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


January 4, 1999


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

1. DoD PROPOSES "REOPENER" CLAUSE FOR USE IN NEGOTIATED PROCUREMENTS DURING
TIME PHASE ASSOCIATED WITH FINALIZATION OF A BUSINESS COMBINATION.    On
December 31st a proposed rule was published by DoD in the Federal Register
which would "amend the DFARS to specify that contracting officers should
consider using a repricing (downward-only) clause in noncompetitive fixed-
price contracts that are negotiated during the period between the time a
business combination is announced and the time the contractor's forward
pricing rates are adjusted to reflect the impact of restructuring."   "The
repricing clause should ensure that DoD receives its appropriate share of
restructuring savings."   Comments are due on/before January 29, 1999.
COMMENT:  Perhaps TINA adequately covers the situation!

2. DEPARTMENT OF COMMERCE, BUREAU OF EXPORT ADMINISTRATION, IMPLEMENTS
INITIATIVE TO UPDATE IT'S ENCRYPTION POLICY.  On December 31st an interim rule
was published in the Federal Register which extensively "amends the Export
Administration Regulations for exports and reexports of encryption commodities
and software to U.S. subsidiaries, insurance companies, health and medical
end-users, on-line merchants and foreign commercial firms. This
rule·updates·encryption policy, and will streamline U.S. encryption export and
reexport controls."  The rule is effective December 31st with comments due
on/before March 1, 1999.

3. ENVIRONMENTAL PROTECTION AGENCY (EPA) PROPOSES CONFORMING CHANGES DUE TO
FAR PART 15 REWRITE.  On December 28th EPA published a proposed rule in the
Federal Register to amend the EPA Acquisition Regulation (EPAAR) so that it
will conform to the FAR Part 15 Rewrite. "EPA began implementation of the
revised Part 15 as of December 19, 1997. The EPAAR is in substantive
compliance with the revised FAR, but extensive redesignation of EPAAR subparts
and sections is required for structural conformance. Accordingly, EPAAR Part
1515, Contracting by Negotiation, is revised in its entirety, and parts 1503,
Improper Business Practices and Personal Conflicts of Interest, and 1552,
Solicitation Provisions and Contract Clauses, are amended." Comments are due
on/before January 27, 1999.

4. ELECTRONIC NOTIFICATION OF GOVERNMENT ACCEPTANCE & APPROVAL OF SUPPLIES
AUTHORIZED BY DFARS. On December 15th DoD published a final rule in the
Federal Register to amend the DFARS to clarify that DoD Manual 4000.25-5-M,
Military Standard Contract Administration Procedures (MILSCAP), authorizes
electronic notification to the payment office of Government acceptance or
approval of supplies delivered or services performed under a contract.  The
rule is effective December 15th.

5. FEDERAL ACQUISITION CIRCULAR (FAC)  97-10 ISSUED.  On December 18th FAC
97-10 was published in the Federal Register.   In the published summary below,
all changes are effective February 16th except where noted otherwise:

á Historically Underutilized Business Zone (HUBZone) Empowerment Contracting
Program.  This interim rule amends FAR Parts 5, 6, 7, 8, 12, 13, 14, 15, 19,
26, 52, and 53 to implement the HUBZone Empowerment Contracting Program. The
program provides for set-asides, sole source awards, and price evaluation
preferences for HUBZone small business concerns and establishes goals for
awards to such concerns.  Effective January 4th.  (FAR Case 97-307)

á Limits for Indefinite-Quantity Contracts.  This final rule amends FAR
16.504(a) to clarify that maximum and minimum limits for indefinite-quantity
contracts may be expressed as a number of units or dollar value.  (FAR Case
98-016)

á Office of Federal Contract Compliance Programs (OFCCP) National Pre-Award
Registry.  This final rule amends FAR part 22 and related clauses at part 52
to (1) inform the procurement community of the availability of the Department
of Labor's OFCCP National Pre-Award Registry (Registry), accessible through
the Internet, that contains contractor establishments who have received a
preaward clearance within the preceding 24 months, and the option to use the
information in the Registry in lieu of submitting a written request for a
preaward clearance; and (2) implement revised Department of Labor regulations
pertaining to equal employment opportunity and affirmative action requirements
for Federal contractors and subcontractors. (FAR Case 98-607)

á Limitation on Allowability of Compensation for Certain Contractor Personnel.
The interim rule is converted to a final rule with minor clarifying amendments
at FAR 31.205-6(p)(2). The rule implements Section 808 of the National Defense
Authorization Act for Fiscal Year 1998 (Pub. L. 105-85). Section 808 limits
allowable compensation costs for senior executives of contractors to the
benchmark year by the OFPP Administrator.  The benchmark compensation amount
is $340,650 for contractor fiscal year 1998, and subsequent contractor fiscal
years, unless and until revised by OFPP. (FAR Case 97-303)

á Evidence of Shipment in Electronic Data Interchange (EDI) Transactions.
This final rule revises the clause at FAR 52.247-48 to facilitate the use of
EDI transactions and to streamline the payment process when supplies are
purchased on a free on board (f.o.b.) destination basis with inspection and
acceptance at origin.       (FAR Case 97-011)

á Contractor Purchasing System Review (CPSR) Exclusions.  This final rule
amends FAR 44.302 and 44.303 to exclude competitively awarded firm-fixed-price
and competitively awarded fixed-price contracts with economic price
adjustment, and sales of commercial items pursuant to FAR part 12, from the
dollar amount used to determine if a contractor's level of sales to the
Government warrants the conduct of a CPSR; and to exclude subcontracts awarded
by a contractor exclusively in support of Government contracts that are
competitively awarded firm-fixed-price, competitively awarded fixed-price with
economic price adjustment, or awarded for commercial items pursuant to FAR
part 12, from evaluation during a CPSR.  (FAR Case 97-016)

á Contract Quality Requirements.  This final rule amends FAR 46.202-4, 46.311,
and 52.246-11 to replace references to Government specifications with
references to commercial quality standards as examples of higher-level
contract quality requirements; to require the contracting officer to indicate
in the solicitation which higher-level quality standards will satisfy the
Government's requirement; and, if more than one standard is listed in the
solicitation, to require the offeror to indicate its selection.  (FAR Case
96-009)

á Mandatory Government Source Inspection.  This final rule amends FAR 46.402
to facilitate the elimination of certain requirements for Government contract
quality assurance at source. This rule deletes the mandatory requirements for
Government contract quality assurance at source on all contracts that include
a higher-level contract quality requirement, and for supplies requiring
inspection that are destined for overseas shipment. (FAR Case 97-027)

á No-Cost Value Engineering Change Proposals (VECPs). The interim rule is
converted to a final rule without change. The rule revises 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. Effective December 18th.  (FAR Case 96-011)

Miscellaneous items-

á OFPP Administrator Deidre Lee will be speaking in San Diego on January 21st
at a NCMA luncheon meeting on the topic of "Current Events in Federal
Procurement Environment."  Reservation can be made at 619 221-5556.

á The December 8th Director of Defense Procurement briefing with Industry
highlighted a couple of items: 
Industry stated that it is experiencing as much as 100 days in delay in
payment by DFAS.  Ms. Spector was quoted as saying any DFAS payment issue is
unrelated to the Y2K software implementation problem.
She is also of the view to have the Civil Defense, Relocation, and Travel
Costs principles eliminated.
On the subject of cost/pricing data being requested for "commercial items,"
she is reported as saying, "if an item is not 'identical to' a known
commercial item the government must protect itself and get data because we
(the Government) are still blameworthy in subsequent oversight actions that
challenge why the Government paid a higher price."
COMMENT:  On the DFAS payment delay, this is the prevalidation-related
payment delay effort reported on in earlier Updates.  In fact, by a memorandum
dated December 7th the Director of DFAS, in part, "suspend(s) cash management
beginning on December 18, 1988, consistent with the provisions of the Prompt
Payment Act."  Leave was also canceled!  The check is "in the mail!"
On the latter commercial item data issue, it seems that more tools may need
to be available to the contracting parties to assure the government is only
paying (and a Contractor is only receiving) a "fair and reasonable" price (as
the FAR currently requires) so that industry is not called upon to provide
cost/pricing data.  Whatever happened to "information other than cost or
pricing data?"  (In an earlier November 23rd letter to an industry association
representative, Ms. Spector reminded industry of this fair and reasonableness
standard.)

á For the period beginning January 1, 1999 and ending on June 30, 1999, the
prompt payment interest rate is 5% (five) per cent per annum which is also
used for the calculation of interest due on claims.

á The Air Force is requesting its Contractors to execute a document entitled,
"Overarching Principles Between The Department of The Air Force and (named
Contractor) Concerning Use of Alternative Dispute Resolution Processes."  By
signing the Agreement a Contractor and the Air Force acknowledges that "drawn
out litigation consumes resources and funds, detracting from·(national
defense) mission accomplishment·.  Alternative Dispute Resolution (ADR)
procedures involve collaborative techniques which can often spare the Air
Force and (named Contractor) the high cost and wear and tear of litigation."
Underlying principles of the Agreement include avoidance/minimization of
disputes, identify early-on potential program/contract obstacles, resolution
of all contractual contractual issues at the program/contract execution level
and absent resolution "ADR should be used to settle the dispute in lieu of
litigation," specific ADR collaborative techniques are subject to mutual
agreement, and "in the event either party believes that a particular dispute
is not well suited to ADR, or is dissatisfied with progress being made in a
particular ADR proceeding, that party may elect to opt out of the ADR process,
by notifying the other party in writing, and proceed as otherwise provided
under contract, regulation or statute."  Over 7 Contractors had signed a form
of the Agreement as of late 1998.
COMMENT:  Since most of the procurement dollars are spent at the
subcontractor level it is interesting that no mention of subcontractors being
directly or indirectly part of this process/action.   Can there be a
resolution of all program/contract disputes without a similar commitment from
subcontractors?  Since this AF action is part of the Administration's
Interagency ADR Working Group effort (under the auspices of the Attorney
General to implement the Administration's commitment to ADR) it seems
reasonable that this would also involve merely a "request" for all
contractors/subcontractors.  Otherwise·.
Subcontractors should seriously consider requesting a similar undertaking
with their primes or higher tier contractor.  Recall that twelve major defense
contractors starting in 1995 agreed to a two prong ADR approach to the
resolution of specified disputes between them.  OFPP seems to be (currently)
silent on this ADR issue.
Also on the ADR front, over twelve major commercial companies "have signed a
commitment to use mediation for Year 2000 business disputes" as announced in
late November by the CPR Institute for Dispute Resolution.  A copy of the CPR
Year 2000ADR Commitment can be found at www.cpradr.org.

á The Department of the Air Force amended Title 48, Chapter 53 of the CFR by
removing Part 5350, Extraordinary Contractual Actions, "because it is outdated
and was deleted from the Air Force Federal Acquisition Regulation Supplement
(AFFARS) by Air Force Acquisition Circular (AFAC) 96-1 in June 1997."

á On December 24th "the Director of Defense Procurement reinstated the use of
small business set-aside procedures for certain construction acquisitions
conducted by the Departments of the Army and Navy. Included in the
reinstatement are solicitations issued under Standard Industrial
Classification (SIC) Major Group 16 (Army and Navy) and SIC Code 1791 (Navy
only). The Director of Defense Procurement has also reinstated the use of
unrestricted competition for certain construction acquisitions conducted by
the Departments of the Army and Navy and non-nuclear ship repair acquisitions
conducted by the Navy. Included in the reinstatement are solicitations issued
under SIC Major Group 15 (Army and Navy) and SIC Code 3731 (Navy only)."  This
action is effective on December 11th.

á On December 15th the Director of Defense Procurement issued a final rule
amending the DFARS to specify that contracting officers must include an e-
mail/Internet address, when available, on contracts and modifications
COMMENT:  Why isn't this in the FAR?  What "specific and unique need" does DoD
have for this agency regulation (the specified agency regulatory standard in
the OFPP Act)?  Then again, FAR Part 1 provides greater discretion/judgment.

á Copies of individual OMB circulars are available at OMB's Internet home page
at http://www.whitehouse.gov/WH/EOP/OMB/html/circular.html

á The Nuclear Regulatory Commission published a proposed  rule on December 8th
which proposes to amend its regulations governing the procurement of goods and
services. "The proposed rule is intended to meet the requirements" of FASA and
FARA.   Comments are due on/before February 22nd.

á On December 29th NASA noticed in a proposed rule that it intended "to revise
the NASA Grant and Cooperative Agreement Handbook to specify that for all
awards of new grants and cooperative agreements and modifications of existing
grants and cooperative agreements, management fee shall not be permitted.
Comments are due on/before March 1, 1999.

á The recent Rig Masters Inc. case decided by the US Court of Federal Claims
should be reviewed with counsel in view of its ruling that a regulatory
provision which purports to exempt disputes involving VECPs from the statutory
provisions of the Contract Disputes Act is unenforceable.

á In early December the US Supreme Court heard arguments in the Department of
the Army v. Blue Fox case to determine whether a subcontractor shall be
permitted to bring an action to enforce an equitable lien against the US, i.e.
enjoin payment by SBA and the Army to another contractor, in order to recover
the amount of money an original contractor owed but failed to pay the
subcontractor.
COMMENT:   Stay tuned subcontractors, this may be away to collect when the
work was completed but the primed failed to pay.

á The Small Disadvantaged Business Certification Requirement start date has
been extended to July 1st.

á Finally, the IRS issued temporary regulations effective January 1st to add
payments by certain credit cards and debit cards to the acceptable methods of
payment under IRS Code.  Frequent Flyer Mileage?

© 1998 Charles E. Rumbaugh

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