Panoptic Enterprises'


Federal Acquisition Developments, Guidance, and Opinions

April 2008
Vol. IX, No. 4


Personal and Organizational Conflicts of Interest For Contractors Under Consideration
Executive Compensation Benchmark Raised to $612,196
FAR Rule Would Clarify Socioeconomic Program Parity
DOD Issues Rules on WAWF, Contractor Personnel
New CAS Clause for Contracts with Foreign Concerns
Auto Reimbursement Increased to 50.5¢/Mile
Nonmanufacturer Rule Waived for Electrical Fixtures
EPA Proposes Revision to Technical Direction Clause

Personal and Organizational Conflicts of Interest
For Contractors Under Consideration

In response to the increase in the use of contractor employees to perform functions previously performed by government employees and the increased consolidation in many sectors of the contractor community, the Civilian Acquisition Agency Council (CAAC) and the Defense Acquisition Regulations Council (DARC) are seeking to determine if the Federal Acquisition Regulation (FAR) guidance on personal conflicts of interest (PCI) and organizational conflicts of interest (OCI) adequately address the current needs of the acquisition community or whether providing standard provisions and clauses might be beneficial.

The federal government is increasingly turning to private contractors to perform a wide array of its work. As a result, contractor employees are increasingly working side-by-side with federal employees. The nature of the “blended workforce” could potentially distort previously clear distinctions between government employees and private-sector employees, and may add complexity to the business ethics landscape for which the acquisition community needs updated guidance. For instance, private-sector employees are not subject to the same ethical safeguards that have been put in place for federal employees to ensure the integrity of government operations. Issues such as financial conflicts of interest, impartiality concerns, misuse of information, misuse of apparent or actual authority, and misuse of property are all areas of potential personal conflicts of interest for contractor employees that could result in harm to the government’s finances and loss of public confidence in government.

FAR Subpart 9.5, Organizational and Consultant Conflicts of Interest, explains OCIs and provides nine examples to help contracting officers identify potential OCIs, but the subpart does not treat the subject in detail, and no solicitation provisions or contract clauses are provided -- contracting officers are to draft such provisions and clauses themselves.

Recently, Federal Acquisition Circular (FAC) 2005-22 expanded general business ethics coverage by adding FAR Subpart 3.10, Contractor Code of Business Ethics and Conduct. FAR Subpart 3.10 requires employers to post Inspector General (IG) hotline posters in their places of business, to have a written code of business ethics, and, with the exception of small businesses, to have a formal business ethics training program and internal control system.

In addition, a recent proposed FAR change would impose additional mandatory requirements for the business ethics programs. For example, contractors would be required to notify contracting officers without delay whenever they become aware of violations of federal criminal law with regard to government contracts or subcontracts. Those that do not report violations in a timely manner would be subject to suspension or debarment. (For more on FAC 2005-22 and the proposed rule, see the December 2007 Federal Contracts Perspective article “Contractors Required to Develop Codes of Ethics and Conduct.”)

The CAAC and the DARC are seeking comments and recommendations regarding whether additional regulatory coverage is needed, the suitability of applying other agencies’ approaches governmentwide, or other alternatives. The Councils are also interested in industry initiatives in this area, particularly standardized or model non-disclosure agreements.

Comments must be submitted no later than May 27, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Diedra Wingate, Washington, DC 20405. Identify comments on PCI as “FAR case 2007-017,” and comments on OCI as “FAR case 2007-018.”

Executive Compensation Benchmark Raised to $612,196

Paul Denett, the Office of Federal Procurement Policy (OFPP) administrator, has decided to increase the “benchmark compensation amount” for senior executives by $14,284, from $597,912 to $612,196 -- a 2.4% increase. This figure is “the median amount of the compensation provided for all senior executives of all benchmark corporations [those with annual sales in excess of $50 million] for the most recent year...” It was determined based on commercially available surveys and after consultation with the director of the Defense Contract Audit Agency.

The $612,196 is the maximum amount of compensation (that is, wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans) that is allowable under federal contracts for “the five most highly compensated employees in management positions at each home office and each segment of the contractor.” However, the benchmark compensation amount is not a limit on the compensation an executive may receive -- $612,196 is the maximum allowable amount the government will reimburse contractors for their senior executives’ compensation. See paragraph (p) of FAR 31.205-6, Personal Compensation.

The benchmark compensation amount applies to contract costs incurred after January 1, 2008, for contractor fiscal year 2008 and subsequent contractor fiscal years unless and until revised by the Office of Management and Budget (OMB), which is required to set the benchmark compensation amount annually. (OFPP is part of OMB.)

Questions concerning this may be addressed to Laura Auletta, OFPP, at 202-395-3256.

FAR Rule Would Clarify Socioeconomic Program Parity

To clarify for contracting officers that the Small Business Administration (SBA) has not established an order of precedence among the HUBZone, service-disabled veteran-owned small business (SDVOSB), and the 8(a) Business Development Program programs, FAR Part 19, Small Business Programs, would be amended.

The most significant FAR change in this proposed rule would be the addition of FAR 19.203, Relationship Among Small Business Programs, which would consist of the following:

In addition, cross-references to FAR 19.203 would be added to FAR Subpart 19.5, Set-Asides for Small Businesses; FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program); FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program; and FAR Subpart 19.14, Service-Disabled Veteran-Owned Small Business Procurement Program.

To further clarify the intent of the rule, the rule’s introduction states, “SBA believes that progress in fulfilling the various small business goals, as well as other factors such as the results of market research and the acquisition history, should be considered in making a decision as to which program to use for the acquisition.”

As for the effect the rule will have on the small business community, the proposed rule states, “Viewed as a whole, there is no impact on the small business community, as this rule does not increase or decrease the number of contracts awarded to small businesses. However, there will be a negative impact on contractors with a particular preference who lose a contract set-aside to another socioeconomic category of contractors with a different preference who gain the contract set-aside, who thereby will receive a positive impact.”

Comments on the proposed rule must be submitted by May 9, 2008, by any of the following means: (1) eRulemaking Portal: http://www.regulations.gov/far; (2) fax: 202-501-4067; or (3) mail: General Services Administration, Regulatory Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte, Washington, DC 20405. Identify such comments as “FAR case 2006-034.”

DOD Issues Rules on WAWF, Contractor Personnel

The Department of Defense (DOD) amended the Defense Federal Acquisition Regulation Supplement (DFARS) to finalize one proposed rule and two interim rules:

New CAS Clause for Contracts with Foreign Concerns

The Cost Accounting Standards (CAS) Board has adopted, without changes, the rule that proposed to add a new clause CAS 9903.201-4(f), Disclosure and Consistency of Cost Accounting Practices -- Foreign Concerns.

Paragraph (b)(4) of CAS 9903.201-1, CAS Applicability, requires foreign concerns subject to CAS to comply only with CAS 401 and 402. Until November 4, 1993, contracts subject to modified CAS coverage (that is, those under $50 million), also had to comply only with CAS 401 and 402. Therefore, both contracts to foreign concerns and contracts subject to modified CAS coverage used the same clause, CAS 9903.201-4(c).

On November 4, 1993, the CASB revised the definition of modified coverage to include CAS 405 and CAS 406, and revised CAS 9903.201-4(c) accordingly. However, the CASB did not change the requirement that foreign concerns comply with only CAS 401 and 402, so CAS 9903.201-4(c) had to be modified whenever used in contracts with foreign concerns. To remedy this situation, the CAS Board developed CAS 9903.201-4(f) for use in contracts with foreign concerns. The new clause is identical to CAS 9903.201-4(c) except that it specifies that only CAS 401 and 402 apply to contracts with foreign concerns.

No comments were submitted on the proposed rule, so it is adopted as final without changes. For more on the proposed rule, see the July 2007 Federal Contracts Perspective article “Application of CAS to Foreign Concerns Addressed.”

Auto Reimbursement Increased to 50.5¢/Mile

The General Services Administration (GSA) is amending the Federal Travel Regulation (FTR) to increase the mileage reimbursement rate for use of a privately owned automobile on official travel from 48.5¢ per mile to 50.5¢ per mile. This increase reflects the current costs of operation as determined in GSA’s cost studies.

By law, the automobile reimbursement rate cannot exceed the single standard mileage rate established by the Internal Revenue Service (IRS). The IRS announced a new single standard mileage rate for automobiles of 50.5¢ per mile effective January 1, 2008.

NOTE: The cost of operating a privately owned airplane ($1.07/mile) and motorcycle (30.5¢/mile) remain unchanged.

Nonmanufacturer Rule Waived for Electrical Fixtures

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for all other miscellaneous electrical equipment and component manufacturing (indoor and outdoor electrical lighting fixtures) under North American Industry Classification System (NAICS) code 335999, product number 6210. SBA published a notice of intent to waive the nonmanufacturer rule for these products, but no comments were received in response to the notice, so SBA is granting the waiver.

The SBA regulation on the nonmanufacturer rule is in Title 13 of the CFR, Business and Credit Administration, Part 121, Small Business Size Standards, under paragraph (b) of 121.406, How Does a Small Business Concern Qualify to Provide Manufactured Products Under Small Business Set-Aside or MED [Minority Enterprise Development] Procurements? The SBA regulation on the waiver of the nonmanufacturer rule is 13 CFR 121.1202, When Will a Waiver of the Nonmanufacturer Rule Be Granted for a Class of Products? A complete list of products for which the nonmanufacturer rule has been waived is available at http://www.sba.gov/idc/groups/public/documents/sba_program_office/gcbd_non_mfg_approved.pdf.

EPA Proposes Revision to Technical Direction Clause

The Environmental Protection Agency (EPA) is proposing to revise EPA Acquisition Regulation (EPAAR) 1552.237-71, Technical Direction, to incorporate several class deviations and to update terminology and procedures related to issuing technical direction.

First of all, the prescription for EPAAR 1552.237-71 would be revised. Paragraph (b) of EPAAR 1537.110, Solicitation Provisions and Contract Clauses, currently states the clause is to be used in cost-reimbursement type solicitations and contracts. The revised prescription would allow contracting officers to use the clause, or a clause substantially the same, in solicitations and contracts where the contracting officer will delegate authority to issue technical direction to the contracting officer technical representative.

EPAAR 1552.237-71 would be revised as follows:

Comments on the proposed rule must be submitted by April 3, 2008, by any of the following means: (1) http://www.regulations.gov; (2) e-mail: docket.oei@epa.gov; (3) fax: 202-566-0224; (4) mail: OEI Docket, Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania Avenue, NW, Washington, DC 20460; or (5) hand delivery: EPA Docket Center-Attention OEI Docket, EPA West, Room B102, 1301 Constitution Avenue, NW, Washington, DC 20004. Identify such comments as “EPA-HQ-OARM-2007-1115.”

Copyright 2008 by Panoptic Enterprises. All Rights Reserved.

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