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
P.O. Box 2636
Rolling Hills, California 90274

P.O. Box 2095
Burlingame, California 94011


December 21, 2000


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


LONG-AWAITED REPORT ISSUED ON PRICE-BASED ACQUISITION (PBA). Under Secretary of Defense for Acquisition, Technology, and Logistics Gansler issued a Memorandum on November 29th on the topic of "Price-Based Acquisition." As provided in that Memorandum, PBA is defined as
"a way of doing business that begins with identification of a need and flows through post-award activities. The decision to use a price-based approach is driven by choices made during the Requirements Definition process, is heavily dependent on risk mitigation , the chosen acquisition strategy, and use of competition . In its purest form PBA results in a firm-fixed price contract (or fixed-price with performance incentives with incentives not based on cost)."
In his Memoranda Dr. Gansler outlines 21 recommendations resulting from the release of a 260 page final report (http://www.acq.osd.mil/ar/doc/pbarpt.pdf) which he endorses. He also "requests the Service Acquisition Executives to designate at least three programs and the Ballistic Missile Defense Organization Acquisition Executive designate at least one program, to use as test beds for gaining more insight into the application of PBA in research and development and life-cycle support contracts." An implementation team will be chartered and track each program. It is noted some of the PBA recommendations can be used today and others will be further reviewed in order to ascertain any statutory/regulatory barriers to full implementation.

COMMENT:

The report resulted from the chartering of a study team required in the FY 1998 Defense Authorization Act. Noteworthy that the report has a clear notation on it that "not all conclusions or recommendations are supported by all team members." The Under Secretary acknowledges the report "adds significantly to the body of knowledge in this area." However, could PBA evolve into (a return to) fixed-price R&D contracting but under a different name?



FINAL RULE ISSUED ON "CONTRACTOR RESPONSIBILITY." Another "long-awaited" final rule was published in the Federal Register on December 20, 2000, on the topic of "Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings." This rule (effective January 19, 2001) was issued to clarify as to "what constitutes a 'satisfactory record of integrity and business ethics' in making contractor responsibility determinations under FAR Part 9, and revising certain cost principles under FAR Part 31 related to labor relations, and legal and other proceedings." The introductory material goes on to state, "It is clear that, in many cases, the Government continues to do business with contractors who violate laws, sometimes repeatedly. By giving contracting officers a clearer basis for declining to contract with such businesses, the Government can improve the integrity of the contracting process, reduce the risk of fraud or noncompliance, and encourage standards of integrity and compliance with the law." The FAR will provide that "a satisfactory record of integrity and business ethics includes satisfactory compliance with the law including tax, labor and employment, environmental, antitrust, and consumer protection laws."

COMMENT:

The published rule also goes over point-by-point some of the public comments submitted in response to prior notices on this subject--a very refreshing (and highly commendable) aspect of the regulatory promulgation process.

PROPOSED CHANGES TO THE FEDERAL SUPPLY SCHEDULE (FSS) RULES. The December 19, 2000, Federal Register noticed a proposed change in the FSS that would add to FAR 8.401(d) a "policy regarding incorporating incidental supplies or services (open market--noncontract items) that are not included in the schedule contract into an order placed against the schedule contract" permitting additions for the "administrative convenience of the contracting officer;" revises FAR 8.405-7(b) to bifurcate the decision/dispute resolution process whereby the ordering office contracting officer must refer "all disputes that relate to contract terms and conditions to the schedule contracting officer for resolution under the Disputes clause of the contract;" and deletes FAR 51.103(b) such that the General Services Administration must not be notified "when a Federal Supply Schedule contractor refuses to honor an order placed by a Government contractor under an agency authorization." Comments are due on/before February 20, 2001.

COMMENT:

Interesting proposal. Several questions come to mind including: If adopted should/will the proposal affect current contracts in whole or in part? Should the procedural process on how to add noncontract items be further specified/clarified beyond that which is provided? And, whether or not, the phrase "for administrative convenience , an ordering office" may add such items is a condition precedent whereby specific findings are required in order to trigger the authority to add such items? How does one (correctly) differentiate as to who has the warrant when a clear demarcation is not provided between the different contracting officers--when do "terms and conditions" not relate to "performance?"

Miscellaneous:

On December 15th an interim final rule was published by OMB in the Federal Register which "requires agencies to pay an interest penalty whenever they make an interim payment under a cost- reimbursement contract for services more than 30 days after the agency receives a proper invoice for payment from the contractor." Further, "this interim final rule shall apply to all interim payment requests received under cost-reimbursement service contracts awarded on or after December 15, 2000. At the discretion of the agency, this interim final rule may be applied to interim payment requests received under cost-reimbursement service contracts awarded before December 15, 2000. However, no interest penalty shall accrue under this rule for any delay in payment that occurs prior to December 15, 2000."

COMMENT:

Track those payment requests! Seems a reasonable exercise of discretion to pay for the amount of any delay on previously awarded contracts. Note that no requirement for consideration for applicability to current contracts!

Recent Single Process Initiative discussions between DCMA and industry on whether prime contractors should be empowered to waive TINA requirements on a case-by-case basis for subcontractors and whether DCAA could perform TINA related audits of subcontractors were inconclusive as to the necessity for action in these areas.

COMMENT:

Clearly, if contractors are to streamline and commercialize their business operations these could be steps in the right direction.
And, on a related item, the DCMA Risk Assessment and Management Program (RAMP) should envision elimination of some of these types of activities.
Further, risk assessments on all defense contractors are being placed into a "huge database" by DCMA which will be accessible by procurement agencies--is this for pre-award review and/or making award decisions? Does RAMP have some of the characteristics of "another past performance" data collection/rating system? In any event should affected contractors have an opportunity to review/discuss/comment on their risk assessments before they are entered in a "huge database ?"
The electronic submission of invoices and progress payment requests to payment offices, e.g. DFAS Columbus, has reportedly expedited payments.

On December 13th a final DFARS rule was published which "amends the weighted guidelines method of profit computation at DFARS 215.404-71 to combine the management and cost control elements of the performance risk factor; to establish a new 'technology incentive' range for technical risk; and to slightly modify some of the cost control standards. In addition, the rule amends DFARS 215.404-4(b) to clarify that DoD departments and agencies must use a structured approach for developing a prenegotiation profit for fee objective on any negotiated contract action when cost or pricing data is obtained." This rule was effective on December 13, 2000.


On December 13th a final DFARS rule was published which
"Revises the prescription for use of the clause at 252.242-7004, Material Management and Accounting System (MMAS) to--
Require inclusion of the clause only in cost-reimbursement contracts and in fixed-price contracts with progress payments made on the basis of costs incurred by the contractor as work progresses under the contract; and
Eliminate the requirement for inclusion of the clause in contracts with small businesses, educational institutions, and nonprofit organizations.
"Revises the clause at 252.242-7004 to replace the requirement for an MMAS 'demonstration ' with a requirement for the contractor to--
Have policies, procedures, and operating instructions that adequately describe its MMAS; and
Provide to the Government, upon request, the results of internal reviews that it has conducted to ensure compliance with established MMAS policies, procedures, and operating instructions.
"Makes the dollar threshold for conducting an MMAS review consistent with the threshold for conducting a Contractor Insurance/Pension Review ($40 million of qualifying sales to the Government during the contractor's preceding fiscal year).

1. "Clarifies the responsibilities of the ACO and the MMAS team members."
   
   

Executive Order 13177 was issued on December 4, 2000, on a "National Commission on the Use of Offsets in Defense Trade (in that the Commission) will be responsible for reviewing and reporting on (a) current practices by foreign governments in requiring offsets in purchasing agreements and the extent and nature of offsets offered by United States and foreign defense industry contractors; (b) the impact of the use of offsets on defense subcontractors and nondefense industrial sectors affected by indirect offsets; and (c) the role of offsets, both direct and indirect, on domestic industry stability, United States trade competitiveness, and national security." A Report will be due no later than 12 months from the staffing of the Commission. Additional info may be obtained from Jangela Shumskas, phone 703/253-0929.

On December 13th a final DFARS rule was published which "amends DFARS Part 250, Extraordinary Contractual Actions, to clarify that the Under Secretary of Defense (Acquisition, Technology, and Logistics) may indemnify a contractor against unusually hazardous or nuclear risks, in accordance with the acquisition."

A draft DoD Guide on "Intellectual Property: Navigating Through Commercial Waters--Issues and Solutions When Negotiating Intellectual Property With Commercial Companies" is out for review. This Guide is aimed at assisting the acquisition community in meeting the challenge of negotiating intellectual property contract terms with commercial firms that ordinarily do not conduct business with DoD.
The DoD Commercial Item Guidebook is expect to be released before the change in Administration.

COMMENT:

See the October Update for some shortcomings noted in an earlier draft that goes to the "heart" for the necessity of that Guidebook, i.e. arriving at fair and reasonable prices for commercial items. Also, the December 5th issue of the Federal Contracts Report cites a recent GAO Report with an interesting note on recent (significant) price increases for spare parts purchased by DLA.

DCMA on November 15th "advised" its contracting officers that in certain situations they can "roll forward" to future years disputed costs in an overhead claim in order to expedite the contract close out process.

COMMENT:

Should something else be considered since (apparently) there is not enough time for difficult negotiations? Industry/Government use to have bottom line negotiations/settlements of overhead claims--is that where the "real" focus should be--on the process? If appropriated contract funds are not due to expire should the parties negotiate the disputed costs rather than "kicking the can ahead?" Can contract funds to/for future years be properly used for/in the ultimate payment of previously "disputed" overhead costs for prior years, i.e. is this a "trap?" Be cautious and see counsel in the drafting of any contract modification on the subject.

Finally, on December 1st the Department of Interior, National Park Service, issued a notice of its intent on proposing contracting extensions (up to one year) for numerous "concession authorizations (that) will expire by their terms on or before December 31, 2000. The National Park Service has determined that the proposed short-term extensions are necessary in order to avoid interruption of visitor services and has taken all reasonable and appropriate steps to consider alternatives to avoid such interruption."

COMMENT:

Talk about planning! And, talk about "award term" contracting!


HAPPY HOLIDAYS!


Charles E. Rumbaugh

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