Barry McVay's


Federal Acquisition Developments, Guidance, and Opinions

JULY 2000
Vol. I, No. 7


FAC 97-18 Revises Trade, CAS Thresholds
Interest on Payments set at 7 1/4%
Size Standards for Construction, Temps Up
GAO Decides on Evaluations, A-76
DOT to Use DOD's CCR
Contract Pricing Guides in HTML
Dr. Oscar Acting OFPP Administrator
DOD Rule on Production Surveillance
New Past Performance Guide Available

FAC 97-18 Revises Trade Agreements Thresholds and
CAS Applicability, Addresses Recycled Products

On June 6, Federal Acquisition Circular (FAC) 97-18 was published. While FAC 97-18 contains changes on nine topics, none of the changes are surprising or overwhelmingly significant. In fact, the most notable changes involve conforming the Federal Acquisition Regulation (FAR) to actions taken by others: the U.S. Trade Representative's (USTR) adjustment of the thresholds for application of the Trade Agreements Act and the North American Free Trade Agreement (NAFTA), and the Cost Accounting Standards (CAS) Board's revision of CAS applicability and thresholds. Among the other topics addressed by FAC 97-18 are the procurement of recycled products and records retention schedules.

The following are the most noteworthy FAR changes contained in FAC 97-18:

Trade Agreements Thresholds: On March 30, 2000, the USTR adjusted the thresholds for the application of the Trade Agreements Act and NAFTA 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: See the April 2000 Federal Contracts Perspective article "Trade Agreements Thresholds Revised").

To comply with the USTR's adjustments, the thresholds are adjusted accordingly in FAR 25.202, Exceptions; FAR 25.403, Trade Agreements Act; FAR 25.405, North American Free Trade Agreement (NAFTA); FAR 25.601, Policy; FAR 25.1101, Acquisition of Supplies; FAR 25.1102, Acquisition of Construction; and FAR 25.1103, Other Provisions and Clauses. (EDITOR'S NOTE: Also on June 6, the Department of Defense (DOD) amended paragraphs (b)(i)(A) and (B) of Defense FAR Supplement (DFARS) 225.1101, Acquisition of Supplies, to increase the NAFTA threshold from $53,150 to $54,372.)

Applicability, Thresholds, and Waiver of CAS: On February 7, 2000, the CAS Board issued an interim rule revising its CAS regulations to implementing Section 802 of the Fiscal Year 2000 National Defense Authorization Act (Public Law 106-65), which streamlined the applicability requirements for CAS coverage (see the March 2000 Federal Contracts Perspective article "Cost Accounting Standards Thresholds Increased"). (EDITOR'S NOTE: On June 9, the CAS Board finalized the interim rule without change.)

To conform the FAR to the revised CAS Board regulations, FAC 97-18 revises the threshold for "full CAS coverage" from $25 million to $50 million in FAR 30.201-4, Contract Clauses, and FAR 52.230-1, Cost Accounting Standards Notices and Certification. Likewise, the maximum contract size for FAR 52.230-3, Disclosure and Consistency of Cost Accounting Practices (which is used in contracts with "modified CAS coverage"), is raised from $25 million to $50 million. Also, the $1 million "trigger contract" is removed from FAR 52.230-1 (the revised CAS Board regulations replaced it with a $7.5 million trigger contract), and FAR 30.201-4, Waiver, permits the head of the agency to waive CAS applicability if the contract is less than $15 million and the contractor is primarily engaged in the sale of commercial items and does not have any CAS-covered contracts. (EDITOR'S NOTE: Also on June 6, DOD added DFARS 230.201-5, Waiver, to delegate to each military department the authority to waive CAS applicability if the conditions in FAR 30.201-4 are met, but not before the Director of Defense Procurement has had 14 days to review the waiver.)

Procurement of Recycled Products and Environmentally Preferable Services: This change implements Executive Order 13101 of September 14, 1998, Greening the Government Through Waste Prevention, Recycling, and Federal Acquisition, as follows:

General Records Schedules: The retention table in paragraph (b) of FAR 4.805, Storage, Handling, and Disposal of Contract Files, is simplified by grouping together several categories of records that were previously treated as separate records. Also, FAR 4.800, Scope of Subpart, is revised to remove the statement "the application of this subpart to contracts awarded using the simplified acquisition procedures covered by [FAR] Part 13 is optional."

Rescission of Office of Federal Procurement Policy (OFPP) Letters: On March 30, 2000, OFPP rescinded 22 obsolete policy letters (see the April 2000 Federal Contracts Perspective article "OFPP Rescinds 22 Outdated Policy Letters"). Therefore, the references to these letters are removed from the following FAR sections: paragraph (a) of FAR 1.103, Authority; paragraph (c) of FAR 9.500, Scope of Subpart; paragraph (c)(3)(iv) of FAR 15.304, Evaluation Factors and Significant Subfactors; FAR 22.1101, Applicability; FAR 35.000, Scope of Part; paragraph (c) of FAR 37.503, Agency-Head Responsibilities; FAR 37.600, Scope of Subpart; paragraph (a) of FAR 42.002, Interagency Agreements; and FAR 42.1500, Scope of Subpart.

Restrictions on Acquisitions from Serbia and Afghanistan: FAR 25.701, Restrictions, and FAR 52.225-13, Restrictions on Certain Foreign Purchases, prohibit contractors from providing goods or services from Cuba, Iran, Iraq, Libya, North Korea, and Sudan. This rule adds to the list "Territory of Afghanistan controlled by the Taliban" and "Serbia, excluding the territory of Kosovo."

Federal Supply Schedules (FSS) Small Business Opportunities: To try to make sure small businesses with FSS contracts are given the maximum practicable opportunity to compete for and receive FSS purchases, two changes are made: (1) To paragraph (b)(6) of FAR 8.404, Using Schedules, is added the statement, "When conducting evaluations and before placing an order, consider including, if available, one or more small, women-owned small, and/or small disadvantaged business schedule contractor(s). Orders placed against the schedules may be credited toward the ordering agency's small business goals." (2) Paragraph (e) is added to FAR 38.101, General, and it states, "When establishing Federal Supply Schedules, GSA [General Services Administration], or an agency delegated that authority, is responsible for complying with all applicable statutory and regulatory requirements (e.g., Parts 5, 6, and 19). The requirements of Parts 5, 6, and 19 apply at the acquisition planning stage prior to issuing the schedule solicitation and do not apply to orders and BPAs [blanket purchase agreements] placed under resulting schedule contracts (see 8.404)." (EDITOR'S NOTE: On June 7, the Small Business Administration (SBA) and GSA announced that an agency placing an order under the FSS program to a participant in SBA's 8(a) program will have the order count towards its 8(a) goal and small business goal. Previously, orders to 8(a) firms counted toward the agency's small business goal only. This "2-for-1" incentive is expected to increase FSS orders to 8(a) firms.)


The Department of Treasury has established 7 1/4% (7.25%) as the interest rate for the computation of payments made between July 1 and December 31, 2000, under the Prompt Payment Act and the Contracts Disputes Act. This rate is also used in facilities capital cost of money calculations. The interest rate for the prior six-month period (January 1-June 30, 2000) was 6 3/4% (6.75%). The interest rate for July 1, 1999, through December 31, 1999, was 6 1/2% (6.5%).


Effective July 17, the SBA is increasing the size standards for the industries in the following Standard Industrial Classifications (SIC) (in average annual receipts):

All the industries, except for SIC 7363, are covered by the Small Business Competitiveness Demonstration Program, which prohibits 10 federal agencies from using small business set-asides in four "designated industry group" (see FAR Subpart 19.10). Two of the four groups are construction and refuse systems and related services. SBA was prohibited from adjusting the size standards for these four groups from the date the program went into effect (October 1, 1988) until the prohibition was lifted (September 30, 1996). Subsequently, SBA adjusted the size standard for architectural and engineering services (one of the other two groups) effective June 14, 1999 ($4 million, with several exceptions), and is considering adjusting the size standard of the nonnuclear ship repair industry.

SBA decided to increase the size standard for SIC 7363, Help Supply Services, because help supply firms are now larger and provide a wider range of personnel to businesses than they did a decade ago, so the old size standard no longer was an accurate reflection of a typical "small" help supply services business.

These changes may be significant to as many as 3,000 businesses (according to SBA estimates) because they will now be eligible for SBA guidance and assistance, such as loans under the 7(a) Guaranteed Loan Program and the Certified Development Company (504) Program if they meet the programs' requirements. Other benefits to companies with small business status are that subcontracts awarded to them by large businesses are counted toward the large business' small business subcontracting goal (see FAR Subpart 19.7, The Small Business Subcontracting Program), and those in SIC 7363 are eligible to receive small business set-asides awards. In addition, they may now be eligible for the 8(a) Program (see FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program)); a 10% evaluation preference as a small disadvantaged business (SDB) (see FAR Subpart 19.11, Price Evaluation Adjustment for Small Disadvantaged Business Concerns); preference as an SDB in subcontract awards (see FAR Subpart 19.12, Small Disadvantaged Business Participation Program); and the HUBZone Program (see FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Empowerment Contracting Program).


The General Accounting Office (GAO) has issued two protest decisions that could have a significant effect on the contracting community.


On May 12, the Department of Transportation (DOT) signed an agreement which creates a partnership with DOD to use its Central Contractor Registration (CCR), which contains information on more than 166,000 contractors. (EDITOR'S NOTE: Defense FAR Supplement (DFARS) Subpart 204.73, Central Contractor Registration, contains the regulations concerning CCR. The CCR is on the Internet at http://www.ccr2000.com.)

The Debt Collection Improvement Act of 1996 requires every contractor doing business with the government to provide its Taxpayer Identification Number (TIN) and requires the government to make all contract payments by electronic funds transfer (EFT). This means contractors must provide certain technical information about their financial institutions and their accounts. DOD developed the CCR to collect and maintain this information, and a contractor must be registered in the CCR to be eligible for award of a defense contract.

DOT has adopted a new financial system, and it has decided to use DOD's CCR for this same purpose. This will significantly increase the number of EFT payments and reduce the DOT resources needed to maintain its lists of contractors.

DOT contractors not already in the CCR will be required to register and provide the required EFT information. Contractors may register at http://www.ccr2000.com, through a value added network (VAN), or by completing a paper registration form.


On June 22, 2000, Director of Defense Procurement Deidre Lee issued a memorandum to DOD acquisition directors alerting them that the five Contract Pricing Reference Guides referenced in paragraph (a)(7) of FAR 15.404-1, Proposal Analysis Techniques, have been converted from Adobe Acrobat (PDF) format to Hypertext Markup Language (HTML), the standard format used on the Internet.

There are five guides: Volume I, Price Analysis; Volume II, Quantitative Techniques for Contract Pricing; Volume III, Cost Analysis; Volume IV, Advanced Issues in Contract Pricing; and Volume V, Federal Contract Negotiation Techniques. They have been jointly prepared, and are maintained, by the Air Force Institute of Technology (AFIT) and the GSA's Federal Acquisition Institute (FAI). They had been posted in the PDF format, and are still available at http://www.gsa.gov/staff/v/guides/volumes.htm. However, the PDF format requires separate PDF-display software, generates very large files, and each volume has to be downloaded as a single file, which means it can take a very long time to obtain access to a guide. In addition, none of the many cross-references to the FAR, Defense FAR Supplement (DFARS), Office of Management and Budget (OMB) Circulars, and other material were hyperlinked, which greatly diminished the utility of the volumes. As a result, very few used them, despite the fact that they contain a great amount of very useful information.

DOD decided to prepare the HTML version of the five guides and to post them at http://www.acq.osd.mil/dp/cpf/pgv1_0/index.html. In the HTML format, the guides can be viewed by practically any browser without special software. In addition, the HTML version has a single table of contents for all five guides; individual chapters can be opened quickly, or the hyperlinked contents of the chapter can be displayed for those who know where they want to research; most of the referenced material is hyperlinked; and there is a summary of changes made to the guides as they are updated.


Now that Deidre Lee has left the Office of Federal Procurement Policy (OFPP) to take up her post as Director of Defense Procurement (see preceding article), the OFPP administrator's position became vacant. To avoid a prolonged delay, like the year long one that occurred after Steven Kelman resigned as OFPP administrator and before Deidre Lee was confirmed, the Clinton Administration decided to appoint Dr. Kenneth Oscar, Deputy Assistant Secretary of the Army, as the acting OFPP administrator. Since this is an election year and the Clinton Administration will end on January 20, 2001, it is unlikely that Dr. Oscar's name will be submitted to the Senate for confirmation as OFPP administrator.

Dr. Oscar has been Deputy Assistant Secretary of the Army since June 1995, and is responsible for oversight and policy of all Army procurement, acquisition reform, and industrial base advocacy. From May 1997 to June 1998, Dr. Oscar served as the Acting Assistant Secretary of the Army for Research, Development, and Acquisition.

Prior to becoming Deputy Assistant Secretary, Dr. Oscar served as the Army Materiel Command (AMC) Principal Deputy for Acquisition, after serving as the Army Tank-Automotive Command (TACOM) Deputy Commander for Research, Development and Engineering as well as Director of TACOM's Research, Development and Engineering Center. He has served in many other Army positions, including as project manager for several programs, including countermine equipment, tactical bridging, and unconventional weapons.

Dr. Oscar holds a B.S. in Physics from Clarkson University, and an M.S. and Ph.D. in Physics from American University.


In January 2000, DOD proposed amending DFARS 242.1104, Surveillance Requirements, to revise the criteria for determining the amount of production surveillance needed for DOD contracts (see the February 2000 Federal Contracts Perspective article "New DFARS Rules on ROTC Recruiting, Utility Privatization, Manufacturing Technology, and FPI Exceptions"). DOD received six comments, and has finalized the rule with changes.

DFARS 242.1104 had required that critical contracts and contracts specifically identified for special surveillance were to receive "pre-delivery on-site production surveillance." The revised DFARS 242.1104 requires the contract administration office to "(i) conduct a periodic risk assessment of each contractor to determine the degree of production surveillance needed for contracts awarded to that contractor...(ii) develop a production surveillance plan based on the risk level determined during the risk assessment; (iii) modify the production surveillance plan to incorporate any special surveillance requirements for individual contracts, including any requirements identified by the contracting officer [this was added as a result of the comments]; and (iv) monitor contract progress and identify potential contract delinquencies in accordance with the production surveillance plan."

In addition, paragraph (a)(ii) of DFARS 242.1106, Reporting Requirements, is removed because the referenced cost/schedule contract system requirements have been replaced by the earned value management system (EVMS) (see DOD 5000.2-R, Mandatory Procedures for Major Defense Acquisition Programs (MDAPs) and Major Automated Information System (MAIS) Acquisition Programs). Also removed are DD Form 375, Production Progress Report, DD Form 375c, Production Progress Report (Continuation), and DD Form 375-2, Delay in Delivery, since they are obsolete.


OFPP has published the May 2000 "Best Practices for Collecting and Using Current and Past Performance Information," which replaces the May 1995 "A Guide to Best Practices for Past Performance."

Where the May 1995 publication concentrated on the use of past performance information in the evaluation of proposals, the new publication also emphasizes gathering current performance information for proposal evaluations and for "maintaining high quality performance or improving inadequate performance."

The guidebook is available on the Internet at http://www.arnet.gov/Library/OFPP/BestPractices/pastpeformguide.html. For hard copies, contact David Muzio, 202-395- 6805, e-mail: dmuzio@omb.eop.gov, or Yvette Garner, 202-395-7187, e-mail: ygarner@omb.eop.gov.

Copyright 2000 by Panoptic Enterprises. All Rights Reserved.

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