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Home News Archive FAC 2005-37: It’s Contractor Smackdown Time!

FAC 2005-37: It’s Contractor Smackdown Time!

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Ten CommandmentsOn October 12, 2009 Federal Acquisition Circular (FAC) 2005-37 was published in the Federal Register, notifying Federal contractors that the FAR was (once again) being revised. The FAC announced implementation of several “interim rules” (i.e., rules having immediate effect but not considered to be final rules pending receipt of public comments). There were also a couple of final rules announced as well. As a broad characterization, we think the revisions are going to pose some difficulty for contractors. However, since the new rules mainly implement statutory direction from Congress, there is not much that can be done about them.

 

A summary of the FAC can be found here. It should be noted that each of the revisions discussed herein apply only to solicitations and/or contracts issued by the Department of Defense (DOD), General Services Administration (GSA), or the National Aeronautics and Space Administration (NASA). The revisions do not apply to any other Federal agency.

 

Of particular interest to Apogee Consulting, Inc. and its clients are the following rule changes:

 

  1. A final rule amends the FAR at 6.302-2 to require that any contracts awarded under the “unusual and compelling urgency” rule (which permits contracts to be awarded without full and open competition) must have periods of performance that are strictly limited to the time necessary to meet those circumstances. The rule further limits the periods of performance of such contracts to the time necessary to enter into another contract via use of competitive procedures. In any case, the rule limits the periods of performance of any unusual and compelling urgency noncompetitive awards to one year, unless the head of the contracting agency determines that “exceptional circumstances apply.” The rule applies to all awards in excess of the simplified acquisition threshold, but does not apply to all Federal agencies.
  2. A final rule amends the FAR to implement, without change, an interim rule originally published on March 31, 2009 at 74 FR 14649. The rule revises the “audit access to records” clauses (e.g., 52.214-26 and 52.215-2 to require contractors to permit “the Comptroller General of the United States, or authorized representatives,” to interview any current employee regarding transactions judged directly pertinent to the contract. I.e., this rule requires contractors to permit GAO personnel (but not DCAA auditors) access to current employees as part of their audits. The rule applies to all contracts that contain the revised clauses but does not apply to Part 12 commercial item contracts.
  3. An interim rule amends the FAR at 15.403-1 to revise the current prohibition on obtaining cost or pricing data for acquisitions of certain commercial services. Below is the full text of the modified rule:

(A) When purchasing services that are not offered and sold competitively in substantial quantities in the commercial marketplace, but are of a type offered and sold competitively in substantial quantities in the commercial marketplace, they may be considered commercial items (thus meeting the purpose of 41 U.S.C 254b and 10 U.S.C. 2306a for truth in negotiations) only if the contracting officer determines in writing that the offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price of such services.

(B) In order to make this determination, the contracting officer may request the offeror to submit prices paid for the same or similar commercial items under comparable terms and conditions by both Government and commercial customers; and

(C) If the contracting officer determines that the information described in paragraph (c)(3)(ii)(B) of this section is not sufficient to determine the reasonableness of price, other relevant information regarding the basis for price or cost, including information on labor costs, material costs and overhead rates may be requested.

  1. An interim rule amends the FAR at 15.408 and 31.203 to make unallowable indirect costs that meet the definition of “excessive pass-through charge” as defined in a new solicitation provision (52.215-22) and contract clause (52.215-23). The new provision defines “excessive pass-through charge” as “a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs)” when the contractor or subcontractor “adds no or negligible value” to a contract or subcontract. It requires a contractor or subcontractor to notify the government contracting officer when the value of subcontracts exceed (or are planned to exceed) 70 percent of the total cost of work to be performed under any contract, task order or delivery order. The notification must include “verification” that the contractor or subcontractor will add value. Moreover, if the actual amount of subcontracted work exceeds 70 percent of total contract cost during performance (even though that amount of subcontracting was not initially planned), then the contractor or subcontractor must report to the contracting officer as it would have during the proposal phase. These requirements are similar to those imposed on DOD contractors through prior revisions to the Defense Federal Acquisition Supplement (DFARS), but now the rules apply to GSA and NASA contracts as well.
  2. An interim rule amends the FAR at Part 16 to:

(1) Link award fees to acquisition objectives in the areas of cost, schedule, and technical performance;

(2) Clarify that a base fee amount greater than zero may be included in a cost plus award fee type contract at the discretion of the contracting officer;

(3) Prescribe narrative ratings that will be utilized in award fee evaluations;

(4) Prohibit the issuance of award fees for a rating period if the contractor's performance is judged to be below satisfactory;

(5) Conduct a risk and cost benefit analysis and consider the results of the analysis when determining whether to use an award-fee type contract or not;

(6) Include specific content in the award-fee plans; and

(7) Prohibit the rolling over of unearned award fees to subsequent rating periods.

The revisions create a new Table 16-1 to standardize adjectival rating/description and associated award fees to be awarded to contractors.

 

For those rules issued as “interim,” public comments may be submitted to http://www.regulations.gov as provided in the Federal Register promulgations (see the links above).

 

 

Newsflash

Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.