CHARLES E. RUMBAUGH
Arbitrator/Mediator
(310) 373-1981 / FAX (310) 373-4182
(888) ADROffice (toll free)
e-mail: cerumbaugh@aol.com
P.O. Box 2636
Rolling Hills, California 90274
P.O. Box 2095
Burlingame, California 94011
March 30, 2002 Regulatory
Update
Recent Regulatory
matters that may be of interest since the last Update include---
COMMERCIAL ITEM CONTRACT CLAUSES
REVISED/UPDATED.
On March 14, 2002, the Federal Register
noticed a proposed rule which “amends the DFARS to remove a clause
from the list of clauses included in contracts for commercial items
to implement provisions of law or Executive orders.
The clause proposed for removal (DFARS 252.225-7027)
pertains to restrictions on contingent fees from foreign military
sales.” The published
rationale for the change is based upon the clause having “little
effect in commercial contracts where the price the Government pays
is generally a fixed price, not based on cost analysis.”
Comments are due on/before May 13, 2002.
On
March 20, 2002, the Federal Register also noticed a proposed
FAR rule “to update the clause (FAR 52.212-5) regarding contract
terms and conditions required to implement statute or Executive
orders—commercial items.” Comments
are due on/before May 20, 2002.
Miscellaneous:
·
Last month’s Update referenced the
January 17, 2002, Director of Defense Procurement
Memorandum/Guidance Paper issued in order to “assist” in
“determining whether there is a change in cost accounting
practice.” This
direction is the subject of a critical analysis in the February 27,
2002, issue of “The Government Contractor.”
This analysis concluded, in part, the Paper “expands the
definition of what constitutes a change,” imposes “a significant
administrative burden on both Government and contractors and may
well discourage contractors from making beneficial organizational
changes.” It
concludes by stating it conflicts with CAS Board regulations and
significant case law in the area and “is likely to generate
disputes and litigation.”
COMMENT:
At a recent industry association meeting it was
reported that DoD will be revising this Paper.
It remains to be seen whether it will go through the
notice/comment process of the OFPP Act and FAR Part 1.
·
The Director of Defense Procurement issued a March 21,
2002, Memorandum on the subject of “Price Analyses and Price
Reasonableness Determinations When Cost or Pricing Data Are Not
Obtained.” This
Memorandum is, in part, a follow-up to several previous memos on the
topic—see prior Regulatory Updates—wherein she reiterates “the
importance of obtaining information of the prices at which the same
or similar items have previously been sold, using that information
to complete a thorough price analysis, documenting the contract file
to provide an adequate explanation of the contracting officer’s
determination that the price agreed to was fair and reasonable.”
The Director also requests that Procurement Management
Reviews include “adequacy of price reasonableness determinations
and underlying analyses at major buying activities.”
Finally, contractors that refuse to provide “necessary
information” for fair/reasonableness determination could result in
the contractor being rendered “ineligible for award unless the
Head of the Contracting Activity determines otherwise….”
If a price is determined not to be fair/reasonable,
“those circumstances must also be fully documented so that the
price will not be used as the basis for future price comparisons.”
·
A March 6, 2002, AF Memorandum on the “Use of Award
Term Contract Arrangements” issued by Deputy Assistant Secretary
for Contracting and Assistant Secretary for Acquisition Darryl Scott
directed that “Contracting Officers should work closely with their
local Staff Judge Advocate and MAJCOM contracting staff when
formulating acquisition strategies that include award term.”
The expressed concern is “creating either a contractual
commitment in advance of appropriation or an unintentional
multi-year contract scenario.”
And, the Memorandum indicates “interim steps” that should
be taken while “AFFARS language (is developed) that addresses the
fiscal law aspects of award term that apply to other than ID/IQ
contacts.”
COMMENT:
And, it is reported that Award Term contracting is
going to further out-years, e.g. one has been reported that has a
contract term potentially going to 2022! And, no regulatory coverage exists!
·
On March 20th the Federal Register
noticed the proposed deletion of the transportation cost principle,
revise the cost principle on cost of money to remove duplicative
language with CAS coverage/language, and minor changes in the cost
principle on other business expenses and deferred R&D.
Comments are due on/before May 20, 2002.
·
Principal Deputy Under Secretary of Defense Michael
Wynne recently announced the formation of the Defense Acquisition
Excellence Council (DAEC) forum to address acquisition, technology
and logistics issues. The
DAEC replaces and expands upon the Single Process Initiative (SPI)
Executive Council.
·
On March 8, 2002, a Memorandum was issued by DoD on
“Clinger-Cohen Act (CCA) Compliance Policy” re-enforcing that
“compliance with CCA is required for all IT systems, including
those in weapons and weapons systems programs” and clarifying and
simplifying “the requirements for judging compliance with the
law.” The Memorandum
will be implemented “in the next update to the DoD 5000 series
regulations.”
·
DoD is “deploying a new web-based software
application that allows DoD vendors to submit and track their
invoices and Receipt/Acceptance documents electronically.
Wide Area Work Flow Receipt and Acceptance (WAWF-RA) will
allow you (contractors) to get paid faster and receive the Material
and Inspection Receiving Report (DD250) using the internet.”
WAWF-RA Version C was recently deployed by DCMA with letters
sent to top DoD contractors having the most DD250 volume.
The goal is to emulate commercial practices.
And,
the Standard Procurement Systems (SPS) has been delayed with its
anticipated deployment in early 2003, i.e. a restructuring plan is
in process. The DoD IG
has reported some “dissatisfaction” with the SPS and a
“desire” for other systems.
Also,
a value engineering derived cost reduction incentive program whereby
“more” of the savings flow to contractors “may” soon be
launched by DoD.
·
Did you think a court/jury could find an “oral”
teaming agreement to exist between (proposed) lower-tier
subcontractors AS WELL AS award lost profit damages to the
lower-tier subcontractor when the next higher-tier subcontractor did
not submit a proposal to the prime for a contemplated
multi-million dollar government program? Recently, NDIA filed a amicus curiae brief covering certain
aspects of an appeal in such a case.
The brief is available at <http://www.crowell.com/ pdf/cable.pdf>.
COMMENT: Work
with your counsel!
·
Federal Acquisition Circular (FAC) 2001-06 was
published on March 20, 2002. Finalized
rules cover the following topics/areas:
Ø
Commercial Items--SF 1449 form
Ø
Definitions for “Contract Action” and
“Contracting Action”
Ø
Definitions for Sealed Bid and Negotiated Procurements
Ø
Procurement Integrity “Rewrite”
Ø
Acquisition of Helium
Ø
HUBZone Program Applicability
Ø
Application of Labor Clauses
·
The AFFARS is in re-write with a scheduled completion
date of July 2002. Also,
an IPT is rewriting the AFSPC FAR Supplement to “incorporate
policy guidance required for space systems contracting.”
·
The Army has commenced Transformation of Installation
Management (TIM) as part of a multiyear endeavor to streamline
operations, focus on base operations support, and generally “doing
business smarter.”
·
A January 17, 2002, Memorandum on “Small Business
Participation in Consolidated Contracts” was issued by Under
Secretary of Defense for Acquisition, Technology and Logistics E.C.
Aldridge. This
Memorandum restates the critical role of small business in DoD’s
mission and stresses the need to “avoid unnecessary and
unjustified bundling of requirements and take efforts to mitigate
the negative impact that contract bundling has on small business
concerns.” There
must be “measurably substantial benefits as defined in the FAR”
in order for there to be bundling.
A DoD Benefit Analysis Guidebook has been issued in
conjunction with this Memorandum for those analyses and has an
extensive bundling/regulatory checklist in its ten chapters with
Tables/Figures (flowcharts).
·
DCAA operational audits continue to be a concern to
industry and “changes” are envisioned on “improved”
processes, ensure a DCAA “bounty” system is not utilized,
proprietary data is protected, etc.
COMMENT:
In the interim, what happens when you are
subjected to such an audit? Work
with your accountant/counsel!
·
The continued “escalation/discussion” in/on import
duties on steel products, wood imports, etc. should be monitored
since the WTO dispute resolution processes can impact unrelated
industries/products.
COMMENT:
If one likes the euro, make sure your products are not
impacted!
·
The recent Hughes Aircraft Co. v. County of Orange,
California case (02/27/02—No. E029745) decided that since “title
to personal property used by a defense contractor in the performance
of government contracts passes to the US Government, such property
is not subject to local assessment of ad valorem taxes.”
·
The Defense Acquisition University “is in the
process of preparing a (three-part) continuous learning/performance
support module what will address the Buy American Act.”
Issues/concerns are solicited from the contracting
community—point of contact is Susan Hildner at 703-695-4258.
Also, one reported goal of the Director of Defense
Procurement for the year is to “restructure” the University.
Recent Publications include—
The National Contract Management
Association (NCMA) Contract Management magazine commenced
a three-part monthly series (January-March 2002) on an important
part of most arbitrations, i.e. the Preliminary Hearing
process. The articles
are also posted by NCMA:
http://www.ncmahq.org/COI/adr/ADR_Part1_Jan02.pdf
http://www.ncmahq.org/COI/adr/ADR_Part2_Feb02.pdf
http://www.ncmahq.org/COI/adr/ADR_Part3_Mar02.pdf
Future Speaking Engagements
Include—
·
April 27, 2002, California State University, “Recent
Developments in ADR” workshop.
·
April/May 2002, Southern California, Basic/Advance
Negotiation Technique seminars.
·
May 7, 2002, Institute for Supply Management (NAPM)
International Conference, San Francisco, “Designing and Enhancing
Effective B2B Relationships in the 21st Century.”
·
May 16, 2002, Inland Empire NCMA Chapter, "How to
Negotiate Fair/Reasonable Prices in Sole Source Procurements."
·
May 17, 2002, San Diego, California State Bar Business
Law Section Annual Spring meeting, “Forum Selection in Franchise
Dispute Resolution Provisions.”
·
July 22-24, 2002, Long Beach, California NCMA World
Congress, “21st Century B2B Advanced Negotiation” and
“Mock Commercial Arbitration Between Buyer/Seller Over a Purchase
Order That Went ‘South.’”.
·
July/August, 2002, California State University course,
“Contract Management.”
Charles E. Rumbaugh
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