds to FAR 19.1002, Definitions, a definition for "emerging small business reserve amount" which sets the reserve amount as $25,000 for construction, refuse systems, and nonnuclear ship repair, and $50,000 for A&E services;

     (2) adds a new FAR 19.1006, Exclusions, to clarify that FAR Subpart 19.10 does not apply to orders placed against Federal Supply Schedules, contract awards to educational and nonprofit organizations, or contracts to governmental entities (current FAR 19.1006, Procedures, is redesignated as FAR 19.1007); and

     (3) amends redesignated FAR 19.1007 to state that when a contracting officer does not have a reasonable expectation of obtaining competitive offers from two or more emerging small businesses on acquisitions less than $25,000, he or she is to proceed in accordance with FAR Subpart 19.5, Set-Asides for Small Business; FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program); or FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program (the old FAR 19.1006 merely directed contracting officers to "proceed in accordance with [FAR] Subpart 19.5").

Submit comments on this interim rule by May 26, 2000, to GSA, FAR Secretariat (MVR), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.1999-012@gsa.gov.

Progress Payments and Related Financing Policies: Culminating a three-year process in which the existing progress payments policies and procedures were reviewed, rewritten, commented upon, and rewritten again, a substantial amount of FAR Part 32, Contract Financing, has been revised (along with the corresponding clauses in FAR 52.232). While most of the changes clarify and simplify the language, the following are the most significant changes:

Technical Amendments: References are updated and editorial changes made in several FAR sections. The most significant changes are in FAR 9.404, List of Parties Excluded from Federal Procurement and Nonprocurement Programs, where the List's Internet address is added (http://epls.arnet.gov); FAR 15.404-1, Proposal Analysis Techniques, in which the Internet address for the five-volume set of Contract Pricing Reference Guides is changed to "http://www.acq.osd.mil/dp/cpf"; and FAR 52.212-1, Instructions to Offerors -- Commercial Items, in which the address for the Department of Defense (DOD) Index of Specifications and Standards Internet site is changed to "http://assist.daps.mil".

FAR Procurement Integrity Section Up For Rewrite

FAR 3.104, Procurement Integrity, and its subsections, implement various prohibitions and restrictions placed on certain federal officials by the Procurement Integrity Act. This section has been difficult to follow because it is poorly worded and organized. So it is proposed that FAR 3.104 be reorganized and rewritten to clarify and simplify the material.

However, the Office of Government Ethics (OGE) regulations also address restrictions placed on federal officials during the conduct of federal procurements, and these restrictions do not necessarily correlate with the restrictions in the Procurement Integrity Act and FAR 3.104 (the OGE's prohibitions involve accepting bribes or gifts, seeking employment, and similar activities, and are in Title 5 of the Code of Federal Regulations, Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch). For example, the OGE definition of "participating personally and substantially in a federal procurement" is more restrictive than the definition in the Procurement Integrity Act and FAR 3.104. Though FAR 3.104 does not implement the statutes and regulations covered in 5 CFR 2635, it is proposed that several FAR 3.104 subsections include language alerting employees to the restrictions in OGE's regulations. For example, FAR 3.104-4, Statutory and Related Prohibitions, Restrictions, and Requirements, would include the following: "Conduct that complies with subsection 27(c) of the [Procurement Integrity] Act may be prohibited by other criminal statutes and the Standards of Ethical Conduct for Employees of the Executive Branch."

Submit comments on this interim rule by May 30, 2000, to GSA, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.1998-024@gsa.gov.

Boeing, Lockheed Martin to Create Aerospace E-Market

The Boeing Company, Lockheed Martin Corporation, BAE Systems, and Raytheon Company announced on March 28 that they are creating an independent enterprise that will develop a secure Internet trading exchange for the global aerospace and defense industry. Assisting the venture will be Commerce One, a company that specializes in e-commerce. The exchange is aiming for a launch by mid-year.

The aerospace and defense industry has commercial and military sales of more than $400 billion. The four lead participants in this venture do $71 billion worth of business worldwide with more than 37,000 suppliers, hundreds of airlines, and dozens of national governments, all of whom will be invited to join the web-based marketplace.

Examples of the types of aerospace and defense products and services expected to be provided over the exchange are raw materials, expendable parts (such as fasteners, fittings and brackets), technical data, aircraft components, defense electronic components, and after-market parts. A typical commercial airplane contains as many as six million parts and is supported by millions of pages of technical documentation. In addition, the exchange will be an e-marketplace for the indirect products and services that aerospace companies, airlines, and their suppliers need to operate their businesses.

"This global trading exchange will transform commerce for the aerospace and defense industry on a worldwide basis," said Vance Coffman, chairman and CEO of Lockheed Martin. "It also should help us address a major priority of our government customers by reducing acquisition process costs."

IT Accessibility Standards Proposed

On March 31, the Architectural and Transportation Barriers Compliance Board proposed accessibility standards for electronic and information technology (IT) as required by Section 508 of the Rehabilitation Act Amendments of 1998, which requires that federal agencies develop, procure, maintain, or use electronic and information technology that allows federal employees with disabilities to have access to and use information and data comparable to federal employees without disabilities, unless an undue burden would be imposed on the agency. Section 508 also requires that federal agencies provide disabled members of the public access to public information comparable to that provided to those without disabilities. However, an agency is not expected to procure products that are not commercially available.

There is technology available to meet practically all the proposed standards. For example, the proposed standards call for controls and keys to be tactilely discernible without activating them. This has already been incorporated into most computer keyboards with the placement of "nibs" on the "f" and "j" keys and on the "5" on the number pad so those who are visually-impaired can orient themselves. Another example would be screen readers which allow persons who cannot see a visual display to either hear the screen content or read it in Braille.

The Board has been coordinating its efforts with the Federal Acquisition Regulatory Council. Section 508 requires that the FAR be revised within six months after the Board publishes its standards, and that each agency revise its procurement policies and directives to incorporate the Board's standards. The Board expects that the final standards and the revised FAR will be published at the same time.

Send comments by May 30, 2000, to the Office of Technical and Information Services, Architectural and Transportation Barriers Compliance Board, 1331 F Street NW, Suite 1000, Washington, DC 20004-1111, or by e-mail to section508nprm@access-board.gov.

DODIG, GAO Reports Point Out Acquisition Deficiencies

March was a tough month for the acquisition community, particularly for the Department of Defense (DOD). Two DOD Inspector General (DODIG) reports and one General Accounting Office (GAO) report point out difficulties and shortcomings in recent "acquisition streamlining" efforts. Meanwhile, Office of Federal Procurement Policy (OFPP) Administrator Deidre Lee asked Congress to be tolerant of "mistakes" and not repeal acquisition reform.

DODIG Report No. D-2000-088, DOD Acquisition Workforce Reduction Trends and Impacts, February 29, 2000: The DODIG interviewed and collected information from senior personnel at 14 DOD acquisition organizations to see what effect the reduction of DOD's acquisition workforce from 460,516 to 230,556 personnel between Fiscal Year (FY) 1990 and FY99 had on DOD's ability to support acquisition workload requirements. It found that the value of DOD procurement actions decreased during that period from $144.7 billion to $139.8 billion, while the number of procurement actions increased from 13.2 million to 14.8 million. This caused: increased backlog in closing out completed contracts (3 organizations); increased program costs resulting from contracting for technical support versus using in-house technical support (7 organizations); insufficient personnel to fill-in for employees on deployment (1 organization); insufficient staff to manage requirements (9 organizations); reduced scrutiny and timeliness in reviewing acquisition actions (4 organizations); personnel retention difficulty (6 organizations); increase in procurement action lead time (1 organization); some skill imbalances (9 organizations); and lost opportunities to develop cost savings initiatives (2 organizations). And there is serious concern about the likelihood of DOD cutting another 55,000 acquisition personnel by FY 2005 and "in the overall disconnects between workload forecasts, performance measures, productivity indicators, and plans for workforce sizing and training."

DODIG Report No. D-2000-100, Contracts for Professional, Administrative, and Management Support Services, March 10, 2000: The DODIG evaluated the procurement procedures used for 105 FY97 and FY98 contract actions from 15 contracting activities, and found that every one suffered from one or more of the following problems: non-use of prior history to define requirements (58 of 84); inadequate government cost estimates (81 of 105); cursory technical reviews (60 of 105); inadequate competition (63 of 105); failure to award multiple-award contracts (7 of 38); inadequate price negotiation memorandums (71 of 105); inadequate contract surveillance (56 of 84); and lack of cost control (21 of 84). The DODIG cited the 50% reduction in acquisition personnel between FY90 and FY99 as a major reason (see above). Also, the DODIG concluded that the acquisition workforce was inadequately trained, and that DOD procurement system controls have material weaknesses.

GAO Report No. NSAID-00-56, Few Competing Proposals for Large DOD Information Technology Orders, March 20, 2000: GAO selected 22 task- and delivery-orders over $5 million for information technology products and services in support of defense programs to determine whether DOD and other agencies were giving each contractor a fair opportunity to be considered unless an authorized exception exists as required by the Federal Acquisition Streamlining Act of 1994 (FASA). GAO found that 16 of the 22 orders were awarded without competing proposals, such as the Defense Information Systems Agency (DISA) example in which DISA awarded a $300,000 order for two-month's work, then awarded two "follow-on" orders to the same contractor for 21-month's work for $14 million. GAO also found that work descriptions were frequently too broad, and that many contractors refused to submit proposals because "the incumbent contractors had an inherent advantage."

On March 16, Deidre Lee testified before the House Committee on Government Reform, Subcommittee on Government Management, Information, and Technology. She listed OFPP's three main priorities as: (1) continue to make federal acquisition more closely resemble commercial practices; (2) use electronic commerce to improve acquisitions, and (3) develop a capable and knowledgeable acquisition workforce. She then listed two statutory changes OFPP would like: (1) a permanent authorization to the test program in FAR Subpart 13.5, Test Program for Certain Commercial Items, which authorizes the use of simplified procedures for purchases of commercial items up to $5 million; and (2) the authorization to substitute electronic notices of contracting opportunities in place of the notice now required to be published in the Commerce Business Daily, and to use the electronic publication date as the starting point for counting the number of days provided to submit bids and proposals.

In conclusion, Ms. Lee appealed to Congress to "resist efforts to repeal acquisition reform before we have had the opportunity to work with the newly authorized acquisition practices." She said that "contracting officials will have to be willing to take prudent risks if they are to succeed in making the fundamental business practice changes that are necessary to improve government acquisition...but sometimes they will make mistakes or events considered to be low risk will occur."

In a related development, it was announced on March 2 that Deidre Lee will be leaving OFPP to become the Director of Defense Procurement. She replaces Eleanor Spector, who retired in February to join Lockheed Martin. While Ms. Lee was expected to take the position by the end of March, now it appears she will not become director until June.

Mandatory Use of Travel Card Delayed

The General Services Administration (GSA) has decided to postpone, until May 1, 2000, the mandatory use of the government travel charge card and payment of associated penalties and interest because of the difficulty many agencies were having implementing the requirements of the Travel and Transportation Reform Act of 1998 (Public Law 105-264) and the corresponding changes to the Federal Travel Regulation (FTR) made on July 16, 1999.

The July 16, 1999, interim rule required the use of the travel charge card for all travel performed after January 1, 2000. However, January 19, 2000, final rule changed the date to February 29, 2000. Nevertheless, the Departments of Defense, State, and Veterans Affairs (VA), and the Nuclear Regulatory Commission (NRC) appealed to GSA for a further extension because (1) the guidance was received late (DOD), and (2) the agencies are dependent on commercial software to maintain their travel functions and the software companies did not revise their software to reflect the regulatory changes in time for the February 29 deadline (State, VA, and NRC). GSA decided to grant an extension until May 1, 2000, for these four agencies. When other agencies appealed for extensions, citing the same reasons, GSA decided to grant a blanket extension until May 1, 2000.

In another travel-related matter, DOD has decided to bring the Joint Federal Travel Regulations (JFTR) for military personnel travel and the Joint Travel Regulations for civilian personnel travel into conformance with the recent changes in the FTR which authorized a "conference lodging allowance" of up to 25% of the lodging portion of the per diem rate -- if a conference is being held in an area where the lodging rate is $100, then the traveller may be reimbursed up to $125 for lodging, if necessary.

For more on the FTR changes, see the February 2000 FEDERAL CONTRACTS PERSPECTIVE article "FTR Amendments on Mileage Reimbursement, Conference Planning, Travel Charge Card".

DOD Cargo Preference for Commercial Items Clarified

As usual, DOD was busy this month "tweaking" the DFARS on several topics:

Cargo Preference for U.S. Vessels Under Subcontracts for Commercial Items: 10 U.S.C. 2631 implements the Cargo Preference Act of 1904, and requires that DOD contractors transporting supplies by sea use U.S.-flag vessels unless the vessels are not available, the charges are excessive, or the charges to the government are higher than those to private persons. However, in 1996 a small exception was carved out for subcontracts of commercial items or components on the theory that it was an undue burden for a commercial vendor to split its shipments into DOD (for U.S.-flag vessels) and non-DOD portions (any vessels).

DOD has decided that the exception needs to be refined to bring back under 10 U.S.C. 2631 subcontracts of commercial items clearly destined for DOD use. Therefore, a new paragraph (b) is added to DFARS 252.247-7023, Transportation of Supplies by Sea, which requires all contractors to use U.S.-flag vessels, and requires all subcontractors to use U.S.-flag vessels for construction contracts, noncommercial items, and commercial items that "(1) the Contractor is reselling or distributing to the government without adding value...(2) are shipped in direct support of U.S. military contingency operations, exercises, or forces deployed in humanitarian or peacekeeping operations; or (3) are commissary or exchange cargoes transported outside of the Defense Transportation System..." Also, portions of DFARS Part 212, Acquisition of Commercial Items, DFARS Part 244, Subcontracting Policies and Procedures, and DFARS Part 247, Transportation, are revised to reflect this change.

Federal Prison Industries (FPI) Exception Threshold: FAR Subpart 8.6, Acquisition from Federal Prison Industries, Inc., requires federal agencies to purchase items listed in the Schedule of Products Made in Federal Penal and Correctional Institutions unless FPI grants a clearance. However, FAR 8.606 provides an exception for orders totaling $25 or less that require delivery within 10 days.

On January 24, FPI raised the exception threshold for DOD from $25 to $250. Therefore, DOD is adding DFARS Subpart 208.6, which consists of DFARS 208.606, Exceptions. DFARS 208.606 states "DOD activities do not need an FPI clearance for orders of listed items totaling $250 or less that require delivery within 10 days." (EDITOR'S NOTE: For more on FPI's January 24 action, see the February 2000 FEDERAL CONTRACTS PERSPECTIVE article "New DFARS Rules on ROTC Recruiting, Utility Privatization, Manufacturing Technology, and FPI Exceptions.")

Construction and Service Contracts in Noncontiguous States: Since enactment of the FY86 Defense Appropriations Act (Public Law 99-190), DOD has been required to include a clause in construction and service contracts performed in Alaska or Hawaii, if the state has an unemployment rate in excess of the national average, which requires the contractor to employ individuals "who are residents of such state and who, in the case of any craft or trade, possess or would be able to acquire promptly the necessary skills." DFARS Subpart 222.70, Restrictions on the Employment of Personnel for Work on Construction/Service Contracts in Alaska and Hawaii, and the clause at DFARS 252.222-7000, Restrictions on Employment of Personnel, have implemented this requirement.

Section 8071 of the FY00 Defense Appropriations Act (Public Law 106-79) changed "Alaska and Hawaii" to "noncontiguous states," and defines the term as "Alaska, Hawaii, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any outlying island of the United States." Therefore, DFARS Subpart 222.70 and DFARS 252.222-7000 are revised to reflect this new definition.

Trade Agreements Thresholds Revised

The Trade Agreements Act exempts products of "designated countries" (that is, signatories to World Trade Organization Government Procurement Agreement -- see FAR 25.003, Definitions) from the application of the Buy American Act (see FAR Subparts 25.1 and 25.2) in acquisitions that exceed certain thresholds. The North American Free Trade Agreement (NAFTA) does the same for products of Canada and Mexico (see FAR Subpart 25.4, Trade Agreements, for more on compliance with the Trade Agreements Act and NAFTA).

The U.S. Trade Representative (USTR) is required to adjust the thresholds about every two years to reflect changes in the value of the U.S. dollar against other currencies. Therefore, the USTR is adjusting the Trade Agreements Act and NAFTA thresholds as follows:

Trade Agreements Act: Goods and Services -- $177,000 (down from $186,000); Construction -- $6,808,000 (down from $7,143,000).

NAFTA: Goods and Services -- $54,372 (up from $53,150); Construction -- $7,068,419 (up from $6,909,500) (EDITOR'S NOTE: The NAFTA threshold for Canadian goods and services remains $25,000).

OFPP Rescinds 22 Outdated Policy Letters

On March 30, OFPP rescinded 22 of its 33 policy letters because either they have been superseded by statutory changes, have been implemented in the FAR or other regulations, or are no longer necessary. Among the more recent policy letters rescinded are 89-1, Conflict of Interest Policies Applicable to Consultants; 91-2, Service Contracting; 91-4, Use of Irrevocable Letters of Credit; 92-5, Past Performance Information; and 95-1, Subcontracting Plans for Companies Supplying Commercial Items.

Copies of the OFPP policy letters still in effect may be obtained at http://www.arnet.gov/Library/OFPP/PolicyLetters.

President Urges Agencies to Make JWOD Purchases

On March 29, President Clinton issued a memorandum to all agency heads, directing them to "take steps to ensure that your agencies' procurement executives, and other employees who acquire supplies for your agency, purchase JWOD [Javits-Wagner-O'Day Program] products and services, consistent with existing law."

The primary concern involves employees given government commercial purchase cards who have not been properly trained in the requirements of FAR Subpart 8.7, Acquisition form Nonprofit Agencies Employing People Who Are Blind or Severely Disabled.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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