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Boof

Does FAR Part 19 apply overseas?

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Thinking some more about this. If the rule of two could be met for a supply acquisition, couldn't we conclude that the place of manufacture is inside the United States and its outlying areas? Disregard the nonmanufacturer rule for now.

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FPDS states in their user manual that the place of performance for a supply is where it is manufactured, or where is is shipped from stock. So if we buy an IT item from CDWG in the Washington area but the product ships from a warehouse in Nebraska, then we should be putting Nebraska as the place of performance. I know the FPDS user guide is not the holy grail but it is what we are being told to put on the FPDS report which is reported to the world.

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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?

Boof,

You wrote that the contracting office needs a "U.S. made product". Is the procurement for a brand name item?

If so, the procurement could not be set aside even if the contracting office were inside the United States and its outlying areas and the delivery point was inside the U.S. and its outlying areas. See FAR 19.502-2( b ):

Before setting aside an acquisition under this paragraph, refer to 19.203( c ). The contracting officer shall set aside any acquisition over $150,000 for small business participation when there is a reasonable expectation that:

(1) Offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns (but see paragraph ( c ) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides shall not be made unless such a reasonable expectation exists (see 19.502-3 as to partial set-asides). Although past acquisition history of an item or similar items is always important, it is not the only factor to be considered in determining whether a reasonable expectation exists. In making R&D small business set-asides, there must also be a reasonable expectation of obtaining from small businesses the best scientific and technological sources consistent with the demands of the proposed acquisition for the best mix of cost, performances, and schedules.

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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?

I'm going to change my answer. I think that if the contracting office is inside the U.S. and its outlying areas and the rule of two can be met, then the procurement should be set aside. It doesn't matter where the supplies are to be delivered.

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Please note that my agency has a policy that we should maximize small business in our overseas procurments but no particular guidelines as to how we achieve that. The Small Business office tries to enforce it on our Washington Acqusitons Office when buying for shipment overseas.

However, the complaint from a US small business had everyone rethinking since the product is manufactured and shipped from the US. So must the item be set aside when the product is also available in Dubai? Tough question based on the discussion here by my esteemed collegues.

By the way, I have been to a couple of meetings at the SBA and they are strongly in favor of counting all funds spent worldwide in calculating small business percentages. All agencies at the meetings stated they could if they wanted to do it but don't expect us to meet any goals as currently negotiated and don't expect the Government to meet the Congressionally mandated 23% any time in the future. SBA says the mandate never eliminated overseas actions and we have been doing it wrong all these years. DoD made the best case against changing but SBA seemed set on marching ahead with the change. Our current 43% will proabably based on our analysis drop to about 20%. We might make 23% but not be able to help others make up thier shortfalls. We shall see.

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Don,

I wanted to see what the consensus was on the concept of an overseas office buying a U.S. product in general. Good point on a brand name not being able to be set aside. .

The particular procurement that brought tis up is for a brand name and is for vehicles so the order should be placed through GSA Auto Choice if we are to use an American source anyway. We are pretty sure there are some souces in country and nearby region with the vehicles on thier dealer lots since they are used extensively by various Governments and Private corporations. So, lots of issues on this one.

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Having lived in the Middle East for over four years, I'll bet that the local dealers would be cheaper thAn a US dealer. I don't know know about the GSA program. But doesn't your agency have a country to country agreement with Dubai that discusses preferences, etc?

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Boof, in regard to your post 30, small business contracting goals are established by 15 U.S.C. 644. That statute says that "The Governmentwide goal for participation by small business concerns shall be established at not less than 23 percent of the total value of all prime contract awards for each fiscal year. " Similar, language regarding "all prime contract awards" is used in regard to other categories of small business goals. Based on this, I do not see any basis for arguing that awards made overseas should not be counted. If a change is to be made, congress will have to make it.

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Boof,

Does your vehicle need to be street-legal in the foreign country? Fuel availability, emissions, safety equipment, and so forth rules differ from country to country -- and warranty needs? These might suggest purchase locally instead of from the U.S.

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The particular procurement that brought tis up is for a brand name and is for vehicles so the order should be placed through GSA Auto Choice if we are to use an American source anyway. We are pretty sure there are some sources in country and nearby region with the vehicles on thier dealer lots since they are used extensively by various Governments and Private corporations. So, lots of issues on this one.

There aren't any issues. This is the kind of thing that drives people crazy over contracting. The rule is obscure. Just set the thing aside and get on with the job. I wouldn't waste five more minutes worrying about what to do.

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Please note that my agency has a policy that we should maximize small business in our overseas procurments but no particular guidelines as to how we achieve that. The Small Business office tries to enforce it on our Washington Acqusitons Office when buying for shipment overseas.

However, the complaint from a US small business had everyone rethinking since the product is manufactured and shipped from the US. So must the item be set aside when the product is also available in Dubai? Tough question based on the discussion here by my esteemed collegues.

This isn't a tough question. It's a dead horse.

Just set the thing aside and get on with the job. If I were in your shoes I wouldn't waste five more minutes on the issue. Who's going to say you're wrong? Criminy. This is why contracting people drive other agency people nuts.

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Vern,

I am looking at our big picture not just one particular action. Our 265 posts and our one regional procurment office overseas buy a lot in country. If the products have orginally come from the U.S. then do they have to set it aside and wait for some U.S. company to ship it halfway around the world. This is plain silly but that is what is at issue here.

Retreadfed,

That is the issue SBA is facing right now. There has been an overseas exemption and SBA says the law does not allow that exemption. So if they eliminate it we expect the Government Wide percentage which was recently attained for the first time in history will drop to about 18 or 19 percent. It takes billions to raise it one percent so I guess Government Wide we will be in violation of the law for some time to come. My agency thinks we can squeak out 23% but not be able to help DoD and others pull up the Government wide number. . .

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Ya know - there are a lot of valid reasons why the FAR Council, including DOD, refuses to apply Part 19 to foreign made acquisitions. Why fight it?

And have you or anyone in your office checked the country to country agreements in the Middle East or elsewhere? I know that Saudi Arabia essentially has funded all of the Corps of Engineers' activitity in that country over the decades and pays for their FMS cases. I don't know about the UAE or Oman and others but it wouldn't surprise me if they also pay for some or much of our presence (not counting normal business such as ship repairs, etc.) in their country. I'm sure that they would prefer that we do business with the locals, who do import a whole lot of stuff from us - automobiles included.

EDIT: Has anyone done market research to see how American made automobile manufacturers sell their vehicles overseas? Through local dealer franchises? You did say that the overseas office was making the purchase. What about warranty service if the vehicle is purchased from an out of country dealer and imported - will the local dealers cover the warranty?

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Interestingly, the Department of State seems to be the only agency to attempt to clarify FAR 19.000( b ). DOSAR 619.000( b ) states:

It is the Department’s policy to provide maximum opportunities for U.S. small businesses to participate in the acquisition process. DOS contracts that are awarded domestically for performance overseas shall be subject to the Small Business Act as a matter of policy. Contracts that are both awarded and performed overseas should comply on a voluntary basis.

The Federal Register notice for the proposed rule (69 FR 76660-01) contained the following explanation:

DOSAR 619.000 is added to formalize the Department's policy regarding the application of the Small Business Act to contracts awarded by domestic contracting activities (i.e., those located in the United States) where contract performance takes place overseas. Currently, FAR 19.000( b ) states that part 19, with the exception of subpart 19.6, applies “only in the United States or its outlying areas.” This language is ambiguous and subject to interpretation. While the application is clear with respect to contracts both awarded and performed in the United States (it applies) and to contracts both awarded and performed outside the United States (it does not apply), the gray area is its applicability to contracts awarded by contracting offices located in the United States but where contract performance takes place overseas. The Department has subsequently followed an informal policy of applying part 19 to such contracts. This DOSAR change, therefore, states this policy in explicit terms.

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The thing is: Do something! Don't agonize. The rule is unclear. I doubt that there could be a wrong answer, except in the case of services bought and performed overseas. As for waiting for a company to ship -- Why wait? Say when you want it. If they can't meet your schedule, then don't worry about them and open it to all comers.

As a contract specialist, I don't want to appear to be unable to make a decision. I don't mind being wrong about administrative stuff when the rules are not clear. The SADBUS says to set it aside? You have two responsible small businesses who can meet your schedule? Okay, set it aside and be done with it.

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I think I might throw a wrench into all of this, but in the end, simplify it for all. The Maersk Line decision ultimately concluded that since one small portion of the project was being performed in the US, that FAR Part 19 applied. Buried in the SBA’s rebuttal arguments, they point out that the newly revised regulation states that FAR Part 19 applies "regardless of the place of performance" 13 CFR 125.2(a); 78 Fed. Reg. 61,114 (Oct. 2, 2013)...and the GAO acknowledges it, even though it wasn't necessary to apply in this case.

Therefore, in the SBA’s eyes, FAR Part 19 has been modified so that it now applies irrespective of place(s) of performance. How long is it going to be before a few large businesses catch-on to this, team with key small businesses, and start lobbying for previous unrestriced contracts to be set-aside on recompete?

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It is becoming apparent that all overseas dollars are going to get counted in the SBA goals for FY16. For my agency that will cause a 19% drop in overall small business percentage and while we met 4 of the 5 subgoals (8a, SDVOB, etc) last year, we won't be meeting any next year barring a minor miracle. DoD thinks they will drop a couple of percentage points but 2% is Billions of dollars for them. We are having to start a massive information and training program for all our acquistion personnel overseas who have never been trained on Part 19 before. Of course there is no resources for that.

By the way, protests have alreay been filed by U.S. SB firms wanting us to procure all orders under $150K from the U.S. instead of from our normal local foreign firms because small business set aside is mandated under the SAT. So it would seem most of our requirements will have to be ordered from U.S. Small buisness and shipped around the world at higher cost. This will likely cause us to add to our shipping offices and customs clearance personnel. Service contract overhead will be terrible due to U.S. firms having to deploy overseas vs our hiring the guy down the street. The contract file can be fully justified if there is a good reason (cost, delivery time, etc) to buy locally but it will cause our contract specialists overseas a lot of extra work in added market research and documentation. A lot of extra work we never had to do before without getting any more resources to do it.

We are in for a rough couple of years due to this interpretation change by SBA. I guess we will reach a new equilibrium eventually.

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By the way, protests have alreay been filed by U.S. SB firms wanting us to procure all orders under $150K from the U.S. instead of from our normal local foreign firms because small business set aside is mandated under the SAT. So it would seem most of our requirements will have to be ordered from U.S. Small buisness and shipped around the world at higher cost.

Not true. Pursuant to FAR 19.502-2(a), an acquisition below the SAT need not be reserved for small business concerns if it is not "competitive in terms of market prices, quality, and delivery."

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Don,

You are correct but doing the market research and documenting the file with enough information to survive a protest will add a lot of additional time to every order. So it affects us greatly in time and effort. In addition, the pressure will be on to maximize use of SB to get our numbers back up so I fear that the numbers will take precedence over common sense.

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Don,

You are correct but doing the market research and documenting the file with enough information to survive a protest will add a lot of additional time to every order. So it affects us greatly in time and effort. In addition, the pressure will be on to maximize use of SB to get our numbers back up so I fear that the numbers will take precedence over common sense.

and I am entitled to my opinion,

which is that Small Businesses could easily fulfill 50% of all procurement needs, services, supplies and construction, government-wide. The overall Goal of 23% is insulting.

.

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