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

January 30, 2001


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

NEW REGULATIONS SUBJECT TO A 60 DAY STAY. One of the first actions of the new Administration was a January 20th Memorandum issued by Chief of Staff Andrew Card whereby, absent specified "emergency/urgent" situations, "no proposed or final regulation" may be sent to Office of Federal Register until approved by the new Department/Agency head. For those regulations previously published in the Federal Register but not yet effective, the effective date of those regulations shall be temporarily postponed for sixty days but subject to the previously mentioned proviso. A Memorandum/Regulatory Review Plan was also published in the January 24th Federal Register .

FINAL RULE ON "CONTRACTOR RESPONSIBILITY" CHALLENGED IN COURT ACTION. The Business Roundtable (BRT) filed a suit on December 22, 2000, "in federal court against the so-called 'blacklisting' rule that would revise the Federal Acquisition Regulation (FAR) that governs contractor eligibility for federal contract awards." As noted in the December Update, this rule was published in the December 20th Federal Register . "BRT's lawsuit contends that this regulation would deny federal contracts to bidders based on arbitrary decisions and would violate due process protections for contractors and threatens to penalize employers without even concluding they've done anything wrong."

EXPANDED USE OF CONTRACT TYPES PROPOSED FOR ACQUISITION OF COMMERCIAL ITEMS. On December 29, 2000, the Federal Register noticed a proposed FAR rule "to facilitate greater use of FAR Part 12 for commercial services acquisitions by providing the contract type flexibility embodied in statute." Comments are due on/before February 27, 2001. This proposal
Amends "FAR 12.207 and 16.2 to more closely parallel the contract-type requirements in Section 8002(d) of FASA. FASA states that agencies must use firm-fixed price contracts and fixed-price contracts with economic price adjustments to the maximum extent practicable for commercial item acquisitions. FASA also prohibits the use of cost-type contracts. The rule also revises FAR 12.207 to reflect the 'to the maximum extent practicable' caveat in FASA.
Authorize the use of noncost-based incentives such as award fees and performance or delivery incentives.
Adds language that discusses pricing mechanisms for acquiring commercial services available on a time-and-material or labor-hour basis within the Part 12 contract type restrictions.
Revises FAR 16.202 and 16.203 to indicate that noncost-based award fee and performance or delivery incentives may be used in conjunction with FFP contracts and FP/EPA without changing the FFP or FP/EPA nature of the contract."

AWARD-FEE & AWARD TERM GUIDE ISSUED. AFMC issued its "Award-Fee & Award Term Guide" in order "to provide assistance on the application of award fee and to introduce a new contracting tool, 'award term.'" Award term contracting is described as being a derivative of award fee contracting and is based upon the notion prevalent in the commercial sector of establishing long-term relationships with quality contractors. Under an award term contract, a contractor "earns additional periods of performance instead of award fee" with the process being described as "identical to award fee." The Guide has a November 2000 date.

COMMENT:

It is reported that this tool has been used/planned up to 25 times by various agencies/departments--starting in 1997 when it was used for technical services. Some contracts could extend to 20 years! Some interesting questions on this award term approach include the following:
Can it be used for goods and/or services, any contract type limitations, and how does one fairly and reasonably price and/or re-price (NTEs or range or minimum) for out-years goods/services? Some writings on the topic suggest that re-pricing in the out-years may be advisable in the interest of "fairness;" however, the failure to agree on any "new" price may be a basis for unilateral cancellation of previously awarded term extensions. How is one to ensure "both" parties negotiate in good faith and that any such failure to agree is not a "penalty" and a breach of contract? Some form of ADR may be appropriate.
There must be a bona fide need for services for the award term and the requisite funding must be there. However, what is to ensure that substantially similar needs/services could not be fulfilled by the contractor? Should there any good faith obligation to "locate" a substantially similar need? If there is a need, is re-programming of funds unreasonable?
When should the government have the right to unilaterally cancel any award term after it has been awarded or when would any such cancellation not operate as a penalty under the FAR?
Finally, since award fee contracting has a regulatory basis in the FAR, should award term contracting be far behind in having regulatory coverage/basis?
The Guide can be viewed at
http://www.afmc-pub.wpafb.af.mil/HQ-AFMC/PK/pkp/pkpc/awd-fee/aftguide.doc

Miscellaneous:

On January 5, 2001, Dr. Gansler issued a memorandum on "Commercial Acquisitions" encouraging greater use, and access to, the commercial marketplace and issuing direction on removing some remaining barriers, e.g. "inconsistent commercial item determinations, weak market research, and confusion concerning pricing of commercial items." Attached to that memo is a document that includes several items identified under the caption, "Clarifications of FAR Part 12 For Consistency."
Also, action items included in that memo include establishing commercial acquisitions goals (double the value of FAR Part 12 contract actions awarded in 1999 by the end of FY 2005 and "strive" to have FAR Part 12 contract actions constitute 50% of all contract actions), requesting within 90 days "an implementation plan outlining its (each Service and Defense Agency) methodology to ensure we meet our commercial item acquisition goals and requesting (a) look at a pilot program on centralized database on market research and commercial item determinations." Dr. Gansler went on to state that the DoD "Commercial Item Handbook" will "provide guidance on sound business strategies for acquiring commercial items" and is currently anticipated to be issued in February.

COMMENT:

An earlier version of the Handbook indicated it would have "limited" coverage on some topics including, for example, "rated orders" under the Defense Priority Allocation System, commercial subcontracting, and advanced techniques on how to better negotiate a "fair and reasonable price" for sole source commercial items.

As a follow-up to the December 2000 Update, it is reported that DCMA clarified that its Risk Assessment and Management Program (RAMP) "is a post award system and is not a past performance tool" and is not envisioned to be used "as a source selection tool (at least in its current form)." DCMA is expected to issue guidance on RAMP.

"One of President Clinton's last actions before leaving office has been to lift the economic and trade sanctions against Yugoslavia while maintaining sanctions against former Yugoslav President Slobodan Milosevic, his family, political allies and indicted war criminals." Unrelated, "The U.S. Department of Commerce Department's Bureau of Export Administration (on January 19th) fined (a company) to settle allegations that (it had) committed twelve violations of the antiboycott provisions of the Export Administration Regulations."

COMMENT:

Those antiboycott rules should be reviewed from time to time!

The GSA has granted interim approval to Operational Research Consultants Inc. to provide digital signatures. Once finally approved, it will join AT&T and Digital Signature Trust Co. as authorized providers of digital signature certificates.

Under a provision of FY2001 DoD Authorization Act, some federal employees (contract specialists--GS-1102 and procurement technicians--GS-1106) may not be promoted unless they have earned a bachelor's degree. The prior "option" of passing an exam has been eliminated. Further, the DCMA HR-Director on December 21, 2000, issued a Memorandum on the subject which also stated, "The DAWIA waiver process remains unchanged."

The National Association of Purchasing Management has a satellite seminar scheduled for February 1st on the topic of "Contract Administration & Management." Upcoming ISM broadcasts will include "Supplier Relationships: Selection & Development" on June 14. On March 1st DoD will host a satellite broadcast on "The New 5000: A Blueprint for Future Acquisitions" with Ric Sylvester, Assistant Deputy Under Secretary of Defense (Systems Acquisition) leading the broadcast.

FAC 97-22 was published January 10, 2001, and, generally, finalized previously noticed actions.

Finally, the Army rolled out its "Army University Access Online" on January 15, 2001, a consortium of 29 academic institutions in that learning network--and more are expected to join. E-ArmyU promises the participants wide course availability and transferability of credits.

Future Speaking Engagements Include--

February-April, 2001, Keller Graduate School of Management, "Negotiation" class.
February 12, 2001, Central California Society of Professionals In Dispute Resolution (SPIDR) Chapter, "Is the Use of a Party Employee/Mediator 'Really' Neutral?"
February 16, 2001, ISM Dallas, "Recent ADR Initiatives"
March 9-12, 2001, Beijing, China, "International Negotiations."
April 12, 2001, Anaheim NCMA Chapter, "Recent Regulatory Issues"
April 19, 2001, Phoenix NCMA Chapter, ADR Workshop/Seminar.

2001 Charles E. Rumbaugh

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