FASMG member Charles Rumbaugh's Regulatory Update provides general insight into timely issues facing the purchasing professional and stimulates further discussion. These updates are not intended as legal advice and you should consult your own attorney before applying any item below to a specific situation or real transaction.


CHARLES E. RUMBAUGH
Arbitrator/Mediator
Voice: 310.373.1981
FAX: 310.373.4182
E-mail: ADROffice@Rumbaugh.net
P.O. Box 2636
Rolling Hills, California 90274

P.O. Box 2095
Burlingame, California 94011


25 August 1998


Recent regulatory matters that may be of interest since the last report ...

1. DIRECTOR, DEFENSE PROCUREMENT, ISSUES PROGRESS PAYMENT DISTRIBUTION GUIDANCE. On August 12, 1998, Eleanor Spector issueda Memorandum for Directors of Defense Agencies on the subject of "Progress Payment Distribution." This long-awaited direction is DoD's response to the "matching the work to appropriations" issue previously reported. The guidance is aimed at new fixed-price contracts funded with multiple appropriations that are other than firm fixed price contracts, e.g. fixed price incentive (FPI) contracts, which are awarded after August 31, 1998. Specifically, contracting officers are required to provide sufficient information for such contracts to the contract paying office in order to enable the distribution of "progress payments from each appropriation funding the contract in proportions that reasonably reflect the performance of the work performed on the contract." The Contract Funds Status Report used for FPI contracts can be used by contracting officers in the preparation of those instructions.
   
   COMMENT:This guidance does not require any action by contractors and eliminates the previously reported potential $1.3 Billion cost arising from the originally proposed solution.
   
   
2. PROPOSED FAR GUIDANCE ON EVALUATING "UNCOMPENSATED OVERTIME" ISSUED. The Federal Register on August 24, 1998, published a proposed FAR rule to amend FAR Parts 15 and 37 to provide "guidance on the evaluation of proposals that include uncompensated overtime hours." Specifically, FAR 37.115-2 is proposed whereby "Contracting officers shall ensure that the use of uncompensated overtime in contracts to acquire service on the basis of the number of hours provided will not degrade the level of technical expertise required to fulfill the Government's requirements·. Contracting officers shall conduct a risk assessment and evaluate, for award on that basis, any proposals received that reflect factors such as:
   
   
   1. Unrealistically low labor rates or other costs that may result in quality or service shortfalls; and
      
      
   2. Unbalanced distribution of uncompensated overtime among skill levels and its use in key technical positions."

   Comments are due on or before October 23, 1998.

3. VALUE ENGINEERING CHANGE PROPOSAL (VECP) ROYALTY PAYMENTS PROPOSED TO BE REVISED. The Federal Register on August 12, 1998, published a proposed FAR rule to amend the FAR which would change the sharing periods and rates that the contracting officer may establish for VECPs. Specifically, the amendment would "allow contracting officers to increase the sharing period from 36 to 60 months and increase the contractors share of incentive and concurrent savings to 100 percent on a case-by-case basis for each VECP." Comments are due on or before October 13, 1998.
   
   COMMENT:A revised clause incorporating the changes is also proposed. Contractors and the Government should support this change. However, unless a mechanism is provided; this policy change may be frustrated under existing contracts with the old clause?However, since this proposal, if adopted, would provide the contracting officer with unilateral authority to grant the increased royalties, modifications to existing contracts, without consideration, should not be precluded. Time to comment!
   
   
4. PROPOSAL TO REVISE CERTAIN COST PRINCIPLES. The Federal Register on August 12, 1998, published two separately proposed FAR rules which would amend FAR 31.205-1, Public relations and advertising costs; FAR 31.205-34, Recruitment costs; and FAR 31.205-46, Travel costs. The first two cost principle changes are directed toward "streamlining" as well as (i) indicating "that the allowability of recruitment expenses in connection with advertising costs is addressed at FAR 31.205-34" and (ii) the deletion ofFAR 31.205-34(c) "since excessive compensation is already adequately addressed at FAR 31.205-6, Compensation for personal services." The Travel cost principle is proposed to be amended in order "to allow, under certain conditions, contractor costs for business class airfare on flights lasting more than 14 hours" and thus conform to the Joint Travel Regulations. Comments are due on or before October 13, 1998.
   
   
5. NASA ISSUES INTERIM RULE COVERING ADDITIONAL GUIDANCE ON CONTRACTOR PAST PERFORMANCE EVALUATIONS. NASA has adopted an interim rule that was effective August 11, 1998, which amends the NASA FAR Supplement to require that "within 60 days of every anniversary of the award of a contract (>$100,000) having a term exceeding one year, contracting officers shall conduct interim evaluations of performance on contracts subject to FAR subpart 42.15 and this subpart (1842.15). On such contracts, both an interim evaluation covering the last period of performance and a final evaluation summarizing all performance shall be conducted."
   
   COMMENT: It is intended the final evaluation be cumulative. On a related item, OFPP published a notice of availability of a "Draft Performance -- Based Service Contracting" Document on "Selected Professional and Technical Services" in the July 13 1998, Federal Register. OFPP is seeking comments on the Draft; however, the document is NOT available on the internet. Point of Contact is 202-395-6803.
   
   
6. DoD FINALIZES RULE ON CONTRACTOR INSURANCE/PENSION REVIEWS (CIPRs). DoD issued a final rule in the July 29, 1998, Federal Register that revises guidance pertaining CIPRs. "The rule clarifies requirements for (the ACO) conducting a CIPR, eliminates the requirement to conduct a CIPR at least every 2 years, and requires the performance of a special CIPR under certain circumstances" e.g. "deficiency" in program; changes; or a merger, acquisition or divestiture is involved. The rule only applies to contractors with certain annual sales that exceed $40 million. It is effective July 29, 1998.
   
   
7. NASA PUBLISHES FINAL RULE UPDATING COVERAGE ON SIMPLIFIED ACQUISITION PROCEDURES. The Federal Register on July 28, 1998, published a final rule that was effective July 28, 1998, which amends the NASA FAR Supplement (NFS) to "align the NFS with the rewritten Part 13 of the FAR." A new subpart is added to "reflect a statutory prohibition on underwriting commercial space ventures."
   
   
8. PROPOSED RULE WITHDRAWN ON "UNALLOWABILITY" OF TAXES ASSOCIATED WITH DIVESTED SEGMENTS. The Federal Register on August 12, 1998, published a notice withdrawing a proposed rule dealing with a proposal "to add increased taxes resulting from a contractor's sale or other transfer of ownership of a segment to the list of unallowable costs." The proposal was withdrawn "pending further study of how best to implement this policy without creating an undue administrative burden for both the contractor and the Government" since contractors would have been required to "compute state and local taxes twice."
   
   
9. NASA FINALIZES FAR PART 15 CHANGES. The Federal Register on August 12, 1998, published an interim rule amending the NASA FAR Supplement to conform with the FAR Part 15 Re-Write as well as specify that the NASA Acquisition Internet Service is the Agency Internet site for posting solicitations and other acquisition information <http://ec.msfc.nasa.gov/msfc/nasadbk.html>.
   
   

   Miscellaneous Items:

   • The National Defense Industrial Association is sponsoring a seminar on September 22, 1998, in Arlington, Virginia, on the subject of "Industrial Espionage." -- point of contact is 703-533-1820. NASA will hold an open meeting in Houston, Texas, on September 2nd and 3rd, of its NASA Advisory Council, Advisory Committee on the International Space Station -- point of contact is 202-358-0242.
     
     
   • The American Bar Association Public Contract Law Section is proposing that its six principles in connection with resolving controversies involving the Government will be submitted to the House of Delegates early next year in Los Angeles.
     
     
   • Numerous Y2K legislative proposals have been introduced since the last report.
     
     However, on the regulatory front it is interesting that the Securities and Exchange Commission on July 13, 1998, in the Federal Register acknowledged the difficulty to ensure a particular Y2K compliance report for SEC licensed entities. Specifically, in response to a prior SEC release requiring CPAs "attest to the assertions on Y2K," the American Institute of Certified Public Accountants (AICPA) commented to the SEC that such attestation "would be difficult for independent public accountants to provide." The SEC is now requesting comments on the AICPA suggested "agreed-upon procedures" engagement approach.
     
     Further, the SEC "has advised broker-dealers that if a broker-dealer's computer systems have Year 2000 Problems, the broker-dealer may be deemed not to have accurate and current records, and be in violation of Rule...."
     
     Y2K issues remain a concern to many.
     
     
   • DoD has again extended for a year the class deviation covering FAR Part 45 on "Government Property" that has an acquisition cost of less than $1,500 such that some of the normal administrative cost and effort associated therewith is deferred. If you intend to avail yourself of this deviation -- read it closely -- and see if it applies to all Government contracts or merely DoD contracts!Be certain you are not building a process for two different approaches, i.e. what is required by other agencies and that which is "required" by DoD .
     
     
   • DoD issued a final rule on August 17, 1998, which updates the DFARS246.406 guidance pertaining to mutual acceptance of government quality assurance among NATO countries. DoD on August 17th also issued an interim rule to implement a waiver of domestic source restrictions (10 USC §2534(a)) for certain identified defense items produced in the United Kingdom.
     
     
   • On August 19, 1998, NASA extended its Mentor-Protégé Program to March 31, 1999, to permit the completion of a required Program evaluation which is expected to be completed by September 30, 1998.
     
     
   • On August 13, 1998, NASA published a proposal to conform its current two patent related definitions for "reportable item" -- in definitions at 1827.301 and the clause at 1852.227-70. Comments are due on or before October 13, 1998.
     
     
   • On August 6, 1998, DoD published an interim rule, effective October 1, 1998, implementing the previously reported Department of Justice proposal to reform affirmative action in Federal procurements and thereby be in compliance with the Supreme Court decision in Adarand. Comments are due on or before October 5, 1998.
     
     
   • On August 3, 1998, the Bureau of the Census published a requirement that will mandate additional data in connection with its Foreign Trade Statistics Regulations by "adding a section requiring exporters or their designated agents to include a foreign military sales indicator code on the Shipper's Export Declaration Form, Automated Export System (AES) Record Layout, and Automated Export Reporting Program (AERP) Record Layout." It will also be required in connection with Foreign Military Financing transactions and therefore may impact contractors.
     
     
   • On August 4, 1998, the Office of Government Ethics published a proposed rule to make "minor amendments to the regulation governing standards of ethical conduct for executive branch employees, to conform with interpretive advice and to improve clarity concerning gifts from outside sources." Additional examples are provided in this Federal Register publication.
     
     
   • On August 10, 1998, OMB published a final revision notice on conforming amendments to Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations."
     
     
   • On July 27, 1998, the Patent and Trademark Office (PTO) noticed that its plans to commence this month free Web access to certain trademark text data. In November 1998, this trademark offering will include the "clipped" images associated with these marks and, further, the PTO will expand its patent database offering on the Web to include free access to the full text of all patents issued since 1976.
     
     
   • Finally, the Army Armament Retooling and Manufacturing Support Executive Advisory Committee met in an open meeting earlier this month at the Monte Carlo in Las Vegas, Nevada.

© 1998 Charles E. Rumbaugh

Back Top

Back to FASMG's Home Page