Regulatory Update

ISM-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 and Mediator

Tel: 310.373.1981
Fax: 310.373.4182
Toll Free: 888-ADROffice
E-mail: ADROffice@Rumbaugh.net

PO Box 2636
Rolling Hills, California 90274

PO Box 2095
Burlingame, California 94011

29 May 2001

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

1. GAAP IN LIEU OF CAS? A March 2, 2001, Memorandum by DCAA Director William Reed was sent to the Principal Deputy Assistant Secretary of the AF (Acquisition & Management) Darleen Druyan in response to her mentioning at a meeting in February “the possibility of introducing legislation to permit a pilot program where contractors would rely on generally accepted accounting principles (GAAP) as guidelines for cost accounting.” Attached to that DCAA memo was an extensive paper that compares and contrasts GAAP with cost accounting. DCAA concludes with the statement, “GAAP is not an effective substitute for cost accounting standards. Contractors, Government program managers', contracting officers, auditors, and payment officials need consistent, reliable cost accounting data. CAS provides useful and effective guidelines that are consistent with commercial cost accounting practice that help ensure this needed cost information is available and reliable.”
COMMENT: Does “consistent” mean the same as that used in commercial practices? Also, see the April Update which noted the 1993 industry work replacing (most of) the Cost Accounting Standards with GAAP—which did not go beyond the early discussion stages by industry.

2.FAR ESTABLISHES PREFERENCE FOR PERFORMANCE-BASED CONTRACTING FOR SERVICES. On May 2, 2001, the Federal Register had an interim rule revising the FAR to establish an explicit preference for performance-based contracting. The highest preference will be a firm-fixed-price performance-based contract or task order, then a performance-based contract or task order that is not firm-fixed-price and lastly contracts or task orders that are not performance-based. Comments are due on/before July 2, 2001. Earlier, a March 9, 2001, Memorandum by OMB Deputy Director Sean O'Keefe directed “agencies to use performance-based techniques on 20 percent of all service contracts in fiscal 2002.”

3. DEFENSE LOGISTICS AGENCY PUBLISHES FINAL ADR RULE. On May 17, 2001, DLA published in the Federal Register its final ADR “solicitation provision.” COMMENT: This rule should be carefully read and analyzed before implementation. Several comments on drafting/policy issues have been distributed but are beyond the scope of this Update.

Miscellaneous:

It has been reported that the Department of Commerce “Bureau of Export Administration's (BXA's) Regulations and Procedures Technical Advisory Committee (at a recent meeting provided) the status of (its) pilot test of a new deemed export license (DEL) process…(which would) streamline BXA procedures by permitting… the addition or deletion of individual foreign nationals and the modification to conditions on the release of controlled technology…. Once final procedures for the DEL process have been reviewed, approved, and posted to BXA's Web site, BXA will consider the DEL process to be fully operational and participation will be opened to all eligible companies.”
The issue on how to achieve/arrive at fair and reasonable pricing of goods/services seems to be surfacing again. Recent background/comments on this unfortunately pervasive item include the following:

First, the January Update highlighted some aspects of the new non-regulatory “enacted” Air Force Award Term contract tool which is a derivative of the FAR/DFARS Award Fee contract technique. One of the noted concerns in that Update was the absence of any meaningful methodology for the establishment of fair and reasonable prices and/or re-pricing for out-years goods/services. It was also stated that “the failure to agree on any 'new' price may be a basis for unilateral cancellation (by the Air Force) of previously awarded term extensions.

” The April 18, 2001 AF briefing charts on “Commercial Acquisition & Pricing” used by officers from the “Office of the Deputy Assistant Secretary of the Air Force for Acquisition (Contracting), Contract Policy & Implementation Division” reminds one of another item in the January Update which referenced the January 5, 2001, Dr. Gansler memorandum on “Commercial Acquisitions”—“encouraging greater use, and access to, the commercial marketplace and issuing direction on removing some remaining barriers.” In those briefing charts it is noted that “126 DoD contract actions (were) identified (by the IG) with inadequate price justifications.” “Alleged Overpricing” was identified in the charts as including “prior prices used not justified as reasonable,” “used competitive pricing when no competition existed” and “accepted costs unsupported.” Also, a specific GAO observation is also cited in the charts: “Buyers did not demonstrate fair and reasonableness of prices for sole source contracts.” Is it a “supply/competition” problem or a “pricing/negotiation” problem?

Now a more global approach to this clearly unilateral “determination/negotiation” concept is being proposed, i.e. the failure of contractors to “close-the-gap” and agree with the Government on open items under the “guise/ruse” of expanding the use of Alternative Dispute Resolution (ADR). At the April 17-18, 2001, Air Force ADR Conference it was reported that the AF would “amend the AF CPAR Instruction to add the use of ADR as an evaluation factor. This factor would relate to contractors' timely identification and resolution of issues in controversy.” And, all of this while the GAO states the Government is unable to justify fairness and reasonableness in some pricing actions on the “buying” side of the equation. Do all parties need to “dance the negotiating dance?”

Some well known negotiating techniques seemed to have been lost with all this “direction.” First, it should be recognized that ADR is a voluntary process, as provided by statute, and implementation as stated above as “part of a CPAR process” is non-voluntary! Any “stick” approach in attempting to motivate “unilateral” agreement is contrary to law and is a highly questionable policy. This “direction” needs to be re-reviewed to recognize several overarching aspects…
The concept of mutuality and good faith is necessary in the resolution of disputes and this CPAR direction is unilateral and (by some) coercive in nature—all parties should be motivated in a positive way to come to closure.
Many disputes involve subcontractors and small businesses yet none of those entities are covered by an AF policy “encouraging” the use of ADR on a voluntary basis—for example, hundreds of AF program ADR agreements are silent on the topic. Industry in a CODSIA January 8, 1998, letter on the then proposed ADR changes to the FAR recommended, in part, on having an ADR policy that encourages settlements and not just at the prime contract level by having expressed FAR policy changes on the topic of subcontractors—this was ignored by the Government in the final FAR rule and has been similarly ignored by the military departments to the detriment of all.
This proposed CPAR policy change “penalizes” contractors who do not (potentially) elect to incur “unallowable” costs to resolve disputes. Contractors should not be directed to incur unallowable costs as this proposal does! Industry in the same 1998 letter recommended an incentive in the use of ADR by clarifying that ADR costs should be allowable—this positive “carrot” was also ignored in the final FAR ADR rule and most recently by the Air Force in its AF/Industry IPT on ADR. The Government should provide the requisite regulatory framework for the positive use of ADR.
Finally, and as stated in earlier Updates, the proper focus could be on that which encourages the “availability” of the full range of ADR techniques including, for example, FAR/DFARS authority to use “arbitration” (when selected by the parties) and, specifically, “baseball arbitration” which would enhance the establishment of an environment for realistic and reasonable offers/counteroffers by all parties!
However, current regulations preclude the Government and contractors from voluntarily electing to use these “non-specified” ADR techniques! Industry also stated in that 1998 letter that “arbitration” should be included in the FAR definition of “ADR.” Having a regulatory structure that includes the spectrum of voluntary ADR methods which may be elected by the parties should be a goal. However, specifying “arbitration” as a FAR ADR option may require (in the opinion of a small segment within the Government, but not with industry nor the private ADR sector) some statutory changes.
However, industry stated in 1998 the statutory basis was there for “arbitration” and, most importantly, the Government has failed to act, by statute revision or otherwise, for over three years to expand the list of permitted ADR methods to include the use of “arbitration” as a negotiation tool.

And, thus, these types of disincentive-type announcements are on the drawing boards or have been implemented/institutionalized: CPAR changes “requiring” the use of ADR and expenditure of unallowable costs, increasing audits finding inadequate pricing actions for commercial/military items, contract clauses calling for unilateral cancellation of award terms if the contractor does not agree with the Government position on pricing, etc. Finding and providing process tools that ensure all parties negotiate in good faith and providing that a mere impasse does not constitute a “penalty” on/to one party is a worthy objective. How do we get there? Additional regulatory permitted/voluntary ADR methods may be an appropriate vehicle.
The GAO Commercial Activities Panel studying federal outsourcing issues recently announced some operating rules, e.g. two-thirds vote for any panel recommendation (which are due to Congress by May 1, 2002). The Panel will have its first public hearing on June 11th in Washington DC—with e-mail reservations through A76panel@gao.gov. (Federal Register contact point is noted as woodsw@gao.gov). Additional meetings are planned later in Indianapolis and San Antonio. Several Panel working groups are currently being staffed while numerous issues have been recommended to the Panel including those under the “headings” of Cost/Accounting aspects; Public/Private competitions and barriers to effective competition; definitions for agency core activities, inherently governmental and commercial activities; A-76 process reforms; acquisition workforce issues; FAIR; Small Business issues, etc.
A May 17, 2001, Memorandum on “Risk Assessment and Management Program” (RAMP) was issued providing a status on implementation of RAMP by DCMA. RAMP “is intended to reflect the dynamic environment in which DCMA operates” which is to have “current, accurate, complete real time supplier information …for fact-based decision-making during the execution of thesupplier risk management process.” RAMP software application is now complete and fulfilling critical DCMA mission needs.

On May 21, 2001, DCMA also noticed for comment updated direction on Preaward Surveys as well as on Integrated Product Teams.
Several new AFFARS items are posted at www.safaq.hq.af.mil/contracting/affars.
The ABA Public Contract Law Section E-Commerce Committee's FAR Review Project continues with the stated purpose of determining “whether the FAR and agency FAR supplements currently provide adequate guidance on the use of electronic media conducting federal agency procurements and, if not, to propose changes or additional guidance to the FAR or agency supplement, as appropriate.” (See FAR 4.5 and OFPP Act §30 on mandate on e-commerce). The effort is on-going and extensive. Also, DoD announced that its fourth annual DoD Electronic Commerce Day Conference (“A Revolution in eBusiness Affairs”) will be held in Alexandria, VA on June 6/7, 2001.

Also, the ABA Task Force on E-commerce and ADR has issued its Draft Preliminary Report and Concept Paper. An open meeting is planned at the ABA offices in Washington DC on June 22nd in order to “generate feedback and discussion of the draft and the related issues raised in the draft relating to online dispute resolution.” Point of contact is eADR@u.washington.edu and the Task Force website is atwhere the Report/Paper can be viewed.
Due date for comments to the April 3, 2001 Federal Register notice on “Contractor Responsibility” has been extended to July 6, 2001.
Federal Acquisition Circular 97-22 effectiveness has been delayed 60 days.

Future Speaking Engagements Include-

June 14, 2001, Anaheim NCMA Chapter, "Recent Regulatory Update Issues." ·
August 16, 2001, Newport Beach, "International Contracting Between United States and Middle East Countries." ·
September 12, 2001, Sacramento NCMA Chapter, "How to Negotiate Fair Prices in Sole Source Procurements." ·
October 5, 2001, California State University, "21st Century B2B Advanced Negotiation Workshop."

Recent Publications include --

Since 1997 I have been the lead author in various alternative dispute resolution (ADR) notes/columns under the caption of “ADR ‘Tips’” published in the American Arbitration Association Dispute Resolution Times. These short “Tips” provide insight for those new or experienced in the area of ADR. Titles of recent “Tips” include the following -- if you want copies, please let me know:
“How to Make Arbitration Awards ‘Binding’ On Non-Parties”
“How to Manage Arbitrations When There are Thousands of Exhibits”
“When are ‘Corrections’ to Arbitration Awards ‘Permitted’”
“Disclosure Obligations of the Parties to an Arbitration”
“Whose Award Is It?”
“What Is Mediation?”
“Mediator Subject Matter Expertise”
“Party-Appointed Arbitrator”
“Baseball Arbitration I and II -- Or, How to Facilitate Negotiations / Settlements”
“Preliminary Hearings I and II”

Contracts and export compliance Internet Sites

Rev. April 4, 2001

EXPORT and IMPORT COMPLIANCE

Department of Commerce/Export Administration Regulations
Department of Commerce Bureau of Export Administration (BXA) http://www.bxa.doc.gov
Department of Commerce Bureau of Export Administration (site search) http://www.bxa.doc.gov/sitesearch.htm
Department of Commerce Bureau of Export Administration - Newport Beach Office http://www.primenet.com~bxawest
Department of Commerce Bureau of Export Administration – EAR Training Courses http://www.primenet.com/~bxawest/work1.html
Export Administration Regulations (EAR) http://w3.access.gpo.gov/bxa/ear/ear_data.html

Department of State/International Traffic in Arms Regulations
Department of State Export Licensing Forms http://www.pmdtc.org/forms/dlforms.html
Department of State Office of Defense Trade Controls (ODTC) http://www.pmdtc.org/
International Traffic in Arms Regulations (ITAR) http://www.saied.org/indexafree.html
Society for International Affairs (SIA) http://www.saied.org/indexafree.html
Society for International Affairs - ITAR Training Courses http://www.saied.org/events.html

Department of the Treasury
Department of the Treasury Office of Foreign Assets Control (OFAC) http://www.treas.gov/ofac

U.S. Customs Service
U.S. Customs Service http://www.customs.ustreas.gov/

U.S. Laws and Regulations
Code of Federal Regulations http://www.access.gpo.gov/nara/cfr/cfr-table-search.html
Federal Register http://www.access.gpo.gov/su_docs/aces/aces140.html
Thomas Legislative Information http://thomas.loc.gov/

Federal acquisition regulations
FAR (GSA Acquisition Reform Network) http://www.arnet.gov/far/
FAR (USAF FARSite) http://farsite.hill.af.mil/
FAR (Department of Defense) http://www.acq.osd.mil/dp/dars

FEDERAL ACQUISITION REGULATIONS SUPPLEMENTS
DOD FAR Supplement (DFARS) http://www.acq.osd.mil/dp/dars
DoD Grant and Agreement Regulations (DoDGARS) http://web7.whs.osd.mil/html/32106r.htm
Air Force FAR Supplement (AFFARS) http://farsite.hill.af.mil/vfafar1.htm
Army FAR Supplement (AFARS) http://acqnet.sarda.army.mil/library/zpafar.htm
NASA FAR Supplement (NFS) http://www.hq.nasa.gov/office/procurement/regs/nfstoc.htm
Navy Acquisition Procedures Supplement (NAPS) http://www.abm.rda.hq.navy.mil/naps/index.html

Federal Laws and Regulations and miscellaneous resources
Acquisition Reform Network http://www.arnet.gov/

Contains extensive links to acquisition information.
Commerce Business Daily http://cbdnet.access.gpo.gov/index.html
Free version of the Commerce Business Daily.
Cost Estimating Resource Links (hosted by NASA) http://www.jsc.nasa.gov/bu2/resources.html
Cost and Pricing Reference Guides http://www.gsa.gov/staff/v/volumes.htm
Defense Acquisition Deskbook http://web2.deskbook.osd.mil/default.asp
Federal Acquisition Jump Station http://nais.nasa.gov/fedproc/home.html
Provides links to Internet sites for federal procurement information.
Federal Register http://www.access.gpo.gov/su_docs/aces/aces140.html
FedLaw http://fedlaw.gsa.gov/
FedWorld Information Network (Dept. of Commerce) http://www.fedworld.gov/
A “one-stop shop” for locating and ordering government information.
Jane’s Defence Discovery www.defence-discovery.com
Search over 3,000 defense-related sites containing over 2 million documents.
NCMA South Bay Chapter Newsletter and Legislative Update Service http://www.ncmalasb.org/news-regs.htm
National Technical Information Service (Dept. of Commerce) http://www.ntis.gov/about/
Resource for government-funded scientific, technical, engineering, and business information.
National Technology Transfer Center http://www.nttc.edu/
Links to federal laboratories.
National Archives & Records Administration http://www.access.gpo.gov/nara
Public Laws http://www.access.gpo.gov/nara/#pl
Standards Documents Library http://www-library.itsi.disa.mil/index.html
U.S. Code (Cornell University) http://www4.law.cornell.edu/uscode/
U.S. Code (House of Representatives) http://uscode.house.gov/usc.htm
U.S. Code of Federal Regulations (GPO Web Site) http://www.access.gpo.gov/nara/cfr/cfr-table-search.html

Government Agencies
Air Force http://www.af.mil/
Army http://www.army.mil/
Coast Guard http://www.uscg.mil/
U.S. Customs Service http://www.customs.ustreas.gov/
Defense Contract Audit Agency (DCAA) http://www.dtic.mil/dcaa/
Defense Contract Management Command (DCMC) http://www.dcmc.hq.dla.mil/
Defense Finance and Accounting Service (DFAS) http://www.dfas.mil/
Defense Logistics Agency http://www.dla.mil/
Defense Threat Reduction Agency (DTRA) http://www.dtra.mil/
Department of Commerce http://www.doc.gov/
Department of Defense http://www.defenselink.mil/
Federal Communications Commission http://www.fcc.gov/
General Accounting Office http://www.gao.gov/
General Services Administration (GSA) http://www.gsa.gov/
Marine Corps. http://www.usmc.mil/
NASA http://www.nasa.gov/
National Guard http://www.ngb.dtic.mil/
National Science Foundation http://www.nsf.gov/
Navy http://www.navy.mil/

National contract management association
NCMA National http://www.ncmahq.org/
NCMA Southwest Region (Arizona; California; Nevada) http://www.swrncma.org .
NCMA Beach Cities Chapter (Long Beach) http://www.ncma.8m.com/
NCMA Orange County Chapter http://www.csupomona.edu/~jbwyatt/swrncma/orange.htm
NCMA South Bay Chapter http://www.ncmalasb.org/
NCMA South Bay Chapter Newsletter and Legislative Update Service http://www.ncmalasb.org/news-regs.htm

Search Engines
GOOGLE http://www.google.com

STATE LAW NEWS
Council of State Governments www.statesnews.org/

TRAINING
Defense Acquisition University http://www.dau.mil/
DoD Education Gateway http://www.acq.osd.mil/ddre/edugate/
Federal Publications Seminars http://www.fedpubseminars.com/
Federal Acquisition Institute http://www.gsa.gov/staff/v/training.htm

NCMA (see NCMA sites above)

U.S. Congress NEWS
Thomas Legislative Information http://thomas.loc.gov/

Top Back Top

Back Back to FASMG's Home Page