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HUBZone vs. SB


ipod24

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I may be wrong. Yet again.

But I think Mr. Rutherford is displaying a "can do" attitude in which he believes it is the contracting professional's duty to get the Requiring Activity customer whatever they want, regardless of the requirements in law or in the FAR.

He is attempting to creatively interpret what is chiseled in stone.

I assume that the RA customer wants to keep doing business with the incumbent, and does not particularly care about competition, fairness, openness, price reasonableness or socio-economic programs.

I believe that Mr. Rutherford misunderstands the role of the professional. I believe that role is to get the customer what they want WITHIN THE BOUNDS of the regulatory framework.

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Until Congress, GAO, SBA, and all the people up in the nosebleed pay grades get their stuff together and decide among themselves what the actual rules should be, we mice will continue to debate without any hope of reaching a consensus.

I understood the current dispute between GAO, SBA/DOJ and Congress to be over priority between the various special set-aside programs (8a, HUBZone, SDVO) and not priority of those programs over a generic small business set-aside.

As it stands, I don't think a contracting officer has any choice but to give all of those special programs parity as directed by DOJ. Interesting question whether a bid protest of that CO decision would make sense, at least while the appeal of Mission Critical Solutions is pending. Given the GAO position, a protest there would be pointless. At the Court of Federal Claims, while the GAO opinions and the MCS Court of Federal Claims opinion would support a protest, other judges in the Court are not obligated to follow the MCS decision. While the Court doesn't follow the GAO timeliness rules, one can't wait forever to file a protest.

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As it stands, I don't think a contracting officer has any choice but to give all of those special programs parity as directed by DOJ.

Under what authority would a contracting officer be permitted to deviate from the FAR? FAR 19.800(e) states a priority for 8(a) over HUBZone set-asides and SDVOSB set-asides:

Before deciding to set aside an acquisition in accordance with Subpart 19.5, 19.13 [HUBZone], or 19.14 [sDVOSB], the contracting officer should review the acquisition for offering under the 8(a) Program.

Further, the FAR prioritizes HUBZone set-asides over SDVOSB set-asides (FAR 19.1305(a) uses "shall" while FAR 19.1405(a) uses "may").

There is a FAR case that would have implemented socioeconomic program parity in the FAR by removing "19.13, or 19.14" from FAR 19.800(e) and changing "shall" to "may" at FAR 19.1305(a). See 73 FR 12699. However, the case has been on hold and the FAR remains unchanged in this regard.

Does OMB or DOJ have the authority to direct agency contracting officers to deviate from the FAR? My understanding of FAR 1.4 is that this authority is vested in the agency head. I would think that for an agency contracting officer to comply with OMB's memo, they would need authority to deviate from the FAR from the agency head. Agency heads can grant this authority but, to my knowledge, none have. All I've seen is policy memos that say "follow the attached memo from OMB." For example, DoD issued this memo last month. Do such memos have the legal effect of a class deviation?

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Guest Vern Edwards

SBA has the authority to promulgate regulations that implement small business programs, not the FAR councils. SBA has interpreted the law to the effect that there is parity among the programs. The GAO decisions are not binding on the executive branch and the COFC decision is not precedential. FAR 1.602-1( B) says that COs must ensure that all laws are complied with in the award of contracts. If I were a CO I would say that I have determined that 13 CFR overrides 48 CFR with respect to small business programs and that I decided to comply with 13 CFR. My determination will cause no trouble for me if my agency head supports my course of action. An agency head can, in my opinion, decide to comply with Executive Branch policy about the interpretation of statute until the Federal Circuit rules on the matter.

The FAR is not the sole or absolute authority in acquisition. At least 18 other titles of the CFR govern aspects of acquisition, and some take precedence over the FAR, e.g., 29 CFR. The FAR has on at least three occasions been found to be inconsistent with statute by the Federal Circuit. In the case of FAR 33.208(a), the Federal Circuit had found it to be invalid in three decisions rendered over the course of about 15 years, yet the FAR councils have never taken corrective action. COs must comply with all the rules, not just FAR. And when FAR is in conflict with other rules, the CO must decision which to obey. Until the Federal Circuit rules otherwise, there is parity among the three small business programs, except in one case as decided by the COFC, which is being appealed. There is no guarantee that a different judge on the COFC would rule the same way, since the decisions of the judges are not binding on each other.

By the way, DOJ has not directed anyone to do anything. It has merely stated its position on the law. OMB has said that Executive agencies should adhere to the policy established by SBA, which was promulgated in accordance with the Administrative Procedures Act and after public notice and comment.

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If I were a CO I would say that I have determined that 13 CFR overrides 48 CFR with respect to small business programs and that I decided to comply with 13 CFR. My determination will cause no trouble for me if my agency head supports my course of action.

What would be your authority to deviate from the FAR? Does an individual CO have the authority to deviate from the FAR because they think it makes sense?

An agency head can, in my opinion, decide to comply with Executive Branch policy about the interpretation of statute until the Federal Circuit rules on the matter.

Agreed. However, they should grant their contracting officers the authority to deviate from the FAR.

The FAR is not the sole or absolute authority in acquisition. At least 18 other titles of the CFR govern aspects of acquisition, and some take precedence over the FAR, e.g., 29 CFR. The FAR has on at least three occasions been found to be inconsistent with statute by the Federal Circuit. In the case of FAR 33.208(a), the Federal Circuit had found it to be invalid in three decisions rendered over the course of about 15 years, yet the FAR councils have never taken corrective action. COs must comply with all the rules, not just FAR. And when FAR is in conflict with other rules, the CO must decision which to obey. Until the Federal Circuit rules otherwise, there is parity among the three small business programs, except in one case as decided by the COFC, which is being appealed. There is no guarantee that a different judge on the COFC would rule the same way, since the decisions of the judges are not binding on each other.

I'm not arguing that the FAR is right. However, the FAR places limits on the CO's authority to pursue a policy that is inconsistent with it. Yes, FAR 1.602-1(B) requires the CO to comply with all requirements of law, etc., but doing so may require the CO to deviate from the FAR. You imply that if the FAR is inconsistent with other rules, an individual CO can decide to deviate from the FAR without approval from the agency head. On what legal basis? I don't see this discretion given to the contracting officer at FAR 1.4.

By the way, DOJ has not directed anyone to do anything.

Actually, DPAP received direction from DOJ in issuing the May 18 memo. This is what they told me.

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I'm not arguing that the FAR is right. However, the FAR places limits on the CO's authority to pursue a policy that is inconsistent with it. Yes, FAR 1.602-1(B) requires the CO to comply with all requirements of law, etc., but doing so may require the CO to deviate from the FAR. You imply that if the FAR is inconsistent with other rules, an individual CO can decide to deviate from the FAR without approval from the agency head. On what legal basis? I don't see this discretion given to the contracting officer at FAR 1.4.

Does the OMB memo of July 2009 carry any weight?

Quote

Pending the completion of the legal review of the GAO?s decisions by the Executive Branch, the SBA?s ?parity? regulations should not be disregarded by contracting officers, and Federal agencies should not, as a result of the GAO?s decisions, be compelled to prioritize HUBZone small businesses over 8(a) BD or SDVOSBs. Instead, until the legal review is completed, Federal agencies should continue to give active consideration to each small business program pursuant to their pre-existing contracting practices and ?parity? policies.

Unquote

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What would be your authority to deviate from the FAR? Does an individual CO have the authority to deviate from the FAR because they think it makes sense?

Agreed. However, they should grant their contracting officers the authority to deviate from the FAR.

I'm not arguing that the FAR is right. However, the FAR places limits on the CO's authority to pursue a policy that is inconsistent with it. Yes, FAR 1.602-1(B) requires the CO to comply with all requirements of law, etc., but doing so may require the CO to deviate from the FAR. You imply that if the FAR is inconsistent with other rules, an individual CO can decide to deviate from the FAR without approval from the agency head. On what legal basis? I don't see this discretion given to the contracting officer at FAR 1.4.

Actually, DPAP received direction from DOJ in issuing the May 18 memo. This is what they told me.

Interesting note, on FAR 19.1305(a), maybe the CO has the room to "deviate" without really having to deviate. It says that a, "Contracting Officer shall consider..." (note, not "shall set-aside) If the CO documented that they considered the HUBZone, but determined it wasn't appropriate because of X. FAR 19.1305(B) sets the minimum criteria for doing a HUBZone set-aside, "To set aside an acquisition for competition restricted" really means, "before doing a set aside, be sure the following minimum criteria are met".

Seriously,

Thomas

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Does the OMB memo of July 2009 carry any weight?

I think the OMB memo provides adequate justification for an agency head to authorize a class deviation. However, I don't view the memo (or agency memos with OMB's memo attached) as a class deviation.

Suppose a contracting officer follows the memo and decides to set aside a procurement for SDVOSBs without considering offering the procurement to the SBA under the 8(a) Program (and there were 8(a) participants who could perform the work). This would be inconsistent with FAR 19.800(e). The contracting officer does not seek approval of the deviation. Now suppose one of the 8(a) firms protests the contracting officer's decision to pursue an SDVOSB set-aside because the contracting officer deviated from the FAR without authorization from the agency head. How would the contracting officer defend him/herself against such a protest? They violated a legal regulation because OMB told them to?

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Guest Vern Edwards
What would be your authority to deviate from the FAR? Does an individual CO have the authority to deviate from the FAR because they think it makes sense?

There is more than ample documentation in the public record to support a CO who decides to comply with OMB guidance to follow SBA policy consistent with DOJ opinion. Who in the heck do you think is going to come after him or her in light of the OMB and DOJ memos (and, in your case, the DPAP May 19 memo)? OMB is part of the Executive Office of the President.

FAR 1.602-1 ( B) says that COs must comply with all the rules. When the rules conflict, and when the cognizant policymaker, SBA, and OMB and DOJ say what they think the proper policy is, I think it's ridiculous to say that a CO must process a request for a deviation in order to follow the chosen policy. That kind of paper-pushing is the worst kind of bureaucracy. What if the FAR said to do something that the Supreme Court had determined to be against the law and OMB said agencies must proceed in accordance with the Court's decision? Would you require a CO to go against the Court and OMB in the absence of a deviation?

I'm not arguing that the FAR is right. However, the FAR places limits on the CO's authority to pursue a policy that is inconsistent with it. Yes, FAR 1.602-1( B) requires the CO to comply with all requirements of law, etc., but doing so may require the CO to deviate from the FAR. You imply that if the FAR is inconsistent with other rules, an individual CO can decide to deviate from the FAR without approval from the agency head. On what legal basis? I don't see this discretion given to the contracting officer at FAR 1.4.

On the legal basis that FAR charges him or her with the obligation to comply with all statute, executive order, regulation, policy, etc. I would not want a CO to go off on his or her own in interpreting statute or policy in contravention of the FAR, but you have SBA policy, OMB direction to follow it, and DOJ opinion in support, for goodness sake! I would check with my superiors, and would not proceed if they told me not to, but I'll be damned if I would hold up a contract action while a bleeping request for deviation works its way through a bunch of REMFs. I'm a rule follower, but this is too much. I respect the rules, but you're worshipping them. I want COs to follow the rules, but I don't want them to be stupid about it.

Here is my Memo for the Record:

Subject: Decision to set acquisition aside for SDVOSB concerns/FAR deviation

In planning this acquisition and making the decision to set it aside for Service Disabled Veteran Owned Small Businesses, I proceeded in accordance with Title 13 of the C.F.R. instead of FAR 19.1305. I decided not to seek authority to deviate from the FAR, because the current governmentwide policy has been clearly stated in the attached official memoranda by OMB, DOJ, and DPAP, which instruct agencies to proceed in accordance with SBA policy, and thus it is clear to me that FAR 19.1305(a) is no longer operatively effectively. See also the proposed rule of March 10, 2008, 73 FR 12699, FAR Case No. 2006-034. Under the circumstances, to seek a approval to deviate from the FAR before proceeding would be pro forma, rather than a genuine legal necessity, and thus a misuse of resources.

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When the Test Program for use of Simplified Acquisition Procedures for Certain Commercial Items expired in January 2008, the Chairman of the Civilian Agency Acquisition Council sent out a memo to all civilian agencies that served as "consultation" for a class deviation to extend the use of the Test Program until the FAR was rewritten to reflect an extended date that had not yet been promulgated. The memo said in part:

"Pending issuance of a final rule effecting the change, it is recommended that civilian agencies authorize a class deviation in accordance with FAR 1.404 to extend the program."

In fact, the CAAC has sent out several such mass memos in the past to civilian agencies to recommend class deviations to many different parts of the FAR, including two this year. Here is a current listing: https://www.acquisition.gov/comp/caac/caacletters.htm

If the CAAC sent out a similar such "consultation" memo to agencies recommending a class deviation to allow parity among HUBZone, 8A, and SDVOSB firms, each civilian agency could authorize their own class deviation and put this issue to rest until the new law is passed and new rule promulgated into the FAR.

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Guest Vern Edwards

Silly paperwork. As soon as the statute was signed into law the test program was extended. Statute trumps regulation. Why process a deviation? Just proceed and let the FAR councils catch up with reality.

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Silly paperwork. As soon as the statute was signed into law the test program was extended. Statute trumps regulation. Why process a deviation? Just proceed and let the FAR councils catch up with reality.

Silly? I don't think so. I think CO's in general would feel much more secure proceeding if they had that piece of paper. I don't think it's too much to ask an HCA to sign one class deviation to let everyone in your contracting office know that you understand the issues and to instruct CO's on how you want them to proceed. There has been no guidance or communication of any kind from the leadership in my office on this subject.

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When the Test Program for use of Simplified Acquisition Procedures for Certain Commercial Items expired in January 2008, the Chairman of the Civilian Agency Acquisition Council sent out a memo to all civilian agencies that served as "consultation" for a class deviation to extend the use of the Test Program until the FAR was rewritten to reflect an extended date that had not yet been promulgated. The memo said in part:

"Pending issuance of a final rule effecting the change, it is recommended that civilian agencies authorize a class deviation in accordance with FAR 1.404 to extend the program."

In fact, the CAAC has sent out several such mass memos in the past to civilian agencies to recommend class deviations to many different parts of the FAR, including two this year. Here is a current listing: https://www.acquisition.gov/comp/caac/caacletters.htm

If the CAAC sent out a similar such "consultation" memo to agencies recommending a class deviation to allow parity among HUBZone, 8A, and SDVOSB firms, each civilian agency could authorize their own class deviation and put this issue to rest until the new law is passed and new rule promulgated into the FAR.

Did your HCA issue a deviation?

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No, like I said, there has been no guidance or communication of any kind from the leadership in my office on this subject. Perhaps I will suggest it.

When the Test Program for use of Simplified Acquisition Procedures for Certain Commercial Items expired in January 2008?

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There is more than ample documentation in the public record to support a CO who decides to comply with OMB guidance to follow SBA policy consistent with DOJ opinion. Who in the heck do you think is going to come after him or her in light of the OMB and DOJ memos (and, in your case, the DPAP May 19 memo)?

I doubt anyone is going to "come after him", but that's not the appropriate standard for deciding whether or not a rule should be followed.

FAR 1.602-1 ( B) says that COs must comply with all the rules. When the rules conflict, and when the cognizant policymaker, SBA, and OMB and DOJ say what they think the proper policy is, I think it's ridiculous to say that a CO must process a request for a deviation in order to follow the chosen policy. That kind of paper-pushing is the worst kind of bureaucracy. What if the FAR said to do something that the Supreme Court had determined to be against the law and OMB said agencies must proceed in accordance with the Court's decision? Would you require a CO to go against the Court and OMB in the absence of a deviation?

I, too, think that it's ridiculous to make a CO request a deviation. When agency heads issued their memos advising their contracting officers to follow a policy that is inconsistent with the FAR, they should have given them the legal authority to do so. It could have been the same memo.

On the legal basis that FAR charges him or her with the obligation to comply with all statute, executive order, regulation, policy, etc.

Your logic fails because the CO cannot comply with FAR 1.602-2(B) AND deviate from the FAR without authorization.

I would not want a CO to go off on his or her own in interpreting statute or policy in contravention of the FAR, but you have SBA policy, OMB direction to follow it, and DOJ opinion in support, for goodness sake! I would check with my superiors, and would not proceed if they told me not to, but I'll be damned if I would hold up a contract action while a bleeping request for deviation works its way through a bunch of REMFs. I'm a rule follower, but this is too much. I respect the rules, but you're worshipping them. I want COs to follow the rules, but I don't want them to be stupid about it.

If I understand your position correctly, you think that a CO can deviate from the FAR without authorization if they believe that the FAR is inconsistent with a more authoritative regulation, a statute, or a court decision. You believe this based on FAR 1.602-2(B). In the absence of FAR Subpart 1.4 I would agree with you. However, FAR Subpart 1.4 sets forth a procedure for authorizing deviations that requires approval from the agency head. The FAR does not grant the CO the discretion to deviate without authorization, even if the CO has a good reason.

From a practical standpoint, I think that if the FAR were inconsistent with a more authoritative regulation, a statute, or a court decision, then it would be the responsibility of the agency head to issue a class deviation that would be effective until the FAR was changed--the CO shouldn't have to ask permission.

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I think I understand both sides... The GAO has had its opinion for a long time, and then OMB and DOJ have their differing opinion, and in March "the U.S. Court of Federal Claims ruled that the HUBZone statute creates a mandatory preference that takes precedence over other small business programs, codifying an earlier decision by the Government Accountability Office (GAO)" (from Acquisition Solutions)... What is a contracting officer to do?

A contracting officer shouldn't feel a need to research and justify and beg for a FAR deviation for something that is clearly executive branch policy, and yet a contracting officer should act under some authority. Vern asserts the current executive branch policy is sufficient. I agree. I work for the President (albeit indirectly) -- so does every other federal executive branch contracting officer. If the GAO sustains a protest against me when I do a SDVOSB set-aside instead of a HUBZone set-aside, that's fine. Then it will become an agency decision whether to follow the GAO guidance in the protest decision. But for the time being, I don't think GAO is sustaining these protests, in light of the confusion.

And yet I'm also sympathetic to the notion that agency heads and HCAs should issue guidance to the contracting officers in their organizations.

In my agency (Forest Service), there has been no direction from the top. I'm free to do whatever I want with my acquisitions, and I'm expected to act prudently and to be able to defend my actions if questioned. I can responsibly handle that professional discretion.

Any contracting officer who is not able to responsibly exercise that discretion should simply ask his or her supervisor in contracting channels for instructions, and then follow those instructions -- whatever they are. If the supervisor says parity, then parity is the answer. If the supervisor says HUBZone always, then that is the answer. [For me, I'm not going to ask my supervisor because I feel I can responsibly handle the matter myself.]

But certainly we don't want to clog up the pipes with thousands of individual deviation requests, all separately researched and differently justified. And surely we don't want every agency head or HCA to issue separately written class deviations (perhaps with differing conclusions).

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Guest Vern Edwards

Don:

FAR 33.208 says that interest on amounts found due on a claim must be paid from either (1) the date the CO receives the claim or (2) the date payment otherwise becomes due, whichever is later, until the amount is paid. The Federal Circuit has, in three decisions between 1996 and 2006, interpreted the Contract Disputes Act to the effect that interest is due from the date that the CO receives the claim, period. The FAR councils have no authority to override the CDA, thus, FAR 33.208(a)(2) is legally invalid. The consequence is that a contractor can earn interest on amounts that it has not spent. The Federal Circuit has said that if Congress does not like that it can change the CDA. Senator Strom Thurman tried three times to get Congress to change the CDA, but was unable to do so. FAR, however, has never been changed to bring it into line with the CDA and interpreted by the Federal Circuit. The rulings of the Federal Circuit have precedential authority.

1. As a CO, would you seek a deviation from FAR before agreeing to pay the interest to which a contractor is entitled under the CDA, recognizing that any delay in payment would result in the payment of even more interest?

2. Would the CO be justified in paying the interest, FAR 33.208(a)(2) notwithstanding, on the basis of the Federal Circuit's decisions and concern for the public purse?

3. Does FAR always dictate a CO's course of action, even when it's wrong?

4. If the current FAR is right about HUBZone priority, and SBA, OMB, and DOJ are wrong, would a deviation make it okay to follow their interpretation?

5. If the agency head issued a class deviation, and the deviation said that you were to follow SBA-OMB-DOJ, and then the Federal Circuit ruled against SBA-OMB-DOJ, would you have to go back and seek a deviation from the deviation, could you just decide not to comply with it?

6. Do all provisions of FAR have the force and effect of law?

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1. As a CO, would you seek a deviation from FAR before agreeing to pay the interest to which a contractor is entitled under the CDA, recognizing that any delay in payment would result in the payment of even more interest?

Assuming that the contractor was requesting interest from the date they submitted the claim and that the date "payment would otherwise be due" was a later date, I would seek a deviation from FAR before agreeing to pay interest from the date that the contractor submitted the claim. From a practical standpoint, I would first agree to pay interest from the date "payment would otherwise be due." I would then advise the contractor that I knew that they were entitled to interest from the date they submitted the claim, but that I did not have the authority to deviate from FAR. I would, however, request such authority and keep him informed.

I would then request the deviation from the agency head and inform all who handled the request that interest on the claim was accruing while they took their time considering my request. Hopefully, while the request was working its way up the chain it would pass through someone who was on the ball and realized that 1) the FAR needed to be changed and 2) that the agency head should immediately issue a class deviation effective until the FAR was changed.

2. Would the CO be justified in paying the interest, FAR 33.208(a)(2) notwithstanding, on the basis of the Federal Circuit's decisions and concern for the public purse?

I'm not sure what you mean by "justified." I don't think anything bad would (or should) happen to the CO. However, they would still be deviating from the FAR without authority. It would be a technical violation.

3. Does FAR always dictate a CO's course of action, even when it's wrong?

FAR 1.602-1(B) dictates a CO's course of action. However, a CO may have to deviate from parts of the FAR to comply with FAR 1.602-1(B).

4. If the current FAR is right about HUBZone priority, and SBA, OMB, and DOJ are wrong, would a deviation make it okay to follow their interpretation?

The FAR doesn't prioritize HUBZone over 8(a)--it's actually the other way around. FAR 19.800(e) states: "Before deciding to set aside an acquisition in accordance with Subpart 19.5 [small Business set-asides], 19.13 [HUBZone], or 19.14 [sDVOSB], the contracting officer should review the acquisition for offering under the 8(a) Program." If your question is about the HUBZone priority over SDVOSB that exists in the FAR (and which is how the GAO reads the HUBZone statute), then I think it would be okay for the agency head to issue a deviation creating parity between the programs.

5. If the agency head issued a class deviation, and the deviation said that you were to follow SBA-OMB-DOJ, and then the Federal Circuit ruled against SBA-OMB-DOJ, would you have to go back and seek a deviation from the deviation, could you just decide not to comply with it?

Ok. So the agency head issues a class deviation eliminating the 8(a)/HUBZone/SDVOSB order of priority in the FAR and, subsequently, the CAFC decides that the HUBZone Program takes priority over 8(a) and SDVOSB. I don't see why a CO would need a deviation if they were to, henceforth, consider HUBZone set-asides before 8(a) or SDVOSB. It's hard not to comply with a deviation telling the CO to follow SBA-OMB-DOJ, because such a deviation gives COs discretion to choose among programs.

6. Do all provisions of FAR have the force and effect of law?

I don't know.

I think that you are looking at this situation from the practical standpoint of the contracting officer. I am looking at it from the standpoint of an agency's technical compliance with the FAR. When an agency head advises its COs to adopt a policy that is inconsistent with the FAR, he/she should also formally authorize the deviation in accordance with FAR Subpart 1.4. Failure to do so puts the CO in a bad spot. They are being told to do something but are not being granted the clear legal authority to do it. I would not fault a CO for proceeding without technically having the authority to deviate and documenting the file with the type of memo that you wrote, nor should the agency head have a problem with it, considering that they were remiss in not providing the authority in the first place.

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