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Boof

Does FAR Part 19 apply overseas?

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All,

FAR Part 19.000 (b)states: "This part, except for subpart 19.6 applies only in the United States and its outlying areas. FAR 19.6 applies worldwide." The requirement was posted for any company worldwide to bid on it but our small business office says it must be set aside after getting a complaint from a small business in the U.S. It is over the SAT and under $1M.

So if the contracting office is overseas and they need to buy a U.S. made product (available at dealers in Europe too) do they have to set the requirement aside? We have never interpreted that we must set aside actions just because the product is available in the U.S. If set aside it drives up shipping cost/time because it eliminates the foreign dealer down the street that we expect to bid on it.

I have no issue with letting US small business compete if they can, but I don't want to eliminate local foreign vendors from the competition.

What are your opinions?

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Thanks Don, This will help greatly. I never thought about a GAO angle.

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I don't understand what "applies only in the United States and its outlying areas" means. Applies to what? Does it apply to contracting offices, or does it apply to the work that will be performed, or both?

What if the contracting office is in the U.S., but the services will be rendered or the supplies used in Africa? Does Part 19 apply?

What if the contracting office is in Europe, but the services will be rendered or the supplies used in Ohio? Does Part 19 apply?

In the GAO case cited by Don, the contracting office was in Oman. The acquisition was for brand name or equal armored cable. Let's assume that the cable was manufactured in the U.S. and elsewhere. Lets assume it could be sold by U.S. and foreign firms.

Does the GAO decision resolve the issue I have raised? Or does it merely states supports the FAR councils' implementation of the Small Business Act without determining what it means?

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Boof, this should answer your question. Please see Note 4 in the Latvian Connection Decision that Don referenced in post #2. Here is an excerpt from page 2 of the SBA Office of the Inspector General Advisory Memorandum Report No. 12-04, December 6, 2011, entitled Small Business Administration Rationale for Excluding Certain Types of Contracts from the Annual Small Business Contracting Calculations Needs to be Documented, at this URL:

https://www.sba.gov/sites/default/files/Audit%2012-04%20Small%20Business%20Administration%27s%20Rationale%20for%20Excluding%20Certain%20Types%20of%20Contracts%20redacted.pdf

The SBA includes the total dollars obligated on all prime contracts awarded each fiscal year using appropriated funds and that are subject to the Federal Acquisition Regulations (FAR) to calculate the goaling baseline. As such, the SBA excludes contracts not covered by the FAR and those awarded with non-appropriated funds from the goaling baseline. They also exclude certain other contract categories from the goaling baseline, including those:

• awarded to mandatory and directed sources;

• awarded and performed abroad

• performed entirely abroad

• made by credit card that are less than $2,500, or

• acquisitions made by agencies on behalf of foreign governments or international organizations.

The SBA provides goaling guidance including information on exclusions from the goaling baseline in its Goaling Guidelines. The Goaling Guidelines are the only source of instruction available to participating agencies on exclusions to the small business goaling baseline

I found a July 2003 version of Goaling Guidelines for Small Business Preference Programs for Prime and Subcontract Federal Procurement Goals and Achievements. The document describes examples of contracts awarded and performed abroad and contracts performed entirely abroad and the reasons for exclusion* on page 8 of the report at:

https://www.sba.gov/sites/default/files/goals_goaling_guidelines.pdf

*"U.S. small businesses have little or no opportunity to complete for these contracts" and "U.S. Small businesses have little opportunity to perform contracts outside the U.S.", respectively. These stated reasons may be outdated today for some types of contracts.

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Joel:

That SBA report does not answer the question, other than by dubious inference. Moreover, SBA has no authority to interpret FAR 19.000( b ) in this matter.

But see Maersk Line, Limited, GAO Dec. B-410280, 2014 CPD ¶ 359. In that decision, the GAO explained that the Air Force's decision in Latvian (the decision to which Don provided a link) was correct because the contract was to be awarded and performed outside the United States:

In Latvian, the procurement was conducted outside the United States and the work was to be performed outside the United States. We concluded, under those circumstances (and prior to the issuance of the SBA's regulations on the topic), that the agency acted reasonably in relying upon FAR §19.000( b ) to determine that it was not required to set aside the RFQ for small business concerns.

In Maersk, the contracting office was inside the United States and the work was to be performed inside the United States.

There is no disagreement between SBA and the FAR councils about the application of Part 19 when both the contracting office and performance will be in the U.S. or when it will be outside the U.S. But Boof described his dilemma as follows:

So if the contracting office is overseas and they need to buy a U.S. made product (available at dealers in Europe too) do they have to set the requirement aside?

What is your answer to that question? How do you interpret FAR 19.000( b ) in his case, or in a case in which the contracting office is inside the United States and the work will be performed outside the United States?

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P.S. Under FAR Part 19 (not FAR Part 25), If a contract is for supplies, where does performance take place?

(1) Pllace of manufacture? If so, how do you determine where that is?

(2) Place of acceptance?

(3) Place of delivery?

(4) Place of use?

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Joel:

That SBA report does not answer the question, other than by dubious inference. Moreover, SBA has no authority to interpret FAR 19.000( b ) in this matter.

But see Maersk Line, Limited, GAO Dec. B-410280, 2014 CPD ¶ 359. In that decision, the GAO explained that the Air Force's decision in Latvian (the decision to which Don provided a link) was correct because the contract was to be awarded and performed outside the United States:

In Maersk, the contracting office was inside the United States and the work was to be performed inside the United States.

There is no disagreement between SBA and the FAR councils about the application of Part 19 when both the contracting office and performance will be in the U.S. or when it will be outside the U.S. But Boof described his dilemma as follows:

"So if the contracting office is overseas and they need to buy a U.S. made product (available at dealers in Europe too) do they have to set the requirement aside?"

What is your answer to that question? How do you interpret FAR 19.000( b ) in his case, or in a case in which the contracting office is inside the United States and the work will be performed outside the United States?

I interperet FAR 19.000 ( b ) in Boof's case to mean that Part 19, except 19.6 doesn't apply to a contracting office outside the US and the work will be performed outside the U.S. because there are local dealers that can satisfy his needs with less shipping cost/time than U.S. dealers (per Boofs market research, I presume). Then, I infer that the supplies are already in stock in the area and that he isnt contracting for something to be specifically manufactured in the U.S. for this order. I have the same opinion where the office is inside the U.S. and the work WILL be performed outside the U.S. or the items will be locally available outside the U.S.

Note 4 of the Latvian Connection Protest referred to the OIG Draft Report, 12-04, which is redacted at https://www.sba.gov/sites/default/files/Audit%2012-04%20Small%20Business%20Administration%27s%20Rationale%20for%20Excluding%20Certain%20Types%20of%20Contracts%20redacted.pdf.

The 2 Nov 2011 Agency comments to the OIG Report in Appendix I (pages 6-8) pretty well summarize how they think most agencies interpret 19.000 ( b ) as meaning that Part 19 (except 19.6) doesnt apply to "contracts awarded and/or Awarded overseas". SBA's "Goaling Guidelines" don't include contracts performed abroad. as well as contracts awarded and performed abroad, even though they disagree. It ought to be obvious, but I infer that it would certainly skew the performance results to include such contracts where most the rest of the Government doesn't apply the preference or set-aside/sole source programs. I read somewhere that even the Obama Administration decided (at least as of the date of that publication) not to include those contracts in the Goaling Guidelines in order to be able to track performance and compare with earlier administrations.

As both the GAO in note 4 and the the SBA in its Agency Comments indicated, SBA has tried to get the Federal Acquisition Regulatory Council to revise FAR 19.000 ( b ) to provide for coverage of at least portions of Part 19 to contracts awarded and/or performed overseas/abroad/outside the U.S.(?) However, they faced a strong rejection and that the exceptions are long established, even pre-dating the FAR.

I don't have to defend that interpretation. My Agency has awarded contracts outside the U.S.to be performed outside the U.S.and has awarded contracts to be performed outside the U.S. As far as I remember, it did not apply the Small Business set-aside or sole source provisions in FAR Part 19 to contracts awarded and/or performed outside the U.S.. I don't know their current position.

Having said that, I suppose that Boof's agency could decide to restrict the purchase of supplies to U.S. firms, then ship them overseas. I am assuming in that case that they aren't hiring a firm to install the items overseas. They are just purchasing U.S. made supplies.

As for my bottom line opinion? Boof should check with his Agency and/or his legal counsel to find out what their AGENCY's policy is instead of relying on a contracting forum..

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Arguments about what? That thread is three pages long. Would you be willing to cite particular posts?

The issue can be framed in this way:

"This part, except for subpart 19.6 applies only [to what?] in the United States and its outlying areas. FAR 19.6 applies worldwide."

Paraphrasing, we can get this: The rules in FAR Part 19 apply [to what?] in the U.S. and its outlying areas.

The obvious answer: acquisitions. What kind of acquisitions?

Acquisition that will be conducted in the U.S.?

Acquisitions that will be conducted by offices in the U.S.?

Acquisitions that will be performed entirely in the U.S.?

Acquisitions that will be performed in the U.S. and outside the U.S.?

Acquisitions that will be conducted in the U.S., but performed outside the U.S.?

Acquisitons that will be conducted outside the U.S., but performed in the U.S.?

We already know that Part 19 applies to acquisitions that will be conducted and performed in the U.S., and that it does not apply to acquisitions that will be conducted and performed outside the U.S.

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As contracting professionals, we can answer these questions ourselves in our own offices -- it's best that way, don't you think? We take a regulation that may be imperfectly written, and we use it to accomplish our agency missions. It is not necessary that we all agree on all of Vern's hypotheticals. As a contracting officer, I can make a decision and support it. Someone else later might see things differently, and that's fine with me.

I think we all agree (except for Boof's small business office) that contracts awarded and performed outside the U.S. are not covered by FAR Part 19 (except for Subpart 19.6).

For me, I would hold that FAR Part 19 does not apply in Boof's case. I would make that decision because the contracting office is outside the United States and the supply item is for delivery to a location outside the United States, even though the contract is for a product manufactured in the United States.

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Thanks for jolting me, ji. I don't know why I was under the impression that the contracting office is in the US. It was perhaps how Vern phrased the situatiion I will edit my response to Vern's question above to reflect Boof's contracting office as being outside the US and performance outside the US.

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Under FAR Part 19 (not FAR Part 25), If a contract is for supplies, where does performance take place?

(1) Pllace of manufacture? If so, how do you determine where that is?

(2) Place of acceptance?

(3) Place of delivery?

(4) Place of use?

The "convincing arguments" I was referring to are found on posts 11-16 of the follwing discussion. They shed light as to the place of performance of supplies for FAR 19 purposes.

http://www.wifcon.com/discussion/index.php?/topic/871-far-part-19-applicability-in-foreign-countries/

Assuming you agree with Don and Napolik's analysis, one could argue that the place of performance for a supply is not the place where the item is manufactured.

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Saying that the place of performance of a supply contract is the place of delivery makes things easier. But it seems to me that it takes a lot of procurements out from under the Rule of Two for no other reason than the destination to which stuff must be shipped. Why should that be the case if there are two small businesses that can provide and ship the goods?

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What if the contracting office is in the U.S., but the services will be rendered or the supplies used in Africa? Does Part 19 apply?

What if the contracting office is in Europe, but the services will be rendered or the supplies used in Ohio? Does Part 19 apply?

Good questions that are not clearly answered by FAR 19.000( b ). However, napolik's point in the old thread, that the provision at FAR 52.219-1, Small Business Program Representations, is only prescribed "when the contract will be performed inside the United States and its outlying areas" is compelling. You need the representation if you're going to do a set-aside. So, that answers the question for me when it comes to services.

As for supplies, I say that, for purposes of FAR part 19, the place of performance is the place of delivery. I say this because the prescriptions for FAR 52.219-1, -2, -8, -28 and the exception to the subcontracting plan requirement at FAR 19.702( b ) all assume that the contracting officer has knowledge of the place of performance before soliciting offers. The CO will have knowledge of the place of delivery before soliciting offers, but will not necessarily know the place of manufacture, place of acceptance, or place of use.

I think that's the best we can do with what the FAR has given us.

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Saying that the place of performance of a supply contract is the place of delivery makes things easier. But it seems to me that it takes a lot of procurements out from under the Rule of Two for no other reason than the destination to which stuff must be shipped. Why should that be the case if there are two small businesses that can provide and ship the goods?

Good question. That's probably why the SBA wants the FAR geographical restriction removed.

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Saying that the place of performance of a supply contract is the place of delivery makes things easier. But it seems to me that it takes a lot of procurements out from under the Rule of Two for no other reason than the destination to which stuff must be shipped. Why should that be the case if there are two small businesses that can provide and ship the goods?

Because the overseas organization isn't buying something that hasn't already been manufactured plus it is already available in country.

If overseas acquisitions were subject to the rule of two for American suppliers where the American made supplies are available through local distributors, that would have a huge impact on both the overseas buying group and the local economies and host nation citizens who put up with the American presence in their country.

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Don and Joel:

Suppose that a contracting office in the U.S. wants to award a contract for an item that must be manufactured to a government specification. The contracting office is in the U.S. The item is not commercial and does not exist on the shelf. The specification includes specific manufacturing and testing requirements. The nature of the manufacturing processes involved effectively requires that the thing be produced and tested in the United States, but the delivery destination is outside the United States and its outlying areas, and the item will be used exclusively outside the U.S. and its outlying areas. There are at least eight responsible small businesses that are capable of doing the work, and there are several large businesses, domestic and foreign.

I think we agree that FAR 19.000( b ) is ambiguous and must be interpreted. According to your interpretation of it, FAR Part 19 would not apply to that acquisition. Am I correct?

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Don:

Well, I disagree. I think that the best comment that has been made about this was made by ji20874 in Post # 12.

As contracting professionals, we can answer these questions ourselves in our own offices -- it's best that way, don't you think? We take a regulation that may be imperfectly written, and we use it to accomplish our agency missions. It is not necessary that we all agree on all of Vern's hypotheticals. As a contracting officer, I can make a decision and support it. Someone else later might see things differently, and that's fine with me.

I think that is very wise. Very wise. My compliments to ji20874.

When it comes to FAR 19.000( b ), service contracts are not a problem. The problem is with supply contracts. I think it is a mistake to try to come up with a single solution for all supply contracts and say that performance is always at the place of delivery. That makes sense to me in some cases, but not all. FAR 19.000( b ) is clearly ambiguous -- subject to more than one reasonable interpretation. In light of the lack of clear guidance, I think that the appropriate interpretation in any case is the one that best meets the policy objectives in light of the circumstances, including the terms of the prospective contract. In the case that I presented to you in Post # 19, I think the best answer would be that FAR Part 19 applies in that case, and I would proceed accordingly and set the procurement aside for small businesses, whether my office was in the U.S. or outside of it. I would defend my decision if challenged by higher authority or if a large business were to protest it. If higher authority or the protest tribunal ruled against me, so be it.

Good discussion.

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This is in response to Vern's question.

Wow. I think that it could be applicable because the supply purchase is being done here, it is to be manufactured and tested here to order then shipped overseas. Performance is here. But if it wAs being purchased by a construction contractor to be installed in a construction project overseas then id say no.

It seems complicated.

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I think it seems complicated because we have been trained (or led) to think that there is always a single interpretation that applies in all cases. But once we recognize the good sense in ji20874's remarks, we realize that a good CO recognizes that when a regulation is ambiguous different situations might call for different interpretations in order to implement the policy objective. That, to me, is thinking critically, which is what everyone is asking us to do.

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I think it seems complicated because we have been trained (or led) to think that there is always a single interpretation that applies in all cases. But once we recognize the good sense in ji20874's remarks, we realize that a good CO recognizes that when a regulation is ambiguous different situations might call for different interpretations in order to implement the policy objective. That, to me, is thinking critically, which is what everyone is asking us to do.

Ok, then should there be a standard criteria for determining the place of performance in a supply contract?

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Well, I suppose in theory that there ought to be criteria. But do you really think the FAR councils would give them to us if we asked for them? Do you think them capable of producing unambiguous criteria?

I would be content to make my own decisions and let other COs make theirs. But these days I'm in the nostalgic mode of thinking of myself as a contracting grunt (Airborne), trained to strike out on my own toward the objective. Head toward the sounds of the shooting, and all that. A policy-maker would stay in place until somebody arrived with a map and a compass and started giving orders.

A policy-maker will want a policy.

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