This week’s Comment highlights Thought No. 8 of the Thirteen Thoughts for 2013: “GSA’s 2012 waiver of the Price Reduction Clause—a statement in favor of competition!” Last fall, the application of the Price Reduction Clause (PRC) was waived for the purposes of the Air Force’s Enterprise Sourcing Group’s open market solicitation, FA8057-12-R-0001, seeking to establish multiple award IDIQ contracts for commercial office furniture. The waiver can be found here. The waiver of the PRC responded to a bid protest filed by a Multiple Award Schedule (MAS) furniture contractor. The MAS contractor essentially alleged that the terms of the PRC would restrict its ability to compete for the Air Force furniture requirements. GSA apparently agreed and waived the application of the PRC. The Government Accountability Office (GAO) subsequently cited the waiver in denying the protest allegation.
The waiver of the PRC raises the practical, real life impact of the clause on commercial firms. The clause, by its terms, can restrict the ability of MAS contractors to compete in the federal and commercial market places. At the same time, the government and industry spend millions of dollars a year negotiating, reviewing, auditing, and monitoring compliance with the clause. This cost is unnecessary given the current statutory and regulatory MAS competition requirements for task orders exceeding $150,000. Indeed, the PRC dates from a time when the MAS program was a mandatory source before the current competitive framework became law.
The unintended consequence of the waiver of the PRC was to create a double standard. The PRC was waived to foster competition for specific Air Force set of requirements. However, the potential impact of the clause remains the same for all other MAS contractors seeking to compete for federal work and/or commercial work. The PRC’s limitations on a contractor’s ability to compete ultimately affect job growth. It is a costly, oversight mechanism that is no longer required to assure good pricing at the task order level.
Given changes in technology, the economy and the regulatory framework, it is time for review and reform of the MAS pricing policies, including the PRC. We look forward to engaging GSA in a Myth-Busters dialogue addressing MAS pricing policy. The Coalition letter to FAS’s Office of Acquisition Management regarding implications of the PRC waiver begins that dialogue.
Next week the Comment will address “Thought No. 7: From Strategic Sourcing to Strategic Acquisition” of the “Thirteen Thoughts for 2013.”
Roger Waldron
President
The Coalition on OASIS: Join the Dialogue
The Coalition’s OASIS Working Group is planning to provide comments on the One Acquisition Solution for Integrated Services (OASIS) draft RFPs released March 28. The working group had a productive meeting this week formulating an outline, which will be the basis for our comments to GSA due April 29.
Members will also have an opportunity to engage in a Myth-buster’s dialogue with Jim Ghiloni, Director of the OASIS Program Management Office, during an OASIS breakout session at the Coalition’s Spring Conference on April 17. This is an excellent opportunity for members to ask GSA questions about the OASIS draft RFP and to provide suggestions for the strategy moving forward.
Also, look out for Roger Waldron’s Off the Shelf interview with Jim Ghiloni that will air next Tuesday, April 9 at 10am at Fed News Radio 1500AM. During the interview, Jim discusses some of the key aspects of the OASIS draft RFP and the value of the new contract vehicle for customer agencies.
Members interested in joining the OASIS Working Group can get involved by contacting Aubrey Woolley at awoolley@thecgp.org.
More Biobased Products Receive Procurement Preference
The US Department of Agriculture (USDA) published a final rule in the Federal Register on April 1 which adds eight new categories of biobased products to the Biopreferred Program. By adding these product categories to the Guidelines for Designating Biobased Products for Federal Procurement, they will receive Federal procurement preference.
The eight new product categories are:
- aircraft and boat cleaners
- automotive care products
- engine crankcase oil
- gasoline fuel additives
- metal cleaners and corrosion removers
- microbial cleaning products
- paint removers
- water turbine bearing oils
USDA also establishes minimum biobased content for each of these product categories.
Manufacturers of these products that meet USDA’s requirements for preferred procurement can claim Biopreferred status for their products. To qualify, a product must meet the minimum biobased content for the appropriate product category.
According to the final rule, federal agencies are required to purchase biobased products “where the purchase of the procurement product exceeds $10,000 or where the quantity of such product or of functionally equivalent products purchased over the preceding fiscal year equaled $10,000 or more.”
For more details, please see the final rule at www.gpo.gov/fdsys/pkg/FR-2013-04-01/pdf/2013-07336.pdf.
CR Contains New IT Sourcing Rules
According to FCW, “a new IT security measure included in the continuing resolution signed into law on March 26 requires several government departments to take China sourcing into account when procuring computer systems.” As a part of this new measure, the Commerce Department, Justice Department, NASA and the National Science Foundation are required to evaluate “any risk associated with such system being produced, manufactured or assembled by one or more entities that are owned, directed or subsidized by the People’s Republic of China.” FCW notes that the new rules will apply to only a few agencies at first but that they may eventually become a template for other civilian agencies in the next round of appropriations. Rep. C.A. Dutch Ruppersberger (D-Md.), ranking member of the intelligence committee, spoke to the media in support of the language contained in the continuing resolution. The Congressman stated that there are “long-term security risks associated with doing business with Chinese companies.” According to FCW, implementation of the new measures could prove more complicated for both vendors and customer agencies.
Protest Decision Implications on Acquisition System
Coalition President, Roger Waldron, had an article published in Bloomberg BNA Federal Contracts Report about a bid protest against a solicitation implementing a novel acquisition strategy by the Air Force. The decision has implications for the broader acquisition system, and the Price Reductions Clause (PRC) in particular. We encourage all members to review the article which references a PRC waiver that was issued by GSA as part of the procurement.
DPAP Memo on Contract Award Announcements
This week, DPAP issued a memo reminding contracting personnel to report contract award announcements to the Office of the Assistant Secretary of Defense for Public Affairs. The memo references a GAO report in 2010 that found that award announcements provided to the Office of Public Affairs were often insufficient. The memo directs contracting officers and specialists to appropriately report all contractual actions, including notifications that have a face value of more than $6.5 million. The memo is intended to improve contract award announcements from the Department of Defense in accordance with DFARS 205.303
DOT OIG Reviews Major IT Investments
The Department of Transportation (DOT) Office of Inspector General (OIG) has released an audit report on the DOT’s IT investment portfolio. The portfolio is worth about $2.2 billion and includes the Federal Aviation Administration’s Next Generation Air Transportation System (NextGen), a multibillion-dollar effort to modernize the U.S. air traffic control system. In the report, the OIG assessed whether (1) DOT’s investment governance practices meet Federal and statutory investment oversight requirements and best practices, and (2) FAA and DOT provide sufficient oversight of FAA’s major IT investments. Overall the report found that “DOT’s investment oversight practices do not fully meet OMB requirements or DOT policies.” Among the Department’s shortcomings, DOT does not have an active Investment Review Board, to provide a comprehensive management framework and strategic oversight of the DOT’s entire IT investment portfolio. The OIG also found that the Department failed to fully implement the OMB’s TechStat guidance. The OIG provided the following recommendations:
- Develop a comprehensive implementation plan for its proposed IT governance framework
- Finalize DOT’s draft, updated IRB charter to clarify organizational responsibilities, define IRB and TechStat roles and responsibilities, and establish the Senior Procurement Executive as a voting member.
- Establish written policies and procedures for TechStat accountability sessions, or similar review sessions for troubled and underperforming IT investments.
The DOT Office of the Secretary agreed with all of the recommendations.
Energy Savings Performance Contracts RFI
The Department of Energy (DOE) released a notice of request for information (RFI) on April 3 on Energy Savings Performance Contracts (ESPCs). DOE is seeking ideas and input from ESPC interested stakeholders about how ESPCs can be improved.
ESPCs allow federal agencies to implement energy savings projects where the up-front capital cost is financed by an Energy Services Company (ESCO). The ESCO is then repaid from the agency’s energy savings over a period of up to 25 years. DOE is especially interested in hearing from stakeholders about how the Federal Energy Management Program IDIQ contracts can be improved. To view the specific questions that DOE is interested in receiving feedback on, please see the ESPC RFI. Comments are due May 3, 2013.
Let’s Just Pretend the FAR Change Didn’t Happen
By Phil Seckman, Partner, McKenna Long & Aldridge LLP
The Federal Circuit’s recent decision in Sharp Electronics Corporation addresses a quandary familiar to federal supply schedule contractors regarding the proper contracting officer (CO) to whom the contractor must direct its contract claims to ensure jurisdiction. Sharp Corporation v. McHugh, 2013 WL 646330 (Fed. Cir. 2013). The Federal Circuit’s decision relates to a 2002 change to the Federal Acquisition Regulation (FAR) and seeks to provide contractors with certainty by announcing a so-called bright-line rule for interpreting the meaning of the disputes provision for schedule contracts. Despite the Federal Circuit’s intentions, ambiguities remain.
Prior to the 2002 FAR change, the FAR provided that “[t]he ordering office shall refer all unresolved disputes under orders to the schedule contracting officer for action under the Disputes clause of the contract.” 48 C.F.R. § 8.405-7 (2000). Because only the GSA CO had authority under the Disputes clause, it was clear before the FAR change that any contractor claim relating to an order placed under a schedule contract must be submitted to the GSA CO to ensure jurisdiction under the Contract Disputes Act (CDA). The FAR also made it clear that the ordering office was to refer any unresolved contractor claims to the GSA CO.
Then, on June 27, 2002, the FAR was amended to incorporate new policies for disputes in schedule contracts. 67 Fed. Reg. 43,514 (the final rule was effective on July 29, 2002). As the FAR councils noted when publishing the proposed rule, the change was being made to “permit the ordering office contracting officer to issue a final decision regarding disputes pertaining solely to performance of schedule orders.” 65 Fed. Reg. 79,702 (Dec. 19, 2000).
The revised regulation provides:
(a) Disputes pertaining to the performance of orders under a schedule contract. (1) Under the Disputes clause of the schedule contract, the ordering activity contracting officer may —
(i) Issue final decisions on disputes arising from performance of the order (but see paragraph (b) of this section); or
(ii) Refer the dispute to the schedule contracting officer.
(2) The ordering activity contracting officer shall notify the schedule contracting officer promptly of any final decision.
(b) Disputes pertaining to the terms and conditions of schedule contracts. The ordering activity contracting officer shall refer all disputes that relate to the contract terms and conditions to the schedule contracting officer for resolution under the Disputes clause of the contract and notify the schedule contractor of the referral.
(c) Appeals. Contractors may appeal final decisions to either the Board of Contract Appeals servicing the agency that issued the final decision or the U.S. Court of Federal Claims….
48 C.F.R. § 8.406-6 (2004) (the text from the 2002 FAR amendment was renumbered in 2004).
The plain language of this regulation establishes that when a contractor submits a claim to an ordering activity CO, it is that CO’s responsibility to determine whether a dispute relates solely to the performance of an order or, instead, pertains to the terms and conditions of the schedule contract. Thus, one might have read the regulation to mean that a contractor could submit a claim to either the ordering activity CO or the GSA CO. Then, the government would determine which CO possessed authority to issue a final decision.
While such an interpretation is certainly logical and reasonable, it is wrong. The Federal Circuit’s decision makes it clear that it is the schedule contractor, and not the CO, that is responsible for determining to whom its claims must be submitted. Failure to identify the correct CO may result in the dismissal of an appeal for lack of CDA jurisdiction. Choosing the appropriate CO is made all the more critical where a schedule contractor is nearing the CDA six-year statute of limitations.
The Sharp Electronics case involved a contractor’s certified claim requesting fees under the termination provisions of an Army order placed against a schedule contract. The contractor submitted its claim to the Army CO. Critically, the Army CO disregarded the clear responsibility under FAR 8.406-6 and ignored the claim. Thus, the 60-day CDA decision period elapsed and — in the contractor’s view — resulted in a “deemed denial.”
The contractor then appealed to the Armed Services Board of Contract Appeals (ASBCA). Sharp Elecs. Corp., ASBCA No. 57583, 12-1 B.C.A. 34,903. Both the contractor and the government believed that their dispute should be decided by the ordering agency CO. Both parties believed the dispute was based on the order contract performance and not the terms of the schedule contract. In fact, neither party raised the jurisdictional issue. The ASBCA raised the issue on its own.
The ASBCA then held that it lacked jurisdiction over the appeal because the dispute did require the interpretation of the schedule contract and, therefore, only could have been decided by the GSA CO. The contractor’s decision to submit the claim to the Army CO, combined with that CO’s failure to forward the claim, meant there had been no properly submitted claim under the CDA and, therefore, no “deemed denial” from which to appeal. Id. The fact that the regulation clearly places the responsibility upon the ordering activity CO to make a determination regarding his/her own authority to resolve the dispute and then to forward claims to the GSA schedule CO when the dispute pertains to the terms and conditions of the schedule contract did not alter the outcome.
In a split decision, the Federal Circuit affirmed the ASBCA decision finding that under FAR 8.406-6 the ordering agency CO did not have the authority to make a determination regarding the contractor’s claim because the dispute involved, at least in part, interpretation of the terms of the schedule contract. The Federal Circuit’s decision announces a so-called bright-line rule that “all disputes requiring interpretation of the schedule contract go to the [GSA] schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order.” See Sharp Elec., supra at *6
The Federal Circuit, in highlighting the bright-line, attempts to address the jurisdictional uncertainty under FAR 8.406-6 created by the 2002 rulemaking. As noted by the dissent, however, the Court has succeeded in, effectively, reinstituting the prior rule that all disputes relating to schedule contracts should be submitted to the GSA CO. In other words, when in doubt, contractors must submit claims to the GSA CO.
Perhaps being defensive regarding the dissent’s objections, the Court noted that under a schedule contract an ordering agency CO remains authorized to make final determinations regarding performance, the terms of an order or its modifications “as long as the dispute does not involve interpretation of the schedule contract.” The Court also states that an ordering agency CO may resolve a dispute by “applying the relevant provisions of the schedule contract “as long as their meaning is undisputed.”
Despite these statements, however, the actual effect of this holding, as the dissent properly points out, will be that most contract disputes under schedule contracts will be submitted to the GSA CO and not the ordering agency CO. Indeed, many disputes can be characterized as requiring interpretation of the schedule contract. Thus, contractors that submit claims to ordering activity COs who are inclined to disregard the claim, as did the Army CO in the Sharp case, run the risk that what seems to be a “deemed denial” is, in reality, a nullity under the CDA.
For these reasons, prudent schedule contractors will submit claims to GSA COs. GSA COs, however, typically have very little, if any, knowledge regarding the facts of a dispute that primarily relates to performance under an order and only tangentially requires the interpretation of the schedule contract. This could lead to increased denials or deemed denials of contractor claims. Nevertheless, after this decision, if a dispute may pertain to interpretation of a schedule contract terms and provisions, a schedule contractor, particularly one with a potential statute of limitations issue, will be wise to submit its certified claim to the GSA CO or risk a similar outcome.
Register for the Spring Conference, April 17
Registration is now open for the Coalition’s Spring Training Conference on April 17th 2013 at the Crystal Gateway Marriott. Attendees will engage in a government-industry “Myth-busters” dialogue with acquisition leadership from the Department of Defense, Department of Veterans Affairs, General Services Administration and others about key procurement issues that impact members’ government business. The focus on “strategic acquisition” at this year’s conference is in response to increased interest in federal strategic sourcing. Strategic Acquisition can both improve the efficiency of government and provide an opportunity for businesses to offer innovative solutions that help agencies meet this goal. We have developed a robust and informative agenda with early speaker confirmation from Government and industry leaders alike. This is a conference you will not want to miss! Register Here!
Join Baker Tilly government contractor advisors on April 25 at 12:30 pm as they discuss the benefits of completing a broad GSA Schedule Compliance Assessment, conducting a historical pricing and updating GSA pricing disclosures.Many contractors don’t fully understand the disclosures that form the basis for the negotiated prices on their GSA Schedule contracts, but a company’s failure to keep those disclosures current may expose it to audit risk and financial liability when the Office of Inspector General (OIG) comes knocking. All contractors, regardless of size, should be prepared for the eventuality of an audit. When the time comes to exercise the option to extend a contractor’s GSA Schedule contract, they should take the opportunity to confirm that their practices are properly disclosed and that they have an effective compliance program in place. Registration and more information!>>
Post Award Pricing Compliance Webinar
Join The Coalition and experts from Berkeley Research Group on May 21 at 12:30 pm for a discussion regarding the systems, processes and controls necessary to comply with the requirements of the PRC and other post-award pricing considerations. The presentation will provide an overview of the requirements of the PRC and common misconceptions related to the clause. In addition, we will share best practices and strategies for minimizing PRC and other pricing compliance risks. Finally, we will discuss processes, controls, roles and responsibilities typically found in effective PRC monitoring systems. Perhaps the most debated and lamented post-award pricing requirement in a GSA and VA schedule contract is the Price Reduction Clause (PRC). Despite being cited as the basis for a number of infamous civil False Claims Act settlements involving GSA and VA Schedule contracts, there is very little information available in the public domain in the form of case law, audit guidance or best practices pertaining to compliance with the clause. Registration and more information!>>
CLE Credits for In-House Counsel Training!
Continuing Legal Education (CLE) credits are now available for the Coalition’s General Services Administration (GSA) Schedule Contracting for In-House Counsel training scheduled for June 27, 2013. Attendees can earn 6 CLEs for the course with the Virginia State Bar.
GSA Schedule Contracting for In-House Counsel Training
June 27, 2013 8:00 am
McKenna Long & Aldridge LLP
1900 K St NW
Washington, DC
About the course:
This GSA Schedule Contracting for In-House Counsel training will provide information and tools to help you understand the GSA/VA Schedule contracting program and provide insightful legal advice to your in-house client.
The GSA Schedule, including the delegated VA Schedules, is a $50 billion contracting program that all federal agencies use to acquire commercial services and products. These multiple year, government-wide contracts cover professional services, information technology, pharmaceuticals, medical equipment and a vast array of commercial products.
Schedule contracts offer a huge market opportunity. Thousands of companies including both Fortune 500 companies and a vast number of small businesses have GSA/VA Schedule contracts. All federal agencies, and in some instances state agencies, can place orders against the contracts.
Of particular interest to in-house counsel, Schedule contracts have a pricing methodology, and disclosure requirements that are unique in federal government contracting. The contracts provisions must be correctly understood, managed and monitored to assure that your company realizes anticipated profits. Failure to do so can result in significant monetary, administrative, civil and even criminal penalties.
Staats Award Submissions Due by April 15!
Don’t forget to have your Procurement Round Table Staats Award submissions in by April 15! The flyer is available here: http://www.procurementroundtable.org/documents/2013-PRT-Staats-Flyer.pdf. It also includes info on downloading the application. More information is included at the Procurement Round Table Site at http://www.procurementroundtable.org/.