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
May 24, 2002
Regulatory Update
Recent Regulatory matters that may be of interest
since the last Update include---
1.
FINAL DFARS WEIGHTED GUIDELINES ON PROFIT ISSUED. On April 26, 2002, the Federal Register noticed the
final DFARS rule amending the DoD profit policy.
“The (stated) changes (will) reduce the emphasis on
facilities investment, add general and administrative expense to the
cost base used in determining profit objectives, increase emphasis
upon performance risk, and encourage contractor cost efficiency.”
Specifically, the rule accomplishes the following:
a)
“Reduces the value assigned to facilities capital employed
for equipment by
50 percent, and eliminates facilities capital employed for
buildings in establishing profit objectives on sole source,
negotiated contracts;
b)
Offsets these changes by increasing the values for
performance risk by
1 percentage point; and
c)
Adds a special factor for cost efficiency to encourage cost
reduction efforts.”
COMMENT:
Not
to be overlooked in this notice is the discussion in the Federal
Register addressing, in varying degrees, the public comments
which are also arranged into eight categories to assist the reader.
2.
Federal Acquisition Circular (FAC) 2001-07
RELEASED.
On April 30, 2002, Federal Acquisition Circular 2001-07 was
published in the Federal Register.
This FAC finalizes previously noticed interim rules and
covers the following:
a)
Preference for Performance-Based Contracting.
“The rule affects contracting officers that buy services by
explicitly establishing a preference for performance-based contracts
or task orders.”
b)
Revisions to Balance of Payments Program
c)
European Union Trade Sanctions
COMMENT: Previous Regulatory Updates provided several Government websites
that have guidance on performance-based contracting.
3.
OFPP ADMINISTRATOR ISSUES MEMORANDUM ON “CONTRACTOR RESPONSIBILITY
DETERMINATIONS AND INDEFINITE-DELIVERY CONTACTS.” OFPP
Administrator Angela Styles on April 16, 2002, issued a memorandum
on responsibility determination and contracting officer obligations
in connection therewith under existing indefinite-delivery
contracts. The OFPP
Administrator stated, while citing FAR 9.405-1(b), that
“agencies
are not prohibited from awarding task orders to contractors
that are debarred, suspended, or proposed for debarment.
(However) this (FAR 9.405-1(b)) provision creates a
significant risk that the government will not be adequately
protected.”
The FAR Council is requested by the memorandum to consider
the FAR in addressing this risk and cites DFARS 209.405.1 as being a
“model for the FAR revision.” The Administrator also states that “the FAR
provision does not require the placement of orders
with nonresponsible contractors” but justification is required.
Miscellaneous:
·
Last
month’s Regulatory Update covered the April 1, 2002, Federal
Register notice of a proposal to amend DFARS coverage on
“requiring competition in the purchase of services under multiple
award contracts” and the on-going posting of public comments by
the DoD Acquisition Regulations Directorate at <http://emissary.acq.osd.mil/dar/dfars.nsf>. From a “process” point of view, it was recommended in
that Update that readers may want to review the posted comments
before submitting any. There
were 71 comments posted with some submitted after the due date of
May 6, 2002. One
commentator offered the following in responding:
“[W]e
compliment the DAR Council on two initiatives related to this
(proposed multiple award) rule. The first is the public meeting held
on April 29. It may
have been valuable for the DAR Council members and staff to address
issues and question commentators on the issues identified in the Federal
Register notice, as well as to read the final submitted written
comments. In addition,
we strongly support the public posting of comments on the web; it
was through that mechanism that we found a number of concerns that
we had not focused as significantly on, while others we disagreed
with. Nevertheless,
each of the comments was worth reading. We hope the …Council will
continue with this posting process; maybe in the future, without a
statutory deadline, there will be more time for the submission of
initial comments and then time for a round of ‘support or
rebuttal’ submissions before the Council concludes its
rulemaking.”
COMMENT:
Clearly the author of the above quoted material sees
the benefit of the web postings and dialogue as a means for a more
substantive response. However,
this “36 day comment” period did not conform to the OFPP Act or
FAR Part 1 which provides that the “norm” is 60 days.
It also remains to be seen in the final rule whether the
Council will respond to the submitted comments with rationale in
adopting/rejecting significant public comments.
Related to this is the Office of Management and Budget notice of May 6,
2002, whereby a public meeting will be held on June 14, 2002,
including a request for comments, on “agencies’ use of
competition in their contracting activities.”
Comments are specifically requested on “The positive and
negative effects of agency competition practices from the 1990s to
the present, and the impact of contact bundling.”
Accordingly, this is another opportunity for the public
and private sector to improve the acquisition environment including
the oversight of regulatory/policy promulgation process by OFPP and
departments/agencies. The
public meeting will be at the GSA auditorium in Washington DC and
e-mail comments may be submitted to bdiering@omb.eop.gov citing in
any submittal, “Competition in Contracting Review” as the
subject.
·
The Department of Defense reissued on April
5, 2002, DoDI 5000.2, "Operation of the Defense Acquisition
System," and DoD 5000.2–R, "Mandatory Procedures for
Major Defense Acquisition Programs (MDAPS) and Major Automated
Information Systems (MAIS), Acquisition Programs."
These documents are available at
http://dod5000.dau.mil/DOCS/Master.020405.Instruction.doc and
http://dod5000. dau.mil/DOCS/Master. 020405.Regulation.doc.
The latter Regulation cannot be “supplemented” and any
“implementing documents” should be “kept to a minimum.”
Waivers and exceptions are also controlled.
·
On
May 15, 2002, the Federal Register noticed a proposal to
amend FAR 31.205-44 “Training and Education” cost principle. “The
Councils propose to eliminate the current or future job
relationship requirement (in the principle) since the associated
costs represent minimal risk to the Government; and the standard is
difficult to enforce, and counter to Government initiatives
supporting upward mobility, job retraining, and educational
advancement. The proposed rule makes the costs associated with
training and education generally allowable, subject to five
public policy exceptions that are retained from the current cost
principle. Except for
these five expressly unallowable cost exceptions, the reasonableness
of specific contractor training and education costs can best be
assessed by reference to FAR 31.201-3, Determining
reasonableness.”
Comments are due on/before July 15, 2002.
·
The
Commerce Department announced on April 18, 2002, that the Bureau of
Export Administration is being renamed the "Bureau of Industry
and Security" (BIS) to reflect more accurately the broad scope
of the agency's responsibilities.
BIS serves the public in many ways, “including not just
export licensing and enforcement, but also defense trade advocacy
and critical infrastructure protection. …The change in name does
not substantively affect its activities, nor those of its sister
organization, the International Trade Administration, which remains
responsible for the Department's trade promotion and policy
activities.”
·
The
General Accounting Office has released it Commercial Activities
Panel Final Report, “Improving the Sourcing Decisions of the
Government.” An
executive summary as
well as “lengthy” Report may be accessed at http://www.gao.gov/
·
On
May 9, 2002, the General Services Administration noticed the
“adoption of an interim 2 percent ‘insurance related
surcharge’ requested by the freight motor carrier industry.
…The surcharge will allow transportation service providers
(TSPs) to recover rapidly increasing insurance premiums resulting
from changes in the economy compounded by the (sudden and
unforeseen) event of September 11, 2001…. As a result, effective May 1, 2002, a TSP may add to an
agency’s billing invoice a separate line item equivalent to 2
percent of a shipment’s line-haul charge.”
COMMENT: Clearly there has been a pervasive fall out from 911.
But, the manner of this change is very interesting.
There is no separate accounting treatment to ensure the funds
“match” the expense for the insurance costs.
There is no sinking fund requirement with retroactive
adjustment. Some may
believe that a blanket “add-on” charge that is not
segregated, coupled with proper accounting thereof, does not
provide the requisite incentive to control the particular cost.
·
On
May 1, 2002, the Defense Finance and Accounting Service (DFAS)
issued a memorandum on “Regulatory Change Regarding Requirement
for an Invoice Number.” While
implementing recent FAR changes on the topic, this memorandum, by
Deputy Director Stephen Worton, addresses numbers being on all
invoices.
·
The
Defense Acquisition Excellence Council (replacing the SPI Executive
Council) held its first industry/Government meeting on May 6th.
Topics discussed included Use of Barcodes and metadata
(financial standardization and e-business), Partnerships for Life
Cycle Management Systems Management (Cross-Service issues), Contract
Closeout process review, Small Business (capturing the flow-down
dollars), and Outreach and Communication with Industry.
·
On
April 26, 2002, DoD noticed in the Federal Register that it
is proposing (again) to amend the DFARS “to add policy regarding
the participation of foreign military sales (FMS) customers in the
development of contracts…(with) the objective …to provide FMS
customers with more visibility into the contract pricing and award
process.” Comments
are due on/before June 25, 2002.
·
Army
Materiel Command (AMC) recently announced the status of its
Partnering for Success Program including revised Guide, Program, and
identification of top contracts for partnering.
AMC has distributed over 16,000 copies of the original
edition of the Guide with a new revision having a section on lessons
learned.
COMMENT: How
can “partnering” assist you in conflict/dispute
mitigation/elimination? What is partnering?
·
DoD
plans on issuing a proposed rule this summer on shared savings with
industry/government for “all types of cost efficiencies”
including plant rationalization.
Future Speaking Engagements
Include—
·
June
18, 2002, Los Angeles/South Bay NCMA Chapter, "Significant
Regulatory Developments in Government Contracting."
·
June
20, 2002, Inland Empire NCMA Chapter, "How to Negotiate
Fair/Reasonable Prices in Sole Source Procurements."
·
July
22-24, 2002, Long Beach, California NCMA World Congress panel
presentations include “21st Century B2B Advanced
Negotiation,” “Mock Commercial Arbitration Between
Buyer/Seller,” and “Critical Issues in Building Buyer-Seller
Relationships through the Use of ADR.”
·
July/August,
2002, California State University course, “Contract Management.”
·
October
11, 2002, Monterey, California Annual State Bar Conference,
“Drafting Dispute Resolution Clauses for Commercial Contracts.”
Information on any of the above as well as
arranging other speaking/teaching engagements including various
aspects of alternative dispute resolution (ADR), and
seminars/workshops on basic/advanced negotiation techniques, or on
substantive topics may be arranged by contacting ADROffice@ieee.org.
Charles E. Rumbaugh
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