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
January 3, 2005 Regulatory Update
Happy New Year!
Below are recent
Regulatory/Contractual matters that may be of interest.
However, this issue marks the beginning of the 10th
year of publication. Thank
you for your support and submissions whereby each and every month
you reaffirm the notion that this is truly a
“reader-supported” endeavor—without those submissions, this
Update would not exist!
·
On December 29, 2004, the Federal Register
noticed a “public meeting to address ‘Privacy and Security
Issues in a Common Identification Standard for Federal Employees and
Contractors’ and will focus on the specific issues raised in
Homeland Security Presidential Directive (HSPD)-12 (with the intent
of) establishing a mandatory, Government-wide standard for secure
and reliable forms of identification issued by the Federal
Government to its employees and contractors (including contractor
employees)…. The
public meeting is on January 19, 2005, from 8:30 a.m. to noon at the
Auditorium of the Potomac Center Plaza, 550 12th Street, SW.,
Washington, DC 20202. The
meeting is open to the public….
All attendees must pre-register and present government-issued
photo identification to enter the building….”
Contact/registration information is available from Sara
Caswell, sara@nist.gov or
contacting her at 301-975-4634.
COMMENT:
This government (digitally stored photo/fingerprint) identity
card program could involve contract/pricing issues.
·
On December 20, 2004, the Federal Register
noticed Federal Acquisition Circular 2001-26 covering several final
rules including the following:
Ø
Electronic Representations and Certifications
(FAR Case 2002-024). “This final rule requires offerors to
provide representations and certifications electronically via the
Business Partner Network (BPN) website; to update the
representations and certifications as necessary, but at least
annually to keep them current, accurate and complete….”
On December 17, 2004, Deidre Lee, Director of Defense
Procurement and Acquisition Policy issued a
related memorandum on this requirement.
Ø
Notification of Employee Rights Concerning Payment
of Union Dues or Fees (FAR Case 2004-010).
“This interim rule amends FAR Parts 2, 22, and 52 to
implement Executive Order (E.O.) 13201, Notification of Employee
Rights Concerning Payment of Union Dues or Fees, and Department of
Labor regulations at 29 CFR part 470. The rule requires
Government contractors and subcontractors to post notices informing
their employees that under Federal law they cannot be required to
join a union or maintain membership in a union to retain their jobs.”
Ø Special Emergency Procurement Authority (FAR Case 2003-022). This final rule “increases
the amount of the micro-purchase threshold and the simplified acquisition threshold for
procurements of supplies or services by or for an executive agency that, as determined by the
head of the agency, are to be used in support of a contingency operation or to facilitate the
defense against or the recovery from nuclear, biological, chemical or radiological attack….”
These latter acquisitions can also be treated as “commercial items.”
On November 24, 2004, Deidre Lee, Director of Defense Procurement and Acquisition Policy
issued a memorandum on these increases and stated, for outside the United States, the
micro-purchase threshold is $25,000 and the simplified acquisition threshold is $1,000,000 for
the specified procurements.
Ø
Excluded Parties List System Enhancement (FAR
Case 2002-023). “This
final rule amends the FAR to incorporate the Excluded Parties List
System (EPLS), GSA's new searchable on-line electronic list of
parties excluded from doing business with the Federal Government.”
Ø
Applicability of the Cost Principles and Penalties
for Unallowable Costs (FAR Case 2001-018).
“This final rule increases the threshold at FAR 42.709(b)
and FAR 42.709-6 from $500,000 to $550,000 for contracts subject to
penalties if a contractor includes expressly unallowable costs in a
claim for reimbursement.”
·
On December 23, 2004, Acting Under Secretary of
Defense (Acquisition, Technology and Logistics) Michael W. Wynne,
issued a policy update on Unique Identification (UID) on legacy
items with the out-year schedule on UID markings for personal
property in inventory and GFP.
Also, the January-February 2005 issue of “Defense
AT&L” has an excellent article on UIDs.
The November 18,
2004, issue of the Wall Street Journal had an article on the
“difficulty” of Wal-Mart suppliers complying with RFID
requirements.
·
On December 28, 2004, the Federal Register
noticed Federal Acquisition Circular 2001-27 covering an interim
rule (effective January 1, 2005) on Free Trade Agreements--Australia
and Morocco which “allows contracting officers to purchase the
products of Australia and Morocco without application of the Buy
American Act if the acquisition is subject to the Free Trade
Agreements.”
·
On December 20, 2004, the Federal Register
noticed the GAO “is proposing to amend its Bid Protest
Regulations… to implement the requirements in the Ronald W. Reagan
National Defense Authorization Act for Fiscal Year 2005… where a
public-private competition has been conducted under Office of
Management and Budget (OMB) Circular A-76.” This amendment will
permit designated “in-house competitors” to participate as
intervenors in GAO protests.
·
FAA Acquisition Management practices/policies “have
improved” but more may be needed, according to the GAO—Report
05-23, dated November 12, 2004.
· On December 20, 2004, the Federal Register noticed a final SBA rule that will implement the OMB
October 2002 report, entitled “Contract Bundling: A Strategy for Increasing Federal Contracting
Opportunities for Small Business.” Specifically this rule
“provides a list of factors to consider in evaluating a prime contractor's performance and good-faith efforts to achieve the requirements in its subcontracting plan. The final rule also authorizes the use of goalsin subcontracting plans, and/or past performance in meeting such goals, as a factor in source selection when placing orders against Federal Supply Schedules, government-wide acquisition contracts, and multi-agency contracts. In addition, this final rule implements statutory provisions and other administrative procedures relating to subcontracting goals and assistance. In particular, the final rule lists the various categories of small businesses that must be afforded maximum practicable subcontracting opportunities, and clarifies the responsibilities of prime contractors and SBA's Commercial Market Representatives (CMR) under the subcontracting assistance program. The final rule also supplies guidance on Subcontracting Orientation and Assistance Reviews, which CMRs perform to assist prime contractors in their efforts to understand and comply with the requirements governing the small business subcontracting assistance program.”
· On December 15, 2004, the Federal Register noticed an interim DFARS rule that would “implement
Section 843 of the National Defense Authorization Act for Fiscal Year 2004 and Section 813 of the
National Defense Authorization Act for Fiscal Year 2005. Section 843 (had) placed a 5-year limit
on the period of task or delivery order contracts awarded under 10 U.S.C. 2304a. Section 813
further amended 10 U.S.C. 2304a to permit a total period of up to 10 years, which may be
exceeded if the head of the agency determines in writing that exceptional circumstances require a
longer contract period. The DFARS rule clarifies that the 10-year limit applies to the ordering period,
establishes a limit on the length of orders, and includes other key information regarding applicability.”
Comments are due on/before February 14, 2005.
·
On December 22, 2004, the Federal Register
noticed a proposed rule that would make three changes to the
Department of State Acquisition Regulations (DOSAR).
The proposal would revise “the DOSAR to (i) Formalize
Department policy regarding the application of the Small Business
Act to contracts awarded by domestic contracting activities where
contract performance takes place overseas; (ii) add language to deal
with U.S. Government support to contractors performing overseas;
and, (iii) revise the coverage regarding Defense Base Act
insurance.” Comments
are due on/before 60 days from publication.
COMMENT: These
changes may significantly impact certain contractors’ oversea
operations including subcontractors.
For example…
As noted in this Federal Register publication,
“essentially, the (Department of State) policy requires that
contractors furnish their own in-country non-U.S. Government
administrative, logistical, and security support. If the
Department authorizes the use of U.S. Government-provided support,
that support shall be set forth in the Statement of Work.
An associated contract clause is added at 652.225-72.”
The basis on when US will provide that support is also
noticed.
· On November 22, 2004, the Federal Register noticed two proposals to amend the DFARS relative
to contracts for telecommunications services and one proposal on the acquisition of information
technology equipment. Comments are due on/before January 21, 2005.
· On November 22, 2004, and December 15, 2004, the Federal Register noticed several DoD
Transformation Initiative rule changes including in the latter notice one on “Debarment, suspension,
and business ethics; improper business practices and contractor qualifications” which includes …
Ø “Consolidation of requirements for reporting violations and suspected violations of certain
requirements into a new section at DFARS 203.070….
Ø “Streamlining of text at DFARS 203.570-1 and 203.570-2 relating to prohibitions on persons
convicted of fraud or other defense-contract-related felonies.
Ø “Revision of the clause at 252.203-7001, Prohibition on Persons Convicted of Fraud or Other
Defense-Contract-Related Felonies, to remove unnecessary references to first-tier subcontracts
in paragraphs (b) and (d). Paragraph (g) of the clause adequately addresses requirements for flow
down to first-tier subcontracts.
Ø “Deletion of text at DFARS 203.570-3 relating to internal DoD procedures for waiver of the
5-year period for prohibitions on persons convicted of fraud or other defense-contract-related
felonies; and deletion of text at DFARS 209.105-2, 209.406-3, and 209.407-3 containing
internal DoD procedures for referral of matters to agency debarment and suspension officials.
This text has been relocated to the new DFARS companion resource, Procedures, Guidance,
and Information (PGI).”
· On November 22, 2004, the Federal Register noticed a DoD request for comments on the use
of SF 1443, “Contractor’s Request for Progress Payments.” Specifically solicited are needed
improvements that “could be made to the form, including the instructions, for use on DoD contracts.”
Comments are due on/before January 6, 2005.
·
It was reported that a “new share-in-savings”
proposal has been sent to OFPP for approval and subsequent Federal
Register publication. This
proposal would expand the use of shared-savings arrangements beyond
that that is currently authorized for IT procurements.
· The Navy issued a memorandum dated December 10, 2004, on its “review and approve” process for
“purchasing, renting, or leasing new or upgraded (IT) servers or application hosting services for
CONUS ashore use.”
· On October 22, 2004, the Army, Navy, and Air Force Acquisition officials joined Acting Under
Secretary of Defense (Acquisition, Technology and Logistics) Michael W. Wynne in issuing a
memorandum on “Acquisition Workforce Ethics Training.” The focus is “Acquisition Excellence
with Integrity” coupled with availability of an on-line DAU training module on “Ethics Training for
Acquisition Technology and Logistics 2004.” See http://clc.dau.mil
· The Navy has launched its SeaPort website at http://www.seaport.navy.mil/ and includes information
on Multiple Award Contracts (MACs). “Seaport Enhanced (SeaPort-e) made electronic
procurement of Engineering, Technical and Programmatic support services at NAVSEA a reality.
The Navy Virtual SYSCOM Commanders (NAVAIR, NAVSEA, NAVSUP and SPAWAR) have
decided to leverage the successes and efficiencies of the SeaPort-e business model by designating
SeaPort-e the vehicle of choice for future Engineering, Financial, and Program Management
contractor support services. This decision emphasizes the Navy Virtual SYSCOM's focus on
implementing cost-effective and integrated business practices to better support our Navy.”
COMMENT:
Have you navigated this website?
As one Contracting Officer stated, “This initiative will
have a significant effect on the way the Navy does business!”
Seaport contracts are the “vessel” of the future!
·
The December 2004 Air Force Directors Conference
(Acquisition Center of Excellence--ACE) had briefings covering
“Navigating the OSD IPT process, Acquisition Process Value Stream
Analysis, updates on Systems Engineering, Expectations Management,
ACE NET, and Pathfinder Initiatives, as well as updates from Center
ACEs.” Briefing charts are available at http://www.safaq.hq.af.mil/ACE/December2004DirectorsConference.html
· On November 9, 2004, the Defense Acquisition Excellence Council met.
Agenda, notes, attendees (government/industry), etc. are provided at
http://www.acq.osd.mil/dpap/Docs/DAEC/november9_04/DAEC-Notesfor110904.doc
· The Navy issued its April 2004 “Desk Guide for Service Contract Price Adjustments.” This Guide
is used by Contracting Officers in “processing contract price adjustments that result from wage
determinations issued under the Service Contract Act or from amendments changing the minimum
wage required by the Fair Labor Standard Act.”
·
For the period beginning January 1, 2005 and ending on
June 30, 2005, the prompt payment interest rate is 4.250 per centum
per annum.
·
Decisions/Items of potential interest in contract
drafting/management:
Ø
A recent multiparty mediation involving the customer,
prime contractor, and various subcontractors provides a good
“lesson learned” for Contracts/Supply Chain professionals.
Here an incident at the customer’s facility triggered
claims and counterclaims for the resultant property related damages.
Unfortunately, it was not realized until the mediation—when
the insurers arrived (who were seeking reimbursement of their
out-of-pocket costs to the insureds)—that the contracting parties
had “neglected” to have any “waiver of subrogation” in the
contracts/subcontracts. While
the mediation was successful, professionals are reminded to consult
with counsel on when (cost effective) waiver of subrogation rights
should be considered in drafting legal documents.
Ø
While the case of Bickel v. Subway Development
may be of particular interest to franchisors and franchisees it is
as the court stated, “a study in the art of protracted
litigation." However,
it also provides insight for Contracts/Supply Chain professionals.
Briefly...
The
litigation commenced in the early 1994 when the franchisee filed in
state court an action against two "related" parties (only
one of which had entered into an arbitration agreement with the
franchisee) on claims of fraud, breach of contract, and sought a
declaratory judgment that the arbitration clauses in their two
franchise agreements were "void and unenforceable" with
damages of $400,000. A timely appearance in that action was not made
and a default judgment was entered. Then the "protracted"
litigation ensued including an arbitration award being entered over
seven years later.
This
court decision upheld the default judgment but set aside the damages
amount since, in part, the law provides for a trial on damages even
in a default judgment on liability. Finally, this court determined
that the earlier arbitration award (confirmed by a separate court in
2003) between the parties wherein the franchisee was awarded $46,440
did not bar the franchisee by res judicata or collateral estoppel
from pursuing enforcement of the original default judgment in 1994.
Bickel et al v. Subway Development of Chicagoland, Inc.
et al, No. 5-96-0029 in the Appellate Court of Illinois Fifth
District (Filed Dec. 15, 2004) http://www.state.il.us/court/Opinions/AppellateCourt/2004/5thDistrict/December/Html/5960029.htm
Lessons
learned include… Be
cognizant of potential parties in an arbitration since normally the
arbitration agreement only binds those that sign it and the final
fees/costs associated with this type of litigation/arbitration could
be clearer in the drafting of the contract.
A "case that has something for everyone."
Ø
And, where a contractor did not disclose it invention
through the use of the prescribed form, title to the invention was
deemed forfeited regardless of whether the Army suffered any harm as
a result. Campbell
Plastics Engineering & Mfg. Inc. v. Acting Secretary of the
Army, Fed. Cir., No. 03-1512, 11/10/04.
Ø
For an “interesting” contract pricing dispute over
the supply and pricing of chemical products the court decision in Gage
Products Co. v. Henkel Corporation (12/09/04 - No. 03-2362, 6th
Circuit Court of Appeals) may be of interest.
Here the “battle-of-the-forms” and various UCC provisions
on contract formation/terms are the focal point.
Clearly the parties could have finalized the terms of the
deal better but this case highlights what could happen.
As an aside the Revised Article 2 to the UCC may have
provided a less arduous result—even in the absence
of a more definitive/executed contract.
Case is available at http://caselaw.lp.findlaw.com/data2/circs/6th/032362p.pdf
Ø
A Wall Street Journal article in the November
24. 2004, electronic posting at www.wsj.com
highlighted the risk of not having the requisite export license.
This article discussed the holding in the case of US v
Lachman et al, Nos. 03-2274 & 03-2275,
1st Circuit, 10/25/04 (available at www.findlaw.com).
You may want to read the case with your counsel whenever
there is a possibility of any “gray” areas in the necessity of
obtaining an export license.
Upcoming speaking topics include…
·
NCMA Audio Seminar, “Preparing for the Big Changes
to UCC Rules on Contract Formation and Terms of the Deal!”
·
Halifax, Nova Scotia, Atlantic Public Purchasing
Association Chapter, NIGP, "How 'Baseball Arbitration' will
help in Negotiating Sole Source Procurements."
·
University of California, Irvine and NCMA Beach Cities
Chapter annual Educational Conference. “Current
Contract/Regulatory Issues Affecting Contracting Professionals.”
·
ISM—Phoenix, Arizona, Affiliate, "How 'Baseball
Arbitration' will help in Negotiating Sole Source Procurements--or
how to get through Impasse."
Various presentations on Revised Article 2 to the
Uniform Commercial Code
Items summarized in these Updates are for general informational/discussion/educational purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters—independent counsel should be obtained.
Information on arranging speaking/teaching engagements in connection with various aspects of Alternative Dispute Resolution (ADR) and basic/advanced negotiation techniques— seminars/workshops—may be arranged by sending a message to ADROffice@Rumbaugh.net
Charles E. Rumbaugh
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