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
September 18, 2002 Regulatory Update
Recent Regulatory matters that may be of interest
since the last Update include---
1.
DoD PROPOSES DRAMATIC CHANGE IN ACQUISITION CULTURE BY DELETING CURRENT
DoD DIRECTIVE 5000.1 AND INSTRUCTION 5000.2.
DoD is in the process of “streamlining the DoD 5000 series
that will remove prescriptive requirements and focus on outcomes.
(DoD) wants to encourage innovation, creativity, flexibility,
and efficiency in the acquisition process.”
Accordingly, DoD announced the release of new draft documents
and has requested comments with possible DoD cancellation/issuance
by the end of September. Cancellation
documentation for DoDD 5000.1 (“The Defense Acquisition
System”), DoDI 5000.2
(“Operation of the Defense Acquisition System”), and DoD
5000.2-R (“Mandatory Procedures for Major Defense Acquisition
Programs….”) is undergoing internal DoD coordination.
DoD 5000.2-R will not be reissued.
COMMENT: Some
have viewed the proposals as a new “broad policy direction …
(being) contemplated with less micromanagement” while others have
been quoted as stating “requirements” seem to have been retained
and, perhaps, with new ones. These
draft proposals should be reviewed.
2.
TEAMING AGREEMENTS/ALLIANCES MAY (AGAIN) BE HAZARDOUS TO YOUR HEALTH? A recent ASBCA decision held that proposal preparation
costs under a so-called “Memorandum of Agreement (MOA)” could
not be characterized as allowable Bid and Proposal costs under FAR
31.205-18. This TRW, Inc. decision (No. 51530) decided July 30, 2002, is
a parallel/similar result earlier reached in a Federal District
Court which was also covered in a previous Update.
This MOA called for no funding from the other party but this
MOA was held to be the type of contract “requirement” which
precluded allowability of B&P costs.
COMMENT: Technical arguments were the order of the day in the
opinion. Some seem to think that “form over substance”
prevailed. The fact
is… what is allowable B&P costs in the context of a “teaming
alliance” is getting murky—under whatever “name” used by the
entity. This could be
detrimental to the Government in the long run where complementary
efforts are desired/necessary.
Further, the definitions of “acceptable” entities in the
FAR should be revised/expanded but in the interim, counsel should be
consulted. Advance
agreements may be an option.
Miscellaneous:
·
Past
Updates have touched on various aspects of contractual
“indemnification,” Homeland Security legislative related issues,
sale of military products/services for homeland defense, etc.
Recently, OFPP requested input from some sectors on items
that would “not be provided for homeland security purposes because
of liability concerns.” It
is reported that OFPP sent a subsequent letter to the Hill
discussing the concerns expressed by those responding companies but
without any endorsement for government indemnification.
COMMENT: Most companies have undertaken a vulnerability risk
assessment in view of these issues.
In addition to the availability of adequate/reasonable
insurance for sales of military products/services for domestic use,
including state/local/federal governments, contract coverage review
may be apropos.
Ø
What
is the contractor vulnerability associated with fielded items being
converted for use in the domestic environment?
Ø
What
is the risk associated for deliverables under closed contracts?
Ø
What
is the risk associated under new contracts or contract mods?
Has there been a proper allocation of risk in those
contracts/mods?
Ø
What
is the impact to/on subcontractors in your Supply Chain?
And, how does that impact you as a higher-tier contractor?
Ø
What
is the contractor policy on accepting/rejecting “rated orders”
for contracts/subcontracts that do not adequately address/allocate
the risk issue? How are sales of “military” items to state/local
government being handled?
Ø
Can
PL 85-804 be used/required for indemnification covering “financial
risks?”
Ø
Finally,
should the contractor/government “defer” pricing any
associated/identified “unknown” risk condition(s) since there
may not be an “equitable (contractual) result?”
Accordingly, the parties could negotiate appropriate
contractual coverage to have the contract reopened in the
event those specific conditions arise—all as contemplated
by FAR 31.205-7(c)(2)?
Jack Friery has published an excellent article indicating the
possibility that less FAR may be in your future. His article starts by referencing the Federal Aviation
Administration exemption from FAR following through with other
legislative actions up to the recent Transportation Security
Administration and bills dealing with the new Department of Homeland
Security as he traces this “theme” in his “Moving FAR
Away—Procurements for Homeland Security” article.
Copies can be obtained from friery@earthlink.net.
Counsel
should be consulted on these important contract related issues.
Finally,
the current Office of Homeland Security (OHS) circulated within DoD
numerous job opportunities at OHS.
·
Several
proposed rules were noticed in the Federal Register on August
29, 2002, including the following with comments due on/before
October 28, 2002:
Ø
A
proposal amending the “FAR to require the contractor to notify the
contracting officer if the Government overpays the contractor when
making an invoice payment or a contract financing payment under both
commercial item and non-commercial item contracts.”
Ø
A
proposal to revise three cost principles in order “to increase
clarity and readability:” (1)
Economic planning costs; (2) Employee
morale, health, welfare, food service, and dormitory costs and
credits; and (3) Travel costs.
Ø
A
proposal to amend the cost principle on selling costs (FAR
31.205-38) “to increase clarity and to remove excessive wording
and details.”
·
On
August 30, 2002, the Federal Register noticed final and
interim rules in Federal Acquisition Circular (FAC) 2001-09
including the following topics:
Ø
Task
Order and Delivery Order Contracts with the stated objective that
“the rule (1) increases attention to modular contracting
principles to help agencies avoid unnecessarily large and
inadequately defined orders, (2) facilitates information exchange
during the fair opportunity process so that contractors may develop
and propose solutions that enable the Government to award
performance-based orders, and (3) revises existing documentation
requirements to address tradeoff decisions as well as the issuance
of sole-source orders as logical follow-ons to orders already issued
under the contract. This rule also adds a separate definition for
the terms ‘Governmentwide acquisition contract (GWAC)’ and
‘Multi-agency contract (MAC)’ to the FAR to clarify the
difference between the terms and the purpose of each contract
vehicle.”
Ø
“Increases
the amount of the micro-purchase threshold and the simplified
acquisition threshold for procurements of supplies or services by
or for DoD during fiscal years 2002 and 2003, where those
procurements are to facilitate the defense against terrorism or
biological or chemical attack against the United States.”
Ø
“Amends
the FAR to clarify in the certification language of the clause
entitled ‘Payments Under Fixed-Price Construction Contracts’
that all payments due to subcontractors and suppliers have been
made by the prime contractor from previous progress payments
received from the Government.”
Ø
“Implements
new dollar thresholds for application of the Trade Agreements Act
and North American Free Trade Agreement as (previously) published by
the U.S. Trade Representative.”
·
The
recent decision in United States of America ex rel. Brett Roby v.
Boeing, 6th Cir., No. 00-4157, September 12, 2002, affirmed the
District Court decision, whereby the High-Value Items Clause (FAR
52.246-24), included in a contract, does not operate as a
defense to damages sought under the False Claims Act (FCA) for
“damages for the loss of the helicopter.”
COMMENT: The interplay of the FAR/FCA could be reviewed with
counsel.
·
“The
Defense Acquisition University (DAU) Continuous Learning Center (CLC)
has announced a new online course in Performance Based Logistics (PBL).
This three-hour course, worth three Continuous Learning Points (CLPs),
presents PBL as the strategy of choice for product support. It is
designed for the entire acquisition community, including AT&L
workforce members, program managers, acquisition logisticians,
sustainment logisticians, contracting personnel, and Defense
contractors. The new module is available to all users of the DAU CLC
at clc.dau.mil.”
In
addition, the Director of Acquisition Initiatives has circulated for
comment a proposed policy/guidance on “Continuous Learning Policy
for the Department of Defense Acquisition, Technology, and Logistics
Workforce” which would replace the current document issued in
October 1998.
And,
it is noted that a plan is under review to combine the Acquisition
Initiative office with the Director of Defense Procurement.
The new Director of the DAR Council is Ron Poussard who
arrives with an Air Force background.
·
On
September 9, 2002, the Director of Defense Procurement extended
until September 30, 2005, the previously issued DoD deviation
(September 29, 1999) from the requirements of FAR 31.203(c) “when
costs disallowed under FAR 31.205-52 are required to be included in
the indirect cost base.” Point of contact for additional
information is david.capitano@osd.mil.
·
On
September 17, 2002, the Air Force published an article about its
recently noticed “strategy (that) calls for increased investment
in both the depot infrastructure and the organic depot workforce,
increased reliance on public-private partnering and process
improvements in depot business practices….”
Additional information is available at http://www.af.mil/news/Sep2002/91702353.shtml
·
On
September 17, 2002, GSA finalized its prior notice of May 9, 2002,
of permitting “cost-plus contracting” by adopting “an interim
2 percent ‘insurance related surcharge’ requested by the
freight motor carrier industry, … (transportation service
provider or “TSP”). This surcharge allows a TSP to recover
escalating insurance premiums resulting from changes in the economy
compounded by events of September 11, 2001.”
COMMENT: Interestingly, this Federal Register notice
provides an effective date of May 1, 2002, with an expiration date
of October 31, 2002.
·
The
Army announced 23 business initiatives released by its Business
Initiatives Council. Information
is available at <http://www.asafm.army.mil/BIC.asp>.
·
A
Contracting Officer’s Guide to Bankruptcy is at <http://www.safaq.hq.af.mil/
contracting/newevents/July2002.html>.
·
Several
websites were recently identified as being “good” sources of
contract administration plans.
There is the previously noted OFPP Guide at <http://www.arnet.gov/Library/OFPP/BestPractices/BestPCont.html>.
The Corps of Engineers has a fixed-price construction
contract plan posted at http://www.hnd.usace.army.mil/chemde/Construction%20Policies.asp.
The Navy has several Instructions on the topic including plans for
service contracts (NAVSUP INSTRUCTION 4330.7B) at <http://www.hnd.usace.army.mil/chemde/Construction
%20Policies.asp> and by using keyword “4330.7B” as well as
one on the Contracting Officer’s Representative (NAVSUP
INSTRUCTION 4205.3B) at the same website but using keyword
“4205.3.”
·
Recent
cost growth on a particular Navy program resulted in the
announcement of a need for certain proactive actions.
An “independent cost estimate” was recommended for other
“programs with substantial dollar value or risk.”
It was noted that industry uses “non-advocate review panels
to evaluate the progress and plans for development efforts.”
Use of similar panels was urged while stating, “we need
experienced acquisition professionals with an unbiased perspective
to take an executive look at the scope, technical approach, risk,
and acquisition strategy for our programs.”
COMMENT: Good recommendations.
Sounds like programs may need to (also) look at
“partnering” with their contractors.
And, the FAR Part 1 statement on who is part of the
acquisition team may need to be revisited.
·
The
Navy announced in NAPS Change #97-18 (5204.201) that Navy
“activities shall post an electronic copy of each newly executed
procurement instrument…within two working days of execution to the
Navy Air Force Interface to DoD Electronic Document Access….”
See < www.nafi.navy.mil>.
·
The
long awaited industry “sharing of savings” endeavor whereby a
contractor receives savings for adopted initiatives is under review
by the DAR Council.
·
A
“draft Integrated DoD Guide to Performance-Based Packaging
Practices” is being circulated for industry comment.
·
And
it was reported that DoD demanded repayment of $2.3 billion (by
September 30th) from Boeing and GD on the Navy’s A-12
default termination.
Recent/Future
Publications include—
“Having Trouble Getting to the Negotiation Table?
Try Baseball Arbitration,” two-part series on incentivizing
parties to negotiate, will appear in NCMA Contract Management
magazine, October and November 2002.
NCMA Contract
Management magazine had a three-part monthly series
(January-March 2002) on an important part of most arbitrations, i.e.
the Preliminary Hearing process. Articles are also posted at http://www.ncmahq.org/COI/adr/ADR-overview.html
Charles E. Rumbaugh
Back Top
Back to FASMG's Home Page