Back Top
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
(310) 373-1981
FAX (310) 373-4182
(888) ADROffice (toll free)
E-mail: ADROffice@Rumbaugh.net
PO Box 2636
Rolling Hills, California 90274
PO Box 2095
Burlingame, California 94011
August 11, 2000
Recent Regulatory Matters that may be of interest since the last Update include---
1. DoD PROPOSES TO REVISE PROFIT POLICY. On July 24th the Federal Register noticed a proposed DFARS rule to make changes to DoD profit policy that would reduce and eventually eliminate emphasis on facilities investment, increase emphasis on performance risk, and encourage contractor cost efficiency. This proposal recognizes industry facilities are under-utilized and there is over-capacity. It has as its primary purpose to reduce and, over time, eliminate facilities investment as a factor in establishing profit objectives on sole-source, negotiated contracts.
Proposed changes include:
• Adding general and administrative expense to the cost base used to establish profit objectives.
• Reducing the values assigned to facilities capital investment by 50 percent.
• Offsetting these changes by increasing the values for performance risk by 1 percentage point and decreasing the values for contract type risk by 0.5 percentage point.
• Adding a special factor for cost efficiency to encourage cost reduction efforts.
Two years after the issuance of a final rule, DoD will eliminate buildings as a factor used to establish profit objectives and will reduce the value of equipment by 50 percent. This will be offset by an increase to performance risk values of 1 percentage point. Four years after the date this rule becomes effective, DoD will eliminate facilities capital employed as a factor used to establish profit objectives and will offset this elimination with another 1 percentage point increase to performance risk values. Comments are due on/before September 22, 2000.
COMMENT: Will there be more accounting changes by contractors due to G&A being added to the cost base for profit calculation? Will greater GFE be required/requested in proposals? Are the specified DFARS regulatory limits on profitability for sole source non-commercial acquisitions viable in todays industrial environment? Does the DoD profit policy adequately reflect a profit incentive for those contractors that desire to use alternative dispute resolution with the government?
2. Proposal published that would empower contracting officerS to unilaterally determine final contract close-out amounts. On July 27th the Federal Register provided notice of a proposed FAR change to explicitly state the right of the contracting officer to unilaterally determine the final contract payment amount when the contractor does not submit the final invoice or voucher within the time specified in the contract. This contracting officer decision is final and binding upon the contractor and will not be subject to the right of appeal under the Contract Disputes Act. Comments are due on/before September 25, 2000.
COMMENT: This proposal purportedly arises out of an April 7, 1999, recommendation within DoD to improve the contract close-out process. Seems to most of us that this type of approach has been superseded by case lawthe Contract Disputes Act trumps any final determination and contractors have due process appeal rights. How/why did this non-appeal aspect get published?
3. GUIDE ISSUED ON ACQUISITION OF COMMERCIAL ITEMS. On July 14, 2000, Under Secretary of Defense Gansler and Assistant Secretary of Defense Money jointly issued a transmittal memorandum for a June 26, 2000, 25-page document entitled, Commercial Item Acquisition: Considerations and Lessons Learned. The direction in that memorandum is that the document is to assist (the acquisition community) as you acquire and support commercial items and encourages all to learn from it as you design your acquisition strategies.
COMMENT: This is a must read document. However, it is (also) noticeable by the absence of any substantive discussion on the role of commercial pricing/negotiations and how sole-source price negotiations should/could be factored-into-the-strategy-equation. A DoD Commercial Items Handbook is reportedly also planned with a mid-August publication schedule.
Miscellaneous:
• Last months Update alerted all to the June 2nd DCAA Memorandum (Guidance on Estimating System Deficiencies) covering the DCAA concern over a prime contractors failure to perform required cost analyses of proposed subcontract acquisitions when cost or pricing data are required. It is anticipated that industry will send a letter to DCAA requesting rescission of that Memorandum.
• On August 9th the Cost Accounting Standards Board (CASB) published a request for comments on how the Board should proceed with its comprehensive review of the Cost Accounting Standards (CAS) and attendant requirementsÖin developing the Board's plan for performing that review. Comments are due on/before September 25th.
On August 11th NASA implemented, in part, the FAR interim rule (published in the June 6, 2000, Federal Register) on the applicability, thresholds, and waiver of CAS by noticing that NASA has chosen to delegate the authority to approve CAS waivers to the Associate Administrator for Procurement.
• On August 1st NASA published a final rule amending the NASA FAR Supplement to provide guidance on internal NASA procedures for justifying contract bundlingsee the July 2000 Regulatory Update for additional information on contract bundling and FAC 97-19 (below).
On August 3rd NASA finalized its rule covering Inspection of Persons and Personal Effects at NASA Installations or on NASA Property; Trespass or Unauthorized Introduction of Weapons or Dangerous Materials.
NASA has a newly revised Grant Handbook and is in the process of making conforming changes to its FAR Supplement.
• On August 8th GSA published an update on the continuing development of the Federal Management Regulation (FMR)originally named the Federal Property and Administrative Services Regulationparts of the FMR are now in effectÖ. GSA and other executive agency officials use these materials to regulate and prescribe policies, procedures, and delegations of authority pertaining to the management of property and other programs and activities administered by GSA. An exception pertains to the procurement and contract matters covered in the Federal Acquisition Regulation.
• On August 8th OMB revised Circular A-21, Cost Principles for Educational Institutions, to add a standard format for submitting facilities and administrative rate proposals by educational institutions. This revised Circular is effective September 7th.
• On August 4th DoD issued the requisite waivers for the acquisition of certain specified defense related items produced in the United Kingdom to further the reciprocal procurement of defense items. Independently, a recent issue of the Federal Contracts Report has comments purportedly made by the General Counsel from two major defense contractors on the Buy American Act with one of them quoted as predicting in 10 years the Act will be gone.
COMMENT: Subcontractors, are you a world-class supplier? Do you really know your customer?
The most recent NDIA publication, A Study of the Applicability of Federal Acquisition Regulation (FAR) Clauses to Subcontracts under Prime Defense and NASA Contracts is available from NDIA (703 247-2598). Also, the Guide to Fixed-Price Supply Subcontract Terms and Conditions, Second Edition has recently been updated/published by the ABA Strategic Alliances, Teaming and Subcontracting Committee (800 285-2221). These are excellent (time-tested) resources/references in determining applicable flow-down terms and conditions and in the updating process of boilerplate purchase order T&Cs.
• At a recent meeting with industry, Deputy Under Secretary of Defense (Acquisition Reform) Soloway is reported to have indicated, in part, that there are no plans for DoD-wide guidance for on-line auctions.
COMMENT: The current discussion on reverse auctions (sellers submit bid prices as part of an on-line auction) is very interesting and raises a familiar topic. Given the OFPP Act and FAR Part 1 how far can the administration keep going with this de facto repetitive regulatory policy/scheme on such a hot topic especially if it is coupled with a best value procurement? Is this regulatory void in the overall best interest of agencies for non-commercial acquisitions?
The role of regulatory/public participation in policy pronouncements/developments was the subject of a CODSIA letter to Dr. Gansler on December 13, 1999, (7 examples were cited in that letter indicating the absence of public participation on policy items that affected the public). Mr. Soloway also stated at the noted meeting in response to an inquiry on that CODSIA letter, There will not be any formal changes made to the process of reviewing or requesting public comments. What is that process? What is the current criteria for Federal Register publication, Paperwork Reduction Act clearance, review for government-wide applicability of policies, etc.? Who monitors the DFARS?
• Federal Acquisition Circular 97-19 was issued on July 26th with final/interim rules on several items including the following:
- Contract Bundling
- North American Industry Classification System
- Liquidated Damages
- Service Contract Act, Commercial Item Subcontracts
- Small Business Competitiveness Demonstration Program
- Construction Industry Payment Protection Act of 1999
- Deferred Research and Development Costs
- Time-and-Materials or Labor Hours
- Repeal of Reporting Requirements under Public Law 85-804
Recently Published Articles and Notes Include
ADR Tips (co-author) American Arbitration Association Dispute Resolution Times, on-going quarterly series of articles:
Mediator Subject Matter Expertise
Party-Appointed Arbitrator
Baseball Arbitration
Future Speaking Engagements Include
• October 10, 2000, Project Management InstituteOrange County, How ADR Can Be A Viable Project Management Tool.
• October 17, 2000, Los Angeles/South Bay NCMA Chapter, Recent FAR Changes That Impact You!
• October 27-29, 2000, Beijing, China, International Negotiations.
• November 24-26, 2000, Beijing, China, International Business Transactions.
Charles E. Rumbaugh
Back to FASMG's Home Page