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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


Febuary 2021
Vol. XXII, No. 2
[pdf version]

CONTENTS


2021 National Defense Authorization Act Passed Over Presidential Veto
Mileage Reimbursement Set at 56¢ Per Mile for Autos
FY 2020 Contract Spending Up 13% to $665 Billion
FAC 2021-03 Restricts Use of LPTA Source Selection
FAC 2021-04 Maximizes Use of American-Made Products
Prompt Payment Interest Rate Set at 7/8%
DOD Prepares for Biden Administration
OMB Issues PALT Guidance



2021 National Defense Authorization Act
Passed Over Presidential Veto

Despite being vetoed by President Trump, the Congress overrode the veto and enacted the $741 billion William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Public Law 116-283) on New Year’s Day. Within the NDAA for FY 2021 are some provisions that address issues involving acquisition; most of those provisions are in Title VIII, Acquisition Policy, Acquisition Management, and Related Matters (Sections 801-891). However, Title XVIII, Transfer and Reorganization of Defense Acquisition Statutes (Sections 1801-1885), attempts to consolidate most of the provisions of the U.S. Code that apply to Department of Defense (DOD) acquisitions.

In his message to Congress explaining his veto, President Trump stated that he was vetoing the bill because: (1) “the act fails to make any meaningful changes to Section 230 of the Communications Decency Act [Title 47 of the U.S. Code, Telecommunications, Section 230, Protection for Private Blocking and Screening of Offensive Material (47 USC 230)], despite bipartisan calls for repealing that provision. Section 230 facilitates the spread of foreign disinformation online, which is a serious threat to our national security and election integrity”; (2) “the act includes language that would require the renaming of certain military installations”; (3) “the act restricts the president’s ability to preserve our nation’s security by arbitrarily limiting the amount of military construction funds that can be used to respond to a national emergency”; and (4) “this act purports to restrict the president’s ability to withdraw troops from Afghanistan, Germany, and South Korea”. However, Congress decided that the president’s objections did not outweigh the importance of funding the military, so both the House and Senate overrode the vote by more than a 2/3 majority.

The following are some of the more noteworthy acquisition-related provisions in the 1480-page NDAA for FY 2021:

In addition, Title XVIII, Transfer and Reorganization of Defense Acquisition Statutes, consists of instructions for the reorganization and amendment of the DOD’s acquisition-related statutes. However, “this title and the amendments made by this title shall take effect on January 1, 2022” (paragraph (d)(1) of Section 1801). This will give DOD time to “establish a process to engage interested parties and experts from the public and private sectors...in a comprehensive review of this title and the amendments made by this title…including an assessment of the effect of this title and the amendments made by this title on related Department of Defense activities, guidance, and interagency coordination.” Then, by January 1, 2023, the DFARS is to be revised to comply with the finalized Title XVIII (paragraph (d)(2) of Section 1801).

Mileage Reimbursement Set at 56¢ Per Mile for Autos

The General Services Administration (GSA) is reducing the mileage reimbursement rate for use of a privately owned automobile on official travel from 57.5¢ per mile to 56¢ per mile, and the rate for use of a motorcycle on official travel from 54.5¢ per mile to 54¢ per mile. The rate for use of a privately owned aircraft remains at $1.26 per mile.

These rates are effective for travel performed on or after January 1, 2021, through December 31, 2021.



FY 2020 Contract Spending Up 13% to $665 Billion

Federal contracting spending in Fiscal Year (FY) 2020 increased to $665.5 billion, up 12.9% from the $589.3 billion spending level in FY 2019.

The big dollar increase winner was the Department of Defense (DOD), which saw its contract spending increase 9.8%, from $383.8 billion in FY 2019 to $421.5 billion in FY 2020. The biggest percentage increase winner was the Small Business Administration, which saw its spending increase nine-fold, from $155 million in FY 2019 to $1.5 billion in FY 2020! The biggest dollar decrease loser and percentage decrease loser was the Office of Personnel Management, which saw its spending decrease by $633 million, from $968 million in FY 2019 to $335 million in FY 2020, a 65.4% decrease.

The following are the largest agencies’ FY 2020 spending versus their FY 2019 spending:


Department/Agency FY 2020 Spending FY 2019 Spending
Defense $421,461,423,956 $383,835,264,897
Health and Human Services 40,688,230,412 26,530,826,471
Veterans Affairs 36,895,860,529 28,436,117,807
Energy 35,978,470,585 33,301,917,354
Homeland Security 19,547,473,312 17,628,251,773
National Aeronautics and Space Admin 18,898,391,552 18,152,949,028
General Services Administration 17,469,104,664 16,145,237,030
State 10,601,217,389 9,486,907,494
Agriculture 10,102,435,357 7,506,919,830
Justice 8,483,948,386 8,492,951,332
Transportation 7,780,326,282 6,797,527,737
Treasury 6,567,609,859 4,659,202,404
Agency for International Development 6,145,877,505 5,448,480,224
Commerce 5,791,666,832 5,501,181,203
Interior 4,513,149,869 3,934,300,049
Education 2,878,674,148 2,889,979,064
Labor 2,186,700,477 2,054,838,083
Social Security Administration 2,127,481,592 1,696,321,446
Small Business Administration 1,525,991,135 155,239,910
Environmental Protection Agency 1,161,816,957 1,215,702,736
Housing and Urban Development 737,950,358 1,124,979,369
Securities and Exchange Commission 521,488,832 458,536,704
National Science Foundation 503,338,621 515,480,058
Smithsonian Institution 393,575,015 605,070,370
Pension Benefit Guaranty Corporation 359,226,653 337,802,899
Office of Personnel Management 335,263,275 968,141,682
Others 1,827,995,271 $1,887,124,975
      TOTAL$665,484,688,823 $589,767,251,929


For more on FY 2019 spending, see the September 2020 Federal Contracts Perspective article “FY 2019 Spending Up 6% to $590 Billion.”



FAC 2021-03 Restricts Use of LPTA Source Selection

Federal Acquisition Circular (FAC) 2021-03 contains three final rules: (1) one that restricts the use of lowest price technically acceptable (LPTA) source selections to specific situations; (2) one that requires individual sureties to pledge assets that are “eligible obligations”; and (3) one that prohibits award to offerors that violate arms control treaties or agreements with the United States, or own or control entities that do so.



FAC 2021-04 Maximizes Use of American-Made Products

The last FAC of the Trump Administration is FAC 2021-04, which consists of a single final rule that implements Executive Order (EO) 13881, Maximizing Use of American-Made Goods, Products, and Materials (see the August 2019 Federal Contracts Perspective article “EO Promotes American-Made Goods, Products, Materials).”

EO 13881 directed the FAR Council to “consider” proposing a FAR amendment that would provide that materials are considered to be of foreign origin if:

  1. “For iron and steel end products, the cost of foreign iron and steel used in such iron and steel end products constitutes 5% or more of the cost of all the products used in such iron and steel end products” (the 5% limitation on foreign content in iron and steel end products is new);

  2. “For all other end products, the cost of the foreign products used in such end products constitutes 45% or more of the cost of all the products used in such end products” (down from 50%); and

  3. In determining whether the bid or offered price of materials of domestic origin is unreasonable or inconsistent with the public interest, the executive agencies shall add 20% to the total bid or offered price of materials of foreign origin (up from 6%); the executive agencies shall add 30% to the total bid or offered price of materials of foreign origin if the lowest domestic offer is from a small business (up from 12%).

To implement EO 13881, a rule was proposed to make the following amendments:

Thirty-five respondents submitted comments on the proposed rule, and the following are the significant changes made by to the final rule in response:

For more on the proposed rule, see “Maximizing Use of American-Made Goods, Products, and Materials” in the October 2020 Federal Contracts Perspective article “Three Rule Changes Proposed for the FAR.”


In a related development, President Joseph Biden signed Executive Order (EO) 14005, Ensuring the Future is Made in All of America by All of America’s Workers, five days into his term. The EO directs government agencies to “maximize the use of goods, products, and materials produced in, and services offered in, the United States. The United States government should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”

The EO directs the Office of Management and Budget (OMB) to establish a Made in America Office, which will oversee compliance with the Buy American Act of 1933 (Title 41 of the U.S. Code, chapter 83 [41 USC chapter 83], Buy American; see FAR subpart 25.1, Buy American – Supplies, and FAR subpart 25.2, Buy American – Construction Materials); the Buy America Act of 1982 (Section 165 of the Surface Transportation Assistance Act of 1982 [23 USC 313, Buy America], which applies to state and local mass-transit contracts funded in part by the federal government); and Section 27 of the Merchant Marine Act of 1920 (46 USC 55102, Transportation of Merchandise, otherwise known as the “Jones Act,” which requires goods shipped between U.S. ports to be transported on ships built, owned, and operated by U.S. citizens).

One of the primary functions of the Made in America Office will be the evaluation and approval of proposed waivers of these statutes. Agencies seeking waivers will have to submit to the office a description of its proposed waiver and a detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the U.S. The OMB director will either approve the waiver or return it to the agency “for further consideration.”

Before an agency issues a waiver, it “shall assess whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods…the agency shall integrate any findings from the assessment into its waiver determination as appropriate.”

A public website will be developed that will include information on all proposed waivers and whether those waivers have been granted. In addition, agencies will be required to “conduct supplier scouting in order to identify American companies, including small- and medium-sized companies, that are able to produce goods, products, and materials in the United States that meet federal procurement needs.”

Regarding changes to the FAR, the EO directs the FAR Council to “consider proposing amendments” to the FAR that would:

  1. “replace the ‘component test’ in Part 25 of the FAR that is used to identify domestic end products and domestic construction materials with a test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity;

  2. “increase the numerical threshold for domestic content requirements for end products and construction materials; and

  3. "increase the price preferences for domestic end products and domestic construction materials.”

In addition, the FAR Council is to update the list of domestically nonavailable articles in paragraph (a) of FAR 25.104, Nonavailable Articles, “paying particular attention to economic analyses of relevant markets and available market research, to determine whether there is a reasonable basis to conclude that the article, material, or supply is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality.”

Finally, the EO revokes the following: (1) EO 13788, Buy American and Hire American (see the May 2017 Federal Contracts Perspective article “Trump Issues “Buy American and Hire American”); (2) EO 13975, Encouraging Buy American Policies for the United States Postal Service; and (3) to the extent they are inconsistent with the EO, EO 10582, Prescribing Uniform Procedures for Certain Determinations Under the Buy-America Act, and EO 13881, Maximizing Use of American-Made Goods, Products, and Materials (the EO implemented by FAC 2021-04 – that’s what happens when a new administration takes over, particularly one operated by the other party!).

EDITOR’S NOTE: Neither of these actions – FAC 2021-04 nor EO 14005 – is going to amount to much because the Buy American Act has been waived for signatories of the World Trade Organization Government Procurement Agreement and the various Free Trade Agreements, those designated as “least developed countries,” and countries covered by the Caribbean Basin Trade Initiative. And what are those countries?

See FAR part 25, Foreign Acquisitions, particularly FAR subpart 25.4, Trade Agreements.

In addition, transactions involving Cuba, Iran, and Sudan are prohibited, as are most imports from Burma or North Korea (see FAR subpart 25.7, Prohibited Sources).

So what countries are left? The big ones are China, India, Russia, and countries in the Middle East (such as Saudi Arabia and United Arab Emirates). A significant portion of Chinese telecommunications and video surveillance equipment has been banned (see the September 2019 Federal Contracts Perspective article “FAR 2019-05 Prohibits Acquisition of Chinese Telecommunications and Surveillance Equipment,” and “Covered Defense Telecommunications Equipment or Services” in the the article "DOD Prepares for Biden Administration" below); the U.S. government doesn’t buy much from Russia or India; Iraq and Afghanistan are special cases; and the U.S. is not as dependent on Middle Eastern oil as it once was. So, unless the Biden administration wants to renege on some trade agreements and produce diplomatic uproar, these actions consist of a lot of noise but signify very little.



Prompt Payment Interest Rate Set at 7/8%

The Treasury Department has established 7/8% (0.875%) as the interest rate for the computation of payments made between January 1, 2021, through June 30, 2021, 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 (July 1, 2020, through December 31, 2020) was 1 1/8% (1.125%). The interest rate for January 1, 2020, through June 30, 2020, was 2 1/8% (2.125%).

All prompt payment interest rates since 1980 (in six-month increments) are available at https://www.fiscal.treasury.gov/prompt-payment/rates.html.

FAR subpart 32.9, Prompt Payment; FAR subpart 33.2, Disputes and Appeals; FAR 31.205-10, Cost of Money; and Cost Accounting Standard (CAS) 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, are affected by this interest rate.



DOD Prepares for Biden Administration

The Department of Defense (DOD) decided to clean house for the new Biden Administration by issuing three final rules amending the Defense FAR Supplement (DFARS), one proposed DFARS rule, revised two DFARS deviation, and rescinded one DFARS deviation.



OMB Issues PALT Guidance

In one of the last actions of the Trump Administration, the Office of Management and Budget (OMB) issued a memorandum that “takes an important step toward measuring the timeliness of federal procurements by establishing a common definition of ‘procurement administrative lead time’ (PALT) and providing guidance on steps agencies should take to reduce PALT in their acquisition activities through modern business practices that shorten the time from the identification of need to delivery of value.”

The Office of Federal Procurement Policy (OFPP), an office within OMB, issued a request for comments on a proposed definition of “PALT” and a plan for measuring and publicly reporting governmentwide data on PALT for contracts and orders above the simplified acquisition threshold (SAT – currently $250,000). This action was undertaken in accordance with the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Public Law 115-232), Section 878, Procurement Administrative Lead Time Definition and Plan.

OFPP proposed to define PALT as “the time between the date on which an initial solicitation for a contract or order is issued by a federal department or agency and the date of the award of the contract or order.” This language is very similar to the suggested definition in Section 878: “the amount of time from the date on which a solicitation for a contract or task order is issued to the date of an initial award of the contract or task order.” In addition, OFPP proposed to collect data centrally in the Federal Procurement Data System – Next Generation (FPDS-NG – https://www.fpds.gov). (For more on the OFPP request for comments, see the February 2020 Federal Contracts Perspective article “OFPP Seeks Comments on Proposed Definition of ‘Procurement Administrative Lead Time’.”)

OFPP received comments from three respondents in response to the request for comments, and all the comments were generally supportive of the definition and approach to public reporting. There were no specific recommendations for an alternative definition or reporting approach.

The following clarifications are made to the PALT for specific types of solicitations:

“As agencies evaluate PALT, they should consider the growing list of proven business practices and technologies that agency acquisition innovation advocates (AIAs) and industry liaisons have been promoting to reduce friction across the acquisition lifecycle. This includes using more innovative and less burdensome processes for conducting acquisitions, leveraging technology to modernize operations and help the workforce move from low to high value activities, and taking advantage of modern 'high definition' data analytics to support smarter buying decisions.” To help agencies become more innovative, OMB has included an attachment that describes proven agency strategies organized around different phases of pre-award acquisition, and another attachment consisting of agency examples of applying PALT-reducing strategies in various priority programs to improve the responsiveness of the acquisition process.





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