I.         Informational Items

1. A.R.P. Wallace, INC. V. US, COFC No. 96-222, December 15, 2004. Plaintiff challenges the assessment of liquidated damages for 250 days in a Navy contract where the government had provided defective specifications for a portion of the work. In an opinion by Judge Allegra, which even cites the 1928 decision Palsgraf v. Long Island R. Co., 284 N.Y. 339, 162 N.E. 99, the court discusses the issues of sequential and concurrent delays and the requirements of Federal Acquisition Regulation ("FAR") Clause 52.249-10 Default (Fixed-Price Construction). Judge Allegra remits damages for only 21 days of delay finding that plaintiff failed to prove that the defective specifications caused the bulk of the delay and secondarily, that plaintiff failed to meet the FAR notice requirements for much of the delay. Includes a discussion of Supreme court and Claims court decisions regarding delay.

 

2. Rick Vassar v. US, COFC No. 02-946C, December 8, 2004. Postal Service trailer lease contract. Contract required plaintiff to maintain trailers in an "as new" condition and stated that "the Postal Service will be liable to the contractor for loss or damage, exclusive of fair wear and tear, to equipment of the contractor." Plaintiff claims costs to repair damaged trailers at the end of the contract, although plaintiff sells rather than repairs the trailers. Government opposes claim arguing that plaintiff's sale, rather than repair, of trailers relieves the government of its obligation. Judge Margolis rejects the government's finding that the only reasonable interpretation of the contract is that the government is liable to contractor for damages to the trailers.

 

3. Paranetics Technology, Inc., ASBCA No. 54629, December 20, 2004.  Navy contract. Appellant submits a claim for unabsorbed overhead under the Eichleay formula for delay allegedly caused by late delivery from its subcontractor. The Board denies the appeal finding that "Appellant has failed to provide any evidence that the contract work was wrongfully suspended or delayed by the CO in the administration of this contract. Nor has appellant adduced evidence establishing any breach of contract by the CO. ... In view of the foregoing, we conclude that appellant has not shown entitlement to an equitable adjustment for the recovery of unabsorbed overhead under the Eichleay formula, or otherwise."

 

4. Revisions to OMB Circular A-123, Management's Responsibility for Internal Control, December 21, 2004.  "OMB [Office of Management and Budget] Circular No. A-123 defines management's responsibility for internal control in Federal agencies. A re-examination of the existing internal control requirements for Federal agencies was initiated in light of the new internal control requirements for publicly-traded companies contained in the Sarbanes-Oxley Act of 2002. Circular A-123 and the statute it implements, the Federal Managers' Financial Integrity Act of 1982, are at the center of the existing Federal requirements to improve internal control.  This circular reflects policy recommendations developed by a joint committee of representatives from the Chief Financial Officer Council (CFOC) and the President's Council on Integrity and Efficiency (PCIE). The policy changes in this circular are intended to strengthen the requirements for conducting management's assessment of internal control over financial reporting. The circular also emphasizes the need for agencies to integrate and coordinate internal control assessments with other internal control-related activities.  The revised circular is effective for FY 2006. Agencies should take steps in FY 2005 to prepare for its implementation. OMB plans to continue to work closely with the CFOC and the PCIE to provide further implementation guidance."  The circular can  be accessed at: http://www.whitehouse.gov/omb/circulars/a123/a123_rev.pdf]

 

5. Analysis of Type of Business Coding for the Top 1,000 Contractors Receiving Small Business Awards in FY 2002 , Report for the SBA Office of Advocacy, Research Summary No. 246, December 2004. Federal agencies have overstated federal contracting dollars going to small businesses by $2 billion in a single year, according to a report released by the Small Business Administration's Office of Advocacy. The SBA studied the 1,000 top contractors by revenue that federal agencies listed as small businesses in 2002. It found that 44 of the contractors actually were large businesses, nonprofit organizations and government agencies. They received contracts worth $2 billion, of a total of $54.1 billion of federal procurement funds that supposedly were paid to small businesses that year, said Chad Moutray, an SBA economist.

 

6. Government Garage Sales: Online Auctions as Tools for Asset Management, by David C. Wyld, November 2004.  "Professor Wyld lays the groundwork for this comprehensive and informative review on online auction sales by discussing the theory and practice of auctions, explaining how and why auctioning works, and why it is particularly effective when brought into the Internet age. He provides an overview of the size and scope of auctions and describes how government agencies are now using online auctions as a primary vehicle for proactively managing surplus.  The report presents five case studies of how online auctioning is now being employed: eBay and the Public Sector; the Department of Defense and Liquidity Services, Inc.; Bid4Assets—Taking Tax Sales off the Courthouse Steps; Property Bureau—Transforming the Police Auction; and the Demolition of Three Rivers Stadium.  The report presents a decision framework, or road map, that government executives can use in making decisions about the management of surplus assets in the public sector. Finally, the report presents a series of lessons learned. These lessons focus on the need to align the incentives of both multi-unit agencies and public-private partnerships to maximize the returns and overall effectiveness of online auctions."

 

II.        Regulatory Developments

1. Potential Comments - DOD: Interim Rule re Task and Delivery Order Contracts; Contract Period, 69 Fed. Reg. 74992, December 15, 2004. This interim rule amends DFARS section 217.204 to implement sections 843 of the FY2004 National Defense Authorization Act and Section 813 of the FY2005 National Defense Authorization Act. Section 843 places a 5-year limit on the period of task or delivery order contracts awarded under 10 U.S.C. 2304a. Section 813 further amends this statue 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. This new interim DFARS rule clarifies that the 10-year limit applies to the ordering period, and that it establishes a limit on the length of orders.  Draft comments should be completed by January 31, 2005.

 

2. Final Rule - GSAR Case 2004-G501, Disputes and Appeals, 70 Fed. Reg. 298, January 4, 2005.  The General Services Administration ("GSA") is amending the General Services Administration Acquisition Regulation ("GSAR") to add a clause that supplements the FAR Disputes clause.  Effective Date: January 4, 2005.

 

3. Final Rule - HHS: Acquisition Regulations; Technical Amendments, 70 Fed. Reg. 38, January 3, 2005. The Department of Health and Human Services ("HHS") announced a series of amendments to its acquisition regulation ("HHSAR") making editorial and procedural changes.  Of note, this new regulation adds the terms "veteran-owned" and "service-disabled veteran-owned" to describe small business categories in accordance with the FAR; permits basic and option periods of up to ten years for all service contracts not subject to the Service Contract Act or other statutory requirements; adds a Choice of Law (Overseas) clause in solicitations and contracts when contract performance will be outside the United States, its possessions, and Puerto Rico; and removes references to the Department's General Administration Manual for major system acquisitions.  Effective Date: March 4, 2005.

 

4. Final Rule - Renegotiation Board Interest Rate, Prompt Payment Interest Rate, Contract Disputes Act, 69 Fed. Reg. 78522, December 30, 2004.  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.

 

5. ABA Responds - Regarding Transition of Weapons-Related Prototype Projects to Follow-On Contracts, December 28, 2004. The ABA Public Contract Section's issued a comment letter on the use of streamlined contracting procedures for the production of items or processes begun as prototype projects under other transaction agreements.

 

6. Proposed Rule – Changes to DOSAR, 69 Fed. Reg. 76660, December 22, 2004. This proposed rule 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." These changes may significantly impact certain contractors' oversea operations including subcontractors. 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.  This rule will "clarify the application of Defense Base Act insurance to local and third country nationals" and when local Workers Compensation coverage may be required of contractors.

 

7. Final Rule - SBA-Small Business Government Contracting Programs; Subcontracting, 69 Fed. Reg. 75820, December 20, 2004. This final rule amends the U.S. Small Business Administration (SBA) regulations to address comments received in response to SBA's proposed rule on subcontracting (noticed October 20, 2003) as well as to SBA's earlier proposed rule on contract bundling (noticed January 31, 2003). Specifically, this final 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 rule also authorizes the use of goals in 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 rule implements statutory provisions and other administrative procedures relating to subcontracting goals and assistance. In particular, the 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 under the subcontracting assistance program.

 

8. Final Rule - DOD, GSA, NASA: Unallowable Costs; Cost Principles and Penalties Applicability, 69 Fed. Reg. 76356, December 20, 2004.  The government published a proposed rule on November 28, 2003 (see 68 Fed. Reg. 66988), which proposed to: (1) remove the requirement to apply the cost principles and procedures at FAR Part 31 when pricing a contract if cost or pricing data are not obtained; (2) add a definition to FAR Part 31 for fixed-price contracts, subcontracts, and modifications; and (3) increase the contract dollar threshold for assessing a penalty if the contractor includes expressly unallowable costs in its claim for reimbursement (FAR Part 42). After receiving some critical comments from the public, the Civilian Agency Acquisition Council and the Defense Acquisition Regulation Council ("Councils") decided not to adopt the proposed revisions to FAR Parts 15 and 31, and to convert the proposed rule at FAR Part 42 to a final rule. Therefore, the dollar threshold amounts in FAR 42.709(b) and FAR 42.709-6 are increased from $500,000 to $550,000.  Effective Date: January 19, 2005.

 

9. Final Rule - DOD, GSA, NASA: Electronic Representations and Certifications, 69 Fed. Reg. 76341, December 20, 2004. This final rule amends the FAR to require offerors to submit representations and certifications electronically via the Business Partner Network, unless certain exceptions apply.  The new Online Representations and Certifications Application will be the primary Government repository for contractor submitted representations and certifications required for the conduct of business with the Government, and is available at: http://orca.bpn.gov/.  Government contractors covered under these regulations will be required to submit their representations and certifications via the Internet, and not via paper forms.

 

10. Final Rule - Special Emergency Procurement Authority, FAR Case 2003-022, 69 Fed. Reg. 76350, December 20, 2004.  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 attackä."   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.

 

11. Final Rule – Financial Accounting Standard 123R Share-Based Payment, December 16, 2004. The Financial Accounting Standards Board (FASB) issued its final standard on accounting for share-based payments, FAS Statement No. 123R (revised 2004).  This Standard requires companies to expense the value of employee stock options and similar awards.

 

12. Compendium of Audits of the Federal Technology Service Regional Client Support Center, GSA IG Audit, December 14, 2004. General Services Administration's audits of FY 2003 procurements identified a number of improper contract and task order awards involving millions of dollars that did not comply with procurement laws and regulations.

 

13. Notice re FAR Semi-Annual Regulatory Agenda, 69 Fed. Reg. 74078, December 13, 2004. This notice advises release of the semi-annual digest of regulatory actions listing all of the pending regulations that pertain to the FAR which have been promulgated by DOD, GSA or NASA.  Parties with an interest in these rules can find the full text of these pending regulations at the government's rulemaking website, http://www.regulations.gov.

 

14. General Accountability Office  Report GAO-05-23, Air Traffic Control, FAA's Acquisition Management Has Improved, but Policies and Oversight Need Strengthening to Help Ensure Results, November 2004.  "FAA's [Federal Aviation Administration] Acquisition Management System (AMS) is broader and less prescriptive than the Federal Acquisition Regulation (FAR), but both afford managers flexibility. AMS establishes an acquisition life-cycle management system, including both a contracting and program management system, whereas the FAR is primarily a contracting system. In addition, AMS takes the form of guidance—it is not regulatory, while the FAR is a set of published regulations—a legal foundation that has the force and effect of law that most federal agencies are required to follow. AMS provides some discipline for acquiring major ATC systems; however, it does not ensure a knowledge-based approach to acquisition found in the best commercial practices for managing commercial and DOD product developments that we have identified in numerous past reports. Best practices call for (1) use of explicit written criteria to attain specific knowledge at key decision points and (2) use of this knowledge by executives at the corporate level to determine whether a product is ready to move forward. Attainment and use of such knowledge by executives helps to avoid cost, schedule, and performance shortfalls that can occur if they commit to a system design prematurely. While AMS has some good features, including calling for key decision points, it falls short of best practices. GAO's review of seven major ATC systems and analysis of FAA's performance in acquiring major systems found that AMS has not resolved longstanding problems it experienced prior to its implementation of AMS— including developing requirements and managing software—and is just beginning to focus on how these acquisitions will improve the efficiency of ATC operations. While FAA has made progress by providing guidance for avoiding past weaknesses, it has not applied these improvements consistently. According to FAA officials, reorganization under and improved oversight by FAA's new performance-based Air Traffic Organization should help ensure greater consistency and an increased focus on results. Past GAO reports have demonstrated that the success of an acquisition process depends on good management, whether it be under AMS or the FAR."

 

15. DoD Launches The New Procedures, Guidance, And Information As A Companion To The DFARS, 69 Fed. Reg. 63326, November 1, 2004.  ". . . The new Procedures, Guidance, and Information (PGI) site serves as a companion to the DFARS.  PGI is an online resource to help acquisition professionals more effectively and efficiently do their jobsä.  PGI was created as a tool to rapidly assist the acquisition community by providing DoD internal procedures and other information that does not require implementation in the formal regulation,"  PGI is located at http://www.acq.osd.mil/dpap/dars/pgi/.

 

16. Various Defense Contract Audit Agency Memorandum

 

a.     Audit Guidance on Interest Rate for Determining Interest Applicable to Postaward Audit Adjustments, September 24, 2004.

 

b.     Audit Guidance on Removing Requirement to Compute Z-Score and Certain Financial Ratios during Financial Condition Risk Assessments, August 26, 2004.

 

c.     FY 2005 Audit Management and Reporting Guidance for Iraq Reconstruction, August 18, 2004.

 

d.     Audit Guidance on Revisions to FAR Part 31 Under FAC 2001-024, August 16, 2004.

 

 

 

The next meeting of the Accounting Cost and Pricing committee will be on February 8, 2005.