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
TEL: 310.373.1981
FAX: 310.373.4182
e-mail: ADROffice@Rumbaugh.net
PO BOX 2636
ROLLING HILLS, CALIFORNIA 90274

PO Box 2095
BURLINGAME, CALIFORNIA 94011


July 10, 1998


Recent Regulatory Matters that may be of interest since the last report --

1. FEDERAL ACQUISITION CIRCULAR (FAC) 97-05 ISSUED. The Federal Register on June 22, 1998, published FAC 97-05 which sets forth final and interim FAR rules. Highlights include:
   
   
   • The rule eliminates the subcontract consent requirements for contractors that have an approved purchasing system, except when specific subcontracts requiring consent are identified by the contracting officer; eliminates consent requirements for fixed-price incentive contracts and fixed-price redeterminable contracts; and increases, to the simplified acquisition threshold, the dollar level at which consent requirements are included in time-and-materials, labor-hour, and letter contracts.
     
   • An interim rule was published in 1989 to require a prime contractor to pay liquidated damages upon a "finding of a lack of good faith effort to meet small business subcontracting goals." That interim rule is adopted as a final rule with changes and amends the FAR to clarify the policy on liquidated damages and commercial subcontracting plans as well as to implement OFPP Policy Letter 95-1, Subcontracting Plans for Companies Supplying Commercial Items.
     
   • This final rule amends FAR Part 16 to clarify fee limitations pertaining to cost-reimbursement contracts have been eliminated for non-statutory fee limitations on cost-plus-incentive-fee and cost-plus-award-fee contracts.
     
   • An interim rule is adopted as final to increase from $25 to $75 the threshold at which contractor personnel must provide a receipt to support travel expenditures.
     
   • An interim rule is issued amending the FAR to implement revised Department of Labor regulations regarding affirmative action to employ and advance in employment qualified individuals with disabilities. This interim rule amends FAR Subpart 22.14 and the clauses at 52.212-5 and 52.222-36 to conform to DoL regulations.
     
   • A final FAR rule effective August 21st "clarifies that the Government may use the clause (at 52.227-17) to retain copyright to certain computer software produced under Government contracts." FAR 27.405, as amended, at (a)(1)(ix) provides this may be appropriate when "the program (A) May give a commercial advantage; or; (B) Is agency mission sensitive, and release could prejudice agency mission, programs, or follow-on acquisitions."
     
   • An interim rule amending FAR 48.104-3 "to clarify that no-cost VECPs may be used when, in the contracting officer's judgment, reliance on other VECP approaches likely would not be more cost-effective, and the no-cost settlement would provide adequate consideration to the Government." A revised FAR 48.104-3 provides in part "Under this method of settlement, the contractor would keep all of the savings on the instant contract, and all savings on its concurrent contracts only. The Government would keep all savings resulting from concurrent contracts placed with other sources, savings from all future contracts, and all collateral savings. Use of this method must be by mutual agreement of both parties for individual VECPs."
     
   • Updates information regarding the availability of specifications, standards, and item descriptions cited in Government solicitation provisions at FAR 52.211-1, 52.211-2, and 52.212-1.
     
     
2. DOD REINSTATES SMALL BUSINESS SET-ASIDES AND GOVERNMENT PUBLISHES INTERIM FAR RULE "IMPLEMENTING" THE ADARAND DECISION. The Federal Register on July 9, 1998, published a DoD Notice reinstating small business set-asides under the Small Business Competitiveness Demonstration Program for certain construction projects by the Army and Navy. This Program is effective on and after June 17, 1998.
   The Federal Register on June 30, 1998, published an interim FAR Rule reinstating small business set-asides for small disadvantaged business (SDB) concerns in order to conform to a Department of Justice (DoJ) proposal to "reform affirmative action" (Adarand Constructors, Inc. v. Pena) in Federal procurement. The policies, provisions, and clauses of this interim rule are effective for all solicitations issued on or after October 1, 1998. Comments are due on/before August 31, 1998. The following significant changes are cited as being made to the rule based on the comments received from earlier notices:
   
   
   • Changes were made to conform it to the regulations issued by the Small Business Administration including conforming protest and appeal and certification procedures in the FAR to those prescribed by SBA.
     
   • Clarifying that the annual Department of Commerce (DoC) determination of procurement mechanisms shall only affect solicitations that are issued on or after the effective date of the DoC determination. (DOC is responsible for (i) developing the methodology for calculating the benchmark limitations; (ii) developing the methodology for calculating the size of the price evaluation adjustments employed in a given industry; and (iii) determining applicable adjustments.)
     
   • Clarifying that any decisions to limit use of the mechanisms because of a finding of undue burden will not affect ongoing acquisitions.
     
   • Clarifying that an individual or business concern need only provide supporting rationale in a request for an undue burden determination.
     
   • Clarifying that fair market price under the price evaluation adjustment shall be determined in accordance with the procedures in 15.404-1(b).
     
   • Removing the prohibition against use of the price evaluation adjustment for acquisitions under the Competitiveness Demonstration Program.
     
   • Revising the provisions at FAR 52.212-3 and 52.219-1, and the clause at 52.219-23.
     
     COMMENT: The Price Evaluation Adjustment is mandatory and it can be up to 10% in certain Standard Industrial Classification (SIC) Major Groups. Note this is effective at the subcontract level as well as where the evaluation factor and subfactor will "be used in competitive, negotiated acquisitions" expected to exceed $500,000 (construction $1,000,000). There are also monetary incentives for contracting with SDBs!
     
     
3. OFFICE OF MANAGEMENT AND BUDGET (OMB) PUBLISHES REVISED "PROMPT PAYMENT" RULES. The Federal Register on June 17, 1998, published in summary form a proposed rule to revise OMB Circular No. A-125, "Prompt Payment." The current and proposed revised/reorganized Circular including answers to frequently asked questions and other general information is available on the Web at <http://www.fms.treas.gov/prompt/index.html>. "This proposal is being made to reflect requirements of the Debt Collection Improvement Act of 1996 as well as an increasingly electronic commercial financial systems environment (see 5 below); to promote the use of government credit cards and accelerated payment methods; to clarify and simplify current language;" collection of banking information, and changes in the area of late payment penalties. Comments are due on/before August 17, 1998.
   
   
4. SBA AND DoD STREAMLINE "8(a)" PROGRAM BY ALLOWING DoD ISSUE CONTRACTS.
   The Federal Register on June 19, 1998, published an interim DFARS rule
   effective June 19, 1998, referencing a Memorandum of Understanding dated May
   6th between the SBA and DoD whereby "the SBA delegated to the Under Secretary
   of Defense for Acquisition and Technology its authority under Paragraph
   8(a)(1)(A) of the Small Business Act" to enter into 8(a) prime contracts, and
   its authority under paragraph 8(a)(1)(B) of the Small Business Act to award
   the performance of those contracts to eligible 8(a) Program Participants."
   This pilot test program has been generally redelegated to most DoD contracting
   officers. Awards may be made on a sole source or competitive basis and an SBA
   signature on the contract is not required. These DFARS amendments are in
   Subpart 213.70, "Simplified Acquisition Procedures Under the 8(a) Program" and
   adds a new Section 219.800. Comments are due on/before August 18, 1998.
   
   
5. ADDITIONAL RULES PROPOSED FOR ELECTRONIC FUNDS TRANSFERS (EFT). The
   Federal Register on July 6, 1998, published a proposed rule "to address the
   use of EFT for Federal contract payments and to facilitate implementation of
   Public Law 104-134 which mandates payment by EFT in certain situations."
   Comments should be submitted on/before September 4, 1998. This proposes to
   significantly amend the current interim rule in several areas. "The proposed
   rule revises two contract clauses with new language at 52.232-33, Payment by
   Electronic Funds Transfer (CCR), and 52.232-34, Payment by Electronic Funds
   Transfer (Non-CCR). The new clause at 52.232-33 is prescribed when the payment
   office uses the Central Contract Registration (CCR) database (see previous
   Regulatory Updates on this CCR "requirement") as its source of EFT
   information. The new clause at 52.232-34 is used when the contractor submits
   EFT information to a source other than the CCR database."
   
   Agencies may use two "distinctly different approaches (in) obtaining
   contractor banking information prior to award (as a condition of award) as
   opposed to obtaining that information after award (as a normal contract
   performance duty)." The determination whether a particular payment must be made
   by EFT is made by the payment official. In addition, the proposed rule
   contains three new clauses at 52.232-X1, Designation of Office for Government
   Receipt of EFT Information, 52.232-X2, Payment by Third Party, and 52.232-X3,
   Multiple Payment Arrangements. The clause at 52.232-X1 is prescribed when the
   Government has designated an office other than the payment office to receive
   the contractor's EFT information. The clause at 52.232-X2 is prescribed when
   payment on a written contract is made by a third party on behalf of the
   Government (e.g., Government-wide commercial purchase card). The clause at
   52.232-X3 is prescribed when the contract or agreement provides for the use of
   delivery orders and provides for multiple types of payment arrangements. The
   solicitation provision at 52.232-X4, Submission of EFT Information with Offer,
   is prescribed when the Government has determined that EFT banking information
   is to be submitted prior to award, along with the offer.
   
   
6. DOD PUBLISHES "STANDARDIZED" R&D CONTRACTING FORMAT WITH ACCESS "ONLY" ON THE WORLD WIDE WEB. The Federal Register on June 25, 1998, published a DoD interim rule deleting the standardized R&D contracting format from the DFARS. Effective June 25th this format will only be accessible through the Web at <http://www.rdss.osd.mil/>. Comments are due on/before August 24, 1998.
   
   Miscellaneous Items:
   
   
   • The House Subcommittee on Government Management, Information and Technology issued a recent "report card" on Government Agencies Y2K compliance efforts (also see below discussion on Y2K by Director of Defense Procurement Eleanor Spector). Agency grades are as follows:
     
     A+: Social Security Administration
     
     A-: General Services Administration, Federal Emergency Management Agency, National Science Foundation
     
     B: Department of Commerce, Small Business Administration, National Aeronautics and Space Administration, Nuclear Regulatory Commission
     
     C: Departments of Treasury, Housing and Urban Development, Labor and Veterans Affairs
     
     C-: Office of Personnel Management, Department of the Interior
     
     D: Departments of Agriculture, Defense, Justice, and Education
     
     F: Environmental Protection Agency; departments of State, Health and Human Services, Energy and Transportation; Agency for International Development
     
     COMMENT: How will your private organization interface with your agency customers (or your suppliers for that matter)?
     
     
   • Warners Robins Air Logistics Center published a Memorandum for Industry on April 20, 1998 on the subject of "Electronic Commerce Procedures" whereby a new electronic commerce initiative was effective after May 22nd and RFPs will not be mailed out for supplies/services not exceeding the SAT of $100,000. Further, responses by ground carrier will not be accepted.
     
     
   • The June 19th Director of Defense Procurement Eleanor Spector Industry
     Briefing covered some interesting items which reportedly included-
     On Y2K issues -- "Any IT which will be used after January 1, 2000, must be Y2K
     compliant. If IT which is under contract does not meet the specific Y2K
     requirements, contracting officers may (1) not purchase the equipment if it
     does not comply, or (2) seek to modify the contract with an equitable
     adjustment in price if that is less costly than buying other equipment which
     does comply." Apparently, no "systemic problem" of DoD "demanding no-cost
     (Y2K) modifications" has been identified by industry/DoD.
     The Defense Acquisition Deskbook "suggests alternatives to certified cost or
     pricing data such as historic actual cost, data from previous production buys,
     and parametric estimating."
     
     
   • A June 3, 1998, Memorandum on "The Single Process Initiative (SPI)-A Long
     Term Perspective" was issued by Under Secretary of Defense (Acquisition and
     Technology) Gansler calling for increased SPI action(s) including a new
     "Council on the SPI" headed by his Deputy. This Council will be coordinated
     with the Defense Systems Affordability Council. "This group should include
     representatives from corporate management councils, industry association
     representatives and the Component Acquisition Executives." Quarterly reports are expected and greater industry participation are also envisioned.
     
     
   • On June 16, 1998 NASA published a final rule in the Federal Register "to make miscellaneous administrative corrections to the NASA Federal Acquisition Regulation Supplement, most of which are corrections of section numbers and NASA office references. Other more significant administrative changes are: (1) 1807.7000 (new URL for Consolidated Contracting Initiative (CCI)); (2) 1842.1203-70 (removal of reference to Appendix E of the NASA/DOD Agreement for Contract Administration and Contract Audit Services); and (3) 1852.242-72 (elimination of the dependencies for the two Alternate Clauses)."
     
     
   • NDIA's Defense Systems Acquisition Management course (taught by Defense
     Systems Management College instructors) is being offered in San Diego, July
     27-31, 1998. Point of Contact is Erin Curry at NDIA 703-247-2578.
     
     
   • With the June 25th US Supreme Court declaring unconstitutional the
     "cancellation provision of the Line Item Veto Act" over $800 Million of
     budgeted items have been "brought-back-to-life." Are these your $s?

© 1998 Charles E. Rumbaugh

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