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

9 July 2000

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


DCAA ISSUES "GUIDANCE" ON ESTIMATING SYSTEM DEFICIENCIES.
A June 2nd DCAA Memorandum was issued to cover the "concern" over "a prime contractor's failure to perform required cost analyses of proposed subcontract acquisitions when cost or pricing data are required." After a brief analysis, the DCAA concludes, in part, that the FAR "requires the prime contractor to provide both a summary of its cost analysis and a copy of cost or pricing data along with its own submission for those subcontracts that are expected to be the lower of either $10 million or more, or both more than the cost or pricing data threshold and more than 10 percent of the total price." The Memorandum also addresses "Estimating System Deficiencies" in connection with the absence of such subcontract reviews by the prime contractor.

Specific DCAA "Guidance" in the Memorandum includes:

"A prime contractor subject to FAR 52.215-20 is required to obtain subcontract cost or pricing data and conduct cost analyses for those subcontracts expected to exceed $500,000 (where no exception applies), prior to the negotiation of the prime contract regardless of when the subcontract is negotiated. The cost analyses are to be submitted to the government along with the contractor's own cost or pricing data submissions.

"A prime contractor subject to FAR 52.215-20 is required to obtain cost or pricing data and conduct cost analyses for those subcontracts expected to exceed the lower of either $10 million or more, or both more than the pertinent cost or pricing data threshold and more than 10 percent of the prime contractor's proposed price. The contractor's subcontract cost analyses and the subcontractors' cost or pricing data are to be submitted to the government as part of the contractor's own cost or pricing data (before negotiation of the prime contract )."

The Guidance goes on to state that this failure to "submit" represents a "significant estimating system deficiency" and a failure to conduct subcontract cost analyses "is not satisfied by substituting the use of historical decrement factors."

COMMENT:

Who has the warrant? FAR Part 15 has historically provided Contracting Officers the requisite flexibility on this timing/submittal issue with various provisions on the topic. This purported "Guidance" removes that flexibility as well as "eliminates" any Contracting Officer judgment in the area on how/when to ultimately determine a fair and reasonable price for a specific acquisition . Further, this "Guidance" is inconsistent with other specific provisions of the FAR and a deviation under FAR Part 1 is required prior to effectiveness! If DCAA is of the opinion the regulations should be "clarified," i.e. to justify the necessity that any "guidance" on the topic be issued, DCAA should recommend a FAR case be opened in order to revise inconsistent parts of the FAR, propose changes to the FAR as to the expanded scope of Purchasing System coverage, and obtain clearance from OMB (with appropriate control number) for the extra paperwork collection requirements imposed by this "Guidance!" Absent Guidance rescission, this will cause the nation's warfighters to be waiting for the supplies and the successes, and empowerment, of going to streamlined commercial practices will be set back!

CONTRACT BUNDLING RECEIVING "GREATER" ATTENTION.
On May 22nd and June 7th two Memoranda were issued by DoD (signed by Dave Oliver) on the subject of Contract Bundling. Specifically, the first Memorandum advises the recipients that Logistics Management Institute (LMI) will conduct a four month study on the subject in order "to identify how 'significant/measurably substantial benefits' estimated in a contract consolidation (bundling) analysis are determined, and how actual benefits from consolidated (bundled) contracts are verified and measured." LMI will interview acquisition/contracting personnel during the study. The second Memorandum requires the Director of the Office of Small and Disadvantaged Business Utilization (OSADBU) to periodically brief Mr. Oliver on the topic and requires that OSADBU review "thirty days prior to release of any solicitation or draft solicitation involving bundled contract requirements" the acquisition strategy/acquisition plan, bundling justification, and a copy of the solicitation.

Best Practices for Past Performance. OFPP in May issued its multi-page "Best Practices For Collecting and Using Current and Past Performance Information." The chapter headings include introductory material, evaluating and recording current performance, and using current and past performance as a source selection factor. Appendices include sample reports, performance assessment elements for large systems, performance-rating guidelines, sample questions for telephone interviews and questionnaires, and automated past performance with points of contact.

COMMENT:

This should be a best "seller" for everyone on the "acquisition team" and is available at <http://www.arnet.gov/Library/OFPP/BestPractices/pastpeformguide.html>

4. Proposed DFARs changes to management and accounting system rules. On July 3rd the Federal Register provided notice of a proposed DFARS rule "to revise the criteria for determining when review of a contractor's material management and accounting system (MMAS) is needed. The rule also replaces the current requirement for an MMAS "demonstration" with a requirement for the contractor to provide adequate evidence that it has conducted internal audits to ensure compliance with its MMAS policies, procedures, and operating instructions." Comments are due on or before September 1, 2000.

Miscellaneous:

On June 30th President Clinton signed into law the "Electronic Signatures in Global and National Commerce Act" (S.761, PL 106-661). With certain "minor" exceptions the Act has a broad preemption provision over any other statute/law/regulation and provides that "a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form." This Act may be described, at a minimum, as a "so-called equal dignity" law with "written" documents and will ensure the validity of electronic transactions using electronic signatures. The Act is generally effective October 1, 2000, and has topics that include required consumer disclosures/protections, record retention (effective March 1, 2001), business of "insurance," consent provisions, etc.

As noted, the Act applies to "transactions" which means "an action or set of actions relating to the conduct of business, consumer, or commercial affairs including any of the following types of conduct: the sale, lease, exchange, licensing, or other disposition of (i) personal property, including goods, and intangibles, (ii) services, and (iii) any combination thereof; and the sale, lease, exchange, or other disposition of any interest in real property, or any combination thereof." Certain exceptions to the broad preemption doctrine of the Act are generally provided if a State, for example, enacts the Uniform Electronic Transactions Act. Further, the preemption provisions will "not apply to a contract or other record to the extent it is governed by the UCC, as in effect in any State, other than sections 1-107 and 1-206 and Articles 2 (Sales of Goods) and 2A (Leases). "

What is noticeable by its omission is the term "governmental transactions." Some post-legislative "history" provides that "the bill does not force Federal and State government agencies to use or accept electronic signature and electronic records in contracts to which they are parties." And, Section 104 covers record retention "requirements" by Federal/State Government.

COMMENT:

Accordingly, expanded regulatory changes may be required by the Federal Government if it is going to continue in the direction of commercialization of the acquisition process. If commercial firms "require" electronic signatures, etc. will the FAR be far behind in its coverage on the topic of "acquisition of commercial items?" Separately, GSA awarded certificates to two companies which allow them to authenticate Digital signatures for federal agencies. And, in the international area there is the previously ratified UN Convention on Contracts for the International Sale of Goods (CISG) which "eliminates" any requirement for a "writing" in applicable international commercial sale/purchase of most goods.

A future Update will go into greater detail on the provisions of this landmark legislation. Talk to your counsel on implementation issues.


FAC 97-18 was issued June 6, 2000 and finalized previously noticed changes. Outlined topics in this FAC are the following:

Rescission of Office of Federal Procurement Policy Letters
FAR Drafting Principles
Requirements Supporting Procurement of Recycled Products and
Environmentally Preferable Services
General Records Schedules
Federal Supply Schedules Small Business Opportunities
Trade Agreements Thresholds
Restrictions on Acquisitions from Yugoslavia and Afghanistan
Applicability, Thresholds & Waiver of Cost Accounting Standards Coverage-
Interim

On the last item--CAS--this "interim rule amends FAR Part 30, Cost Accounting Standards Administration, and the provision at FAR 52.230-1, Cost Accounting Standards Notices and Certification, to implement Section 802 of the National Defense Authorization Act for Fiscal Year 2000 (Pub. L. 106- 65) and the Cost Accounting Standards (CAS) Board's interim rule, Applicability, Thresholds and Waiver of Cost Accounting Standards Coverage. The FAR rule revises policies affecting which contractors and subcontractors must comply with Cost Accounting Standards. The rule--
Amends the provision at FAR 52.230-1, Cost Accounting Standards Notices and Certification, to remove the requirement that a contractor or subcontractor must have received at least one CAS-covered contract exceeding $1 million ('trigger contract') to be subject to full CAS coverage, since the CAS Board removed this 'trigger contract' amount from its corresponding solicitation provision, Cost Accounting Standards Notices and Certification, at 48 CFR 9903.201-3. The CAS Board established a new 'trigger contract' dollar amount of $7.5 million in the CAS applicability section of its regulations (48 CFR 9903.201-1) rather than in its solicitation provision. Since FAR 30.201-1 already references this section, no FAR changes were required to address the new 'trigger contract' dollar amount;

Increases the dollar threshold for full CAS coverage from $25 million to $50 million; and

Adds procedures and conditions for agency waiver of the applicability of CAS."

On July 3rd the Federal Register published a proposed rule to raise the TINA threshold by $50,000 to reflect inflation since the base year of 1994. Comments are due on/before September 1, 2000.

On June 30th a proposed significant FAR change, to that previously published for comment, was published in the Federal Register dealing with "responsibility determination" of a contractor's "satisfactory record of integrity and business ethics" in connection with various laws including labor, employment, environmental, antitrust, or consumer protection. Comments are due on/before August 29, 2000.

The Department of Energy has published on the web its "Reference Book for Contract Administrators" at
<http://www.pr.doe.gov/ReferenceBook/RefBookTOC.htm>

This is an excellent reference tool for DoE's major site and facility management contracts and provides "a one place location" for existing policies/procedures, etc.

In response to a proposed rule by the Defense Logistic Agency on ADR, several ADR provider organizations responded with letters generally challenging the de facto ADR "system" that is currently in place at DLA with its method of selecting, i.e. "acquiring," DLA employees as ADR "Neutrals" to the exclusion of the private ADR sector.

And, the Deputy Assistant Secretary of Defense (Civilian Personnel Policy) of DoD recently issued "Guidance On Professional Liability Insurance" which addresses the requirement, pursuant to two Appropriations Acts, for "agencies to reimburse qualified employees for not to exceed one-half of the costs incurred for professional liability insurance." Professional liability and other terms are defined in this Guidance. It is DoD policy to "reimburse covered employees not to exceed $150 per year. The reimbursement may be based on either fiscal or calendar year basis, whichever is more efficient to administer. Non-appropriated fund (NAF) employees and military personnel are not covered by the law."


Charles E. Rumbaugh

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