Jump to content

Business System(s) Clause(s) Self-deleting?


Rob

Recommended Posts

Discussions in regard to "self-deleting" clauses have been held here. In example, here_2_ help has reminded folks that certain CAS clauses are not self-deleting if the parties mistakenly agree to subject the Contract to CAS, regardless if the Contract be was eligible for CAS exemption. Vern has stated that there is no FAR definition for self-deleting. And my own personal experience is to ensure if a Clause is not appropriate then the Clause should not become a part of the Contract Terms & Conditions.

Recently participated in a seminar conducted by a Big 4 accounting firm and a supported by a guest Attorney from a well known and respected law firm (with many Govt Contract practitioners). The presentation highlighed some of the changes from the interim DFARS Business Systems to the final rule, including

....Clarifies that the clause applies only to contracts that are subject to Cost Accounting Standards (CAS). Thus, the clause will be self-deleting if CAS does not apply...

QUESTION: If a Contractor enters into a Contract that otherwise would be exempt from CAS and mistakenly does not have CAS Clauses deleted (i.e. the parties agree to subject the Contract CAS), would the Contract be subject to one or more of the Business Systems clauses if they were included in the Contract terms and conditions?

Link to comment
Share on other sites

Guest Vern Edwards

The answer ought to be that the contract would not be subject to the clause if the clause is not applicable by regulation. However, in my opinion, there is alway some risk in signing a contract that contains a clause that should not be there. It would be better to have the clause removed before signing. That's about all anyone can say.

Link to comment
Share on other sites

If what here_2_help says is true, I would say yes based on a plain reading of DFARS 252.242-7005(a), which states:

This clause only applies to covered contracts that are subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix).

The definition of "covered contract" is at DFARS 242.7000(a):

“Covered contract” means a contract that is subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix) (10 U.S.C. 2302 note, as amended by section 816 of Public Law 112-81).

I interpret this to mean that if it is subject to CAS, then the clause applies. Whether or not it should have been subject to CAS is irrelevant.

Link to comment
Share on other sites

Retreadfed,

I read the "under 41 U.S.C., Chapter 15..." as modifying "Cost Accounting Standards." You seem to be reading the "under" to mean "by operation of." I don't think your interpretation is unreasonable. Interesting. Have you successfully used your interpretation to fend off a DCMA business systems review?

Link to comment
Share on other sites

Guest Vern Edwards

So, Don, you are reading DFARS 252.242-7005(a) to mean "is subject to the Cost Accounting Standards [described in] 41 U.S.C. Ch. 15," and Retread is reading it to mean "is subject to the Cost Accounting Standards [in accordance with] 41 U.S.C. Ch. 15." Right?

My Oxford Dictionary of English defines "under" (preposition) in the context in which it is used in DFARS 252.242-7005(a) as meaning "controlled, managed or governed by...." The American Heritage Dictionary of the English Language defines it as meaning "subject to the authority, rule, or control of... subject to the supervision, instruction, or influence of... subject to the restraint or obligation of... with the authorization of... "

If we substitute those definitions for under, whose interpretation is best, yours or Retread's?

Link to comment
Share on other sites

I like Retread's interpretation. If you interpret the passage the way I did, it implies that there are Cost Accounting Standards other than those at 41 USC Ch. 15. So the "under 41 USC Ch. 15" is necessary to specify which Cost Accounting Standards are being discussed. Since I don't know of any other Cost Accounting Standards, this interpretation doesn't seem right. If we go with Retread's interpretation, the implication is that there are other ways a contract could be subject to CAS and the clause is only concerned with contracts subject to CAS by operation of 41 USC Ch. 15--not when the parties agree to make a contract subject to CAS when it's not required.

However, I looked at the final rule for the Business Systems case (77 FR 11355) and came across the following:

3. Definition of Covered Contract

Comment: A respondent suggested that the definition of ``covered contract'' be modified to match the definition in section 893 of the NDAA for FY 2011.

Response: Section 816 of the NDAA for 2012 redefined ``covered contract'' as ``a contract that is subject to the cost accounting standards promulgated pursuant to section 1502 of title 41, United States Code, that could be affected if the data produced by a contractor business system has a significant deficiency.'' The section 816 definition matches the definition used in this rule, therefore, no revisions are necessary.

Does the section 816 definition of "covered contract" match the definition at DFARS 242.7000(a)? That may have been the intent of the DAR Council, but I'm not so sure the definitions match. Here's the definition of "covered contract" from Section 816 of the NDAA for 2012:

(3) The term `covered contract' means a contract that is subject to the cost accounting standards promulgated pursuant to section 1502 of title 41, United States Code, that could be affected if the data produced by a contractor business system has a significant deficiency.'.

No use of "under."

Compare the definition at DFARS 242.7000(a):

“Covered contract” means a contract that is subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix) (10 U.S.C. 2302 note, as amended by section 816 of Public Law 112-81).

I think if a court or board looked at the statutory definition of "covered contract" to interpret the DFARS definition of "covered contract", they may interpret the DFARS definition the way I did.

Link to comment
Share on other sites

QUESTION: If a Contractor enters into a Contract that otherwise would be exempt from CAS and mistakenly does not have CAS Clauses deleted (i.e. the parties agree to subject the Contract CAS), would the Contract be subject to one or more of the Business Systems clauses if they were included in the Contract terms and conditions?

I think this original question got everybody off on the wrong foot. There are seven related Business System clauses but only one of the seven is the new Contractor Business Systems clause -- DFARS 252.242-7005. The other six clauses (one for each contractor BizSys) are incorporated into a DOD contract in accordance with the controlling DFARS language and the CAS status of that contract is irrelevant. For example, 252.215-7002 (Cost Estimating System) is incorporated when prescribed by 252.408(2). Period.

On the other hand, the 252,242-7005 clause is incorporated into a DOD contract when 242.7001 prescribes it. 242.7001 prescribes that the clause be incorporated when the contract is a "covered contract" as defined by 242.7000(a). 242.7000(a) defines a covered contract as Don has quoted above -- i.e., it is covered by CAS.

The key feature of the 252.242-7005 clause is not that it grants audit rights to the government. Those audit rights pre-dated issuance of the new 252.242-7005 clause. The key feature is the imposition of mandatory payment withholds for any individual BizSys that is found to be inadequate (pursant to the adequacy criteria found in that individual BizSys clause) by the cognizant ACO. It is clear that Congress intended--and the DAR Council agreed--that payment withholds can only be effected on "covered contracts" which have both the individual BizSys clause and the overarching 252.242-7005 clause -- and that 252.242-7005 clause should not be there unless the contract is CAS-covered. The contract is CAS-covered if the CAS clauses are found in the contract and there's nothing in the Section K that would cast doubt on their propriety, such as a contractor marking "exempt from CAS".

Consequently, I don't believe you can use the "correct" CAS coverage of an individual contract to "fend off" a DCMA or DCAA BizSys review, but you might be able to use it to fend of an attempt to impose a payment withhold on that particular contract.

Hope this helps.

Link to comment
Share on other sites

Sure,

I have asserted that the CAS clauses are not self-deleting. This is based on some promulgating comments by the FAR Councils in some CAS-related rule-making, though right now it escapes me where they made 'em.

If the (sub)contract is CAS-covered, then the clauses need to be there. But if the (sub)contract is not CAS-covered, then the clauses should not be there. In my view (based on the FAR Councils' comments) the parties cannot agree to ignore the clauses based on some agreement (outside the contract) that the clauses are not applicable.

Hope this helps to clarify....

Link to comment
Share on other sites

Guest Vern Edwards

Help:

I checked the Federal Register back to 1936, and the only reference to "self-deleting" that I could find in connection with CAS were statements that prime contractors shall not use self-deleting clauses in subcontracts. It seems to me that FAR 52.230-2, Cost Accounting Standards (May 2012) is expressly self-deleting pursuant to paragraph (a), which begins:

(a) Unless the contract is exempt under 48 CFR 9903.201-1 and 9903.201-2, the provisions of 48 CFR Part 9903 are incorporated herein by reference and the Contractor, in connection with this contract, shall... ."

Emphasis added. The clause then goes on to require compliance with CAS. That language indicates to me that CAS do not apply if the contract is exempt pursuant to 48 CFR 9903.201-1 and -2. Doesn't the language in paragraph (a) make the clause "self-deleting"?

Link to comment
Share on other sites

Vern,

Thanks for being so thorough! Could you provide the citation to the prohibition on prime contractors using self-deleting clauses in subcontracts? I bet that's what I was thinking of...

H2H

Link to comment
Share on other sites

Retreadfed--

Sure. Perhaps. Why not?

On the other hand, here's the FAR Part 30 prescription for when the clause is to be inserted into a contract:

30.201-4 Contract clauses.

(a) Cost accounting standards.

(1) The contracting officer shall insert the clause at FAR 52.230-2, Cost Accounting Standards, in negotiated contracts, unless the contract is exempted (see 48 CFR 9903.201-1 (FAR Appendix)), the contract is subject to modified coverage (see 48 CFR 9903.201-2 (FAR Appendix)), or the clause prescribed in paragraph © of this subsection is used.

So the prescription says the clause needn't be inserted if the contract is exempt from CAS, or subject to Modified CAS coverage. Consequently, I think the language in the clause itself is redundant.

Just my thinking ....

Link to comment
Share on other sites

Frequently, the clause at FAR 52.230-2 is included in solicitations, when the CO doesn't know who the contractor will be. Then, when the successful offeror's offer is accepted, the clause isn't explicitly removed, notwithstanding that the contractor may be exempt. Thus, the need for the self-deleting language.

Link to comment
Share on other sites

Guest Vern Edwards

Vern,

Thanks for being so thorough! Could you provide the citation to the prohibition on prime contractors using self-deleting clauses in subcontracts? I bet that's what I was thinking of...

H2H

The current citation is FAR 52.230-6, Administration of Cost Accounting Standards (JUNE 2010) paragraph (l)(1), which states:

(l) For all subcontracts subject to the clauses at FAR 52.230-2, 52.230-3, 52.230-4, or 52.230-5—

(1) So state in the body of the subcontract, in the letter of award, or in both (do not use self-deleting clauses)....

Link to comment
Share on other sites

Frequently, the clause at FAR 52.230-2 is included in solicitations, when the CO doesn't know who the contractor will be. Then, when the successful offeror's offer is accepted, the clause isn't explicitly removed, notwithstanding that the contractor may be exempt. Thus, the need for the self-deleting language.

I don't think that's the reason for the self-deleting language because FAR 52.230-2 is not prescribed for use in solicitations--it is prescribed for use in "negotiated contracts."

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...