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
April 17, 2004 Regulatory
Update
Recent
Regulatory matters that may be of interest since the last Update
include---
1.
DoD NOTICES PROPOSED CONTRACT CLAUSE FOR CONTRACTORS
SUPPORTING COMBAT OPERATIONS.
On March 23, 2004, the Federal Register noticed a
proposed DFARS rule “to address issues related to contract
performance outside the United States…(including a) clause for use
in contracts that require contractor employees to accompany a force
engaged in contingency, humanitarian, peacekeeping, or combat
operations.” Comments are due on/before May 24,
2004.
COMMENT: This proposal could be improved.
·
The clause requires the contractor to acknowledge
contractor performance is “inherently dangerous” and the
contractor “accepts the risks associated with required contract
performance in such operations.”
·
There are other clause(s) currently in use by the
Services which could result in different levels of compliance for
the same foreign areas. Should
a deviation for their use be required or will they be
superseded—see the Army interim rule issued November 28, 2003, and
Air Force General Counsel’s November 2003 “guidance document.”
·
Should a contractor have a right similar to that
expressly provided in the Changes clause in having an equitable
adjustment as a result of changes by the Combatant Commander?
The clause merely “authorizes” a contractor to submit a
request for same without any obligation by the Contracting Officer
to provide same.
·
Does the clause mandate the required use/level of
“weapons/ammunition” for contractors and their
employees/subcontractors?
Is it clear as to the level of in-country support required by
contractors for their employees?
·
Should a contractor, upon request, be permitted to
amend existing contracts to include the finalized clause?
·
An exhaustive, albeit vague, list of “applicable”
treaties, regulations, rules, orders, etc. is provided in the
clause. The clause
should list only those that are directly applicable and where copies
are readily available to contractors so that they can—as required
in the clause—“ensure that its employees are familiar with and
comply with” them. Is
it appropriate for contractors to be held to the “The Uniform Code
of Military Justice where applicable?”
The risk/pricing associated with this
proposal should be discussed with counsel.
Further, the re-review of the Contingencies Cost Principle
should be undertaken and with appropriate consideration of
contractual coverage for unpriced risks that would be fair to the
Government and contractors—see FAR 31.205-7(c)(2).
2.
DoD IG ISSUES REPORT ON NEGOTIATING FAIR AND REASONABLE
PRICING IN CONNECTION WITH AWACS PROGRAM.
On April 14, 2004, the DoD Inspector General issued, “NATO
AWACS Mid-Term Modernization Program ‘Global Solution’ - Report
No. D-2004-069.” From
the Executive
Summary/Results the IG concluded that
“Senior level
managers did not use appropriate business and contracting procedures
as specified in the Federal Acquisition Regulation when they
negotiated the Global Solution in September 2002. When the senior
level managers were determining whether the $1.32 billion negotiated
price was fair and reasonable, they did not use a Government cost
estimate, an integrated product team to analyze the proposed
statement of work, a technical evaluation of labor hours and labor
mixes, audit assistance to review direct and indirect rates, and
weighted guidelines to establish reasonable profit and share ratios.
Air Force contracting officials awarded the Global Solution contract
modification in December 2002 without knowing whether the $1.32
billion cost was fair and reasonable….”
(The Air Force)
“concurred with the intent of all recommendations and stated that
the technical and cost analyses would be completed, but the Air
Force needs to award production and retrofit options as an undefinitized
contract action so that the NATO E-3 Mid-Term Modernization
Program can proceed while the Electronic Systems Center and the NATO
Airborne Early Warning and Control Programme Management Agency (NAPMO)
conduct technical and cost analyses. … The Deputy Assistant
Secretary stated that using an undefinitized contract action
provided the most benefit to the NAPMO nations because production
and retrofit program content and schedule would remain the same as
under the Global Solution and would not be negotiated further and
prices could only be equal to or less than the prices the NAPMO
nations had previously determined to be acceptable….” And the
Audit response thereto included:
“The Air Force decision to use an undefinitized contract
action as a bridging action does not lessen the responsibility
of the Air Force Electronic System Center to obtain and document a
fair and reasonable price for the NATO AWACS production and retrofit
tasks….”
COMMENT: As has been publicized elsewhere there
are numerous and very important issues associated this NATO program
that the Air Force was negotiating. It should be noted
that the Contracting Officer did not have the lead in
negotiating the price nor did s/he certify that the price was
reasonable.
However, the (contemplated) use of undefinitized contractual actions (UDAs)
is emphasized above. The
methodology of arriving at a fair and reasonable price should have
been expanded upon. Does
“having all the analyses/reports, etc.” ensure a “fair and
reasonable” price in a sole source, commercial, change order, etc.
situation? What is the
incentive for the parties to negotiate a fair price when the
“default” mode is a Contracting Officer’s unilateral
determination of the price? Should
contractors and subcontractors have a policy that accepts UDAs when
the current regulations/methodologies do not provide the parties
with the requisite negotiating “tools?”
Should there be a regulatory methodology that incentivizes
the parties to arrive at a fair price, e.g.
like the use of “Baseball Arbitration”?
Miscellaneous Items:
·
On March 23, 2004, the Federal Register noticed
an interim DoD rule “to implement Section 843 of the National
Defense Authorization Act for Fiscal Year 2004. Section 843 provides
that the contract period of a task or delivery order contract
awarded (by DoD) pursuant to 10 U.S.C. 2304a may cover a
total period of not more than 5 years…. The rule clarifies that
the total period includes all options or modifications.”
Comments are due on/before May 24, 2004.
COMMENT: While the February 21, 2004, Regulatory Update referred to the Director of
Defense Procurement and Acquisition Policy earlier stating in a memorandum that this change
will be “effective for solicitations issued on or after the date of the DFARS interim rule,” this
Federal Register notice does not so provide. Will this rule impact existing contracts including
so-called award term contracts as well as others? Talk to counsel.
·
On April 6, 2004, the Federal Register noticed
a proposed FAR rule whereby the “Department of Defense in an
effort to streamline and transform itself in order to more
effectively achieve its mission and in recognition that the military
departments have the necessary expertise to manage programs
efficiently is proposing to transfer the management of the Mentor
Protégé program to the military departments and defense agencies.
The Office of the Secretary of Defense will maintain oversight and
policy development responsibilities.
Accordingly, the FAR is amended to state that the Director,
Small and Disadvantaged Business Utilization of the cognizant DoD
military department or defense agency will be the approval authority
for mentor-Protégé agreements.” Comments are due on/before June
7, 2004.
Earlier on March 19, 2004, the Federal Register noticed that the Small Business Administration
is proposing to “modify its small business size standards by establishing size standards in terms
of the number of employees of a business concern for most industries and SBA programs.”
Comments are due on/before May 18, 2004.
·
On March 25, 2004, the DoD Inspector General issued a
report “Export-Controlled Technology at Contractor, University,
and Federally Funded Research and Development Center Facilities” -
Report No. D-2004-061 on
the adequacy of DoD’s export-control technology policies and
concluded, in part, that “DoD does not have adequate processes to
identify unclassified export-controlled technology and to prevent
unauthorized disclosure to foreign nationals. Of the 11 contractors,
6 universities, and 3 Federally Funded Research and Development
Centers visited:
Ø
15 relied on the contract to identify whether the
technology was export controlled.
Ø
Three of the 11 contractors and 1 of the 3 Federally
Funded Research and Development Centers were unaware of Federal
export laws and regulations related to export-controlled
technology.”
COMMENT: Talk to counsel.
· DoD issued an “Information Release” (also expected to be covered in a forthcoming
Federal Register
notice) announcing it has commenced the solicitation of industry input on “identifying appropriate
incentives for industry to use machine tools and other capital assets produced in the United States.”
This is a result of Section 822 of the National Defense Authorization Act for FY 2004 which
mandates the Secretary of Defense to establish such a program. “The provision also directs the
Secretary to provide consideration in source selection for contractors with eligible assets for major
defense systems.”
· On April 5, 2004, Federal Acquisition Circular 2001-22 was issued covering final rules in the
following areas…
Item I--Government Property Disposal (FAR Case 1995-013)
“This final rule amends FAR Parts 1, 2, 8, 45,
49, 52, and 53 to simplify procedures, reduce recordkeeping, and
eliminate requirements related to the disposition of Government
property in the possession of contractors.”
Item II--General Provisions of the Cost Principles (FAR Case
2001-034)
“This final rule amends the FAR to revise
certain general provisions of the cost principles contained at FAR
31.201-1, Composition of total cost; FAR 31.201-2, Determining
allowability; FAR 31.202, Direct costs; and FAR 31.203, Indirect
costs. The rule revises the cost principles by improving clarity and
structure, and removing unnecessary and duplicative language. The
final rule also adds the definition of ‘direct cost’ and revises
the definition of ``indirect cost'' at FAR 2.101, Definitions, to be
consistent with the terminology used in the
cost accounting standards (CAS)….”
Item III--Unique Contract and Order Identifier Numbers (FAR
Case 2002-025)
“The interim rule published in the Federal
Register at 68 FR 56679, October 1, 2003, is converted to a
final rule, without change….”
Item IV--Unsolicited Proposals (FAR Case 2002-027)
“This final rule amends the FAR to implement
section 834 of the Homeland Security Act of 2002 (Pub. L.
107-296)…(which) requires that a valid unsolicited proposal not
address a previously published agency requirement. It also requires
that, before initiating a comprehensive evaluation, the agency must
determine that the proposal contains sufficient cost related or
price related information for evaluation, and that it has overall
scientific, technical, or socioeconomic merit.”
· Finally, the continued negotiation—and soon to be finalized/ratified—foreign free trade
agreements by the United States, e.g. Central American Free Trade Agreement, could
result in those free trade agreements causing local/state “preferences” in contracting to
be preempted.
· The Institute for Supply Management is convening its 89th Annual International Supply
Management Conference and Educational Exhibit in Philadelphia, April 25-28, 2004.
Items of note in the area sponsored by the Federal Acquisition and Subcontract Management
Group…
Ø “The People Side of the Supply Chain: Handling Office Road Rage.”
Session ED, Monday April 26, 2:00-3:00. Elaine Whittington. Communications/dynamics
within the professional office.
Ø “Competition Requirements in Federal Government Subcontracting.” Session EG.
Monday April 26, 2:00-3:00.
Jeff White. “How to” session on embracing requirements
on competition.
Ø “Management of Supplier Relationships Through an Effective Dispute Resolution Process.”
Session EC, Monday April 26, 2:00-3:00.
Charles Rumbaugh. Drafting effective arbitration/ADR clauses.
Ø“DoD’s Transformation Issues.” Session FK (changed from BE)
Monday April 26, 3:20-4:20.
Jeff White and Charles Rumbaugh. Overview of DoD’s Transformation Initiative.
Ø “Simplified Acquisition Procedures for Federal Purchases.”
Session HJ Tuesday April 27, 2:30-3:30.
Dr. Ron Straight. Understanding the way the FAR Part 13 “works!”
Charles
E. Rumbaugh
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