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Government Procurement: November and December 2013 and January 2014 Federal Register Update

1. Final Rule Requiring Accelerated Payments to Small Business Subcontractors.

On November 25, 2013, the FAR Councils published a final rule that, inter alia, amended the FAR to require accelerated payments to small business subcontractors in certain circumstances.  The final rule adds a new FAR clause, 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, which must be included in all subcontracts with small business concerns.  The new clause requires prime contractors to make accelerated payments to small business subcontractors “to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract” once the Government has issued an accelerated payment to the prime contractor and once the small business subcontractor has submitted “a proper invoice and all other required documentation” for receipt of payment.  The final rule, which became effective on December 26, 2013, does not provide any new rights under the Prompt Payment Act.

2.  Proposed Rule Regarding Higher-Level Contract Quality Standards – Comments Due on or Before February 3rd.

On December 3, 2013, the FAR Council issued a proposed rule to amend the FAR to provide guidance regarding the use of higher-level contract quality standards in solicitations and resulting contracts.  The proposed rule is designed to “help minimize and mitigate” counterfeit or potentially counterfeit items by enabling the Government to select appropriate quality standards based on the criticality of the requirement(s) at issue and the risk that noncoforming items might pose to fulfilling the requirement(s).  The proposed rule contemplates, inter alia, the following changes:

  • Revising FAR 44.303, Contractors’ Purchasing Systems Review, to include a review of the contractor’s implementation of higher-quality standards in connection with the Government’s evaluation of the contractor’s purchasing system;

  • Revising FAR 46.202-4, Higher-level contract quality requirements, subsection (a), to require agencies to establish procedures for determining when higher-level quality standards are necessary, including an assessment of the risk of receiving nonconforming items, and the issuance of advice to the contracting officer regarding the application of standards.

  • Revising FAR 46.202-4(a)(1) to add “design” and “testing” to the examples of technical requirements that would require control.

  • Revising FAR 46.204-4(b) to require that when the contracting officer, “in consultation with technical personnel and in accordance with agency procedures,” determines that one or more standards are necessary, the contracting officer use the clause prescribed at FAR 46.311 to list the applicable standards.  The proposed revisions also reflect the removal of outdated or obsolete standards, and the addition of new examples of higher‑level quality standards.

  • Revising FAR 46.311, Higher-level contract quality requirement, to require the inclusion of FAR 52.246-11, Higher-Level Contract Quality Requirement, when the Government has determined that the inclusion of a higher-level quality requirement is appropriate and when one or more such standards will be included in the clause.  The revisions would enable the Government, rather than the contractor, to select the standard(s) applicable to the procurement.

To be considered in the formation of the final rule, comments should be identified by FAR Case 2012-032 and submitted on or before February 3, 2014 via: 1) http://www.regulations.gov, 2) fax at (202) 501-4067, or 3) mail to General Services Administration, Regulatory Secretariat (MVCB), Attn: Hada Flowers, 1800 F Street NW., 2nd Floor, Washington, DC 20405-0001.

3. Final Rule Regarding Unallowable Fringe Benefit Costs.

On December 6, 2013, the Department of Defense (“DoD”) issued a final rule, effective immediately, that amended the DFARS to provide that fringe benefit costs are unallowable if they are contrary to: (1) law, (2) an employer-employee agreement, or (3) an established policy of the contractor.  Commentary to the final rule reflects DoD’s concern that unallowable fringe benefit costs, “such as ineligible dependent healthcare claims,” i.e., dependent healthcare costs that contravene any of the foregoing allowability criteria, are unnecessarily increasing the cost of Government contracts.  DoD indicated that these types of costs “can represent as much as 3 percent or more of total healthcare costs,” and that this “can be significant for large contractors that spend millions of dollars for dependent healthcare.

4. Proposed Rule Regarding Application of Certain Clauses to Acquisitions of Commercial Items – Comments Due on or Before February 4th.

On December 6, 2013, DoD issued a proposed rule to amend the DFARS to clarify the applicability of DFARS 252.211-7008, Use of Government-Assigned Serial Numbers, and DFARS 252.232-7006, Wide Area WorkFlow Payment Instructions to commercial item acquisitions.  The proposed rule would add both clauses to the list set forth at DFARS 212.301(f), which prescribes the solicitation provisions and contract clauses to be used for the acquisition of commercial items.  The proposed rule would require DFARS 252.211-7008 to be used as prescribed in DFARS 211.274-6(c), which requires insertion of the clause in solicitations and contracts that contain DFARS 252.211-7003, Item Identification and Valuation, and that require the contractor to mark major end items under the terms and conditions of the contract.  With respect to DFARS 252.232-7006, the proposed rule would require the clause to be used as prescribed in DFARS 232.7004(b), which requires insertion of the clause, absent limited circumstances, in solicitations and contracts when DFARS 252.232-7003, Electronic Submission of Payment Requests and Receiving Reports, is used.

To be considered in the formation of the final rule, comments should be identified by DFARS Case 2013-D035 and submitted on or before February 4, 2014 via: 1) http://www.regulations.gov, 2) email at dfars@mail.mil, 3) fax at (571) 372-6094, or 4) mail to Defense Acquisition Regulations System, Attn: Ms. Susan C. Williams, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon, Washington, DC 20301-3060.

5. Final Rule Regarding the Contracting Officer’s Role in the Preparation of the Letter of Offer and Acceptance for Foreign Military Sales Programs That Will Require an Acquisition.

On December 6, 2013, DoD issued a final rule, effective immediately, that would revise DFARS 225.7302 to require the contracting officer to assist the DoD implementing agency responsible for preparing the Letter of Offer and Acceptance (“LOA”) in connection with Foreign Military Sales (“FMS”) programs that will require an acquisition.  In particular, the contracting officer is required to work with prospective contractors by:

  • Identifying, in advance of the LOA, any unusual provisions or deviations;

  • Advising the contractor if the DoD implementing agency expands, modifies, or does not except any key elements of the contractor’s proposal;

  • Identifying any logistics support necessary to perform the contract;

  • Asking the prospective contractor for information on price, delivery, and other relevant factors for noncompetitive acquisitions over $10,000; and

  • Working with the DoD implementing agency responsible for preparing the LOA as specified in PGI 225.7302.

6.  Final Rule Regarding the Federal Acquisition Regulation Service Contracts Reporting Requirements.

On December 31, 2013, DoD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulation (FAR) to implement a section of the Consolidated Appropriations Act, 2010. This final rule amends the FAR to require service contractors for executive agencies, except where DoD has fully funded the contract or order, to submit information annually in support of agency-level inventories for service contracts.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Reid Whitten, partner, Sheppard Mullin Law Firm
Partner

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of...

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Franklin C. Turner, litigation attorney with Sheppard Mullin law firm
Associate

Mr. Turner is an associate in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Mr. Turner has experience counseling clients in a wide variety of litigation-related matters. His experience includes representing government contractors in connection with bid protests before the United States Government Accountability Office, counseling clients regarding qui tam and other False Claims Act litigation; advising clients on matters relating to the Multiple Award Schedule Program, preparing contract claims, assisting clients with internal investigations, ensuring clients' compliance with federal procurement regulations, and advising clients on cost and CAS issues.

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