Recent Federal Acquisition Regulation Changes

1. Cape Canaveral Chapter National Contract Management Association Recent Federal Acquisition Regulation Changes Karen L. Manos

2. 2006 Federal Acquisition Circulars • FAC 2005-7, 71 Fed. Reg. 198 (3 Jan 06) • FAC 2005-8, 71 Fed. Reg. 864 (5 Jan 06) • FAC 2005-9, 71 Fed. Reg. 20294 (19 Apr 06) • FAC 2005-10, 71 Fed. Reg. 36922 (28 Jun 06) • FAC 2005-11, 71 Fed. Reg. 38238 (5 Jul 06) • FAC 2005-12, 71 Fed. Reg. 44546 (4 Aug 06) • FAC 2005-13, 71 Fed. Reg. 57356 (28 Sep 06) • FAC 2005-14, 71 Fed. Reg. 67770 (22 Nov 06) • FAC 2005-15, 71 Fed. Reg. 74656 (12 Dec 06)

3. Time-and-Materials & Labor-Hour Contracts

4. Payments Under T&M and LH Contracts • Revised FAR 52.232-7, Payments Under Time-and-Materials and Labor-Hour Contracts (FEB 2007) • “Hourly rate” means all labor that meets the contract labor qualifications • Includes labor performed by contractor, subcontractor, and interorganizational transfer • “Materials” means • Direct materials • Subcontracts for supplies and incidental services • Other direct costs • Applicable indirect costs • Material costs may include indirect costs and ODCs • Costs must be excluded from hourly rates, and • Allocated in accordance with contractor’s accounting practices • Established three new solicitation provisions to direct how proposals address subcontract labor

5. FAR 52.216-29 • Noncommercial item acquisitions with adequate price competition • Offeror must specify whether proposed hourly rates for each labor category apply to labor by • the offeror, • subcontractors, or • divisions, subsidiaries, or affiliates under common control • Offeror must establish fixed hourly rates using either • separate rates for each category of labor • blended rates for each category of labor, or • any combination of separate and blended rates • Agencies can make alternative #1 mandatory • DoD interim rule (12 Dec 06) did so

6. FAR 52.216-30 • Noncommercial item acquisitions without adequate price competition • Offeror must specify fixed hourly rates for each category of labor to be performed by • the offeror, • each subcontractor, and • each division, subsidiary, or affiliate of the offeror under a common control • For interdivisional transfers • Fixed hourly rates may not include profit for transferor • May include profit for prime contractor • Fixed hourly rates for interdivisional transfers of commercial services may be the established catalog or market rate when it is the established practice of the transferring organization to price interorganizational transfers at other than cost for commercial work

7. FAR 52.216-31 • Commercial item acquisitions • Offeror must specify whether proposed hourly rates for each labor category apply to labor by • the offeror, • subcontractors, or • divisions, subsidiaries, or affiliates under common control

8. Additional Commercial Contract Types • T&M and LH contracts are permitted for commercial services under FAR Part 12 if: • the contract or task order is competitively awarded, • the CO executes a determination and findings (D&F) that no other contract type authorized for commercial item contracts is appropriate, • there is a ceiling price that the contractor exceeds at its own risk, and • any subsequent change in the ceiling price is made only upon a documented determination that it is in the best interest of the procuring agency • For both commercial and noncommercial T&M/LH contracts, the D&F must be approved by HCA if the contract will exceed 3 years

9. FAR 52.212-4, Alt 1 • ¶ (a) Inspection/Acceptance • reimbursement for rework at fixed hourly rates less profit (assumed to be 10% unless specified) • ¶ (e) Definitions • includes new definitions of “hourly rates” and “materials” • ¶ (i) Payments • limits ODCs to those specified in contract or order • provides for reimbursement of indirect costs on pro rata basis over term of contract • contains broad access to records provision • ¶ (l) Termination for the Government’s Convenience • paid for labor prior to termination at fixed hourly rates, • plus reasonable charges resulting from termination

10. New Requirements for Contractors

11. Combating Trafficking in Persons • New FAR 52.222-50, Combating Trafficking in Persons (APR 2006) • Applies to non-commercial service contracts • Requires contractor to establish policies and procedures for ensuring its employees do not: • engage in or support severe forms of trafficking, • procure commercial sex acts, or • use forced labor in performance of the contract • Receipt of allegations about an employee requires immediate reporting to contracting officer • Sanctions include default termination, suspension and debarment, among others

12. Common Identification Standard for Contractors • FAC 2005-7, interim rule (3 Jan 06); FAC 2005-14, final rule with changes (22 Nov 06). • New FAR 52.204-9, Personal Identity Verification of Contractor Personnel (NOV 2006) • Requires compliance with: • Homeland Security Presidential Directive (HSPD) 12, “Policy for a Common Identification Standard for Federal Employees and Contractors” • Federal Information Processing Standards Publication (FIPS PUB) 201, “Personal Identity Verification (PIV) of Federal Employees and Contractors” • Requires National Agency Check with Inquiries (NACI) for contractor/subcontractor personnel who require routine access to federal facilities or information systems • Interim access may be granted based on fingerprint check • Applied to new contracts as of 27 Oct 05 • Existing contracts must be modified by 27 Oct 07

13. Earned Value Management System • Major acquisitions for development require use of an EVMS that complies with the guidelines of ANSI/EIA Standard 748 • Applies regardless of contract type • Intended to standardize the use of EVMS across the government • Agencies may require use of an EVMS for other acquisitions • When an EVMS is required, the agency must conduct an Integrated Baseline Review (IBR) • Agency determines whether IBR is conducted pre- or post-award • Offerors without an operational EVMS are still eligible for award if they submit an EVMS implementation plan

14. Contract Award and Administration

15. Inflation Adjustment of Acquisition-Related Thresholds • Effective 28 Sep 06, FAC 2005-13 made the following adjustments (among others): • Micro-purchase threshold – $3,000 • Commercial item test program -- $5,500,000 • Subcontracting plan floor -- $550,000 ($1 million for construction remained unchanged) • DoD Major System -- $814,500,000 • Truth in Negotiations Act -- $650,000

16. Performance Based Acquisition • Performance-Based Contracting (PBC) and Performance-Based Service Contracting (PBSC) are out; Performance-Based Acquisition (PBA) is in • PBA = “an acquisition structured around the results to be achieved as opposed to the manner by which the work is to be performed” • PBA remains preferred method, and must be used for services contracts to maximum extent practicable • Final rule clarifies PBA terms and elements • Clarifies that selection of contract type is same for PBA as for any acquisition • T&M/LH contracts may be used

17. Emergency Acquisitions • New FAR Part 18 provides single reference for existing acquisition flexibilities that may be used to facilitate and expedite acquisitions in an emergency situation • Response to Hurricane Katrina • Divided into • “Available Acquisition Flexibilities” that may be used at any time • “Emergency Acquisition Flexibilities” that can only be used in declared emergencies • Emergency Acquisition Flexibilities are divided into • Contingency operations • Defense or recovery from attack • Incidents of national significance, emergency declaration, or major disaster declaration

18. OMB Circular A-76 • Revises FAR to be consistent with OMB Cir. A-76 (Revised), Performance of Commercial Activities (29 May 03) • Adds two new FAR clauses to inform potential offerors of procedures the government will follow for streamlined and standard competitions

19. Use of Brand Name Specifications • Implements Office of Management and Budget policy memoranda • Requires agencies to publish on the Governmentwide point of entry (GPE) or e-Buy documentation required by the FAR to support the use of a brand name specification • Intended to limit the use of brand name specifications

20. Federal Prison Industries • Converts interim rule (11 Apr 05) to final rule with changes • Implements Consolidated Appropriations Act for 2005 • Use market research before purchasing an FPI product to determine if FPI product is comparable to best value private sector products • If FPI product is not comparable, use competitive procedures or purchase under multiple award contract • Must consider timely offer from FPI

21. Federal Technical Data Solution • Contracting officers are required to make solicitation-related limited-distribution information available to offerors electronically through the Federal Technical Data Solution (FedTeDS) • FedTeDS provides secure, user identification and password protected access • Note: Those who download FedTeDS information have an obligation to assure continued control of it

22. Wage Determinations OnLine • On August 26, 2005, the Department of Labor launched the Wage Determinations OnLine (WDOL) website • FAR interim rule directs contracting agencies to obtain wage determinations from WDOL for contracts subject to the Service Contract Act or Davis-Bacon Act • If WDOL does not contain the applicable W/D, the CO must request one: • by submitting electronic e98 for SCA contracts • by submitting a paper SF-308 for DBA contracts • Eliminates requirement for CO to submit collective bargaining agreements to DOL; they are incorporated by reference and included in successor contract • Deletes FAR 52.222-47, SCA Minimum Wages and Fringe Benefits Applicable to Successor Contract Pursuant to Predecessor Contractor Collective Bargaining Agreement (CBA) because it is no longer necessary with the WDOL

23. TIN Validation • Makes Internal Revenue Service (IRS) validation of the Taxpayer Identification Number (TIN) a mandatory part of the Central Contractor Registration (CCR) • Offerors with invalid TIN will not be eligible for award

24. Annual Reps & Certs • FAR 52.204-8, Annual Representations and Certifications (JAN 2006) • Now includes a section where the contracting officer can include the appropriate North American Industry Classification System (NAICS) code • Provides standard way for communicating the NAICS code and small business size standard

25. Archiving Online Reps & Certs • Prospective contractors must submit annual representations and certifications via the Online Representations and Certifications (ORCA) • FAR 4.803(a)(11) requires CO to include reps & certs in contract file • CO may refer to OCRA archive in lieu of including paper copy

26. Fast Payment Procedures • Applies when contract contains FAR 52.213-1, Fast Payment Procedures • Gives payment office flexibility to make (but does not require) fast payments when invoices and/or outer shipping containers are not marked “Fast Pay” • If payment office decides against fast payment, payment date will be the date that would have applied in absence of the clause • Unmarked invoices will no longer be rejected

27. Transportation Standard Industry Practices • FAR updated to reflect changes to Federal Management Regulation • Definitions added • “bill of lading” • “commercial bill of lading” • Requires use of commercial bills of lading for domestic shipments

28. Cost & Pricing

29. TINA Exception for Noncommercial Modifications of Commercial Items • Implements § 818 of National Defense Authorization Act for FY 2005 • The commercial item exception does not apply to noncommercial modifications of a commercial item that are expected to cost more than • $500,000, or • 5% of the contract price, whichever is greater • Note: just because commercial item exception is inapplicable does not mean TINA applies

30. Buy-Back of Assets • FAR 31.205-11 was revised to cover contractors that re-acquire an asset after a sale-and-leaseback • Allowable depreciation costs are limited to the amount that would have been allowed had the contractor retained title, as adjusted for the rental cost limitation required in connection with a sale and leaseback • The limitation applies only to assets that generated costs in the most recent accounting period prior to the reacquisition

31. Socioeconomic Programs

32. Confirmation of HUBZone Certification • Adopts interim rule (27 Jul 05) without change • Prime contractors must confirm that a subcontractor representing itself as a Historically Underutilized Business Zone (HUBZone) small business is certified

33. Very Small Business • Very Small Business Pilot Program deleted • Pilot program had set-aside acquisitions between $2,500 and $50,000 for very small businesses • Very small business means < 15 employees & annual receipts < $1 million • Any small business is now eligible for set-aside

34. Expiration of SDB Price Evaluation Adjustment • Adopts interim rule (30 Sep 05) without change • Cancels for civilian agencies (except NASA and the Coast Guard) the Small Disadvantaged Business (SDB) price evaluation adjustment • Adjustment originally authorized under Federal Acquisition Streamlining Act of 1994 • The price adjustment evaluation is still authorized for DoD, NASA and the Coast Guard

35. SBA Procurement Center Representative • Adds guidance for what to do when the Small Business Administration has not assigned a Procurement Center Representative for a procuring activity • Contact the SBA Office of Government Contracting Area Office • Provides website for list of locations

36. Subcontract Notification Requirements • Implements National Defense Authorization Act for Fiscal Year 2004 • Eliminates requirement for contractors under cost-reimbursement contracts with DoD, the Coast Guard, and NASA to notify the agency before the award of any • CPFF subcontract, or • FP subcontract that exceeds the simplified acquisition threshold or 5% of the total estimated cost of the contract, but only • If the contractor has an approved purchasing system

37. Local Community Recovery Act • Implements the Local Community Recovery Act of 2006 • Authorizes set-asides for major disaster or emergency assistance acquisitions to businesses that reside or primarily do business in the affected geographic area • Covers contracts for debris clearance, distribution of supplies, reconstruction, etc. • CO determines the geographic area for the set-aside • Cannot extend beyond declared disaster/emergency area • Imposes subcontracting restrictions • Contractor employees or other businesses in set-aside area must incur at least 50% of the cost of labor and at least 50% of the cost of manufacturing of supplies • For general construction, contractor must perform at least 15% of the cost, not including materials, with its own employees or other businesses in set-aside area • For construction by specific trades, percentage increases to 25%

38. Foreign Acquisition

39. Trade Agreements Thresholds • Interim rule, effective 5 Jan 06; final rule 28 Sep 06 • Every two years, the trade agreements thresholds are escalated by formula • World Trade Organization (WTO) Government Procurement Agreement (GPA) threshold increased from $175,000 to $193,000 for supply and service contracts • Construction contract threshold increased from $6,725,000 to $7,407,000 • Most Free Trade Agreement thresholds increased from $58,550 to $64,786 for supply and service contracts • Construction contract thresholds also increased • Threshold for Canada FTA supply contracts remained unchanged

40. Free Trade Agreements • FAC 2005-7 (3 Jan 06), adopted interim rule (28 Dec 04) with changes • Removed Morocco and left in place Australia Free Trade Agreement

41. Free Trade Agreements • FAC 2005-9, interim rule; FAC 2005-14, final rule • Implements Morocco Free Trade Agreement

42. Free Trade Agreements • Dominican Republic-Central America-United States Free Trade Agreement • FAC 2005-10, interim rule, implements FTA with respect to El Salvador, Honduras and Nicaragua • FAC 2005-14, interim rule, implements FTA for Guatemala

43. Free Trade Agreements • FAC 2005-14, interim rule, implements United States – Bahrain Free Trade Agreement

44. Removal of Sanctions Against European Union Member States • Eliminates sanctions against EU member states • Austria, Belgium, Denmark, Finland, France, Ireland, Italy, Luxembourg, the Netherlands, Sweden, and the United Kingdom • Sanctions had limited applicability in any event • Applied only to acquisitions not covered by the WTO GPA • Did not apply to small business set-asides • Did not apply to DoD procurements FAC 2005-9, interim rule; FAC 2005-14, final rule.

45. Removal of Sanctions Against Libya • Implements Executive Order terminating sanctions against Libya • Removes Libya from list of prohibited sources

46. Reporting of Purchases from Overseas Sources • FY 2006 Consolidated Appropriations Act requires agencies to report the $ value of acquisitions of goods manufactured outside U.S. • New FAR 52.225-18, Place of Manufacture • Used when contract is predominately for the acquisition of manufactured end products • Requires offeror to indicate whether place of manufacture will be in or outside U.S. • All that matters is place of manufacture of end product, without regard to origin of components • Comparable provision added to FAR 52.212-3, Offeror Representations and Certifications – Commercial Items

47. Information Technology

48. Defining Information Technology • Adopts interim rule (27 Jul 05) without change • Revises definition of “information technology” to add “analysis” and “evaluation” • Clarifies “ancillary equipment” with “(including imaging peripherals, input, output, and storage devices necessary for security and surveillance)”

49. Commercial Information Technology • FAC 2005-7, interim rule; FAC 2005-13 final rule. • Exempts acquisitions for commercial information technology from Buy American Act • Acquisitions over $193,000 are still subject to the Trade Agreements clauses • Exemption applies when using FY 2004 or later funds • Interim rule assumes statutory exemption will continue in future appropriations acts • If not, FAR will be amended to limit applicability of the exemption

50. Information Technology Security • FAC 2005-13 adopts interim rule (30 Sep 05), as corrected (14 Nov 05), without change • Implements IT security provisions of the Federal Information Security Management Act of 2002 (FISMA) • FISMA requires agencies to Follow National Institute of Standards and Technology (NIST) guidance, and evaluate private sector information security policies and practices • Most policy requirements for IT security are expected to be issued as agency FAR supplements or internal IT policies promulgated by the agency Chief Information Officer (CIO)