Panoptic Enterprises’
FEDERAL CONTRACTS PERSPECTIVE
Federal Acquisition Developments, Guidance, and Opinions
Vol. XVII, No. 9
September 2016
FAC 2005-90 ESTABLISHES “FAIR PAY AND
SAFE WORKPLACES” REPRESENTATION
Federal Acquisition Circular (FAC) 2005-90 implements Executive Order 13673, Fair
Pay and Safe Workplaces, by adding new Federal Acquisition Regulation (FAR) subpart
22.20, Fair Pay and Safe Workplaces, which requires each offeror to represent whether
there has been any administrative merits determination, arbitral award or decision, or civil
judgment rendered against it within the
preceding three-years of any of 14 labor
CONTENTS
laws and executive orders (and
“equivalent state laws”), and to disclose
FAC 2005-90 Establishes “Fair Pay” Representation ........ 1
those violations to the contracting officer DOD Issues Rules on Counterfeit Electronic Parts ............ 7
OMB Issues Policy on Mobile Devices and Services ...... 16
for consideration in determining the
offeror’s “responsibility.” In conjunction GAO Bans Protestor from Protesting ............................... 17
IRS Issues Regs on 2% Foreign Procurement Tax ........... 18
with FAC 2005-90, the Department of
OMB Issues 2017 Version of the NAICS ........................ 20
Labor (DOL) published guidance on how Federal Source Code Policy Established .......................... 21
the contracting officer is to assess a
NASA Clarifies Award Fee Evaluations and Payments ... 22
contractor’s overall record of labor law
compliance and carry out his or her other
duties under the executive order. (For more on Executive Order 13673, see the September
2014 Federal Contracts Perspective article “Obama Issues Order Requiring That
Contractors Provide ‘Fair Pay and Safe Workplaces’”).
The FAR rule goes into effect on October 25, 2016.
The labor laws covered by Executive Order 13673 and the implementing FAR rule and DOL
guidance are:
■ The Fair Labor Standards Act (see FAR 22.1002-4, Application of the Fair Labor
Standards Act Minimum Wage, and https://www.dol.gov/whd/flsa/)
■ The Occupational Safety and Health Act of 1970 (see https://www.osha.gov/lawregs.html)
■ The Migrant and Seasonal Agricultural Worker Protection Act (see https://www.dol.gov/
whd/mspa/index.htm)
■ The National Labor Relations Act (see FAR subpart 22.16, Notification of Employee
Rights Under the National Labor Relations Act, and https://www.nlrb.gov/resources/
national-labor-relations-act)
■ Title 40 of the U.S. Code (40 USC) Chapter 31, Subchapter IV (also known as the DavisBacon Act – see FAR 22.403-1, Construction Wage Rate Requirements Statute, and
https://www.dol.gov/whd/govcontracts/dbra.htm)
■ 41 USC Chapter 67 (also known as the Service Contract Act – see FAR subpart 22.10,
Service Contract Labor Standards, and https://www.dol.gov/whd/govcontracts/
sca.htm)
■ Executive Order 11246 of September 24, 1965, Equal Employment Opportunity (see
FAR subpart 22.8, Equal Employment Opportunity, and https://www.dol.gov/ofccp/)
■ Section 503 of the Rehabilitation Act of 1973 (see FAR subpart 22.14, Employment of
Workers with Disabilities, and https://www.dol.gov/ofccp/regs/compliance/
section503.htm)
■ 38 USC Sections 3696, 3698, 3699, 4214, 4301-4306 (also known as the Vietnam Era
Veterans’ Readjustment Assistance Act of 1974 – see FAR subpart 22.13, Equal
Opportunity for Veterans, and https://www.dol.gov/ofccp/regs/compliance/
vevraa.htm)
■ The Family and Medical Leave Act (see https://www.dol.gov/whd/fmla/)
■ Title VII of the Civil Rights Act of 1964 (see https://www.eeoc.gov/laws/statutes/
titlevii.cfm)
■ The Americans with Disabilities Act of 1990 (see https://www.ada.gov/)
■ The Age Discrimination in Employment Act of 1967 (see http://www.eeoc.gov/laws/
statutes/adea.cfm)
■ Executive Order 13658, Establishing a Minimum Wage for Contractors (see the March
2014 Federal Contracts Perspective article “President Issues Executive Order Mandating
$10.10/Hour Minimum Wage,” and https://www.dol.gov/whd/flsa/eo13658/)
■ Equivalent state laws, as defined in the DOL guidance (the only equivalent state laws
implemented in the FAR are Occupational Safety and Health Administration [OSHA]approved “State Plans” – see https://www.osha.gov/dcsp/osp/approved_state_plans.
html)
In addition, the executive order requires contractors and subcontractors to provide their
workers on federal contracts with information each pay period regarding how their pay is
calculated (a wage statement) and provide notice to those workers whom they treat as
independent contractors.
The proposed FAR subpart 22.20 would provide direction to contracting officers on how they
are to obtain disclosures from contractors on their labor law violations; how to consider
disclosures when making responsibility determinations and decisions whether to exercise
options; and how to work with agency labor compliance advisors (ALCAs), a new position
created by Executive Order 13673 who will advise contracting officers in assessing labor law
violations, mitigating factors, and remedial measures. New solicitation provisions and contract
clauses were proposed in FAR part 52 to incorporate into contracts with estimated values
exceeding $500,000, and into subcontracts over that value (other than subcontracts for
commercially available off-the-shelf [COTS] items).
Vivina McVay, Editor-in Chief
©2016 by Panoptic Enterprises. All rights reserved. Reproduction, photocopying, storage, or transmission by any means is
prohibited by law without the express written permission of Panoptic Enterprises. Under no circumstances should the
information contained in Federal Contracts Perspective be construed as legal or accounting advice. If a reader feels expert
assistance is required, the services of a professional counselor should be retained.
The Federal Contracts Perspective is published monthly by Panoptic Enterprises, P.O. Box 11220, Burke, VA 220091220.
September 2016
Panoptic Enterprises’ FEDERAL CONTRACTS PERSPECTIVE
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Simultaneously, DOL issued a proposed “Guidance for Executive Order 13673, Fair Pay and
Safe Workplaces” that would work hand-in-hand with the FAR rule. DOL’s proposed guidance
would provide proposed definitions; how to determine whether a labor law decision is
reportable; what information about labor law decisions must be disclosed; how to analyze the
severity of labor law violations; and the role of ALCAs, DOL, and other enforcement agencies in
addressing labor law violations. (For more on the FAR proposed rule and DOL’s proposed
guidance, see the June 2015 Federal Contracts Perspective article “FAR Council, Labor Issue
Proposed Regulations, Guidance on ‘Fair Pay and Safe Workplaces’ Executive Order.” Also, see
https://www.dol.gov/asp/fairpayandsafeworkplaces/.)
In response to the request for comments on the proposed FAR rule, 927 respondents
submitted comments (along with about 11,600 mass mailings); in response to the request for
comments on DOL’s proposed guidance, 109 respondents submitted comments (along with
7,814 mass mailings and form letters). Many respondents submitted comments to both the FAR
Council and DOL. In response, the following significant changes are made to the FAR final rule
and the DOL final guidance:
FAR Final Rule
■ Immediately upon the effective date of the final rule, the proposed FAR 22.2004-1, Contract
Requirements, would have required contractors and their subcontractors to disclose decisions
regarding violations of the covered labor laws during the previous three years on solicitations
exceeding $500,000. This is what Executive Order 13673 requires. However, in recognition
of the fact that contractors and subcontractors were not previously required to track and
report labor law decisions, and to provide time for affected parties to familiarize themselves
with the rule, set up internal protocols, and create or modify internal databases to track labor
law decisions in a more readily retrievable manner, the rule is being phased-in.
The disclosure reporting period in the final rule will be limited to one year and gradually
increase to three years by October 25, 2018 – paragraphs (c)(1) and (c)(2) of FAR 52.222-57,
Representation Regarding Compliance With Labor Laws (Executive Order 13673), require
covered contractors to disclose labor aw violations “during the period beginning on October
25, 2015 [one year before the effective date of the rule], to the date of the offer, or for three
years preceding the date of the offer, whichever period is shorter.” As a result of this phasein, contractors will not disclose labor law decisions that were rendered against them more
than one year prior to the effective date of the FAR rule. (Paragraph (b) of FAR 52.222-58,
Subcontractor Responsibility Matters Regarding Compliance with Labor Laws (Executive
Order 13673) contains the same language, but it is not to be included in solicitations until
October 25, 2017 – see below.)
In addition, no disclosures will be required from prospective prime contractors during the
first six months that the rule is effective (that is, from October 25, 2016 through April 24,
2017) except from prospective contractors bidding or offering on solicitations valued at
$50,000,000 or more that are issued on or after October 25, 2016 (paragraph (c) of FAR
22.2007, Solicitation Provisions and Contract Clauses, specifies that the inclusion of FAR
52.222-59, Compliance with Labor Laws (Executive Order 13673), be restricted to these
timeframes and dollar amounts).
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■ The requirement that covered subcontractors disclose labor law violations is phased-in as
well, and subcontractors will not be required to begin making disclosures until one year after
the rule becomes effective – October 25, 2017 (FAR 22.2007(b) states, “For solicitations
issued on or after October 25, 2017, the contracting officer shall insert the provision at [FAR]
52.222-58, Subcontractor Responsibility Matters Regarding Compliance with Labor Laws
(Executive Order 13673), in solicitations that contain the clause at [FAR] 52.222-59.”
■ The preamble to the final rule contains the following warning to contractors: “Nothing in the
phase-in relaxes the ongoing and long-standing requirement for agencies to do business only
with contractors who are responsible sources and abide by the law, including labor laws.
Accordingly, if an agency has information indicating that a prospective prime contractor has
been found within the last three years to have labor law violations that warrant heightened
attention in accordance with DOL’s Guidance (i.e., serious, repeated, willful, and/or
pervasive violations), the contractor should be prepared to be asked about the violations and
expect to be given an opportunity to address any remediation steps it has taken to address the
violations.”
■ To minimize the burden on prime contractors, and to create a manageable and executable
process for both prime contractors and subcontractors, subcontractors are required to disclose
details regarding their labor law violations (the decisions, mitigating factors and remedial
measures) directly to DOL through the DOL website https://www.dol.gov/
fairpayandsafeworkplaces for review and assessment instead of to the prime contractor
(FAR 52.222-59(c)(3)). The subcontractor then makes a statement to the prime contractor
regarding DOL’s response to its disclosure (FAR 52.222-59(c)(4)(ii)), and the prime
contractor makes its responsibility determination based on the subcontractor’s statement and
any response from DOL (FAR 52.222-59(c)(5)). Subcontractors will be required to provide
information about their labor law violations to the prime only when the subcontractor is not
in agreement with DOL’s assessment (see FAR 52.222-59(c)(4)(ii)(C)(3)).
■ Paragraph (b)(1)(i) of FAR 22.2004-2, Preaward Assessment of an Offeror’s Labor Law
Violations, requires prospective prime contractors to publicly disclose in the System for
Award Management (SAM – https://www.sam.gov) four pieces of basic information about
covered violations (the law violated, the case identification number, the date of the decision
finding a violation, and the name of the body that made the decision), and “such additional
information, in SAM, as the prospective contractor deems necessary to demonstrate its
responsibility, including mitigating factors and remedial measures such as actions taken to
address the violations, labor compliance agreements, and other steps taken to achieve
compliance with labor laws” (FAR 22.2004-2(b)(1)(ii)). However, to clarify that the final
rule does not compel public disclosure of these additional documents, the following sentence
is added to paragraph (b)(1)(ii): “This information will not be made public unless the
contractor determines that it wants the information to be made public.”
■ The ALCA’s responsibilities are enumerated in paragraph (c) of FAR 22.2004-1, General
[labor laws compliance]. Of particular note is paragraph (c)(1), which states that the ALCA is
responsible for “encouraging prospective contractors and subcontractors that have labor law
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violations that may be serious, repeated, willful, and/or pervasive to work with enforcement
agencies to discuss and address the labor law violations as soon as practicable.”
■ A new paragraph (j) has been added to FAR 42.1502, Policy [for contractor performance
information], which addresses past performance evaluations when the contract includes FAR
52.222-59. It requires the contracting officer to consider “(a) a contractor’s relevant labor law
violation information, e.g., timely implementation of remedial measures and compliance with
those remedial measures (including related labor compliance agreement(s)); and (2) the
extent to which the prime contractor addressed labor law violations by its subcontractors.”
Also, paragraph (a)(1)(i) of FAR 42.1503, Procedures [for contractor performance
information], is amended to add that agencies are to seek input from ALCAs for when
assessing the contractor’s past performance. Finally, FAR 22.2004-2(a)(1) is added to require
contracting officers to consider the prospective contractor’s compliance with labor laws
when past performance is an evaluation factor.
■ New paragraph (b)(1)(iii) of FAR 52.222-60, Paycheck Transparency, adds “rate of pay (e.g.,
hourly rate, piece rate)” as a required element on the wage statement that must be provided to
each individual performing work under a contract subject to the wage records requirements
of any of the following statutes: (1) the Fair Labor Standards Act; (2) 40 USC Chapter 31,
Subchapter IV, Wage Rate Requirements (Construction) (formerly known as the Davis
Bacon Act); or (3) 41 USC Chapter 67, Service Contract Labor Standards (formerly known
as the Service Contract Act of 1965). Other elements that must be included on the wage
statement are the total number of hours worked in the pay period; the number of those hours
that were overtime hours; the gross pay; and any additions made to or deductions taken from
gross pay (this additions or deductions must be itemized – this is a new requirement). Finally,
FAR 52.222-60(e)(2) permits contractors to provide wage statements and other required
documents electronically if the worker can access the document through a computer, device,
system, or network provided or made available by the contractor.
DOL Guidance
Besides revising the guidance to reflect the changes made to the FAR final rule, the
following significant changes are made to each section of DOL’s guidance:
■ Section III, Preaward Assessment and Advice (formerly “Weighing Violations of the
Labor Laws,” which has been divided into Section III and Section IV, Postaward Disclosure
and Assessment of Labor Law Violations): This section clarifies that the ALCA’s preaward
assessment of a contractor’s labor law violations and the contracting officer’s responsibility
determination are separate process points, performed by two separate individuals: the ALCA
assesses the nature of the violations and provides analysis and advice; the contracting officer,
informed by the ALCA’s analysis and advice, makes the responsibility determination –
contracting officers consider assessments provided by ALCAs with advice provided by other
subject matter experts during the responsibility determination. Also, it clarifies that the
ALCA’s preaward assessment is a three-step process: (1) classifying violations to determine
whether any are serious, repeated, willful, and/or pervasive; (2) weighing any serious,
repeated, willful, and/or pervasive violations in light of the totality of the circumstances,
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including any mitigating factors that the contractor has identified; and (3) providing the
contracting officer with written analysis and advice regarding the contractor's record of labor
law compliance.
■ Section V, Subcontractor Responsibility: This new section consolidates the coverage of
subcontractor responsibility that appeared in several locations of the proposed DOL
Guidance.
■ Section VI, Preassessment: This new section describes a new DOL “preassessment” process
in which prospective contractors and subcontractors may voluntarily agree to have their
record of labor law violations assessed by DOL. Under this preassessment, DOL “will assess
whether any of the prospective contractor’s violations are serious, repeated, willful, and/or
pervasive; and whether a labor compliance agreement may be warranted. If a contractor that
has been assessed by the Department [of Labor] subsequently submits a bid, and the
contracting officer initiates a responsibility determination for the contractor, the contracting
officer and the ALCA may rely on the Department’s assessment that the contractor has a
satisfactory record of labor law compliance unless additional labor law decisions have been
disclosed.” Contact information and additional guidance regarding the preassessment
program is at https://www.dol.gov/fairpayandsafeworkplaces.
■ Section VIII, Effective Date and Phase-in of Requirements: This new section explains the
phase-in schedule of the FAR regulations. The following is a summary of the schedule (from
https:// www.dol.gov/fairpayandsafeworkplaces):
–
October 25, 2016: The final rule takes effect. Mandatory disclosure and assessment of
labor law compliance begins for all prime contractors under consideration for contracts
with a total value greater than or equal to $50,000,000. The reporting disclosure period is
initially limited to one (1) year and will gradually increase to three (3) years by October
25, 2018.
–
January 1, 2017: The paycheck transparency clause takes effect, requiring contractors to
provide wage statements and notice of any independent contractor relationship to their
covered workers.
–
April 25, 2017: The total contract value threshold for prime contracts requiring
disclosure and assessment of labor law compliance is reduced to $500,000.
–
October 25, 2017: Mandatory assessment begins for all subcontractors under
consideration for subcontracts with a total value greater than or equal to $500,000.
In addition, the DOL website states that preassessment begins the week of September 12,
2016, “through which current or prospective contractors may come to DOL for a voluntary
assessment of their labor compliance history, in anticipation of bids on future contracts but
independent of any specific acquisition.”
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EDITOR’S NOTE: A fact sheet issued with Executive Order 13673 observed that “the vast
majority of federal contractors have clean records. The Department of Labor estimates that the
overwhelming majority of companies with federal contracts have no federal workplace violations
in the past three years.” Yet the FAR final rule states that it will cost $474,000,000 in the first
year to implement the rule and $260,000,000 each year afterward to maintain tracking
mechanisms and business systems, and to file required reports. For what purpose? All of these
laws are on the books, and the information contractors must certify and provide is contained in
various federal databases already. The problem is that the databases aren’t interconnected or easy
to use. So the answer is to require contractors to provide the information to a new database (and
we all know how well the federal government runs its databases)! Essentially, the executive
order is a sop to one of President Obama’s key constituencies – labor – and offerors, contractors,
and contracting officers will be forced to deal with more make-work for little benefit. And it will
cost the federal taxpayers billions of dollars (the contractors aren’t going to absorb that cost)!
But that’s how the federal government works in the 21st century, and why the government
continues to become more and more bloated.
DOD ISSUES RULES ON COUNTERFEIT ELECTRONIC PARTS
The Department of Defense (DOD) continues to amend the Defense FAR Supplement
(DFARS) to implement amendments to Section 818, Detection and Avoidance of Counterfeit
Electronic Parts, of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2012
(Public Law 112-81), by issuing two final rules and one proposed rule. Section 818 directs the
secretary of defense TO “conduct an assessment of Department of Defense acquisition policies
and systems for the detection and avoidance of counterfeit electronic parts,” and it has been
amended repeatedly by subsequent NDAAs.
In addition to these three rules, DOD issued during August four final rules, three proposed
rules, a class deviation, and two memoranda.
■ Further Implementation of Detection and Avoidance of Counterfeit Electronic Parts:
This finalizes, with changes, the rule that proposed to amend DFARS 246.870, Contractor
Counterfeit Electronic Part Detection and Avoidance, and add a new clause DFARS 252.2467008, Sources of Electronic Parts, to implement Section 817 of the NDAA for FY 2015 (Public
Law 113-291), which amended Section 818. Section 817 requires DOD to issue DFARS
regulations requiring DOD and its contractors and subcontractors to acquire electronic parts from
trusted suppliers to further address the avoidance of counterfeit electronic parts.
DOD proposed to amend DFARS 246.870 and add DFARS 252.246-7008 to require DOD
contractors and subcontractors that are not the original component manufacturer to notify the
contracting officer if it is not possible to obtain an electronic part from a trusted supplier, and the
contractor would be responsible for inspection, test, and authentication in accordance with
existing applicable industry standards (for more on the proposed rule, see the October 2015
Federal Contracts Perspective article “DOD Takes It Easy in September”).
Twenty-three respondents submitted comments on the proposed rule, and the following are
the most significant changes made in response to those comments:
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–
Several clarifying changes are made to the definitions in DFARS 202.101, Definitions
(replaces “contract electronics manufacturer” with “contract manufacturer” and
“authorized aftermarket manufacturer”; replaces “trusted supplier” with “contractorapproved supplier”), and DFARS 246.870-1, Definition (replacing “authorized dealer”
with “authorized supplier”).
–
DFARS 252.246-7008 is amended as follows:
○ Paragraph (b)(2)(i), which addresses the acquisition of electronic parts not in
production and not currently available in stock, adds the DOD-adopted standards at
https://assist.dla.mil to the requirement for use of established counterfeit prevention
industry standards and processes.
○ Proposed paragraph (d), which requires prompt notification in writing when the
contractor acquires electronic parts from a “non-trusted supplier,” is redesignated as
paragraph (b)(3), and to it is added a requirement that the contractor make
documentation of the inspection, testing, and authentication of such electronic parts
available to the contracting officer upon request if the contractor: (1) obtains an
electronic part from a source other than the original manufacturer, an authorized
aftermarket manufacturer, or a contractor-approved supplier because of
nonavailability, or from a subcontractor (other than the original manufacturer) that
refuses to accept flowdown of DFARS 252.246-7008; or (2) cannot confirm that an
electronic part is new or that it has not been comingled with used, refurbished,
reclaimed, or returned parts.
○ Paragraph (c)(2) is amended to delete contractor consideration of alternative parts if
the contractor cannot establish traceability from the original manufacturer for a
specific electronic part. Instead the contractor is made responsible for inspection,
testing, and authentication.
○ New paragraph (c)(3) requires that the contractor maintain documentation of
traceability or the inspection, testing, and authentication, and to make such
documentation available to the government upon request.
○ New paragraph (d) addresses government sources of electronic parts, to include
purchases from the Federal Supply Schedule, purchases from suppliers accredited by
the Defense Microelectronics Activity, or requisitioning from government
inventory/stock. Contractors and subcontractors are still required to comply with the
requirements of DFARS 252.246-7008(b) and (c) if purchasing electronic parts from
the Federal Supply Schedule or from suppliers accredited by the Defense
Microelectronics Activity. However, if the contractor or subcontractor requisitions
electronic parts from government inventory/stock, then the government is responsible
for the authenticity of the parts.
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○ Paragraph (e), which requires the flowdown of DFARS 252.246-7008 to
subcontractors, is amended to exempt a subcontractor that is the original
manufacturer.
■ Costs Related to Counterfeit Electronic Parts: This finalizes, with minor changes, the rule
that proposed to amend DFARS 231.205-71, Costs Related to Counterfeit Electronic Parts and
Suspect Counterfeit Electronic Parts, to implement Section 885, Amendments Concerning
Detection and Avoidance of Counterfeit Electronic Parts, of the NDAA for FY 2016 (Public
Law 114-92), which amended Section 818 to provide that the costs of counterfeit parts or suspect
counterfeit parts and the cost of rework or corrective action to remedy the use or inclusion of
such parts are unallowable unless: (1) the contractor has an operational system to detect and
avoid counterfeit electronic parts and suspect counterfeit electronic parts that had been reviewed
and approved by DOD; (2) the counterfeit electronic parts or suspect counterfeit electronic parts
were provided to the covered contractor as government property or were obtained by the
contractor in accordance with the regulations described in paragraph (c)(3) of Section 818 of the
NDAA for FY 2012 (that is, DFARS 246.870); and (3) the contractor discovers the counterfeit
electronic parts or suspect counterfeit electronic parts and provides timely notice to the
government (that is, within 60 days after the contractor becomes aware).
Two respondents submitted comments on the proposed rule, and the rule is finalized with the
following changes to paragraph (b):
–
In paragraph (b)(1), “counterfeit parts” is replaced with “counterfeit electronic parts.”
–
In paragraph (b)(3)(i), the word “discovers” in “the contractor discovers the counterfeit
electronic parts or suspect counterfeit electronic parts” is replace with “becomes aware
of”.
–
To paragraph (b)(3)(ii), which requires the contractor to provide timely notice to the
contracting officer when it becomes aware of counterfeit electronic parts or suspect
counterfeit electronic parts, is added a requirement to provide notice of counterfeit parts
to the Government Industry Data Exchange Program (GIDEP – http://www.gidep.org/).
For more on the proposed rule, see the April 2016 Federal Contracts Perspective article
“DOD Awakens with Flurry of DFARS Changes.”
■ Amendments Related to Sources of Electronic Parts: This proposed rule would amend
DFARS 246.870 and DFARS 252.246-7008 to implement Section 885(b) of the NDAA for FY
2016 (Public Law 114-92), which amends Section 818 to make contractors and subcontractors
subject to approval (as well as review and audit) by appropriate DOD officials when identifying
a contractor-approved supplier of electronic parts.
This rule proposes to amend paragraph (f)(xix)(C) of DFARS 212.301, Solicitation
Provisions and Contract Clauses for the Acquisition of Commercial Items; paragraph (a) of
DFARS 246.870-0, Scope [on contractors’ counterfeit electronic part detection and avoidance],
and DFARS 252.246-7008(b) to cite Section 885(b) as additional authority. In addition, the rule
proposes to amend paragraph (a)(1)(ii)(C) of DFARS 246.870-2, Policy [on contractors’
counterfeit electronic part detection and avoidance], and DFARS 252.246-7008(b)(2) to provide
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that contractor and subcontractor identification of contractor-approved suppliers of electronic
parts is subject to review, audit, and approval by the contracting officer (emphasis added).
Comments on this proposed rule must be submitted no later than October 3, 2016, identified
as “DFARS Case 2016-D013,” by any of the following methods: (1) the Federal eRulemaking
Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or
(4) mail: Defense Acquisition Regulations System, Attn: Amy Williams, OUSD(AT&L)DPAP/
DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
■ New Qualifying Countries – Japan and Slovenia: This final rule amends the following
DFARS clauses to add Japan and Slovenia to the list of qualifying countries:
–
–
–
–
–
–
DFARS 252.225-7001, Buy American and Balance of Payments Program
DFARS 252.225-7002, Qualifying Country Sources as Subcontractors
DFARS 252.225-7012, Preference for Certain Domestic Commodities.
DFARS 252.225-7017, Photovoltaic Devices
DFARS 252.225-7021, Trade Agreements
DFARS 252.225-7036, Buy American – Free Trade Agreements – Balance of Payments
Program
A “qualifying country” is “a country with a reciprocal defense procurement memorandum of
understanding or international agreement with the United States in which both countries agree to
remove barriers to purchases of supplies produced in the other country or services performed by
sources of the other country, and the memorandum or agreement complies, where applicable,
with the requirements of Section 36 of the Arms Export Control Act (22 USC 2776) and with 10
USC 2457” (DFARS 225.003, Definitions [for foreign acquisitions]).
On June 4, 2016, the U.S. Secretary of Defense signed a reciprocal defense procurement
agreement with Japan, and on June 21, 2016, the U.S. Secretary of Defense signed a reciprocal
defense procurement agreement with Slovenia. The agreements remove discriminatory barriers
to procurements of supplies and services produced by industrial enterprises of the other country
to the extent mutually beneficial and consistent with national laws, regulations, policies, and
international obligations. The agreements do not cover construction or construction material.
Because of the execution of the agreements, Japan and Slovenia meet the criteria as “qualifying
countries.” (NOTE: Japan and Slovenia are already “designated countries” under the World
Trade Organization Government Procurement Agreement [see FAR 25.003, Definitions].)
■ Request for Audit Services in France, Germany, Netherlands, or United Kingdom: This
final rule amends DFARS 225.872-6, Request for Audit Services, to specify the qualifying
countries that have audit agreements with the United States (that is, France, Germany, the
Netherlands, and the United Kingdom). DFARS 225.872-6 now reads: “Handle requests for
audit services in France, Germany, the Netherlands, or the United Kingdom in accordance with
PGI [Procedures, Guidance, and Information] 215.404-2(c) [Data to Support Proposal Analysis],
but follow the additional procedures at PGI 225.872-6.”
■ Instructions for Wide Area WorkFlow (WAWF) Reparable Receiving Report (RRR):
This finalizes, without changes, the rule that proposed to amend DFARS Appendix F, Material
Inspection and Receiving Report, to add instructions for the use, preparation, and distribution of
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the WAWF RRR, which has been created to differentiate between deliveries of new government
assets (new procurements) and the return of government property that has been repaired or
overhauled. (NOTE: The WAWF website is https://wawf.eb.mil/.)
The WAWF RRR creates an acceptance transaction for use in paying for repair service and
property transfers, moving the asset back to the government, and reporting the movement to the
Item Unique Identification (IUID) registry. Without the RRR, the contractor would have to take
multiple actions to comply with DFARS 252.232-7003, Electronic Submission of Payment
Requests and Receiving Reports, DFARS 252.211-7003, Item Unique Identification and
Valuation, and DFARS 252.211-7007, Reporting of Government-Furnished Property. In
addition, the WAWF RRR eliminates manual intervention that is currently required to ensure
accurate information flow between different government reporting systems.
The proposed rule would have amended DFARS Appendix F to add the WAWF RRR to the
list of forms covered in the appendix and added instructions for completion of the WAWF RRR
in DFARS Appendix F, Part 3, Preparation Of The Wide Area WorkFlow (WAWF) Receiving
Report (RR), WAWF Reparable Receiving Report (WAWF RRR), and WAWF Energy RR. One
respondent submitted a comment on the proposed rule but it was not adopted, so the proposed
rule is finalized without changes. For more on the proposed rule, see the April 2016 Federal
Contracts Perspective article “DOD Awakens with Flurry of DFARS Changes.”
■ Procurement of Commercial Items: This proposed rule would amend various parts of the
DFARS to implement Sections 851 through 853 and 855 through 857 of the NDAA for FY 2016
(Public Law 114-92), and Section 831 of the NDAA for FY 2013 (Public Law 112-239), related
to commercial item acquisitions. In addition, this proposed rule would provide guidance to
contracting officers to promote consistency and uniformity in the acquisition process.
Section 831, Guidance and Training Related to Evaluating Reasonableness of Price, requires
the issuance of guidance on the use of the authority to require the submission of other than cost
or pricing data. To implement Section 831, a proposed rule was issued (see the September 2015
Federal Contracts Perspective article “DOD Issues Regulations on Network Penetration
Reporting and Contracting for Cloud Services”), and 14 respondents submitted comments on it.
However, based on the comments and to implement the subsequently enacted sections of the
NDAA for FY 2016, the original proposed rule is withdrawn and this proposed rule is issued.
This proposed rule would implement Section 831 and the following sections of the NDAA
for FY 2016:
–
–
–
–
–
–
11
Section 851, Procurement of Commercial Items
Section 852, Modification to Information Required to be Submitted by Offeror in
Procurement of Major Weapon Systems as Commercial Items
Section 853, Use of Recent Prices Paid by the Government in the Determination of Price
Reasonableness
Section 855, Market Research and Preference for Commercial Items
Section 856, Limitation on Conversion of Procurements from Commercial Acquisition
Procedures
Section 857, Treatment of Goods and Services Provided by Nontraditional Defense
Contractors as Commercial Items
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To implement Section 831 of the NDAA for FY 2013 and these section of the NDAA for FY
2016, the following amendments would be made to the DFARS:
–
To DFARS 202.101, Definitions, would be added the definition for “uncertified cost
data” (“the subset of ‘data other than certified cost or pricing data’ [see FAR 2.101] that
relates to cost”).
–
To DFARS 212.001, Definitions, would be added the definitions for “market research”
(“a review of existing systems, subsystems, capabilities, and technologies that are
available or could be made available to meet the needs of DOD in whole or in part”), and
“nontraditional defense contractor” (“an entity that is not currently performing and has
not performed any contract or subcontract for DOD that is subject to full coverage under
the cost accounting standards…for at least the one-year period preceding the solicitation
of sources by DOD for the procurement or transaction”). (NOTE: Military departments
are authorized to enter into “transactions (other than contracts, cooperative agreements,
and grants)…in carrying out basic, applied, and advanced research projects” with
“nontraditional defense contractors.” These are called “other transactions,” and are
authorized by 10 USC 2371, Research Projects: Transactions Other than Contracts and
Grants.)
–
DFARS 212.102, Applicability [of acquisition of commercial items], would be amended
to instruct contracting officers on the treatment of prior commercial item determinations
(“the contracting officer may presume that a prior commercial item determination made
by a military department, a defense agency, or another component of DOD shall serve as
a determination for subsequent procurements of such item” – paragraph (a)(iii)(A)), and
nontraditional defense contractors (“Supplies and services provided by nontraditional
defense contractors may be treated as commercial items [10 USC 2380A]. This
permissive authority is intended to enhance defense innovation and create incentives for
cutting-edge firms to do business with DOD. It is not intended to recategorize current
noncommercial items, however, when appropriate, contracting officers may consider
applying commercial item procedures to the procurement of supplies and services from
business segments that meet the definition of ‘nontraditional defense contractor’ even
though they have been established under traditional defense contractors” – paragraph
(a)(iv)).
–
DFARS 212.209, Determination of Price Reasonableness, would be added to provide a
hierarchy of data for contracting officers to consider when making determinations of
price reasonableness.
–
DFARS subpart 212.7X, Limitation on Conversion of Procurement from Commercial
Acquisition Procedures, would be added to implement Section 856. DFARS 212.7X01,
Procedures, would describe procedures for converting a procurement from the
commercial acquisition procedures of FAR part 12, Acquisition of Commercial Items, to
noncommercial acquisition procedures of FAR part 15, Contracting by Negotiation –
divided into acquisitions between $1,000,000 and $100,000,000, and acquisitions in
excess of $100,000,000.
September 2016
Panoptic Enterprises’ FEDERAL CONTRACTS PERSPECTIVE
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13
–
DFARS 215.401, Definitions [for contract pricing under negotiation procedures], would
be added. It would consist of definitions for “market prices” (“current prices that are
established in the course of ordinary trade between buyers and sellers free to bargain and
that can be substantiated through competition or from sources independent of the
offerors”) and “relevant sales data” (“information provided by an offeror of sales of the
same or similar items that can be used to establish price reasonableness taking into
consideration the age, volume, and nature of the transactions [including any related
discounts, refunds, rebates, offsets or other adjustments]”).
–
DFARS 215.402, Pricing Policy, would be amended to provide information regarding the
contracting officer’s responsibility for determining if the information provided by the
offeror is sufficient to determine price reasonableness (“this responsibility includes
determining whether information on the prices at which the same or similar items have
previously been sold is adequate for evaluating the reasonableness of price, and
determining the extent of uncertified cost data that should be required in cases in which
price information is not adequate” – proposed paragraph (a)(1)).
–
DFARS 215.403-1, Prohibition on Obtaining Certified Cost or Pricing Data (10 USC
2306a and 41 USC Chapter 35), would be amended to provide a reference to DFARS
212.102 regarding prior commercial item determinations (see above) (proposed
paragraph (c)(3)(C)).
–
DFARS 215.404-1, Proposal Analysis Techniques, would be amended to add paragraph
(b) to supplement the proposal analysis procedures identified in FAR 15.404-1(b), Price
Analysis for Commercial and Non-Commercial Items.
–
DFARS 234.7002, Policy [for acquisition of major weapons systems as commercial
items], would be amended to incorporate the revisions in Section 852 of the NDAA for
FY 2016, which addresses the acquisition of major weapons systems’ subsystems,
components, or spare parts.
–
DFARS 239.101, Policy [on the acquisition of information technology], would be
amended to incorporate the revisions in Section 855 of the NDAA for FY 2016 (“a
contracting officer may not enter into a contract in excess of the simplified acquisition
threshold for information technology products or services that are not commercial items
unless the head of the contracting activity determines in writing that no commercial items
are suitable to meet the agency's needs, as determined through the use of market research
appropriate to the circumstances…” – proposed paragraph (1)).
–
DFARS 252.215-70XX, Requirements for Certified Cost or Pricing Data and Data Other
Than Certified Cost or Pricing Data, would be added. It would be used in lieu of FAR
52.215-20, Requirements for Certified Cost or Pricing Data and Data Other Than
Certified Cost or Pricing Data, in solicitations and contracts when it is reasonably certain
that the submission of certified cost or pricing data or data other than certified cost or
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September 2016
pricing data will be required. Essentially, it is the same DFARS 252.215-70XX that was
in the original proposed rule except that it is updated to reflect the new proposed changes.
–
DFARS 252.215-70YY, Requirements for Submission of Proposals to the Administrative
Contracting Officer and Contract Auditor, would be added. It would be used when the
basic or alternate of DFARS 252.215-70XX is included in the solicitation if copies of the
proposal are to be sent to the administrative contracting officer (ACO) and contract
auditor. It is the same DFARS 252.215-70YY that was in the original proposed rule.
–
DFARS 252.215-70ZZ, Requirements for Submission of Proposals via Electronic Media,
would be added for use when using the basic or alternate of DFARS 252.215-70XX and
submission via electronic media is required. It is the same DFARS 252.215-70ZZ that
was in the original proposed rule.
Comments on this proposed rule must be submitted no later than October 11, 2016, identified
as “DFARS Case 2016-D006,” by any of the following methods: (1) the Federal eRulemaking
Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or
(4) mail: Defense Acquisition Regulations System, Attn: Mark Gomersall, OUSD(AT&L)DPAP/
DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
■ Pilot Program for Streamlining Awards for Innovative Technology Projects: This
proposed rule would amend various sections of the DFARS to implement Section 873 of the
NDAA for FY 2016, Pilot Program for Streamlining Awards for Innovative Technology
Projects, which provides exceptions from the certified cost and pricing data requirements and
from the records examination requirement for contracts, subcontracts, or modifications of
contracts or subcontracts valued at less than $7,500,000 awarded to a small business or
nontraditional defense contractor under to a technical, merit-based selection procedure (for
example, a broad agency announcement) or the Small Business Innovation Research (SBIR)
Program. However, Section 873 permits the head of the agency to override these exceptions if he
or she determines that submission of cost and pricing data should be required based on past
performance of the specific small business or nontraditional defense contractor, or based on
analysis of other information specific to the award. These exceptions end on October 1, 2020.
To implement Section 873, the following amendments would be made to the DFARS:
–
DFARS 215.401, Definitions [for contract pricing under negotiation procedures], would
be added to provide the same definition of “nontraditional defense contractor” that would
be added to DFARS 212.001 in the previous proposed rule (see above).
–
DFARS 215.403-1, Prohibition on Obtaining Certified Cost or Pricing Data, would be
amended to add text implementing the Section 873 exception from certified cost or
pricing data requirements.
–
DFARS 215.404-2, Data to Support Proposal Analysis, would be amended to add text
implementing the Section 873 exception from the records examination requirement.
September 2016
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–
DFARS 219.202, Specific Policies [for small business programs], would be amended to
add cross-references to the new text in DFARS 215.403-1 and DFARS 215.404-2.
–
DFARS 235.016, Broad Agency Announcement, would be added is cross-reference the
new text in DFARS 215.403-1 and DFARS 215.404-2.
Comments on this proposed rule must be submitted no later than October 31, 2016, identified
as “DFARS Case 2016-D016,” by any of the following methods: (1) the Federal eRulemaking
Portal: http://www.regulations.gov; (2) email: osd.dfars@mail.mil; (3) fax: 571-372-6094; or
(4) mail: Defense Acquisition Regulations System, Attn: Jennifer Johnson, OUSD(AT&L)
DPAP/DARS, Room 3B941, 3060 Defense Pentagon, Washington, DC 20301-3060.
■ Class Deviation on Subcontract Reporting: This class deviation directs contracting officers
not to use FAR 52.219-9, Small Business Subcontracting Plans, or any of its alternates, or
DFARS 252.219-7003, Small Business Subcontracting Plans (DOD Contracts), or its alternate.
Instead, the contracting officers are to use:
–
In orders placed against basic ordering agreements (BOAs) and blanket purchase
agreements (BPAs), FAR 52.219-9, Small Business Subcontracting Plans (DEVIATION
2016-O0009), and its Alternate III, and DFARS 252.219-7003, Small Business
Subcontracting Plans (DOD Contracts) (DEVIATION 2016-O0009), and its Alternate I.
–
In all other orders and contracts, FAR 52.219-9 (DEVIATION 2016-O0009), and, if
applicable, its Alternate I, II, or III, and DFARS 252.219-7003 (DEVIATION 2016O0009), and, if applicable, its Alternate I.
FAR 52.219-9 (DEVIATION 2016-O0009) reduces the frequency of Summary Subcontract
Report (SSR) submissions under an Individual Subcontracting Plan (ISP) from biannual to
annual. Also, it eliminates the requirement for multiple SSRs under an ISP for construction and
related maintenance and repair contracts so that only one consolidated SSR encompassing all
contracts is necessary.
DFARS 252.219-7003 (DEVIATION 2016-O0009) changes the entity to which the
contractor submits the SSR in the Electronic Subcontracting Reporting System (eSRS –
https://www.esrs.gov/) for an ISP from the military department or defense agency to DOD.
Use of FAR 52.219-9 Alternate III (DEVIATION 2016-O0009) and DFARS 252.219-7003
Alternate I (DEVIATION 2016-O0009) in orders placed against BOAs and BPAs allows DOD
to capture that subcontracting data. These clauses instruct contractors to submit the Standard
Form 294, Subcontracting Report for Individual Contracts, instead of an ISP in eSRS because
that system does not support the submission of an ISR for orders placed against BOAs and
BPAs.
■ Commercial and Government Entity (CAGE)/North Atlantic Treaty Organization
Commerical and Government Entity (NCAGE) Standard Operating Procedure: This
memorandum from Claire Grady, Director, Defense Procurement and Acquisition Policy, to
directors of defense agencies and field activities reminds them that FAR subpart 4.18,
Commercial and Government Entity Code, and DFARS subpart 204.18 require that government
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September 2016
domestic and foreign trading partners acquire CAGE and NCAGE codes, and provide them to
the contracting officer.
“To help users, the Defense Logistics Agency’s CAGE Program Office has developed a
Standard Operating Procedure (SOP) which contains scenario-driven information for
government trading partners about how to request, update, and maintain CAGE and NCAGE
codes. This document also provides important context for CAGE use, defines key terms, and
references supporting policy documentation. This document is published on the Defense
Logistics Agency CAGE website at https://cage.dla.mil/Content/forms/SOP.pdf.”
■ Release of Procurement Data Standard (PDS) Version 2.5.1: This memorandum from
Claire Grady, Director, Defense Procurement and Acquisition Policy, to directors of defense
agencies and field activities notify them and the defense procurement community that PDS
Version 2.5.1 has been published and is available at http://www.acq.osd.mil/dpap/pdi/eb/
procurement_data_standard.html. (“The Procurement Data Standard (PDS) is a systemagnostic data standard that is intended to be adopted and implemented DOD-wide for creation,
translation, processing, and sharing of procurement actions. It defines the minimum requirements
for contract writing system output to improve visibility and accuracy of contract-related data, to
support interoperability of DOD acquisition systems and to standardize and streamline the
procure-to-pay business process.”)
PDS Version 2.5.1 removes the section that addressed the transmittal of the DD Form 254,
Contract Security Classification Specification, since that data is now managed within the
National Industrial Security Program (NISP) Contracts Classification System (NCCS) and can be
carried using the attachment capability of PDS (https://wawf.eb.mil).
OMB ISSUES POLICY ON MOBILE DEVICES AND SERVICES
The Office of Management and Budget (OMB) has issued the third in a series of information
technology (IT) policies to make the acquisition and management of common IT goods and
services more efficient and cost-effective. This policy, “Category Management Policy 16-3:
Improving the Acquisition and Management of Common Information Technology: Mobile
Devices and Services,” seeks to improve the acquisition and management of $1 billion worth of
mobile devices and services (such as cell phones and cell phone services) spent each year by
consolidating contracts, mandating use of one or more government-wide best-in-class contract
solutions, improving demand management, and increasing accountability of agency officials.
According to the OMBlog issued by Anne Rung, Administrator of the Office of Federal
Procurement Policy (OFPP), and Tony Scott, U.S. Chief Information Officer, “it will help
simplify the federal marketplace for mobile devices and services by reducing fragmentation and
duplication of the over 1,200 separate mobile agreements and more than 200 unique service
plans managed by the federal government.” (The first policy addressed the acquisition of laptops
and desktops – see the November 2015 Federal Contracts Perspective article “OMB Establishes
Standard Configurations for Laptop and Desktop Computers”; the second policy addressed
software licensing – see the July 2016 Federal Contracts Perspective article “OMB Establishes
New Software Licensing Policy”).
September 2016
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The policy directs agencies to report all mobile service usage and pricing data to a centrally
managed system, eliminate unnecessary inventory and services, and use government- or agencywide solutions, if appropriate.
The primary difference between the draft memorandum (see the April 2016 Federal
Contracts Perspective article “OMB Issues Draft Policy on Mobile Devices”) and the final
memorandum is the inclusion of Appendix A, Mobile Services Category Team (MSCT) Roles
and Responsibilities. The MSCT is led by OMB, DOD, the General Services Administration
(GSA), and the Department of Homeland Security, and comprised of mobile devices and
services subject matter experts. “The MSCT will develop a strategic plan no later than October
31, 2016, to be evaluated annually, for at least one next generation governmentwide acquisition
solution to be awarded prior to May 31, 2018. The strategic plan, including an implementation
plan for mobile devices and services, should reduce the total cost of ownership and improve
enterprise management of mobile technology while minimizing risk and redundancy.”
GAO BANS PROTESTOR FROM PROTESTING
In an extremely rare action, the Government Accountability Officer (GAO) has suspended a
protestor from protesting for one year because of “abuse of process.”
The protestor, Latvian Connection, LLC, of Healdsburg, CA, and Kuwait City, Kuwait,
which represents that it is a service-disabled veteran-owned small business (SDVOSB), protested
the issuance of a task order by the Defense Information Systems Agency (DISA) to ManTech
Advanced Systems International, Inc. for engineering services, maintaining that DISA
improperly failed to set aside the acquisition for small businesses and to post the solicitation on
Federal Business Opportunities (FedBizOpps – https://www.fbo.gov). The total value of the task
order was $1,360,923.93 (B-413442, Latvian Connection LLC, August 18, 2016).
First of all, GAO dismissed Latvian Connection’s protest because GAO lacks jurisdiction to
consider protests against task orders valued below $10,000,000 (see paragraph (a)(10)(i) of FAR
16.505, Ordering [on Federal Supply Schedules]). In addition, GAO ruled that Latvian
Connection is not an interested party to pursue the protest because it is not one of the awardees
of the indefinite-delivery/indefinite-quantity (IDIQ) contract.
Then GAO goes on to the more interesting reason for dismissing Latvian Connection’s
protest:
“Our records show that, thus far this fiscal year, Latvian Connection has filed 150
protests with our office. Of the 131 protests closed to date this fiscal year, one was denied on
the merits. The remaining protests were dismissed, the most common reason being that
Latvian Connection was not an interested party…Latvian Connection’s protest filings
typically are a collection of excerpts cut and pasted from a wide range of documents having
varying degrees of relevance to the procurements at issue, interspersed with remarks from the
protester. The tone of the filings is derogatory and abusive towards both agency officials and
GAO attorneys. The most common allegations raised in Latvian Connection’s protests are
that the acquiring agency improperly has failed to set aside an acquisition for SDVOSBs or
small businesses, and/or that the agency has failed to publicize the procurement through the
required government point of entry, www.fbo.gov.
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“In recent months, Latvian Connection has claimed that agency and GAO officials are
white collar criminals; that the actions of agency procurement officials have violated the
Racketeer Influenced and Corrupt Organizations Act, 18 USC 1961-1968; that various
federal agency officials have engaged in treason; that GAO has violated the Equal Access to
Justice Act, 5 USC 504; and that agency and GAO officials have engaged in activities that
amount either to engaging in, or covering up, human trafficking and slavery.
“It has become evident to our office, and to procuring activities across the government,
that Latvian Connection’s protests are not filed for the purpose of allowing the firm to
compete on a relatively equal basis for a requirement that it is capable of, and interested in,
performing. Moreover, the effect of Latvian Connection’s protests is to hector the acquiring
activities – and our forum – with a stream of protests that divert our collective time and
resources…Because of these abusive litigation practices, and to protect the integrity of our
bid protest forum and provide for the orderly and expedited resolution of protests, we are
suspending Latvian Connection from protesting to our office for a period of one year as of
the date of this decision. We are taking this action to conserve limited government resources
that would otherwise be expended to respond to meritless protests filed by an entity with no
direct economic interest in the outcome (as required by our statute and regulations). We are
also taking this action because we have seen no evidence that Latvian Connection is prepared
to engage constructively on the issues raised by the protests it files.”
IRS ISSUES REGULATIONS ON 2% FOREIGN PROCUREMENT TAX
The Internal Revenue Service (IRS) has issued regulations under Section 5000C of the IRS
Code (Title 26 of the U.S. Code [26 USC]) relating to the 2% tax on payments made by the U.S.
government to foreign persons for “(1) the provision of goods, if such goods are manufactured or
produced in any country which is not a party to an international procurement agreement with the
United States, or (2) the provision of services, if such services are provided in any country which
is not a party to an international procurement agreement with the United States” (Section 301 of
the James Zadroga 9/11 Health and Compensation Act of 2010 [Public Law 111-347], which
added Section 5000C to the Internal Revenue Code [26 USC 5000C]).
A rule in FAC 2005-65 revised FAR 31.205-41, Taxes, to add a paragraph (b)(8) that “any
tax imposed under 26 USC 5000C” is not an allowable cost. In addition, the rule added “Taxes
imposed under 26 USC 5000C may not be (i) included in the contract price; nor (ii) reimbursed”
to FAR 52.229-3, Federal, State, and Local Taxes; FAR 52.229-4, Federal, State, and Local
Taxes (State and Local Adjustments); FAR 52.229-6, Taxes – Foreign Fixed-Price Contracts;
and FAR 52.229-7, Taxes – Fixed-Price Contract With Foreign Governments (see the February
2013 Federal Contracts Perspective article “FAC 2005-65 Extends Task Order Protest
Authority”). However, there were no instructions on how one was to determine whether 26 USC
5000C applies to a payment to a foreign person.
With this final rule, the IRS has issued regulations in Title 26 of the Code of Federal
Regulations (CFR), Part 1, Section 5000C (26 CFR 1-5000C), Tax on Certain Foreign
Procurement, on how to impose this 2% tax and report it. The key sections are 26 CFR 1.5000C1, Tax on Specified Federal Procurement Payments (particularly paragraph (d), Exemptions), and
26 CFR 1.5000C-2, Withholding on Specified Federal Procurement Payments (particularly
paragraph (b), Steps in Determining the Obligation to Withhold Under Section 5000C). The
September 2016
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following are the 10 steps specified in 26 CFR 1.5000C-2(b), supplemented by information in 26
CFR 1.5000C-1(d):
(1) Determine whether the payment is made under a contract for goods or services. If the
acquiring agency is making a payment for any other purpose, it does not have an
obligation to withhold under Section 5000C on the payment.
(2) Determine whether the payment is made under a contract with a U.S. person. If the other
contracting party is a U.S. person, the acquiring agency does not have an obligation to
withhold under Section 5000C on the payment.
(3) Determine whether the payment is for purchases under FAR part 13, Simplified
Acquisition Procedures. The acquiring agency determines whether the payment is for
purchases under simplified acquisitions procedures that do not exceed the simplified
acquisition threshold as described in FAR 2.101, Definitions [currently $150,000]. If it is,
the acquiring agency does not have an obligation to withhold under Section 5000C on the
payment.
(4) Determine whether the payment is for emergency acquisitions awarded under the
authority of FAR 6.302-2, Unusual and Compelling Urgency, or entered into under the
acquisition flexibilities in FAR part 18, Emergency Acquisitions. If it is, the acquiring
agency does not have an obligation to withhold under Section 5000C on the payment.
(5) Determine whether the payment is for personal services under the simplified acquisition
threshold [$150,000]. The acquiring agency determines whether payments for services
under contracts with a single individual do not exceed the simplified acquisition threshold
as described in FAR 2.101 on an annual basis for all years of the contract. If that is the
case, the acquiring agency does not have an obligation to withhold under Section 5000C
on the payment.
(6) Determine whether the payment is with a foreign contracting party to obtain goods or
services for the purpose of providing foreign humanitarian assistance as described in 26
CFR 1.5000C-1(d)(4). If it is, the acquiring agency does not have an obligation to
withhold under Section 5000C on the payment.
(7) Determine whether the foreign contracting party is entitled to relief because of an
international agreement. If the foreign contracting party submits a Section 5000C
Certificate or a Form W-14, Certificate of Foreign Contracting Party Receiving Federal
Procurement Payments, representing that the foreign contracting party is entitled to relief
from the tax imposed under Section 5000C because of an international agreement with
the U.S. (such as the nondiscrimination provision of a qualified income tax treaty), the
acquiring agency does not have an obligation to withhold under Section 5000C on the
payment.
(8) Determine whether the contract is for goods manufactured or produced or services
provided in the United States or in a foreign country that is a party to an international
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September 2016
procurement agreement (“the World Trade Organization Government Procurement
Agreement within the meaning of [FAR] 25.400(a)(1) [Scope of Subpart on Trade
Agreements] and any free trade agreement to which the United States is a party that
includes government procurement obligations that provide appropriate competitive
government procurement opportunities to U.S. goods, services, and suppliers” – 26 CFR
1.5000C-1(c)(8)). If the foreign contracting party submits a Section 5000C Certificate or
Form W-14 that represents the contract is for goods manufactured or produced or
services provided in the United States, or in a foreign country that is a party to an
international procurement agreement, the acquiring agency does not have an obligation to
withhold.
(9) Compute amounts to withhold. If, after evaluating each of these steps, the acquiring
agency determines it has an obligation to withhold, the acquiring agency computes the
amount of withholding by multiplying the amount of the payment by 2%.
(10) Deposit and report amounts withheld.
EDITOR'S NOTE: As one can see, the 2% tax won't have to be withheld very often!
OMB ISSUES 2017 VERSION OF THE NAICS
The Office of Management and Budget (OMB) has announced its final decisions for
adoption of North American Industry Classification System (NAICS) revisions for 2017. These
decisions update the industry classification system to clarify existing industry definitions and
content, recognize new and emerging industries, and correct errors and omissions in the 2012
version of the NAICS.
The NAICS is a system for classifying individual business locations (establishments) by type
of economic activity. Its purposes are to: (1) facilitate the collection, tabulation, presentation, and
analysis of data relating to establishments, and (2) promote uniformity and comparability in the
presentation and analysis of statistical data describing the North American economy. Mexico and
Canada have collaborated with the U.S. on NAICS to make the industry statistics produced by
the three countries comparable.
In August 2015, OMB solicited comments on proposed revisions to NAICS 2017. The
recommendations involved 28 industries, primarily those involved petroleum and natural gas
extraction, mining, major household appliance manufacturing, electronic shopping and mailorder houses, and research and development in nanotechnology (see the September 2015 Federal
Contracts Perspective article “Updates for 2017 Version of NAICS Proposed”).
After considering the comments that were submitted, and after consultation with Mexico and
Canada, the proposed 2017 NAICS is adopted as final with one minor exception: the title of
NAICS 33522 is changed from “Major Appliance Manufacturing” to “Major Household
Appliance Manufacturing” so that it aligns with NAICS 335220, Major Household Appliance
Manufacturing.
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FEDERAL SOURCE CODE POLICY ESTABLISHED
OMB’s Anne Rung, Administrator of the Office of Federal Procurement Policy (OFPP), and
Tony Scott, U.S. Chief Information Officer, have issued “Federal Source Code Policy” to
support improved access to custom software code. “Each year, the federal government spends
more than $6 billion on software through more than 42,000 transactions,” they wrote in the
introduction to the policy. “A significant proportion of software used by the government is
comprised of either preexisting federal solutions or commercial solutions. These solutions
include proprietary, open source, and mixed source code and often do not require additional
custom code development.”
When a federal agency is unable to identify an existing federal or commercial software
solution that satisfies its needs, it may decide to develop a custom software solution on its own or
pay for its development. Unfortunately, when agencies procure custom-developed source code,
they do not necessarily make the new code broadly available for federal reuse. Even when
agencies are able to make their source code available to the rest of the government, they do not
do so in a consistent manner. The result is duplicative acquisitions for substantially similar code,
wasting taxpayer dollars.
To improve government software development and make the government more open,
transparent, and accessible to the public, OMB has issued the following policy:
■ Secure Governmentwide Reuse Rights for Custom Code Developed Using Federal
Funds: “Agencies that enter into contracts for the custom development of software shall – at a
minimum – acquire and enforce rights sufficient to enable governmentwide reuse of customdeveloped code. Agencies must ensure appropriate contract administration and use of best
practices to secure the full scope of the government’s rights, including – but not limited to –
sharing and using the code with other federal agencies…[including] delivery of the customdeveloped code, documentation, and other associated materials from the developer throughout
the development process.
■ Inventory All Custom-Developed Code and Make It Available Governmentwide: In
addition to securing governmentwide reuse rights to custom code, “agencies shall make customdeveloped code and related information available to all other federal agencies by creating and
maintaining an enterprise code inventory that lists all new code that is custom-developed for the
federal government,” and make that custom-developed code “discoverable” at https://www.
code.gov (“Code.gov”) (with certain exceptions: national security; existence of patents; national
interest). (EDITOR’S NOTE: “Code.gov” is described in Appendix A of the policy as follows:
“First, it will act as an online collection of tools, guides, and best practices specifically designed
to help agencies implement the framework presented in this policy. Second, it will serve as the
primary discoverability portal for custom-developed code intended both for governmentwide
reuse and for potential release as OSS [open source software – see below]. Code.gov is not
intended to house the custom-developed code itself; rather, it is intended to serve as a tool for
discovering custom-developed code that may be available for governmentwide reuse or as OSS,
and to provide transparency into custom developed code that is developed using federal funds”
[emphasis added].)
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Also, OMB is instituting a pilot program in which agencies will be required to release at least
20% of its new custom-developed code as OSS for three years, and “are strongly encouraged to
release as much custom-developed code as possible to further the federal government’s
commitment to transparency, participation, and collaboration…This collaborative atmosphere
can make it easier to conduct software peer review and security testing, to reuse existing
solutions, and to share technical knowledge. Furthermore, vendors participating in or competing
for future maintenance or enhancement can do so with full knowledge of the underlying source
code.” (EDITOR’S NOTE: Appendix A of the policy defines “open source software” as
“software that can be accessed, used, modified, and shared by anyone. OSS is often distributed
under licenses that comply with the definition of ‘open source’ provided by the Open Source
Initiative [https://opensource.org/osd] and/or that meet the definition of ‘free software’
provided by the Free Software Foundation [https://www.gnu.org/philosophy/free-sw.html].”
In an OMBlog entry, Tony Scott wrote, “By making source code available for sharing and reuse across federal agencies, we can avoid duplicative custom software purchases and promote
innovation and collaboration across federal agencies. By opening more of our code to the
brightest minds inside and outside of government, we can enable them to work together to ensure
that the code is reliable and effective in furthering our national objectives. And we can do all of
this while remaining consistent with the federal government’s long-standing policy of
technology neutrality, through which we seek to ensure that federal investments in IT
[information technology] are merit-based, improve the performance of our government, and
create value for the American people.”
NASA CLARIFIES AWARD FEE EVALUATIONS AND PAYMENTS
The National Aeronautics and Space Administration (NASA) is finalizing, without changes,
the rule that proposed to amend NASA FAR Supplement (NFS) subpart 1816.4, Incentive
Contracts, and NFS 1852.216-77, Award Fee for End Item Contracts, to: (1) clarify NASA’s
award fee process by incorporating terms used in award fee contracting (adding NFS 1816.001,
Definitions, which would include definitions for “earned award fee” and “unearned award fee”);
and (2) provide guidance relative to final award fee evaluations (paragraph (b) of NFS 1816.405273, Award Fee Evaluations), the release of source selection information (NFS 1816.405273(c)), and the calculation of the provisional award fee payment percentage in NASA end-item
award fee contracts (paragraph (b) of NFS 1816.405-276, Award Fee Payments and Limitations,
and paragraph (c)(3) of NFS 1852.216-77, Award Fee for End Item Contracts).
Also, since Federal Acquisition Circular (FAC) 2005-17 rewrote FAR part 45, Government
Property, and removed FAR 52.216-13, Allowable Cost and Payment – Facilities, references to
FAR 52.216-13 are removed from NFS 1816.307, Contract Clauses, NFS 1816.307-70, NASA
Contract Clauses, and NFS 1852.216-89, Assignment and Release Forms.
One respondent submitted a comment on the proposed rule, but no changes were made to the
rule in response to the comment, so the rule is finalized without changes. For more on the
proposed rule, see the May 2016 Federal Contracts Perspective article “NASA Proposes to
Clarify Award Fee Process.” For more on FAC 2005-17, see the June 2007 Federal Contracts
Perspective article “FAR Coverage on Government Property Simplified, Clarified, Trimmed.”
September 2016
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